<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
[ ] Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
DAKOTA TELECOMMUNICATIONS GROUP, INC.
- - ---------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - ---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
<PAGE>
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
[DAKOTA TELECOMMUNICATIONS GROUP LOGO]
29705 453RD AVENUE
P.O. BOX 66
IRENE, SOUTH DAKOTA 57037-0066
March 26, 1998
To Our Stockholders:
The Annual Meeting of Stockholders of Dakota Telecommunications Group, Inc.
will be held on May 13, 1998 at the following location:
Irene Public School
130 E. State Street
Irene, South Dakota
May 13, 1998
5:30 p.m. Dinner - 7:00 p.m. Annual Meeting
The purposes of the meeting are set forth in the attached Notice of Annual
Meeting of Stockholders.
Please plan to join us prior to the meeting for an informal dinner to be
served at 5:30 p.m. Stockholders holding stock in single ownership form
are invited to bring a guest. To assist us in our planning, please
complete and return the enclosed reservation card by April 24, 1998.
The following Proxy Statement and enclosed form of proxy are being
furnished to shareholders on and after March 26, 1998. PLEASE BE SURE TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING. A proxy may be revoked at any time before it is
exercised and stockholders who are present at the meeting may withdraw
their proxy and vote in person if they wish to do so. Proxies must be
signed by all owners as their names appear on the proxy.
As we focus on the challenges and changes in the telecommunications
industry, we invite you to attend the meeting to hear a report on the
progress of your Company. It is our desire to build long-term value for
you as we continue to build a foundation for continued growth.
Please join us at the 1998 Annual Meeting of Stockholders. We look forward
to seeing you there.
Sincerely,
/s/ Thomas W. Hertz
Thomas W. Hertz
President and Chief Executive Officer
<PAGE>
[DAKOTA TELECOMMUNICATIONS GROUP LOGO]
29705 453RD AVENUE
P.O. BOX 66
IRENE, SOUTH DAKOTA 57037-0066
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- - ---------------------------------------------------------------------------
The annual meeting of stockholders of Dakota Telecommunications Group,
Inc. will be held in the Gymnasium at Irene Public School, 130 E. State
Street, Irene, South Dakota, on Wednesday, May 13, 1998, at 7:00 p.m. local
time, for the following purposes:
1. To elect directors.
2. To approve and adopt an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock.
3. To approve and authorize the proposed transfer of local telephone
operating assets to a wholly-owned subsidiary of the Company.
4. To transact any other business that may properly come before the
meeting.
Stockholders of record at the close of business on March 16, 1998, are
entitled to notice of and to vote at the meeting and any adjournment of the
meeting. A list of stockholders entitled to receive notice of and vote at
the meeting will be available for examination by the Company's stockholders
at the Company's corporate offices at 29705 453rd Avenue, Irene, South
Dakota during ordinary business hours for the ten-day period before the
meeting.
The Annual Report to Stockholders for the year ended December 31, 1997
is included at the end of this booklet. The following Proxy Statement and
enclosed proxy are being furnished to stockholders on and after March
26, 1998.
By Order of the Board of Directors
/s/ Timothy Dupic
Timothy Dupic
Secretary
March 26, 1998
It is important that your shares be represented at the meeting.
Even if you expect to attend the meeting, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY PROMPTLY.
<PAGE>
PROXY STATEMENT
DAKOTA TELECOMMUNICATIONS GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 13, 1998
This Proxy Statement and the accompanying proxy are being furnished
on and after March 26, 1998, to holders of common stock, without par value
("Common Stock"), of Dakota Telecommunications Group, Inc. ("DTG" or the
"Company") in connection with the solicitation of proxies by the
Company's Board of Directors to be voted at the annual meeting of the
Company's stockholders to be held on May 13, 1998 and any adjournment of
that meeting (the "Annual Meeting"). The Annual Meeting will be held in
the Gymnasium at Irene Public School, 130 E. State Street, Irene, South
Dakota, at 7:00 p.m. local time.
The purpose of the Annual Meeting is to consider and vote upon the
following matters: (i) election of directors; (ii) approval and adoption of
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock; (iii) approval and authorization
of the transfer of local telephone service assets to a wholly-owned subsidiary
of the Company; and (iv) any other business that may properly come before
the Annual Meeting or any adjournment of the meeting. If a proxy in the
enclosed form is properly signed and returned to the Company, the shares
represented by that proxy will be voted at the Annual Meeting and any
adjournment of the meeting. If a stockholder specifies a choice, the proxy
will be voted as specified. If no choice is specified, the shares
represented by the proxy will be voted for the election of all nominees of
the Board of Directors named in this Proxy Statement, for approval and
adoption of the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
and for approval and authorization of the proposed asset transfer. The
Company's management does not know of any other matter to be presented at
the Annual Meeting. If other matters are presented, all shares represented
by the proxy will be voted in accordance with the judgment of the persons
named as proxies with respect to those other matters.
A proxy may be revoked at any time prior to its exercise by written
notice delivered to the Secretary of the Company. A proxy may also be
revoked by attending and voting at the Annual Meeting.
Solicitation of proxies will be made initially by mail. Directors,
officers and employees of the Company and its subsidiaries also may solicit
proxies in person, by telephone or by other means without additional
<PAGE>
compensation. In addition, proxies may be solicited by nominees and other
fiduciaries who may mail material to or otherwise communicate with the
beneficial owners of shares held by them. All expenses of solicitation of
proxies will be paid by the Company.
ELECTION OF DIRECTORS
The Board of Directors has nominated the following four persons for
reelection to the Company's Board of Directors for terms expiring at the
annual meeting of stockholders to be held in 2001:
Craig A. Anderson
Jeffrey J. Goeman
Jeffrey G. Parker
John A. Schaefer
Each nominee is presently a director of the Company whose term will
expire at the Annual Meeting. Mr. Christensen has decided not to stand for
reelection and has accepted a position as Director Emeritus with the
Company. Six other directors are serving terms that will expire in 1999
and 2000. It is the intent of the persons named in the accompanying proxy
to vote for the election of the four nominees listed above. The proposed
nominees are willing to be elected and to serve. In the event that any
nominee is unable to serve or is otherwise unavailable for election, which
is not contemplated, the incumbent Board of Directors may or may not select
a substitute nominee. If a substitute nominee is selected, all proxies
will be voted for the person so selected. If a substitute nominee is not
selected, all proxies will be voted for the election of the remaining
nominees. Proxies will not be voted for a greater number of persons than
the number of nominees named above.
