<PAGE>
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number: 333-22025
DAKOTA TELECOMMUNICATIONS GROUP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 91-1845100
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
29705 453RD AVENUE (605) 263-3301
IRENE, SOUTH DAKOTA 57037-0066 (Issuer's Telephone Number,
(Address of Principal Executive Offices) Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
There were 2,006,220 shares of Dakota Telecommunications Group, Inc. Common
Stock, without par value, outstanding as of June 30, 1998.
Transitional Small Business Disclosure Format (check one): Yes _____ No _X__
==============================================================================
<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC.
INDEX
- ------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet -
June 30, 1998 (Unaudited) and December 31, 1997. . . . . . 3
Consolidated Statement of Operations -
Six Months Ended June 30, 1998 and 1997 (Unaudited). . . . 4
Consolidated Statement of Operations -
Three Months Ended June 30, 1998 and 1997 (Unaudited). . . 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 (Unaudited). . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . 7-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10-18
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 19
Item 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . 19
Item 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
=============================================================================
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,966,382 $ 4,297,938
Temporary Cash Investments 100,000 300,000
Accounts Receivable, Less Allowance for
Uncollectibles of $340,600 and $298,700 3,079,015 4,216,025
Income Taxes Receivable 62,987 62,987
Materials and Supplies 2,065,718 1,109,226
Prepaid Expenses 237,136 275,567
------------ -------------
Total Current Assets 8,511,238 10,261,743
------------ -------------
INVESTMENTS AND OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 4,706,775 4,869,096
Other Intangible Assets 792,876 809,843
Other Investments 1,525,455 2,037,571
Deferred Charges 1,256,913 653,373
------------ -------------
Total Investments and Other Assets 8,282,019 8,369,883
------------ -------------
PROPERTY, PLANT AND EQUIPMENT, NET 25,733,810 25,408,266
------------ -------------
TOTAL ASSETS $ 42,527,067 $ 44,039,892
============ =============
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<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 1,390,000 $ 1,390,000
Notes Payable 3,200,000 1,500,000
Accounts Payable 1,448,378 2,290,727
Payable Under Floor Plan Arrangements 621,365 569,287
Other Current Liabilities 1,113,523 1,171,772
------------ -------------
Total Current Liabilities 7,773,266 6,921,786
------------ -------------
LONG-TERM DEBT 28,542,577 29,200,469
------------ -------------
DEFERRED CREDITS 109,942 113,565
------------ -------------
STOCKHOLDERS' EQUITY:
Common Stock 10,324,497 8,523,870
Treasury Stock at Cost (12,325) (12,325)
Other Capital 1,231,288 2,298,006
Retained Earnings (4,442,178) (2,005,479)
Unearned Employee Stock Ownership Plan (1,000,000) (1,000,000)
------------ -------------
Total Stockholders' Equity 6,101,282 7,804,072
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,527,067 $ 44,039,892
============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
=============================================================================
<CAPTION>
1998 1997
------------ ---------------
<S> <C> <C>
REVENUES:
Local Network $ 824,137 $ 615,502
Network Access 2,680,194 1,907,168
Long Distance Network 1,725,794 1,569,376
Cable Television Service 835,956 780,520
Computer Network Service 7,518,531 --
Internet Service 820,953 479,952
Other 357,518 262,163
------------ ---------------
Total Operating Revenues 14,763,083 5,614,681
------------ ---------------
COSTS AND EXPENSES:
Plant Operations 2,814,960 1,653,873
Cost of Goods Sold 5,951,522 --
Depreciation and Amortization 2,156,216 1,559,645
Customer 1,485,512 449,298
General and Administrative 3,355,395 1,960,731
Other Operating Expenses 464,737 649,111
------------ ---------------
Total Operating Expenses 16,228,342 6,272,658
------------ ---------------
OPERATING LOSS (1,465,259) (657,977)
------------ ---------------
OTHER INCOME AND (EXPENSES):
Interest and Dividend Income 88,149 151,985
Interest Expense (1,059,589) (408,689)
------------ ---------------
Net Other Income and Expenses (971,440) (256,704)
------------ ---------------
LOSS BEFORE INCOME TAXES (2,436,699) (914,681)
INCOME TAX BENEFIT -- (60,096)
------------ ---------------
NET LOSS $ (2,436,699) $ (854,585)
============ ===============
BASIC AND DILUTED LOSS PER SHARE $ $ (1.21)
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
==============================================================================
<CAPTION>
1998 1997
------------ ---------------
<S> <C> <C>
REVENUES:
Local Network $ 417,320 $ 308,591
Network Access 1,274,719 1,024,618
Long Distance Network 856,821 797,084
Cable Television Service 434,005 391,218
Computer Network Service 4,091,202
Internet Service 397,783 257,830
Other 258,811 83,361
------------ ---------------
Total Operating Revenues 7,730,661 2,862,702
------------ ---------------
COSTS AND EXPENSES:
Plant Operations 1,468,610 836,051
Cost of Goods Sold 3,302,854
Depreciation and Amortization 1,110,479 798,220
Customer 759,952 241,449
General and Administrative 1,608,960 1,242,550
Other Operating Expenses 235,968 319,312
------------ ---------------
Total Operating Expenses 8,486,823 3,437,582
------------ ---------------
OPERATING LOSS (756,162) (574,880)
------------ ---------------
OTHER INCOME AND (EXPENSES):
Interest and Dividend Income 58,990 103,913
Interest Expense (563,970) (209,552)
------------ ---------------
Net Other Income and Expenses (504,980) (105,639)
------------ ---------------
LOSS BEFORE INCOME TAXES (1,261,142) (680,519)
INCOME TAX BENEFIT - (23,597)
------------ ---------------
NET LOSS $ (1,261,142) $ (656,922)
============ ===============
BASIC AND DILUTED LOSS PER SHARE $ (.63)
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
=============================================================================
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,436,699) $ (854,585)
Adjustments to Reconcile Net Loss to Net
Cash Provided By Operating Activities:
Depreciation and Amortization 2,156,216 1,559,645
Deferred Charges (2,153) -
Deposits - 274,889
Receivables 1,137,010 388,024
Income Taxes Receivable - 147,698
Prepaids 38,431 (87,140)
Accounts Payable (360,587) 477,340
Other Current Liabilities (6,171) 131,900
Deferred Credits (3,623) 24,987
Other 24,219 -
------------ ------------
Net Cash Provided By Operating
Activities 546,643 2,062,758
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property, Plant and Equipment,
Net (2,291,590) (5,159,245)
Materials and Supplies (956,492) (817,123)
Sale of Temporary Cash Investments 200,000 750,000
Purchase of Other Investments (18,121) (623,195)
Sale of Other Investment 500,743 -
Purchase of Other Intangible Assets (5,607) -
Deferred Charges (601,387) (36,077)
------------ ------------
Net Cash Used In Investing Activities (3,172,454) (5,885,640)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (657,892) (442,256)
Proceeds from Issuance of Note Payable 3,200,000 2,500,000
Principal Payments of Note Payable (1,500,000) -
Construction Contracts Payable (481,762) 2,228,199
Retirement of Patronage Capital - (5,519)
Other 592 21,998
-7-
<PAGE>
Issuance of Common Stock 251,315 -
Conversion of Warrants to Common Stock 482,002 -
------------ ------------
Net Cash Provided by Financing Activities 1,294,255 4,302,422
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,331,556) 479,540
CASH AND CASH EQUIVALENTS at Beginning of Year 4,297,938 2,121,444
------------ ------------
CASH AND CASH EQUIVALENTS at End of Period $ 2,966,382 $ 2,600,984
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest Expense $ 1,009,356 $ 405,312
Income Taxes - 18,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-8-
<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
=============================================================================
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The balance sheets as of June 30, 1998 and December 31, 1997, statements of
operations for the three and six months ended June 30, 1998 and 1997 and
cash flows for the six months ended June 30, 1998 and 1997 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position, results of operations and changes
in cash flows have been made.
The Consolidated Financial Statements have been prepared in accordance with
the requirements of Item 310(b) of Regulation S-B and with the instructions
to Form 10-QSB. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These condensed financial statements should be read in conjunction with the
financial statements and accompanying notes for the years ended December
31, 1997 and 1996. The results of operations for the three and six month
periods ended June 30, 1998 are not necessarily indicative of the operating
results to be expected for the year ending December 31, 1998.
NOTE 2 - NOTES PAYABLE
The Company has a line of credit arrangement for $1.5 million with the Rural
Telephone Finance Cooperative (the "RTFC") which expires in 2002. Interest
is payable quarterly at variable monthly rates determined by RTFC with a cap
at prime plus 1.5%. Any advances must be paid in full within 360 days of the
advance and remain at a zero balance for at least five consecutive business
days. A balance of $1,500,000 was outstanding as of June 30, 1998.
The Company obtained an additional secured line of credit arrangement for
$4 million with RTFC which expires March 31, 1999. Interest is payable
quarterly at variable monthly rates based on the prevailing bank prime rate
plus 1.5%. A balance of $900,000 was outstanding as of June 30, 1998.
The Company renewed the line of credit arrangement for $800,000, at the
prime rate plus one percent, with Norwest Bank, South Dakota, N.A. which
expires April 1, 1999. The entire $800,000 was outstanding as of June 30,
1998. As of July 13, 1998, Norwest has increased the Company's line of
credit limit to $1,200,000 and is effective until September 11, 1998.
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<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
=============================================================================
NOTE 3 - PAYABLE UNDER FLOOR PLAN ARRANGEMENT
IBM Credit Corporation has increased the Company's credit limit for the
floor plan arrangement from $350,000 to $850,000. The increase is
effective until August 31, 1998. The amount outstanding at June 30, 1998
on this agreement was $100,515. The Company also has $520,850 in another
floor plan arrangement as of June 30, 1998.
NOTE 4 - INCOME TAXES
As of July 22, 1997, the income of the Company became taxable at the
federal level. Prior to that date, the Company operated as a cooperative
and had been granted tax exempt status under Section 501(c)12 of the
Internal Revenue Code of 1986 and therefore the Company's income was not
taxable prior to July 22, 1997.
At June 30, 1998 and December 31, 1997, the Company had net deferred tax
assets primarily as a result of the net operating losses. The full amount
of the net deferred tax asset was offset by a valuation allowance due to
uncertainties relating to the full future utilization of these net
operating losses.
NOTE 5 - ACQUISITIONS
The Company has entered into a merger agreement to purchase the outstanding
stock of Vantek Communications, Inc. and Van/Alert, Inc. in exchange for
stock, cash and notes valued at $1,100,000. The purchase has been approved
by the FCC and was finalized on July 1, 1998.
NOTE 6 - CAPITAL STOCK
On December 16, 1997, the Board of Directors declared a two-for-one common
stock split pursuant to a share dividend paid to common stockholders of
record on January 1, 1998. All common stock share amounts shown below have
been adjusted for the stock split.
At December 31, 1997, there were warrants outstanding which were exercised
through January 21, 1998 to purchase 482 shares of preferred stock which
were converted to 77,912 shares of common stock. These warrants were
exercised on January 21, 1998.
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<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
=============================================================================
Former holders of Cooperative common stock and capital credit accounts are
entitled to receive shares of common stock of the Company, without any
further consideration, upon receipt by the Company of properly executed
transmittal documents in acceptable form. If all such persons had
satisfied the conditions to receive shares at June 30, 1998 and December
31, 1997, a total of 481,442 and 911,320 additional shares of the Company's
common stock would have been issued and outstanding as of those dates.
Other capital includes that amount of stockholders equity which would have
been included in common stock if those shares had been issued and
outstanding at June 30, 1998 and December 31, 1997.
The Company approved an offering of 400,000 shares of common stock at a
purchase price of $12.50 per share to shareholders and employees as of
January 27, 1998. The offering expired on March 11, 1998 and 19,485 shares
of common stock were issued.
At the annual meeting, the shareholders approved amending the Company's
Certificate of Incorporation to increase the authorized number of shares of
common stock from 5,000,000 to 10,000,000.