A plurality of the shares present in person or represented by proxy
and entitled to vote on the election of directors is required to elect
directors. For the purpose of counting votes on the election of directors,
abstentions, broker non-votes and other shares not voted will not be
counted as shares voted, and the number of shares of which a plurality is
required will be reduced by the number of shares not voted.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR ELECTION OF ALL NOMINEES AS DIRECTORS
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
CAPITAL
The Board of Directors proposes to amend Article IV of the Company's
Certificate of Incorporation to increase the Company's authorized capital
-2-
<PAGE>
stock from 5,000,000 shares of Common Stock and 250,000 shares of preferred
stock to 10,000,000 shares of Common Stock and 250,000 shares of preferred
stock. The purpose of the amendment is to provide additional shares for
future issuance, which the Board believes to be advisable and in the best
interests of the Company and its stockholders.
As of March 16, 1998, 1,907,255 authorized shares of Common Stock
were issued and outstanding. The Board of Directors believes that it is
advisable to have additional authorized shares available for possible
future stock splits and dividends, employee benefit plans, equity-based
acquisitions and other corporate purposes that might be proposed in the
future. The Board of Directors has authorized the issuance of shares for
such purposes in the past. However, the Company has no present plans or
proposals to issue shares that would be authorized by the proposed
amendment.
Management continues to seek favorable acquisition opportunities. It
has in the past had, and anticipates that it will from time to time in the
future have, discussions with other organizations that might be interested
in being acquired as well as discussions with larger organizations that may
wish to sell portions of their businesses. Authorized but unissued shares
of Common Stock, or funds raised in a public offering of shares, may be
used for these purposes.
All of the additional shares of Common Stock resulting from the
increase in the number of authorized shares of the Company's Common Stock
would be of the same class, with the same dividend, voting and liquidation
rights, as the shares of Common Stock presently outstanding. Stockholders
have no preemptive rights to acquire shares issued by the Company under its
existing Certificate of Incorporation, and stockholders would not acquire
any such rights with respect to such additional shares under the proposed
amendment to the Company's Certificate of Incorporation. Under some
circumstances, issuance of additional shares of Common Stock could dilute
the voting rights, equity and earnings per share of existing stockholders.
If the proposed amendment is adopted, the newly authorized shares
would be unreserved and available for issuance. No further stockholder
authorization would be required prior to the issuance of such shares by the
Company.
This increase in authorized but unissued Common Stock could be
considered an anti-takeover measure because the additional authorized but
unissued shares of Common Stock could be used by the Board of Directors to
make a change in control of the Company more difficult. The Board of
Directors' purpose in recommending this proposal is not as an anti-takeover
measure, but rather for the reasons discussed above.
-3-
<PAGE>
The first paragraph of Article IV, as amended, would read as follows:
"The total number of shares that the corporation shall have
authority to issue is ten million two hundred fifty thousand
(10,250,000) shares, which shall be divided into two classes as
follows: (A) ten million (10,000,000) shares of Common Stock
without par value ("Common Stock"); and (B) two hundred fifty
thousand (250,000) shares of Preferred Stock without par value
("Preferred Stock"), of which 15,000 shall be designated as
Series A Junior Participating Preferred Stock."
The affirmative vote of holders of a majority of the shares entitled
to vote at the Annual Meeting is required to adopt the proposed amendment
to the Company's Certificate of Incorporation. For the purpose of counting
votes on this proposal, abstentions, broker non-votes and other shares not
voted have the same effect as a vote against the proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
AUTHORIZATION OF RESTRUCTURING OF THE COMPANY
GENERAL. The Company is a diversified telecommunications services com-
pany that provides wireline local and network access services, long distance
telephone services, operator assisted calling services, telecommunications
equipment sale and leasing services, cable television services, data
networking services, Internet access and related services and local area
network and wide area network services. All of the Company's operations,
except for certain local service operations, are conducted through direct,
wholly-owned subsidiaries, including the following South Dakota
corporations: Dakota Telecom, Inc.; Dakota Telecommunications Systems,
Inc.; Dakota Wireless Systems, Inc.; DTG Communications, Inc. (formerly
TCIC Communications, Inc. ("TCIC")); DTG Internet Services, Inc. (formerly
Iway, Inc. ("Iway")); DTG DataNet, Inc. (formerly Futuristic, Inc.
("DataNet")); and DTG Community Telephone, Inc. The Company directly holds
the assets of its nine original exchanges, where it serves as the incumbent
local carrier, as well as its corporate offices, the Viborg switching
center, all fiber optic networks and assets related to billing and other
accounting functions. The principal executive offices of the Company are
located at 29705 453rd Avenue, Irene, South Dakota 57037-0066 (telephone:
(605) 263-3301).
The Board has determined that it would be advisable and in the best
interests of the Company and its stockholders for the Company to have the
flexibility to operate all customer services through wholly-owned
subsidiaries. Toward that end, the Board has unanimously approved, subject
to stockholder approval, the transfer of substantially all of the operating
-4-
<PAGE>
assets directly held by the Company (the "Local Telephone Fixed Assets")
and related liabilities to DTG Community Telephone, Inc., a wholly-owned
subsidiary of the Company formed just for this transaction ("DCT") (the
transfer of the Local Telephone Fixed Assets to DCT is referred to as the
"Restructuring"). DCT's principal executive offices would continue to be
located with the Company at 29705 453rd Avenue, Irene, South Dakota
57037-0066 (telephone: (605) 263-3301). The Company anticipates that it
will maintain direct operation of consolidated payroll and other
accounting and insurance functions. The Local Telephone Fixed Assets
in the aggregate represented approximately 69% of the Company's
consolidated net fixed assets at December 31, 1997 based upon the book
value of such assets as reflected in the Company's audited consolidated
financial statements.
The Restructuring will not have any material effect on the
consolidated financial statements of the Company. Notwithstanding the new
structure, the Company will continue to report its results of operations
and financial condition on a consolidated basis.
Stockholder authorization of the Restructuring is necessary under
Delaware law because the Company believes the Restructuring, if fully
implemented, would involve the transfer of substantially all of the
Company's assets to DCT. The submission of the Restructuring for
stockholder authorization will not affect the Company's rights, under
applicable Delaware law, to dispose of less than substantially all of the
assets (including by transfer to one or more subsidiaries) without
stockholder approval. Thus, even if the Restructuring is not approved by
the stockholders, the Company may from time to time in the future transfer
portions of its assets to subsidiaries or other affiliated entities or to
third parties on terms and for consideration approved by the Board, subject
to applicable Delaware law, without seeking stockholder approval.
Authorization of the Restructuring by stockholders will not preclude the
stockholders' rights to challenge any future dispositions by the Company of
the stock or assets of the DCT or of other subsidiaries or affiliated
entities if such dispositions are not made as part of the Restructuring or
in compliance with applicable Delaware law.