NOTE 7 - LOSS PER SHARE
Basic loss per share as of June 30, 1998 was based on the average number of
shares of common stock outstanding during the period. The number of shares
used in the calculation was 2,006,220 as of June 30, 1998. As of June 30,
1997 the Company was still operating as a cooperative and therefore did not
have common stock outstanding.
Options, rights and warrants have not been considered in the computation of
diluted loss per share since their effect would be anti-dilutive because of
the net loss. If the 481,442 shares issuable at June 30, 1998 to former
holders of cooperative common stock and capital credit accounts upon
satisfaction by such holders of conditions to issuance, which have not been
issued as a result of the reorganization, were considered issued for the
entire period, the loss per share would have been $.98 for the six months
and $.51 for the three months ended June 30, 1998.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSTS OR PLAN OF OPERATION
Management provides the following discussion as its analysis of
the Company's financial condition and results of operations. This analysis
should be read in conjunction with the separate consolidated financial
statements of the Company and the notes thereto included in this report.
FORWARD-LOOKING STATEMENTS
This discussion and analysis of financial condition and results
of operations, and other sections of this report, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the telecommunications
industry, the economy, and about the Company itself, such as information
relating to the Company's ongoing development plans, the effects of its
July 1997 refinancing of its long-term debt, the impact of year 2000 issues
on the Company's computerized operating systems and statements regarding
the Company's anticipated future net losses. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "predicts," "projects," variations of such words and similar
expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve
certain known and unknown risks and uncertainties as well as assumptions
("Future Factors") that are difficult to predict with regard to timing,
extent, likelihood and degree of occurrence. Therefore, actual results and
outcomes may materially differ from what may be expressed or forecasted in
such forward-looking statements. Furthermore, the Company undertakes no
obligation to update, amend or clarify forward-looking statements, whether
as a result of new information, future events or otherwise.
Future Factors include, but are not limited to, uncertainties
related to economic conditions; acquisitions and divestitures; government
and regulatory policies; the pricing and availability of equipment,
materials, inventories and software; technological developments and changes
in the competitive environment in which the Company operates; changes in
interest rates; demand for the Company's products and services; the degree
of competition by traditional and non-traditional competitors; changes in
tax laws; changes in prices, levies and assessments; and the outcomes of
pending and future litigation and contingencies. These are representative
of the Future Factors that could cause a difference between an ultimate
actual outcome and a preceding forward-looking statement. Readers are
cautioned not to place undue reliance on the forward-looking statements
made below or elsewhere in this Quarterly Report.
OVERVIEW
The Company is a competitive local exchange carrier ("LEC")
specializing in the design, construction and operation of broadband hybrid
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<PAGE>
fiber optic communications systems for small communities in South Dakota and
the surrounding states. The Company provides a full range of bundled products
and services to its customers, including switched local dial tone and
enhanced services, network access services, long distance telephone
services, operator assisted calling services, telecommunications equipment
sale and leasing services, cable television services, computer equipment
sales, Internet access and related services and computer and data
networking products and services, using both wireline and wireless
technologies.
In 1996 the Company began a major reorganization and expansion
program. This program included the conversion of the Company from a stock
cooperative into a publicly held Delaware business corporation, the
redesign and rebuilding of the Company's switching center and fiber
backbone network, which was completed in 1997, and the expansion of the
Company's operations through selected acquisitions. During 1996, the
Company purchased the assets of 19 cable television systems. In December
1996, the Company, through a wholly owned subsidiary, merged with TCIC
Communications, Inc. ("TCIC"), a South Dakota-based provider of long
distance and operator services. Also in December 1996, in a similar
transaction, the Company merged with I-way Partners, Inc. ("Iway"),
one of South Dakota's largest Internet service providers. In December
1997, the Company merged with Futuristic, Inc. dba DataNet ("DataNet"),
a leading regional local area network/wide area network ("LAN/WAN")
integrator located in Sioux Falls, South Dakota. These companies continue
to operate as wholly owned subsidiaries of the Company under the names DTG
Communications, Inc., DTG Internet, Inc., and DTG DataNet, Inc.,
respectively. Also in December 1997, the Company signed a merger agreement
with Vantek, Inc. and Van Alert, Inc. ("Vantek"), a regional specialized
mobile radio and paging company in southeastern South Dakota. This
transaction was completed in July, 1998. Vantek continues to operate as a
wholly owned subsidiary of the Company under the name Dakota Wireless, Inc.
The Company has one additional acquisition pending of a small, regional
specialized mobile radio company serving an area complementary to that
served by Vantek. The anticipated closing for the acquisition is in fourth
quarter of 1998, pending FCC license transfer approvals. The Company
currently anticipates that additional acquisitions will form a part of its
continuing expansion plans, though no final agreements have been concluded
at this time.
The Company's reorganization and expansion plans have had, and
will continue to have, significant impacts on the Company's financial
condition and results of operations. As part of its network-rebuilding
project, in 1995 the Company reassessed the remaining useful life of its
old facilities. In 1996 and 1997, the Company incurred approximately $5.8
million and $13.6 million in new capital expenditures, respectively.
During the first six months of 1998, the Company incurred an additional $2.3
million in capital expenditures as well as purchased $957,000 of additional
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<PAGE>
materials for its 1998 developments. The Company anticipates spending
substantial additional funds for its continuing development programs. These
expenditures have been, and future expenditures are anticipated to be,
financed through substantial increases in the Company's long-term debt.
These changes will combine to result in substantially higher depreciation
and interest expenses with a corresponding reduction in the Company's net
income. In addition, to implement its growth plans, in 1996 the Company
completed the acquisitions described above and since that time has increased
its employee base from 34 employees at December 31, 1995, to 172 employees
at June 30, 1998, resulting in additional increases in amortization expense
and employee-related operating expenses. While the Company anticipates that
its revenue base will continue to grow as it completes its new facilities
and markets new services, the resultant higher expense levels from a
combination of higher depreciation, amortization and interest expense, as
well as additional employee expenses, will likely cause the Company to
recognize and report net after-tax losses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
ANALYSIS OF MATERIAL CHANGES IN BALANCE SHEET ITEMS
Cash and Temporary Cash Investments decreased from $4,598,000 at
December 31, 1997, to $3,066,000 at June 30, 1998, a decrease of
$1,532,000. The decrease was used for capital expenditures, investment in
acquisitions and to fund operating losses.
Net Accounts Receivable decreased from $4,216,000 at December 31,
1997, to $3,079,000 at June 30, 1998, a decrease of $1,137,000. This
decrease was primarily due to the payments of additional funds due to the
Company from the National Exchange Carriers Association for final
adjustments to the Company's access revenue requirements from its 1996 and
1997 telephone operation cost studies.
Materials and Supplies inventories increased from $1,109,000 at
December 31, 1997 to $2,066,000 at June 30, 1998, an increase of $957,000.
This increase represents additional materials on hand to be used in the
Company's 1998 development projects.
Other Investments decreased from $2,038,000 at December 31, 1997
to $1,525,000 at June 30, 1998, a decrease of $513,000. This decrease was
primarily due to sale of a Treasury Bill by the Company during the first
quarter of 1998.
Deferred Charges increased from $653,000 at December 31, 1997 to
$1,257,000 at June 30, 1998, an increase of $604,000, which was primarily
related to software purchases and development for the new billing system.
Current Liabilities increased from $6,922,000 at December 31,
1997 to $7,773,000, a net increase of $851,000, which was primarily due to
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<PAGE>
an additional draw from the Company's revolving credit line with the Rural
Telephone Finance Cooperative (the "RTFC") of $900,000 and a reduction in
accounts payable.
Total Stockholders' Equity decreased from $7,804,000 at December
31, 1997 to $6,101,000 at June 30, 1998, a decrease of approximately
$1,703,000. This decrease was caused by the Company's operating losses
of $2,437,000 during the first six months offset by additional equity
raised by the Company from the exercise of outstanding warrants and the
sale of stock to the Company's existing shareholders. See Note 6 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has adequate internal resources
available to finance its ongoing operating requirements. Net Cash Provided
From Operations was $547,000 in the first six months of 1998. See the
Consolidated Statement of Cash Flows included in the Company's Consolidated
Financial Statements. In addition, the Company maintains a $4,000,000
revolving line of credit with the RTFC, of which $3.1 million was available
and undrawn as of June 30, 1998. Finally, the Company uses a combination
of the floor plan financing arrangements and an $800,000 working capital
line of credit to fund inventory holding costs in its DataNet operation.
See Notes 2 and 3 to the Consolidated Financial Statements.
While the Company can finance its day-to-day operations using
internal funds, it will need additional long-term financing to complete
additional network construction programs. The Company's primary long-term
lender is the RTFC, which provided the funds for the Company's 1997
construction projects. On July 17, 1998, the RTFC agreed to additional
long term financing in the amount of $35,263,128. This financing is
contingent on the Company raising additional equity. While there is no
assurance that additional funds will be made available to the Company, the
Company and its subsidiaries expect the RTFC and other sources to continue
to be available for future borrowings.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Revenues increased from $5,615,000 during the first six months of
1997 to $14,763,000 the first six months of in 1998, an increase of
$9,148,000, or approximately 163%. Of this increase, $7,519,000 reflects
the addition of revenues from the Company's DataNet operations acquired in
December 1997. An additional $733,000 of this increase represents
additional access revenues, described in more detail immediately below.
The balance reflects internal growth in the Company's operations.
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<PAGE>
Access revenues are received by local exchange companies for
intrastate and interstate exchange services provided to long distance
carriers (generally referred to as interexchange carriers or "IXCs") which
enable IXCs to provide long distance service to end users in the local
exchange network. Access revenues are determined, in the case of interstate
calls, according to rules issued by the Federal Communications Commission
("FCC") and administered by the National Exchange Carrier Association
("NECA") and, in the case of intrastate calls, by state regulatory agencies.
A relatively small portion of the Company's access revenues are derived
from subscriber line fees determined by the FCC and billed directly to end
users for access to long distance carriers. The balance of the Company's
interstate access revenues are received from NECA, which collects payments
from IXCs and distributes settlement payments to LECs based on a number of
factors, including the cost of providing service and the amount of time
the local network is utilized to provide long distance services. A variety
of factors, including increased subscriber counts, cultural and
technological changes and rate reductions by IXCs, have resulted in a
consistent pattern of increasing use of the nation's telephone network
since 1984. This growth has produced higher revenues for NECA and
increased settlements for its participating LECs. These increases,
combined with the increase in the Company's operating expenses, resulted
in the increase in the Company's access revenues.
Plant Operations expense increased from $1,654,000 during the
first six months of 1997 to $2,815,000 in 1998, an increase of $1,161,000,
or approximately 70%. Approximately $149,000 of this increase was due to
the additional costs and expenses from the operation of DataNet. The
remaining increase is primarily due to increased costs in the Company's
competitive local exchange carrier operations in its new markets.
Cost of Goods Sold, a new category of operating expense, was
$5,952,000 in the first six months of 1998 reflecting expenses associated
with the Company's DataNet operation.
Depreciation and Amortization expense increased from $1,560,000
in the first six months of 1997 to $2,156,000 in 1998, an increase of
$596,000 or approximately 38%. Approximately $136,000 of this increase was
due to the amortization of the excess of cost over net assets acquired in
the acquisition of DataNet and the depreciation of assets used in the
DataNet operation. The balance of this increase is due primarily to the
deprecation of additional assets placed in service by the Company during
1997 and in the first six months of 1998 as part of its network
construction program.
Customer operating expenses increased from $449,000 in the first
six months of 1997 to $1,486,000 in 1998, an increase of $1,037,000 of
approximately 231%. Of this increase, $764,000 related to the customer
service expenses associated with the DataNet operation. The remaining
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<PAGE>
increase is primarily due to increased costs in the Company's competitive
local exchange carrier operations in its new markets.
Other costs and expenses, including General and Administrative
and Other Operating Expenses increased from $2,610,000 during the first six
months of 1997 to $3,820,000 in 1998, an increase of $1,210,000 or
approximately 46%. Of these expenses, $90,951 in 1997 were due to the
inclusion of one-time, nonrecurring charges associated with the conversion
and merger of the Company in 1997. Of these expenses, $57,000 in 1998 were
due to the inclusion of one-time, nonrecurring charges associated with the
registration and sale of stock to the Company's shareholders during the
first quarter. See Note 6 to the Consolidated Financial Statements. Of the
remaining $1,062,000 increase in other costs and expenses, approximately
$680,000 was due to the additional costs and expenses from the operation of
DataNet. The remaining increase is primarily due to increased costs in the
Company's competitive local exchange carrier operations in its new markets.