REASONS FOR THE RESTRUCTURING. If the Restructuring is fully
implemented, the principal operations of the Company's incumbent telephone
business will be conducted by DCT. The Company believes that the new
structure would permit greater flexibility in the management and financing
of existing and future business operations and would facilitate the
Company's entry into new businesses and the formation of joint ventures or
other business ventures with third parties. The Restructuring would also
improve the ability of the Company to respond to regulatory requirements
affecting incumbent local telephone operations only and would further the
objective of operating the Company's businesses, and any additional
businesses acquired in the future, on a more self-sufficient, independent
economic basis while decreasing the risk that liabilities attributable
-5-
<PAGE>
to any one of the Company's businesses could be imposed upon one or more
of the Company's unrelated businesses.
EFFECTS OF THE RESTRUCTURING. The Company currently plans to
implement the Restructuring as soon as practicable after authorization by
the stockholders, allowing time for implementation and accounting
transitions. The Company expects that all operating assets directly held
by the Company, except for certain accounting, payroll and insurance
functions, ultimately will be transferred to DCT.
The Restructuring will not alter the stockholders' percentage
ownership interests in the Company. The stockholders of the Company will
continue as such, with the same voting, dividend and liquidation rights and
ownership interests as before. As a result of the Restructuring, the
stockholders of the Company will not directly elect the directors of DCT.
DCT directors, like the directors of all of the Company's other operating
subsidiaries, will be elected at the direction of the Board of Directors of
the Company.
Except for the changes described in this Proxy Statement, consummation
of the Restructuring is not expected to result in any material change in
the overall operations of the Company. Similarly, the Restructuring will
not result in any changes in the current membership of the Board, and the
officers of the Company are expected to remain the same after consummation
of the proposed Restructuring. Persons who are currently serving as
officers of the Company may become officers and/or directors of DCT. While
the Restructuring is not expected to create any conflicts of interests
between the Company and its stockholders, in the event that DCT, through
public or private sale, should be owned in part by persons other than the
Company or its stockholders, such conflicts could arise. However, the
Company has no plan to effect a public or private sale of any part of the
ownership of DCT or any other of its subsidiaries.
POSSIBLE DISADVANTAGES. Possible disadvantages of the Restructuring
for the Company include the requirement that the Company observe corporate
formalities between and among the Company and DCT (which it already does
with its other subsidiaries), and potential duplication of some minor
administrative and accounting functions. The Board believes that these
disadvantages are not significant or material. The Company estimates that
the cost to implement the Restructuring as currently planned (consisting
primarily of legal costs) will be less than $5,000.
Stockholders of the Company would continue to have the same voting,
dividend and liquidation rights before and after implementation of the
Restructuring. However, as discussed above, stockholders of the Company
would not be entitled to elect the directors of DCT. Instead,
stockholders of the Company would elect the directors of the Company, who
would then have overall responsibility for the management of the Company
-6-
<PAGE>
and its subsidiaries and affiliated entities. Similarly, the stockholders'
statutory rights to inspect the books and records of the Company under
applicable Delaware law may not extend to the books and records of the
Local Telephone Subsidiary. However, because the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), certain information regarding the Company and its
subsidiaries is readily available to stockholders without resort to the
statutory right to inspect the Company's books and records.
It is also possible that the sale by DCT of substantially all of the
Local Telephone Fixed Assets (including through the sale of stock) outside
of the ordinary course of business after the Restructuring would not require
the approval of the stockholders of the Company under Delaware Law, even
though the sale of substantially all of the Local Telephone Fixed Assets
outside of the ordinary course of business by the Company under the
current structure would require stockholder approval. However, the
Company has no plans to sell the Local Telephone Fixed Assets outside of
the ordinary course of business.
The Board believes that the advantages of the proposal, described
under "Reasons for Restructuring" above, outweigh the possible
disadvantages of the transaction. For that reason, the Board has approved
and unanimously recommends that the stockholders authorize the
Restructuring. Numerous national and international corporations conduct
their operations through holding company structures similar to the
structure proposed by the Company.
ACCOUNTING TREATMENT OF THE RESTRUCTURING. The Local Telephone Fixed
Assets would be transferred to DCT as an intercompany transfer at net book
value. No gain or loss would be reported on a consolidated basis.
FEDERAL TAX CONSEQUENCES OF THE RESTRUCTURING. Any assets transferred
pursuant to the Restructuring would be conveyed to the Local Telephone
Subsidiary on a tax-free basis under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"). The Local Telephone Subsidiary
would be wholly-owned by the Company. Although the Company has no plans to
change the ownership of DCT, it is possible that DCT would not be wholly-
owned by the Company in the future.
RIGHTS OF DISSENTING STOCKHOLDERS. Authorization by the stockholders
or consummation of the Restructuring will not entitle a stockholder
objecting to its terms or voting against the Restructuring to any
appraisal, dissenters' or similar rights under Delaware law.
VOTE REQUIRED. The affirmative vote of holders of a majority of the
outstanding shares entitled to vote on the proposal is required to
authorize the Restructuring. For the purpose of counting votes on this
proposal, abstentions, broker non-votes and other shares not voted have the
same effect as a vote against the proposal.
-7-
<PAGE>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
AUTHORIZATION OF THE RESTRUCTURING OF THE COMPANY
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF THE COMPANY
Holders of record of Common Stock at the close of business on March
16, 1998 are entitled to notice of and to vote at the Annual Meeting and
any adjournment of that meeting. As of March 16, 1998, there were
1,907,255 shares of Common Stock issued and outstanding. Each share of
Common Stock is entitled to one vote on each matter submitted for
stockholder action.
The following table sets forth information concerning the number of
shares of Common Stock held by each stockholder who is known to the
Company's management to be the beneficial owner of more than five percent
of the outstanding Common Stock as of March 16, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF PERCENT
OF COMMON STOCK SHARES OF COMMON STOCK<F1><F2> OF CLASS<F3>
------------------- ------------------------------ ------------
<S> <C> <C> <C>
Gery Baar 171,014 9.0%
c/o Dakota Telecommunications Group, Inc.
P.O. Box 66
Irene, South Dakota 57037-0066
Douglas English 171,014 9.0%
c/o Dakota Telecommunications Group, Inc.
P.O. Box 66
Irene, South Dakota 57037-0066
Jeffrey G. Parker 120,326 6.3%
c/o Dakota Telecommunications Group, Inc.
P.O. Box 66
Irene, South Dakota 57037-0066
- - -----------------------------------
Footnotes begin on page 7.
</TABLE>
The following table sets forth information concerning the number of
shares of Common Stock held as of March 16, 1998 by each of the
Company's directors and nominees for director, each of the named
executive officers and all of the Company's directors and executive
officers as a group.