Interest expense increased from $409,000 for the first six months
of 1997 to $1,060,000 during 1998, an increase of $651,000, or
approximately 159%. This increase is primarily due to the increase in long
term debt incurred by the Company to refinance its Rural Utilities Service
("RUS") debt and to fund its 1998 capital expenditures.
Basic loss per share for the first six months of 1998, based on
2,006,220 outstanding shares, was $1.21. As of June 30, 1997 the Company
was still operating as a cooperative and therefore did not have common
stock outstanding. See Note 7 to the Consolidated Financial Statements.
THREE MONTHS ENDED JUNE 30, 1997 AND 1998
Revenues increased from $2,863,000 during the second quarter of
1997 to $7,731,000 in 1998, an increase of $4,868,000, or approximately
170%. Of this increase, $4,091,000 reflects the addition of revenues from
the Company's DataNet operations acquired in December 1997. An additional
$250,000 of this increase represents additional access revenues. The
balance reflects internal growth in the Company's operations.
Plant Operations expense increased from $836,000 during the
second quarter of 1997 to $1,469,000 in 1998, an increase of $633,000, or
approximately 76%. Approximately $61,000 of this increase was due to the
additional costs and expenses from the operation of DataNet. The remaining
increase is primarily due to increased costs in the Company's competitive
local exchange carrier operations in its new markets.
Cost of Goods Sold, a new category of operating expense, was
$3,303,000 in the second quarter of 1998 reflecting expenses associated
with the Company's DataNet operation.
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<PAGE>
Depreciation and Amortization expense increased from $798,000 in
the second quarter of 1997 to $1,110,000 in 1998, an increase of $312,000
or approximately 39%. Approximately $67,000 of this increase was due to
the amortization of the excess of cost over net assets acquired in the
acquisition of DataNet and the depreciation of assets used in the DataNet
operation. The balance of this increase is due primarily to the
deprecation of additional assets placed in service by the Company during
1997 and in the second quarter of 1998 as part of its network construction
program.
Customer operating expenses increased from $241,000 in the second
quarter of 1997 to $760,000 in 1998, an increase of $519,000 of
approximately 215%. Of this increase, $372,000 related to the customer
service expenses associated with the DataNet operation. The remaining
increase is primarily due to increased costs in the Company's competitive
local exchange carrier operations in its new markets.
Other costs and expenses, including General and Administrative
and Other Operating Expenses increased from $1,562,000 during the second
quarter of 1997 to $1,845,000 in 1998, an increase of $283,000 or
approximately 18%. Of this increase, $283,000 was related to expenses
associated with the DataNet operation
Interest expense increased from $210,000 for the second quarter
of 1997 to $564,000 during 1998, an increase of $354,000, or approximately
169%. This increase is primarily due to the increase in long term debt
incurred by the Company to refinance its RUS debt and to fund its 1998
capital expenditures.
Basic loss per share for the second quarter of 1998, based on
2,006,220 outstanding shares, was $0.63. As of June 30, 1997 the Company
was still operating as a cooperative and therefore did not have common
stock outstanding. See Note 7 to the Consolidated Financial Statements.
INCOME TAXES
The Company historically operated as a stock cooperative and was
granted tax-exempt status under Section 501(c)(12) of the Internal Revenue
Code of 1986, as amended. Accordingly, income tax expense was related only
to certain ancillary operations, such as the Company's cable television
operations. Beginning with the Company's conversion from a cooperative to
a Delaware business corporation in July 1997, all of the Company's
operations became taxable. However, because of the Company's consolidated
net losses, the Company has accumulated significant income tax loss
carryovers. See Note 4 to the Consolidated Financial Statements for a full
discussion of the Company's income tax issues.
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<PAGE>
EFFECTS OF INFLATION
The Company is subject the effects of inflation upon its
operating costs. The Company's local exchange telephone companies are
subject to the jurisdiction of the South Dakota Public Utilities Commission
with respect to a variety of matters, including rates for intrastate access
services and the conditions and quality of service. Rates for local
telephone service are not established directly by regulatory authorities,
but their authority over other matters limits the Company's ability to
implement rate increases. In addition, the regulatory process inherently
restricts the Company's ability to immediately pass cost increases along to
customers unless the cost increases are anticipated and the rate increases
are implemented prospectively.
All of the Company's long-term debt from the RTFC bears interest
on a floating rate set by the RTFC on a monthly basis. This variable rate
was 6.65% at June 30, 1998. The Company has the option to fix the interest
rate on all or a portion of these loans on a quarterly basis. Should
inflation rates significantly exceed the Company's expectations, interest
rates could increase and the Company's debt service expenses could increase
beyond acceptable limits or make the RTFC or any other lender unwilling to
extend additional credit to the Company.
COMPETITION
In February 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Act"). The new law represents
the biggest change in the rules governing local telephone service since
Congress imposed federal regulation and established the FCC in 1934. Under
the 1996 Act, the monopoly on local service enjoyed by LECs is eliminated
and LECs must allow competitors access to their local network facilities.
The Company does not know to what extent it will be subject to local
competition in the markets it serves under the new rules. The final results
of the changes made by the new law will not be known for some time until
new rulemaking by the FCC and state regulatory agencies has been completed.
The Company is monitoring developments regarding the new regulatory climate
closely and expects its operations may be materially affected by the new
rules, but the Company cannot predict what effect the new rules will have
on its business.
The Company is presently the only provider of local telephone
service in its historical nine local communities and directly competes with
the incumbent local service company in the four communities into which it
built in 1997. Technological developments in competing technologies, such
as cellular telephone, digital microwave, coaxial cable, fiber optics and
other wireless and wired technologies, may result in new forms of
competition to the Company's landline services. The Company and many other
members of the local exchange carrier industry are seeking to maintain a
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<PAGE>
strong, universally affordable public telecommunications network through
policies and programs that are sensitive to the needs of small communities
and rural areas served by the Company. There is no assurance that the
Company will be able to continue to do so in the future.
All of the Company's cable television franchises are non-
exclusive. In addition to competition from off-air television, other
technologies also supply services provided by cable television. These
include low power television stations, multi-point distribution systems,
over-the-air subscription television and direct broadcast satellites. The
Company believes that cable television presently offers a wider variety of
programming at lower cost than any competing technology. However, the
Company is unable to predict the effect current or developing sources of
competition may have on its cable business.
The Company's unregulated Internet, long distance, operator
services and computer network services businesses are subject to intense
competition from many different companies, many of which have substantially
greater resources than the Company.
YEAR 2000 COMPUTER SOFTWARE ISSUES
The Company is highly dependent upon advanced computer systems
and specialized software for the conduct of its business. These systems
include switching and network operations, billing and customer care,
accounting and reporting and Internet operating systems, as well as a wide
assortment of personal computer productivity software. In 1997, as part of
its reorganization plan, the Company installed new accounting and reporting
systems and began the installation of a new billing and customer service
system, currently scheduled for completion in 1998. It also rebuilt its
Internet operating systems and installed a new switching platform and
software system.
As part of its systems replacement process, the Company addressed
an issue that is facing all users of automated information systems. The
issue is that many computer systems that process date sensitive information
based on two digits representing the year of the event may recognize a date
using "00" as the year 1900 rather than the year 2000. The inability to
correctly recognize "00" as the year 2000 could affect a wide variety of
automated information systems, such as mainframe applications, invoicing
and receivables tracking systems, event scheduling systems, personal
computers and communication systems, in the form of software failure,
errors or miscalculations.
The Company's system vendors have assured the Company that its
new systems will not experience year 2000 problems. However, given the
complexity of the specialized software used by the Company and the relative
newness of the year 2000 problem, there can be no assurance that the
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<PAGE>
Company's new or remaining systems will not experience some problems as
these systems begin to operate using year 2000 dates. The Company will
continue to assess the impact of the year 2000 issue on the remainder of
its computer-based systems and applications throughout 1998. The Company's
goal is to perform tests of its systems and applications during 1998 and to
have all systems and applications compliant with the century change by
December 31, 1998.
The Company believes that with modifications to existing software
and conversions to new software, the year 2000 issue will not pose
significant operational problems for its computer systems. While the
Company will continue to monitor and test its systems for potential
problems, failure of key software systems to properly recognize and handle
year 2000 dates could result in material and wide-spread failures in the
Company's operations, possibly leading to severe service outages and
customer complaints. Such failures, were they to occur, would have severe
adverse effects on the Company's results of operations, liquidity and
capital resources.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financing Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131").
This pronouncement, effective for calendar year 1998 financial statements,
requires reporting segment information consistent with the way executive
management of an entity disaggregates its operations internally to assess
performance and make decisions regarding resource allocations. Among
information to be disclosed, SFAS 131 requires an entity to report a
measure of segment profit or loss, certain specific revenue and expense
items and segment assets. SFAS 131 also requires reconciliations of total
segment revenues, total segment profit or loss and total segment assets to
the corresponding amounts shown in the entity's consolidated financial
statements. The Company expects that the adoption of SFAS 131 will require
the Company to discontinue reporting segments currently disclosed in its
annual consolidated financial statements due to the increasing convergence
of its computer, telephone and cable television businesses.
No other recently issued accounting pronouncements are expected
to have a significant effect on future financial statements.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no pending environmental or legal issues that the
Company believes will have a significant effect on either the operational
or financial condition of the Company. The incumbent cable provider in
Marshall, Minnesota, Bresnan Communications ("Bresnan"), filed an appeal
with the Minnesota Court of Appeals (File No. C8-98-1139) on June 26, 1998,
of the grant of a competitive franchise by the City of Marshall to the
Company. The parties to the appeal are Bresnan, the City of Marshall, and
the Company. The appeal seeks to have the appellate court reverse the
decision granting the franchise. In addition, on June 26, 1998, Bresnan
filed an action in state court (Fifth Judicial Circuit) directly against
the City of Marshall alleging a failure to provide certain requested
information and a violation of the open meeting laws by the Marshall
Municipal Utilities Commission and the City in the consideration of the
grant of the franchise to the Company. Bresnan alleges that this conduct
has so tainted the granting of the franchise that the court should find the
franchise to be void. The Company is not a party to this lawsuit, but will
continue to monitor its progress. The Company believes there is no factual
basis for the allegations in the complaint. The Company believes that
neither legal action is meritorious. Because the Company is a party to the
appeal, it will file briefs and orally argue its position before the
appellate court. However, in light of the possible negative outcomes to
either of these actions, the Company has suspended further work in the
Marshall area. Construction efforts and funds intended for Marshall
equipment have been shifted to other areas where the Company have been
awarded franchises. If Bresnan is successful in either action, the
financial impact on the Company for work already completed would not be
material and would not have a negative effect on future periods.
Item 2. CHANGES IN SECURITIES
On May 13, 1998, the Company's stockholders approved an amendment
to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock, no par value ("Common Stock"), from
5,000,000 to 10,000,000 shares.
All of the additional shares resulting from the increase in the
Company's authorized Common Stock are of the same class, with the same
dividend, voting and liquidation rights, as the shares of Common Stock
previously outstanding.
The newly authorized shares are unreserved and available for
issuance. No further stockholder authorization is required prior to the
issuance of such shares by the Company. Stockholders have no preemptive
rights to acquire shares issued by the Company under its Certificate of
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<PAGE>
Incorporation, and stockholders did not acquire any such rights with
respect to such additional shares under the amendment to the Company's
Certificate of Incorporation. Under some circumstances, the issuance of
additional shares of Common Stock could dilute the voting rights, equity
and earnings per share of existing stockholders.
Item 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 13, 1998, the Company held its 1998 Annual Meeting of
Stockholders. The purposes of the meeting were: to elect four directors
for three-year terms expiring in 2001; to consider and approve an amendment
to the Company's Certificate of Incorporation to increase the amount of
authorized capital from 5,000,000 shares of Common Stock to 10,000,000
shares of Common Stock; and to consider and approve the transfer of local
telephone service assets to a wholly-owned subsidiary of the Company.
Four candidates nominated by management were elected by the
stockholders to serve as Directors of the Company at the meeting. The
following sets forth the results of the voting with respect to each
candidate:
<TABLE>
<CAPTION>
NAME OF CANDIDATE SHARES VOTED
<S> <C> <C>
Craig A. Anderson For 1,304,039
Authority Withheld 59,874
Broker Non-Votes 0
Jeffrey J. Goeman For 1,302,928
Authority Withheld 60,985
Broker Non-Votes 0
Jeffrey G. Parker For 1,304,357
Authority Withheld 59,556
Broker Non-Votes 0
John A. Schaefer For 1,305,833
Authority Withheld 58,080
Broker Non-Votes 0
</TABLE>
The following persons remained as directors of the Company with
terms expiring in 1999: Ross L. Benson, Dale Q. Bye and James H. Jibben.
The following persons remained as directors of the Company with terms
expiring in 2000: Thomas W. Hertz, Palmer O. Larsen and John (Jack) A.
Roth.
The stockholders also voted to approve the amendment to the
Certificate of Incorporation to increase the amount of authorized capital
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<PAGE>
stock as described in Item 2 of Part II of this Report on Form 10-QSB. The
following sets forth the results of the voting with respect to that matter:
<TABLE>
<CAPTION>
SHARES VOTED
<S> <C> <C>
For 1,306,659
Against 47,500
Abstentions 9,754
Broker Non-Votes 0
The stockholders also voted to approve the transfer of local
telephone service assets to a wholly-owned subsidiary of the Company. The
following sets forth the results of the voting with respect to that matter:
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED
<S> <C> <C>
For 1,315,885
Against 34,466
Abstentions 13,562
Broker Non-Votes 0
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits are filed as part of this
report:
EXHIBIT
NUMBER DOCUMENT
3.1 Certificate of Incorporation of Dakota Telecommunications
Group, Inc., a Delaware corporation, as amended.
3.2 Bylaws of Dakota Telecommunications Group, Inc., a Delaware
corporation, as amended. Filed as Exhibit 3.2 to the
Company's Report of Form 10-KSB for the fiscal year ended
December 31, 1997 and here incorporated by reference.
4.1 Certificate of Incorporation of Dakota Cooperative
Telecommunications Group, Inc., a Delaware corporation. See
Exhibit 3.1 above.
4.2 Bylaws of Dakota Telecommunications Group, Inc., a Delaware
corporation, as amended. See Exhibit 3.2 above.
-24-
<PAGE>
4.3 Rights Agreement, dated as of July 22, 1997, between the
Company, and Norwest Bank Minnesota, N.A., which includes
the form of Rights Certificate as Exhibit A and the Summary
of Rights to Purchase Preferred Stock as Exhibit B. Filed
as Exhibit 4.3 to the Registrant's Report on Form 10-QSB for
the quarter ended September 30, 1997 and here incorporated
by reference.
4.4 Standstill Agreement dated November 27, 1996, among Dakota
Cooperative Telecommunications, Inc., and the Selling
Shareholders of TCIC Communications, Inc. Filed as Exhibit
4.7 to the Registrant's Form S-4 Registration Statement that
became effective on June 13, 1997 (the "S-4 Registration
Statement") and here incorporated by reference.
4.5 Standstill Agreement dated November 27, 1996, among Dakota
Cooperative Telecommunications, Inc. and the Selling
Shareholders of I-Way Partners, Inc. Filed as Exhibit 4.8
to the S-4 Registration Statement and here incorporated by
reference.
4.6 Dakota Cooperative Telecommunications, Inc. Form of Warrant
Agreement. Filed as Exhibit 4.11 to the S-4 Registration
Statement and here incorporated by reference.
4.7 Dakota Cooperative Telecommunications, Inc. Form of Option
Agreement. Filed as Exhibit 4.12 to the S-4 Registration
Statement and here incorporated by reference.
4.8 Agreement Regarding Stock (I-Way Partners, Inc.) dated
November 27, 1996. Filed as Exhibit 4.13 to the S-4
Registration Statement and here incorporated by reference.
4.9 Agreement Regarding Stock (TCIC Communications, Inc.) dated
November 27, 1996. Filed as Exhibit 4.14 to the S-4
Registration Statement and here incorporated by reference.
4.10 Dakota Telecommunications Group, Inc. Common Stock
Certificate. Filed as Exhibit 4.16 to the S-4 Registration
Statement and here incorporated by reference.
4.11 Dakota Telecom, Inc. Loan Agreement with Rural Telephone
Finance Cooperative dated January 29, 1996. Filed as
Exhibit 4.34 to the S-4 Registration Statement and here
incorporated by reference.
4.12 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Loan Agreement with Rural Telephone Finance
-25-
<PAGE>
Cooperative Report on Form 10-QSB for the quarter ended June
30, 1997 and here incorporated by reference.
4.13 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Mortgage and Security Agreement with Rural
Telephone Finance Cooperative dated June 24, 1997. Filed as
Exhibit 4.31 to the Registrant's Report on Form 10-QSB for
the quarter ended June 30, 1997 and here incorporated by
reference.
4.14 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Pledge and Security Agreement with Rural
Telephone Finance Cooperative dated June 24, 1997. Filed as
Exhibit 4.33 to the Registrant's Report on Form 10-QSB for
the quarter ended June 30, 1997 and incorporated by
reference.
4.15 The Company has several classes of long-term debt
instruments outstanding in addition to those described in
Exhibits 4.11 through 4.14. The amount of these classes of
debt outstanding on December 1, 1997, does not exceed 10% of
the Company's total consolidated assets. The Company agrees
to furnish copies of any agreement defining the rights of
holders of any such long-term indebtedness to the Securities
and Exchange Commission upon request.
10.1 Rural Telephone Finance Cooperative Secured Revolving Line
of Credit Agreement dated as of March 31, 1998 between the
Registrant, Dakota Telecom, Inc. and Rural Telephone Finance
Cooperative.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed
during the period covered by this report.
-26-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAKOTA TELECOMMUNICATIONS
GROUP, INC.
Date: August 14, 1998 By /S/ THOMAS W. HERTZ
Thomas W. Hertz
Chairman and Chief Executive Officer
Date: August 14, 1998 By /S/ CRAIG A. ANDERSON
Craig A. Anderson
President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-27-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3.1 Certificate of Incorporation of Dakota Telecommunications
Group, Inc., a Delaware corporation, as amended.
3.2 Bylaws of Dakota Telecommunications Group, Inc., a Delaware
corporation, as amended. Filed as Exhibit 3.2 to the
Company's Report of Form 10-KSB for the fiscal year ended
December 31, 1997 and here incorporated by reference.
4.1 Certificate of Incorporation of Dakota Cooperative
Telecommunications Group, Inc., a Delaware corporation. See
Exhibit 3.1 above.
4.2 Bylaws of Dakota Telecommunications Group, Inc., a Delaware
corporation, as amended. See Exhibit 3.2 above.
4.3 Rights Agreement, dated as of July 22, 1997, between the
Company, and Norwest Bank Minnesota, N.A., which includes
the form of Rights Certificate as Exhibit A and the Summary
of Rights to Purchase Preferred Stock as Exhibit B. Filed
as Exhibit 4.3 to the Registrant's Report on Form 10-QSB for
the quarter ended September 30, 1997 and here incorporated
by reference.
4.4 Standstill Agreement dated November 27, 1996, among Dakota
Cooperative Telecommunications, Inc., and the Selling
Shareholders of TCIC Communications, Inc. Filed as Exhibit
4.7 to the Registrant's Form S-4 Registration Statement that
became effective on June 13, 1997 (the "S-4 Registration
Statement") and here incorporated by reference.
4.5 Standstill Agreement dated November 27, 1996, among Dakota
Cooperative Telecommunications, Inc. and the Selling
Shareholders of I-Way Partners, Inc. Filed as Exhibit 4.8
to the S-4 Registration Statement and here incorporated by
reference.
4.6 Dakota Cooperative Telecommunications, Inc. Form of Warrant
Agreement. Filed as Exhibit 4.11 to the S-4 Registration
Statement and here incorporated by reference.
4.7 Dakota Cooperative Telecommunications, Inc. Form of Option
Agreement. Filed as Exhibit 4.12 to the S-4 Registration
Statement and here incorporated by reference.
<PAGE>
4.8 Agreement Regarding Stock (I-Way Partners, Inc.) dated
November 27, 1996. Filed as Exhibit 4.13 to the S-4
Registration Statement and here incorporated by reference.
4.9 Agreement Regarding Stock (TCIC Communications, Inc.) dated
November 27, 1996. Filed as Exhibit 4.14 to the S-4
Registration Statement and here incorporated by reference.
4.10 Dakota Telecommunications Group, Inc. Common Stock
Certificate. Filed as Exhibit 4.16 to the S-4 Registration
Statement and here incorporated by reference.
4.11 Dakota Telecom, Inc. Loan Agreement with Rural Telephone
Finance Cooperative dated January 29, 1996. Filed as
Exhibit 4.34 to the S-4 Registration Statement and here
incorporated by reference.
4.12 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Loan Agreement with Rural Telephone Finance
Cooperative Report on Form 10-QSB for the quarter ended June
30, 1997 and here incorporated by reference.
4.13 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Mortgage and Security Agreement with Rural
Telephone Finance Cooperative dated June 24, 1997. Filed as
Exhibit 4.31 to the Registrant's Report on Form 10-QSB for
the quarter ended June 30, 1997 and here incorporated by
reference.
4.14 Dakota Cooperative Telecommunications, Inc. and Dakota
Telecom, Inc. Pledge and Security Agreement with Rural
Telephone Finance Cooperative dated June 24, 1997. Filed as
Exhibit 4.33 to the Registrant's Report on Form 10-QSB for
the quarter ended June 30, 1997 and incorporated by
reference.
4.15 The Company has several classes of long-term debt
instruments outstanding in addition to those described in
Exhibits 4.11 through 4.14. The amount of these classes of
debt outstanding on December 1, 1997, does not exceed 10% of
the Company's total consolidated assets. The Company agrees
to furnish copies of any agreement defining the rights of
holders of any such long-term indebtedness to the Securities
and Exchange Commission upon request.
<PAGE>
10.1 Rural Telephone Finance Cooperative Secured Revolving Line
of Credit Agreement dated as of March 31, 1998 between the
Registrant, Dakota Telecom, Inc. and Rural Telephone Finance
Cooperative.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DAKOTA TELECOMMUNICATIONS GROUP, INC.
The undersigned, Craig A. Anderson, for the purposes of
incorporating and organizing a corporation under the General Corporation
Law of the State of Delaware, does execute this Certificate of
Incorporation and does hereby certify as follows:
ARTICLE I. The name of the corporation is DAKOTA
TELECOMMUNICATIONS GROUP, INC.
ARTICLE II. The address of the corporation's registered office
in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III. The nature of the business or purposes to be
conducted or promoted by the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV. The total number of shares which 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 designations, voting powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions of the above classes of stock and other general
provisions relating thereto shall be as follows:
A. PROVISIONS APPLICABLE TO COMMON STOCK
1. Except as otherwise required by law or by any amendment to
this Certificate of Incorporation, each holder of Common Stock shall
have one vote for each share of stock held by the stockholder on all
matters voted upon by the stockholders.
2. Subject to the preferential dividend rights, if any,
applicable to shares of Preferred Stock and subject to applicable
requirements, if any, with respect to the setting aside of sums for
purchase, retirement or sinking funds for Preferred Stock, the holders
<PAGE>
of Common Stock shall be entitled to receive, to the extent permitted
by law, such dividends as may be declared from time to time by the
Board of Directors.
3. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the corporation,
after distribution in full of the preferential amounts, if any, to be
distributed to the holders of shares of Preferred Stock, holders of
Common Stock shall be entitled to receive all of the remaining assets
of the corporation of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively. The Board of Directors may
distribute in kind to the holders of Common Stock such remaining
assets of the corporation or may sell, transfer or otherwise dispose
of all or any part of such remaining assets to any corporation, trust
or entity, or any combination thereof, and may sell all or any part of
the consideration so received and distribute any balance thereof in
kind to holders of Common Stock. The merger or consolidation of the
corporation into or with any other corporation, or the merger or
consolidation of any other corporation into it, or any purchase or
redemption of shares of stock of the corporation of any class, shall
not be deemed to be a dissolution, liquidation or winding up of the
corporation for the purposes of this paragraph.
4. The holders of Common Stock shall not have any preemptive or
other preferential right to additional or treasury shares of the
corporation.
5. Such numbers of shares of Common Stock as may from time to
time be required for such purpose shall be reserved for issuance (1)
upon conversion of any shares of Preferred Stock or any obligation of
the corporation convertible into shares of Common Stock which is at
the time outstanding or issuable upon exercise of any options or
warrants at the time outstanding and (2) upon exercise of any options
or warrants at the time outstanding to purchase shares of Common
Stock.
B. PROVISIONS APPLICABLE TO PREFERRED STOCK GENERALLY
1. Shares of Preferred Stock may be issued in one or more
series at such time or times and for such consideration or
considerations as the Board of Directors may determine. All shares of
any one series shall be of equal rank and identical in all respects
except that the dates from which dividends accrue or accumulate with
respect thereto may vary.
2. The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, each with such voting powers,
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full or limited, or without voting powers, and with such designations,
preferences and relative participating, optional or other special
rights, and such qualifications, limitations or restrictions thereof,
as shall be stated in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated
in this Certificate of Incorporation, or any amendment thereto,
including (without limiting the generality of the foregoing) the
following:
(a) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of Directors.
(b) The stated value of the shares of such series.
(c) The dividend rate or rates on the shares of such series
and the relation which such dividends shall bear to the dividends
payable on any other class of capital stock or on any other series of
Preferred Stock, the terms and conditions upon which and the periods
in respect of which dividends shall be payable, whether and upon what
conditions such dividends shall be cumulative and, if cumulative, the
date or dates from which dividends shall accumulate.
(d) Whether the shares of such series shall be redeemable
and, if redeemable, whether redeemable for cash, property or rights,
including securities of any other corporation, and whether redeemable
at the option of the holder or the corporation or upon the happening
of a specified event, the limitations and restrictions with respect to
such redemption, the time or times when, the price or prices or rate
or rates at which, the adjustments with which and the manner in which
such shares shall be redeemable, including the manner of selecting
shares of such series for redemption if less than all shares are to be
redeemed.
(e) The rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over any other
series (or of any other series over such series), upon the voluntary
or involuntary liquidation, dissolution, distribution or winding up of
the corporation, which rights may vary depending on whether such
liquidation, dissolution, distribution or winding up is voluntary or
involuntary, and, if voluntary, may vary at different dates.
(f) Whether the shares of such series shall be subject to
the operation of a purchase, retirement or sinking fund and, if so,
whether and upon what conditions such fund shall be cumulative or
noncumulative, the extent to which and the manner in which such fund
shall be applied to the purchase or redemption of the shares of such
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series for retirement or to other corporate purposes and the terms and
provisions relative to the operation thereof.
(g) Whether the shares of such series shall be convertible
into or exchangeable for shares of any other class or of any other
series of any class of capital stock of the corporation, and, if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of such conversion or
exchange.
(h) The voting powers, if any, of the shares of such
series, and whether and under what conditions the shares of such
series (alone or together with the shares of one or more of other
series having similar provisions) shall be entitled to vote separately
as a single class, for the election of one or more additional
directors of the corporation in case of dividend arrearages or other
specified events, or upon other matters.
(i) Whether the issuance of any additional shares of such
series, or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or
rights of any such other series.
(j) Any other preferences, privileges and powers and
relative participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as the
Board of Directors may deem advisable and as shall not be inconsistent
with the provisions of this Certificate of Incorporation.
3. Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the corporation, or which have
been issued and reacquired in any manner, may, upon compliance with
any applicable provisions of the General Corporation Law of the State
of Delaware, be given the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Board of Directors as part
of the series of which they were originally a part or may be
reclassified into and reissued as part of a new series or as a part of
any other series, all subject to the protective conditions or
restrictions of any outstanding series of Preferred Stock.
C. PROVISIONS APPLICABLE TO SERIES A JUNIOR PARTICIPATING PREFERRED
STOCK
1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and
the number of shares constituting such series shall be 15,000.
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2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Junior Participating Preferred
Stock with respect to the holders of shares of Series A Junior
Participating Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
fifteenth day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $10 or
(ii) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Junior Participating Preferred Stock. In the event the
corporation shall at any time after the declaration of rights to
purchase Series A Junior Participating Preferred Stock (a "Rights
Declaration Date") (x) declare any dividend on Common Stock payable in
shares of Common Stock, (y) subdivide the outstanding Common Stock or
(z) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares
of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (ii) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) The corporation shall declare a dividend or
distribution on the Series A Junior Participating Preferred Stock as
provided in paragraph (a) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $10 per
share on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
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(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Junior Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
no more than 30 days prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to 100 votes on all matters submitted
to a vote of the stockholders of the corporation. In the event the
corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred Stock and
the holders of shares of Common Stock shall vote together as one class
on all matters submitted to a vote of stockholders of the corporation.
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(c) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default
period") which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods and for
the current quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six quarterly dividends thereon, voting
as a class, irrespective of series, shall have the right to elect two
Directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(c) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders
of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised
unless the holders of 10% in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have the
right, voting as a class, to elect Directors to fill such vacancies,
if any, in the Board of Directors as may then exist up to two
Directors or, if such right is exercised at an annual meeting, to
elect two Directors. If the number which may be so elected at any
special meeting does not amount to the required number, the holders of
the Preferred Stock shall have the right to make such increase in the
number of Directors as shall be necessary to permit the election by
them of the required number. After the holders of the Preferred Stock
shall have exercised their right to elect Directors in any default
period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or PARI PASSU with
the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than 10%
of the total number of shares of Preferred Stock outstanding,
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irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice President or the Secretary of the
corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to this
subparagraph (iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to the holder at his
or her last address as the same appears on the books of the
corporation. Such meeting shall be called for a time not earlier than
20 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than 10%
of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this subparagraph (iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of
the stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the corporation if applicable,
shall continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their right
to elect two Directors voting as a class, after the exercise of which
right (x) the Directors so elected by the holders of Preferred Stock
shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period
and (y) any vacancy in the Board of Directors may (except as provided
in subparagraph (ii) of this Section 3(c)) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders
of the class of stock which elected the Director whose office shall
have become vacant. References in this subparagraph to Directors
elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate and (z) the
number of Directors shall be such number as may be provided for in the
Certificate of Incorporation or Bylaws irrespective of any increase
made pursuant to the provisions of subparagraph (ii) of this Section
3(c) (such number being subject, however, to change thereafter in any
manner provided by law or in the Certificate of Incorporation or
Bylaws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
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(d) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred
Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred Stock
outstanding shall have been paid in full, the corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
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(b) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any
shares of stock of the corporation unless the corporation could, under
paragraph (a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
5. REACQUIRED SHARES; SUBSEQUENT BOARD ACTIONS. Any shares of
Series A Junior Participating Preferred Stock purchased or otherwise
acquired by the corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on
issuance set forth herein. In addition, at any time that there are no
shares of Series A Junior Participating Preferred Stock or rights to
purchase the same outstanding, the Board of Directors, acting by
resolution duly adopted, may file a Certificate of Designation,
Preferences and Rights pursuant to Section 151 of the General
Corporation Law of the State of Delaware providing that the Series A
Junior Participating Preferred Stock shall become authorized but
unissued shares of Preferred Stock and may be reissued as part of a
new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the corporation, no distribution shall be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series
A Liquidation Preference, no additional distributions shall be made to
the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall
have received an amount per share (the "Common Adjustment") equal to
the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (c) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number"). Following the
payment of the full amount of the Series A Liquidation Preference and
the Common Adjustment in respect of all outstanding shares of Series A
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Junior Participating Preferred Stock and Common Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders
of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to one with respect to such Series A
Junior Participating Preferred Stock and Common Stock, on a per share
basis, respectively.
(b) In the event, however, that there are no sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on the parity with the Series A
Junior Participating Preferred Stock, then such remaining assets shall
be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event,
however, that there are no sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(c) In the event the corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number
in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
7. CONSOLIDATION, MERGER, ETC. In case the corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Junior Participating Preferred Stock
shall at the same time be similarly exchanged or changed in an amount
per share (subject to the provision for adjustment hereinafter set
forth) equal to 100 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be,
into which or for each share of Common Stock is changed or exchanged.
In the event the corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and
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the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
8. NO REDEMPTION. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
9. RANKING. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
10. AMENDMENT. The Certificate of Incorporation of the
corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights
of the Series A Junior Participating Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
11. FRACTIONAL SHARES. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Junior
Participating Preferred Stock.
ARTICLE V. The incorporator of the corporation is Craig A.
Anderson, whose mailing address is P.O. Box 66, 29705 453rd Avenue, Irene,
South Dakota 57037-0066.
ARTICLE VI. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of them, a court
of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under <Section>291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under <Section>279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three fourths in value
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this corporation, as the case may be, agree to such
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all the
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creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ARTICLE VII. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
(A) To make, amend or repeal the Bylaws of the corporation.
(B) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation.
(C) To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created.
(D) To designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board
may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any
meeting of the committee. The Bylaws may provide that in the absence
or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not the member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at
the meeting in place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board
of Directors, or in the Bylaws of the corporation, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers
which may require it; but no such committee shall have the power or
authority in reference to the following matters: (1) approving or
adopting, or recommending to the stockholders, any action or matter
expressly required by the Delaware General Corporation Law to be
submitted to stockholders for approval or (2) adopting, amending or
repealing any Bylaw of the corporation.
(E) When and as authorized by the stockholders in accordance
with law, to sell, lease or exchange all or substantially all of the
property and assets of the corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or
property including shares of stock in, and/or other securities of, any
other corporation or corporations, as the Board of Directors shall
deem expedient and in the best interests of the corporation.
(F) To appoint and determine the duties of the officers of the
corporation and to establish the rights, powers, duties, rules and
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procedures that (1) govern the Board of Directors, including without
limitation the vote required for any action by the Board of Directors
and (2) affect the directors' power to manage the affairs of the
corporation.
(G) To create and issue, by way of distributions to
stockholders, as dividends or otherwise, rights or options entitling
the holders thereof to purchase from the corporation shares of any
class or series of the corporation's capital stock. Such rights or
options shall be evidenced in such manner as the Board shall approve
and shall set forth the terms upon which, the time within which and
the price at which such shares may be purchased from the corporation
upon the exercise of any such right or option. The terms and
conditions of such rights or options may include, without limitation,
provisions which adjust the option price or number of shares issuable
under such rights or options in the event of an acquisition of shares
or a reorganization, merger, consolidation, sale of assets or other
occurrence involving the corporation, and restrictions or conditions
that preclude or limit the entitlement, exercise or transfer of such
rights or options by any person or persons who, after the date of
creation or issuance of such rights or options, acquires, obtains the
right to acquire or offers to acquire, directly or indirectly,
beneficial ownership of a specified number or percentage of the
corporation's outstanding voting shares or other shares of the
corporation, or that invalidate or void such rights or options held by
any such person or persons.
(H) No Bylaw shall be adopted by stockholders which shall impair
or impede the implementation of the foregoing.
ARTICLE VIII. Members of the Board of Directors of the
corporation shall be elected, replaced and removed as follows:
(A) The number of directors shall be determined from time to
time by resolution of the Board of Directors, provided that a vacancy
in the Board of Directors need not be filled immediately, and until
filled, such lesser number shall constitute the entire Board of
Directors. Except as otherwise provided in this Article, directors
shall be elected at the annual meeting of stockholders, and each such
director elected shall hold office until the annual meeting for the
year in which the director's term expires and until the director's
successor is elected. A director need not be a stockholder, a citizen
of the United States or a resident of the State of Delaware.