-8-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
OF COMMON STOCK<F1><F2>
-----------------------------------------
SOLE SHARED
VOTING AND VOTING OR TOTAL PERCENT
DISPOSITIVE DISPOSITIVE BENEFICIAL OF
NAME OF BENEFICIAL OWNER POWER POWER<F4> OWNERSHIP CLASS<F3>
- - ------------------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Craig A. Anderson<F5> 56,044 --- 56,044 2.9%
Ross L. Benson<F6> 2,400 300 2,700 <F*>
Dale Q. Bye<F6> 2,664 --- 2,664 <F*>
Edward D. Christensen, Jr.<F6> 3,330 --- 3,330 <F*>
Jeffrey J. Goeman<F6> 2,400 1,642 4,042 <F*>
Thomas W. Hertz<F5> 57,256 --- 57,256 2.9%
James H. Jibben<F6> 2,912 --- 2,912 <F*>
Palmer O. Larson<F6> 2,586 --- 2,586 <F*>
Jeffrey G. Parker<F7> 120,326 --- 120,326 6.3%
John A. Roth<F6> 4,184 164 4,348 <F*>
John A. Schaefer<F6> 2,784 --- 2,784 <F*>
All directors and executive
officers as a group
(12 persons) 258,106 2,106 260,212 12.9%
<FN>
- - -------------------------------
<F*>Less than one percent
<F1> The numbers of shares stated are based on information furnished by
each person listed and include shares personally owned of record by
that person and shares that, under applicable regulations, are
considered to be otherwise beneficially owned by that person. Under
these regulations, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares voting power or
-9-
<PAGE>
dispositive power with respect to the security. Voting power includes
the power to vote or to direct the voting of the security.
Dispositive power includes the power to dispose or to direct the
disposition of the security. A person also will be considered the
beneficial owner of a security if the person has a right to acquire
beneficial ownership of the security within 60 days.
<F2> In connection with the acquisitions by Dakota Cooperative
Telecommunications, Inc., the predecessor of the Company (the
"Cooperative"), of TCIC and Iway, the Cooperative entered into
Standstill Agreements (the "Standstill Agreements") with each of the
former shareholders of TCIC and Iway (collectively, the "Sellers").
The Sellers received shares of Cooperative preferred stock and
warrants to purchase additional shares of Cooperative preferred stock.
Under the Standstill Agreements, the Sellers agreed to refrain from
certain actions, including: (i) acquiring any Common Stock in excess
of five percent of the Company's Common Stock outstanding at any time
during the term of the Standstill Agreements, with certain exceptions
such as the sale or transfer of shares among the Sellers; (ii) making
or participating in any "solicitation of proxies," as that term is
defined in Regulation 14A under the Exchange Act; (iii) forming,
joining or participating in a "group," as that term is defined in
Section 13(d)(3) of the Exchange Act, with respect to any Common
Stock; (iv) initiating or participating in any stockholder proposal to
be voted upon by the holders of the Company's Common Stock or calling
any special meeting of stockholders of the Company; (v) depositing any
shares of the Company's Common Stock into a voting trust or subjecting
such shares to a voting agreement; or (vi) seeking in any way to gain
control of the Company or its Board of Directors or seeking to
influence the Company's management or policies.
The Standstill Agreements further provide that the Sellers will not
dispose of any shares of the Company's Common Stock (with certain
exceptions) except in accordance with certain provisions of the
Standstill Agreements. The Standstill Agreements grant to the Company
a "First Purchase Option" to buy all, but not less than all, of the
Sellers' shares of the Company's Common Stock that they wish to sell
("First Option Shares") for a period of three years following the date
that the Cooperative preferred stock was converted into shares of the
Company's Common Stock. Under the First Purchase Option, if a Seller
desires to sell any of the person's shares of Common Stock, the Seller
must first notify the Company, which then has 30 days to determine
whether to purchase the First Option Shares. If the Company exercises
its option, it must purchase all of the First Option Shares. If the
Company does not exercise its First Purchase Option, the Seller who
gave the notice may then sell those First Option Shares to a third
party at the same price specified in the person's initial notice to
the Company. However, if the Seller fails to sell the First Option
-10-
<PAGE>
Shares to a third party within 60 days after the Company's option
expires, then the process must start over.
Under the Standstill Agreements, in the event that a third party makes
a tender offer (a "Tender Offer") for shares of the Company's Common
Stock, then the Sellers must grant the Company an option (the "Tender
Offer Option") to purchase all, but not less than all, of the shares
that the Sellers wish to sell in the Tender Offer. This process works
much the same as for a First Purchase Option, except that the
deadlines are shorter. In addition, if a competing tender offer
arises prior to the closing of the sale pursuant to the Tender Offer
Option at a higher per-share price, the Sellers can withdraw their
notice of the Tender Offer Option, after which the process starts
over. The price per share pursuant to the Tender Offer Option is the
product of (i) the number of shares subject to the Tender Offer Option
with respect to which the Company exercises its option, multiplied by
(ii) the Tender Offer price per share as in effect on the last day
specified in the Tender Offer on which the offeror may accept shares
of the Company's Common Stock for payment or exchange. If the Company
fails to exercise its Tender Offer Option, then the Sellers can sell
their shares in the Tender Offer, but at a price not less than that
specified in the notice of the Tender Offer Option.
The provisions of the Standstill Agreements described in the first
paragraph above apply for a period of five years beginning on July 25,
1997. The provisions described in the second paragraph above apply
for three years after July 25, 1997. The Standstill Agreements do not
contain any specific termination provisions.
In connection with the DataNet acquisition, the Company entered into
Standstill Agreements with the former shareholders of DataNet. The
terms of these Standstill Agreements are substantially the same as
those of the Sellers' Standstill Agreements with the exception that
the various time periods, instead of running from July 25, 1997, run
from the date of the DataNet Standstill Agreements.
<F3> The percentages reflected in this column were computed with
reference to a total of 1,907,255 shares of the Company's Common
Stock outstanding as of March 16, 1998 plus, where applicable,
options to purchase shares of Common Stock currently outstanding
that are currently exercisable or that may be exercised within 60
days. The number of shares outstanding does not include an
aggregate of 593,262 shares of Common Stock that are issuable
to former holders of Cooperative common stock and capital credit
accounts upon satisfaction by them of the exchange and informa-
tional conditions to the issuance of such shares.
<F4> These numbers include shares over which the listed person is legally
entitled to share voting or dispositive power by reason of joint
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<PAGE>
ownership, trust or other contract or property right, and shares held
by spouses and children over whom the listed person may have influence
by reason of relationship.