(B) The Board of Directors shall be divided into three classes
as nearly equal in number as possible, with the term of office of one
class expiring each year. At each annual meeting of the stockholders,
the successors of the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the
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annual meeting of stockholders held in the third year following the
year of their election.
(C) Subject to the rights of holders of any classes or series of
Preferred Stock then outstanding, only persons who are nominated in
accordance with the following procedures shall be eligible for
election as directors:
(1) Nominations of candidates for election as
directors of the corporation at an annual meeting may be
made at the annual meeting of stockholders by or at the
direction of the Board of Directors by any nominating
committee or person appointed by the Board or by any
stockholder of the corporation entitled to vote for the
election of Directors at the annual meeting who complies
with any notice procedures contained in the corporation's
Bylaws.
(2) Nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To
be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of
the corporation not less than 120 days prior to the date of
the meeting in the case of an annual meeting, and not more
than seven days following the date of notice of the meeting
in the case of a special meeting. Such stockholder's notice
to the Secretary shall set forth: (a) as to each person
whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business
address and residence address of the person; (ii) the
principal occupation or employment of the person; (iii) the
class and number of shares of capital stock of the
corporation which are beneficially owned by the person and
(v) such other information relating to the person that is
required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the
Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and record
address of the stockholder and (ii) the class and number of
shares of capital stock of the corporation which are
beneficially owned by the stockholder. The corporation may
require any proposed nominee to furnish such other
information as may reasonably be required by the corporation
to determine the eligibility of such proposed nominee to
serve as director of the corporation. No person shall be
eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth
herein.
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(3) The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing
procedure, and if the chairman so determines, the chairman
shall so declare to the meeting and the defective nomination
shall be disregarded.
(D) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any vacancy occurring in the Board
of Directors caused by resignation, removal, death, disqualification
or other incapacity, and any newly created directorships resulting
from an increase in the number of directors, shall be filled by a
majority vote of directors then in office whether or not a quorum and
shall not be filled by the stockholders. When the number of directors
is changed, any newly created or eliminated directorship shall be so
apportioned among the classes of directors as to make all classes as
nearly equal in number as possible. Each director chosen to fill a
vacancy or newly created directorship shall hold office for the term
coinciding with the class of his or her directorship and until his
successor shall be elected and qualify. No decrease in the number of
directors constituting the Board of Directors shall shorten the term
of any incumbent director.
(E) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director may be removed from
office at any time by the holders of a majority of the shares entitled
to vote on the election of directors, but only for cause. "Cause" is
present when: (1) the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction and such
conviction is no longer subject to direct appeal; (2) the director has
been adjudicated by a court of competent jurisdiction to be liable for
negligence, or misconduct, in the performance of the director's duty
to the corporation in a matter of substantial importance to the
corporation and such adjudication is no longer subject to a direct
appeal; (3) the director has become mentally incompetent, whether or
not so adjudicated, which mental incompetency directly affects the
director's ability as a director of the corporation or (4) the
director's actions or failure to act have been in derogation of the
director's duties, as provided in the Bylaws of the corporation or
otherwise provided by law. Any proposal for removal pursuant
to (3) or (4) that is initiated by the Board of Directors for
submission to the stockholders requires the affirmative vote of at
least two-thirds of the total number of directors then in office,
excluding the director who is the subject of the removal action and
who shall not be entitled to vote thereon.
(F) Any director may resign at any time and such resignation
shall take effect upon receipt thereof by the Chief Executive Officer
or the Secretary unless otherwise specified in the resignation.
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(G) Notwithstanding any provision to the contrary, the
provisions contained in this Section shall not be amended, altered,
modified or repealed, and no provision inconsistent with this Article
may be adopted, except upon either (1) the affirmative vote of the
holders of not less than two-thirds of the outstanding stock of the
corporation entitled to vote in elections of directors or (2) the
affirmative vote of a majority of the whole Board of Directors and the
affirmative vote of the holders of a majority of such outstanding
stock present in person or represented by proxy at any meeting of
stockholders.
(H) (1) No person who has asserted or hereafter asserts
any Claim against the corporation or any Subsidiary (a
"Plaintiff"), and no person who is or becomes an Affiliate
or Associate of any Plaintiff, so long as such person
continues to be such an Affiliate or Associate (a "Related
Person"), shall be eligible to be elected or to serve as a
director of the corporation until after such Claim is
Finally Resolved, PROVIDED, that a director of the
corporation who is validly nominated and elected a director
and who thereafter becomes a Plaintiff or Related Person
shall not solely by reason of becoming a Plaintiff or
Related Person cease to be a director, but rather shall
continue as a director for the remainder of the term for
which the person was elected or until the person's
resignation or removal; PROVIDED FURTHER, that it shall be
the duty of any such director promptly to notify the Board
of Directors that the person is or has become a Plaintiff or
Related Person and to either promptly take all steps as may
be necessary to cause himself or herself to be neither a
Plaintiff nor Related Person or, if all such steps cannot be
or have not been taken and the person continues to be either
a Plaintiff or Related Person and the pertinent Claim has
not been Finally Resolved within the pertinent Resolution
Period, resign as a director of the corporation, effective
immediately, at or before the end of such Resolution Period.
(2) For purposes of this Section, the definitions set
forth in Article X shall apply to such terms used in this
Article as if the definitions were fully restated in this
Article. In addition, the following terms shall have the
following respective meanings:
(a) In addition to the definition of "Control"
set forth in Article X, for purposes of this Article, a
controlling relationship between any person and another
person shall be deemed to exist whenever (but shall not
be limited to a situation in which) the former person
directly or indirectly holds or owns at least 15% of
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the outstanding securities of any class or series of
voting securities issued by, or at least 15% of the
aggregate voting power with respect to, the latter
person.
(b) "Claim" means any claim, cross-claim,
counterclaim or third-party claim pled in any action,
suit or proceeding (whether at law, in equity or
otherwise and regardless of the character of the relief
sought) before or subject to the jurisdiction of any
court, governmental agency or instrumentality,
arbitrator or similar body or authority, other than:
(i) one which, when aggregated with all
other claims, cross-claims, counterclaims and
third-party claims asserted by the pertinent
Plaintiff or any Related Person of such Plaintiff
against the corporation or any Subsidiary that
have not been Finally Resolved, if decided
adversely to the corporation or a Subsidiary,
along with all other aggregated claims, cross-claims,
counterclaims and third-party claims,
could not result in an order or orders compelling
the corporation and/or any of its Subsidiaries to
pay out or otherwise dispose of cash or any other
assets having an aggregate value in excess of 10%
of the consolidated current assets of the
corporation as of the quarter then most recently
ended or render the corporation insolvent; or
(ii) one arising pursuant to a contract
between the corporation and the pertinent
Plaintiff or Related Person that was approved by a
majority of the Continuing Directors (as defined
in Article X of this Certificate of
Incorporation), including without limitation
claims arising under any indemnity or employment
contract; or
(iii) one asserted in the right of the
corporation.
(c) When used with respect to any particular
Claim, the term "Finally Resolved" means that a final
order has been rendered with respect to such Claim and
all available appeals from such order have been
exhausted or the time for seeking such review has
expired.
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(d) "Resolution Period" means, in any case, the
30-day period beginning on the earlier of (i) the date
on which a director of the corporation notifies the
Board of Directors that such director has become a
Plaintiff or Related Person or (ii) the date on which
the Board of Directors determines that a director of
the corporation has become a Plaintiff or Related
Person; PROVIDED, that the Board of Directors may (but
is not required to) extend a Resolution Period for one
period not to exceed 15 additional days if the director
establishes to the Board's satisfaction a reasonable
likelihood that during such extended period the
pertinent Claim will be Finally Resolved or such
director will cease to be both a Plaintiff and a
Related Person.
(3) The Board of Directors of the corporation (acting
by at least a majority of all directors, excluding any who
have acknowledged themselves to be or have been determined
to be Plaintiffs or Related Persons at the time of such
Board action and excluding any director or directors whose
status as Plaintiff or Related Person is the subject of such
action) shall have the authority to determine whether any
director of the corporation is or is not or has ceased to be
a Plaintiff or Related Person, and the Board of Directors
(acting by at least a majority of all directors, excluding
any who have acknowledged themselves to be or have been
determined to be Plaintiffs or Related Persons and, if the
matter at issue relates to the next annual meeting of
stockholders of the corporation to occur after such Board
action, excluding any director whose term of office would
expire at such meeting and who at the time of such action
has not irrevocably decided not to stand for reelection)
shall have the authority to determine whether any person
nominated or proposed for nomination as a director or who is
the subject of a stockholder request as provided below is
ineligible to be so nominated and elected by virtue of being
a Plaintiff or Related Person. Each such Board
determination shall be based upon such information as has
been brought to the attention of the Board (whether in a
stockholder request or otherwise) at the time such
determination is made, and no Board determination that any
director or other person is or is not or has ceased to be a
Plaintiff or Related Person shall preclude the Board from
reconsidering the matter and making the contrary
determination in light of any facts or circumstances first
coming to the attention of the Board after the prior
determination was made.
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(4) The Board of Directors shall not nominate any
person for election as a director of the corporation unless
such prospective nominee has provided the Board with (i) all
such information as the Board (or any member thereof not
excluded from determining the status of such person as a
Plaintiff or Related Person) has deemed necessary or
appropriate to enable the Board to determine such status and
(ii) a signed statement by the prospective nominee that such
person, having reviewed this Section, is aware of no reason
not disclosed to the Board why he or she would or might be
considered a Plaintiff or Related Person (which statement
also shall include an undertaking by such person that if he
or she is nominated, such person promptly will inform the
Board, by written notice to the Chairman of the Board or the
Secretary of the corporation, if at any time prior to the
election to which such person's nomination relates he or she
becomes aware of any fact or circumstance, whether in
existence on the date such undertaking is given or arising
afterward, which has given such person any reason to believe
that the person is or might be considered a Plaintiff or
Related Person), and unless after receipt of such
information and such statement, the Board has determined
that the prospective nominee is not a Plaintiff or Related
Person.
(5) Any stockholder who is uncertain whether any
person the stockholder desires to nominate for election as a
director of the corporation (a "candidate") is a Plaintiff
or Related Person may request a determination from the Board
concerning that matter. Any such request must be in
writing, identify the candidate, set forth all reasons why
the stockholder has such uncertainty concerning the
candidate, explain why the stockholder believes that the
candidate should not be considered a Plaintiff or Related
Person and include an undertaking by or on behalf of the
stockholder that, if the candidate is determined not to be a
Plaintiff or Related Person, the stockholder promptly will
inform the Board in the manner specified in Paragraph (4)
above if any time prior to the election of directors next
occurring the stockholder learns of any fact or circumstance
(whether in existence on the date of the request or arising
afterward) which has given the stockholder any other reason
to believe that or to be uncertain whether the candidate is
or might be considered a Plaintiff or Related Person. Any
such request also must be accompanied by a signed statement
of the candidate to which the request relates stating that,
having reviewed this Section and the request, the candidate
knows of no reason not stated in the request why the
candidate would or might be considered a Plaintiff or
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Related Person and believes for the reasons stated in the
request that he or she should not be considered a Plaintiff
or Related Person, which statement also shall include an
undertaking by the candidate comparable to that of the
requesting stockholder. With respect to any meeting at which
directors are to be elected, a stockholder may submit
requests as to any number of candidates up to and including
five times the number of directors to be elected at such
meeting. A request may be submitted at any time at which
the stockholder properly may give notice of intent to
nominate a candidate for election as a director (other than
a time at which such giving of notice of intent is proper
only by virtue of the provisions of Paragraph (7) of this
Section) and no request may be submitted at any other time.
No request shall be deemed "submitted" for any purposes
hereunder unless and until it is delivered in person to the
Chairman of the Board or the Secretary of the corporation or
delivered to the principal offices of the corporation
addressed to the attention of the Chairman or the Secretary.
No request shall constitute a notice of intent to nominate
any candidate unless it expressly states that it is intended
as such a notice and it otherwise complies with all
applicable requirements for such a notice. Neither
submission of a request, nor any action taken thereafter
with respect to such request, shall operate as a waiver of
or otherwise relieve any stockholder of any otherwise
applicable procedural requirements respecting nomination of
director candidates, except as and to the extent
contemplated in Paragraph (7).
(6) If any request satisfying the requirements of
Paragraph (5) is timely and properly submitted, the Board of
Directors, within 10 days following the date such request is
submitted (or, if it is impossible or impracticable to do so
during such period, as soon as practicable thereafter),
shall consider the request and determine whether the
candidate who is the subject of the request is ineligible to
be nominated or elected a director by virtue of being a
Plaintiff or Related Person. As promptly as possible
following such action, the requesting stockholder shall be
notified in writing of the nature of such determination and,
if the determination made is that the candidate is a
Plaintiff or Related Person, the basis for such
determination. In any other case in which the Board
determines that any candidate as to which a notice of intent
to nominate has been given is ineligible to be nominated or
elected a director by virtue of being a Plaintiff or Related
Person (including any case in which a contrary determination
previously has been made in response to a stockholder
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request), the stockholder that gave such notice of intent
shall be notified in writing of such determination and the
basis therefor as promptly as possible thereafter.
(7) If a candidate who is the subject of a proper and
timely submitted request meeting the requirements of
Paragraph (5) is determined by the Board not to be a
Plaintiff or Related Person and the request was submitted at
least five days in advance of the last date on which the
requesting stockholder otherwise would have been entitled to
give notice of intent to nominate such candidate, then the
Board's determination shall operate as a waiver of the time
limits otherwise applicable to the giving of such notice of
intent to the extent, if any, necessary to afford the
stockholder a period of five days following the date on
which notice of the Board's determination is given to the
stockholder within which to give notice of intent to
nominate such candidate. If, in response to a timely and
properly submitted request, the Board determines that the
candidate who is the subject of the request is a Plaintiff
or Related Person and the request was submitted at least
five days in advance of the last date on which the
requesting stockholder otherwise would have been entitled to
give notice of intent to nominate, then the Board's
determination shall operate as a waiver of the time limits
otherwise applicable to the giving of notice of intent to
nominate to the extent, if any, necessary to afford the
requesting stockholder a period of 15 days following the
date on which notice of the Board's determination is given
to the stockholder within which to give notice of intent to
nominate another person in lieu of the ineligible candidate.
In any other case in which the Board determines that a
candidate is a Plaintiff or Related Person, such
determination shall operate as a waiver if and only to the
extent expressly so provided in the resolutions setting
forth such determination or subsequent Board resolution.
Whenever any stockholder is afforded an additional time
period within which to give notice of intention to nominate,
the Board may afford the other stockholders of the
corporation a comparable additional period of time within
which to give such notice.
ARTICLE IX. Any action required to be taken or which may be
taken at any annual or special meeting of stockholders of the corporation
may be taken without a meeting by written consents setting forth the action
so taken signed by the holders of all shares of stock of the corporation
entitled to vote thereon.
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ARTICLE X.
(A) In addition to any affirmative vote required by (1) law and
(2) this Certificate of Incorporation, including, without limitation,
Article XII, and except as otherwise expressly provided in Section (B)
of this Article, the affirmative vote of the holders of not less than
80% of the outstanding shares of Voting Stock shall be required for
the approval or authorization of any Business Combination of the
corporation or any Subsidiary of the corporation with any Interested
Stockholder (as these terms are defined below).
(B) The provisions of paragraph (A) of this Article shall not
apply to any transaction which shall have been approved by a majority
of the Continuing Directors (as defined below).
(C) For the purposes of this Article and Articles XI through XV,
the following definitions shall apply:
(1) An "Affiliate" of a specified person is any person
that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the specified person;
(2) An "Associate" of a specified person is:
(a) Any corporation, partnership, unincorporated
association or other entity of which such person is a
director, officer or partner or is, directly or
indirectly, the owner of 20% or more of any class of
Voting Stock;
(b) Any trust or other estate in which the person
has a beneficial interest of 20% or more or as to which
such specified person serves as trustee or in a similar
fiduciary capacity in connection with the trust or
estate; or
(c) Any relative or spouse of the person, or any
relative of the spouse, who has the same residence as
such person.
(3) The term "Business Combination" means:
(a) Any merger or consolidation of the
corporation or any Subsidiary with an Interested
Stockholder or any other corporation, partnership,
unincorporated association or other entity if the
merger or consolidation is caused by the Interested
Stockholder and as a result of such merger or
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consolidation Section 203(a) of the General Corporation
Law of the State of Delaware is not applicable to the
surviving entity;
(b) The sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions), except proportionately as a
stockholder of such corporation, to or with an
Interested Stockholder, whether as part of a
dissolution or otherwise, of assets of the corporation
or of any Subsidiary which assets have an aggregate
market value equal to 10% or more of either the
aggregate market value of all the assets of the
corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of
the corporation;
(c) Any transaction which results in the issuance
or transfer by the corporation or by any Subsidiary of
any stock of the corporation or of such Subsidiary to
an Interested Stockholder, except (i) pursuant to the
exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into
stock of such corporation or any such Subsidiary which
securities were outstanding prior to the time that the
Interested Stockholder became such; (ii) pursuant to a
merger under Section 251(g) of the General Corporation
Law of the State of Delaware; (iii) pursuant to a
dividend or distribution paid or made, or the exercise,
exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of such
corporation or any such Subsidiary which security is
distributed, pro rata to all holders of a class or
series of stock of such corporation subsequent to the
time the Interested Stockholder became such; (iv)
pursuant to an exchange offer by the corporation to
purchase stock made on the same terms to all holders of
said stock; or (v) any issuance or transfer of stock by
the corporation, PROVIDED, HOWEVER, that in no case
under (iii)-(v) above shall there be an increase in the
Interested Stockholder's proportionate share of the
stock of any class or series of the corporation or of
the voting stock of the corporation;
(d) Any transaction involving the corporation or
any Subsidiary which has the effect, directly or
indirectly, of increasing the proportionate share of
the stock of any class or series, or securities
convertible into the stock of any class or series, of
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the corporation or of any Subsidiary which is owned by
the Interested Stockholder, except as a result of
immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any
shares of stock not caused, directly or indirectly, by
the Interested Stockholder; or
(e) Any receipt by the Interested Stockholder of
the benefit, directly or indirectly (except
proportionately as a stockholder of such corporation)
of any loans, advances, guarantees, pledges or other
financial benefits (other than those expressly
permitted in (a)-(d) above) provided by or through the
corporation or any Subsidiary.
As used in this definition, a "series of related
transactions" shall be deemed to include not only a series
of transactions with the same Interested Stockholder, but
also a series of separate transactions with an Interested
Stockholder or any Affiliate or Associate of such Interested
Stockholder.
(4) A "Continuing Director" is a member of the Board
of Directors who is not an Affiliate, Associate or a
representative of the Interested Stockholder and was either
(a) first elected as a director prior to the time that the
Interested Stockholder became an Interested Stockholder or
(b) was designated, before the person's initial election as
a director, as a Continuing Director by a majority of the
then Continuing Directors; PROVIDED, HOWEVER, that the term
"Continuing Director" specifically excludes any individual
whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as that
term is used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended) or
other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the
corporation's Board of Directors.
(5) "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting stock, by contract or otherwise. A
person who is the owner of 20% or more of the outstanding
Voting Stock of any corporation, partnership, unincorporated
association or other entity shall be presumed to have
control of such entity, in the absence of proof by a
preponderance of the evidence to the contrary.
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(6) "Equity security" means any one of the following:
(a) Any stock or similar security, certificate of
interest or participation in any profit-sharing
agreement, voting trust certificate or voting share;
(b) Any security convertible, with or without
consideration, into an equity security or any warrant
or other security carrying any right to subscribe to or
purchase an equity security;
(c) Any put, call, straddle or other option or
privilege of buying an equity security from or selling
an equity security to another without being bound to do
so.
(7) The term "Interested Stockholder" means:
(a) Any person (other than the corporation and
any Subsidiary) that is the owner of 10% or more of the
corporation's outstanding voting stock; or
(b) Any person that is an Affiliate or Associate
of the corporation and was the owner of 10% or more of
the corporation's outstanding voting stock at any time
within the three-year period immediately prior to the
date on which it is sought to be determined whether
such person is an Interested Stockholder, and the
Affiliates and Associates of such person.
(8) A person shall be an "owner" of any Voting Stock
if the person individually or with or through any of its
Affiliates or Associates:
(a) beneficially owns such stock, directly or
indirectly;
(b) has (i) the right to acquire such stock
(whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise; PROVIDED, HOWEVER, that a person
shall not be deemed the owner of stock tendered
pursuant to a tender or exchange offer made by such
person or any of such person's Affiliates or Associates
until such tendered stock is accepted for purchase or
exchange or (ii) the right to vote such stock pursuant
to any agreement, arrangement or understanding,
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PROVIDED, HOWEVER, that a person shall not be deemed
the owner of any stock because of such person's right
to vote such stock if the agreement, arrangement or
understanding to vote such stock arises solely from a
revocable proxy or consent given in response to a proxy
or consent solicitation made to 10 or more persons; or
(c) has any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting (except voting pursuant to a revocable proxy or
consent as described in item (ii) of clause (b) of this
paragraph), or disposing of such stock with any other
person that beneficially owns, or whose affiliates or
associates beneficially own, directly or indirectly,
such stock.
(9) The term "person" means any individual,
corporation, partnership, unincorporated association or
other entity.
(10) The term "Subsidiary" means any corporation of
which a majority of any class of equity security is owned,
directly or indirectly, by the corporation; provided, that
for the purposes of the definition of Interested Stockholder
set forth in paragraph (7) of this Section (C), the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the corporation.
(11) The term "Substantial Part" shall mean more than
10% of the total consolidated assets of the corporation in
question as of the end of the most recent fiscal year ended
prior to the time the determination is being made.
(12) The term "Voting Stock" shall mean stock of any
class or series entitled to vote generally in the election
of directors and, with respect to any entity that is not a
corporation, any equity interest entitled to vote generally
in the election of the governing body of such entity. Each
reference in this Article to a percentage of shares of
Voting Stock shall refer to the percentage of the votes
entitled to be cast by such shares.
(D) For purposes of determining whether a person is an
Interested Stockholder, the number of shares of Voting Stock deemed to
be outstanding shall include shares deemed owned by that person
through application of paragraph (C), defining "owner," but shall not
include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options or otherwise.
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(E) A majority of the Continuing Directors shall have the power
and duty to determine, for purposes of this Article and Article XII,
on the basis of information known to them:
(1) The number of Voting Stock of which any person is
the beneficial owner;
(2) Whether a person is an Affiliate or Associate of
another;
(3) Whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in
the definition of "owner" set forth above;
(4) Whether the assets subject to any Business
Combination constitute a "Substantial Part" as defined
above;
(5) Whether two or more transactions constitute a
"series of related transactions" as described above; and
(6) Such other matters with respect to which a
determination is required under this Article and Article
XII.
Any such determination shall be conclusive and binding for all
purposes of this Article and Article XII.