<F5> The number of shares includes options to purchase shares of Common
Stock exercisable within 60 days held by the following persons:
NAME NUMBER OF SHARES
---- ----------------
Craig A. Anderson 52,832
Thomas W. Hertz 52,832
<F6> Includes (i) 2,000 shares awarded as outside director compensation for
serving as a director for five years or more, issued effective January
1, 1998, and (ii) options to acquire 400 shares that are immediately
exercisable and were granted pursuant to the Company's 1997 Stock
Incentive Plan.
<F7> Includes (i) shares acquired pursuant to the exercise of options
granted in connection with the acquisitions of TCIC and Iway, and (ii)
options to acquire 400 shares that are immediately exercisable and
were granted pursuant to the Company's 1997 Stock Incentive Plan.
</FN>
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is divided into three classes, which
are as nearly equal in number as possible. Each class of directors serves
a successive three-year term of office. Biographical information
concerning the persons who are directors or executive officers of the
Company, including the four nominees who are nominated for election to the
Board of Directors at the Annual Meeting, is presented below. Except as
otherwise indicated, all of the named individuals have had the same
principal employment for over five years. Executive officers are appointed
annually and serve at the pleasure of the Board of Directors.
During 1997, the Company became the successor to the operations of the
Cooperative through a conversion transaction and a merger transaction that
became effective July 25, 1997. These transactions resulted in the former
shareholders of the Cooperative and the individuals who held Cooperative
capital credits becoming stockholders of the Company and assuming control,
on a aggregate basis, of the Company. The conversion and merger
transactions are described in greater detail in the attached Annual Report
to Stockholders for the year ended December 31, 1997. The conversion and
merger transactions that resulted in the operations of the Cooperative
being assumed by the Company are collectively referred to as the "Merger."
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<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS TO TERMS EXPIRING IN 2001
Craig A. Anderson (age 42) has been a director and Executive Vice
President, Chief Financial Officer and Treasurer of the Company since its
formation (February 1997) and was Executive Vice President - Marketing and
Chief Financial Officer of the Cooperative from January 1, 1997 until the
Merger. Prior to January 1, 1997, Mr. Anderson was Vice President -
Marketing of the Cooperative from September 1996 to January 1, 1997. From
January 1994 until September 1996, Mr. Anderson was an independent business
consultant and from May 1994 until December 1995 he attended the University
of South Dakota, earning a Masters of Business Administration and Masters
in Professional Accounting. From November 1992 until January 1994, Mr.
Anderson was a director and Vice President - Chief Financial Officer and
Secretary of the Austad Company (a catalog retailer of golf equipment).
From July 1989 to September 1992, Mr. Anderson served as a director and
Vice President - Chief Financial Officer, General Counsel and Secretary of
Dial-Net, Inc. (a long distance reseller).
Jeffrey J. Goeman (age 40) was a director of the Cooperative from 1988
until the Merger and has been a director of the Company since its formation
(February 1997). Mr. Goeman is President of and has owned and operated
Goeman Auction Service and Real Estate, Inc. in Lennox, South Dakota (a
real estate brokerage and appraisal and auction firm) since 1980.
Jeffrey G. Parker (age 51) has been a director of the Company since
July 1997. Mr. Parker's principal occupation is as the President and Chief
Executive Officer of Parker Transfer and Storage, Inc., a transportation
and storage company with which he has been associated since 1969. Mr.
Parker also serves as President of Slip and Trip, Inc., a service provider
to Parker Transfer and Storage, Inc. and as a director of HF Financial
Corp. Mr. Parker served as Vice President of TCIC from 1990 until 1996 and
as President of TCIC during 1996.
John A. Schaefer (age 72) was a director of the Cooperative from 1974
until the Merger and has been a director of the Company since its formation
(February 1997). Mr. Schaefer is retired. He formerly was an agribusiness
(farm) owner and operator.
DIRECTORS WITH TERMS EXPIRING IN 2000
Thomas W. Hertz (age 51) has been a director and Chief Executive
Officer and President of the Company since its formation (February 1997),
was Chief Executive Officer of the Cooperative from July 1996 until the
Merger and was General Manager of the Cooperative from December 1995 until
the Merger. Prior to December 1995, Mr. Hertz was an attorney in private
practice with the law firm of Ulmer, Hertz & Bertsch, P.C.
Palmer O. Larson (age 74) was a director of the Cooperative from 1976
until the Merger and has been a director of the Company since its formation
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<PAGE>
(February 1997). Mr. Larson is a semi-retired agribusiness (farm) owner
and operator.
John (Jack) A. Roth (age 66) was a director of the Cooperative from
1970 until the Merger and has been a director of the Company since its
formation (February 1997). Mr. Roth retired as an agent for State Farm
Insurance in Parker, South Dakota, after working as an insurance agent for
33 years.
DIRECTORS WITH TERMS EXPIRING IN 1999
Ross L. Benson (age 63) was a director of the Cooperative since 1980
until the Merger and has been a director of the Company since its formation
(February 1997). Mr. Benson is an agribusiness (farm) owner and operator.
Dale Q. Bye (age 67) was a director of the Cooperative from 1975 until
the Merger and has been a director of the Company since its formation
(February 1997). Mr. Bye is a semi-retired agribusiness (farm) owner and
operator.
James H. Jibben (age 47) was a director of the Cooperative from 1988
until the Merger and its Chairman of the Board from 1995 until the Merger
and has been a director and Chairman of the Board of Directors of the
Company since its formation (February 1997). Mr. Jibben was President of
the Cooperative prior to the Merger. Mr. Jibben is an agribusiness (farm)
owner and operator.
OTHER EXECUTIVE OFFICERS.
Timothy Dupic (age 43) is the Secretary of the Company, a position he
has held since July 1997. Mr. Dupic also serves as Vice President of
Operations of the Company, a position he has held since January 1996.
Prior to that time, Mr. Dupic worked in management of the National Exchange
Carriers Association and currently serves as an outside director of that
organization.
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has, among others, the following
standing committees:
AUDIT COMMITTEE. The members of the Audit Committee as of March 16,
1998, were Dale Q. Bye (Chairman), Palmer O. Larson, and John A. Schaefer.
The Audit Committee recommends to the Board of Directors the selection of
independent accountants; approves the nature and scope of services to be
performed by the independent accountants and reviews the range of fees for
such services; confers with the independent accountants and reviews the
results of the annual audit; reviews with the independent accountants the
Company's internal auditing, accounting and financial controls; reviews the
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<PAGE>
independent accountants' management letter and engages in appropriate
follow-up with corporate staff; and reports to the Board on activities and
determinations made by that Committee and makes recommendations to the
Board based on such determinations. The Audit Committee did not meet
during 1997.