ARTICLE XI. The Board of Directors shall not initiate, approve,
adopt or recommend any offer of any party other than the corporation to
make a tender or exchange offer for any equity security of the corporation,
or to engage in any Business Combination, unless and until it shall have
first evaluated the proposed offer and determined in its judgment that the
proposed offer would be in compliance with all applicable laws. In
evaluating a proposed offer to determine whether it would be in compliance
with law, the Board of Directors shall consider all aspects of the proposed
offer, including the manner in which the offer is proposed to be made, the
documents proposed for the communication of the offer and the effects and
consequences of the offer if consummated, in the light of the laws of the
United States of America and affected states and foreign countries. In
connection with this evaluation, the Board may seek and rely upon the
opinion of independent legal counsel and it may test the legality of the
proposed offer in any state, federal or foreign court or before any state,
federal or foreign administrative agency which may have jurisdiction. If
the Board of Directors determines in its judgment that a proposed offer
would be in compliance with all applicable laws, the Board of Directors
shall then evaluate the proposed offer and determine whether the proposed
offer is in the best interests of the corporation and its stockholders; the
Board of Directors shall not initiate, approve, adopt or recommend any such
-28-
<PAGE>
offer which in its judgment would not be in the best interests of the
corporation and its stockholders. In evaluating a proposed offer to
determine whether it would be in the best interests of the corporation and
its stockholders, the Board of Directors shall consider all factors which
it deems relevant including, without limitation:
(A) The fairness of the consideration to be received by the
corporation and its stockholders under the proposed offer, taking into
account the trading price of the corporation's stock immediately prior
to the announcement of the proposed offer, the historical trading
prices of the corporation's stock, the price that might be achieved in
a negotiated sale of the corporation as a whole, premiums over the
trading price of their securities which have been proposed or offered
to other companies in the past in connection with similar offers and
the future prospects of the corporation;
(B) The possible social and economic impact of the proposed
offer and its consummation on the corporation and its employees,
customers and suppliers;
(C) The possible social and economic impact of the proposed
offer and its consummation on the communities in which the corporation
and its Subsidiaries operate or are located;
(D) The business and financial conditions and earnings prospects
of the offering party, including, without limitation, debt service and
other existing or likely financial obligations of the offering party;
(E) The competence, experience and integrity of the offering
party and its management; and
(F) The intentions of the offering party regarding the use of
the assets of the corporation to finance the transaction.
ARTICLE XII.
(A) In addition to any affirmative vote required by (1) law and
(2) the other provisions of this Certificate of Incorporation,
including without limitation Article X and except as otherwise
expressly provided in paragraph (B) of this Article, the affirmative
vote of not less than 80% of the outstanding shares of Voting Stock
held by stockholders who are not Interested Stockholders shall be
required for the approval or authorization of any Business Combination
of the corporation or any Subsidiary with any Interested Stockholder
(as these terms are defined in Article X).
(B) The provisions of paragraph (A) of this Article shall not
apply to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by
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<PAGE>
law and any other provision of this Certificate of Incorporation, if
either of the following paragraphs (1) or (2) apply:
(1) The Business Combination shall have been approved
by a majority of the Continuing Directors; or
(2) All of the following conditions shall have been
met:
(a) The Business Combination will result in an
involuntary sale, redemption, cancellation or other
termination of ownership of shares of any class of
Voting Stock of the corporation owned by stockholders
who do not vote in favor of the Business Combination
and the aggregate amount of the cash and the market
value as of the valuation date of other readily
marketable consideration to be received by such
stockholders for such shares shall be at least equal to
the Minimum Price Per Share;
(b) The consideration to be received by holders
of a particular class of outstanding Voting Stock shall
be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock in
varying forms of consideration, the form of
consideration of such class of Voting Stock shall be
either cash or the form used to acquire the largest
number of shares of such class of Voting Stock
previously acquired by it;
(c) From the time the Interested Stockholder
became an Interested Stockholder:
(i) Such Interested Stockholder shall have
taken steps to insure that the corporation's Board
of Directors included at all times representation
by Continuing Directors proportionate to the stock
holdings of the corporation's holders of Voting
Stock not affiliated with such Interested
Stockholder (with a Continuing Director to occupy
any resulting fractional board position);
(ii) There shall have been no reduction in
the rate of dividends payable on the corporation's
stock except as may have been approved by
unanimous vote of the directors;
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<PAGE>
(iii) The Interested Stockholder shall
not have acquired any newly issued shares of
stock, directly or indirectly, from the
corporation (except upon conversion of convertible
securities acquired by it prior to becoming an
Interested Stockholder or as a result of a
prorated stock dividend or stock split);
(iv) The Interested Stockholder shall not
have acquired any additional shares of the
corporation's outstanding stock or securities
convertible into stock except as a part of the
transaction which resulted in such person becoming
an Interested Stockholder; and
(v) The Interested Stockholder shall not
have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any
loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by
the corporation, nor made any major change in the
corporation's business or equity capital structure
without the unanimous approval of the directors,
in either case prior to the consummation of the
Business Combination.
(d) A proxy statement responsive to the
requirements of the Securities Exchange Act of 1934, as
amended, shall have been mailed to all stockholders of
the corporation for the purpose of soliciting
stockholder approval of the Business Combination
containing at the front thereof in a prominent place
any recommendations as to the advisability (or
inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may choose to
state and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable
investment banking firm as to the fairness (or not) of
the terms of the Business Combination, from the point
of view of the remaining public stockholders of the
corporation (such investment banking firm to be
selected by a majority of the Continuing Directors and
to be paid a reasonable fee for its services by the
corporation upon receipt of such opinion); and
(e) There has been five years between the date
that the Interested Stockholder became an Interested
Stockholder and the date that the Business Combination
is consummated.
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<PAGE>
(C) For the purposes of this Article the following definitions shall
apply:
(1) All the definitions set forth in Article X(C)
shall apply as if fully restated here;
(2) "Minimum Price Per Share" means the sum of (a) the
highest per share price as determined below, and (b) the
aggregate amount, if any, by which 6% per year of such
highest per share price exceeds the aggregate amount of all
stock dividends per share paid in cash since the
Determination Date. For Common Stock, the highest per share
price is the highest of the following:
(a) The highest per share price, including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
within the five-year period immediately prior to the
Announcement Date, or in the transaction in which the
stockholder became an Interested Stockholder, whichever
is higher.
(b) The highest per share price bid in the public
market for such Common Stock during the five years
immediately preceding the Announcement Date.
For any class or series of outstanding stock other than
Common Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class or
series of stock, the highest per share price is the highest
of the following:
(a) The highest per share price, including any
brokerage, commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder for
any shares of the class or series of stock acquired by
it within the five-year period immediately prior to the
Announcement Date, or in the transaction in which the
stockholder became an Interested Stockholder, whichever
is higher.
(b) The highest preferential amount per share to
which the holders of shares of the class or series of
stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the corporation.
(c) The highest per share price bid in the public
market for such class or series of stock during the
five years immediately preceding the Announcement Date.
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<PAGE>
The calculation of the Minimum Price Per Share shall
require appropriate adjustments for capital changes,
including without limitation stock splits, stock dividends
and reverse stock splits.
(3) "Announcement Date" means the first general public
announcement or the first communication generally to
stockholders of the corporation, whichever is earlier, of
the proposal or intention to make a proposal concerning a
Business Combination.
(4) "Determination Date" means the date on which an
Interested Stockholder first became an Interested
Stockholder.
(5) "Market Value" means either of the following:
(a) With respect to shares, the highest closing
sale price during the 30-day period immediately
preceding the date in question of a share:
(i) As listed on the composite tape for New
York Stock Exchange-listed securities.
(ii) If not listed pursuant to
subparagraph (i), as listed on the composite tape
for American Stock Exchange- listed securities.
(iii) If not listed pursuant to
subparagraph (i) or (ii), as listed on the
composite tape for the principal United States
security exchange registered under the Securities
Exchange Act of 1934, as amended.
(iv) If not listed pursuant to
subparagraph (i), (ii), or (iii), the highest
closing bid during the 30-day period preceding the
date in question as listed on the Nasdaq Stock
Market or any other system then in use.
(v) If a listing is not available pursuant
to sub-paragraphs (i) through (iv), then the fair
market value of the shares on the date in
question, as determined by the Continuing
Directors.
(b) With respect to property other than cash or
shares, the fair market value of the property on the
day in question, as determined by the Continuing
Directors.
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<PAGE>
(6) "Valuation Date" means:
(a) In a Business Combination voted upon by
stockholders, the day prior to the date of the
stockholder vote or the day which is 20 calendar days
prior to the consummation of the Business Combination,
whichever is later.
(b) In a Business Combination not voted upon by
stockholders, the date of the consummation of the
Business Combination.
(D) A majority of the Continuing Directors shall have the
power and duty to determine, for purposes of this Article, on the
basis of information known to them:
(1) All the matters set forth in Article X(E);
(2) The market value of any consideration other than
cash to be received by stockholders;
(3) Whether or not any consideration other than cash
to be received by stockholders is readily marketable;
(4) The amount of the Minimum Price Per Share;
(5) Whether or not the consideration to be received by
stockholders is equal to the Minimum Price Per Share; and
(6) Such other matters with respect to which a
determination is required under this Article.
Any such determination shall be conclusive and binding for all
purposes of this Article.
(E) Nothing contained in this Article shall be construed to
relieve any Interested Stockholder from any fiduciary and other
standards of conduct and obligations imposed by law. The fact
that any Business Combination complies with the provisions of
paragraph (B)(2) of this Article shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the
stockholders of the corporation, nor shall such compliance limit,
prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of,
or actions and responses taken with respect to, such Business
Combination.
-34-
<PAGE>
ARTICLE XIII. No director of the corporation shall be personally
liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty by such director as a director; PROVIDED, HOWEVER,
that his Article shall not eliminate or limit the liability of a director
to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment to or
repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment
or repeal.
ARTICLE XIV. Directors and executive officers of the
corporation shall be indemnified as of right, and shall be entitled to the
advancement of expenses, to the fullest extent now or hereafter permitted
by law in connection with any actual or threatened civil, criminal,
administrative or investigative action, suit or proceeding, (whether
brought by or in the name of the corporation, a subsidiary, or otherwise)
arising out of their service to the corporation or a subsidiary, or to
another organization at the request of the corporation or a subsidiary.
Persons who are not directors or executive officers of the corporation may
be similarly indemnified in respect of such service to the extent
authorized at any time by the Board of Directors of the corporation. The
corporation may purchase and maintain insurance to protect itself and any
such director, officer or other person against any liability asserted
against him or her and incurred by him or her in respect of such service
whether or not the corporation would have the power to indemnify him
against such liability by law or under the provisions of this Article. The
provisions of this Article shall be deemed contractual and shall be
applicable to actions, suits or proceedings, whether arising from acts or
omissions occurring before or after the adoption hereof, and to directors,
officers and other persons who have ceased to render such service, and
shall inure to the benefit of the heirs, executors and administrators of
the directors, officers and other persons referred to in this Article.
ARTICLE XV. The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and
this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
(A) No amendment to this Certificate of Incorporation shall
alter, modify or repeal any or all of the provisions of Article XII of
this Certificate of Incorporation, or this paragraph (A) of
Article XV, unless adopted by the affirmative vote of not less than
80% of the outstanding shares of Voting Stock held by stockholders who
are not Interested Stockholders.
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<PAGE>
(B) No amendment to this Certificate of Incorporation shall
alter, modify or repeal any or all of the provisions of Articles VII,
VIII, IX, X, XI or XIII of this Certificate of Incorporation, or this
paragraph (B) of Article XV, and the stockholders of the corporation
shall not have the right to alter, modify or repeal any or all
provisions of the Bylaws of the corporation, unless such amendment,
alteration, modification or repeal is adopted by the affirmative vote
of the holders of not less than 80% of the outstanding shares of
Voting Stock; provided, that this paragraph (B) shall not apply to,
and such 80% vote shall not be required for, any amendment,
alteration, modification or repeal which has first been approved by
(1) the affirmative vote of 80 percent of the entire Board of
Directors, which shall include the affirmative vote of at least one
director of each class of the Board of Directors and (2) the
affirmative vote of two-thirds of the Continuing Directors.
-36-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF DAKOTA
TELECOMMUNICATIONS GROUP, INC. AND SUBSIDIARIES FOR THE PERIOD
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,966,382
<SECURITIES> 0
<RECEIVABLES> 3,482,602
<ALLOWANCES> 340,600
<INVENTORY> 2,065,718
<CURRENT-ASSETS> 8,511,238
<PP&E> 39,187,432
<DEPRECIATION> 13,453,622
<TOTAL-ASSETS> 42,527,067
<CURRENT-LIABILITIES> 7,773,266
<BONDS> 28,542,577
<COMMON> 10,324,497
0
0
<OTHER-SE> 1,231,288
<TOTAL-LIABILITY-AND-EQUITY> 42,527,067
<SALES> 7,518,531
<TOTAL-REVENUES> 14,763,083
<CGS> 5,951,522
<TOTAL-COSTS> 16,228,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48,868
<INTEREST-EXPENSE> 1,059,589
<INCOME-PRETAX> (2,436,699)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,436,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436,699)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