COMPENSATION COMMITTEE. The members of the Compensation Committee as
of March 16, 1998, were Jeffrey G. Parker (Chairman), James H. Jibben, and
John A. Roth. The Compensation Committee is responsible for reviewing and
recommending to the Board of Directors the timing and amount of
compensation for the Chief Executive Officer and other key employees,
including salaries, bonuses and other benefits. The Compensation Committee
also is responsible for administering the Company's stock option and other
equity-based incentive plans, recommending retainer and attendance fees for
directors who are not employees of the Company or any of its subsidiaries
("Non-Employee Directors"), reviewing compensation plans and awards as they
relate to the Chief Executive Officer and other key employees, and
administering the Company's pension, savings and insurance plans. The
Compensation Committee met twice in 1997.
EXECUTIVE COMMITTEE. The members of the Executive Committee as of
March 16, 1998, were James H. Jibben (Chairman), Craig A. Anderson, and
Thomas W. Hertz. The Executive Committee may exercise all powers and
authority of the Board of Directors in the management of the business and
affairs of the Company except to the extent that delegation is prohibited
by law. The Executive Committee may consider or act upon matters requiring
Board action during periods between Board meetings. The Executive
Committee did not meet in 1997.
NOMINATING COMMITTEE. The members of the Nominating Committee as of
March 16, 1998, Ross L. Benson (Chairman), Jeffrey G. Parker and Jeffrey J.
Goeman. The Nominating Committee is responsible for: (i) recommending to
the Board of Directors suitable candidates for nomination for positions on
the Board of Directors; (ii) reviewing with the Board of Directors the
appropriate skills and characteristics of candidates for nomination to
positions on the Board; (iii) reviewing and evaluating the qualifications
of possible candidates; and (iv) recommending to the Board candidates to
fill vacancies on the Board that may occur from time to time. The
Nominating Committee also recommends the officers of the Company for
election by the Board of Directors. The Nominating Committee will consider
nominees for election to the Board of Directors submitted by stockholders.
The Certificate of Incorporation of the Company provides that nominations
for the election of directors may be made by a stockholder entitled to vote
for the election of directors if, and only if, the stockholder submits
advance notice of the proposed nomination and the notice is received by the
Secretary of the Company not less than 120 days before the date of the
annual meeting or not more than the close of business on the seventh day
after the date of the notice of meeting in the case of a special meeting.
Each notice submitted by a stockholder must set forth the name, age,
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business address, residence address, principal occupation and employment
of, the class and number of shares of the Company's stock beneficially
owned by, and any other information concerning each nominee as would be
required to be included in a proxy statement soliciting proxies for the
election of the nominee under the Exchange Act, and, as to the stockholder
giving the notice, the name, record address and the class and number of
shares of the Company's stock beneficially owned by the stockholder. If
the Chairman of the meeting determines that a nomination was not made in
accordance with these procedures, he or she must announce that
determination at the meeting and the nomination will be disregarded. The
Nominating Committee did not meet in 1997.
During 1997, the Company's Board of Directors held 11 regular and
special meetings. All directors attended at least 75% of the aggregate
number of meetings of the Board of Directors and meetings of committees on
which they served during the year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As of the date of this Proxy Statement, directors and officers of the
Company and persons beneficially owning more than ten percent of the
outstanding shares of Common Stock were not subject to the reporting
obligations of Section 16(a) of the Exchange Act.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table shows certain information concerning the
compensation paid to Thomas W. Hertz, President and Chief Executive
Officer of the Company, and Craig A. Anderson, Executive Vice President,
Chief Financial Officer and Treasurer of the Company, for services rendered
to the Company or the Cooperative, as applicable, during the years ended
December 31, 1997, 1996 and 1995. No other executive officer of the
Company or the Cooperative earned cash compensation in excess of $100,000
during 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS
ANNUAL COMPENSATION ----------------------
------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS<F1> UNDERLYING OPTIONS COMPENSATION<F2>
- - --------------------------- ---- ------ --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Thomas W. Hertz 1997 $129,808 $15,000 123,980 $15,702
President and Chief 1996 118,940 -- -- 1,439
Executive Officer 1995 20,455 -- -- 72
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Craig A. Anderson 1997 $ 96,154 $ 7,500 123,980 $ 7,105
Executive Vice President, 1996 28,725 -- -- 1,195
Chief Financial Officer
and Treasurer<F3>
<FN>
- - ---------------------------------
<F1> This column represents the cash value of shares of Common Stock
awarded to the above individuals.
<F2> All other compensation represents (i) premiums paid by the Company or
the Cooperative, as applicable, for life insurance on Mr. Hertz
($1,445 in 1997) and Mr. Anderson ($1,445 in 1997), and (ii) Company
or Cooperative contributions to pension and 401(k) plans for Mr. Hertz
($14,257 in 1997) and Mr. Anderson ($5,660 in 1997).
<F3> Mr. Anderson began his employment with the Cooperative on September
15, 1996.
</FN>
</TABLE>
The following tables set forth information regarding stock options
granted to the named executive officers during the last fiscal year and
stock options held by the named executive officers at the end of the last
fiscal year. None of the named executive officers exercised any stock
options during 1997.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN
NAME OPTIONS GRANTED<F1> FISCAL YEAR EXERCISE PRICE EXPIRATION DATE
- - ---------------- -------------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Thomas W. Hertz 123,980 46.3% $ 6.19 12-31-2006
Craig A. Anderson 123,980 46.3% $ 6.19 12-31-2006
<FN>
- - -----------------------------------
<F1> To provide an incentive for Thomas W. Hertz, Chief Executive Officer
and General Manager of the Cooperative, and Craig A. Anderson,
Executive Vice President-Marketing and Chief Financial Officer of
the Cooperative (collectively, the "Optionees"), to operate the
Cooperative to promote the Cooperative's long-term growth and
profitability and to help align their economic interests with those
of the Cooperative's members and security holders, effective as of
January 1, 1997, the Board of Directors of the Cooperative adopted
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<PAGE>
stock option agreements granting options to each Optionee to purchase
up to an aggregate of 767 shares of Cooperative preferred stock at a
price of $1,000 per share. Upon consummation of the Merger, these
options automatically became options to purchase Common Stock
(converted on an approximately 80.8-to-1 basis). Thus, Mr. Anderson
and Mr. Hertz each now hold options to acquire 123,980 shares of
Common Stock at a price of $6.19 per share.
The options call for delayed vesting so that 20 percent of each option
became exercisable on July 25, 1997. Thereafter, an additional 20
percent of each option becomes exercisable on each anniversary date of
the stock option agreements if the Optionees are then employed by the
Company until the total number of shares subject to each option become
exercisable. Thus, 40 percent of the options have become exercisable
as of the date of this Proxy Statement. Each option remains
outstanding for ten years from the date it was granted. The options
are non-transferable.
Under the terms of the stock option agreements, the options are not
incentive stock options under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). The options were not subject to tax
when they were granted. Upon exercise, the Optionee will recognize
compensation income in the amount of the spread between the market
value of the options and the option exercise price. The Company will
receive a corresponding deduction. The option price must be paid in
cash or shares of stock of the Company, valued at the market value on
the date of exercise.
On a fully diluted basis, assuming that all vesting periods and other
restrictions contained in the options have been satisfied or lapsed
and all the options were exercised in full, each Optionee would own
approximately five percent of the total number of shares of the
Company's outstanding Common Stock. The exercise price of the
Company's Common Stock under the stock option agreements is $6.19 per
share.
</FN>
</TABLE>
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<PAGE>
<TABLE>
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END <F1>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas W. Hertz 49,592 74,388 $312,925.57 $469,388.28
Craig A. Anderson 49,592 74,388 $312,925.57 $469,388.28
- - --------------------
<FN>
<F1> Based on a market value of $12.50 per share at December 31, 1997,
adjusted to reflect the two-for-one stock split.
</FN>
</TABLE>
During 1997, the Cooperative compensated its directors at the rate of
$500 per regular monthly board meeting attended, $250 per special board
meeting attended and $100 per special telephonic board meeting attended.
In 1998, directors will also be compensated at the rate of $250 for
attendance by teleconference at regular monthly board meetings. Directors
also are provided with travel and accident insurance at a cost of $125
per year per director. Directors are eligible to participate in the
medical reimbursement plan. These compensation arrangements were continued
by the Company after the Merger in July 1997.
Under the Company's 1997 Stock Incentive Plan, each Non-Employee
Director of the Company will be entitled to receive semi-annually, on June
30 and December 31 of each year, stock options to purchase 400 (as adjusted
to reflect the effect of the stock split) shares of Common Stock at 100
percent of the market value on the date of grant. The stock options will
be issued for a term of ten years. The formula grant provisions for Non-
Employee Directors may be amended by the Board of Directors not more than
once every six months, other than to comport with changes in the Code, the
Exchange Act or the rules thereunder. Non-Employee Directors may pay the
exercise price using previously held shares of Common Stock to the extent
that other plan participants are permitted to do so.
In November 1997, the Board of Directors adopted the Director Stock
Plan of 1997, under which each Non-Employee Director who has or will have
served more than five years on the Board of Directors of the Company
(including service as a director of the Cooperative) will receive a one-
time award of 2,000 shares (as adjusted to reflect the effect of the stock
split) of Common Stock. This award was payable on January 1, 1998 to
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<PAGE>
directors who had previously served five years, and will be payable on
the fifth anniversary of service to all other non-employee directors.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. The Cooperative entered into separate but
substantially identical Employment Agreements ("Agreements") with its Chief
Executive Officer and General Manager, Thomas W. Hertz, and its Executive
Vice President-Marketing, Chief Financial Officer and Treasurer, Craig A.
Anderson (the "Executives"). Upon consummation of the Merger, the Company
assumed the Agreements according to their terms.
Each Agreement is for a three-year term of employment. However, the
employment term under each Agreement will be automatically extended for an
additional year at the end of each year, unless either party gives written
notice that the employment term under the Agreement is not to be extended
further, in which case the employment term under the Agreement will expire
at the end of two additional years, except that the employment term under
the Agreement will also be extended automatically for three years following
the date of any Change in Control (as defined in the Agreements) occurring
during the employment term under the Agreement. The current terms of the
Agreements are until December 31, 2000.
The Agreements provide minimum salaries of $135,000 per year for
Thomas W. Hertz and $100,000 per year for Craig A. Anderson, and also
provide for an annual bonus to each of the Executives equal to fifteen
percent of the increase, if any, in corporate net income over prior year
net income. "Net income," for purposes of the bonus calculations, is pre-
tax net income before depreciation, amortization and other non-cash
expenses, before annual bonuses under the two Agreements and after
eliminating the effect of extraordinary items. Under the formula, no
bonuses were paid for 1997.
Under the Agreements, the Company or the Executive may terminate the
executive's employment at any time upon 30 days' notice. If the Company
terminates the Executive's employment involuntarily during the term of the
employment under the Agreements other than as the result of a Disability or
for Cause, or if the Executive terminates the employment for Good Reason
during the employment term under the Agreements, the Agreements entitle the
terminated Executive to Severance Pay. "Disability" is defined as the
Executive's inability to substantially perform his duties for a continuous
period of nine months. "Cause" is defined as willful and continued failure
by the Executive to substantially perform his duties after notice of the
deficiency, or willful misconduct by the Executive that is materially
injurious to the Company and occurs without good-faith belief by the
Executive that the action was in the best interests of the Company.
Termination for Cause requires the affirmative vote of two-thirds of the
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Board of Directors. "Good Reason" is defined to include: (i) a material
breach by the Company of the Agreements or any other agreement with the
Executive; (ii) assignment to the Executive of duties inconsistent with his
position; (iii) removal of the Executive from his position; (iv) relocation
of the Company's principal executive offices outside a 60-mile radius from
Irene, South Dakota or any requirement by the Company that the Executive be
located other than at the executive offices or that he engage in
substantially increased job related travel; or (v) failure of the Company
to obtain the agreement of any successor to assume the Agreements. The
Executive may not terminate his employment with Good Reason without first
giving the Company notice and ten days' opportunity to cure any occurrence
constituting Good Reason.
"Severance Pay" under the Agreements consists of continuation of the
Executive's salary, bonus and benefits for the unexpired employment term
under the Agreements at the time of the termination (with a minimum annual
bonus each year equal to that of the year before the termination),
reasonable out-placement services and immediate vesting of all restricted
stock and stock option rights. Severance Pay is not reduced by any post-
termination employment or other income of the Executive. If the Executive
dies while entitled to receive Severance Pay, the remaining Severance Pay
is to be paid to the Executive's estate. If a termination entitling the
Executive to Severance Pay occurs after a Change in Control, or if the
Company defaults on Severance Pay obligations, the monthly salary and bonus
payments are accelerated and become payable immediately in a lump sum.
The Agreements prohibit the Executive from competing with the Company
during his employment, and after his employment while he is receiving
Severance Pay. The Executive may end the post-employment noncompetition
period at any time by renouncing any right to further Severance Pay.
The Agreements provide for payment of the Executive's reasonable legal
fees and expenses incurred in seeking to enforce the Executive's rights
under the Agreements, to the extent the Executive is successful in his
claims, with payment made contemporaneously but with the Executive required
to repay any amount to which he is ultimately found not to be entitled.
The Agreements also provide that the Company will make the Executive whole
for any taxes, interest or penalties incurred by the Executive on account
of the characterization of any payment to which the Executive is entitled
from the Company as an "excess parachute payment" under Section 280G of the
Code or any successor provision of the Code, so that the net payments to
the Executive after all such taxes, interest and penalties will be the same
as if no such characterization had occurred.
INDEMNITY AGREEMENTS. The Company has entered into indemnity
agreements with each director and executive officer of the Company
(collectively, "Leaders"). The indemnity agreements indemnify each Leader
against all expenses incurred in connection with any action or
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<PAGE>
investigation involving the Leader by reason of his or her position with
the Company (or with another entity at the Company's request). The Leader
will also be indemnified for costs, including judgments, fines and
penalties, indemnifiable under Delaware law or under the terms of any
current or future liability insurance policy maintained by the Company that
covers the Leaders. A Leader involved in a derivative suit will be
indemnified for expenses and amounts paid in settlement. Indemnification
is dependent in every instance on the Leader meeting the standards of
conduct set forth in the indemnity agreements. If a change in control or
potential change in control occurs, the Company will fund a trust to
satisfy its anticipated indemnification obligations.
STOCK PLAN PROVISIONS. The Company's 1997 Stock Incentive Plan
provides that, unless the Board or the Compensation Committee determines
otherwise, upon a "change in control" of the Company as defined in that
plan all outstanding stock option and other awards of stock and restricted
stock shall become immediately exercisable and fully vested and
nonforfeitable. In addition, upon a change in control of the Company, the
Compensation Committee may, in its discretion, determine that some or all
participants holding outstanding stock options shall receive cash in lieu
of some or all of the stock subject to such options in an amount equal to
the excess of the highest price per share actually paid in connection with
the change in control of the Company over the exercise price per share
under such options.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Directors and officers of the Company, businesses they own or
represent, and members of their immediate families purchase services from
the Company and its subsidiaries in the ordinary course of business. Rates
and charges for these services are the same as those available to the
general public.
In connection with the Cooperative's acquisition of TCIC and Iway,
the Cooperative issued to the former shareholders of TCIC and Iway
(collectively, the "Sellers") shares of Cooperative preferred stock which
automatically upon consummation of the Merger were converted into 189,454
(as adjusted for the stock split) shares of Common Stock. In addition, the
Sellers collectively received warrants that were converted into warrants to
purchase an additional 77,912 (as adjusted for the stock split) shares of
Common Stock. These warrants were exercised in full in January 1998.
Jeffrey Parker, a director of the Company, was a shareholder of TCIC and
Iway prior to the Cooperative's acquisition of TCIC and Iway. As a result
of those acquisitions, Mr. Parker received shares of Cooperative preferred
stock which were converted into 54,078 (as adjusted for the stock split)
shares of Common Stock upon consummation of the Merger and warrants that
were converted into warrants to purchase an additional 24,668 (as adjusted
for the stock split) shares of Common Stock. Mr. Parker was also the
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holder of the Company's promissory note in the principal amount of $45,000,
which note was paid in full in December 1997. In addition, Mr. Parker, as
a former shareholder of TCIC and Iway, guaranteed a $330,000 loan by
Norwest Bank to the Company that was made in connection with the
acquisitions of TCIC and Iway. This loan was paid in full in December
1997.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Olsen Thielen & Co., Ltd., certified public accountants, served as the
Company's principal accountant for 1997. The Board of Directors of the
Company has selected Olsen Thielen & Co., Ltd. to act as the Company's
principal accountant for 1998. Representatives of Olsen Thielen & Co.,
Ltd. are not expected to be present at the Annual Meeting. If a
representative of Olsen Thielen & Co., Ltd. attends the meeting, the
representative will have an opportunity to make a statement and will be
expected to be available to respond to appropriate questions.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1999 annual
meeting of stockholders must be received by the Company for consideration
for inclusion in its proxy statement and form of proxy relating to that
meeting by November 26, 1998. Proposals of stockholders should be made
in accordance with Securities and Exchange Commission Rule 14a-8.
FORM 10-KSB REPORT AVAILABLE
THE COMPANY'S FORM 10-KSB ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, WILL BE PROVIDED WITHOUT CHARGE TO STOCKHOLDERS UPON WRITTEN
REQUEST. REQUESTS SHOULD BE DIRECTED TO MR. CRAIG A. ANDERSON, CHIEF
FINANCIAL OFFICER, DAKOTA TELECOMMUNICATIONS GROUP, INC., POST OFFICE BOX
66, 29705 453RD AVENUE, IRENE, SOUTH DAKOTA 57037-0066.
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DAKOTA TELECOMMUNICATIONS GROUP, INC.
P R O X Y POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
ANNUAL MEETING OF STOCKHOLDERS - MAY 13, 1998
The undersigned stockholder appoints James H. Jibben, Thomas W.
Hertz and Craig A. Anderson, or any of them, each with the power to appoint
his substitute, attorneys and proxies to represent the stockholder and to
vote and act, with respect to all shares that the stockholder would be
entitled to vote at the Annual Meeting of Stockholders of Dakota
Telecommunications Group, Inc. referred to above and any adjournment of
that meeting, on all matters that come before the meeting.
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated below) to vote for all nominees
listed below
Craig A. Anderson Jeffrey G. Parker
Jeffrey J. Goeman John A. Schaefer
(Instruction: To withhold authority to vote for any individual nominee,
strike a line through that nominee's name above.)
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES
2. Proposal to Approve and Adopt an Amendment to the Certificate of
Incorporation to Increase the Number of Authorized Shares of Common
Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL
3. Proposal to Approve and Authorize the Proposed Transfer of Local
Telephone Operating Assets to a Wholly-Owned Subsidiary of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. IF THIS PROXY
IS PROPERLY EXECUTED AND DELIVERED, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL
BE VOTED FOR ELECTION OF ALL NOMINEES NAMED ON THIS PROXY AND FOR EACH OF
THE PROPOSALS IDENTIFIED ABOVE. THE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS THAT MAY
COME BEFORE THE MEETING OR ANY ADJOURNMENT OF THE MEETING.
Dated: _________________, 1998 Please sign exactly as your name appears
on this proxy. If signing for estates,
trusts or corporations, title or
capacity should be stated. IF SHARES
ARE HELD JOINTLY, EACH HOLDER SHOULD
SIGN.
X_______________________________________
Signature
X_______________________________________
Signature if held jointly
IMPORTANT -- PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE
