<PAGE>
As filed with the Securities and Exchange Commission on _____________, 1997
Registration No. 333-__________
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
(TO BECOME DAKOTA TELECOMMUNICATIONS GROUP, INC.)
(Exact Name of Small Business Issuer as Specified in its Charter)
SOUTH DAKOTA 4813 46-0234208
(State or Other Juris- (Primary Standard (I.R.S. Employer
diction of Incorpora- Industrial Classification Identification No.)
tion or Organization) Code Number)
AND
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 4813 APPLIED FOR
(State or Other Juris- (Primary Standard (I.R.S. Employer
diction of Incorpora- Industrial Classification Identification No.)
tion or Organization) Code Number)
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
(605) 263-3301
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
THOMAS W. HERTZ PLEASE SEND COPIES OF
CRAIG A. ANDERSON COMMUNICATIONS TO:
29705 453RD AVENUE TRACY T. LARSEN
IRENE, SOUTH DAKOTA 57037-0066 JEFFREY A. OTT
(605) 263-3301 WARNER NORCROSS & JUDD LLP
(Name, Address, Including Zip Code, 900 OLD KENT BUILDING
and Telephone Number, Including 111 LYON STREET, N.W.
Area Code, of Agents for Service) GRAND RAPIDS, MICHIGAN 49503-2487
(616) 752-2000
Approximate date of commencement of proposed sale of the securities
to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT
BECOMES EFFECTIVE.
<PAGE>
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE<F1>
SHARE<F1> PRICE<F1>
<S> <C> <C> <C> <C>
Common Stock, no par 1,250,000 $5.13 $6,412,216 $1,943.10
value Shares
<FN>
<F1> The registration fee has been computed pursuant to Rule 457(f)(2)
based on the book value of the securities of Dakota Cooperative
Telecommunications, Inc. to be received in the transaction, less the
estimated amount of cash to be paid for fractional shares. The
proposed maximum offering price per share is determined by dividing
the proposed maximum aggregate offering price by the number of shares
to be registered.
<F2> This Registration Statement also registers 162,936 shares subject to
stock options and warrants to be issued in exchange for stock options
and warrants issued by Dakota Cooperative Telecommunications, Inc.
</FN>
</TABLE>
________________
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===========================================================================
<PAGE>
PROSPECTUS AND BALLOT/PROXY STATEMENT
SPECIAL MEETING OF MEMBERS OF SPECIAL MEETING OF SHAREHOLDERS OF
DAKOTA COOPERATIVE DAKOTA TELECOMMUNICATIONS
TELECOMMUNICATIONS, INC. GROUP, INC.
IN CONNECTION WITH AN OFFERING OF IN CONNECTION WITH AN OFFERING OF
UP TO 1,250,000 SHARES UP TO 1,250,000 SHARES
DAKOTA TELECOMMUNICATIONS DAKOTA TELECOMMUNICATIONS
GROUP, INC. GROUP (DELAWARE), INC.
COMMON STOCK, WITHOUT PAR VALUE COMMON STOCK, WITHOUT PAR VALUE
The Board of Directors of Dakota Cooperative Telecommunications, Inc.,
a South Dakota cooperative association (the "Cooperative"), is furnishing
this Prospectus and Ballot/Proxy Statement and the accompanying form of
Ballot/Proxy on or about __________, 1997, to solicit votes at the special
meeting of members of the Cooperative ("Members") to be held on ___________,
1997, and at any adjournment of that meeting. The Board of Directors of the
Cooperative, as the board of what will become Dakota Telecommunications
Group, Inc., a South Dakota business corporation ("DTG"), if the proposed
Conversion (described below) is adopted and consummated, is also furnishing
this Prospectus and Ballot/Proxy Statement and the accompanying form of
Ballot/Proxy on or about ___________, 1997, to solicit proxies to vote at
the special meeting of shareholders of DTG which will also be held on
____________, 1997, and at any adjournment of that meeting. At the special
meetings, Members of the Cooperative will consider and vote upon a proposal
to adopt an amendment to the Cooperative's articles of incorporation to
convert the Cooperative into a South Dakota business corporation, which
would be DTG (the "Conversion"). If the Conversion is adopted,
shareholders of DTG will then consider and vote upon a proposal to approve
an Agreement and Plan of Merger (the "Plan of Merger") pursuant to which
DTG would be merged with and into Dakota Telecommunications Group
(Delaware), Inc. ("DTG Delaware"), a newly formed Delaware business
corporation which is currently a wholly owned subsidiary of the Cooperative
(the "Merger"). A vote by a Member of the Cooperative to adopt the
Conversion and a vote by a shareholder to approve the Plan of Merger also
constitute a vote for approval of the 1997 Stock Incentive Plan and a vote
for approval of the form of Indemnity Agreement, both of which are
described in this Prospectus and Ballot/Proxy Statement and attached as
Appendices I and J, respectively.
This Prospectus and Ballot/Proxy Statement is a prospectus of DTG
relating to an offering of DTG common stock in connection with the proposed
Conversion and a prospectus of DTG Delaware relating to an offering of DTG
Delaware common stock in connection with the proposed Merger. This
offering is made only to Members of the Cooperative and, if the Conversion
is adopted and consummated, shareholders of DTG. (See "THE CONVERSION" and
"THE MERGER.") SHARES OF EITHER DTG COMMON STOCK OR DTG DELAWARE COMMON
STOCK, BUT NOT BOTH, WOULD BE ISSUED AS A RESULT OF THE PROPOSED CONVERSION
AND PROPOSED MERGER DESCRIBED IN THIS PROSPECTUS AND BALLOT/PROXY
<PAGE>
STATEMENT. The company whose shares of common stock are issued pursuant to
the proposed Conversion or the proposed Merger is referred to as the
"Resulting Company" in this Prospectus and Ballot/Proxy Statement.
If the Conversion is adopted and consummated, (i) each share of common
stock, $5.00 par value, of the Cooperative ("Cooperative Common Stock")
issued and outstanding immediately prior to the effective time of the
Conversion would automatically become and be converted into the right to
receive one validly issued, fully paid and nonassessable share of DTG
common stock, without par value ("DTG Common Stock"); (ii) each share of
preferred stock, $100.00 par value, of the Cooperative ("Preferred Stock")
issued and outstanding immediately prior to the effective time of the
Conversion would automatically become and be converted into the right to
receive 80.8216445 validly issued, fully paid and nonassessable shares of
DTG Common Stock and (iii) each dollar credited on the books of the
Cooperative to the capital account of each current and former Member (a
"Capital Credit") immediately prior to the effective time of the Conversion
would be retired in full and automatically become and be converted into the
right to receive 0.2 of a validly issued, fully paid and nonassessable
share of DTG Common Stock, all subject to payment in cash for fractional
shares. (See "THE CONVERSION.") If the Merger is approved and
consummated, each right to receive a whole share of DTG Common Stock
issuable in the Conversion would automatically become and be converted into
the right to receive one validly issued, fully paid and nonassessable share
of DTG Delaware common stock, without par value ("DTG Delaware Common
Stock"). (See "THE MERGER.")
MEMBERS OF THE COOPERATIVE AND FORMER MEMBERS WHO WILL BECOME
SHAREHOLDERS OF DTG IF THE CONVERSION IS ADOPTED SHOULD SEE "RISK FACTORS"
BEGINNING ON PAGE 14 FOR A DISCUSSION OF VARIOUS FACTORS THEY SHOULD
CONSIDER WITH RESPECT TO THE DTG COMMON STOCK AND DTG DELAWARE COMMON STOCK
OFFERED BY THIS PROSPECTUS AND BALLOT/PROXY STATEMENT.
Consummation of the Conversion is subject to adoption by the Members
of the Cooperative and certain other conditions. Consummation of the
Merger is subject to consummation of the Conversion, approval by the
shareholders of DTG and certain other conditions. (See "THE CONVERSION--
Conditions to the Conversion and Abandonment" and "THE MERGER--Conditions
to the Merger and Abandonment.")
YOUR VOTE IS IMPORTANT. THE CONVERSION CANNOT OCCUR UNLESS A MAJORITY
OF THE MEMBERS OF THE COOPERATIVE VOTING AT THE SPECIAL MEETING VOTE FOR
THE ADOPTION OF THE PROPOSED AMENDMENT TO THE COOPERATIVE'S ARTICLES OF
INCORPORATION. THE MERGER CANNOT OCCUR UNLESS THE CONVERSION IS ADOPTED
AND THE HOLDERS OF A MAJORITY OF THE SHARES OF DTG COMMON STOCK ISSUABLE IN
THE CONVERSION VOTE FOR THE APPROVAL OF THE PLAN OF MERGER. WHETHER OR NOT
YOU EXPECT TO ATTEND THE SPECIAL MEETINGS IN PERSON, PLEASE SIGN AND DATE
THE ENCLOSED BALLOT/PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND BALLOT/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus and Ballot/Proxy Statement is dated ___________, 1997.
<PAGE>
AVAILABLE INFORMATION
Neither DTG nor DTG Delaware is currently subject to the information
and reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). DTG and DTG Delaware have filed a
Registration Statement with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the DTG Common Stock and DTG Delaware Common Stock
offered in connection with the proposed Conversion and proposed Merger,
respectively, described in this Prospectus and Ballot/Proxy Statement.
This Prospectus and Ballot/Proxy Statement does not contain all of the
information set forth in the Registration Statement, certain portions of
which and exhibits are omitted in accordance with the rules and regulations
of the Commission. Reference is made to the Registration Statement and
exhibits for further information about the Cooperative, DTG, DTG Delaware
and their respective securities. Any person may inspect the Registration
Statement without charge at the public reference facilities maintained by
the Commission (Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549)
and at the Commission's Regional Offices in New York (7 World Trade Center,
Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of all
or any part of the Registration Statement can also be obtained from the
Commission at prescribed rates by writing to the Commission's public
reference facilities. The Registration Statement was filed with the
Commission electronically through the EDGAR system. The Commission
maintains a Web site that contains registration statements, reports and
other information regarding companies that file materials electronically
with the Commission at http://www.sec.gov.
REPORTS TO STOCKHOLDERS
Neither DTG nor DTG Delaware is currently required and, if the
proposed Conversion and/or proposed Merger is consummated and shares of DTG
Common Stock or DTG Delaware Common Stock, as applicable, are issued, the
Resulting Company may not be required to deliver an annual report to
stockholders pursuant to Section 14 of the Exchange Act or the regulations
issued by the Commission. Even if the Resulting Company is not required to
deliver an annual report, it nonetheless expects to prepare and deliver an
annual report to stockholders, although the voluntary annual report might
not contain all information that would otherwise be required under
Commission Rule 14a-3. The Resulting Company expects that any such annual
report would contain financial information that has been audited by
independent public or certified public accountants.
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a "safe harbor" for forward-looking statements. Certain
information included under "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC,"
ii
<PAGE>
particularly the subheadings "Business," "Competition," "Regulation" and
"Management's Discussion and Analysis or Plan of Operation," may constitute
or include forward-looking statements under the Reform Act, such as
information relating to the Company's 1997 development plans and the
effects on the Cooperative of future regulation and competition. Such
forward-looking information involves important known and unknown risks
and uncertainties and other factors that may cause the actual results,
performance or achievements of the Cooperative to be materially different
from any future results, performance or achievements expressed or implied
by such forward-looking statements. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic
conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials, inventories
and programming, technological developments and changes in the competitive
environment in which the Company operates. Members and holders of
Preferred Stock and Capital Credits are cautioned not to place undue
reliance on the forward-looking statements made in this Prospectus and
Ballot/Proxy Statement, which speak only as of the date hereof. See "RISK
FACTORS" for a description of specific risks applicable to the Company."
As used in this Prospectus and Ballot/Proxy Statement, the term "Company"
means the Cooperative and its subsidiaries before the Conversion and the
Resulting Company and its subsidiares after the Conversion or Merger.
iii
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
NOTICE OF SPECIAL MEETING OF MEMBERS
To the Members of Dakota Cooperative Telecommunications, Inc.:
A special meeting of the Members of Dakota Cooperative
Telecommunications, Inc. (the "Cooperative") will be held at [LOCATION],
[STREET ADDRESS], [CITY], South Dakota, on ___________, 1997, at 11:00
a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt an amendment to
the Cooperative's articles of incorporation to convert the
Cooperative into a South Dakota business corporation which would
be named Dakota Telecommunications Group, Inc. (the
"Conversion").
2. To transact such other business as may properly come before the
meeting.
A vote for adoption of the Conversion also constitutes a vote for
approval of the 1997 Stock Incentive Plan and a vote for approval of the
form of Indemnity Agreement, both of which are described in the Prospectus
and Ballot/Proxy Statement distributed with this Notice.
The Board of Directors has fixed the close of business on ___________,
1997, as the record date for the determination of Members entitled to
notice of and to vote at the meeting and any adjournment of the meeting.
By Order of the Board of Directors,
John A. Schaefer, Secretary
Irene, South Dakota
___________, 1997
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED BALLOT/PROXY PROMPTLY.
iv
<PAGE>
DAKOTA TELECOMMUNICATIONS GROUP, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Dakota Telecommunications Group, Inc.:
A special meeting of the shareholders of Dakota Telecommunications
Group, Inc. will be held at [LOCATION], [STREET ADDRESS], [CITY], South
Dakota, on ___________, 1997, at 11:00 a.m., local time, immediately
following a special meeting of Members of Dakota Cooperative
Telecommunications, Inc. (the "Cooperative") if the Members of the
Cooperative adopt a proposed amendment to the Cooperative's articles of
incorporation to convert the Cooperative into a South Dakota business
corporation (the "Conversion") at the special meeting of Members. The
special meeting of shareholders will be held for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger (the "Plan of Merger") pursuant to which Dakota
Telecommunications Group, Inc. ("DTG") would be merged with and
into Dakota Telecommunications Group (Delaware), Inc., a newly
formed Delaware business corporation which is currently a wholly
owned subsidiary of the Cooperative and will be a wholly owned
subsidiary of DTG if the Conversion is adopted (the "Merger").
2. To transact such other business as may properly come before the
meeting.
A vote for approval of the Plan of Merger also constitutes a vote for
approval of the 1997 Stock Incentive Plan and a vote for approval of the
form of Indemnity Agreement, both of which are described in the Prospectus
and Ballot/Proxy Statement distributed with this Notice.
The special meeting of shareholders of DTG will not be held if Members
of the Cooperative do not adopt an amendment to the Cooperative's articles
of incorporation to effect the Conversion.
The Board of Directors of Dakota Cooperative Telecommunications, Inc.,
the predecessor to DTG if the Conversion is adopted, has fixed the close of
business on ___________, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and any
adjournment of the meeting. Shareholders who comply with certain
provisions of the South Dakota Business Corporation Act (the "SDBCA") may
v
<PAGE>
dissent from the Merger and demand payment of the fair value of their
shares. A copy of the applicable provisions of the SDBCA is attached as
Appendix G to the accompanying Prospectus and Ballot/Proxy Statement.
By Order of the Board of Directors,
John A. Schaefer, Secretary
Irene, South Dakota
___________, 1997
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED BALLOT/PROXY PROMPTLY.
vi
<PAGE>
PROSPECTUS AND BALLOT/PROXY STATEMENT
SPECIAL MEETING OF MEMBERS OF
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
(605) 263-3301
TO VOTE TO ADOPT AN AMENDMENT TO THE ARTICLES OF INCORPORATION
INVOLVING AN OFFERING OF COMMON STOCK, WITHOUT PAR VALUE, OF
DAKOTA TELECOMMUNICATIONS GROUP, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
(605) 263-3301
AND
SPECIAL MEETING OF SHAREHOLDERS OF
DAKOTA TELECOMMUNICATIONS GROUP, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
(605) 263-3301
TO VOTE TO APPROVE AN AGREEMENT AND PLAN OF MERGER
INVOLVING AN OFFERING OF COMMON STOCK, WITHOUT PAR VALUE, OF
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
(605) 263-3301
INTRODUCTION AND SUMMARY
INTRODUCTION
The Board of Directors of Dakota Cooperative Telecommunications, Inc.
(the "Cooperative") is furnishing this Prospectus and Ballot/Proxy
Statement and the accompanying form of Ballot/Proxy on or about
______________, 1997, to solicit votes at a special meeting of Members of
the Cooperative to be held on _______________, 1997, and at any adjournment
of that meeting. The Board of Directors of the Cooperative, as the board
of what will become Dakota Telecommunications Group, Inc., a South Dakota
business corporation ("DTG"), if the Conversion is adopted and consummated,
<PAGE>
is also furnishing this Prospectus and Ballot/Proxy Statement and the
accompanying form of Ballot/Proxy on or about ______________, 1997, to
solicit proxies to vote at a special meeting of shareholders of DTG which
also will be held on _______________, 1997, if the Conversion is adopted,
and at any adjournment of that meeting. The special meetings will be held
at [LOCATION], [STREET ADDRESS], [CITY], South Dakota, beginning at 10:00
a.m. local time. This Prospectus and Ballot/Proxy Statement and the
accompanying form of Ballot/Proxy are being furnished to holders of shares
("Members") of common stock, $5.00 par value, of the Cooperative
("Cooperative Common Stock") of record at the close of business on
___________, 1997, and the individuals and entities who would be record
holders of shares of common stock, without par value, of DTG ("DTG Common
Stock") if the Conversion is adopted and consummated.
The purpose of the special meeting of Members of the Cooperative is
to consider and vote upon a proposal to adopt an amendment to the
Cooperative's articles of incorporation attached as Appendix A to this
Prospectus and Ballot/Proxy Statement to convert the Cooperative into a
South Dakota business corporation, which would be DTG (the "Conversion").
If the Conversion is adopted, the purpose of the special meeting of DTG
shareholders is to consider and vote upon a proposal to approve an
Agreement and Plan of Merger (the "Plan of Merger") attached as Appendix D
to this Prospectus and Ballot/Proxy Statement pursuant to which DTG would
be merged with and into Dakota Telecommunications Group (Delaware), Inc.
("DTG Delaware"), a newly formed Delaware business corporation which is
currently a wholly owned subsidiary of the Cooperative and which would be
a wholly owned subsidiary of DTG if the Conversion is consummated (the
"Merger"). The special meeting of DTG shareholders will not be held if the
Conversion is not adopted by the Members of the Cooperative. A vote by a
Member of the Cooperative to adopt the Conversion and a vote by a
shareholder of DTG to approve the Plan of Merger also constitute a vote
for approval of the 1997 Stock Incentive Plan and a vote for approval of
the form of Indemnity Agreement, both of which are described in this
Prospectus and Ballot/Proxy Statement.
In the proposed Conversion, (i) each share of Cooperative Common Stock
issued and outstanding immediately prior to the effective time of the
Conversion would automatically become and be converted into the right to
receive one validly issued, fully paid and nonassessable share of DTG
Common Stock, (ii) each share of preferred stock, $100.00 par value, of the
Cooperative ("Preferred Stock") issued and outstanding immediately prior to
the effective time of the Conversion would automatically become and be
converted into the right to receive 80.8216445 validly issued, fully paid
and nonassessable shares of DTG Common Stock and (iii) each dollar credited
on the books of the Cooperative to the capital account of each current and
former Member (a "Capital Credit") immediately prior to the effective time
of the Conversion would be retired in full and automatically become and be
converted into the right to receive 0.2 of a validly issued, fully paid and
2
<PAGE>
nonassessable share of DTG Common Stock, all subject to payment in cash for
fractional shares. (See "THE CONVERSION.") Under the Plan of Merger, each
whole share of DTG Common Stock issuable in the Conversion would
automatically become and be converted into the right to receive one validly
issued, fully paid and nonassessable share of DTG Delaware common stock,
without par value ("DTG Delaware Common Stock"). (See "THE MERGER.") Each
share of DTG Delaware Common Stock outstanding immediately prior to the
effective time of the Merger would be canceled. SHARES OF EITHER DTG
COMMON STOCK OR DTG DELAWARE COMMON STOCK, BUT NOT BOTH, WOULD BE ISSUED
AS A RESULT OF THE PROPOSED CONVERSION AND THE PROPOSED MERGER DESCRIBED IN
THIS PROSPECTUS AND BALLOT/PROXY STATEMENT. The company whose shares of
common stock are issued pursuant to the proposed Conversion and the
proposed Merger is referred to as the "Resulting Company" in this
Prospectus and Ballot/Proxy Statement.
The adoption of the proposed amendment to the Cooperative's articles
of incorporation to effect the Conversion requires the affirmative vote of
a majority of the Members of the Cooperative voting at the special meeting.
The presence in person or by ballot of 50 Members constitutes a quorum for
purposes of the vote required at the special meeting of Members. The
Cooperative does not anticipate that any matter other than as specified in
the Notice accompanying this Prospectus and Ballot/Proxy Statement will
come before the special meeting. (See "GENERAL VOTING INFORMATION--Voting
Rights and Record Date for the Conversion.")
Approval of the Plan of Merger requires that the Conversion be adopted
and the affirmative vote of the holders of a majority of the shares of DTG
Common Stock issuable in the Conversion. The presence in person or by
proxy of a majority of the shares of DTG Common Stock issuable in the
Conversion constitutes a quorum for purposes of the vote required at the
special meeting of DTG shareholders. DTG does not anticipate that any
other matter other than as specified in the Notice accompanying this
Prospectus and Ballot/Proxy Statement will come before the special
meeting. (See "GENERAL VOTING INFORMATION--Voting Rights and Record Date
for the Merger.")
The Cooperative's Board of Directors, on behalf of the Cooperative,
unanimously recommended that the proposed amendment to the Cooperative's
articles of incorporation be submitted for adoption by the Members and, on
behalf of DTG, unanimously voted to approve the Plan of Merger at a special
meeting held on February 11, 1997. (See "THE CONVERSION" and "THE
MERGER.")
THE BOARD OF DIRECTORS OF THE COOPERATIVE
UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF THE PROPOSED
AMENDMENT TO THE ARTICLES OF INCORPORATION AND THE
BOARD OF DIRECTORS OF THE COOPERATIVE, ON BEHALF
OF DTG, UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE PLAN OF MERGER.
3
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND DAKOTA TELECOMMUNICATIONS
GROUP, INC.
The Cooperative is a stock-based South Dakota cooperative association
that was formed on April 3, 1952. The Cooperative is a diversified
telecommunications services company, which, directly or through wholly
owned subsidiaries, currently provides wireline local and network access
services, long distance telephone services, operator assisted calling
services, telecommunications equipment sale and leasing services, cable
television services and Internet access and related services. (See "DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC.--Business.") The Cooperative is owned
by its Members, each of whom has one vote on matters submitted for Member
action. The mailing address of the Cooperative's principal executive
offices is Post Office Box 66, 29705 453rd Avenue, Irene, South Dakota
57037-0066, and its telephone number is (605) 263-3301.
If the proposed amendment to the Cooperative's articles of
incorporation is adopted and the Conversion is consummated, the Cooperative
would be converted into DTG, a South Dakota business corporation. Under
the laws of South Dakota, the Cooperative would be required to change its
name after the Conversion because the name of a business corporation cannot
contain the word "cooperative." DTG would be the successor to the
Cooperative, would assume all of the operations, assets and liabilities of
the Cooperative and would have a consolidated financial position
substantially identical to that of the Cooperative immediately before the
Conversion. After the Conversion, the directors, officers, employees,
businesses, properties and operations of DTG would be substantially similar
to those of the Cooperative, except as otherwise indicated in this
Prospectus and Ballot/Proxy Statement. The mailing address of DTG's
principal executive offices would remain Post Office Box 66, 29705 453rd
Avenue, Irene, South Dakota 57037-0066, and its telephone number will be
(605) 263-3301.
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
DTG Delaware is a business corporation formed under Delaware law with
general business purposes and is currently a wholly owned subsidiary of the
Cooperative. Before the proposed Merger, DTG Delaware would have nominal
assets and liabilities and no income. If the Conversion is adopted and the
Merger is approved and consummated, DTG Delaware would assume all of the
operations, assets and liabilities of DTG and would have a consolidated
financial position substantially identical to that of DTG immediately
before the Merger. After the Merger, the directors, officers, employees,
businesses, properties and operations of DTG Delaware would be
substantially similar to those of DTG, except as otherwise indicated in
this Prospectus and Ballot/Proxy Statement. The mailing address of DTG
Delaware's principal executive offices is Post Office Box 66, 29705 453rd
Avenue, Irene, South Dakota 57037-0066, and its telephone number is (605)
263-3301.
4
<PAGE>
SUMMARY OF CERTAIN ASPECTS OF THE CONVERSION
Members of the Cooperative should consider the following summary in
conjunction with the more detailed information appearing elsewhere in this
Prospectus and Ballot/Proxy Statement concerning the proposed Conversion.
(See "THE CONVERSION.")
BACKGROUND OF AND REASONS FOR THE CONVERSION. The Cooperative's Board
of Directors, together with management and with the advice of the
Cooperative's financial and legal advisers, has been studying the
possibility of converting the Cooperative from a cooperative association
into a general business corporation in an effort to enhance the value of
the investments in the Cooperative of its Members and holders of Preferred
Stock and Capital Credits and to increase the Cooperative's competitive
position in its markets. The Board of Directors has considered industry
trends of rapid changes in technology and increasing competition in the
provision of many services offered by the Cooperative. The Board also has
considered recent changes in the regulatory environment affecting the
telecommunications services industry that the Board believes may
significantly increase competition in the markets that the Cooperative
currently serves. The Board believes that the Cooperative must retain
existing customers and increase the markets served and services offered in
order to remain competitive in light of such technological changes,
increased competition and changes in the regulatory environment. After
considering various alternatives, the Board unanimously approved the
proposed amendment to the Cooperative's articles of incorporation to effect
the Conversion and recommended that the proposed amendment be submitted for
adoption by the Members at a special meeting.
The Board of Directors of the Cooperative believes that the proposed
Conversion would be in the best interests of the Cooperative and its
Members and holders of Preferred Stock and Capital Credits. The Board
believes that to realize the full potential of its operations and to
finance its growth strategy, the Cooperative would benefit by having access
to potential additional capital resources. The Board believes that the
Conversion may help to provide the Cooperative greater access to capital
markets and increased options in connection with potential acquisitions,
partnerships and alliances. The Board also believes that the Conversion
would assist the Cooperative in becoming a more effective competitor in its
markets.
Further, the Board of Directors believes that the Conversion would
provide Members and holders of Preferred Stock and Capital Credits with an
opportunity to have an interest in a more flexible business organization
and could provide them an opportunity to realize in the future the value of
their investments in the Cooperative, although there can be no assurance
that a market for DTG Common Stock would develop following the Conversion
or, if it did, that it would provide DTG shareholders a meaningful
5
<PAGE>
opportunity to liquidate their equity interests in DTG at a fair value.
The Board considered these potential advantages and limitations in light of
the restrictions currently contained in the South Dakota Cooperative
Association Act (the "Cooperative Act") and the Cooperative's articles of
incorporation and bylaws concerning the sale or transfer of the stock of
and Capital Credits in the Cooperative. (See "THE CONVERSION--Background
of the Conversion" and --"Board Recommendation and Reasons for the
Conversion.")
NATURE OF DTG SHAREHOLDERS' INTERESTS. The Cooperative is organized
and operated on a cooperative basis. If the Conversion is adopted and
consummated, DTG would operate as a business corporation rather than a
cooperative. As a business corporation, the nature of the shareholders'
interests in the business enterprise would differ significantly from the
interests of Members and holders of Preferred Stock and Capital Credits in
the Cooperative. (See "THE CONVERSION--Comparison of Rights of Members of
the Cooperative to Rights of Shareholders of DTG.")
The Cooperative has accounted for the equity of its Members through
Capital Credits for all of its 45-year history. No dividends have been or
are currently paid on Capital Credits. Capital Credits are accumulated on
the books of the Cooperative rather than paid in cash. The bylaws of the
Cooperative permit retirement of Capital Credits in any method, basis,
priority and order of retirement as may be determined by the Board,
although the bylaws currently place certain restrictions upon the ability
of the Board to retire Capital Credits for cash. In the proposed
Conversion, each Capital Credit on the books of the Cooperative immediately
prior to the effective time of the Conversion would be retired in full and
automatically become and be converted into the right to receive 0.2 of a
validly issued, fully paid and nonassessable share of DTG Common Stock,
subject to payment in cash for fractional shares.
The Cooperative has not retired Capital Credits accumulated for any
year after December 31, 1985. Capital Credits for the years prior to
January 1, 1986, have been retired in full. The last actual cash payment
to Members for the purpose of retiring Capital Credits for the 1985 fiscal
year occurred in 1992. The Board pays accumulated Capital Credits to the
estates of deceased Members, who were natural persons, on a discounted
current value basis. The current discount is 58 percent, calculated on a
12-year, 7.5 percent basis. These retirements of Capital Credits are
current on a month-to-month basis. If the Conversion is consummated,
Capital Credits would cease to exist and, accordingly, would not
accumulate. No Capital Credits would be allocated for the 1997 fiscal
year. (See "THE CONVERSION--Conversion of Current and Former Members'
Capital Credits.")
After the Conversion, DTG would be permitted by law to pay dividends
to its shareholders, although certain covenants in existing loan agreements
6
<PAGE>
between the Cooperative and the Rural Utilities Service of the United
States Department of Agriculture ("RUS"), as well as federal statutes and
regulations which apply to RUS borrowers, could limit the circumstances
under which DTG would be permitted to pay dividends or make other
distributions to its shareholders. The RUS must authorize distributions
other than in shares of stock unless certain financial ratio requirements
are met. The amount and timing of future dividend payments, if any, would
be based on a number of factors, including the capital requirements of
DTG's business and the financial condition of DTG. There can be no
assurance that DTG would pay any dividends at any time, and DTG has no
intention of paying cash dividends in the foreseeable future. In the
future, it is possible that agreements with lenders would continue to limit
or restrict, or could place additional limitations or restrictions upon,
DTG's ability to pay dividends or the amount of dividends that DTG may pay
to its shareholders.
CONSIDERATION TO BE RECEIVED IN THE CONVERSION. If the proposed
amendment to the Cooperative's articles of incorporation is adopted and the
Conversion is consummated, the Cooperative would be converted into DTG.
Following the Conversion, DTG would own all of the assets and assume all of
the liabilities of the Cooperative.
In the Conversion, (i) each share of Cooperative Common Stock issued
and outstanding immediately prior to the effective time of the Conversion
would automatically become and be converted into the right to receive one
validly issued, fully paid and nonassessable share of DTG Common Stock,
(ii) each share of Preferred Stock issued and outstanding immediately prior
to the effective time of the Conversion would automatically become and be
converted into the right to receive 80.8216445 validly issued, fully paid
and nonassessable shares of DTG Common Stock and (iii) each Capital Credit
recorded on the books of the Cooperative immediately prior to the effective
time of the Conversion would be retired in full and automatically become
and be converted into the right to receive 0.2 of a validly issued, fully
paid and nonassessable share of DTG Common Stock, all subject to payment in
cash for fractional shares. The Board of Directors carefully considered
various methods of determining the conversion ratios for shares of
Cooperative Common Stock and Preferred Stock and Capital Credits and
believes that using the stated dollar value per share or Capital Credit is
a reasonable and appropriate method of allocating the value of the
Cooperative among the Members and holders of Preferred Stock and Capital
Credits. (See "THE CONVERSION.")
For purposes of determining the number of shares of DTG Common Stock
that would be issuable in the Conversion as a result of the retirement of
Capital Credits, the number of Capital Credits held by each person would be
determined by allocating Capital Credits for 1996 (Capital Credits would
not be allocated for 1997), and then offsetting any unpaid, overdue amounts
owed to the Cooperative by the person for past services (with interest).
7
<PAGE>
Capital Credit holders would have the option to pay overdue amounts (with
interest) in cash to avoid a reduction in their Capital Credits. The
balance, if positive, would be divided by $5.00 to determine the number of
shares of DTG Common Stock that would be issuable in the Conversion to
retire the holder's Capital Credits. If the Cooperative does not have
current addresses for holders of Capital Credits, such Capital Credits
would be allocated into a Cooperative Equity Suspense Account immediately
prior to the Conversion. DTG would attempt to locate such holders
following applicable laws and regulations, and if it is unsuccessful,
amounts in the Cooperative Equity Suspense Account would be forfeited and
reallocated as additional paid-in capital.
DTG would not issue fractional shares of DTG Common Stock in the
Conversion. A Member or holder of Preferred Stock or Capital Credits who
would otherwise be entitled to receive a fraction of a share of DTG Common
Stock in the Conversion would receive instead an amount of cash determined
by multiplying that fraction by $5.00.
CONSUMMATION OF THE CONVERSION. Consummation of the Conversion is
subject to certain conditions, including that the required number of
Members of the Cooperative adopt the proposed amendment to the
Cooperative's articles of incorporation, that all required regulatory
approvals are obtained and that no proceeding seeking to prevent the
Conversion is pending or threatened. At any time prior to the effective
time of the Conversion, the Board of Directors of the Cooperative may
abandon the Conversion. (See "THE CONVERSION--Conditions to the Conversion
and Abandonment.") It is currently expected that the Conversion, if
adopted by the Members of the Cooperative, would become effective during
the second quarter of 1997.
VOTE REQUIRED. Pursuant to the South Dakota Business Corporation Act
(the "SDBCA") and the Cooperative Act, adoption of the proposed amendment
to the Cooperative's articles of incorporation requires the affirmative
vote of a majority of the Members of the Cooperative voting at the special
meeting. (See "GENERAL VOTING INFORMATION--Voting Rights and Record Date
for the Conversion.") The presence in person or by ballot of 50 Members
constitutes a quorum for purposes of the vote required by Members at the
special meeting. The Board of Directors of the Cooperative has fixed
___________, 1997, as the record date (the "Record Date") for purposes of
determining those Members who will be entitled to notice of and vote at the
special meeting. Each Member of the Cooperative on the Record Date will
be entitled to one vote on each matter submitted for Member action at the
special meeting. As of December 31, 1996, the Cooperative had 5,237
Members. As of that date, the Cooperative's directors and executive
officers and their respective affiliates and associates represented eight
Members, or less than one percent of the total number of Members. (See
"VOTING AND MANAGEMENT INFORMATION--Interests of Certain Persons.")
8
<PAGE>
DISSENTERS' RIGHTS. Under the provisions of the Cooperative Act and
the SDBCA, Members and holders of Preferred Stock and Capital Credits are
not entitled to dissenters' rights in connection with the proposed
Conversion.
FEDERAL INCOME TAX CONSEQUENCES. The Cooperative has not requested a
private letter ruling from the Internal Revenue Service as to the federal
tax consequences of the Conversion, and thus there can be no assurance that
the Conversion would constitute a tax-free exchange for federal income tax
purposes. However, Olsen Thielen & Co., Ltd., independent auditors, has
issued an opinion to the Cooperative regarding the federal income tax
consequences of the Conversion. The opinion of Olsen Thielen & Co., Ltd.
provides substantially to the effect that, among other matters, Members
would not recognize taxable gain or loss by reason of the conversion of
Cooperative Common Stock, Preferred Stock or Capital Credits into the right
to receive shares of DTG Common Stock in the Conversion and that shares of
DTG Common Stock issuable in the Conversion would have the same basis and
holding period as the shares of Cooperative Common Stock and Preferred
Stock and Capital Credits surrendered in exchange for them. Cash received
in lieu of fractional shares of DTG Common Stock would be taxable. (See
"THE CONVERSION--Federal Income Tax Consequences.")
Due to the complexities of federal, state and local income tax laws,
it is strongly recommended that Members and holders of Preferred Stock and
Capital Credits consult their own tax advisers concerning the particular
federal, state and local tax consequences of the Conversion to them.
ACCOUNTING TREATMENT. The Conversion would be accounted for as a
capital restructuring. Therefore, the Conversion would not affect the
valuation of the assets or liabilities of the Cooperative in the hands of
DTG, nor would DTG record any income or expense as a result of the
Conversion.
REGULATORY APPROVAL. Consummation of the Conversion is subject to
the approval of the RUS pursuant to certain loan agreements between the
Cooperative and the RUS. The Cooperative requested approval of the
Conversion from the RUS on January 24, 1997.
SUMMARY OF CERTAIN ASPECTS OF THE MERGER
If the Members adopt the proposed amendment to the Cooperative's
articles of incorporation and the Conversion is consummated, Members and
holders of Preferred Stock and Capital Credits of the Cooperative would
become shareholders of DTG. Shareholders of DTG should consider the
following summary in conjunction with the more detailed information
appearing elsewhere in this Prospectus and Ballot/Proxy Statement
concerning the proposed Merger of DTG with and into DTG Delaware.
(See "THE MERGER.")
9
<PAGE>
BACKGROUND OF AND REASONS FOR THE MERGER. The Cooperative's Board of
Directors, in connection with studying the possibility of converting the
Cooperative into a general business corporation, also has considered
possible methods of trying to promote the development of a market in the
stock of a business corporation. The Board believes that encouraging and
promoting the development of a market in the capital stock of DTG (into
which the Cooperative would be converted) would promote the interests of
DTG and its shareholders by helping to provide an opportunity for a
potential new source of capital. The Board believes that encouraging the
development of a market for the stock of DTG also would promote the
interests of its shareholders by helping to enhance the liquidity of their
investment in DTG, helping to promote valuations of their stock for gift,
estate planning and other purposes and helping to provide a means by which
DTG shareholders may be able to evaluate the value of their investment in
DTG.
The Board of Directors believes that brokers, other potential market
makers and investors are more familiar with and therefore may be more
comfortable making a market and investing in the stock of a Delaware
corporation as compared to a South Dakota corporation. The Board believes
that, due to the substantial number of corporations incorporated in
Delaware, brokers, other potential market makers and investors are familiar
with Delaware corporations generally. The Board believes that because
there are relatively few publicly traded South Dakota corporations,
brokers, other potential market makers and investors may be unfamiliar with
South Dakota corporate law and therefore may be hesitant to invest in, or
perhaps even reject an investment in, a South Dakota corporation. In
addition, the Board believes that Delaware corporate law is relatively
well developed, which would lend predictability to both DTG and its
shareholders in matters related to corporate governance and management.
The Board also believes that certain provisions of the SDBCA could
limit DTG's flexibility or even hinder its ability to react to changing
business needs and opportunities and could create increased expense for DTG
in conducting fairly routine business matters. The SDBCA's requirements
for a shareholder vote before a corporation may increase its indebtedness
or in connection with small mergers in which the corporation is the
acquiring and surviving entity are examples of provisions that are not
contained in the corporate laws of Delaware. (See "THE MERGER--Comparison
of Rights of Shareholders of DTG to Rights of Stockholders of DTG
Delaware.")
For the reasons set forth in the preceding paragraphs, the Board
believes it would be in the best interests of DTG and its shareholders for
DTG to be incorporated in Delaware. The proposed Merger is designed to
reincorporate DTG under Delaware law. If the Merger is consummated, the
primary place of business and the corporate headquarters of DTG Delaware
would remain in South Dakota. The Cooperative, on behalf of DTG, and DTG
10
<PAGE>
Delaware have entered into the Plan of Merger on February 14, 1997,
following approval of the Plan of Merger by their respective Boards of
Directors. (See "THE MERGER--Background of the Merger" and "--Board
Recommendation and Reasons for the Merger.")
CONSIDERATION TO BE RECEIVED IN THE MERGER. If the proposed Merger is
approved and consummated, DTG would be merged with and into DTG Delaware
and the name of DTG Delaware would be changed to "Dakota Telecommunications
Group, Inc." DTG Delaware would own all of the assets and assume all of
the liabilities of DTG.
In the Merger, each whole share of DTG Common Stock issuable in the
Conversion would automatically become and be converted into the right to
receive one validly issued, fully paid and nonassessable share of DTG
Delaware Common Stock. Each share of DTG Delaware Common Stock which is
outstanding immediately prior to the effective time of the Merger would be
canceled. (See "THE MERGER.") No fractional shares would result from or
be issued in the Merger.
CONSUMMATION OF THE MERGER. Consummation of the Merger is subject
to certain conditions, including that the Conversion be adopted and
consummated, that the shareholders of DTG approve the Merger, that all
required regulatory approvals are obtained, that holders of not more than
five percent of the shares of DTG issuable in the Conversion shall have
asserted dissenters' rights with respect to the Merger under Section
47-6-23 of the SDBCA and that no proceeding seeking to prevent the Merger
is pending or threatened. At any time prior to the effective time of the
Merger, the Boards of Directors of DTG (or the Cooperative on behalf of
DTG) and DTG Delaware may by mutual consent abandon the Merger or, except
as required by law, waive any condition, including the condition concerning
the exercise of dissenters' rights. (See "THE MERGER--Conditions to the
Merger and Abandonment.") It is currently expected that the Merger, if
approved by DTG's shareholders, would become effective during the second
quarter of 1997.
VOTE REQUIRED. Pursuant to the SDBCA, approval of the Merger requires
the affirmative vote of the holders of a majority of the shares of DTG
issuable in the Conversion. (See "GENERAL VOTING INFORMATION--Voting
Rights and Record Date for the Merger.") The presence in person or by
proxy of a majority of the shares of DTG Common Stock issuable in the
Conversion constitutes a quorum for purposes of the vote required by DTG's
shareholders at the special meeting. The Board of Directors has fixed
___________, 1997, as the record date (the "Record Date") for purposes of
determining the individuals and entities who would be holders of shares of
DTG Common Stock (if the Conversion is adopted and consummated) entitled to
notice of and vote at the special meeting. Each share of DTG Common Stock
issuable in the Conversion entitles the holder to one vote on each matter
submitted for shareholder action at the special meeting. As of
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<PAGE>
December 31, 1996, the Cooperative's directors and executive officers and
their affiliates (who will be the directors, executive officers and
affiliates of DTG after the Conversion) would have beneficially owned less
than one percent of the total number of shares of DTG Common Stock
issuable in the Conversion if the Conversion had been adopted and
consummated as of that date. (See "VOTING AND MANAGEMENT INFORMATION--
Interests of Certain Persons.")
DISSENTERS' RIGHTS. Under the provisions of Section 47-6-23 of the
SDBCA, any shareholder of DTG may dissent from the proposed Merger and be
paid the "fair value" of the shareholder's shares if the Plan of Merger is
approved by the shareholders and the proposed Merger is consummated by
complying with the procedures set forth in Sections 47-6-23 through
47-6-50 of the SDBCA. To be entitled to payment of the fair value of the
shareholder's shares, a shareholder of DTG must not vote for approval of
the Plan of Merger at the special meeting and must deliver written notice
of dissent to DTG before the vote on the Merger at the special meeting. A
shareholder may not dissent as to less than all of the shares beneficially
owned by that shareholder. A dissenting shareholder also must submit a
written demand for payment, accompanied by certain representations (and the
person's stock certificates that represented shares of Cooperative Common
Stock and Preferred Stock, if any), to DTG within 30 days (or such longer
period as may be permitted by DTG in the notice) after notice is given to
the shareholder of approval of the Plan of Merger. (See "DISSENTERS'
RIGHTS.") If dissenters' rights are asserted with respect to more than
five percent of the number of shares of DTG Common Stock issuable in the
Conversion, either DTG or DTG Delaware may terminate the Plan of Merger and
abandon the Merger. The Boards of Directors of DTG and DTG Delaware may,
in their sole discretion, waive the foregoing condition concerning the
exercise of dissenters' rights.
FEDERAL INCOME TAX CONSEQUENCES. The Cooperative has not requested a
private letter ruling from the Internal Revenue Service as to the federal
tax consequences of the Merger, and thus there can be no assurance that the
Merger would constitute a tax-free exchange for federal income tax
purposes. However, Olsen Thielen & Co., Ltd., independent auditors, has
issued an opinion to the Cooperative regarding the federal income tax
consequences of the Merger. The opinion of Olsen Thielen & Co., Ltd.
provides substantially to the effect that, among other matters, DTG
shareholders would not recognize taxable gain or loss by reason of
receiving shares of DTG Delaware Common Stock in the Merger and that shares
of DTG Delaware Common Stock received by DTG shareholders in the Merger
would have the same basis and holding period as the respective shares of
DTG Common Stock surrendered in exchange for them. (See "THE MERGER--
Federal Income Tax Consequences.")
Due to the complexities of federal, state and local income tax laws,
it is strongly recommended that shareholders of DTG consult their own tax
12
<PAGE>
advisers concerning the particular federal, state and local tax
consequences of the Merger to them.
ACCOUNTING TREATMENT. The Merger will be accounted for as a capital
restructuring. Therefore, the Merger would not affect the valuation of the
assets or liabilities of DTG in the hands of DTG Delaware, nor would DTG
Delaware record any income or expense as a result of the Merger.
REGULATORY APPROVAL. Consummation of the Merger is subject to the
approval of the RUS pursuant to certain loan agreements between the
Cooperative and the RUS, which would apply to DTG as a successor in
interest. The Cooperative, on behalf of DTG, requested approval of the
Merger from the RUS on January 24, 1997.
MARKET INFORMATION
No public trading market currently exists for shares of Cooperative
Common Stock or Preferred Stock or Capital Credits, and shares of
Cooperative Common Stock and Preferred Stock and Capital Credits are
currently subject to substantial restrictions on transferability. If the
Conversion or Merger is consummated, the Resulting Company intends to enter
into negotiations with one or more regional brokerage firms to act as a
market maker for shares of the Resulting Company's common stock. In
addition, if the Conversion or Merger is consummated, the Resulting Company
intends to apply to have shares of the Resulting Company's common stock
quoted for trading on The Nasdaq Stock Market. There can be no assurance
that the Resulting Company would be successful in finding a brokerage firm
to act as a market maker for its common stock or that shares of the
Resulting Company's common stock would ever be quoted for trading on The
Nasdaq Stock Market. Similarly, there can be no assurance that a trading
market would develop or be maintained for shares of the Resulting Company's
common stock or, if it did, that it would provide the stockholders of the
Resulting Company a meaningful opportunity to liquidate their equity
interest in the Resulting Company at a fair value.
The Cooperative has historically operated as a Member-owned
cooperative rather than as a for-profit enterprise and its articles of
incorporation have prohibited the declaration of dividends on shares of
Cooperative Common Stock. The Cooperative has not previously paid
dividends on any of the currently issued and outstanding shares of
Preferred Stock or on Capital Credits.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial information has been
derived from the consolidated financial statements of the Cooperative for
each of the years in the five-year period ended December 31, 1996, which
were examined by Olsen Thielen & Co., Ltd. The selected historical
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<PAGE>
financial information should be read in conjunction with "DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC.--Management's Discussion and Analysis
or Plan of Operation" and the Consolidated Financial Statements and related
notes thereto with respect to the Cooperative included as Appendix G to
this Prospectus and Ballot/Proxy Statement. No historical financial
statements of DTG are included in this Prospectus and Ballot/Proxy
Statement since DTG merely would be the successor to the Cooperative if the
Conversion is adopted and does not exist as an entity separate from the
Cooperative. No historical financial statements of DTG Delaware are
included in this Prospectus and Ballot/Proxy Statement since DTG Delaware
has no significant assets or liabilities and has had no operating history.
The following selected PRO FORMA financial information includes
Cooperative operations as if the acquisition of TCIC Communications, Inc.
and I-Way Partners, Inc. had occurred on January 1, 1996.
The following selected PRO FORMA financial information for the
Resulting Company also gives effect to the Conversion and/or the Merger.
The PRO FORMA financial information for the Resulting Company will be
identical if only the Conversion is adopted or if both the Conversion is
adopted and the Merger is approved. This information should be read in
conjunction with the PRO FORMA financial statements and notes thereto
included elsewhere in this Prospectus and Ballot/Proxy Statement. The PRO
FORMA financial information gives effect to the Conversion or the
Conversion and the Merger as if the Conversion or the Conversion and the
Merger, as applicable, occurred on January 1 of the year presented. The
PRO FORMA financial information may not be indicative of the results that
actually would have occurred if the Conversion or the Conversion and the
Merger had been in effect on that date or which may be attained in the
future. (See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.")
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------------------------------------------------- -----------
1992 1993 1994 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 4,817,571 $ 4,822,235 $ 5,335,351 $ 6,115,529 $ 7,808,842 $ 9,474,178
Costs and Expenses 3,508,881 3,797,835 3,807,320 5,273,657 7,730,992 9,665,506
Operating Income (Loss) 1,308,690 1,024,400 1,528,031 841,872 77,850 (191,328)
Other Income
(Expenses), Net<F1><F2> (308,276) (479,404) (85,654) 593,449 (413,796) (601,110)
Income (Loss) Before
Income Taxes 1,000,414 544,996 1,442,377 1,435,321 (335,946) (792,438)
Income Taxes -- 4,909 11,666 301,859 (175,712) (277,000)
Net Income (Loss) 1,000,414 540,087 1,430,711 1,133,462 (160,234) (515,438)
Proforma Net Income (Loss)
Per Share -- -- -- -- (4.39)<F3>
BALANCE SHEET DATA:
Working Capital $ 2,764,772 $ 3,146,402 $ 5,641,071 $ 7,242,678 $ 4,946,121 $ 4,946,121
Property, Plant and
Equipment 11,365,290 11,760,785 11,241,422 11,041,284 14,441,104 14,441,104
Total Assets 15,828,294 16,871,076 18,494,208 20,121,675 23,504,875 23,504,875
Long-Term Debt 12,584,682 12,918,003 13,028,945 13,054,725 15,338,395 15,338,395
Stockholders' Equity 2,272,614 2,827,100 4,257,396 5,415,305 6,412,216 6,412,216
<FN>
<F1> Gains on sale of cellular investments were $240,811 in 1994
and $686,336 in 1995.
15
<PAGE>
<F2> Income (loss) from cellular partnership were:
1992 $ 77,881
1993 (33,404)
1994 125,377
1995 168,788
<F3> PRO FORMA per share loss was computed by dividing the PRO FORMA
net loss by the PRO FORMA number of shares of common stock
outstanding (1,046,505) shares.
</FN>
</TABLE>
GLOSSARY
The following list of definitions includes terms which are defined
herein and used principally in the "RISK FACTORS" and "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Business," and "--Competition" and "--Regulation"
sections of this Prospectus and Ballot/Proxy Statement. This Glossary
is intended merely to aid in the readability of this Prospectus and
Ballot/Proxy Statement:
<TABLE>
<CAPTION>
TERM DEFINITION
- ---- ----------
<S> <C>
1984 Cable Act Cable Communications Policy Act of 1984
1992 Cable Act Cable Television Consumer Protection and
Competition Act of 1992
1996 Act Telecommunications Act of 1996
America Online America Online, Inc.
AT&T AT&T Corp.
AT&T Divestiture Decree AT&T divestiture decree, which required the
divestiture by AT&T of its 22 Bell operating
companies and divided the country into 201
LATAs
ATM Asynchronous Transfer Mode
BBN BBN Corporation
BST basic tier of cable service
CATV Community Antenna Television (Cable)
16
<PAGE>
TERM DEFINITION
- ---- ----------
CCL Carrier Common Line
CommNet SommNet Cellular, Inc.
CompuServe CompuServe Corporation
Copyright Act Copyright Revision Act of 1976
CPST cable programming service tier
DBS direct broadcast satellites
DSI Dakota Systems, Inc.
DWS Dakota Wireless Systems, Inc.
EPA The Environmental Protection Agency
FCC Interconnection Order First Report and Order in the Matter of
Implementation of the Local Competition
Provisions
FCC United States Federal Communications
Commission
GTOCs GTE Corporation Operating Companies
HSDs home satellite dishes
Iway Iway, Inc.
IXCs national and regional interexchange carriers
LATA Local Access and Transport Area
LECs local exchange companies
LFAs local franchising authorities
MATV Master Antenna Television
MCI MCI Communications Corporation
MMDS multi-channel, multi-point distribution
systems
17
<PAGE>
TERM DEFINITION
- ---- ----------
MTA Major Trade Areas
NAPs Internet National Access Points
NECA National Exchange Carrier Association
NETCOM NETCOM On-Line Communication Services, Inc.
OVS open video system
PCS Broadband Personal Communications Services
PEG public access, educational and government
PSI PSINet Inc.
RBOCs Regional Bell Operating Companies
ROR rate-of-return
RUS Rural Utilities Service of the United States
Department of Agriculture
SFLP Sioux Falls Cellular Limited Partnership
SMATV Satellite MATV
SONET Synchronous Optical Network
Sprint Sprint Corporation
SS7 Signaling System 7 Common Channel Signaling
TCIC TCIC Communications, Inc.
TCP/IP Transmission Control Protocol/Internet
Protocol
USF Universal Service Fund
US WEST US West Communications, Inc.
UUNET UUNET Technologies, Inc.
Web World Wide Web
</TABLE>
18
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and
Ballot/Proxy Statement, the following factors should be considered
carefully in evaluating the Cooperative and its business which will be
assumed by DTG if the Conversion is consummated or by DTG Delaware if the
Merger is consummated. In this Prospectus and Ballot/Proxy Statement, the
term "Company" means the Cooperative and its subsidiaries before the
Conversion, DTG and its subsidiaries after the Conversion and DTG Delaware
and its subsidiaries after the Conversion and the Merger.
COMPETITION
GENERAL. The Company faces intense competition in providing
telecommunications and cable television services both within and outside of
its local exchanges. The Company competes with AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI"), Sprint Corporation ("Sprint") and other
national and regional interexchange carriers ("IXCs"), where permissible.
Other potential competitors include cable television companies, wireless
telephone companies, electric utilities, microwave carriers and private
networks of large end-users. Most of these companies have substantially
greater market share and financial, technical, marketing and other
resources than the Company and some of them are the source of the
telecommunications network capacity used by the Company to provide a
portion of its own long distance services. (See "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Competition.")
LOCAL TELEPHONE SERVICE. Historically, the Company's local telephone
operations have not experienced significant competition. As a result of
the enactment of the federal Telecommunications Act of 1996 (the "1996
Act"), the Company anticipates that its local telephone operations will
experience increased competition from various sources, including resellers
of the Company's local exchange services, large end-users installing their
own networks, IXCs, satellite transmission services, cellular
communications providers, cable television companies, radio-based personal
communications companies, competitive access providers and other systems
capable of completely or partially bypassing the local telephone
facilities. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--
Regulation.") In 1996, the South Dakota Public Utilities Commission
approved numerous applications to provide and resell local exchange
services, including applications made by the Company to enter other local
exchanges. Many such applications are pending and the Company anticipates
that additional filings will be made by other companies. The Company has
received two formal interconnection requests under the 1996 Act from two
cellular service companies operating in the Cooperative's service area.
The Company cannot predict the specific effects of competition on its local
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telephone business at this time. An increase in such competition could
have a material adverse effect on the Company's business, financial
condition and results of operations.
LONG DISTANCE TELECOMMUNICATIONS SERVICES. The United States long
distance telecommunications industry is highly competitive and is
significantly influenced by the marketing and pricing decisions of larger
industry participants. The industry has relatively insignificant barriers
to entry, numerous entities competing for the same customers and high
attrition rates (customer turnover) since customers frequently change long
distance providers in response to offers by competitors of lower rates or
promotional incentives. Most of the Company's competitors are
significantly larger, have substantially greater financial, technical,
marketing and other resources and have larger networks than the Company.
In October 1995, the United States Federal Communications Commission
(the "FCC") reclassified AT&T as a "non-dominant" carrier for domestic
interstate services, which substantially reduced the regulatory constraints
on AT&T. This reclassification may make it easier for AT&T to compete
directly with the Company for long distance subscribers. AT&T was
reclassified as a "non-dominant" carrier for international services on May
14, 1996. The Company also currently competes with US West, a Regional Bell
Operating Company, and other local exchange companies ("LECs") in the
provision of "short haul" toll calls completed within a local access and
transport area ("LATA") (or intra-LATA calls). In addition, as a result of
the 1996 Act, the Regional Bell Operating Companies ("RBOCs") and the GTE
Corporation Operating Companies ("GTOCs") will be allowed to compete for
the provision of "long haul" inter-LATA toll calls upon receipt of all
necessary regulatory approvals and the satisfaction of applicable
conditions. The FCC has not yet finalized all of the rules necessary to
implement the 1996 Act and therefore it is unclear at this time what
impact the 1996 Act and the rules under the 1996 Act will have on the
Company. Depending on the exact nature and timing of GTOC and RBOC entry
into the long distance market and the impact on access rates, such entry
could have a material adverse effect on the Company's business, results
of operations and financial condition. Certain of the RBOCs have already
taken steps to provide in-region inter-LATA long distance services and, on
January 2, 1997, the first RBOC (Ameritech) filed an application with the
FCC seeking authority to provide such services in Michigan. On February
12, 1997, the FCC dismissed Ameritech's application without prejudice.
The Company expects that most or all of the RBOCs will file applications
for inter-LATA long distance service authority. (See "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Regulation.")
The ability of the Company to compete effectively in long distance
telecommunications services will depend upon, among other factors, its
continued ability to provide high quality services at competitive prices,
and there can be no assurance that the Company will be able to compete
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successfully in the future in its markets. The Company's competitors may
reduce rates or offer incentives to existing and potential customers of the
Company, whether as a result of general competitive pressures or the entry
of the RBOCs, GTOCs and other LECs into the long distance market. Since
the Company believes that to maintain its competitive position it must be
able to reduce its prices to meet reductions in rates by others, a decrease
in the rates for long distance services charged by others could have a
material adverse effect on the Company's business, results of operations
and financial condition. The Company expects price competition to continue
to increase, which could have a material adverse effect on the Company's
business, financial condition and results of operations, including a
reduction in the Company's response rates and higher customer attrition.
The Company also expects to encounter increasing competition from the
development of new technologies and the increased availability of domestic
and international transmission capacity. For example, even though fiber
optic networks, such as the Company's new system, are now widely used for
long distance transmission, it is possible that the desirability of such
networks could be adversely affected by changes in technology. The
telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings
and increasing satellite and fiber optic transmission capacity for services
similar to those provided by the Company. The Company cannot predict which
of many possible future product and service offerings will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such products and services.
INTERNET-RELATED SERVICES. The market for data communications
services, including Internet access and on-line services, is extremely
competitive. There are no substantial barriers to entry, and the Company
expects that competition will intensify in the future. The Company
believes that its ability to compete successfully depends on a number of
factors, including: (i) market presence in smaller regional markets;
(ii) the ability to execute a rapid expansion strategy; (iii) the capacity,
reliability and security of its network infrastructure; (iv) ease of access
to and navigation of the Internet; (v) the pricing policies of its
competitors and suppliers; (vi) the timing of the introduction of new
products and services by the Company and its competitors; (vii) the
Company's ability to meet industry standards for technology and service;
and (viii) industry and general economic trends. The success of the
Company in this market will depend heavily upon its ability to provide high
quality Internet connectivity and value-added Internet services at
competitive prices.
The Company's current and potential competitors generally may be
divided into three groups: (i) telecommunications companies, such as AT&T,
MCI, Sprint, the RBOCs, @Home (a joint venture between Tele-Communications,
Inc. and a venture capital firm) and various other cable companies; (ii)
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other Internet access providers, such as UUNET Technologies, Inc.
("UUNET"), BBN Corporation ("BBN"), NETCOM On-Line Communication Services,
Inc. ("NETCOM"), PSINet Inc. ("PSI") and other national and regional
providers; and (iii) on-line services providers, such as America Online,
Inc. ("America Online"), CompuServe Corporation ("CompuServe"), Intuit
Inc., Microsoft Corp. and Prodigy Services Company. Most of these
competitors have greater market presence, engineering and marketing
capabilities, and financial, technological, personnel and other resources,
than those available to the Company and some provide services relied upon
by the Company in its Internet business. As a result, these companies
may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily and devote greater
resources to the marketing and sale of their services than can the Company.
The Company expects that all of the major on-line services providers
and telecommunications companies will expand their current services to
compete fully in the Internet access market. The Company also anticipates
that new competitors, including large computer hardware, software, media
and other technology and telecommunications companies, will enter the
Internet access market, resulting in even greater competition. Certain
companies, including America Online, AT&T, UUNET, BBN and PSI, have
obtained or expanded their Internet access products and services as a
result of acquisitions and strategic investments. Such acquisitions and
investments may permit the Company's competitors to devote greater
resources to the development and marketing of new competitive products and
services and the marketing of existing competitive products and services.
The Company expects these acquisitions and strategic investments to
increase, thus creating significant new competitors. In addition, the
ability of some of the Company's competitors to bundle other services and
products with Internet access services, such as the Internet service
offerings recently announced by AT&T and MCI, could place the Company at a
competitive disadvantage.
As a result of increased competition in the Internet services
industry, the Company expects that it will continue to encounter
significant pricing pressure, which in turn could result in significant
reductions in the average selling price of its Internet services. The
Company previously has reduced prices on certain of its Internet access
options and may do so in the future. There can be no assurance that the
Company will be able to offset the effects of any such price reductions
with an increase in the number of its customers, higher revenue from
enhanced services, cost reductions or otherwise. In addition, the Company
believes that the data communications business, and in particular the
Internet access and on-line services businesses, are likely to encounter
consolidation in the near future, which could result in increased price and
other competition in the industry. Increased price or other competition
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could result in erosion of the Company's market share and could have a
material adverse effect on the Company's Internet business, financial
condition and results of operations. There can be no assurance that the
Company will have the financial resources, technical expertise, marketing
and support capabilities or expansion and acquisition possibilities to
continue to compete successfully.
CABLE TELEVISION SERVICES. Cable television providers compete for
customers in local markets with other providers of entertainment, news and
information. The competitors in these local markets include broadcast
television and radio, newspapers, magazines and other printed material,
motion picture theaters, video cassettes and other sources of information
and entertainment, including directly-competitive cable television
operations. The extent to which the Company's cable television service is
competitive depends upon its ability to provide, on a cost-effective basis,
an even greater variety of programming than that available off-air or
through other alternative delivery sources.
Regulatory changes also impact competition in the cable industry.
(See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.") Both the
Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act") and the 1996 Act are designed to increase competition in the
cable television industry. These regulatory changes have encouraged the
development and deployment of alternative methods of distributing the same
or similar video programming offered by cable television systems. These
technologies include: (i) medium power and higher power direct broadcast
satellites ("DBS") using high frequencies to transmit signals that can be
received by dish antennas much smaller in size than traditional home
satellite dishes ("HSDs"); (ii) multi-channel, multi-point distribution
systems ("MMDS") that deliver programming services over microwave channels
received by subscribers with special antennas; and (iii) Master Antenna
Television ("MATV") systems and Satellite MATV ("SMATV") systems that
provide multi-channel program services directly to hotel, motel, apartment,
condominium and similar multi-unit complexes. The Company already has
experienced competition in its cable system territories from MMDS and DBS
companies.
Within the cable television industry, cable operators may compete with
other cable operators or others seeking franchises for competing cable
television systems at any time during the terms of existing franchises or
upon expiration of such franchises in the expectation that an existing
franchise will not be renewed. The 1992 Cable Act promotes the grant of
competitive franchises. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
- --Regulation.") In addition, an increasing number of cities are exploring
the feasibility of owning their own cable systems in a manner similar to
city-provided utility services.
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The 1996 Act eliminated the statutory and regulatory restrictions that
prevented telephone companies from competing with cable operators for the
provision of video services through any means. The 1996 Act also allows
local telephone companies, including RBOCs, to compete with cable
television operators both inside and outside of their telephone service
areas. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.")
The Company expects that it will face substantial competition from
telephone companies in the provision of video services, whether through the
acquisition of cable systems, the provision of wireless cable or the
provision of upgraded telephone networks. The Company assumes that all
major telephone companies have already entered or soon will enter the
business of providing video services. Most major telephone companies have
greater financial resources than the Company and the 1992 Cable Act ensures
that telephone companies and other providers of video services will not be
precluded from providing significant cable television programming services.
Additionally, the 1996 Act eliminates certain federal restrictions on
utility holding companies and thus permits utility companies to provide
cable television services. The Company expects that utility companies
could become another source of competition in the delivery of video
services. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.")
REGULATORY AND LEGISLATIVE
GENERAL. Regulations, regulatory actions and court decisions have
had, and in the future may have, both positive and negative effects on the
Company and its ability to compete. The recent trend in federal and state
regulation of telecommunications service providers has been toward lessened
regulation. However, the general recent trend toward lessened regulation
also has given AT&T, the largest long distance carrier in the United
States, increased pricing flexibility that has permitted it to compete more
effectively with smaller companies, such as the Company. In addition, the
1996 Act has opened the Company's local service and cable markets to
increased competition. There can be no assurance that future regulatory,
judicial and legislative changes will not have a material adverse effect on
the Company.
TELECOMMUNICATIONS SERVICES. The Company's local and long distance
businesses are subject to varying degrees of federal, state, local and
international regulation. This regulatory environment varies substantially
by jurisdiction and is in rapid change due to legislative and technological
changes. In the United States, the Company is most heavily regulated by
the various states, in particular the South Dakota Public Utilities
Commission, especially in the provision of local exchange services. The
Company must be separately certified in each state to offer local exchange
and intrastate long distance services in that state.
The 1996 Act substantially changed the regulatory environment for
telecommunications services. The 1996 Act (i) permits RBOCs to provide
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domestic and international long distance services to customers located
outside of the RBOCs' home regions; (ii) permits a petitioning RBOC to
provide domestic and international long distance service to customers
within its home region upon a finding by the FCC that the RBOC has
satisfied certain criteria for opening up its local exchange network to
competition and that its provision of long distance services would further
the public interest; and (iii) removes existing barriers to entry into
local service markets, including the Company's local exchanges.
Additionally, there have been significant changes in the manner in which
carrier-to-carrier arrangements are regulated at the federal and state
level, the procedures to revise universal service standards and the
penalties for unauthorized switching of customers. The 1996 Act also
substantially changes the regulation of cable television systems. The FCC
and the South Dakota Public Utilities Commission, as well as many other
state public utilities commissions, have instituted proceedings to
investigate the changes needed in state regulation necessary to comply
with the 1996 Act.
On March 8, 1996, the FCC initiated a rule-making proceeding and
established a Federal-State Joint Board to recommend changes to the
existing mechanisms for universal service support. On November 8, 1996,
the Joint Board released its recommended decision, which the FCC currently
has under review. Modifications to the existing universal service support
mechanism could adversely affect the amounts the Company receives under the
current Universal Service Fund ("USF") rules. The Company cannot predict
the outcome of this proceeding or whether the FCC's actions will have a
material adverse effect on its operations, although the Company has
historically not received a significant portion of its revenue from the
current universal support funds (less than two percent of gross revenue in
1996).
On August 8, 1996, the FCC released its First Report and Order in the
Matter of Implementation of the Local Competition Provisions in the 1996
Act (the "FCC Interconnection Order"). In the FCC Interconnection Order,
the FCC established nationwide rules designed to encourage new entrants to
participate in the local service markets through interconnection with the
incumbent local exchange carriers, including the Company, and resale of the
local exchange carriers' retail services and unbundled network elements.
The Company cannot predict the effect such legislation or the implementing
regulations will have on its operations or the industry. Motions to stay
implementation of the FCC Interconnection Order were filed with the FCC and
federal courts of appeal. Appeals challenging, among other things, the
validity of the FCC Interconnection Order were filed in several federal
courts of appeal and consolidated before the United States Circuit Court
of Appeals for the Eighth Circuit for disposition. The Eighth Circuit has
stayed the pricing provisions of the FCC Interconnection Order, and the
United States Supreme Court denied an application to vacate the stay. On
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January 17, 1997, the Eighth Circuit heard oral argument in the case. The
Company cannot predict either the outcome of these challenges and appeals
or the eventual effect on its business or the industry in general.
On December 24, 1996, the FCC initiated a rule-making proceeding to
address the reform of access charges. Access charges are a principal
component of the Company's local telephone exchange operating revenues as
well as its long distance business line cost expense. The FCC has
indicated its intention to undertake additional, related proceedings as
well. The rulemaking contemplates final action and implementation by May
8, 1997. The Company cannot predict whether the result of these
proceedings will have a material impact upon its operations.
FCC approval is required for the operation of the Company's
international long distance services. The Company believes that it has all
the necessary FCC authorizations for its current operations. There can be
no assurance, however, that the Company will receive all authorizations or
licenses necessary for new communications services or that delays in the
licensing process will not adversely affect the Company's business.
INTERNET SERVICES. The Company's Internet-related services are not
currently subject to direct regulation by the FCC or any other United
States agency, other than regulation applicable to businesses generally.
The FCC recently requested comments on a petition filed by the America's
Carriers Telecommunication Association which requests that the FCC regulate
certain voice transmissions over the Internet as telecommunications
services. In its access charge reform proceeding, the FCC also has
requested comment on the implications of usage of the public switched
network by information service and Internet access providers. Changes in
the regulatory environment relating to the telecommunications or Internet-
related services industry could have an adverse effect on the Company's
Internet-related services business. The 1996 Act may permit
telecommunications companies, RBOCs or others to increase the scope or
reduce the cost of their Internet access services. The Company cannot
predict the effect that the 1996 Act or any future legislation, regulation
or regulatory changes may have on its Internet business.
CABLE SERVICES. The operation of cable television systems is
extensively regulated through a combination of federal legislation and FCC
regulations, by a number of state governments and by most local government
franchising authorities such as municipalities and counties. The 1996 Act,
which alters federal, state and local laws and regulations regarding
telecommunications providers and cable television service providers, can be
expected to have a profound effect on the regulation of cable television
operations. The Cable Communications Policy Act of 1984 (the "1984 Cable
Act") and the 1992 Cable Act also extensively regulated the cable
television industry and much of that regulation remains unchanged by the
1996 Act. In addition, because cable television systems use local streets
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and rights-of-way, cable systems are generally licensed or franchised by
local municipal or county governments and, in some cases, by centralized
state authorities. These franchises are granted for fixed periods of time
subject to extension or renewal and, while the Company believes that its
relationships with its franchising authorities are good, there can be no
assurance that its franchise agreements will be extended or renewed, or
extended or renewed on substantially similar terms and conditions.
The regulation of cable television systems at the federal, state and
local levels is subject to the political process and has been in constant
flux over the past decade. Material changes in the law and regulatory
requirements must be anticipated and there can be no assurance that the
Company's business will not be affected adversely by future legislation,
new regulation or deregulation. (See "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Regulation.")
RAPID TECHNOLOGICAL CHANGES; DEPENDENCE UPON PRODUCT DEVELOPMENT
The telecommunications industry is subject to rapid and significant
changes in technology. While the Company does not believe that, for the
foreseeable future, these changes will either materially and adversely
affect the continued use of fiber optic cable or materially hinder its
ability to acquire necessary technologies, the effect of technological
changes, including changes relating to emerging wireline and wireless
transmission and switching technologies, on the Company's businesses cannot
be predicted.
The market for the Company's Internet-related products and services is
particularly characterized by rapidly changing technology, evolving
industry standards, emerging competition and frequent new product and
service introductions. There can be no assurance that the Company will
successfully identify new product and service opportunities and develop and
introduce new products and services to the market in a timely manner. The
Company is also at risk resulting from fundamental changes in the way
Internet access services are marketed and delivered. The Company's
Internet service strategy assumes that the Transmission Control
Protocol/Internet Protocol ("TCP/IP"), utilizing fiber optic or copper-
based telecommunications infrastructures, will continue to be the primary
protocol and transport infrastructure for Internet-related services.
Emerging transport alternatives include cable modems and satellite delivery
of Internet information; alternative open protocol and proprietary protocol
standards have been or are being developed. The Company's pursuit of
technological advances may require substantial time and expense, and there
can be no assurance that the Company will succeed in adapting its Internet
services business to alternate access devices, conduits and protocols.
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DEPENDENCE UPON TECHNOLOGY
The Company's business is dependent upon its ability to procure
technology that will permit it to offer existing and new services that are
competitive with other entities in its various markets. The Company
currently does not engage in any independent research and development and
may not have the resources necessary to acquire the best available or
necessary technology in the future. The Company's competitors also could
have proprietary rights in technology that the Company could require in the
future, which could cause such technology to be unavailable to the Company
or available only at a high cost. The inability of the Company to procure
or develop required technology in the future could have a material adverse
effect on the Company's business, financial condition and results of
operations.
SIGNIFICANT CAPITAL REQUIREMENTS
The development of the Company's businesses and the expansion and
integration of its telephone and cable networks require significant capital
expenditures. During 1996, the Company's capital expenditures, which were
primarily for the acquisition of Community Antenna Television (Cable)
("CATV") systems and for construction of networks and the purchase of
related equipment, were approximately $5,700,000. In 1997, the Company
currently intends to undertake initiatives designed to take advantage of
opportunities created by changes in telecommunications laws and the rapid
development of fiber optic technology-based communications networks.
These initiatives involve expanding the Company's fiber optic network,
accelerating central office interconnection and integration with its cable
television systems, deploying additional switches, providing high-speed
local Internet access and acquiring complementary businesses, technologies
or products. Expenditures for these initiatives would be subject to the
Company's assessment of a number of factors, including cost of any
additional capital required, technological developments and market
conditions. In addition, each initiative may be implemented in whole or
in part, and independently of any other initiative, ensuring that the
Company retains maximum financial and operating flexibility. There can
be no assurance that increased capital expenditures will result in
enhanced profitability.
The Company anticipates that implementation of these initiatives will,
together with currently anticipated expenditures, result in total capital
expenditures of approximately $15,000,000 in 1997. Depending on a number
of factors, significant additional capital expenditures could be required
in the future. Since a significant portion of the Company's capital
expenditures are success-based (that is, related directly to revenue
growth), actual capital expenditures may vary significantly depending on
the level of incremental sales and the results of 1997 capital
improvements. These expenditures also would be subject to a number of
additional factors, including the pace and extent of network development,
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as well as regulatory actions by state, federal and international
authorities, which, individually or in the aggregate, could cause material
changes in capital expenditure requirements.
The Company historically has utilized low interest government loans to
finance its capital expenditure programs. There is no assurance, however,
that such loans or other normal commercial loans will be available to cover
the Company's anticipated plans. Failure to have access to sufficient
funds for capital expenditures may require the Company to delay or abandon
some of its future expansion or expenditures, which could have a material
adverse effect on the Company's growth and future business, financial
condition and results of operations.
FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE FLUCTUATIONS, POSSIBLE
REDUCTION IN LIQUIDITY, DIVIDEND RESTRICTIONS AND OTHER RESTRICTIVE
COVENANTS
At December 31, 1996, the Company reported $15,300,000 of long-term
debt (including capital leases and excluding current maturities) and a
long-term debt-to-equity ratio of 2.4 to 1. Borrowings under existing
long-term credit facilities are primarily at fixed interest rates, although
a small portion of such borrowings are at variable rates. The Company
anticipates that any borrowings that may be required for future capital
expenditures would likely bear interest at variable rates. Increases in
interest rates, economic downturns and other adverse developments, which
include many factors beyond the Company's control, could impair the
Company's ability to service its indebtedness. In addition, the cash flow
required to service the Company's debt may reduce its ability to fund
internal growth, additional acquisitions and capital improvements. Certain
covenants in existing loan agreements between the Company and the RUS, as
well as federal statutes and regulations which apply to RUS borrowers,
limit the circumstances under which the Company is or will be permitted to
pay dividends or make other distributions with respect to its equity. The
RUS must authorize distributions other than in shares of stock unless
certain financial ratios are met. Existing loan agreements restrict the
payment of cash dividends and otherwise limit the Company's financial
flexibility. Additional debt required to fund the Company's capital
expenditure plans would likely extend these restrictions indefinitely.
OPERATING LOSSES
A substantial portion of the expenditures related to the development
of the Company's business, the installation and expansion of its telephone
and cable networks and the recently proposed linking of these networks
through the acquisition or construction of facilities, will be incurred
before the Company realizes revenues. These expenditures, together with the
associated up-front operating expenses, will result in negative cash flows
until an adequate customer base is established. The Company reported a net
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loss of approximately $160,234 for the year ended December 31, 1996.
Although its gross revenues increased in 1996, the Company has incurred
significant increases in expenses associated with the acquisition of new
cable systems and the development and expansion of its cable and fiber
optic networks, services and customer base.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the significant expenses associated with the expansion
and development of its networks and services, the Company's operating
results could vary significantly from period to period. Additional factors
contributing to variability of operating results include the pricing and
mix of services and products sold by the Company, customer terminations of
service, the timing and costs of the expansion of the Company's network
infrastructure, the timing and costs of marketing and advertising efforts
and the timing and costs of any acquisitions of businesses, products or
technologies. Accordingly, these revenues and expenses are likely to
fluctuate from period to period.
ACQUISITION STRATEGY
In furtherance of its current business strategy, the Company has
entered and may continue to enter into strategic alliances with, acquire
assets or businesses from or make investments in, companies that are
complementary to its current operations. The Company has no present
commitments or agreements with respect to any such strategic alliance,
investment or acquisition. Any future strategic alliances, investments or
acquisitions would be accompanied by the risks commonly encountered in such
transactions. Such risks include, among other things, the difficulty of
assimilating the operations and personnel of the companies, the potential
disruption of the Company's ongoing business, costs associated with the
development and integration of such operations, the inability of management
to maximize the financial and strategic position of the Company by the
successful incorporation of licensed or acquired technology into the
Company's service offerings, the maintenance of uniform standards,
controls, procedures and policies and the impairment of relationships with
employees and customers as a result of changes in management. In addition,
the Company may experience higher customer attrition with respect to
customers obtained through acquisitions. There can be no assurance that
products, technologies or businesses of acquired companies will be
effectively assimilated into the business or product offerings of the
combined company. In addition, the Company may incur significant expense
to complete acquisitions and to support the acquired products and
businesses. There can be no assurance that any acquired products,
technologies or businesses will contribute to the Company's revenues or
earnings to any material extent or, due to the factors noted above, that
they will not adversely affect the Company's business, financial condition
and results of operations.
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NETWORK EXPANSION AND IMPLEMENTATION
The Company is continually engaged in the expansion and development of
its networks and services. In 1997, the Company currently intends to
extensively rebuild both its telecommunications and cable system networks.
This expansion will depend, among other things, on the Company's ability
to access markets, design fiber optic network backbone routes, install
facilities and obtain rights-of-way, building access and any required
government authorizations and/or permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. In addition,
this expansion will depend on the Company's ability to expand, train and
manage its growing employee base. Such expansion has placed, and is
expected to continue to place, significant demands on the Company's
management and operational and financial resources. As a result, there can
be no assurance that the Company will be able to expand its existing
networks or install new networks. If the Company is not able to expand its
networks or install or acquire new networks, there likely would be a
material adverse effect on the Company's growth and there may be a
materially adverse effect on the Company's business, financial condition
and results of operation.
DEPENDENCE ON AVAILABILITY OF TRANSMISSION FACILITIES
Most telephone calls made by the Company's long distance customers are
connected via transmission lines leased by the Company from transmission
facilities-based long distance carriers. These carriers, such as AT&T and
WorldCom, Inc., compete with the Company. The Company's profitability will
continue to depend, in part, on its ability to obtain and utilize leased
capacity on a cost-effective basis. The Company leases its capacity
pursuant to agreements with terms ranging from one to 24 months.
Accordingly, the Company is vulnerable to changes in its lease
arrangements, such as price increases and service cancellations. Although
the Company believes that it has and will continue to enjoy favorable
relationships with the transmission facilities-based long distance carriers
from which the Company leases transmission lines, there can be no assurance
that leased capacity will continue to be available at cost-effective rates.
Due to the possibility of unforeseen changes in industry conditions, the
continued availability of leased transmission facilities at historical
rates cannot be assured. The Company has, from time to time, experienced
delays in receiving leased telecommunications services, and there can be no
assurance that the Company will be able to obtain such services on the
scale and within the time frames required by the Company at an affordable
cost, or at all. Any failure to obtain such services or additional
capacity on a timely basis and at an affordable cost, or at all, could have
a material adverse effect on the Company's business, financial condition
and results of operations.
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DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY
RISKS
The success of the Company in marketing its services to business and
government users requires that the Company provide superior reliability,
capacity and security via its network infrastructure. The Company's
telephone and cable networks are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security (by computer
virus, break-ins or otherwise) and other factors, certain of which have
caused, and will continue to cause, interruptions in service or reduced
capacity for the Company's customers. Similarly, the Company's Internet
business relies on the availability of its network infrastructure for the
provision of Internet access services. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY FOR INTERNET
OPERATIONS
The Company relies on other companies to supply certain key components
of its Internet network infrastructure, including telecommunications
services and networking equipment, which, in the quantities and quality
demanded by the Company, are available only from sole or limited sources.
The Company has, from time to time, experienced delays in receiving these
products and services, and there can be no assurance that the Company will
be able to obtain such services on the scale and within the time frames
required by the Company at an affordable cost, or at all. Any failure to
obtain such services or additional capacity on a timely basis and at an
affordable cost, or at all, could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's Internet business also is dependent on its suppliers' abilities
to provide necessary products and components that comply with various
Internet and telecommunications standards, interoperate with products and
components from other vendors and function as intended when installed as
part of the network infrastructure. Any failure of the Company's sole or
limited source suppliers to provide products or components that comply with
Internet standards, interoperate with other products or components used by
the Company in its network infrastructure or by its customers or fulfill
their intended function as a part of the network infrastructure could have
a material adverse effect on the Company's business, financial condition
and results of operations.
EXPANSION OF SALES AND MARKETING ACTIVITIES
As part of its growth strategy, the Company intends to seek to further
develop and expand its sales and marketing activities, primarily by
expanding its direct sales force. The Company has historically focused
primarily on providing local telephone and cable services to residential
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and business customers in its local exchanges and its marketing efforts
have primarily relied upon direct mail marketing and advertising. The
Company's future success will depend upon, among other things, the
Company's ability to build an effective direct sales force, including its
ability to attract, retain and train effective direct sales marketing
personnel, and to offer competitively-priced services that are attractive
to its customers. The Company expects to incur significant expenses and
possibly negative cash flows as it expands its direct sales force and
builds its customer base. Although certain members of management have
experience in direct sales marketing, the Company itself does not have
experience in this distribution channel or market segment. There can be no
assurance that expansion costs will not exceed the Company's budgeted
amounts, that the Company will be able to successfully expand its sales and
marketing efforts or that any such expansion will prove profitable.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the
continued contributions of its management team, as well as its technical,
marketing and sales personnel. The Company's businesses are managed by a
number of key executive officers, the loss of certain of whom, particularly
Thomas W. Hertz, the Company's Chief Executive Officer and General Manager
and Craig A. Anderson, the Company's Executive Vice President - Marketing
and Chief Financial Officer, could have a material adverse effect on the
Company. While certain of the Company's employees including Messrs. Hertz
and Anderson have entered into employment agreements with the Company, the
Company's employees may voluntarily terminate their employment with the
Company at any time. The Company's success also will depend on its ability
to continue to attract and retain qualified management, marketing,
technical and sales personnel. The process of locating such personnel with
the combination of skills and attributes required to effectuate the
Company's strategies can be lengthy. Competition for qualified employees
and personnel in the telecommunications industry is intense and, from time
to time, there are a limited number of persons with knowledge of and
experience in particular sectors of the telecommunications industry. There
can be no assurance that the Company will be successful in attracting and
retaining such executives and personnel. The loss of the services of key
personnel, or the inability to attract additional qualified personnel,
could have a material adverse effect on the Company's results of
operations, development efforts and ability to expand.
POTENTIAL LIABILITY OF ON-LINE SERVICE PROVIDERS
The law in the United States relating to the liability of on-line
services providers and Internet access providers for information carried
on, disseminated through or hosted on their systems is currently unsettled.
Several private lawsuits seeking to impose liability on such providers are
currently pending. In one case brought against an Internet access
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provider, RELIGIOUS TECHNOLOGY CENTER V. NETCOM ON-LINE COMMUNICATION
SERVICES, INC., the United States District Court for the Northern District
of California ruled in a preliminary phase that under certain circumstances
Internet access providers could be held liable for copyright infringement.
The case has been settled by the parties.
The 1996 Act prohibits and imposes criminal penalties and civil
liability for using an interactive computer service for transmitting
certain types of information and content, such as indecent or obscene
communications. On June 12, 1996, however, a panel of three federal judges
granted a preliminary injunction barring enforcement of this portion of the
1996 Act, to the extent that enforcement is based upon allegations other
than obscenity or child pornography as an impermissible restriction on the
First Amendment's right of free speech. The case currently is pending
before the United States Supreme Court. In addition, Congress, in
consultation with the United States Patent and Trademark Office and the
Clinton Administration's National Information Infrastructure Task Force, is
currently considering legislation to address the liability of on-line
service providers and Internet access providers, and numerous states have
adopted or are currently considering similar types of legislation. The
imposition upon Internet access providers or Web hosting sites of potential
liability for materials carried on or disseminated through their systems
could require the Company to implement measures to reduce its exposure to
such liability, which may require the expenditure of substantial resources
or the discontinuation of certain product or service offerings. The Company
believes that it is currently unsettled whether the 1996 Act prohibits and
imposes liability for any services provided by the Company should the
content or information transmitted be subject to the statute.
The law relating to the liability of on-line service providers and
Internet access providers in relation to information carried, disseminated
or hosted also is being discussed by the World Intellectual Property
Organization in the context of ongoing consideration of updating existing,
and adopting new, international copyright treaties. Similar developments
are ongoing in the United Kingdom and other jurisdictions. The scope of
authority of various regulatory bodies in relation to on-line services is
at present uncertain. The Office of Telecommunications in the United
Kingdom recently has published a consultative document setting forth a
number of issues for discussion, including the roles of traditional
telecommunications and broadcasting regulators with respect to on-line
services. The Securities Investment Board in the United Kingdom is
investigating the status of on-line services and the transmission of
investment information over networks controlled by access providers. Such
transmissions may make an access provider liable for any violation of
securities and other financial services legislation and regulations.
Decisions regarding regulation, enforcement, content liability and the
availability of Internet access in other countries may significantly affect
the ability to offer certain services worldwide and the development and
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profitability of companies offering Internet and on-line services in the
future. For example, CompuServe recently removed certain content from its
services worldwide in reaction to law enforcement activities in Germany,
and it has been reported that an Internet access provider in Germany has
been advised by prosecutors that it may have liability for disseminating
neo-Nazi writings by providing access to the Internet where these materials
are available.
The increased attention focused upon liability issues as a result of
these lawsuits, legislation and legislative proposals could affect the
growth of Internet use. Any costs incurred as a result of liability or
asserted liability for information carried on or disseminated through its
systems could have a material adverse effect on the Company's business,
financial condition and results of operations.
ANTI-TAKEOVER CONSIDERATIONS
The Resulting Company's articles of incorporation and bylaws would
include certain provisions which may have the effect of delaying, deterring
or preventing a future takeover or change in control of the Resulting
Company without the approval of the Resulting Company's Board of Directors.
(See "THE CONVERSION--Other Provisions Affecting Control of DTG" and "THE
MERGER--Other Provisions Affecting Control of DTG Delaware.") Such
provisions also may render the removal of directors and management more
difficult. Among other things, the Resulting Company's articles or
certificate of incorporation and/or bylaws: (i) provide for a classified
Board of Directors serving staggered three-year terms; (ii) impose
restrictions on who may call a special meeting of stockholders; (iii)
include a requirement that stockholder action be taken only by unanimous
written consent or at stockholder meetings; (iv) specify certain advance
notice requirements for stockholder nominations of candidates for election
to the Board of Directors and certain other stockholder proposals; and (v)
impose certain restrictions and supermajority voting requirements in
connection with specified business combinations not approved in advance
by the Resulting Company's Board of Directors. In addition, the Resulting
Company's Board of Directors, without further action by the stockholders,
may cause the Resulting Company to issue up to 250,000 shares of preferred
stock on such terms and with such rights, preferences and designations as
the Board of Directors may determine. Issuance of such preferred stock,
depending upon the rights, preferences and designations thereof, may have
the effect of delaying, deterring or preventing a change in control of the
Resulting Company. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Preferred Stock Purchase Rights Plan.") Further, certain
provisions of the SDBCA or the Delaware General Corporation Law (the
"Delaware Law") impose restrictions on the ability of a third party to
effect a change in control of the Resulting Company and may be considered
disadvantageous by a stockholder. (See "THE CONVERSION--Statutory
Provisions Affecting Control of DTG" and "THE MERGER--Statutory Provisions
Affecting Control of DTG Delaware.")
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Finally, the Board of Directors intends to cause the Resulting Company to
enact a stockholder rights plan to protect stockholders of the Resulting
Company against unsolicited attempts to acquire control of the Resulting
Company in a manner that does not offer a fair price to all stockholders.
(See "ADDITIONAL SECURITIES OF THE RESULTING COMPANY--Preferred Stock
Purchase Rights Plan.") Certain federal and state regulations requiring
prior approval of transfers of control may also have the effect of
delaying, deterring or preventing a change in control of the Company. (See
"RISK FACTORS--Regulatory and Legislative Risks" and "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Regulation.")
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
There has never been a public market for Cooperative Common Stock,
Preferred Stock or Capital Credits, and there currently is no public market
for the Resulting Company's stock. Although the Resulting Company intends
to apply to have shares of the Resulting Company's common stock quoted for
trading on The Nasdaq Stock Market, there can be no assurance that a
trading market would develop or be maintained or, if it did, that it would
provide the Resulting Company's stockholders a meaningful opportunity to
liquidate their equity interest in the Resulting Company at a fair value.
The public trading price of shares of the Resulting Company's common stock
would be determined by trading among the Resulting Company's stockholders
and the Resulting Company would not have control over these trades. The
market price of the Resulting Company's stock may be highly volatile.
Factors such as fluctuations in the Resulting Company's operating results,
announcements of technological innovations or new products or services by
the Resulting Company or its competitors, changes in the regulatory
framework or in the cost of long distance service or other operating costs
and changes in general market conditions may have a significant effect on
the market price of the stock, should a market for the Resulting Company's
common stock ever develop.
SHARES ELIGIBLE FOR FUTURE SALE
The proposed articles or certificate of incorporation of the Resulting
Company provide for a substantial number of authorized shares of common
stock and preferred stock which could be issued upon resolution of the
Board of Directors without any additional stockholder action or approval.
Future sales of substantial numbers of shares of the Resulting Company's
stock in the public market or otherwise (including in connection with
acquisitions), or the perception that such sales could occur, could
adversely affect the market price of the stock and make it more difficult
for the Resulting Company to raise funds through equity offerings in the
future and, if such sales are made, could dilute the relative equity
interests of the stockholders of the Resulting Company. If the Conversion
or the Merger is consummated, several principal stockholders would hold a
significant portion of the outstanding shares of the Resulting Company's
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common stock, or a right to acquire a significant portion of such shares,
and a decision by one or more of these stockholders to sell their shares,
under Rule 144 issued under the Securities Act or otherwise, could
materially adversely affect the market price of the stock. (See
"ADDITIONAL SECURITIES OF THE RESULTING COMPANY--Stock Options" and
"--Warrants.") If the Conversion or the Merger is consummated, there would
be up to 1,050,000 shares of the Resulting Company's common stock outstand-
ing and an additional 200,000 shares subject to stock options and warrants.
All of these shares would be freely tradeable without restriction or
further registration under the Securities Act, except for any shares held
by "affiliates" of the Company or persons who have been "affiliates" within
the three months preceding consummation of the Conversion or the Merger and
shares subject to certain existing standstill agreements. (See "ADDITIONAL
SECURITIES OF THE RESULTING COMPANY--Standstill Agreements.") The
Commission has recently proposed amendments to Rule 144 that would shorten
by one year the applicable holding periods and could result in resales of
restricted securities sooner than would be the case under Rule 144 as
currently in effect.
If the Conversion or the Merger is consummated, it is currently
intended that the Resulting Company would file a Registration Statement on
Form S-8 under the Securities Act to register approximately 175,000 shares
of the Resulting Company's common stock issuable under the 1997 Stock
Incentive Plan described in this Prospectus and Ballot/Proxy Statement.
(See "1997 STOCK INCENTIVE PLAN.")
CERTAIN STANDSTILL AGREEMENTS
In connection with the Cooperative's acquisition of TCIC
Communications, Inc. ("TCIC") and I-Way Partners (renamed "Iway, Inc.")
("Iway"), the Cooperative entered into standstill agreements (the
"Standstill Agreements") with the former shareholders of TCIC and of Iway
(collectively, the "Sellers"). Pursuant to the Standstill Agreements, the
Sellers are restricted in their ability to dispose of shares of Resulting
Company common stock and have agreed to refrain from certain other actions
related to Resulting Company common stock. For a description of these
restrictions, see "ADDITIONAL SECURITIES OF THE RESULTING COMPANY--
Standstill Agreements." The Standstill Agreements could affect the
development of a market for Resulting Company common stock and may have the
effect of delaying, deterring or preventing a change in control of the
Resulting Company.
COVENANTS IN RURAL UTILITIES SERVICES LOAN AGREEMENTS
Current loan agreements between the Cooperative and the RUS, as well
as federal statutes and regulations which apply to RUS borrowers, each of
which would be applicable to the Resulting Company, have the potential to
adversely impact the Resulting Company's operations. Contractual
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provisions requiring RUS approvals of a wide range of business decisions,
including contracts, personnel and materials, and permitting the RUS to
require procedures which are not customary in non-governmental commercial
loan contracts, if enforced, could adversely impact the Resulting Company's
ability to timely adapt or respond to changes in the business or regulatory
environment in the future.
CERTAIN CREDIT RISKS
In the ordinary course of its business, the Company maintains
substantial cash balances at various depository institutions. At times
such deposits may exceed federally insured limits. While the Company has
not experienced any losses as a result of such deposits, the insolvency or
failure of such a financial institution could result in a substantial loss
for the Company, depending on the size of the uninsured portion of the
deposit.
GENERAL VOTING INFORMATION
PURPOSE
The special meeting of the Cooperative's Members will be held for the
purpose of considering and voting upon a proposal to adopt an amendment to
the articles of incorporation of the Cooperative to convert the Cooperative
into a South Dakota business corporation, which would be DTG, and to
transact such other business that may properly come before the meeting or
any adjournment of the meeting. The special meeting of shareholders of DTG
will be held for the purpose of considering and voting upon a proposal to
approve the Plan of Merger and to transact such other business that may
properly come before the meeting or any adjournment of the meeting. The
special meeting of DTG shareholders will only be held if the Conversion is
adopted.
VOTING BY BALLOT
If a Member of record as of the Record Date properly executes and
returns a ballot in the form distributed by the Cooperative, the ballot
will be voted at the special meeting and at any adjournment of that meeting
as specified in the ballot. A vote for adoption of the Conversion also
will constitute a vote for approval of the 1997 Incentive Stock Plan and a
vote for approval of the form of Indemnity Agreement. (See "1997 INCENTIVE
STOCK PLAN" and "INDEMNITY AGREEMENTS.") The Cooperative's management
presently does not know of any other matter to be presented at the special
meeting. If other matters are presented, only the Members present in
person at the meeting may vote on such other matters. A Member may revoke
a ballot at any time prior to the special meeting by written notice
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delivered to the Secretary of the Cooperative or by attending and voting in
person at the special meeting.
VOTING BY PROXY
If a holder of shares of DTG Common Stock issuable in the Conversion
properly executes and returns a proxy in the form distributed, the shares
represented by that proxy will be voted at the special meeting of DTG
shareholders and at any adjournment of that meeting. If a shareholder
specifies a choice, the proxy will be voted in accordance with the
shareholder's specifications. If no specification is made, the shares
represented by the proxy will be voted for approval of the Plan of Merger.
A vote for approval of the Merger also will constitute a vote for approval
of the 1997 Incentive Stock Plan and a vote for approval of the form of
Indemnity Agreement (See "1997 INCENTIVE STOCK PLAN" and "INDEMNITY
AGREEMENTS.") Proxies that indicate a vote against approval of the Plan of
Merger will not be used by management of DTG to vote for any proposed
adjournment of the special meeting.
Management currently is not aware of any other matter to be presented
at the special meeting. If other matters are presented, the shares for
which proxies have been received will be voted in accordance with the
judgment of the persons named as proxies. A shareholder may revoke a proxy
at any time prior to its exercise by written notice delivered to the
Secretary of the Cooperative or by attending and voting in person at the
special meeting.
BALLOT AND PROXY SOLICITATION
The directors, officers and employees of the Cooperative will
initially solicit ballots by mail. If they deem it advisable, directors,
officers and employees of the Cooperative also may solicit ballots in
person or by telephone or facsimile without additional compensation. All
expenses of solicitation of ballots will be paid by the Cooperative.
The individuals who will constitute the directors, officers and
employees of DTG if the Conversion is adopted initially will solicit
proxies by mail. If they deem it advisable, such individuals also may
solicit proxies in person or by telephone or facsimile without additional
compensation. The individuals who will constitute the directors, officers
and employees of DTG are the same individuals who constitute the directors,
officers and employees of the Cooperative and DTG Delaware, except as
otherwise noted in this Prospectus and Ballot/Proxy Statement. All
expenses of solicitation of proxies will be paid by the Cooperative or DTG
(as applicable).
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VOTING RIGHTS AND RECORD DATE FOR THE CONVERSION
Only Members of the Cooperative at the close of business on
___________, 1997 (the "Record Date"), are entitled to notice of and to
vote at the special meeting of the Cooperative's Members and at any
adjournment of that meeting. At the close of business on the Record Date,
there were _________ Members of the Cooperative. As of December 31, 1996,
directors and executive officers of the Cooperative and their respective
affiliates and associates accounted for less than one percent of the total
number of Members. Each Member on the Record Date will be entitled to one
vote on each matter presented for a vote of the Members at the special
meeting. The Conversion must be adopted by the affirmative vote of a
majority of the Members present in person or by ballot and voting on the
proposal at the special meeting. The presence in person or by ballot of 50
Members constitutes a quorum for purposes of the special meeting. For the
purpose of counting votes on this proposal, failure of a Member to attend
the meeting in person or submit a ballot will not be counted for purposes
of determining the presence of a quorum and will not be counted as a vote
on this proposal, and the number of Members who fail to attend the meeting
or submit a ballot will not be included in the number of Members of which a
majority is required to adopt the proposal. If a Member attends the
meeting or submits a ballot, an abstention will not be counted as a vote on
this proposal, and the number of Members who fail to vote will not be
included in the number of Members of which a majority is required.
VOTING RIGHTS AND RECORD DATE FOR THE MERGER
Only persons who would have been shareholders of record of DTG Common
Stock at the close of business on the Record Date are entitled to notice of
and to vote at the special meeting of DTG's shareholders and at any
adjournment of that meeting. At the close of business on the Record Date,
not more than 1,050,000 shares of DTG Common Stock and warrants and options
to purchase no more than 200,000 shares of DTG Common Stock would have been
issuable in the Conversion. As of December 31, 1996, less than one percent
of the number of shares of DTG Common Stock issuable if the Conversion was
then adopted and consummated, would have been beneficially owned by the
individuals who would constitute the directors and executive officers of
DTG and their respective affiliates and associates. Each person who would
have been a holder of record of DTG Common Stock had the Conversion been
consummated on the Record Date would be entitled to one vote for each share
of DTG Common Stock registrable in the person's name on each matter
presented for a vote of the shareholders at the special meeting. The
Merger must be approved by the affirmative vote of the holders of a
majority of the number of shares of DTG Common Stock issuable in the
Conversion. For the purpose of counting votes on the proposed Merger,
failure of a shareholder to vote in person or by proxy at the special
meeting will not be counted for purposes of determining the presence of a
quorum at the special meeting, but will have the same effect as a vote
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against the Merger. If a shareholder attends the meeting in person or by
proxy, an abstention will have the same effect as a vote against the
Merger.
EXPENSES
The Cooperative will pay all printing expenses and filing fees
pertaining to the Registration Statement and the Prospectus and
Ballot/Proxy Statement, including all expenses for postage, labor and
materials.
THE CONVERSION
The Board of Directors of the Cooperative has unanimously approved and
recommended that the Cooperative's Members consider and vote upon a
proposal to adopt an amendment to the Cooperative's articles of
incorporation to convert the Cooperative into a South Dakota business
corporation, which would be DTG (the "Conversion"). The Board unanimously
voted to approve the proposed amendment at its February 11, 1997 meeting.
The following discussion summarizes certain provisions of the proposed
amendment and other aspects of the Conversion. This summary discussion is
not intended to be a complete description of the proposed amendment or the
Conversion and is qualified in its entirety by reference to the text of the
proposed amendment, which is attached as Appendix A and incorporated by
reference in this Prospectus and Ballot/Proxy Statement.
BACKGROUND OF THE CONVERSION
The Cooperative's Board of Directors, together with management and
with the advice of the Cooperative's financial and legal advisers, has been
studying the possibility of converting the Cooperative from a cooperative
association into a general business corporation in an effort to enhance the
value of the investments in the Cooperative of its Members and holders of
Preferred Stock and Capital Credits and to increase the Cooperative's
competitive position in its markets. The Board of Directors has considered
industry trends of rapid changes in technology and increasing competition
in the provision of many services offered by the Cooperative. The Board
also has considered recent changes in the regulatory environment affecting
the telecommunications services industry that the Board believes may
significantly increase competition in the markets that the Cooperative
currently serves. The Board believes that the Cooperative must retain
existing customers and increase the markets served and services offered in
order to remain competitive in light of such technology changes, increased
competition and changes in the regulatory environment. After considering
various alternatives, the Board unanimously approved the proposed amendment
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to the Cooperative's articles of incorporation to effect the Conversion and
recommended that the proposed amendment be submitted for adoption by the
Members at a special meeting.
BOARD RECOMMENDATION AND REASONS FOR THE CONVERSION
The Board of Directors of the Cooperative believes that the proposed
Conversion is in the best interests of the Cooperative and its Members and
holders of Preferred Stock and Capital Credits. The Board believes that to
realize the full potential of its operations and to finance its current
growth strategy, the Cooperative would benefit by having access to
additional capital resources. As a cooperative, few options for raising
capital have been available to the Cooperative. For many years, the
Cooperative's main source of equity capital has been the capital provided
by current and former Members. The Board believes that this lack of access
to financial markets could place the Cooperative at a significant
competitive disadvantage in the future. If the Conversion is adopted and
consummated, the Board believes that the Cooperative would have access to
public capital markets that may provide additional resources to promote
growth and to fund currently anticipated financing projects. In addition,
as an issuer of transferable securities, the Board believes that the
Cooperative would have greater flexibility and increased options in
connection with potential acquisitions, partnerships and alliances. The
Board also believes that the Conversion would assist the Cooperative in
becoming a more effective competitor in its markets.
The Board of Directors also believes that the Conversion would provide
Members and holders of Preferred Stock and Capital Credits with an
opportunity to have an interest in a more flexible business organization
and could provide them an opportunity to realize the value of their
investments in the Cooperative. While there can be no assurance that a
market for DTG Common Stock would develop if the Conversion is adopted and
consummated or, if it did, that it would provide DTG shareholders a
meaningful opportunity to liquidate their equity interests in DTG at a fair
value, management intends at a future date to enter into negotiations with
brokers and other potential market makers and apply to have DTG Common
Stock quoted for trading on The Nasdaq Stock Market.
In the course of reaching its decision to approve the proposed
amendment to effect the Conversion, the Board consulted with legal counsel
and financial advisers to the Cooperative, as well as with management of
the Cooperative. Without assigning any relative or specific weights, the
Board considered numerous factors, including but not limited to the
following: (i) the changing nature of the telecommunications industry
generally; (ii) the need for the Cooperative to finance growth; (iii) the
desirability of the Cooperative having access to public capital markets to
potentially provide additional resources to promote growth and support
operating needs; (iv) the changing regulatory environment surrounding the
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telecommunications services industry; (v) the desirability of providing
Members and holders of Preferred Stock and Capital Credits an opportunity
for liquidity and the ability to recognize the value of their investments
in the Cooperative in the future; (vi) historical and current financial and
economic conditions; (vii) historical market prices, reported trading
volumes and dividend histories of publicly traded companies in the
Cooperative's industry; and (viii) the limitations currently placed on
Members with respect to their equity interests in the Cooperative by the
Cooperative Act and the Cooperative's articles of incorporation and bylaws.
As of the date of this Prospectus and Ballot/Proxy Statement, the
directors and executive officers of the Cooperative, together with their
respective affiliates and associates, as a group, constituted less than one
percent of the total number of Members of the Cooperative. These persons
would be entitled to receive the same consideration for their shares and
Capital Credits as any other Member and holder of Preferred Stock and
Capital Credits at the effective time of the Conversion. Upon consummation
of the Conversion, the Cooperative's directors, executive officers and
their respective affiliates and associates as a group would beneficially
own less than one percent of the shares of DTG Common Stock issuable in the
Conversion.
THE COOPERATIVE'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE MEMBERS VOTE FOR ADOPTION OF THE
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION TO EFFECT
THE CONVERSION.
CONVERSION OF SHARES OF COOPERATIVE COMMON STOCK AND PREFERRED STOCK
The Cooperative's Board of Directors is soliciting ballots from
Members for the purpose of adopting the proposed amendment to the articles
of incorporation to effect the Conversion. The amendment to the articles
of incorporation must be adopted by the affirmative vote of a majority of
the Members of the Cooperative voting on the proposal at the special
meeting or any adjournment of that meeting.
If the amendment to the articles of incorporation of the Cooperative
is adopted and the Conversion is consummated, the Cooperative would be
converted into DTG. DTG would own all of the assets and assume all of the
liabilities of the Cooperative. The articles of incorporation of DTG would
be the Amended Articles of Incorporation of DTG that are included as
Appendix B to this Prospectus and Ballot/Proxy Statement. The bylaws of
DTG would be the Amended Bylaws of DTG attached as Appendix C to this
Prospectus and Ballot/Proxy Statement.
At the time the Conversion becomes effective, (i) each share of
Cooperative Common Stock issued and outstanding immediately prior to the
effective time of the Conversion would automatically become and be
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converted into the right to receive one validly issued, fully paid and
nonassessable share of DTG Common Stock and (ii) each share of Preferred
Stock issued and outstanding immediately prior to the effective time of the
Conversion would automatically become and be converted into the right to
receive 80.8216445 validly issued, fully paid and nonassessable shares of
DTG Common Stock, all subject to payment in cash for fractional shares.
CONVERSION OF CURRENT AND FORMER MEMBERS' CAPITAL CREDITS
If the proposed amendment to the articles of incorporation of the
Cooperative is adopted and the Conversion is consummated, current and
former Members who have positive balances credited to their accounts on the
books of the Cooperative representing Capital Credits would be entitled to
receive shares of DTG Common Stock and the Capital Credits would be retired
in full. In the Conversion, each Capital Credit recorded on the books of
the Cooperative immediately prior the effective time of the Conversion
would be retired in full and automatically become and be converted into the
right to receive 0.2 of a validly issued, fully paid and nonassessable
share of DTG Common Stock, all subject to payment in cash for fractional
shares. Capital Credits of the Cooperative currently have no stated term,
earn no interest or dividends, are only assignable on the books of the
Cooperative pursuant to written instructions of the assignor and only to
successors in interest or successors in occupancy of all or part of such
Member's premises served by the Cooperative, unless the Board of Directors
acting under policies of general application may determine otherwise, and,
for capital furnished after December 31, 1983, may be retired by the Board
of Directors pursuant to such method, basis, priority and order as the
Board of Directors may determine in its sole discretion. The Board of
Directors has determined that, if the Conversion is adopted and
consummated, all outstanding Capital Credits shall be retired in full in
exchange for shares of DTG Common Stock. Capital Credits for periods prior
to January 1, 1986, have already been retired in full.
In calculating the number of shares of DTG Common Stock that would be
issuable upon retirement of outstanding Capital Credits, each person's
Capital Credits balance would be determined by allocating the person's
portion of total unallocated Capital Credits for 1996 based on the person's
total patronage in 1996. Capital Credits will not be allocated for 1997.
Next, any unpaid overdue amounts owed to the Cooperative for past services,
plus interest on such amounts calculated in accordance with Section 9.02 of
the Cooperative's bylaws, would be offset against the person's Capital
Credit account. Alternatively, such persons would have the option of
paying any overdue amounts plus interest, thereby preventing a reduction in
their Capital Credit balance. The resulting Capital Credit balances, if
positive, would be divided by $5.00 to determine the number of shares of
DTG Common Stock issuable in the Conversion to retire Capital Credits.
Fractional shares would not be issued. Any remaining amounts would be paid
in cash.
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In the event that the Cooperative is unable to locate the holders of
Capital Credits, such Capital Credits will be allocated into a special
Cooperative Equity Suspense Account immediately prior to the Conversion.
Following the forfeiture provisions of Section 46-16-54 of the Cooperative
Act, the Resulting Company would attempt to locate the holders. If it is
unable to do so, amounts in the Cooperative Equity Suspense Account would
be forfeited and reallocated as additional paid-in capital.
NO FRACTIONAL SHARES
DTG will not issue fractional shares of DTG Common Stock in the
Conversion. A Member or holder of Preferred Stock or Capital Credits who
would otherwise be entitled to receive a fraction of a share of DTG Common
Stock in the Conversion will receive instead an amount of cash determined
by multiplying that fraction by $5.00.
DISTRIBUTION OF DTG COMMON STOCK
At the effective time of the Conversion, the Cooperative would be
converted into DTG and the Cooperative would cease to exist. As of the
effective time of the Conversion, holders of Cooperative Common Stock
outstanding immediately prior to the effective time of the Conversion would
cease to be Members of the Cooperative and consequently would have no
rights as Members. Instead, former Members of the Cooperative would have
rights as shareholders of DTG. It is anticipated that the Conversion
itself would have no adverse impact on the services provided and rates
charged by the Cooperative. Certificates that represented shares of
Cooperative Common Stock and Preferred Stock and accounts on the books of
the Cooperative that represented Capital Credits outstanding immediately
prior to the effective time of the Conversion would then represent the
right to receive shares of DTG Common Stock having all of the voting and
other rights of shares of DTG Common Stock and the right to receive cash in
lieu of fractional shares as provided in the resolution adopting the
amendment to the articles of incorporation.
If the Conversion is consummated but the Plan of Merger is not
approved, as soon as practicable after the Conversion becomes effective or
after a Capital Credit holder is located DTG would send or cause to be sent
to record holders of Cooperative Common Stock and Preferred Stock, and each
holder of a Capital Credit as reflected on the books of the Cooperative,
transmittal materials to be used to exchange certificates that represented
shares of Cooperative Common Stock and Preferred Stock outstanding
immediately prior to the effective time of the Conversion ("Cooperative
Certificates") for stock certificates representing shares of DTG Common
Stock and to have certificates issued in connection with the retirement of
accounts representing Capital Credits. The transmittal materials would
contain instructions with respect to the surrender of Cooperative
Certificates. DTG would issue and deliver new stock certificates together
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with checks for the amount of cash payable for fractional shares of DTG
Common Stock to Members or holder of Preferred Stock and Capital Credits.
DTG would issue and deliver certificates and checks in the name and to the
address appearing on the Cooperative's stock records as of the effective
time of the Conversion, or in such other name or to such other address as
may be specified in the transmittal materials received by DTG. DTG would
not be required to, and would not, issue and deliver certificates and
checks until it has received properly executed transmittal materials and,
with respect to a Member or holder of Preferred Stock, until it has
received all of the Cooperative Certificates held of record by that Member
or holder of Preferred Stock, or an affidavit of loss and indemnity bond
for such certificate or certificates. Such Cooperative Certificates,
transmittal materials and affidavits must be in a form and condition
reasonably acceptable to DTG.
DTG would have discretion to determine reasonable rules and procedures
relating to the issuance and delivery of certificates of DTG Common Stock
into which shares of Cooperative Common Stock and Preferred Stock and
Capital Credits would be converted in the Conversion and governing the
payment for fractional shares.
If the proposed Plan of Merger described in "THE MERGER" is approved
and consummated, no shares of DTG Common Stock would physically be issued
in the Conversion. Instead, holders of rights to receive shares of DTG
Common Stock would instead receive shares of DTG Delaware Common Stock as
provided in the Plan of Merger, together with checks for the amount of cash
payable for fractional shares of DTG Common Stock. (See "THE MERGER--
Cessation of Shareholder Status and Distribution of DTG Delaware Common
Stock.")
EFFECTIVE TIME OF THE CONVERSION
The Conversion would be consummated on the date and time specified in
a Certificate of Amendment to the articles of incorporation issued by the
Secretary of the State of South Dakota in accordance with the SDBCA and the
Cooperative Act. If the Members of the Cooperative adopt the Conversion at
the special meeting and the other conditions to the Conversion are
satisfied, the effective time of the Conversion would occur as soon after
the special meeting as is possible (which may be the same date as the
special meeting), provided that the Conversion has not been abandoned prior
to such time. It is anticipated that the Conversion, if adopted, would
become effective during the second quarter of 1997.
COOPERATIVE STOCK OPTIONS AND WARRANTS
Before the effective time of the Conversion, each outstanding stock
option and warrant entitling the holder to purchase shares of Preferred
Stock would be amended, if necessary, so that it would become, if and when
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the Conversion becomes effective, an option or warrant to purchase, for an
equivalent price, that number of shares of DTG Common Stock that the holder
would have acquired pursuant to the Conversion had the holder exercised the
option or warrant immediately prior to the effective time of the
Conversion. The options and warrants would in all other respects contain
the same terms and conditions as they do presently.
As of the date of this Prospectus and Ballot/Proxy Statement, there
were stock options and warrants outstanding to purchase an aggregate of
2,016 shares of Preferred Stock, which, if exercised prior to the
Conversion, would be convertible into 162,936 shares of common stock of
the Resulting Company in connection the Conversion. (See "ADDITIONAL
SECURITIES OF THE RESULTING COMPANY--Stock Options" and "--Warrants.")
MANAGEMENT AFTER THE CONVERSION
Upon the consummation of the Conversion, the directors, officers and
employees of the Cooperative who were engaged immediately prior to the
effective time of the Conversion would continue immediately after the
effective time of the Conversion as the directors, officers and employees
of DTG, except as otherwise indicated in this Prospectus and Ballot/Proxy
Statement.
CONDITIONS TO THE CONVERSION AND ABANDONMENT
The obligations of the Cooperative to consummate the Conversion are
subject to the fulfillment of the following conditions:
(i) an affirmative vote of a majority of the Members of the
Cooperative voting at the special meeting is required to adopt the
proposed amendment to the articles of incorporation;
(ii) the Cooperative must not be subject to any order, decree or
injunction of a court or agency enjoining or prohibiting the Conversion;
(iii) the Cooperative must have obtained any required regulatory
approvals with respect to the Conversion; and
(iv) there must not be any suit or proceeding pending or threatened
that challenges the Conversion.
The Cooperative and DTG may waive the condition set forth in clause (iv).
DESCRIPTION OF DTG CAPITAL STOCK
Under the proposed Amended Articles of Incorporation of DTG, DTG's
authorized capital stock would consist of 5,000,000 shares of common stock,
without par value ("DTG Common Stock"), and 250,000 shares of preferred
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stock, without par value ("DTG Preferred Stock"). As of the date of this
Prospectus and Ballot/Proxy Statement, DTG did not exist as a separate
entity and therefore there were no outstanding shares of DTG Common Stock
and no outstanding shares of DTG Preferred Stock. DTG expects that no more
than 1,050,000 shares of DTG Common Stock and warrants and options to
purchase no more than 200,000 shares of DTG Common Stock would be issuable
in the Conversion.
DTG COMMON STOCK. Holders of DTG Common Stock would be entitled to
dividends out of funds legally available for that purpose if, as and when
declared by the Board of Directors of DTG. Certain covenants in existing
loan agreements between the Cooperative and the RUS to which DTG would be
subject following the Conversion, as well as federal statutes and
regulations which apply to RUS borrowers, would limit the circumstances
under which DTG would be permitted to pay dividends or make other
distributions to DTG shareholders. Under these agreements, the RUS must
authorize distributions other than in shares of stock unless certain
financial ratio requirements are met. The dividend rights of DTG Common
Stock also would be subject to the rights of any DTG Preferred Stock which
may be issued. Each holder of DTG Common Stock would be entitled to one
vote for each share held on each matter presented for shareholder action.
DTG Common Stock would have no preemptive rights, conversion rights or
redemption provisions. DTG Common Stock would entitle the holder to
cumulate votes with respect to the election of directors as provided in
the South Dakota Constitution and the SDBCA.
In the case of any liquidation, dissolution or winding up of the
affairs of DTG, holders of DTG Common Stock would be entitled to receive,
pro rata, any assets distributable to common shareholders in respect of the
number of shares held by them. The liquidation rights of DTG Common Stock
would be subject to the rights of holders of any DTG Preferred Stock which
may be issued in the future.
All shares of DTG Common Stock issuable in the Conversion, if and when
issued, would be fully paid and nonassessable.
DTG PREFERRED STOCK. DTG would be authorized to issue, without
further shareholder approval, up to 250,000 shares of DTG Preferred Stock
from time to time in one or more series with such designations, powers,
preferences and relative voting, distribution, dividend, liquidation,
transfer, redemption, conversion and other rights, preferences,
qualifications, limitations or restrictions as may be provided for the
issue of such series by resolution adopted by DTG's Board of Directors.
Such DTG Preferred Stock could have priority over DTG Common Stock as to
dividends and as to distribution of DTG's assets upon any liquidation,
dissolution or winding up of DTG.
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STATUTORY PROVISIONS AFFECTING CONTROL OF DTG
The following discussion concerns the provisions of the SDBCA which
would affect control of DTG if the Conversion is adopted and consummated
but the Merger is not consummated. If the Merger is consummated, the
statutory provisions of the Delaware Law would apply. (See "THE MERGER--
Statutory Provisions Affecting Control of DTG Delaware.")
The matters discussed below may have an anti-takeover impact and may
make tender offers, proxy contests and certain mergers more difficult to
consummate.
CONTROL SHARE ACT. Under Sections 47-33-8 through 47-33-16 of the
SDBCA (the "Control Share Act"), the shares of stock acquired by an
acquiring person in a "control share acquisition" that exceed certain
thresholds of voting power do not have voting rights unless the holders of
the other voting shares vote to grant voting rights to the acquiring
person's shares. The Control Share Act also contains other provisions
applicable to a control share acquisition. A South Dakota "public
corporation" (such as DTG) may opt out of the Control Share Act and elect
not be subject to its provision. The proposed Amended Articles of
Incorporation of DTG would opt out of the Control Share Act, and therefore
the Control Share Act would not be applicable to DTG unless DTG's Amended
Articles of Incorporation were subsequently amended to "opt in" to the
Control Share Act as provided in the SDBCA.
FAIR PRICE ACT. Under Sections 47-33-17 through 47-33-19 of the SDBCA
(the "Fair Price Act"), a South Dakota "public corporation" (such as DTG)
may not engage in a "business combination" with an "interested shareholder"
unless certain conditions are met. An "interested shareholder" is one that
(i) directly or indirectly beneficially owns 10 percent or more of the
outstanding voting shares of the corporation or (ii) is an affiliate or
associate of the corporation and at any time within the last four years was
the beneficial owner, directly or indirectly, of 10 percent or more of the
corporation's voting stock. A "business combination" means any of the
following:
(i) any merger or consolidation of the domestic corporation or
any subsidiary with (A) the interested shareholder or (B) any other
corporation (whether or not itself an interested shareholder) that is,
or after the merger or consolidation would be, an affiliate or
associate of the interested shareholder, but excluding (1) the merger
of a wholly owned subsidiary of the domestic corporation into the
corporation, (2) the merger of two or more wholly owned subsidiaries
of the domestic corporation or (3) the merger of another corporation,
other than an interested shareholder or an affiliate or associate of
an interested shareholder, with a wholly owned subsidiary of the
domestic corporation pursuant to which the surviving corporation,
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immediately after the merger, becomes a wholly owned subsidiary of the
domestic corporation;
(ii) any exchange, pursuant to a plan of exchange, of shares of
the domestic corporation or any subsidiary for equity securities of
either (A) the interested shareholder or (B) any other corporation,
whether or not itself an interested shareholder of the domestic
corporation, that is, or after the exchange would be, an affiliate or
associate of the interested shareholder;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, in one transaction or a series of transactions, to
or with the interested shareholder or any affiliate or associate of
the interested shareholder, of assets of the domestic corporation or
any subsidiary: (A) having an aggregate market value equal to 10
percent or more of the aggregate market value of all the assets,
determined on a consolidated basis, of the domestic corporation; (B)
having an aggregate market value equal to 10 percent or more of the
aggregate market value of all of the outstanding shares of the
domestic corporation or (C) representing 10 percent or more of the
earning power or net income, determined on a consolidated basis, of
the domestic corporation;
(iv) the issuance or transfer by the domestic corporation or any
subsidiary, in one or more transactions, of any shares of the domestic
corporation or any subsidiary that have an aggregate market value
equal to five percent or more of the aggregate market value of all the
outstanding shares of the domestic corporation to the interested
shareholder (or any affiliate or associate of the interested
shareholder), except pursuant to the exercise of rights or options to
purchase shares offered, or a dividend or distribution paid or made,
pro rata to all shareholders of the domestic corporation other than
for the purpose of facilitating or effecting a subsequent transaction
that would have been a business combination if the dividend or
distribution had not been made;
(v) the adoption of any plan or proposal for the liquidation or
dissolution of the domestic corporation, or any reincorporation of the
domestic corporation in another state or jurisdiction, proposed by or
on behalf of, or pursuant to any written or unwritten agreement,
arrangement, relationship, understanding or otherwise with, the
interested shareholder or any affiliate or associate of the interested
shareholder;
(vi) any reclassification of securities, including any share
dividend or split, reverse share split or other distribution of shares
in respect of shares, any recapitalization of the domestic
corporation, any merger or consolidation of the domestic corporation
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with any subsidiary, or any other transaction, whether or not with or
into or otherwise involving the public corporation or any subsidiary
that is, directly or indirectly, owned by the interested shareholder
or any affiliate or associate of the interested shareholder, except as
a result of immaterial changes due to fractional share adjustments; or
(vii) any receipt by the interested shareholder or any affiliate
or associate of the interested shareholder of the benefit, directly or
indirectly, except proportionately as a shareholder of the domestic
corporation, of any loans, advances, guarantees, pledges or other
financial assistance, or any tax credits or other tax advantages
provided by or through the domestic corporation. However, the term
"business combination" does not include the receipt of any of the
foregoing benefits by the domestic corporation or any of that
corporation's subsidiaries arising from transactions, such as
intercompany loans or tax sharing arrangements, between the domestic
corporation and its subsidiaries in the ordinary course of business.
Certain business combinations are excluded from the Fair Price Act,
including (i) a business combination approved by the board of directors of
the domestic corporation prior to the interested shareholder's share
acquisition date, or where the purchase of shares made by the interested
shareholder on the interested shareholder's share acquisition date has been
approved by the board of directors prior to the interested shareholder's
share acquisition date; (ii) a business combination approved: (A) by the
affirmative vote of the holders of a majority of the outstanding voting
shares, not including any voting shares beneficially owned by the
interested shareholder or any affiliate or associate of the interested
shareholder, at a meeting called for such purpose no earlier than three
months after the interested shareholder became, and if at the time of the
meeting the interested shareholder is, the beneficial owner, directly or
indirectly, of at least 80 percent of the voting shares, if the business
combination also satisfies all of the conditions of Section 47-33-18
(discussed below) or (B) by the affirmative vote of all of the holders of
all of the outstanding voting shares; (iii) a business combination approved
by the affirmative vote of the holders of a majority of the outstanding
voting shares, not including any voting shares beneficially owned by the
interested shareholder or any affiliate or associate of the interested
shareholder, at a meeting called for such purpose no earlier than four
years after the interested shareholder's share acquisition date and (iv) a
business combination approved by a majority of the outstanding voting
shares at a shareholders' meeting called for such purpose no earlier than
four years after the interested shareholder's share acquisition date, if
the business combination also satisfies all of the conditions of Section
47-33-18 of the Fair Price Act.
With respect to business combinations specified in clauses (ii)(A) and
(iv) above, each of the following additional requirements must be met under
Section 47-33-18:
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(i) The aggregate amount of the cash and the market value as of
the consummation date of consideration other than cash to be received
per share by holders of outstanding common shares in the business
combination is at least equal to the higher of the following: (A)
the highest per share price, including any brokerage commissions,
transfer taxes and soliciting dealer's fees, paid by the interested
shareholder for any common shares of the same class or series acquired
by it: (1) within the three-year period immediately prior to the
announcement date with respect to such business combination or (2)
within the three-year period immediately prior to, or in, the
transaction in which the interested shareholder became an interested
shareholder, whichever is higher; plus, in either case, interest
compounded annually from the earliest date on which the highest
per-share acquisition price was paid through the consummation date at
the rate for one-year United States Treasury obligations from time to
time in effect, less the aggregate amount of any cash dividends paid,
and the market value of any dividends paid other than in cash, per
common share since such earliest date, up to the amount of the
interest or (B) the market value per common share on the announcement
date with respect to the business combination or on the interested
shareholder's share acquisition date, whichever is higher; plus
interest compounded annually from such date through the consummation
date at the rate for one-year United States Treasury obligations from
time to time in effect, less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid other than
in cash, per common share since such date, up to the amount of the
interest.
(ii) The aggregate amount of the cash and the market value as of
the consummation date of consideration other than cash to be received
per share by holders of outstanding shares of any class or series of
shares, other than common shares, of the corporation is at least equal
to the highest of the following: (A) the higher per-share price,
including any brokerage commission, transfer taxes and soliciting
dealer's fees, paid by the interested shareholder for any shares of
such class or series of shares acquired by it: (1) within the three-
year period immediately prior to the announcement date with respect to
the business combination or (2) within the three-year period
immediately prior to, or in, the transaction in which the interested
shareholder became an interested shareholder, whichever is higher;
plus, in either case, interest compounded annually from the earliest
date on which the highest per-share acquisition price was paid through
the consummation date at the rate for one-year United States Treasury
obligations from time to time in effect, less the aggregate amount of
any cash dividends paid, and the market value of any dividends paid
other than in cash, per share of such class or series of shares since
such earliest date, up to the amount of the interest; (B) the highest
preferential amount per share to which the holders of shares of such
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class or series of shares are entitled in the event of any voluntary
liquidation, dissolution or winding up of the corporation, plus the
aggregate amount of any dividends declared or due as to which such
holders are entitled prior to payment of dividends on some other class
or series of shares, unless the aggregate amount of the dividends is
included in such preferential amount or (C) the market value per share
of such class or series of shares on the announcement date with
respect to the business combination or on the interested shareholder's
share acquisition date, whichever is higher; plus interest compounded
annually from such date through the consummation date at the rate for
one-year United States Treasury obligations from time to time in
effect; less the aggregate amount of any cash dividends paid, and the
market value of any dividends paid other than in cash, per share of
such class or series of shares since such date, up to the amount of
the interest.
(iii) The consideration to be received by holders of a particular
class or series of outstanding shares, including common shares, of the
corporation in the business combination is in cash or in the same form
as the interested shareholder has used to acquire the largest number
of shares of such class or series of shares previously acquired by it,
and the consideration shall be distributed promptly.
(iv) The holders of all outstanding shares of the corporation not
beneficially owned by the interested shareholder immediately prior to
the consummation of the business combination are entitled to receive
in the business combination cash or other consideration for such
shares in compliance with subsections (i), (ii) and (iii) above.
(v) After the interested shareholder's share acquisition date
and prior to the consummation date with respect to the business
combination, the interested shareholder has not become the beneficial
owner of any additional voting shares of such corporation except: (A)
as part of the transaction which resulted in such interested
shareholder becoming an interested shareholder; (B) by virtue of
proportionate splits of shares, share dividends or other distributions
of shares in respect of shares not constituting a business
combination; (C) through a business combination meeting all of the
conditions to be excluded from the Fair Price Act; (D) through
purchase by the interested shareholder at any price which, if the
price had been paid in an otherwise permissible business combination
the announcement date and consummation date of which were the date of
such purchase, would have satisfied the requirements of subsections
(i), (ii) and (iii) above or (E) through purchase required by and
pursuant to the provisions of, and at no less than the fair value
including interest to the date of payment as determined by the court
in accordance with the SDBCA or, if such fair value was not then so
determined, then at a price that would satisfy the conditions in
subparagraph (D) of this subsection.
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There are additional exclusions from the Fair Price Act. One of these
provisions provides that the Fair Price Act does not apply to corporations
that have opted out of its provisions, either in their original articles of
incorporation or in a later-adopted amendment to the articles that was
approved by two-thirds of the voting shares (excluding the shares held by
an interested shareholder and the person's respective affiliates and
associates). However, with respect to later-adopted amendments the opt-out
is not effective until 18 months after it is adopted and is also not
effective as to persons who were interested shareholders at the time of the
opt-out. The Board of Directors has no present intention to opt out of the
provisions of the Fair Price Act should it become applicable to DTG. There
would be no 10 percent shareholder immediately upon consummation of the
Conversion.
OTHER PROVISIONS AFFECTING CONTROL OF DTG
If the Conversion is adopted and consummated, certain provisions of
DTG's proposed Amended Articles of Incorporation, Bylaws and other plans
may also affect control of DTG. Many of the following provisions will be
similar as applied to DTG Delaware if the Merger is approved and
consummated. (See "THE MERGER--Other Provisions Affecting Control of DTG
Delaware.") The following provisions may have an anti-takeover impact and
may make tender offers, proxy contests and certain mergers more difficult
to consummate.
PROVISIONS REGARDING THE BOARD OF DIRECTORS
CLASSIFIED BOARD. The proposed Amended Articles of Incorporation
of DTG classify DTG's Board of Directors into three classes serving
staggered, three-year terms. Classification of the Board could have
the effect of extending the time during which the existing Board of
Directors could control the operating policies of DTG even though
opposed by the holders of a majority of the outstanding shares of DTG
Common Stock. (See "THE MERGER--Comparison of Rights of Shareholders
of DTG to Rights of Stockholders of DTG Delaware.") The Cooperative
currently has a classified Board of Directors.
NOMINATION OF DIRECTORS. Under the proposed Amended Articles of
Incorporation of DTG, all nominations for directors by shareholders
would be required to be delivered to DTG in writing at least 120 days
prior to the notice of an annual meeting of shareholders or, in the
case of a special meeting of shareholders at which a director or
directors would be elected, at least seven days after the notice of
the special meeting. A nomination that is not received prior to these
deadlines would not be placed on the ballot. The Board believes that
advance notice of nominations by shareholders would afford a
meaningful opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the Board
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of Directors, would provide an opportunity to inform shareholders
about such qualifications. Although this nomination procedure would
not give the Board of Directors any power to approve or disapprove
shareholder nominations for the election of directors, the nomination
procedure could have the effect of precluding a nomination for the
election of directors at a particular meeting if the proper procedures
were not followed.
REMOVAL OF DIRECTORS. The SDBCA does not specifically provide
for the removal of directors. However, under the proposed Amended
Articles of Incorporation of DTG, subject to the rights of any class
of stock then outstanding, any director could be removed from office,
but only for cause, and only by shareholder action. Generally, the
vote for removal would require the affirmative vote of a majority of
shares entitled to vote at an election of directors. However, if less
than the entire board was to be removed, no single director could be
removed if the votes cast against the director's removal would be
sufficient to elect the director if then cumulatively voted at an
election of the class of directors of which the director is a part.
"Cause" for removal could only be present in the circumstances
specified in the proposed Amended Articles of Incorporation of DTG.
"Cause" is present when: (i) 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; (ii) the
director has been adjudicated by a court of competent jurisdiction to
be liable for negligence, or misconduct, in the performance of such
person'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; (iii) the director has become mentally incompetent,
whether or not so adjudicated, which mental incompetency directly
affects such person's ability as a director of the corporation; or
(iv) the director's actions or failure to act have been in derogation
of the director's duties, as provided in the bylaws of DTG or
otherwise provided by law. Any proposal for removal pursuant
to (iii) or (iv) that is initiated by the Board of Directors for
submission to the shareholders would require 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.
QUALIFICATION OF DIRECTORS. Under Article XI of the proposed
Amended Articles of Incorporation of DTG, no person who has asserted
or asserts any "Claim" (defined below) against the corporation or any
subsidiary (a "Plaintiff"), and no person who was or became associated
or affiliated with any Plaintiff (a "Related Person"), would be
eligible to be elected or to serve as a director until the Claim was
"Finally Resolved" (defined below). A director who was validly
nominated and elected as a director and who thereafter became a
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Plaintiff or Related Person would continue as a director for the
remainder of the term for which the director was elected or until the
director's resignation or removal. A director who was or became a
Plaintiff or a Related Person would be required to either (i) promptly
take all steps necessary to cause the director to be neither a
Plaintiff nor Related Person or (ii) if the director cannot do so and
the Claim has not been Finally Resolved within the "Resolution Period"
(defined below), resign as a director, effective immediately, at or
before the end of such Resolution Period.
A "Claim" means any claim, cross-claim, counterclaim or third-
party claim pled in any action, suit or proceeding before any court,
governmental agency or instrumentality, arbitrator or similar body or
authority. However, certain claims are excluded, including: (i) one
which, when aggregated with all other claims asserted by the Plaintiff
or any Related Person of such Plaintiff against the corporation or any
subsidiary that have not been Finally Resolved, could not, if decided
adversely to the corporation or a subsidiary, along with all other
aggregated claims, cross-claims, counterclaims and third-party claims,
result in liability in excess of 10 percent of the consolidated
current assets of the corporation as of the most recent quarter or
render the corporation insolvent; (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 below), including without limitation, claims
arising under any indemnity or employment contract; and (iii) claims
asserted in the right of the corporation (i.e., derivative actions).
The term "Finally Resolved" means that a final order has been
rendered with respect to the Claim and all available appeals from such
order have been exhausted or the time for seeking such review has
expired. The term "Resolution Period" means the 30-day period
beginning on the earlier of (i) the date on which a director of the
corporation notifies the Board that the director has become a
Plaintiff or Related Person or (ii) the date on which the Board
determines that a director has become a Plaintiff or Related Person.
However, the Board could (but would not be required to) extend a
Resolution Period by up to 15 days if the director establishes to the
Board's satisfaction a reasonable likelihood that the Claim would be
Finally Resolved or such director would cease to be both a Plaintiff
and a Related Person during that extra 15-day period.
The Board of Directors would not nominate any person for election
as a director unless (i) the prospective nominee has provided the
Board with (A) all information necessary or appropriate to enable the
Board to determine whether the nominee is a Plaintiff or a Related
Person and (B) a signed statement the prospective nominee is not aware
of any reason not disclosed to the Board why the prospective nominee
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would or might be considered a Plaintiff or Related Person and (ii)
after receipt of the items the Board determines that the prospective
nominee is not a Plaintiff or Related Person.
Any shareholder who was uncertain whether any person the
shareholder desires to nominate for election as a director is a
Plaintiff or Related Person could request a determination from the
Board concerning that matter, upon delivering to the Board certain
information and other items and complying with certain deadlines.
Within 10 days after receiving a properly submitted request (or, if it
is impossible or impracticable to do so during such period, as soon as
practicable thereafter), the Board would be required to consider the
request and determine whether or not the candidate is a Plaintiff or
Related Person who could not be nominated for election to the Board.
If a candidate who was the subject of a proper and timely
submitted request was determined 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 shareholder otherwise would have
been entitled to give notice of intent to nominate the candidate, then
the Board's determination would 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 shareholder a period of five
days after receipt of the Board's notice within which to give notice
of intent to nominate the candidate.
If the Board determined that the candidate was a Plaintiff or
Related Person and the request was submitted at least five days in
advance of the last date on which the requesting shareholder otherwise
would have been entitled to give notice of intent to nominate, then
the Board's determination would 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 shareholder a
period of 15 days after receipt of the Board's notice within which to
give notice of intent to nominate another person in lieu of the
ineligible candidate.
Whenever any shareholder was afforded an additional time period
within which to give notice of intention to nominate, the Board may
afford the other shareholders of the corporation a comparable
additional period of time within which to give such notice.
While the Board of Directors believes that Article XI ensures
that directors and nominees for election as directors will not have
significant conflicts of interest with the corporation, Article XI may
have the effect of making shareholder nominations of director
candidates more difficult.
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BOARD EVALUATION OF CERTAIN OFFERS. Article XIII of the proposed
Amended Articles of Incorporation of DTG provides that the Board of
Directors would not initiate, approve, adopt or recommend any offer of any
person or entity (other than DTG) to make a tender or exchange offer for
any DTG Common Stock or DTG Preferred Stock, to merge or consolidate DTG
with any other entity, or to purchase or acquire all or substantially all
of DTG's assets, unless and until the Board has evaluated the offer and
determined that it would be in compliance with all applicable laws and that
the offer is in the best interests of DTG and its shareholders. In doing
so, the Board could rely on an opinion of legal counsel who is independent
from the offeror, and/or may test such legal compliance in front of any
court or agency that may have appropriate jurisdiction over the matter.
In making its determination as to whether the transaction would be in
the best interests of the corporation and its shareholders, the Board would
be required to consider all factors it deemed relevant, including but not
limited to: (i) the adequacy and fairness of the consideration to be
received by DTG and/or its shareholders, considering historical trading
prices of DTG Common Stock, the price that could be achieved in a
negotiated sale of DTG as a whole, past offers to other corporations and
the future prospects of DTG; (ii) the possible social and economic impact
of the proposed transaction on DTG, its employees, customers and suppliers;
(iii) the potential social and economic impact of the proposed transaction
on the communities in which DTG and its subsidiaries operate or are
located; (iv) the business and financial condition and earnings prospects
of the offering party; (v) the competence, experience and integrity of the
offering party and its management and (vi) the intentions of the offering
party regarding the use of the assets of DTG to finance the transaction.
"BLANK CHECK" PREFERRED STOCK AND PREFERRED STOCK RIGHTS PLAN. DTG
would be authorized to issue, without further shareholder approval, up to
250,000 shares of DTG Preferred Stock from time to time in one or more
series with such designations, powers, preferences and relative voting,
distribution, dividend, liquidation, transfer, redemption, conversion and
other rights, preferences, qualifications, limitations or restrictions as
may be provided for the issue of such series by resolution adopted by DTG's
Board of Directors. Such DTG Preferred Stock could have priority over DTG
Common Stock as to dividends and as to distribution of DTG's assets upon
any liquidation, dissolution or winding up of DTG.
While no DTG Preferred Stock would be outstanding at the effective
time of the Conversion, the proposed Amended Articles of Incorporation
designate 15,000 shares of DTG Preferred Stock as Series A Junior
Participating Preferred Stock for possible future issuance in connection
with a preferred stock purchase rights plan which the Board of Directors of
DTG presently intends to implement as soon as is practicable following the
consummation of the Conversion. (See "ADDITIONAL SECURITIES OF THE
RESULTING COMPANY--Preferred Stock Purchase Rights Plan.")
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SUPERMAJORITY VOTE PROVISIONS. The proposed Amended Articles of
Incorporation of DTG contain "supermajority" vote requirements for certain
business combinations. Article XII provides that, in addition to any vote
required by law or other provisions of the proposed Amended Articles of
Incorporation, the affirmative vote of not less than 80 percent of the
outstanding shares of "voting stock" (which is defined as all shares of DTG
stock that are entitled to vote generally in the election of directors,
voting as a single class) would be required for the approval of certain
"business combinations" between the corporation or a subsidiary and any
"interested shareholder."
A "business combination" is generally defined for purposes of Article
XII as including mergers, sales of all or substantially all of the assets
of the corporation and certain other transactions. An "interested
shareholder" is defined as a person (other than DTG, its majority-owned
subsidiaries or their employee benefit plans), who, alone or together with
affiliated persons, beneficially owns 10 percent or more of the voting
stock of the corporation, as well as certain other persons that are
affiliated with an interested shareholder.
These requirements would not apply when the transaction was approved
by a majority of the "continuing directors," which are directors who are
not affiliated with an interested shareholder and who were either (i)
elected to the Board prior to the time that the interested shareholder
became an interested shareholder or (ii) designated, before their initial
election as directors, as continuing directors by a majority of the then-
continuing directors. The term excludes, however, certain persons that
became directors as a result of election contests within the meaning of
Rule 14a-11 under the Exchange Act or other types of proxy solicitations.
In addition, Article XIV provides that, in addition to any vote
required by law or other provisions of the proposed Amended Articles of
Incorporation, the affirmative vote of at least 80 percent of the shares
held by persons who are not interested shareholders (as defined in Article
XII) would be required to approve business combinations (as defined in
Article XII) of the corporation or a majority owned subsidiary with any
interested shareholder. This requirement would not apply if (i) the
business combination was approved by a majority of the continuing directors
(as defined in Article XII) or (ii) certain other detailed conditions are
satisfied.
RESTRICTIONS ON AMENDMENTS TO AMENDED ARTICLES OF INCORPORATION AND
BYLAWS OF DTG. Several provisions of DTG's proposed Amended Articles of
Incorporation require a greater-than-majority vote to be amended.
Specifically, Article XVIII(A) provides that no amendment to the Articles
of Incorporation could alter, modify or repeal any or all of the provisions
of Article XIV (supermajority vote/fair price requirement for certain
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business combinations) or Article XVIII(A), unless the amendment is adopted
by the affirmative vote of not less than 80 percent of the outstanding
shares of voting stock held by shareholders who are not interested
shareholders.
Also, Article XVIII(B) of DTG's proposed Amended Articles of
Incorporation provides that no amendment shall alter, modify or repeal any
or all of the provisions of Articles VIII (powers of the Board of
Directors), IX (indemnification), XI (Board of Directors classification,
nomination, qualification, etc.), XII (supermajority vote required for
certain business combinations), XIII (non-shareholder constituency
provision) or XV (limitation of certain director liability), and the
shareholders would 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 percent of the outstanding shares of voting
stock. However, the provisions of Article XVIII(B) would not apply to, and
such 80 percent vote would not be required for, any amendment, alteration,
modification or repeal which has first been approved by (i) the affirmative
vote of 80 percent of the entire Board of Directors, including the
affirmative vote of at least one director of each class of the Board of
Directors and (ii) the affirmative vote of two-thirds of the continuing
directors.
STANDSTILL AGREEMENTS. In connection with the Cooperative's
acquisition of TCIC and Iway, the Cooperative entered into standstill
agreements (the "Standstill Agreements") with the former shareholders of
TCIC and of Iway (collectively, the "Sellers"). These Standstill
Agreements would be applicable to shares of DTG Common Stock issuable to
the Sellers in connection with the Conversion, and would restrict their
ability to dispose of shares of DTG Common Stock and would require them to
refrain from certain other actions related to DTG Common Stock. For a
description of these restrictions, see "ADDITIONAL SECURITIES OF THE
RESULTING COMPANY--Standstill Agreements." The Standstill Agreements could
have the effect of delaying, deterring or preventing a change in control of
DTG.
COMPARISON OF RIGHTS OF MEMBERS OF THE COOPERATIVE TO RIGHTS OF
SHAREHOLDERS OF DTG
At the special meeting, Members of the Cooperative will vote on a
proposal to amend the articles of incorporation to convert the Cooperative
into a South Dakota business corporation, which would be DTG. The
Cooperative is organized as a cooperative association under South Dakota
law. DTG would be regulated as a business corporation under South Dakota
law. The following discussion describes certain significant differences
between the rights of cooperative association members under provisions of
South Dakota law relating to cooperatives and the rights of shareholders
under provisions of South Dakota law relating to business corporations.
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MEMBERS VERSUS SHAREHOLDERS. A South Dakota cooperative association
has members whereas a business corporation has shareholders. Under the
provisions of South Dakota law applicable to cooperatives, a cooperative
may have one or more classes of members. A South Dakota cooperative may,
as does the Cooperative, require that each member owns a share of
membership stock. A member of a South Dakota cooperative is entitled to
only one vote on matters on which members must vote, regardless of the
number of shares of membership stock that the member owns. A member who
owns numerous shares of membership stock is not thereby entitled to any
additional voting power. A South Dakota cooperative is not required to
issue capital stock (as opposed to membership stock). However, if the
cooperative does issue capital stock, that capital stock has no voting
power. The Preferred Stock previously issued by the Cooperative is capital
stock without voting power.
The Cooperative's articles of incorporation provide that each Member
of the Cooperative is entitled to one vote on all matters submitted for
Member action. The Cooperative's articles of incorporation and bylaws
require its Members to purchase telecommunications services from the
Cooperative and permit Members to own only one share of Cooperative Common
Stock. The articles of incorporation of the Cooperative further provide
that any Member who desires to dispose of the Member's share of Cooperative
Common Stock must first offer such share to the Cooperative, which has the
exclusive option to buy the share for 30 days. Thereafter, the Member is
permitted to sell the share to an individual that is eligible for
membership in the Cooperative.
A South Dakota business corporation must have at least one class of
voting capital stock. However, it may issue shares of capital stock
divided into different classes or series. In general, a holder of shares
of voting stock is entitled to one vote for each share of voting stock that
the person owns. This is significantly different from the law applicable
to South Dakota cooperatives, which, as discussed above, provides that each
member may only have one vote and that shares of capital stock do not
confer voting rights. The general rule for South Dakota cooperatives is
one vote per member, whereas the general rule for a business corporation is
one vote per share.
TRANSFERABILITY OF SHARES. The owner of shares of membership stock in
a South Dakota cooperative is generally not able to transfer that stock,
except to other persons or entities that are eligible to become members in
the cooperative, and only when such transferees satisfy the cooperative's
membership requirements (if any). Capital stock of a South Dakota
cooperative may be transferred unless the terms of the stock otherwise
prohibit transfer, although capital stock does not have voting power. This
arrangement is significantly different from the laws applicable to South
Dakota business corporations, which generally provide that shares of stock
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in a business corporation may be freely transferred, unless the transferor
has agreed in some way or is required by applicable securities laws not to
transfer the stock or to transfer it only in certain circumstances.
CUMULATIVE VOTING FOR DIRECTORS. In an election of directors under
cumulative voting, each share of stock normally having one vote is entitled
to a number of votes equal to the number of directors to be elected. A
shareholder may cast all such votes for a single nominee or may allocate
the votes among as many nominees as the shareholder may choose. Without
cumulative voting, the holders of a majority of shares present at an annual
meeting or any special meeting held to elect directors would have the power
to elect all of the directors to be elected at that meeting and no nominee
could be elected without the support of a majority of the shares voting at
the meeting. Under the South Dakota Constitution and the SDBCA, cumulative
voting is mandatory for all South Dakota business corporations. DTG
shareholders would have cumulative voting rights if the Conversion is
adopted. Cumulative voting is not mandatory for South Dakota cooperatives
and neither the Cooperative's articles of incorporation nor its bylaws
provide for cumulative voting.
QUORUM REQUIREMENTS. A quorum for a meeting of the members of a South
Dakota cooperative is 10 percent of the first 100 members, plus five
percent of additional members. However, a quorum may never be more than 50
members, or a majority of members, whichever is smaller. Thus, in a South
Dakota cooperative that has numerous members, such as the Cooperative, 50
members would constitute a quorum at a meeting of members and the majority
of a quorum may take action at the meeting (unless the articles of
incorporation or other provisions of law require a higher percentage for
member actions).
The quorum requirements applicable to South Dakota business
corporations are much different. In general, under the SDBCA a quorum of
shareholders in a business corporation is present when the holders of a
majority of the shares entitled to vote at the meeting are present in
person or by proxy, although the corporation's articles of incorporation or
bylaws may specify a different percentage (so long as it is greater than
one-third of the shares entitled to vote). The SDBCA does not specify a
maximum percentage of shares or number of shareholders that may constitute
a quorum.
ABILITY TO CALL SPECIAL MEETINGS. Special meetings of the members of
a cooperative may be called by the president, the board of directors or
members having 20 percent of the votes entitled to be cast at the meeting.
Special meetings of the shareholders of a South Dakota business corporation
may be called by the president, the board of directors, the holders of not
less than 10 percent of the shares entitled to vote at the meeting or any
additional persons that are authorized in the articles of incorporation to
call special meetings.
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MEMBER OR SHAREHOLDER ACTION WITHOUT A MEETING. Any action which may
be taken at a meeting of the members of a South Dakota cooperative may be
taken without a meeting if a majority of the members entitled to vote
thereon sign a written consent setting forth the action taken.
Shareholders of a South Dakota business corporation may only take action
without a meeting upon unanimous written consent.
DIVIDENDS AND DISTRIBUTIONS. A business corporation is not required
to pay dividends on shares of its capital stock. Instead, except to the
extent restricted in the corporation's articles of incorporation or by
covenants in agreements with lenders or others, dividends and distributions
are within the discretion of the corporation's board of directors, provided
that the corporation is solvent at the time of paying the dividend and that
paying the dividend would not render the corporation insolvent. In
general, dividends and distributions may be paid only out of the
corporation's unreserved and unrestricted earned surplus.
South Dakota law regarding cooperatives is much different. At least
once annually, the directors of a cooperative must determine and distribute
net proceeds. In determining net proceeds, certain items, such as
operating expenses and costs, taxes and other expenses and reserves for
depreciation and depletion of property and other assets, are first deducted
from total proceeds. Afterward, the net proceeds may be distributed, after
certain additional deductions, with respect to the capital stock (if any)
as authorized in its articles of incorporation, unless the capital is
impaired or the payment would result in the impairment of capital.
Thereafter, unless the cooperative's articles of incorporation or bylaws
expressly provide otherwise, the remaining amount is distributed to
members. A member is a person who purchases goods or services from the
cooperative in the ordinary course of business. In distributing the
remaining amount to members, the cooperative may reserve an amount for
necessary purposes, although this reserve is still credited to members in
accordance with the level of their capital. The remaining proceeds are
paid back to members based on the ratio that their capital bears to total
capital. A cooperative is not required, however, to distribute this amount
in cash. Rather, it may distribute the amount in cash, credits, stock, in
other property or any combination thereof. The Cooperative has accounted
for the equity of its Members through Capital Credits for all of its 45-
year history. No dividends have been or are currently paid on Capital
Credits. Such credits are accumulated on the books of the Cooperative
rather than paid in cash. The Cooperative's bylaws permit retirement of
Capital Credits in any method, basis, priority and order of retirement as
may be determined by the Board. The Cooperative's bylaws currently
restrict in certain respects the ability of the Board to retire Capital
Credits by payment in cash. The Cooperative has not retired Capital
Credits accumulated for any year after December 31, 1985. Capital Credits
for the years prior to January 1, 1986 have been retired in full. The last
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actual cash payment to Members for the purpose of retiring Capital Credits
for the 1985 fiscal year occurred in 1992. The Board pays accumulated
Capital Credits to the estates of deceased Members, who were natural
persons, on a discounted current value basis. The current discount is 58
percent, calculated on a 12 year, 7.5 percent basis. These estate
retirements are current on a month-to-month basis. If the Conversion is
adopted and consummated, Capital Credits would cease to exist and,
accordingly, would not accumulate.
AMENDMENT OF GOVERNING INSTRUMENTS. A South Dakota cooperative may
amend its articles of incorporation or its bylaws by a majority vote of the
members voting at a meeting at which a quorum is present (provided that the
number of members actually voting on the amendment is sufficient to
constitute a quorum).
With certain exceptions, an amendment to the articles of incorporation
of a South Dakota business corporation must first be adopted by a
resolution of its board of directors. The amendment must then be adopted
by the corporation's shareholders. The amendment is adopted upon receiving
the affirmative vote of a majority of the shares entitled to vote thereon,
unless the articles of incorporation specify a higher percentage, or unless
any class of shares is entitled to vote as a class on the amendment, in
which case the amendment is adopted upon receiving the affirmative vote of
the holders of a majority of shares of each class entitled to vote as a
class and of the total number of shares entitled to vote. As described
above, the proposed Amended Articles of Incorporation of DTG would require
a supermajority vote to amend certain designated Articles and for
shareholders to amend the Bylaws. The SDBCA also contains provisions which
require a supermajority vote on certain actions. (See "THE CONVERSION--
Statutory Provisions Affecting Control of DTG" and "Other Provisions
Affecting Control of DTG--Restrictions on Amendments to Articles of
Incorporation and Bylaws of DTG.")
A South Dakota business corporation's bylaws may be amended or
repealed by the board of directors, unless the corporation's articles of
incorporation reserve that power to the shareholders of the corporation.
DTG's Bylaws provide that they may be adopted, amended or repealed at any
regular or special meeting of the shareholders or at any regular or special
meeting of the board of directors.
QUALIFICATIONS AND NUMBER OF DIRECTORS. A director of a South Dakota
business corporation is not required to be a shareholder, unless the
corporation's articles of incorporation require otherwise. A director of a
cooperative, however, must be a member or a representative of a person that
is a member. A cooperative's board of directors may not consist of less
than five directors (unless the cooperative has less than 50 members, in
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which case there must be at least three directors). There generally are no
minimum limits on the number of directors of a South Dakota business
corporation, except as the corporation may provide in its articles of
incorporation or unless the corporation has a classified board of directors
(in which case there must be at least nine directors). As described above,
the proposed Amended Articles of Incorporation of DTG would include various
provisions concerning the qualifications of a director of DTG. (See "THE
CONVERSION--Other Provisions Affecting Control of DTG--Qualification of
Directors.")
ISSUANCE OF STOCK IN SERIES. A South Dakota cooperative is not
required to issue capital stock. If it does, however, it may issue two or
more classes of stock, with such designations, preferences, limitations and
relative rights as stated in the cooperative's articles of incorporation.
A South Dakota business corporation may also issue different classes of
stock. However, a business corporation has the additional ability to
divide any preferred or special class of stock into different series, with
different designations, preferences, limitations and relative rights among
the various series. (See "THE CONVERSION--Other Provisions Affecting
Control of DTG--Blank Check Preferred Stock and Preferred Stock Rights
Plan.")
MERGERS AND OTHER MAJOR TRANSACTIONS. Like South Dakota business
corporations, cooperatives may merge with other cooperatives. To do so,
the board of directors of each cooperative involved in the merger must
approve a written plan of merger. Before the merger may take place, the
plan of merger must be approved by the members of the cooperatives involved
in the merger. Member approval is obtained in the same manner as an
amendment to the articles of incorporation: a majority of a quorum of the
members must vote for approval of the plan of merger. A quorum may be no
more than 50 members.
The provisions of the SDBCA applicable to mergers involving business
corporations are much more complex. In general, the principal terms of a
merger must first be approved by the board of directors of each corporation
that is a party to the merger. Then the shareholders of each corporation
must approve the merger by the affirmative vote of a majority of the shares
entitled to vote thereon, unless the articles of incorporation or the SDBCA
require a higher percentage. Where any class of shares is entitled to vote
as a class on the merger, then the merger is approved by that corporation
only upon receiving the affirmative vote of the holders of a majority of
the shares of each class entitled to vote as a class and of the total
number of shares entitled to vote on the merger. For a discussion of the
circumstances in which a class of shares will be entitled to vote as a
class, see "THE MERGER--Comparison of Rights of Shareholders of DTG to
Rights of Stockholders of DTG Delaware." As described above, the proposed
Amended Articles of Incorporation of DTG would, in certain instances,
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require a supermajority vote of DTG's shareholders to oppose certain
business combinations. (See "THE CONVERSION--Other Provisions Affecting
Control of DTG--Supermajority Vote Provisions.")
DISSENTERS' RIGHTS. Shareholders of a South Dakota business
corporation have the right to dissent from, and to receive payment for
their shares in the event of, certain transactions to which the corporation
is a party, including mergers, sales of all or substantially all of the
corporation's assets outside the ordinary course of business and certain
amendments to the corporation's articles of incorporation that adversely
affect the rights of the shareholders' shares. The right to dissent does
not apply to the shareholders of a corporation surviving a merger if the
vote of the shareholders of the surviving corporation was not required to
approve the merger. Members of cooperatives do not have rights to dissent
from any action under South Dakota law.
INDEMNIFICATION AND LIMITATION OF LIABILITY
INDEMNIFICATION. A South Dakota cooperative has the power to
indemnify a present or former director, officer or agent against actual
expenses incurred in the defense of an action brought against the person
because of that status, except where the person is adjudged liable for
negligence or misconduct in the performance of the person's duties,
provided that the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
cooperative and, with respect to a criminal proceeding, had no reasonable
cause to believe that the person's conduct was unlawful. No
indemnification may be made with respect to actions brought by or in the
name of the cooperative (i.e., derivative actions). The Cooperative's
bylaws contain provisions requiring the indemnification of all directors
and the General Manager (Thomas W. Hertz) to the fullest extent permitted
by the SDBCA. The Cooperative's articles of incorporation do not contain
provisions with respect to indemnification.
These rules are generally the same with respect to South Dakota
business corporations. However, with respect to derivative actions
involving business corporations, no indemnification may be made when a
person is adjudged liable to the corporation in the performance of that
person's duty to the corporation and its shareholders, unless a court
determines that the person is entitled to indemnification for expenses in
view of all the circumstances, and then indemnification may be made only to
the extent that the court determines.
As is the case with South Dakota cooperatives, indemnification is
permitted only for acts that the person seeking indemnification in good
faith believed to be in the best interests of the corporation and its
shareholders, and with respect to a criminal proceeding, that the person
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had no reasonable cause to believe the person's conduct was unlawful. This
determination is made by a majority vote of a quorum of disinterested
directors, independent legal counsel in a written opinion (whether or not a
quorum of disinterested directors is obtainable) or by the shareholders.
Furthermore, indemnification of expenses is required when the individual
has successfully defended the action on the merits. Both the proposed
Amended Articles of Incorporation and Bylaws of DTG contain provisions
relating to indemnification and, in general, require indemnification of
directors and executive officers to the full extent permitted by law and
permit indemnification of other persons serving the corporation to the
extent permissible by law and the Amended Articles of Incorporation and
authorized by the Board of Directors.
It is intended that DTG would enter into an Indemnity Agreement with
each of its directors and executive officers effective upon consummation of
the Conversion, which may provide rights additional to those that would be
provided by the SDBCA or DTG's proposed Amended Articles of Incorporation
or Bylaws. (See "INDEMNITY AGREEMENTS.")
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Cooperative and DTG pursuant to the foregoing provisions, or
otherwise, the Cooperative and DTG have been advised in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
LIMITATION OF LIABILITY. The Cooperative's articles of incorporation
provide that directors of the Cooperative shall not be liable to the
Cooperative or its Members for monetary damages for breaches of fiduciary
duty as a director, except for certain breaches involving actions or
omissions not in good faith, intentional misconduct or violations of law,
certain unauthorized dividends or distributions of assets or transactions
from which the director derived an improper personal benefit. This
provision eliminates the personal liability of directors of the Cooperative
in their capacity as directors (but not in their capacity as officers) to
the Cooperative and its Members to the full extent provided by South Dakota
law.
The SDBCA permits corporations to adopt a provision in their articles
of incorporation eliminating, with certain exceptions, the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the director's fiduciary duty as a director.
However, a corporation may not eliminate or limit director monetary
liability where such liability is based on: (i) breach of the director's
duty of loyalty to the corporation or its shareholders for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (ii) improper dividends or distributions,
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unauthorized purchases of shares, improper loans or commencing business be-
fore the corporation obtains its minimum capital; or (iii) any transaction
from which the director derived an improper personal benefit. The proposed
Amended Articles of Incorporation of DTG eliminate the liability of
directors to DTG to the full extent permissible under South Dakota law.
FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of the federal income tax consequences
resulting from the Conversion. The Cooperative has not requested a private
letter ruling from the Internal Revenue Service as to the federal income
tax consequences of the Conversion, and thus there can be no assurance that
the transaction would constitute a tax-free exchange for federal income tax
purposes. However, the Cooperative has requested and received the opinion
of Olsen Thielen & Co., Ltd. as to the federal income tax consequences of
the Conversion.
Olsen Thielen & Co., Ltd. has advised the Cooperative that the
conversion of the Cooperative from a South Dakota cooperative association
into DTG, a South Dakota business corporation, through an amendment to the
Cooperative's articles of incorporation, would constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Code. In addition, Olsen
Thielen & Co. has advised the Cooperative as to the matters listed below.
(i) No gain or loss would be recognized by the Cooperative
upon the Conversion and the Cooperative's basis in its assets,
holding period for its assets, annual accounting period and
accounting methods would not be affected by the Conversion;
(ii) The exchange of Cooperative Common Stock for DTG Common
Stock issuable in the Conversion would constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Code. No gain
or loss would be recognized by DTG upon the exchange, no gain or
loss would be recognized by the Members upon the exchange (except
to the extent of cash received in lieu of fractional shares), the
basis of the DTG Common Stock issuable to the Members would be the
same as the basis of Cooperative Common Stock surrendered in the
Conversion and the holding period of the DTG Common Stock issuable
to the Members would include the holding period of the shares
of Cooperative Common Stock surrendered in the Conversion;
(iii) The exchange of Preferred Stock for DTG Common Stock
issuable in the Conversion would constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Code. No gain
or loss would be recognized to DTG upon the Conversion, no gain
or loss would be recognized by the holders of Preferred Stock upon
the Conversion (except to the extent of cash received in lieu of
fractional shares), the basis of the DTG Common Stock issuable
to the holders of Preferred Stock would be the same as the basis
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of the Preferred Stock surrendered in the Conversion and the
holding period of the DTG Common Stock issuable to the holders
of Preferred Stock would include the holding period of the
shares of Preferred Stock surrendered in the Conversion; and
(iv) The exchange of Capital Credits for DTG Common Stock
issuable in the Conversion would constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Code. No
gain or loss would be recognized to DTG upon the Conversion, no
gain or loss would be recognized by the holders of Capital
Credits upon the Conversion (except to the extent of cash
received in lieu of fractional shares), the basis of the DTG
Common Stock issuable to the holders of Capital Credits would
be the same as the basis of their Capital Credits surrendered
in the Conversion and the holding period of the DTG Common
Stock issuable to the holders of Capital Credits would include
the holding period of their Capital Credits surrendered in the
Conversion.
EACH MEMBER OF THE COOPERATIVE AND HOLDERS OF PREFERRED STOCK AND
CAPITAL CREDITS SHOULD CONSULT A PROFESSIONAL TAX ADVISER ON THE FEDERAL,
STATE AND LOCAL TAX CONSEQUENCES OF THE CONVERSION TO SUCH PERSON OR
ENTITY. THE TAX AND OTHER MATTERS DESCRIBED IN THIS PROSPECTUS AND
BALLOT/PROXY STATEMENT DO NOT CONSTITUTE LEGAL OR TAX ADVICE.
ACCOUNTING TREATMENT
The Conversion would be accounted for as a capital restructuring.
Therefore, the Conversion would not affect the valuation of the assets or
liabilities of the Cooperative in the hands of DTG, nor would DTG record
any income or expense as a result of the Conversion.
DISSENTERS' RIGHTS
Neither Members of the Cooperative nor holders of Preferred Stock or
Capital Credits would be entitled to dissenters' rights under the
Cooperative Act in connection with the Conversion. (See "DISSENTERS'
RIGHTS.")
THE MERGER
The Cooperative's Board of Directors has approved and recommended that
the Cooperative's Members consider and vote upon a proposal to approve the
Plan of Merger. The Board unanimously voted to approve the Plan of Merger
at its February 11, 1997 meeting. The Cooperative (which if the Conversion
is adopted and consummated would become DTG) and DTG Delaware entered into
the Plan of Merger effective as of February 14, 1997, following approval of
the Plan of Merger by their respective Boards of Directors.
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The following discussion summarizes certain provisions of the Plan of
Merger and aspects of the Merger. This summary discussion is not intended
to be a complete description of the Merger and is qualified in its entirety
by reference to the Plan of Merger, which is attached as Appendix D and
incorporated by reference in this Prospectus and Ballot/Proxy Statement.
BACKGROUND OF THE MERGER
The Cooperative's Board of Directors, in connection with studying the
possibility of converting the Cooperative into a general business
corporation, also has considered possible methods of trying to promote the
development of a market in the stock of a business corporation. The Board
believes that encouraging and promoting the development of a market in the
capital stock of DTG (into which the Cooperative would be converted) would
promote the interests of DTG and its shareholders by helping to provide an
opportunity for a potential new source of capital. The Board believes that
encouraging the development of a market for the stock of DTG also would
promote the interests of its shareholders by helping to enhance the
liquidity of their investment in DTG, helping to promote valuations of
their stock for gift, estate planning and other purposes and helping to
provide a means by which DTG shareholders may be able to evaluate the value
of their investment in DTG.
BOARD RECOMMENDATION AND REASONS FOR THE MERGER
The Boards of Directors of the Cooperative, on behalf of DTG, and DTG
Delaware have each unanimously determined that the proposed Merger is
desirable and in the best interests of DTG and DTG Delaware and their
respective stockholders. The Board of the Cooperative, as the Board of DTG
if the Conversion is consummated, believes that brokers, other potential
market makers and investors are more familiar with Delaware corporations
generally and therefore may be more comfortable making a market and
investing in the stock of a Delaware corporation as compared to a South
Dakota corporation. The Board believes that, due to the substantial number
of corporations incorporated in Delaware, brokers, other potential market
makers and investors are familiar with Delaware corporations generally.
The Board believes that because there are relatively few publicly traded
South Dakota corporations, brokers, other potential market makers and
investors may be unfamiliar with South Dakota corporate laws and therefore
may be hesitant to invest in, or perhaps even reject an investment in, a
South Dakota corporation. In addition, the Board believes that Delaware
corporate law is relatively well developed, which would lend predictability
to both DTG and its shareholders in matters related to corporate governance
and management.
The Board also believes that certain provisions of the SDBCA could
limit DTG's flexibility or even hinder its ability to react to changing
business needs and opportunities and could create increased expense for DTG
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in conducting fairly routine matters. The SDBCA's requirements for a
shareholder vote before a corporation may increase its indebtedness or in
connection with small mergers in which the corporation is the acquiring and
surviving entity are examples of provisions that are not contained in the
Delaware Law. (See "THE MERGER--Comparison of Rights of Shareholders of
DTG to Rights of Stockholders of DTG Delaware.")
For the reasons set forth in the preceding paragraphs, the Board
believes it would be in the best interests of DTG and its shareholders for
DTG to be incorporated in Delaware. The proposed Merger is designed to
reincorporate DTG under Delaware law. If the Merger is consummated, the
primary place of business and the corporate headquarters of DTG Delaware
would remain in South Dakota. The Boards of Directors of the Cooperative
and DTG Delaware did not assign any particular weight to any one of the
foregoing factors.
If the Conversion were consummated as of the date of this Prospectus
and Ballot/Proxy Statement, the directors and executive officers of the
Cooperative, together with their respective affiliates and associates, as a
group, would have beneficially owned less than one percent of the total
number of shares of DTG Common Stock issuable in the Conversion. (See
"VOTING AND MANAGEMENT INFORMATION--Interests of Certain Persons.") These
persons would be entitled to receive the same consideration for their
shares as any other DTG shareholder in connection with the Merger. If the
Merger would have been consummated as of the date of this Prospectus and
Ballot/Proxy Statement, these persons would have beneficially owned less
than one percent of the total number of outstanding shares of DTG Delaware
to be issued in connection with the Merger. All of the directors and
officers of the Cooperative are also directors and officers of DTG
Delaware. These persons currently do not own any shares of DTG Delaware
Common Stock. DTG Delaware is a wholly owned subsidiary of the
Cooperative.
THE BOARD OF DIRECTORS OF THE COOPERATIVE, WHO WILL BECOME THE
BOARD OF DIRECTORS OF DTG IF THE CONVERSION IS ADOPTED AND
CONSUMMATED, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE PLAN OF MERGER.
CONVERSION OF RIGHTS TO RECEIVE SHARES OF DTG COMMON STOCK
The Cooperative's Board of Directors, on behalf of DTG, is soliciting
proxies from the individuals and entities who would be DTG's shareholders
if the Conversion is consummated for the purpose of approving the Plan of
Merger. The affirmative vote of the holders of a majority of the shares of
DTG Common Stock issuable in the Conversion is required to approve the Plan
of Merger.
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At the time that the Merger becomes effective, DTG would be merged
with and into DTG Delaware. The surviving corporation would be DTG
Delaware, which would own all of the assets and assume all of the
liabilities of DTG. In the Merger, DTG Delaware's Certificate of
Incorporation would be amended to change the name of DTG Delaware to
"Dakota Telecommunications Group, Inc.," and to increase DTG's authorized
capital to 5,000,000 shares of common stock, without par value ("DTG
Delaware Common Stock"), of which approximately 1,050,000 shares would be
issued and outstanding at the effective time of the Merger and an
additional approximately 200,000 shares would be subject to stock options
and warrants, and up to 250,000 shares of preferred stock, without par
value ("DTG Delaware Preferred Stock"), of which no shares would be
outstanding at the effective time of the Merger. Except for the amendment
to change its name and increase its authorized capital, the surviving
corporation's certificate of incorporation after the Merger would be
identical to DTG Delaware's Certificate of Incorporation attached as
Appendix E to this Prospectus and Ballot/Proxy Statement. The bylaws of
the surviving corporation would be the Bylaws of DTG Delaware as in effect
immediately prior to the effective time of the Merger, which are attached
as Appendix F to this Prospectus and Ballot/Proxy Statement.
Each whole share of DTG Common Stock issuable in the Conversion, at
the time that the Merger becomes effective, would be converted into the
right to receive one validly issued, fully paid and nonassessable share of
DTG Delaware Common Stock. Each share of DTG Delaware Common Stock which
is outstanding immediately prior to the effective time of the Merger would
be canceled. DTG Delaware would not issue fractional shares of DTG
Delaware Common Stock in the Merger.
CESSATION OF SHAREHOLDER STATUS AND DISTRIBUTION OF DTG DELAWARE COMMON
STOCK
As of the effective time of the Merger, holders of rights to receive
shares of DTG Common Stock issuable in the Conversion would cease to be
shareholders of DTG and consequently would have no rights as DTG
shareholders. Certificates representing shares of DTG Common Stock would
not be issued. Certificates that represented shares of Cooperative Common
Stock and Preferred Stock and accounts on the books of the Cooperative that
represented Capital Credits outstanding immediately prior to the effective
time of the Conversion would then represent the right to receive shares of
DTG Delaware Common Stock having all of the voting and other rights of
shares of DTG Delaware Common Stock, subject to the rights of a dissenting
shareholder under the SDBCA. (See "DISSENTERS' RIGHTS.")
As soon as practicable after the Merger becomes effective, DTG
Delaware would send or cause to be sent to individuals and entities
entitled to receive DTG Common Stock in connection with the Conversion
transmittal materials to be used to exchange certificates that represented
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shares of Cooperative Common Stock and Preferred Stock outstanding
immediately prior to the effective time of the Conversion for stock
certificates representing shares of DTG Delaware Common Stock and to have
certificates issued as appropriate to evidence the retirement of Capital
Credits. The transmittal materials would contain instructions with respect
to the surrender of Cooperative Certificates. DTG Delaware would issue and
deliver new stock certificates and checks for the amount of cash payable
for fractional shares of DTG Common Stock to Members or holders of
Preferred Stock. DTG Delaware would issue and deliver certificates and
checks in the name and to the address appearing on the Cooperative's stock
records as of the effective time of the Conversion, or in such other name
or to such other address as may be specified in the transmittal materials
received by DTG Delaware. DTG Delaware would not be required to, and would
not, issue and deliver certificates and checks until it has received
properly executed transmittal materials and, with respect to a Member or
holder of Preferred Stock, until it has received all of the Cooperative
Certificates held of record by that Member or holder of Preferred Stock, or
an affidavit of loss and indemnity bond for such certificate or
certificates. Such Cooperative Certificates, transmittal materials and
affidavits must be in a form and condition reasonably acceptable to DTG
Delaware.
DTG Delaware would have discretion to determine reasonable rules and
procedures relating to the issuance and delivery of certificates of DTG
Delaware Common Stock into which rights to receive shares of DTG Common
Stock would be converted in the Merger and governing the payment for
fractional shares.
EFFECTIVE TIME OF THE MERGER
The Merger would be consummated on the date and time specified in a
Certificate of Merger issued by the Secretary of the State of South Dakota
in accordance with the SDBCA and at the date and time specified in a
Certificate of Merger filed in accordance with the Delaware Law. If the
shareholders of DTG approve the Plan of Merger at the special meeting and
the other conditions to the Merger set forth in the Plan of Merger and
summarized under "THE MERGER--Conditions to the Merger and Abandonment" in
this Prospectus and Ballot/Proxy Statement are satisfied, the effective
time of the Merger would occur as soon after the special meeting as is
possible (which could be the same date as the special meeting), provided
that the Plan of Merger has not been terminated prior to such time. It is
anticipated that the Merger, if approved, would become effective during the
second quarter of 1997.
DTG STOCK OPTIONS AND WARRANTS
Before the effective time of the Merger, each outstanding stock option
and warrant entitling the holder to purchase shares of DTG Common Stock
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would be amended, if necessary, so that it would become, if and when the
Merger becomes effective, an option or warrant to purchase, for an
equivalent price, that number of shares of DTG Delaware Common Stock that
the holder would have acquired pursuant to the Merger had the holder
exercised the option or warrant immediately prior to the effective time of
the Merger. The options and warrants would in all other respects contain
the same terms and conditions as they do presently.
As of the date of this Prospectus and Ballot/Proxy Statement, there
were stock options and warrants outstanding to purchase an aggregate of
2,016 shares of Preferred Stock, which if exercised prior to the Merger,
would be convertible into 162,936 shares of common stock of the Resulting
Company in connection with the Merger. (See "ADDITIONAL SECURITIES OF THE
RESULTING COMPANY--Stock Options" and "--Warrants.")
MANAGEMENT AFTER THE MERGER
Upon the consummation of the Merger, the directors and officers of DTG
Delaware would be the persons who were the directors and officers of DTG
Delaware immediately prior to the effective time of the Merger, except as
otherwise indicated in this Prospectus and Ballot/Proxy Statement. Upon
consummation of the Merger, the employees of DTG Delaware would be the
persons who were the employees of DTG immediately prior to the effective
time of the Merger, except as otherwise indicated in this Prospectus and
Ballot/Proxy Statement.
CONDITIONS TO THE MERGER AND ABANDONMENT
The obligations of DTG Delaware and DTG to consummate the Merger are
subject to the fulfillment of the following conditions:
(i) the amendment to the Cooperative's articles of
incorporation must be adopted by its Members as required by law
and the Conversion must be consummated according to its terms;
(ii) the holders of a majority of the shares of DTG Common
Stock issuable in the Conversion and the holders of a majority of
the outstanding shares of DTG Delaware Common Stock must have
voted for approval of the Plan of Merger;
(iii) neither DTG Delaware nor DTG shall be subject to any
order, decree or injunction of a court or agency enjoining or
prohibiting the Merger;
(iv) DTG and DTG Delaware must have obtained any required
regulatory approvals with respect to the Merger; and
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(v) demands for payment for shares under Section 47-6-23 of
the SDBCA shall have been made, perfected and not withdrawn by
the holders of not more than five percent of the number of shares
of DTG Common Stock issuable in the Conversion.
Either DTG Delaware or DTG, whichever is entitled to the benefit of
the foregoing conditions, may waive one or more of those conditions except
where satisfaction of the condition is required by law. In particular, DTG
Delaware and DTG may, in their sole discretion, waive the condition that
holders of not more than five percent of the number of shares of DTG Common
Stock issuable in the Conversion shall have asserted dissenters' rights
under the SDBCA. The Boards of Directors of DTG Delaware and DTG may by
mutual consent terminate the Plan of Merger and abandon the Merger at any
time before the effective time of the Merger.
DESCRIPTION OF DTG DELAWARE CAPITAL STOCK
If the Plan of Merger is approved and the Merger is consummated, DTG
Delaware's authorized capital stock would consist of 5,000,000 shares of
"DTG Delaware Common Stock," and 250,000 shares of DTG Delaware Preferred
Stock. As of the date of this Prospectus and Ballot/Proxy Statement, DTG
Delaware had 100 shares of DTG Delaware Common Stock outstanding and no
shares of DTG Delaware Preferred Stock outstanding. DTG Delaware expects
to issue no more than 1,050,000 shares of DTG Delaware Common Stock and
warrants and options to purchase no more than 200,000 shares of DTG
Delaware Common Stock in the Merger.
DTG DELAWARE COMMON STOCK. Holders of DTG Delaware Common Stock are
entitled to dividends out of funds legally available for that purpose if,
as and when declared by the Board of Directors of DTG Delaware. Certain
covenants in existing loan agreements between the Cooperative and the RUS
to which DTG Delaware would be subject following the Merger, as well as
federal statutes and regulations which apply to RUS borrowers, would limit
the circumstances under which DTG Delaware would be permitted to pay
dividends or make other distributions to DTG Delaware stockholders. Under
these agreements, the RUS must authorize distributions other than in shares
of stock unless certain financial ratio requirements are met. The dividend
rights of DTG Delaware Common Stock also are subject to the rights of any
DTG Delaware Preferred Stock which has been or may be issued. Each holder
of DTG Delaware Common Stock is entitled to one vote for each share held on
each matter presented for stockholder action. DTG Delaware Common Stock
has no preemptive rights, cumulative voting rights, conversion rights or
redemption provisions.
In the case of any liquidation, dissolution or winding up of the
affairs of DTG Delaware, holders of DTG Delaware Common Stock would be
entitled to receive, pro rata, any assets distributable to common
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stockholders in respect of the number of shares held by them. The
liquidation rights of DTG Delaware Common Stock would be subject to the
rights of holders of any DTG Delaware Preferred Stock which could be
issued in the future.
All outstanding shares of DTG Delaware Common Stock are, and shares to
be issued pursuant to the Merger will be, when issued, fully paid and
nonassessable.
DTG DELAWARE PREFERRED STOCK. DTG Delaware would be authorized to
issue, without further stockholder approval, up to 250,000 shares of DTG
Delaware Preferred Stock from time to time in one or more series with such
designations, powers, preferences and relative voting, distribution,
dividend, liquidation, transfer, redemption, conversion and other rights,
preferences, qualifications, limitations or restrictions as may be provided
for the issue of such series by resolution adopted by DTG Delaware's Board
of Directors. Such DTG Delaware Preferred Stock could have priority over
DTG Delaware Common Stock as to dividends and as to distribution of DTG
Delaware's assets, upon any liquidation, dissolution or winding up of DTG
Delaware.
As discussed above, the Board of Directors intends to implement a
preferred stock purchase rights plan as soon as is practicable following
the consummation of the Merger. In connection with such plan, the
Certificate of Incorporation of DTG Delaware designates 15,000 shares of
preferred stock as Series A Junior Participating Preferred Stock for use
in connection with such plan. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Preferred Stock Purchase Rights Plan").
STOCK OPTIONS AND WARRANTS
Upon the consummation of the Merger, stock options and warrants to
purchase in an aggregate of 162,936 shares (or approximately 13 percent of
the stock outstanding on such date on a fully diluted basis) of DTG
Delaware Common Stock would be outstanding. (See "ADDITIONAL SECURITIES OF
THE RESULTING COMPANY--Stock Options" and "--Warrants").
STATUTORY PROVISIONS AFFECTING CONTROL OF DTG DELAWARE
The following discussion concerns a provision of the Delaware Law that
would affect control of the surviving corporation if the Merger is
consummated. DTG Delaware is currently subject to the provisions of the
Delaware Law and the surviving corporation will be subject to the same
provisions after the Merger.
Section 203 of the Delaware law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
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stockholder" for three years following the time that such person becomes an
"interested stockholder" unless certain requirements are met or unless
certain exceptions apply. The term "business combination" generally
includes (i) any merger or consolidation of the corporation or any
majority-owned subsidiary of the corporation with (A) the interested
stockholder, or (B) with any other corporation or other entity if the
merger or consolidation is caused by the interested stockholder and as a
result of the merger or consolidation Section 203 is not applicable to the
surviving entity; (ii) with certain exceptions, any sale, lease or other
disposition to or with the interested stockholder of assets of the
corporation or of any majority-owned subsidiary of the corporation where
the assets have an aggregate market value equal to 10 percent 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; (iii) any transaction which results
in the issuance or transfer by the corporation or by any majority-owned
subsidiary of the corporation of any stock of the corporation or of such
subsidiary to the interested stockholder, with certain exceptions; (iv) any
transaction involving the corporation or any majority-owned subsidiary of
the corporation which increases the proportionate share of the stock which
is owned by the interested stockholder; or (v) any receipt by the
interested stockholder of the benefit, directly or indirectly (except
proportionately as a stockholder of the corporation), of any loans,
advances, guarantees, pledges or other financial benefits (with certain
exceptions) provided by or through the corporation or any majority-owned
subsidiary.
An "interested stockholder" is generally defined as any person (other
than the corporation or a majority-owned subsidiary) that (i) owns 15
percent or more of the outstanding voting stock of the corporation, or (ii)
is an affiliate or associate of the corporation and was the owner of 15
percent or more of the outstanding voting stock of the corporation at any
time within the past three years and the affiliates and associates of such
person. Among the exceptions from the definition of "interested
stockholder" is any person whose ownership of shares in excess of the 15
percent limit was the result of action taken solely by the corporation,
unless that such person thereafter acquired additional shares of voting
stock of the corporation (except as a result of further corporate action
not caused, directly or indirectly, by such person).
There are a number of exceptions to the prohibitions of Section 203.
The first exception applies where, prior to the time that the interested
stockholder became an interested stockholder, the board of directors
approved either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder.
The second exception is where, upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
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interested stockholder owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
those shares owned (i) by persons who are directors and also officers and
(ii) certain employee stock plans. The third exception is where, at or
subsequent to the time the person became an interested stockholder, the
business combination was approved by the board of directors and authorized
at an annual or special meeting of stockholders (and not by written
consent) by the affirmative vote of at least 66 2/3 percent of the
outstanding voting stock which is not owned by the interested stockholder.
Section 203 also does not apply: (i) if the corporation's original
certificate of incorporation contains a provision expressly electing not to
be governed by Section 203; (ii) if the stockholders adopt an amendment to
the certificate of incorporation or bylaws expressly electing not to be
governed by Section 203; (iii) if the corporation does not have a class of
voting stock that is (A) listed on a national securities exchange, (B)
authorized for quotation on The Nasdaq Stock Market, or (C) held of record
by more than 2,000 stockholders, unless any of the foregoing results from
action taken by an interested stockholder or from a transaction in which a
person becomes an interested stockholder; (iv) if a stockholder becomes an
interested stockholder inadvertently and (A) as soon as practicable divests
itself of ownership of sufficient shares so that the stockholder ceases to
be an interested stockholder; and (B) would not, at any time within the
three-year period immediately prior to a business combination between the
corporation and such stockholder, have been an interested stockholder but
for the inadvertent acquisition of ownership; (v) pursuant to the
"competitive bidding" exception; or (vi) if the business combination is
with an interested stockholder who became an interested stockholder at a
time when the restrictions contained in Section 203 did not apply (with
certain exceptions).
The "competitive bidding exception" referred to above provides that
(assuming the satisfaction of certain criteria) any person, including one
about to become and one who is an interested stockholder, may propose a
transaction free from the restrictions of Section 203 in certain
situations. The basic policy behind this exception is that once the board
of directors has decided to sell the corporation or a majority of its
assets or has approved (or not opposed) a tender or exchange offer for 50
percent or more of the corporation's outstanding stock, the stockholders
are benefitted by the promotion of bidding contests. Subsequent bidders
are excepted from Section 203 if certain conditions are met. This
exception allows a bidder who announces a transaction after the
announcement of a management-approved transaction and prior to the
completion or abandonment of the management-approved transaction to be free
of the provisions of Section 203.
Under this exception, the corporation must give at least 20 days
notice to all interested stockholders prior to the consummation of (i) a
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merger or consolidation of the corporation (except for those mergers or
consolidations where no stockholder vote is required), (ii) a sale, lease
or other disposition of assets of the corporation or a majority-owned
subsidiary having an aggregate market value at least equal to 50 percent of
either the aggregate market value of all of the corporation's assets
(determined on a consolidated basis) or the aggregate market value of 50
percent of the corporation's outstanding stock, or (iii) a proposed tender
or exchange offer for 50 percent or more of the corporation's outstanding
stock. This notice requirement ensures that an interested stockholder will
have the opportunity to decide whether to bid against a management-approved
transaction prior to the time that the transaction is approved by the
stockholders.
There are three prerequisites to the application of the "competitive
bidding exception." First, there must be board approval of one of the
three types of transactions described above. The second necessary element
is the approval of (or lack of opposition to) a proposed transaction with a
person who was not an interested stockholder during the preceding three
years or who became an interested stockholder with board approval. The
third prerequisite is that the potentially triggering transaction must
either be approved or not opposed by a majority of the members of the board
who were directors before any person became an interested stockholder in
the preceding three years. Alternatively, directors approving or not
opposing the transaction may include those who were elected or recommended
by a majority of the continuing directors to succeed such continuing
directors.
OTHER PROVISIONS AFFECTING CONTROL OF DTG DELAWARE
Upon consummation of the Merger, the certificate of incorporation of
the surviving corporation would be the Certificate of Incorporation of DTG
Delaware and the bylaws of the surviving corporation would be the Bylaws of
DTG Delaware. Some provisions of DTG Delaware's Certificate of
Incorporation may have an anti-takeover impact and may make tender offers,
proxy contests and certain mergers more difficult to consummate.
The Certificate of Incorporation of DTG Delaware, as the same would
be amended pursuant to the Plan of Merger, contains various provisions that
are virtually identical to those contained in the proposed Amended Articles
of Incorporation of DTG, which are described above in "THE CONVERSION--
Other Provisions Affecting Control of DTG." Such provisions are briefly
summarized below, and the following should be read in conjunction with the
more detailed descriptions set forth in "THE CONVERSION--Other Provisions
Affecting Control of DTG."
PROVISIONS REGARDING THE BOARD OF DIRECTORS. The Certificate of
Incorporation of DTG Delaware classifies the Board of Directors into three
classes serving staggered, three-year terms. The Certificate also contains
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detailed provisions pertaining to the nomination, removal (which may only
be for "cause") and qualification of directors. These provisions are
virtually identical to those described in "THE CONVERSION--Other
Provisions Affecting Control of DTG--Provisions Regarding the Board of
Directors."
BOARD EVALUATION OF CERTAIN OFFERS. The Certificate of Incoproration
of DTG Delaware requires the Board, when evaluating certain proposed
business combinations, to consider a variety of enumerated factors,
including the impact of the proposed business combination on non-
stockholder constituencies. This provision is virtually identical to
that described in "THE CONVERSTION--Other Provisions Affecting Control
of DTG--Board Evaluation of Certain Offers."
"BLANK CHECK" PREFERRED STOCK AND PREFERRED STOCK RIGHTS PLAN. Like
the proposed Amended Articles of Incorporation of DTG, the Certificate of
Incorporation of DTG Delaware would authorize the Board of Directors to
issue up to 250,000 shares of DTG Delaware Preferred Stock from time to
time in one or more series with such designations, powers, preferences
and relative voting, distribution, dividend, liquidation, transfer,
redemption, conversion and other rights, preferences, qualifications,
limitations or restrictions as may be provided for the issue of such
series by resolution adopted by DTG Delaware's Board of Directors. The
Certificate of Incorporation would also designate 15,000 shares as Series A
Junior Participating Preferred Stock for possible issuance in connection
with a preferred stock purchase rights plan which the Board of Directors
of DTG Delaware currently intends to enact as soon as is practicable
following the consummation of the Merger. No stockholder vote would be
taken in connection with the implementation of such plan. (See "ADDITIONAL
SECURITIES OF THE RESULTING COMPANY--Preferred Stock Purchase Rights
Plan.")
SUPERMAJORITY VOTE PROVISIONS. The Certificate of Incoproration of
DTG Delaware contains certain provisions which impose a supermajority vote
requirement to approve certain "business combinations" involving an
"interested stockholder." THese provisions are virtually identical to
those embodied in the proposed Amended Articles of Incorporation of DTG.
(See "THE CONVERSION--Other Provisions Affecting Control of DTG--
Supermajority Vote Provisions.")
RESTRICTIONS ON AMENDMENTS TO CERTIFICATE OF INCORPORATION AND
BYLAWS OF DTG DELAWARE. Like the proposed Amended Articles of Incorpora-
tion of DTG, the Certificate of Incorporation of DTG Delaware imposes
certain supermajority vote requirements to amend specified Articles in
the Certificate of Incorporation or for the stockholders to amend the
Bylaws. For a description of such provisions, see "THE CONVERSION--
Other Provisions Affecting Control of DTG--Restrictions on Amendments
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to Amended Articles of Incorporation and Bylaws of DTG." In addition,
the DTG Delaware's Certificate of Incorporation requires supermajority
stockholder approval to amend, modify or repeal the provision requiring
the unanimous consent of the stockholders if action is taken without a
meeting of stockholders. A similar provision is not contained in the
proposed Amended Articles of Incorporation of DTG because unanimous
written consent is required by the SDBCA.
STANDSTILL AGREEMENTS. In connection with the Cooperative's
acquisition of TCIC and Iway, the Cooperative entered into standstill
agreements (the "Standstill Agreements") with the former shareholders of
TCIC and of Iway (collectively, the "Sellers"). These Standstill
Agreements would be applicable to shares of DTG Delaware Common Stock
issued to the Sellers in connection with the Merger, and would restrict
their ability to dispose of shares of DTG Delaware Common Stock and would
require them to refrain from certain other actions related to DTG Delaware
Common Stock. For a description of these restrictions, see "ADDITIONAL
SECURITIES OF THE RESULTING COMPANY--Standstill Agreements." The Standstill
Agreements could have the effect of delaying, deterring or preventing a
change in control of DTG Delaware.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF DTG TO RIGHTS OF STOCKHOLDERS OF
DTG DELAWARE
If the Merger is consummated, DTG would be merged with and into DTG
Delaware and DTG shareholders would become stockholders in DTG Delaware.
DTG would be governed by the laws of South Dakota, its Amended Articles of
Incorporation and its Bylaws. DTG Delaware is incorporated under and is
governed by the laws of Delaware, its Certificate of Incorporation and its
Bylaws.
While the rights and privileges of shareholders of a South Dakota
corporation are, in many instances, comparable to those of stockholders of
a Delaware corporation, there are differences. The following is a summary
of certain significant differences between the provisions of the
Certificate of Incorporation of DTG Delaware and the proposed Amended
Articles of Incorporation of DTG, as well as differences between the
corporation laws of Delaware and South Dakota.
AMENDMENTS TO GOVERNING DOCUMENTS. With certain exceptions, an
amendment to the articles of incorporation of a South Dakota corporation
must first be adopted by a resolution of its board of directors. The
directors' resolution must set forth the proposed amendment and direct that
it be submitted to a vote of the shareholders at either an annual or a
special meeting of shareholders. The amendment is adopted upon receiving
the affirmative vote of a majority of the shares entitled to vote, unless
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the articles of incorporation specify a higher percentage, or unless any
class of shares is entitled to vote as a class on the amendment, in which
case the amendment is adopted upon receiving the affirmative vote of the
holders of a majority of shares of each class entitled to vote as a class
and of the total number of shares entitled to vote.
The SDBCA provides that shares of one class are entitled to vote as a
class if the amendment would do any of the following: (i) increase or
decrease the aggregate number of authorized shares of such class; (ii)
increase or decrease the par value of the shares of such class; (iii)
effect an exchange, reclassification or cancellation of all or parts of the
shares of such class; (iv) effect an exchange, or create a right of
exchange, of all or any part of the shares of another class into the shares
of such class; (v) change the designations, preferences, limitations or
relative rights of the shares of such class; (vi) change the shares of such
class, whether with or without par value, into the same or a different
number of shares, either with or without par value, of the same class or
another class or classes; (vii) create a new class of shares having rights
and preferences prior and superior to the shares of such class, or increase
the rights and preferences of any class having rights and preferences prior
or superior to the shares of such class; (viii) in the case of a preferred
or special class of shares, divide the unissued shares of such class into
series and fix and determine the designation of such series and the
variations in the relative rights and preferences between the shares of
such series or authorize the board of directors to do so; (ix) limit or
deny the existing preemptive rights of the shares of such class; or (x)
cancel or otherwise affect dividends on the shares of such class which have
accrued but have not been declared.
Under the SDBCA, a corporation's bylaws may be amended or repealed by
the board of directors, unless the corporation's articles of incorporation
reserve that power to the shareholders of the corporation. The Bylaws of
DTG provide that they may be altered or repealed at any regular or special
meeting of the shareholders subject to certain notice requirements, or at
any regular or special meeting of the board of directors.
For a Delaware corporation to amend its certificate of incorporation,
its board of directors must first adopt a resolution declaring the
advisability of the proposed amendment and submitting the proposed
amendment to the stockholders at either an annual or special meeting of
stockholders. The amendment is adopted upon the affirmative vote of a
majority of the outstanding stock entitled to vote, and a majority of each
class entitled to vote as a class on the amendment, unless a higher vote is
required by the corporation's certificate of incorporation. If an
amendment would increase or decrease the aggregate number of authorized
shares of a class of stock or change the par value for shares of a class,
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such shares are entitled to vote as a class on the amendment. Furthermore,
if an amendment would alter the powers, preferences or special rights of a
particular class or series of stock so as to affect them adversely, that
class or series has the power to vote as a class, notwithstanding the
absence of any specifically enumerated power in the certificate of
incorporation. The Delaware Law also states that the stockholders have the
power to adopt, amend or repeal the bylaws of a corporation, provided that
the certificate of incorporation also may confer such power on the board of
directors. Even if the board has the power to amend the bylaws, however,
this does not divest the stockholders of that power. DTG Delaware's
Certificate of Incorporation provides that the board of directors may amend
the Bylaws of DTG Delaware.
Both the proposed Amended Articles of DTG and the Certificate of
Incorporation of DTG Delaware require a supermajority vote to amend certain
of the provisions of each charter and for stockholders to amend the Bylaws.
(See "THE CONVERSION--Other Provisions Affecting Control of DTG--
Restrictions on Amendments to Articles of Incorporation and Bylaws of DTG
and "THE MERGER--Other Provisions Affecting Control of DTG Delaware--
Restrictions on Amendments to Certificate of Incorporation and Bylaws of
DTG Delaware.")
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS. The SDBCA requires that
the principal terms of a merger first be approved by the board of directors
of each corporation that is a party to the merger. Thereafter, the
shareholders of each corporation, after receiving a specified notice at
least 20 days in advance of a special or annual meeting of shareholders,
must approve the merger. The merger is approved by the shareholders of a
corporation upon the affirmative vote of a majority of the shares entitled
to vote thereon, unless any class of shares is entitled to vote as a class
on the merger, in which case, as to that corporation, the merger is
approved upon receiving the affirmative vote of the holders of a majority
of the shares of each class entitled to vote as a class and of the total
number of shares entitled to vote on the merger. A class of shares is
generally entitled to vote as a class on a merger if the plan of merger
contains any provision that would entitle that class to vote as a class if
it was contained in a proposed amendment to the articles of incorporation,
as described above. No vote of shareholders of either corporation involved
in a merger is required where one corporation that is a party to the merger
owns at least 90 percent of the outstanding shares of the other corporation
involved in the merger and the corporation owning 90 percent or more of the
outstanding shares will be the surviving corporation in the merger.
Under the Delaware Law, a plan of merger must also first be approved
by the board of directors of each corporation that is a party to the merger
and then submitted for a vote of the stockholders of the affected
corporations. Stockholders must receive notice of the meeting at least 20
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days prior to the meeting. A plan of merger is approved upon the majority
vote of the outstanding shares of each corporation entitled to vote on the
merger. Unlike the SDBCA, the Delaware Law provides that the stockholders
of a corporation are not required to approve a merger if (i) the plan of
merger does not amend the corporation's certificate of incorporation in any
respect, (ii) each share of stock of that corporation immediately
outstanding will continue as one identical share of stock of the surviving
corporation after the merger and (iii) either (A) no shares of common stock
(or securities convertible into such shares) of the surviving corporation
are to be issued or delivered under the plan of merger or (B) the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger,
plus those initially issuable upon conversion of any other shares,
securities or obligations to be issued or delivered under the plan, do not
exceed 20 percent of the shares of common stock of such constituent
corporation outstanding immediately prior to the effective date of the
merger.
Both the SDBCA and the Delaware Law contain similar vote requirements
applicable to proposed sales of all or substantially all of a corporation's
assets and property outside the ordinary course of business.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. Section 203 of
the Delaware Law prohibits a publicly held corporation from engaging in a
"business combination" with an "interested stockholder" for a period of
three years from the time that such person becomes an "interested
stockholder," subject to certain exceptions as more fully described in
"THE MERGER--Statutory Provisions Affecting Control of DTG Delaware."
The SDBCA does not contain a similar provision. However, the SDBCA
does contain other provisions governing business combinations which are
not contained in Delaware Law. For a description of such provisions, see
"THE CONVERSION--Statutory Provisions Affecting Control of DTG."
DISSENTERS' AND APPRAISAL RIGHTS. Under both the SDBCA and the
Delaware Law, a stockholder of a corporation participating in certain major
corporate transactions such as mergers may, under varying circumstances, be
entitled to dissenters' or appraisal rights pursuant to which the
stockholder may receive cash in the amount of the fair value of the
stockholder's shares in lieu of the consideration the stockholder would
otherwise receive in the transaction. Under the Delaware Law, appraisal
rights are not available with respect to the sale, lease or exchange of all
or substantially all of the assets of a corporation. With respect to
mergers and consolidations, appraisal rights also are not available under
the Delaware Law as to shares that are either listed on a national
securities exchange or designated as a national market system security on
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The Nasdaq Stock Market or that are held of record by more than 2,000
holders if, in either case, the stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or designated as a national
market system security on The Nasdaq Stock Market or held of record by
more than 2,000 holders, plus cash in lieu of fractional shares.
In addition, appraisal rights are not available under the Delaware Law
to the stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger, such as where the plan of merger does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding prior to the merger is an identical share after the merger, and
the number of shares to be issued in the merger does not exceed 20 percent
of the shares of the surviving corporation outstanding immediately prior to
the merger and if certain other conditions are met.
The limitations on the availability of dissenters' rights under the
SDBCA are different from those under the Delaware Law. Shareholders of a
South Dakota corporation (such as DTG) have the right to dissent from, and
to receive payment for their shares in the event of certain transactions
to which the corporation is a party, including mergers, sales of all or
substantially all of the corporation's assets outside the ordinary course
of business and certain amendments to the corporation's articles of
incorporation that adversely affect the rights of the shareholders' shares.
The right to dissent does not apply to the shareholders of a corporation
surviving a merger if the vote of the shareholders of the surviving
corporation was not required to approve the merger. As discussed above,
shareholders of each South Dakota corporation involved in a merger
generally must approve the merger, except where one of the corporations
owns at least 90 percent of the outstanding stock of the other corporation
involved in the merger and the corporation owning such stock will be the
surviving corporation. Unlike the Delaware Law, the SDBCA does not provide
other exceptions from the right to dissent from certain transactions.
SIZE OF THE BOARD OF DIRECTORS. The Delaware Law permits the board of
directors of a Delaware corporation to change the authorized number of
directors by amendment to the corporation's bylaws or in the manner
provided in the bylaws. However, if the number of directors is set in the
corporation's certificate of incorporation, the number of directors may be
changed only by amending the certificate of incorporation. DTG Delaware's
Certificate does not fix the number of directors, except to say that the
number of directors shall be as fixed by a resolution of the Board of
Directors. DTG Delaware's Bylaws provide that the number of directors
shall not be less than three and shall be determined from time to time by
resolution of the Board of Directors. As a result, the Board of Directors
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of DTG Delaware may change the authorized number of directors without
stockholder approval by resolution. As discussed below, the SDBCA requires
that the board of directors consist of at least nine members before the
board can classify itself into different classes. The Delaware Law does
not contain such a requirement.
Under the SDBCA, the articles of incorporation or bylaws of a
corporation may fix the number of directors. However, the corporation's
articles of incorporation must establish the number of directors on the
corporation's initial board of directors. If the bylaws fix the number of
directors, the number of directors may thereafter be increased or decreased
from time to time by amendment to the bylaws. However, if the bylaws do
not set the number of directors, then the original designation in the
articles of incorporation control. The proposed Amended Articles of
Incorporation of DTG provide that the number of DTG directors shall be as
fixed in a bylaw but shall not be less than nine, provided that any
amendment to such a bylaw must be adopted by the affirmative vote of at
least 80 percent of the entire Board of Directors of DTG.
CUMULATIVE VOTING AND CLASSIFIED BOARD OF DIRECTORS. In an election
of directors under cumulative voting, each share of stock normally having
one vote is entitled to a number of votes equal to the number of directors
to be elected. A stockholder may cast all such votes for a single nominee
or may allocate the votes among as many nominees as the stockholder may
choose. Without cumulative voting, the holders of a majority of shares
present at an annual or special meeting held to elect directors would have
the power to elect all of the directors to be elected at that meeting and
no nominee could be elected without the support of a majority of the shares
voting at the meeting.
Under the Delaware Law, cumulative voting in the election of directors
is not mandatory. While Delaware corporations may include in their
certificate of incorporation a provision allowing for such cumulative
voting rights, DTG Delaware's Certificate of Incorporation does not permit
cumulative voting. Under the South Dakota Constitution and the SDBCA,
cumulative voting is a right for the shareholders of all corporations.
South Dakota corporations cannot eliminate cumulative voting in the
election of directors through their articles of incorporation, bylaws or
otherwise. As such, shareholders of DTG would be able to elect directors
by cumulative voting.
A classified board is one for which a certain number, but not all, of
the directors are elected on a rotating basis each year. A classified
board makes changes in the composition of the board of directors more
difficult and thus a potential change in control of a corporation more
difficult. The Delaware Law permits, but does not require, a classified
board of directors, divided into as many as three classes. DTG Delaware's
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Certificate of Incorporation provides that the Board of Directors is
classified into three classes. Thus, in any given year, only one-third of
the directors would be elected by the stockholders. A director elected to
the Board of Directors would serve a three-year term (unless earlier
removed as discussed below).
The SDBCA also permits a corporation with a board of directors
consisting of at least nine persons to divide its board of directors into
as many as three classes. The proposed Amended Articles of Incorporation
of DTG provide that DTG's Board is divided into three classes, each of
which will serve three-year terms.
REMOVAL OF DIRECTORS. Under the Delaware Law, a director of a
corporation generally may be removed, with or without cause, by the holders
of a majority of the shares entitled to vote at an election of directors.
However, unless the corporation's certificate of incorporation provides
otherwise, if the corporation's board of directors is classified, directors
may be removed only for cause. Also, in the case of a corporation having
cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against the
director's removal would be sufficient to elect the director if then
cumulatively voted at an election of the entire board of directors, or, if
there are classes of directors, at any election of the class of directors
of which the director is a part. DTG Delaware's Certificate of
Incorporation provides that directors may be removed only for cause. DTG
Delaware's Certificate does not provide for cumulative voting.
The SDBCA does not specifically provide for the removal of directors.
Under the proposed Amended Articles of Incorporation of DTG, subject to the
rights of any class of stock then outstanding, any director may be removed
from office, but only for cause and only by shareholder action. Generally,
the vote for removal must be by a majority of shares entitled to vote on
the election of directors. However, if less than the entire Board is to be
removed, no single director may be removed if the votes cast against his
removal would be sufficient to elect the director if then cumulatively
voted at an election of the class of directors of which the director is a
part. "Cause" for removal is only present in the circumstances specified
in the proposed Amended Articles of Incorporation of DTG. (See "THE
CONVERSION--Other Provisions Affecting Control of DTG.")
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under the Delaware Law,
vacancies may be filled by a majority of the directors then in office (even
though less than a quorum) unless otherwise provided in the corporation's
certificate of incorporation or bylaws. As permitted by the Delaware Law,
the DTG Delaware Certificate of Incorporation provides that vacancies shall
be filled by a majority of the directors then in office, subject to the
rights of the holders of any class or series of preferred stock then
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outstanding. In the case of a corporation (such as DTG Delaware) whose
board of directors is divided into classes, a newly appointed director
holds office for the remainder of the term of the director that the newly
appointed director replaced.
The Delaware Law also provides that if, at the time of filling any
vacancy, the directors then in office constitute less than a majority of
the board (as constituted immediately prior to any increase), the Delaware
Court of Chancery may, upon application of any holder or holders of at
least 10 percent of the total number of the shares at the time outstanding
having the right to vote for directors, summarily order a special election
to be held to fill any such vacancy or to replace directors chosen by the
board to fill such vacancies.
Under the SDBCA, any vacancy on the board of directors may be filled
by the affirmative vote of a majority of the remaining directors, though
less than a quorum. Each director elected to fill a vacancy is elected for
the unexpired part of the term of the person's predecessor.
INTERESTED DIRECTOR TRANSACTIONS. Under Delaware law, contracts or
transactions between a corporation and one or more of its directors, or
between a corporation and any other entity in which one or more of its
directors have a financial interest or are directors, are not void or
voidable simply because of such interest or because the director is present
at a meeting of the board which authorizes or approves the contract or
transaction, provided that either: (i) the material facts as to the
director's interest are disclosed to or known by the board (or committee)
and the board (or committee) in good faith authorizes the transaction by a
majority vote of "disinterested" directors; (ii) the stockholders approve
the contract or transaction in good faith after full disclosure of the
material facts relating to the director's interest; or (iii) the contract
or transaction was "fair" to the corporation at the time it was approved.
The SDBCA does not contain a similar provision.
DERIVATIVE SUITS. In Delaware, a stockholder may bring a derivative
action if the person was a stockholder at the time of the transaction in
question. A stockholder may not bring a derivative action unless the
stockholder first makes a demand on the corporation that it bring suit
and the corporation refuses, unless the demand would have been "futile."
Under the SDBCA, a shareholder-plaintiff in a derivative action must
allege in the complaint that the person was a shareholder at the time of
the transaction or that the person's shares devolved on the person
thereafter by operation of law. The complaint also must set forth the
efforts, if any, that the shareholder made to obtain the action the
shareholder desires from the directors and, if necessary, from the
shareholders, and the shareholder's reasons for the shareholder's failure
to obtain that action or not making the effort.
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POWER TO CALL SPECIAL STOCKHOLDERS' MEETING. Under the Delaware Law, a
special meeting of stockholders may be called by the board of directors or
by any other person authorized to do so in the certificate of incorporation
or the bylaws. The DTG Delaware Bylaws provide that special meetings may
be called by an executive officer of DTG Delaware whenever directed by the
Board of Directors.
Under the SDBCA, a special meeting of shareholders may be called by
the president, the board of directors, the holders of shares of not less
than 10 percent of the shares entitled to vote at such meeting or such
additional persons as are authorized by the articles of incorporation. The
proposed Amended Articles of Incorporation of DTG authorize any executive
officer of DTG to call a special meeting whenever directed by the Board of
Directors.
STATEMENT OF PURPOSE. Under the Delaware Law, a corporation's
certificate of incorporation may provide that the corporation is formed for
the purpose of engaging in any one or more lawful acts for which
corporations may be organized under Delaware law. The South Dakota
Constitution, however, provides that no corporation shall engage in any
business other than that expressly stated in its articles of incorporation.
INCREASE OF INDEBTEDNESS. Under the South Dakota Constitution and
the SDBCA, a corporation may not increase its indebtedness without first
obtaining approval of the shareholders at a meeting held after not less
than 60-days notice. The Delaware Law does not contain a similar
provision. The proposed Amended Articles of Incorporation of DTG provide
that DTG may incur up to $100,000,000 in debt without the necessity of
seeking shareholder approval.
LOANS TO NON-EMPLOYEE DIRECTORS. Under the SDBCA, a corporation may
not lend money or use its credit to assist a director who is not also an
employee of the corporation without shareholder approval. The Delaware Law
does not contain a similar provision.
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATION OF LIABILITY. The SDBCA and the Delaware law permit
corporations to adopt a provision in their articles or certificate
of incorporation eliminating, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty as a director. Under
the Delaware Law, a corporation may not eliminate or limit director
monetary liability for (i) breaches of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law,
(iii) unlawful dividends, stock repurchases or redemptions, or (iv)
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transactions from which the director received an improper personal benefit.
This provision also may not limit a director's liability for violation of,
or otherwise relieve a corporation or its directors from the necessity of
complying with, federal or state securities laws, or affect the
availability of non-monetary remedies such as injunctive relief or
rescission. DTG Delaware's Certificate of Incorporation contains a
provision stating that directors shall not be personally liable for
monetary damage to the corporation, except to the extent required by the
Delaware Law.
The SDBCA does not permit the elimination of monetary liability where
such liability is based on: (i) a breach of the director's duty of loyalty
to the corporation or its shareholders for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law; (ii) improper dividends or distributions, unauthorized purchases of
shares, improper loans or commencing business before the corporation
obtains its minimum capital; or (iii) any transaction from which the
director derived an improper personal benefit. The proposed Amended
Articles of Incorporation of DTG eliminate the liability of directors to
DTG to the full extent permissible under the SDBCA.
INDEMNIFICATION. South Dakota and Delaware have similar laws
respecting indemnification by a corporation of its directors, officers,
employees and other agents. There are nonetheless certain differences
between the laws of the two states.
The Delaware Law generally permits indemnification of expenses
incurred in the defense or settlement of a derivative or third-party
action, provided that there is a determination by a majority vote of
disinterested directors (even though less than a quorum) or, if there are
no such directors, or if such directors so direct, by independent legal
counsel in a written opinion or by the stockholders, that the person
seeking indemnification acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to a criminal proceeding, which the person
had no reasonable cause to believe the person's conduct was unlawful.
Without court approval, however, no indemnification may be made in respect
of any derivative action in which the person is adjudged liable to the
corporation. The Delaware Law requires indemnification of expenses when
the individual being indemnified has successfully defended the action on
the merits or otherwise. DTG Delaware's Certificate of Incorporation
provides that directors and executive officers shall be indemnified to the
full extent provided by the Delaware Law. As to other persons who are not
directors or executive officers but who may be eligible for
indemnification, the Certificate of Incorporation provides that such
persons may be indemnified by DTG Delaware to the extent permissible by
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law and the Certificate and authorized by the Board of Directors. The
Certificate further provides that DTG Delaware may purchase and maintain
insurance to cover such expenses, whether or not indemnification would be
permissible under the Delaware Law in the absence of insurance.
Like the Delaware Law, the SDBCA permits indemnification of expenses
incurred in derivative or third-party actions, except that with respect to
derivative actions, no indemnification may be made when a person is
adjudged liable to the corporation for negligence or misconduct in the
performance of that person's duty to the corporation, unless a court
determines that the person is entitled to indemnity for expenses in view of
all the circumstances, and then indemnification may be made only to the
extent that the court determines.
Indemnification is permitted by the SDBCA only for acts that the
person seeking indemnification in good faith believed to be in the best
interests of the corporation and its shareholders, and with respect to a
criminal proceeding, that the person had no reasonable cause to believe the
person's conduct was unlawful, as determined by a majority vote of a quorum
of disinterested directors, independent legal counsel in a written opinion
(whether or not a quorum of disinterested directors is obtainable) or by
the shareholders. Indemnification of expenses is required when the
individual has successfully defended the action on the merits. The
proposed Amended Articles of Incorporation of DTG contain a clause that
directors and executive officers shall be indemnified to the full extent
provided by law and that other persons who are not directors or executive
officers but who may be eligible for indemnification may be indemnified by
DTG to the extent permissible by law and the Articles and authorized by the
Board of Directors.
It is intended that DTG Delaware would enter into an Indemnity
Agreement with each of its directors and executive officers effective upon
consummation of the Merger, which may provide rights additional to those
that would be provided by the Delaware Law or DTG Delaware's Certificate of
Incorporation or Bylaws (See "INDEMNITY AGREEMENTS.")
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of DTG and DTG Delaware pursuant to the foregoing provisions, or
otherwise, DTG and DTG Delaware have been advised in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of the federal income tax consequences
resulting from the Merger. The Cooperative, on behalf of DTG, and DTG
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Delaware have not requested a private letter ruling from the Internal
Revenue Service as to the federal income tax consequences of the Merger,
and thus there can be no assurance that the transaction would constitute a
tax-free exchange for federal income tax purposes. However, the
Cooperative has requested and received the opinion of Olsen Thielen & Co.,
Ltd. as to the federal income tax consequences of the Merger.
In particular, Olsen Thielen & Co., Ltd. has advised the Cooperative
that the merger of DTG with and into DTG Delaware would constitute a
reorganization within the meaning of Section 368(a)(1)(F) of the Code, and
each corporation would be a "party to a reorganization" within the meaning
of Section 368(b) of the Code, and that:
(i) No gain or loss would be recognized to DTG Delaware
upon receipt of the assets of DTG in exchange for the DTG
Delaware Common Stock and the assumption by DTG Delaware of the
liabilities of DTG;
(ii) The basis of the assets of DTG in the hands of DTG
Delaware would be the same as the basis of those assets in the
hands of DTG immediately prior to the Merger;
(iii) The holding period of the assets of DTG Delaware would
include the holding period of those assets in the hands of DTG
immediately prior to the Merger;
(iv) No gain or loss would be recognized by the shareholders
of DTG upon the exchange of their rights to receive shares of DTG
Common Stock for shares of DTG Delaware Common Stock;
(v) The basis of DTG Delaware Common Stock to be received
by shareholders of DTG would be the same as the basis of the
rights to receive shares of DTG Common Stock surrendered in the
Merger; and
(vi) The holding period of the DTG Delaware Common Stock
received by shareholders of DTG would include the holding period
of the rights to receive shares of DTG Common Stock surrendered
in the Merger.
EACH SHAREHOLDER OF DTG SHOULD CONSULT A PROFESSIONAL TAX ADVISER ON
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER. THE TAX AND OTHER MATTERS DESCRIBED IN THIS PROSPECTUS AND
BALLOT/PROXY STATEMENT DO NOT CONSTITUTE LEGAL OR TAX ADVICE.
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ACCOUNTING TREATMENT
The Merger would be accounted for as a capital restructuring.
Therefore, the Merger would not affect the valuation of the assets or
liabilities of DTG in the hands of DTG Delaware, nor would DTG Delaware
record any income or expense as a result of the Merger.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited PRO FORMA condensed consolidated balance sheet
as of December 31, 1996 and the unaudited PRO FORMA condensed consolidated
statement of operations for the year ended December 31, 1996, include
operations of the Cooperative and TCIC and Iway as if acquisition of
these companies had occurred on January 1, 1996. The unaudited PRO FORMA
condensed consolidated financial statements also give effect to the
Conversion or the Conversion and the Merger. The PRO FORMA information
is based on the historical financial statements of the Cooperative, giving
effect to the proposed Conversion or the Conversion and the Merger. The
PRO FORMA financial information for the Resulting Company will be identical
if only the Conversion is adopted or if both the Conversion is adopted and
the Merger is approved. The PRO FORMA financial information gives effect
to the Conversion or the Conversion and the Merger as if the Conversion
or the Conversion and the Merger occurred on January 1, 1996.
The PRO FORMA financial statements were prepared using a conversion
ratio of one share of Resulting Company common stock for each share of
Cooperative Common Stock, 80.8216445 shares of Resulting Company common
stock for each share of Preferred Stock and 0.2 of a share of Resulting
Company common stock for each Capital Credit. All PRO FORMA share and per
share information was calculated assuming the issuance of 1,046,505 shares
of Resulting Company common stock in the Conversion and/or the Merger and
assuming no shareholder of DTG asserts dissenters' rights in connection
with the Merger. These numbers have been rounded for convenience of
presentation.
The PRO FORMA financial statements may not be indicative of the
results that actually would have occurred if the acquisitions and the
Conversion or the Conversion and the Merger had been in effect on the dates
indicated or which may be attained in the future. The PRO FORMA financial
statements should be read in conjunction with the financial statements and
notes thereto of the Cooperative included as Appendix G to this Prospectus
and Ballot/Proxy Statement. No historical financial statements of DTG are
included in this Prospectus and Ballot/Proxy Statement since DTG would be
the successor entity to the Cooperative if the Conversion is adopted and
does not exist as an entity separate from the Cooperative. No historical
financial statements of DTG Delaware are included in this Prospectus and
Ballot/Proxy Statement since DTG Delaware has no significant assets or
liabilities and has had no operating history.
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<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
===========================================================================
ASSETS
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION ACQUISITION CONVERSION CONVERSION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,121,444 $ $ 2,121,444 $ $ 2,121,444
Temporary Cash Investments 1,249,000 1,249,000 1,249,000
Accounts Receivable, Net 1,784,895 1,784,895 1,784,895
Deposit 274,889 274,889 274,889
Income Taxes Receivable 248,500 248,500 248,500
Materials and Supplies 694,097 694,097 694,097
Prepaid Expenses 168,078 168,078 168,078
----------- --------- ----------- ----------- -----------
Total Current Assets 6,540,903 -- 6,540,903 -- 6,540,903
----------- --------- ----------- ----------- -----------
INVESTMENTS AND OTHER ASSETS:
Excess of Cost Over Net Assets
Acquired 1,830,959 1,830,959 1,830,959
Other Intangible Assets 509,559 509,559 509,559
Deposits 61,905 61,905 61,905
Other Investments 63,817 63,817 63,817
Deferred Charges 56,628 56,628 56,628
----------- --------- ----------- ----------- -----------
Total Investments and Other
Assets 2,522,868 -- 2,522,868 -- 2,522,868
----------- --------- ----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 14,441,104 14,441,104 14,441,104
----------- --------- ----------- ----------- -----------
TOTAL ASSETS $23,504,875 $ -- $23,504,875 $ -- $23,504,875
=========== ========= =========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term
Debt $ 697,700 $ $ 697,700 $ $ 697,700
Accounts Payable 399,694 399,694 399,694
Other Current Liabilities 497,388 497,388 497,388
----------- --------- ----------- ----------- -----------
Total Current Liabilities 1,594,782 -- 1,594,782 -- 1,594,782
----------- --------- ----------- ----------- -----------
LONG-TERM DEBT 15,338,395 -- 15,338,395 -- 15,338,395
----------- --------- ----------- ----------- -----------
DEFERRED CREDITS 159,482 -- 159,482 -- 159,482
----------- --------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, No Par Value 5,930,908 5,930,908
Common Stock 26,185 26,185 (26,185) --
Preferred Stock 1,172,000 1,172,000 (1,172,000) --
Capital Credits 4,732,723 4,732,723 (4,732,723) --
Retained Earnings 481,308 481,308 481,308
----------- --------- ----------- ----------- -----------
Total Stockholders' Equity 6,412,216 -- 6,412,216 -- 6,412,216
----------- --------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $23,504,875 $ -- $23,504,875 $ -- $23,504,875
=========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed consolidated financial statements.
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<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
YEAR ENDED DECEMBER 31, 1996
===========================================================================
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION ACQUISITION CONVERSION CONVERSION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 7,808,842 $1,665,336 $ 9,474,178 $ -- $ 9,474,178
----------- ---------- ----------- ----------- -----------
COSTS AND EXPENSES 7,730,992 1,934,514 9,665,506 -- 9,665,506
----------- ---------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 77,850 (269,178) (191,328) -- (191,328)
----------- ---------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest and Dividend Income 309,982 -- 309,982 309,982
Interest Expense (723,778) (187,314) (911,092) (911,092)
----------- ---------- ----------- ----------- -----------
Net Other Income (Expenses) (413,796) (187,314) (601,110) -- (601,110)
----------- ---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (335,946) (456,492) (792,438) (792,438)
INCOME TAX EXPENSE (BENEFIT) (175,712) -- (175,712) (101,288) (277,000)
----------- ---------- ----------- ----------- -----------
NET INCOME (LOSS) $ (160,234) $ (456,492) $ (616,726) $ (101,288) $ (515,438)
=========== ========== =========== =========== ===========
NET LOSS PER SHARE $ (.49)
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed consolidated financial statements.
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DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
===========================================================================
ACQUISITION
The historical consolidated balance sheet includes the acquisition of
TCIC Communications, Inc. and I-Way Partners, Inc. as of December 1, 1996.
The unaudited pro forma acquisition condensed consolidated statement
of operations includes the following adjustments to reflect the acquisition
of TCIC Communications, Inc. and I-Way Partners, Inc. assuming the
acquisition was consummated on January 1, 1996.
(1) Operations of TCIC Communications, Inc. and I-Way Partners, Inc. for
the period prior to their acquisition (the eleven months ended
November 30, 1996).
(2) Additional amortization of the excess of cost over net assets acquired
resulting from the acquisitions.
CONVERSION
The unaudited pro forma conversion condensed consolidated balance
sheet reflects the exchange of existing common stock, preferred stock and
capital credits for new shares of common stock assuming the conversion was
consummated on December 31, 1996.
The unaudited pro forma conversion condensed consolidated statement of
operations reflects a provision for income taxes using a 35% effective
rate.
The PRO FORMA per share loss was computed by dividing the PRO FORMA
net loss by the PRO FORMA number of shares of common stock outstanding
(1,046,505 shares).
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DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
The following description of Dakota Cooperative Telecommunications,
Inc. (the "Cooperative") should be considered carefully in evaluating the
Cooperative and its business which will be assumed by the Resulting Company
if either the Conversion is consummated or if both the Conversion and the
Merger are consummated. In this Prospectus and Ballot/Proxy Statement, the
term "Company" means the Cooperative and its subsidiaries before the
Conversion, DTG and its subsidiaries after the Conversion and DTG Delaware
and its subsidiaries after the Conversion and the Merger.
The Private Securities Litigation Reform Act of 1995 (the "Reform
Act") provides a "safe harbor" for forward-looking statements. Certain
information included under this caption, particularly the subheadings
"Business," "Competition," "Regulation" and "Management's Discussion and
Analysis or Plan of Operation," may constitute or include forward-looking
statements under the Reform Act, such as information relating to the
Company's 1997 development plans and the effects of future regulation and
competition. Such forward-looking information involves important known
and unknown risks and uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to, uncertainties relating to
economic conditions, acquisitions and divestitures, government and
regulatory policies, the pricing and availability of equipment,
materials, inventories and programming, technological developments and
changes in the competitive environment in which the Company operates.
Members and holders of Preferred Stock and Capital Credits are cautioned
not to place undue reliance on the forward-looking statements made in this
Prospectus and Ballot/Proxy Statement, which speak only as of the date
hereof. See "RISK FACTORS" for a description of specific risks
applicable to the Company.
BUSINESS
The Cooperative was incorporated as a stock cooperative in South
Dakota on April 3, 1952, and has operated since that date at its current
location. The Cooperative was formed to consolidate several small
independent telephone companies in Southeastern South Dakota. The
Cooperative and its predecessors have been engaged in the
telecommunications business since 1903. From the date of formation through
1979, the Cooperative operated principally as a telephone company. Today
the Cooperative continues these operations and has expanded into cable
television and other related telecommunications services. In 1979, the
Cooperative expanded into CATV by building cable systems in its local
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markets. In the mid-1980s, the Cooperative expanded into the cellular
market through partnerships with cellular companies serving the
Cooperative's market area. The Cooperative sold its rural cellular
operations in 1994 and its Sioux Falls, South Dakota operations in 1995,
in an effort to focus on new personal communication service ("PCS")
technology. The Cooperative expanded its cable operations in 1995 and
1996, and further expanded with the acquisitions in 1996 of TCIC
(long distance and operator services) and Iway (Internet services),
as described below.
Today, the Company is a diversified telecommunications services
company. The Company provides wireline local and network access service,
long distance telephone service, operator-assisted calling service,
telecommunications equipment sale and leasing services, cable television
service and Internet access and related services.
The Company's local exchange services in South Dakota provide a
majority of the Company's revenues and income. In 1996, the Company made
the strategic decision to expand its operations into related
telecommunications businesses, including expansion of its cable television
services. During 1996, the Company acquired 19 additional cable television
systems. In December 1996, the Company, through a wholly owned subsidiary,
merged with TCIC, a South Dakota-based provider of long distance and
operator services. Also in December 1996, in a similar transaction, a
wholly owned subsidiary of the Company merged with Iway, South Dakota's
largest Internet service provider. Both TCIC and Iway continue to operate
as wholly owned subsidiaries of the Company. The Company intends to
continue to explore expansion through strategic acquisition and business
alliances in an effort to facilitate the growth of the Company.
The telecommunications services industry is in the process of
substantial change, providing significant opportunities and risks to its
participants. Evolving and newly-developed technology, emerging
significant competition in the market for long distance and local
telecommunications services, as well as the increasing desire of customers
to have a majority or all of their various communication needs fulfilled by
one supplier, are causing many companies, including the Company, which
offer services primarily in one part of the communication services market
to seek to offer, either directly or through alliances with others, new
services to complement their primary services offerings.
A key growth strategy for the Company is to provide integrated
telecommunications services for its customers. These integrated services
include long distance, wireless, cable television, data and local telephone
service, as well as selected products and services that the Company will
remarket to customers as a single source provider. The Company is in the
process of substantially upgrading its network and supporting facilities to
provide these integrated telecommunications services. The Company is
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committed to attempting to grow through expansion of its existing
businesses, the development of value-added products and services and
selected acquisitions, although there can be no assurance that the Company
will be successful in attaining the profitable growth that is desired.
(See "RISK FACTORS.").
The principal executive offices of the Company are located at 29705
453rd Avenue, Irene, South Dakota 57037-0066. The telephone number is
(605) 263-3301.
TELECOMMUNICATIONS INDUSTRY OVERVIEW. From the formation of the
telephone industry in the late 1800s until the breakup of AT&T in 1984, the
telecommunications industry was largely dominated by AT&T through its
ownership and operation of the Bell operating companies. Rural areas which
provided little market share for AT&T were left to be served by small
independent telephone companies like the Company and its predecessors. In
1984, the structure of the industry was significantly changed by the AT&T
divestiture decree, which required the divestiture by AT&T of its 22 Bell
operating companies and divided the country into 201 LATAs (the "AT&T
Divestiture Decree"). The Bell operating companies were combined into
seven Regional Bell Operating Companies ("RBOCs") and were permitted to
provide local telephone service, local access service to long distance
carriers and long distance ("intra-LATA") service within the LATAs.
However, the Bell operating companies were prohibited from providing
inter-LATA long distance service, or service between LATAs.
The AT&T Divestiture Decree had a profound effect on the long distance
portion of the telecommunications industry in the United States. To
encourage competition in the long distance market, the AT&T Divestiture
Decree and certain FCC regulations require most LECs to provide carriers
with access to local exchange service that is "equal in type, quality and
price" to that provided by AT&T and to allow customers to select their
preferred long distance service provider. As a result, a large number of
companies specializing in long distance services entered the market.
For each long distance call, the originating and terminating LECs
charge an access fee to the long distance carrier. The long distance
carrier charges its customers a fee for its transmission of the call, a
portion of which covers the cost of the access fees charged by the LECs.
Access charges represent a significant portion of the Company's gross
revenues from its local exchange operations as well as a significant
portion of the Company's cost of providing long distance services.
Generally, the FCC and the states regulate such access charges. The FCC
has undertaken a comprehensive review of its regulation of LEC access
charges to better account for increasing levels of local competition.
(See "RISK FACTORS--Regulatory and Legislative" and "DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.--Regulation.")
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In 1996, President Clinton signed the 1996 Act. The 1996 Act
significantly changed the telecommunications industry by (among other
things) removing certain of the restrictions concerning the provision of
long distance service by the RBOCs. The RBOCs, however, are required
to obtain specific FCC approval and satisfy other conditions, including
a checklist of interconnection and other requirements applicable to
LECs, prior to providing long distance service in the regions in which
the LECs provide local exchange service. (See "RISK FACTORS--
Competition" and "--Regulatory and Legislative.") In addition, the 1996
Act opened local service telecommunications markets to competition by
preempting state and local laws to the extent that such laws prevent
competition in the provision of any telecommunications service, and by
imposing a variety of new duties on LECs to promote competition in local
exchange services. Among other requirements, all LECs, including the
Company, are required, on a non-discriminatory basis, to permit resale of
their telecommunications services without unreasonable restrictions or
conditions. The law and its accompanying regulations will enable the
Company, upon receipt of all necessary regulatory approvals, to resell
local telecommunications services in exchanges outside of the Company's
traditional service territories in addition to its existing long distance
services. The bases upon which such local services will be available to
carriers such as the Company for resale are to be determined in proceedings
of various state public utilities commissions. The Company believes that
the opening of the local telecommunications services market to resellers
provides the Company with significant growth opportunities while posing a
much smaller threat in its small rural local exchanges.
BUSINESS STRATEGY. The Company's business strategy is to attempt to
achieve continued growth by developing and marketing a broad array of
competitively priced telecommunications services. The Company's primary
objectives in pursuing this strategy are to:
(i) develop new and enhanced products and services through
upgrading the Company's existing network and expanding such
network, where feasible, into new markets. The Company is in the
process of substantially rebuilding its existing network
infrastructure, a process which it currently anticipates will be
completed in late 1997;
(ii) expand the Company's sales and marketing activities by
increasing its advertising and promotional activities and
enlarging its sales force to include direct and independent sales
representatives and telesales marketing agents who would target
commercial and residential accounts. The Company intends to
supplement its sales force by rebuilding its customer support
functions, enhancing its strong field service operations and
improving its direct billing capabilities; and
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(iii) expand its revenue base through selected acquisitions
of companies and facilities in the telecommunications and cable
television industries and other related industries.
There can be no assurance that the Company will be successful in
implementing its business strategy or attaining the profitable growth that
is desired. (See "RISK FACTORS.")
LOCAL TELECOMMUNICATIONS SERVICES. The Company's local
telecommunications services are provided directly by the Company. As of
December 31, 1996, the Company provided services to approximately 6,000
access lines located in nine counties in Southeastern South Dakota. The
Company's service area is generally rural, covering approximately 1,100
square miles, with an average of 5.4 access lines per square mile. The
Company is classified as a "rural company" under the 1996 Act and receives
Universal Service Fund monies, although such funds constituted less than
two percent of the Company's gross revenues in 1996.
The Company's local telecommunications services include: (i) local
dial tone; (ii) local private line and public telephone services (including
dial tone service for pay telephones owned by the Company and other pay
phone providers); (iii) data transmission services; (iv) the sale,
installation and maintenance of customer premise equipment; and (v) related
services such as directory listing services. In connection with the
Company's continuing strategy to provide a greater selection of value-added
products, the Company has also introduced advanced services such as Caller
ID, distinctive ringing, call waiting, call forwarding and three-way
calling. The Company also introduced its new Distance Learning program,
which the Company currently anticipates by the end of 1997 will link 14
local schools with the University of South Dakota's School of Education to
allow these local schools to share interactive televised classroom
sessions. The Company desires to implement a similar system to link
hospitals and medical clinics throughout rural communities in Southeastern
South Dakota.
In addition to providing local telephone service, the Company also
provides network access services to interexchange carriers IXCs.
Network access service refers to the link provided by LECs between a
customer's premises and the transmission facilities of other
telecommunications carriers, generally inter-LATA long distance carriers.
Examples of exchange access services include switched access and special
access services. Network access revenues are billed directly to long
distance carriers based on the number of conversation minutes generated by
their customers located in the Company's exchanges. The interstate portion
of these revenues is based on switched, common-line and special access
tariffs approved by the FCC. The tariffs imposed by the FCC include end-
user access charges to residential and business customers. State access is
based on similar rate structures that are subject to approval by the South
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Dakota Public Utilities Commission. Unlike many LECs, the Company does not
provide billing or collection services for interexchange long distance
carriers operating in the Company's local exchanges.
In addition to its current local service business, the Company also is
attempting to position itself to resell local exchange services in
exchanges where it currently does not operate. The Company has filed in
South Dakota, and currently intends in the future to file applications with
the public utilities commissions in several states, seeking authorization
to resell local exchange telecommunications products and services. As of
December 31, 1996, the Company has obtained local exchange resale
authorization in South Dakota. The Company currently anticipates that it
will have filed applications for authorization to resell local exchange
telecommunications services and products in a number of states surrounding
South Dakota by the end of 1997. There can be no assurance that the public
utilities commissions in other states will authorize the Company to resell
local exchange telecommunications services and products in those states.
Local service, including network access services, has historically
been the Company's core business. In 1996, revenues from local services
were approximately $4.3 million, representing approximately 55 percent of
the Company's aggregate revenues. The Company currently anticipates that
these revenues will continue to account for a substantial portion of the
Company's revenues in the future, subject to possible regulatory change.
(See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.") Although
network bypass and alternative local access telephone service providers are
potential competitive threats to the Company, no significant competition
has occurred to date.
LONG DISTANCE TELECOMMUNICATION SERVICES. The Company provides a wide
range of long distance telecommunications services to both residential and
commercial customers. These services include: (i) basic long distance
calling service; (ii) voice and data services; (iii) dedicated private line
services; (iv) collect calling, operator assistance and calling card
services, including prepaid calling cards; (v) toll free or 800 services;
and (vi) switched and dedicated Internet access services. The Company
offers these services individually and in combinations. Through combined
offerings, the Company is able to provide customers with added benefits
such as single billing, unified services for multi-location companies and
customized calling plans.
The Company operates its own switches, develops and implements its own
products, monitors and deploys its transmission facilities and prepares and
designs its own billing and reporting systems. All of the Company's
customers are identified by their telephone number, dedicated trunk or
validated access code, and have a rating which is used to determine the
price per minute that they pay on their outbound or inbound long distance
calls. Rates typically vary by the type of service, the volume of usage,
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the distance of the calls, the time of day that calls are made, the region
that originates the call and whether the product is being provided on a
promotional basis. In 1996, long distance revenues were approximately
$1,900,000, representing 24 percent of the Company's gross revenues. The
Company anticipates that its long distance revenues will grow significantly
in 1997, primarily as a result of its acquisition of TCIC in December 1996.
The Company provides long distance services in various ways. For
customers located in the Company's local South Dakota exchanges, long
distance services are provided primarily by the Company as part of its
local service. For customers located outside of the Company's local
exchanges or using operator assisted services, all long distance services
are provided by TCIC, the Company's wholly owned subsidiary. Currently
TCIC is authorized to sell long distance services in North Dakota, South
Dakota, Iowa, Nebraska, Minnesota, Montana and several other states.
However, most of the Company's long distance revenues are derived from
South Dakota. Internet long distance services are provided by Iway.
WIRELESS SERVICES. The Company intends to expand its existing
telecommunications services by providing PCS. PCS is, from a customer
standpoint, similar to existing cellular radio services ("cell phones").
The primary difference between PCS and cell phones is that PCS is a
digital service rather than analog service (although current cellular
providers are moving to digital service as well) using different
technology and a different licensed portion of the frequency spectrum.
The FCC has, between December 1994 and January 1997, auctioned six
blocks of frequency for PCS which will compete with the two existing
cellular licensees in each of the FCC-designated markets.
On December 13, 1996, the FCC adopted rules to permit geographic
partitioning and spectrum disaggregation for all broadband PCS licensees.
These rules will give the existing licensees and potential new entrants
greater flexibility to determine how much spectrum they will need for the
geographic areas in which they provide service. The Company has entered
negotiations with the winners of the A- and B-Block auctions for the
Minneapolis, Minnesota and the Des Moines, Iowa Major Trade Areas ("MTA")
to partition or disaggregate portions of the blocks that cover areas of
interest to the Company in Southeastern South Dakota, Northwestern Iowa and
Southwestern Minnesota. These negotiations have not reached a definitive
point, and there are no existing financial or other commitments between the
parties.
The Company has an agreement to share frequency with US WEST Wireless
for participation in the PCS D- and E-Block auction. This auction
concluded on January 14, 1997, with US WEST Wireless being the successful
bidder on BTA-421 (Sioux City) for the E-Block at $2.44 per population
point. The Company's agreement covers 104,900 population points in the
Company's area of interest in Southeastern South Dakota and Northwestern
Iowa outside of the municipal boundaries of Sioux City. This amounts to a
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commitment of $255,956 for the Company's share of the population points and
of the license. The Company has made an escrow deposit with US WEST
Wireless of $61,905, all of which is available for, and will be applied to,
the bid commitment. The Company has entered negotiations with US WEST
Wireless for additional portions of the BTA, but there is no assurance that
these negotiations will be successful for the Company.
Currently, there are no active PCS operations in the Company's
markets. The two cellular companies that cover the Company's market are
Western Wireless, Inc. d/b/a Cellular One and CommNet. Since there will
be six PCS licensees competing with two established cellular licensees in
each market area, the Company expects the wireless service market to be
highly competitive. The Company initially plans to focus on the use of its
PCS services to provide fixed wireless services in its existing markets and
surrounding areas, and to use the wireless services as a complement and
supplement to other services offered by the Company. The Company has not
yet established its final PCS development plan. There can be no assurance
that the Company will be able to make wireless services a profitable part
of its overall business.
The Company had an interest in the Sioux Falls Cellular Limited
Partnership ("SFLP") together with several other independent telephone
companies and CommNet Cellular, Inc. ("CommNet") of Englewood, Colorado.
The Company had a nine percent limited partnership interest, and a 20
percent interest in Dakota Systems, Inc. ("DSI"), a South Dakota
corporation which in turn held a four percent minority general partner
interest in SFLP. In 1995, the Company sold, at a substantial gain over
its initial investment, its entire interest in SFLP and in DSI to the
remaining partners and shareholders of DSI. The Company's decision to sell
its interest was influenced by (i) the limited control and influence
available because of the structure of the limited partnership and (ii)
Dakota's decision to focus on new technology and new markets, including
PCS.
INTERNET SERVICES. The Company is the largest provider of Internet
services in South Dakota. The Company provides a wide range of Internet
services including Internet access options (both dial-up and dedicated),
Web page development and hosting services, Internet applications
development and training and consulting services to businesses,
professionals and other on-line services providers. As of December 31,
1996, the Company hosted 93 Web sites with an additional 10 sites under
development. The Company estimates that its access services are used by
approximately 4,100 users.
In December 1994, Iway started its Internet operations, which the
Company purchased in December 1996. Iway operates as a wholly owned
subsidiary of the Company. The Company anticipates that in the future it
may attempt to consummate additional acquisitions to expand its Internet
service base.
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The Internet is a global collection of computer networks cooperating
to enable commercial organizations, educational institutions, government
agencies and individuals to communicate electronically, access and share
information and conduct business. The Internet originated with the
ARPAnet, a restricted network started in 1969 by the United States
Department of Defense Advanced Research Projects Agency to provide
efficient and reliable long distance data communications among the
disparate computer systems used by government-funded researchers and
organizations. Unlike other public and private telecommunications networks
that are managed by businesses, government agencies and other entities, the
Internet is a cooperative interconnection of many such public and private
networks. The networks that comprise the Internet are connected in a
variety of ways, including public switched telephone network and high-
speed, dedicated leased lines. Communications on the Internet are enabled
by TCP/IP, an Internet-working standard that enables communications across
the Internet regardless of the hardware and the software used.
Recent technological advances, including increased microprocessor
speeds and the development of easy-to-use graphic interfaces, combined with
cultural and business changes, have led to the Internet being integrated
into the activities of a multitude of individuals and the operations and
strategies of numerous business organizations. For example, a growing
number of employees within organizations have access to corporate networks,
thereby increasing the amount of electronic communication both within and
between organizations. In addition, the rapid growth of the installed base
of home personal computers equipped with communication devices such as
modems has created the ability to communicate electronically from home.
These technological and business trends have led to an increase in the
number of on-line services and Internet access providers.
More recently, the development of World Wide Web ("Web")technology and
associated easy-to-use software has made the Internet easier to navigate
and more accessible to a larger number of users and for a broader range of
applications. While there has been significant media interest in the use
of the Internet by consumers, business and professional organizations
currently represent a more significant percentage of Internet use. These
organizations increasingly are recognizing that the Internet can enhance
communications, both among their geographically distributed locations and
employees, and with their business partners and customers. In addition,
businesses are realizing that the Internet can enable many applications
which were previously unavailable or cost-prohibitive. For example, small
and medium-sized businesses can establish and maintain a global presence
and market and distribute their products and services electronically.
Despite the growing interest in the many commercial uses of the
Internet, the Company believes that many businesses, especially small
businesses, have been deterred from purchasing Internet access services for
a number of reasons, including: (i) inconsistent quality of service; (ii)
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lack of availability of cost-effective high-speed options; (iii) limited
number of local access points for corporate users and customers; (iv)
inability to integrate business applications on the Internet; (v) need to
deal with multiple and frequently incompatible vendors; (vi) inadequate
protection of the confidentiality of stored data and information moving
across the Internet; and (vii) lack of tools to simplify Internet access
and use.
To address the needs of small businesses in South Dakota and
surrounding states, the Company offers a comprehensive range of Internet
access options, applications, training and consulting services tailored to
meet the needs of small and medium-sized businesses and their customers.
The products and services provided by the Company include dial-up and
dedicated access, Web page development, Web page hosting, client software
and security products and training. This array of products and services
enables Internet users to purchase access, applications and services,
including integration services, through a single source. The Company's
products and services are supported by a technical staff that it believes
is highly experienced in Internet operations and services, especially as
they relate to small businesses. The Company's objective is to continue to
develop and market value-added Internet services in the smaller markets in
South Dakota and the surrounding states. Rates for the Company's Internet
services vary depending on the type and range of service options.
CABLE TELEVISION SERVICES. Through its subsidiaries, the Company owns
and operates 26 cable television systems located in Southeastern South
Dakota, Northwestern Iowa and Southwestern Minnesota ranging in capacity
from 300 to 750/MHZ. These systems provide service to approximately 5,500
subscribers. No single community accounts for more than 12 percent of the
Company's total basic CATV subscribers. The Company believes that this
geographic diversity reduces its exposure to adverse economic, competitive
and regulatory factors in any particular community. The Company has been
engaged in the cable television business since 1979. In 1996, as part of
its expansion strategy, the Company acquired 19 of its total cable
television systems, accounting for approximately 3,600 of the 5,500 current
subscribers. The Company anticipates that in the future it may attempt to
consummate additional acquisitions to expand its customer base and service
markets.
Cable television systems receive video, audio and data signals
transmitted by nearby television and radio broadcast stations, terrestrial
microwave relay services and communications satellites. Such signals are
then amplified and distributed by coaxial cable and optical fiber to the
premises of customers who pay a monthly fee for the service. The Company
does not hold any dedicated spectrum licenses issued by the FCC related to
its cable television operations, although the Company does hold all other
necessary licenses to operate its systems. The number of channels provided
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by the Company varies by service area. The sources of the Company's cable
television programming consist of the signals received from national
television networks, local and other independent television stations that
operate in or near to the Company's service areas, satellite-delivered
non-broadcast channels and public service channels and announcements.
The Company provides programming to its subscribers pursuant to
contracts with programming suppliers. The Company generally pays a flat
monthly fee per subscriber for programming on its basic and premium
services. A number of programming suppliers provide volume discount
pricing structures and/or offer marketing support to the Company through
the Company's participation in a purchasing pool with other small cable
system operators. The Company's programming contracts generally are for
fixed periods of time ranging from three to 10 years and are subject to
negotiated renewal. The costs to the Company to provide cable programming
have increased in recent years and are expected to continue to increase due
to additional programming being provided to basic subscribers, increased
costs to produce or purchase cable programming, inflationary increases and
other factors. Effective in May 1994, the FCC's rate regulations under the
1992 Cable Act permitted operators to pass through to customers increases
in programming costs in excess of the inflation rate. Management believes
that the Company will continue to have access to programming services at
reasonable price levels, although there can be no assurance that the
Company can in the future maintain its access at reasonable price levels.
(See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.")
Monthly fees for cable services vary depending on the nature and type
of service. The Company offers a basic cable service package (primarily
comprised of local broadcast signals, popular national satellite channels
and public, educational and governmental access channels) and premium movie
channels. The monthly fee for basic service generally ranges from $17.95
to $22.74 depending on the number of channels offered, and the monthly
service fee for premium channels is $7.95 per channel. Also, the Company
generally assesses a nonrecurring installation charge of up to $35.00.
Customers are free to discontinue service at any time without penalty. The
Company currently does not offer Pay-TV or "pay-per-view" services, but
currently anticipates doing so in the future as it upgrades the capacity of
its systems.
The Company's cable television business is dependent to a large extent
on its ability to obtain and renew its franchise agreements with local
government authorities on acceptable terms. The Company believes that it
has maintained good relations with its local franchise authorities. The
Company has never had a franchise revoked and as of the date of this
Prospectus and Ballot/Proxy Statement all of its franchises have been
renewed or extended at their expirations. Most of the Company's present
franchises had initial terms of approximately 10 to 15 years. As of the
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date of this Prospectus and Ballot/Proxy Statement, all of the Company's
franchises have been renewed or extended, generally at or prior to their
stated expirations and on terms which are acceptable to the Company. In
this regard, during 1996, the Company completed negotiations with 19
communities resulting in franchise renewals. Federal law, including the
1984 Cable Act and the 1992 Cable Act, limits the power of the franchising
authorities to impose certain conditions upon cable television operators as
a condition of the granting or renewal of a franchise. The Company has 26
franchises, three of which are up for franchise renewal within the next
three years. No one cable television franchise accounts for more than 10
percent of the Company's total revenue.
Franchise agreements contain varying provisions relating to
construction and operation of cable television systems, including: (i) time
limitations on the commencement and/or completion of construction; (ii)
quality of service, including (in certain circumstances) requirements as to
the number of channels and broad categories of programming offered to
subscribers; (iii) rate regulation; (iv) provision of services to certain
institutions; (v) provision of channels for public access and commercial
leased-use; and (vi) maintenance of insurance and/or indemnity bonds. The
Company's franchises also typically provide for periodic payments of fees,
generally ranging from zero to three percent of revenue, to the
governmental authority which grants the franchise. Franchises usually
require the consent of the franchising authority prior to a transfer of the
franchise or a transfer or change in ownership or operating control of the
franchisee.
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions of the franchise. Under the 1984 Cable Act,
if a franchise is lawfully terminated, and if the franchising authority
acquires ownership of the cable television system or effects a transfer of
ownership to a third party, such acquisition or transfer must be at an
equitable price or, in the case of a franchise existing on the effective
date of the 1984 Cable Act, at a price determined in accordance with the
terms of the franchise, if any.
In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the
1984 Cable Act and other applicable federal, state and local law. The 1984
Cable Act, as supplemented by the renewal provisions of the 1992 Cable Act,
establishes an orderly process for franchise renewal which protects cable
operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet the standards
established by the 1984 Cable Act. The Company believes that its cable
television systems generally have been operated in a manner which satisfies
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such standards and allows for the renewal of such franchises; however,
there can be no assurance that the franchises for such systems will be
successfully renewed as they expire.
The Company traditionally has used coaxial cable for transmission of
television signals to subscribers. Optical fiber is a technologically-
advanced transmission medium capable of carrying cable television signals
via light waves generated by a laser. The Company currently uses fiber
optic technology to serve six communities with two CATV head-end facili-
ties. The Company currently intends in 1997 to install optical fiber
technology in four of its cable systems and anticipates that it will
convert several additional systems over the next several years. The
systems, which facilitate digital transmission of voice, video and data
signals as discussed below, will have optical fiber to neighborhood nodes
tied to the Company's telecommunications network with coaxial cable
distribution downstream to subscribers' homes from that point.
The optical fiber technology includes compressed digital video
technology that is capable of converting up to 10 analog signals (now used
to transmit video and voice) into a digital format and compressing such
signals (which is accomplished primarily by eliminating the redundancies in
television imagery) into the space normally occupied by one analog signal.
This digitally compressed signal would be distributed, via optical fiber
and coaxial cable, to the customer's home. At the home, a set-top video
terminal would convert the digital signal back into analog channels that
could be viewed on a normal television set. The Company currently
anticipates that it will begin offering such optical fiber technology to
its cable subscribers in four markets in late 1997.
MAIN NETWORK OPERATIONS. The Company provides its local services and
related long distance services primarily over its proprietary network. The
Company operates an advanced digital telecommunications network consisting
of nine Northern Telecom DMS 10 switches for its local services network,
one Summa Logic digital switch for operator services and advanced long
distance services, leased transmission lines to complete calls for its
domestic and international long distance services and sophisticated network
management systems designed to optimize traffic routing. The Company's
proprietary network encompasses approximately 2,240 miles of copper trunk
lines and customer connections and 150 miles of fiber optic cabling.
The Company seeks to actively manage and improve its network. The
Company currently anticipates spending approximately $10 million in 1997 to
complete the deployment of Synchronous Optical Network ("SONET") fiber
rings within its network and centralize and upgrade its switching equipment
through the construction of a new switching center and the installation of
a Lucent 5Ess switching platform with advanced digital switching
technologies, including Asynchronous Transfer Mode ("ATM") technology.
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SONET technology substantially increases the speed at which data is
carried on the Company's network, thereby allowing the Company to provide
high-speed multimedia applications and information services throughout its
network. In addition, SONET permits the Company to install customer
circuits more quickly and improves monitoring of the network by
anticipating certain problems before they occur. Further, when deployed in
a ring design, SONET allows the Company to provide its customers with
millisecond restoration of traffic in the event of a network outage.
ATM switching technology facilitates the provision of a wide range of
data communication services. This technology increases the Company's
network switching capabilities, permitting its customers to simultaneously
transmit voice, data and video communications over the same line. The
Company currently intends to have ATM available throughout its domestic
network by the end of 1997.
INTERNET NETWORK OPERATIONS. The Company's Internet network is based
on redundant leased T-1 and frame-relay based network access to the
Internet National Access Points ("NAPs") in Minneapolis, Minnesota and
Omaha, Nebraska. This network is controlled by a Bay Networks router
located in the Company's Internet network operations center in Sioux Falls,
South Dakota. Customers are able to access this network through dedicated
lines or by placing a local or long distance call (dial-up) through a modem
to the Sioux Falls switching center. Once connected, the customer's
traffic is routed through the operation center modem banks to the Bay
Networks router and into the Internet via the Company's NAP connections.
The Company continues to upgrade its network infrastructure in
response to the increased number of customers purchasing Internet access
and Web page hosting services. The Company also currently plans to
increase its NAP access speeds to handle larger levels of customer traffic
at higher data transfer speeds.
CABLE NETWORK OPERATIONS. The majority of the Company's cable systems
currently operate on a stand-alone basis with each community system
supported by its own signal processing center, known as a cable "head-end."
Six community systems (two clusters of three) have been linked using fiber
optic technology to a common head-end. A typical Company system consists
of signal receiving, encoding and decoding apparatus, distribution systems
and subscriber house-drop equipment. The signal receiving apparatus
typically includes a tower, antenna, ancillary electronic equipment and
earth stations for reception of satellite signals. Head-ends, consisting of
associated electronic equipment necessary for the reception, amplification
and modulation of signals, are located near the receiving devices. The
Company's distribution systems consist of coaxial cables and related
electronic equipment. Subscriber equipment consists of taps, house drops,
converters and analog addressable converters.
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The Company currently intends to rebuild four of its cable systems in
1997 using advanced digital fiber optic/coax cabling techniques that would
allow it to offer both cable television and additional telecommunications
services, such as local and long distance calling and high speed data
transmission and Internet access services, over the same network. These
systems would be interconnected to the Company SONET fiber optic network
and switched from its new centralized switching facility. In addition, the
Company currently plans to replace many of the individual cable head-end
systems by interconnecting these systems either to advanced fiber optic
links or to its new SONET fiber network and distributing the cable
programming signals from a central head-end facility collocated in the
Company's new switching facility. The Company also currently plans to
install digital advertising insertion equipment in its central switching
center. This equipment would allow the Company to download advertisements
electronically to certain head-ends, thereby significantly enhancing the
flexibility and reliability of its advertising sales. The Company believes
these enhancements would enable the Company to offer increased programming
channels with a higher quality signal and at a lower per channel cost.
MARKETING. The Company's telecommunications services and cable system
operations generally have been free from competition. Accordingly, the
Company historically has relied on telemarketing, direct mail and,
occasionally, door-to-door solicitation and radio, cable television and
newspaper advertising for its marketing efforts. These marketing
activities have been supported by customer service activities in the
Company's headquarters and by an active field technician force. The
Company believes it historically has enjoyed a high reputation for quality
and responsive service and has emphasized quality customer service for many
years.
In 1996, the Company recognized that the regulatory environment was
changing and that it would have to adapt to a more active and competitive
market environment. In 1996, the Company created a formal marketing
department and in December 1996, the Company acquired TCIC, a long distance
company with over six years of competitive selling experience, and Iway,
which operates in the highly competitive Internet services market. The
Company also is beginning to develop other marketing channels for its
products, including alliances with other independent Internet service
providers and computer services companies. The Company currently intends
to continue to expand its direct sales force and to market its products
more aggressively as competition enters the Company's previously protected
markets.
COMPETITION
The telecommunications industry is highly competitive and affected by
rapid regulatory and technological change. Regulatory trends have had, and
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may have in the future, significant effects on competition in the Company's
industry. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.")
New technology is continuing to expand the types of available
communications services and equipment and the number of competitors
offering such services. The Company faces actual and potential competition
in all of its businesses. Most of the Company's competitors are large
companies which have considerably greater financial, technological,
marketing and other resources than the Company.
The Company believes that the factors critical to a customer's choice
of a telecommunications services provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography and network
size. The Company's objective is to be one of the most responsive service
providers in the telecommunications industry, particularly when providing
customized communications services. The Company recognizes that it must
grow to be able to compete effectively in the changing telecommunications
industry and to avail itself of greater economies of scale and increased
scope in its transport and local access requirements and in its back office
operations. It is for this reason that the Company expanded its business
through the purchase of additional cable television systems and the
acquisition of companies in the long distance and Internet long distance
industries (i.e., TCIC and Iway). These additions have expanded the
Company's product line and service abilities which should enhance its
ability to compete more effectively in its changing business and regulatory
environment.
LOCAL SERVICE COMPETITION. Historically, the Company's local telephone
operations have not experienced significant competition. The Company's
local telephone operations may experience increased competition from
various sources, including resellers of the Company's local exchange
services, large end-users installing their own networks, IXCs, satellite
transmission services, cellular communications providers, cable television
companies, radio-based personal communications service companies,
competitive access providers and other systems capable of completely or
partially bypassing local telephone facilities. In 1996, the South Dakota
Public Utilities Commission approved numerous applications to provide and
resell local exchange services, including applications made by the Company
to compete in other local exchanges throughout South Dakota. Numerous such
applications are pending and the Company anticipates that other companies
will make additional filings. The Company cannot predict the specific
effects of competition on its local telephone business, but intends to
attempt to take advantage of the various opportunities that competition
should provide, including expanding into additional market areas, if it is
able to do so. The Company is currently attempting to address potential
competition by focusing on improved customer satisfaction, reducing costs,
increasing efficiency, improving its digital network, restructuring rates
and examining new product offerings and new markets for entry.
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LONG DISTANCE AND OPERATOR SERVICE COMPETITION. The long distance and
operator services industries are highly competitive and dominated on a
volume basis by the nation's three largest long distance providers: AT&T,
MCI and Sprint. In 1996, AT&T, MCI and Sprint generated an aggregate of
approximately 80 percent of the nation's long distance revenue of $79.3
billion. Behind these providers, four other companies had annual revenues
of $430 million to $2.2 billion each in 1996. In addition, during the same
year there were more than 300 companies with annual revenues of less than
$430 million each, the majority with revenues below $50 million each. Most
of these companies surpass the Company in size and available financial,
technological, marketing and other resources. All of these companies
potentially can compete with the Company in the long distance and operator
services markets in which the Company currently operates.
In addition, the 1996 Act permits RBOCs to provide long distance
telecommunications services internationally and domestically in territories
outside of the RBOCs' respective local service regions. RBOCs also may
provide long distance telecommunications services that are incidental to
certain other services, such as wireless and video services, in their
local regions. The authority to provide long distance telecommunications
services originating outside of RBOCs' respective regions does not
currently include calls that terminate in-region, such as private line
services, 800 services or any equivalent service, and allows the contacted
party to choose the inter-LATA carrier. RBOCs are prohibited from
providing a full range of long distance telecommunication services in their
local regions until certain important conditions are met. RBOCs own
extensive facilities in their regions and have long-standing customer
relationships and substantial capital resources, which permit them to
expend funds on technological and marketing improvements. The Company
believes that in the future RBOCs will become substantial competitors for
long distance telecommunications services, especially in their local
regions.
INTERNET COMPETITION. The market for data communications services,
including Internet access and on-line services, is extremely competitive.
There are no substantial barriers to entry, and the Company expects that
competition will intensify in the future. The Company believes that its
ability to compete successfully will depend on a number of factors,
including: (i) market presence; (ii) the ability to execute a rapid
expansion strategy; (iii) the capacity, reliability and security of its
network infrastructure; (iv) ease of access to and navigation of the
Internet; (v) the pricing policies of its competitors and suppliers; (vi)
the timing of the introduction of new products and services by the Company
and its competitors; (vii) the Company's ability to support industry
standards; and (viii) industry and general economic trends. The Company
believes that its success in the data communications services market will
depend heavily upon its ability to provide high-quality Internet
connectivity and value-added Internet services at competitive prices.
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The Company's current and potential competitors headquartered in the
United States may be divided into the following three groups: (i)
telecommunications companies, such as AT&T, MCI, Sprint, RBOCs and @Home
(a joint venture between Tele-Communications, Inc. and a venture capital
firm), and various other cable companies; (ii) other Internet access
providers, such as BBN, NETCOM, PSI and other national and regional
providers; and (iii) on-line services providers, such as America Online,
CompuServe, Intuit Inc., Microsoft Corp. and Prodigy Services Company.
Most of these competitors have greater market presence, engineering and
marketing capabilities, and financial, technological, personnel and other
resources than those available to the Company. As a result, they may be
able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily and devote greater
resources to the marketing and sale of their services.
The Company expects that most of the major on-line services providers
and telecommunications companies will expand their current services to
compete fully in the Internet access market. The Company believes that new
competitors, including large computer hardware, software, media and other
technology and telecommunications companies, will enter the Internet access
market, resulting in even greater competition to the Company. Certain
companies, including America Online, AT&T, BBN and PSI, have obtained or
expanded their Internet access products and services as a result of
acquisitions and strategic investments. Such acquisitions or investments
may permit these companies to devote greater resources to the development
and marketing of new competitive products and services and the marketing of
existing competitive products and services. The Company expects
acquisitions and strategic investments by its competitors to increase, thus
creating significant new competitors. In addition, the ability of some of
the Company's competitors to bundle other services and products with
Internet access services, such as the Internet service offerings recently
offered by AT&T and MCI, could place the Company at a further competitive
disadvantage.
As a result of increased competition in the Internet access and on-
line services industry, the Company expects that it will continue to
encounter significant pricing pressure, which in turn could result in
significant reductions in the average selling price of its Internet
services. The Company previously has reduced prices on certain of its
Internet access options and may consider doing so in the future. There can
be no assurance that the Company will be able to offset the effects of any
such price reductions with an increase in the number of its customers,
higher revenue from enhanced services, cost reductions or otherwise. In
addition, the Company believes that the data communications business, and
in particular the Internet access and on-line services businesses, are
likely to encounter consolidation in the near future, which could result in
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increased price and other competition in the industry. Increased price or
other competition could erode the Company's market share and could have a
material adverse effect on its business, financial condition and results of
operations. There can be no assurance that the Company will have the
financial resources, technical expertise, marketing and support
capabilities or expansion and acquisition possibilities to continue to
compete successfully in this or any market.
CABLE TELEVISION COMPETITION. Cable television competes for customers
in local markets with other providers of entertainment, news and
information. The competitors in these markets include broadcast television
and radio, newspapers, magazines and other printed material, motion picture
theaters, video cassettes and other sources of information and
entertainment including directly competitive cable television operations.
Cable television service initially was offered as a means of improving
television reception in markets where terrain factors or distance from
major cities limited the availability of off-air television. In some of
the areas served by cable television systems, a substantial variety of
television programming can be received off-air, including low-power UHF
television stations, which have increased the number of television signals
in the country and provided off-air television programs to limited local
areas. The extent to which cable television service is competitive depends
upon a cable television system's ability to provide, on a cost-effective
basis, a greater variety of programming than that available off-air or
through other alternative delivery sources. Regulatory changes also impact
competition in the cable industry. Both the 1992 Cable Act and the 1996
Act are designed to increase competition in the cable television industry.
(See "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation.")
There are alternative methods of distributing the same or similar
video programming offered by cable television systems. Further, these
technologies have been encouraged by Congress and the FCC to offer services
in direct competition with existing cable systems. A significant
competitive impact is expected from medium power and higher power DBSs
that use high frequencies to transmit signals which can be received by
dish antennas much smaller in size than traditional home satellite
dishes ("HSDs"). There are currently five national DBS providers
offering service in the United States, and at least one additional
provider has announced plans to provide DBS service in the future.
These services are generally available throughout the continental
U.S., including areas in which the Company operates its cable systems.
DBS has both advantages and disadvantages as an alternative means of
distributing video signals to a customer's home. Among the advantages are
that (i) the capital investment (although initially high) for the satellite
and uplinking segment of a DBS system is fixed and does not increase with
the number of subscribers receiving satellite transmissions, (ii) DBS is
not currently subject to local regulation of service and prices or required
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to pay franchise fees and (iii) the capital costs for the ground segment of
a DBS system (the reception equipment) are directly related to, and limited
by, the number of service subscribers. DBS's disadvantages presently
include (i) limited ability to tailor the programming package to the
interests of different geographic markets, such as providing local news,
other local origination services and local broadcast stations, (ii) signal
reception being subject to line-of-sight angles and (iii) intermittent
interference from atmospheric conditions and terrestrially generated radio
frequency noise.
Although the effect of competition from DBS services cannot be
specifically predicted, there has been significant growth in DBS
subscribers and the Company anticipates that such DBS competition will
increase in the future as developments in technology continue to increase
satellite transmitter power, decrease the cost and size of equipment needed
to receive these transmissions and enable DBS to overcome the disadvantages
discussed above. Further, the extensive national advertising of DBS
programming packages, including certain sports packages not currently
available on cable television systems, will likely continue the rapid
growth in DBS subscribers.
The 1996 Act eliminated the statutory and regulatory restrictions that
prevented telephone companies from competing with cable operators for the
provision of video services. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS,
INC.--Regulation.") The 1996 Act allows local telephone companies,
including RBOCs, to compete with cable television operators both inside and
outside of their telephone service areas. The Company expects that it may
face substantial competition from telephone companies for the provision of
video services, whether it is through the acquisition of cable systems, the
provision of wireless cable or the provision of upgraded telephone
networks. Most major telephone companies have greater financial resources
than the Company, and the 1992 Cable Act ensures that telephone company
providers of video services will be able to acquire significant cable
television programming services. The specific manner in which the
telephone company provision of video services will be regulated is
described in "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Regulation."
Additionally, the 1996 Act eliminates certain federal restrictions on
utility holding companies and thus permits all utility companies to provide
cable television services. The Company expects that the elimination of
these federal restrictions could result in another source of significant
competition in the delivery of video services.
Another alternative method of distributing cable television is MMDS,
which deliver programming services over microwave channels received by
subscribers with special antennas. MMDS systems are less capital
intensive, are not required to obtain local franchises or pay franchise
fees and are subject to fewer regulatory requirements than cable
television systems. The 1992 Cable Act also ensures that MMDS systems
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have the ability to provide all significant cable television programming
services. Although there are relatively few MMDS systems in the United
States currently in operation, virtually all markets have been licensed
or tentatively licensed.
The FCC has taken a series of actions intended to facilitate the
development of wireless cable systems as an alternative means of
distributing video programming, including reallocating the use of certain
frequencies to these services and expanding the permissible use of certain
channels reserved for educational purposes. The FCC's actions enable a
single entity to develop MMDS systems with a potential of up to 35
channels, which permits the MMDS systems to compete more effectively with
cable television. Developments in compression technology will
significantly increase the number of channels that MMDS can offer.
Further, in 1995, several large telephone companies acquired significant
ownership in numerous MMDS companies. This infusion of capital into the
MMDS industry can be expected to accelerate its growth and its competitive
impact. Recently, the Company has experienced increased competition from
an MMDS provider operating in several of the Company's existing cable
system communities.
Within the cable television industry, cable operators may compete with
other cable operators or other entities seeking franchises for competing
cable television systems at any time during the terms of existing
franchises or upon expiration of such franchises in the expectation that an
existing franchise will not be renewed. The 1992 Cable Act promotes the
grant of competitive franchises. Furthermore, an increasing number of
cities are exploring the feasibility of owning their own cable systems in a
manner similar to city-provided utility services.
Although long distance telephone companies have no legal prohibition
on the provision of video services, historically they have not provided
such services in competition with cable systems. However, such companies
may prove to be a source of competition in the future. The long distance
companies are expected to expand into local markets with local telephone
and other offerings (including video services) in competition with RBOCs,
which under the terms and conditions of the 1996 Act are permitted to enter
the long distance service market subject to satisfying certain
requirements.
In addition to competition for subscribers, the cable television
industry competes for advertising revenue with broadcast television, radio,
print media and other sources of information and entertainment. As the
cable television industry has developed additional programming, its
advertising revenue has increased. Cable operators sell advertising spots
primarily to local and regional advertisers. To date, the Company's
advertising efforts have been limited to local public service announcements
due to the limited capabilities of its existing systems. The Company
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currently intends to expand its advertising efforts as it completes the
upgrade of many of its systems.
The Company has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. There are a large number of individual and multiple
system cable television operators in the United States that are capable of
competing with the Company and that have substantially greater financial,
technological, marketing and other resources.
The full extent to which other media or home delivery services will
compete with cable television systems may not be known for some time and
there can be no assurance that existing, proposed or as yet undeveloped
technologies will not become dominant in the future.
REGULATION
OVERVIEW. Telephone companies that are organized as cooperative
associations are regulated in the same manner as telephone companies that
are organized as business corporations. Such regulation is based on the
size of the entity, rather than on the form of the entity.
The Company operates in a highly regulated industry and its services
are subject to varying degrees of federal, state and local regulation. The
FCC exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent that they involve the
provision, origination or termination of interstate or international
communications. The FCC also regulates many aspects of the Company's cable
television operations. The South Dakota Public Utilities Commission
retains jurisdiction over the Company's telecommunications operations in
South Dakota while other state public utilities commissions regulate the
intrastate aspects of the Company's long distance business in their state.
Finally, certain cities and municipal governments regulate by franchise the
Company's cable television operations within their jurisdiction.
The regulation of the telecommunications industry is changing rapidly
and the regulatory environment varies substantially from state to state.
There can be no assurance that recent or future regulatory changes will not
have a material adverse impact on the Company. Recent developments
include, without limitation (i) enactment of the 1996 Act which modifies
the AT&T Divestiture Decree restrictions on the provision of long distance
services by RBOCs between LATAs as defined in the AT&T Divestiture Decree;
(ii) FCC and state public utilities commissions actions changing access
rates charged by LECs and making other related changes to access and
interconnection policies, certain of which could have adverse consequences
for the Company's long distance and local service businesses; (iii) related
FCC and state regulatory proceedings considering additional deregulation of
LEC access pricing; (iv) pending FCC "billed party preference" rules that
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could affect the Company's provision of operator services; and (v) various
legislative and regulatory proceedings that would result in new local
exchange competition.
As the following discussion illustrates, the regulation of the
telecommunications and cable industries at the federal, state and local
levels is subject to the political process and has been in constant flux
over the past decade. Material changes in the law and regulatory
requirements must be anticipated and there can be no assurance that the
Company's business will not be affected adversely by future legislation,
new regulation or deregulation.
TELECOMMUNICATIONS ACT OF 1996. On February 8, 1996, President
Clinton signed into law the 1996 Act. Among other things, this legislation
(i) permits RBOCs to provide domestic and international long distance
services in their own regions upon a finding that the petitioning RBOC has
satisfied certain criteria for opening up its local exchange network to
competition and that its provision of long distance services would further
the public interest, (ii) removes existing barriers to entry into local
service markets, (iii) significantly changes the manner in which carrier-
to-carrier interconnection arrangements are regulated at the federal and
state level and (iv) establishes procedures to revise universal service
standards.
The 1996 Act has particular relevance to the Company in four areas.
First, the 1996 Act creates a duty on the part of the Company to
interconnect its networks with those of its competitors and, in particular,
creates a duty on the part of the Company's local exchange operations to
negotiate in good faith the terms and conditions of such interconnection.
On August 8, 1996, the FCC released its FCC Interconnection Order. In
the FCC Interconnection Order, the FCC adopted a national framework for
interconnection but left to the individual states the task of implementing
the FCC's rules. Because implementation of the rules will be at the state
level, it is uncertain how these new requirements will affect the Company.
The order is subject to petitions for reconsideration filed at the FCC and
petitions for review that have been consolidated before the United States
Court of Appeals for the Eighth Circuit. On October 15, 1996, the Eighth
Circuit stayed substantial portions of the FCC's order pending judicial
review. On November 1, 1996, the United States Supreme Court denied
applications to lift the stay. On January 17, 1997, the Eighth Circuit
heard oral arguments on the merits of the petitions for review.
Second, the 1996 Act contains a number of provisions that are intended
to reduce barriers to entry and promote competition in a variety of
telecommunications markets, including both long distance and local exchange
operations. As a part of this effort, the 1996 Act provides a framework
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under which RBOCs may enter the interexchange communications business from
which they were barred under the terms of the AT&T Divestiture Decree.
Under this framework, an RBOC may provide long distance services in the
states where it provides telephone service upon a showing to the affected
state regulatory authority and to the FCC that: (i) it faces competition
for local telephone service from at least one facilities-based competitor
and (ii) that it satisfies a 14 point checklist that would purport to show
that the affected RBOC's local exchange operations are open to competition.
The 1996 Act establishes deadlines within which both the affected state
regulatory agency and the FCC must act upon applications filed by an RBOC
to enter the long distance business. Certain of the RBOCs already have
taken steps to provide in-region long distance services, and on January 2,
1997, the first RBOC (Ameritech) filed an application with the FCC seeking
authority to provide such services in Michigan. On February 12, 1997, the
FCC dismissed Ameritech's application without prejudice. The Company
expects that most or all of the RBOCs will file applications for authority
to provide in-region long distance service. The RBOCs can provide long
distance services immediately in other states, and also with certain
restrictions, cellular, video and incidental services.
Third, although the 1996 Act generally prohibits long distance
companies from marketing their services jointly with local telephone
services provided by an RBOC (at least until that RBOC is permitted to
enter the long distance business), it contains an exception for companies,
such as the Company, that serve less than five percent of the nation's
presubscribed access lines. Thus, the 1996 Act permits the Company to
continue to market its long distance services jointly with local telephone
services whether provided by the Company or provided by an RBOC or
non-affiliated company.
Finally, the 1996 Act modifies many of the regulations governing the
Company's cable television operations and addresses some of the issues
arising out of the combination of cable and telephone service.
The Company cannot predict the effect that this legislation and the
FCC's implementing regulations, many of which are still forthcoming, will
have on the Company or the industry as a whole. However, the Company
believes that it is positioned to pursue business opportunities in the
rapidly changing telecommunications market.
LOCAL SERVICE REGULATION. Historically, the Company's local telephone
operations have been governed by regulation and oversight by the South
Dakota Public Utilities Commission. The South Dakota Public Utilities
Commission has had primary jurisdiction over various matters including
intrastate toll and access rates, quality of service, issuance of
securities, depreciation rates, disposition of public utility property,
issuance of debt and accounting systems used by the Company. The Company
has, however, been statutorily exempt from many of these requirements by
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virtue of its size. The FCC has historically had primary jurisdiction over
the interstate toll and access rates of the Company and issues related to
interstate telephone service.
The 1996 Act has substantially modified both the states' and the FCC's
jurisdictions in the regulation of local exchange telephone companies. The
1996 Act prohibits any state legislative or regulatory restrictions or
barriers to entry regarding the provision of local telephone service. The
1996 Act requires the FCC to develop regulations to implement various
sections of the 1996 Act including: (i) the obligations imposed on
incumbent LECs to interconnect with the networks of other
telecommunications carriers (including competing telecommunications
carriers); (ii) unbundling of services into network elements; (iii)
repricing of their services at wholesale rates for the purpose of
permitting resale of those services; (iv) allowing other telecommunications
carriers physically to collocate their equipment on the premises of the
incumbent LEC; and (v) requiring telecommunications carriers to compensate
each other based on their own costs for the transport and termination of
calls on the other carriers' networks.
As a rural telephone company, the Company is currently exempt from
certain of the foregoing obligations unless, in response to a bona fide
request, the South Dakota Public Utilities Commission removes that
exemption. The Company, by petitioning the South Dakota Public Utilities
Commission, also may qualify for exemption from certain other obligations
of the 1996 Act. In addition, pursuant to the 1996 Act, the FCC instituted
and referred to a federal-state joint board a proceeding to recommend
changes to the current method of subsidizing universal service to assure
the availability of quality telephone services at just, reasonable and
affordable rates. The federal-state joint board released an initial
"recommended decision" on November 8, 1996. The Company cannot predict the
terms or the effect that the final decision will have on the Company or on
the industry as a whole. However, the Company believes that it is taking
proper steps to reduce its exposure to potential declines in universal
service support.
The 1996 Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must contribute
equitably to a USF, although the FCC may exempt an interstate carrier or
class of carriers if their contribution would be minimal under the USF
formula. The 1996 Act allows states to determine which intrastate
telecommunications providers contribute to the USF. The purpose of
the USF is to provide consumers in all regions, including low-income
consumers and those consumers in rural, insular and high-cost areas,
access to telecommunications and information services that are reasonably
comparable to those services in urban areas at reasonably comparable rates.
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The South Dakota Public Utilities Commission approved an intrastate
access rate increase for the Company effective December 10, 1996. There
are no rate requests of the Company currently pending before any regulatory
commission.
NETWORK ACCESS REGULATION. The Company is subject to the jurisdiction
of the FCC with respect to its provision of interstate network access
services and certain related services. The FCC prescribes a uniform system
of accounts for telephone companies, interstate depreciation rates and the
principles and standard procedures used to separate plant investment,
expenses, taxes and reserves of interstate services under the jurisdiction
of the FCC and of intrastate services under the jurisdiction of the
respective state regulatory authorities ("separations procedures"). The
FCC also prescribes procedures for allocating costs and revenues between
regulated and unregulated activities. The FCC has indicated that it
intends to initiate a proceeding shortly to review separations reform.
The FCC has prescribed structures for exchange access tariffs to
specify the access charges for use and availability of the Company's
facilities for the origination and termination of interstate long distance
service. In general, the tariff structures prescribed by the FCC provide
that interstate costs which do not vary based on usage ("non-traffic
sensitive costs") are recovered from subscribers through flat monthly
charges ("subscriber line charges"), and from IXCs through usage-sensitive
Carrier Common Line ("CCL") charges. Traffic-sensitive interstate costs
are recovered from carriers through variable access charges based on
several factors, primarily usage. On December 24, 1996, the FCC initiated
a rule-making proceeding to address access charge reform.
The FCC authorizes a rate-of-return ("ROR") that telephone companies
such as the Company may earn on the interstate services they provide. The
current ROR is 11.25 percent for companies remaining under ROR regulation.
The FCC is currently considering changing the 11.25 percent ROR as a result
of lower market interest rates. Effective January 1, 1991, the FCC
replaced ROR regulation with price-cap regulation for the RBOCs and GTE
Corporation and allowed all other companies that did not remain in the
National Exchange Carrier Association ("NECA") Common Line and Traffic
Sensitive Pools the option of price-cap regulation. The Company, like most
small local exchange carriers, has elected to remain within the NECA tariff
scheme.
In 1992, the FCC initiated a rule-making proceeding (CC Docket No.
92-135) to address regulatory alternatives for mid-size and small LECs.
This proceeding resulted in rules, adopted in September 1993, that
provide for a non-price cap form of alternative regulation. The Company
would be eligible for this form of regulation. The Company has not elected
price cap regulation for interstate purposes and continues to evaluate the
various forms of alternative regulation.
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The effect of the 1996 Act on the FCC's regulations concerning ROR
regulation and alternative regulation is not yet clear, although, as a
result of the enactment of the 1996 Act, the FCC is reexamining its rules
to reflect the provisions of the 1996 Act and the associated increased
competitive market conditions.
The 1996 Act requires each LEC to continue to provide access services
in accordance with requirements effective on the date immediately preceding
the effective date of the 1996 Act, until those requirements are
specifically superseded by FCC regulations. Pursuant to the 1996 Act, the
FCC established regulations to implement the interconnection, unbundled
access, resale and collocation requirements of the 1996 Act. The 1996 Act
requires that interconnection and unbundled network elements be priced at
just and reasonable rates, based on costs, and that compensation for
transport and termination of traffic be reciprocal among carriers and be
just and reasonable.
In addition to the matters discussed above, FCC rules also govern:
(i) the allocation of costs between the regulated and unregulated
activities of a communications common carrier and (ii) transactions between
the regulated and unregulated affiliates of a communications common
carrier.
The cost allocation rules apply to certain activities that have never
been regulated as communications common carrier offerings and activities
that have been preemptively deregulated by the FCC. The costs of these
activities are removed prior to the separations procedures process and are
assigned to unregulated activities in the aggregate, rather than to
specific services, for pricing purposes. Other activities must be
accounted for as regulated activities, and their costs are subject to
separations procedures.
The affiliate transaction rules govern the pricing of assets
transferred to and services provided by affiliates. These rules generally
require that assets be transferred between affiliates at "market price," if
such price can be established through a tariff or a prevailing price
actually charged to third parties. In the absence of a tariff or
prevailing price, "market price" cannot be established, in which case (i)
asset transfers from a regulated to an unregulated affiliate must be valued
at the higher of cost or fair market value and (ii) asset transfers from an
unregulated to a regulated affiliate must be valued at the lower of cost or
fair market value. The Company prices transactions to and between its
subsidiaries at cost.
The FCC has not attempted to make its cost allocation or affiliate
transaction rules preemptive. State regulatory authorities are free to use
different cost allocation methods and affiliate transaction rules for
intrastate rate-making and to require carriers to keep separate allocation
records.
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The Company's local and intrastate operations are regulated by the
South Dakota Public Utilities Commission. Like many state regulatory
authorities, the South Dakota Public Utilities Commission is conducting
proceedings concerning the rules under which carriers may operate in an
increasingly competitive environment. The issues that the South Dakota
Public Utilities Commission is examining include unbundling and
interconnection, dialing parity for intra-LATA (or short-haul) toll
traffic, number portability, resale of local exchange service and universal
service. The 1996 Act has begun to have an effect on the timing and
outcome of proceedings in many states, including South Dakota. The Company
actively monitors the South Dakota proceedings as well as the proceedings
in other states. However, the Company cannot, at this time, predict how
these proceedings will ultimately be resolved and their effect on the
Company, or when a decision will be forthcoming.
The Company's telephone operating subsidiaries currently receive
compensation from long distance companies for intrastate long distance
services through access charges or toll settlements that are subject to
state regulatory commission approval.
LONG DISTANCE REGULATION. The FCC has classified the Company as a
non-dominant IXC for purposes of all long distance operations conducted
outside of its existing local service exchanges. As a non-dominant carrier,
the Company may provide domestic interstate communications in these areas
without prior FCC authorization, although FCC authorization is required for
the provision of international telecommunications by non-dominant carriers.
Generally the FCC has chosen not to exercise its statutory power to closely
regulate the charges or practices of non-dominant carriers. Nevertheless,
non-dominant carriers are required by statute to offer interstate and
international services under rates, terms and conditions that are just,
reasonable and not unduly discriminatory, and the FCC acts upon complaints
against such carriers for failure to comply with statutory obligations or
with the FCC's rules, regulations and policies. The FCC also has the power
to impose more stringent regulatory requirements on the Company and to
change its regulatory classification, although the Company believes that,
in the current regulatory environment, the FCC is unlikely to do so.
Historically, both domestic and international non-dominant long
distance carriers maintained tariffs on file with the FCC. Pursuant to this
requirement, the Company filed and maintained with the FCC a tariff for its
interstate and international services. The Company also has obtained FCC
authority to provide international services through the resale of switched
services of various carriers. On March 21, 1996, the FCC initiated a rule-
making proceeding in which it proposed to eliminate the requirement that
non-dominant interstate carriers, such as the Company, maintain tariffs on
file with the FCC for domestic interstate services. On October 29, 1996,
the FCC announced that, following a nine-month transition period, long
distance carriers were no longer required to file tariffs for interstate
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domestic long distance service, and that the relationship between carriers
and their customers would be governed by individual contracts. Carriers
also would have the option immediately to cease filing tariffs. The
Company has elected to cease filing interstate tariffs and in December 1996
filed a notice with the FCC to detariff these services. The Company does
not expect that the FCC's detariffing order will have a material effect on
its business. Petitions for reconsideration of the FCC's order are pending
before the FCC, and a petition for review also is pending before the United
States Court of Appeals for the District of Columbia Circuit.
The FCC also imposes prior approval requirements on transfers of
control and assignments of operating authorizations. The FCC has the
authority to generally condition, modify, cancel, terminate or revoke
operating authority for failure to comply with federal laws and/or the
rules, regulations and policies of the FCC. Fines or other penalties also
may be imposed for such violations. Although the Company believes that it
has complied in all material respects with applicable laws and regulations,
there can be no assurance that the FCC or third parties will not raise
issues with regard to the Company's compliance with applicable laws and
regulations.
The intrastate long distance telecommunications operations of the
Company also are subject to various state laws and regulations, including
certification requirements. Generally, the Company must obtain and
maintain certificates of public convenience and necessity from regulatory
authorities as well as file tariffs in most states in which it offers
intrastate long distance services, and in most of these jurisdictions,
also must file and obtain prior regulatory approval of tariffs for its
intrastate offerings. Many states also impose various reporting
requirements and/or require prior approval for transfers of control of
certified carriers, and/or for corporate reorganizations; acquisitions of
telecommunications operations; assignments of carrier assets, including
subscriber bases; carrier stock offerings; and incurrence by carriers of
significant debt obligations. Certificates of authority can generally be
conditioned, modified, canceled, terminated or revoked by state regulatory
authorities for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Fines and
other penalties also may be imposed for such violations.
At the present time, the Company can provide originating long distance
services to customers in all states except Alaska and Hawaii. Those
services may terminate in any state in the United States and may also
terminate in countries abroad. Only 31 states have public utility
commissions that actively assert regulatory oversight over intrastate
services such as those currently offered by the Company. Like the FCC,
many of these regulating jurisdictions are relaxing the regulatory
restrictions currently imposed on telecommunications carriers for
intrastate service. While some of these states restrict the offering of
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intra-LATA services by the Company and other IXCs, the general trend is
toward opening up these markets to the Company and other IXCs. Those
states that permit the offering of intra-LATA services by IXCs generally
require that end-users desiring to access these services dial special
access codes which place the Company and other IXCs at a disadvantage as
compared to LEC intra-LATA toll service which generally requires no access
code.
WIRELESS SERVICES. The Company, through its wholly owned subsidiary,
DWS, has a Spectrum Agreement with US WEST Wireless for participation in
the FCC's PCS D- and E-Block spectrum auction. This auction concluded on
January 14, 1997, with US WEST Wireless being the successful bidder on
BTA-421 (Sioux City) for the E-Block at $2.44 per population point. The
Company's agreement covers a 104,900 population point in the Company's area
of interest in Southeastern South Dakota and Northwestern Iowa outside of
the municipal boundaries of Sioux City. This amounts to a commitment of
$255,956 for the Company's share of the population points and of the
license. The Company has made an escrow deposit with US WEST Wireless of
$61,905, all of which is available for, and will be applied to, the bid
commitment. The Company has entered negotiations with US WEST Wireless for
additional portions of the BTA, but there is no assurance that these
negotiations will be successful for the Company.
On December 13, 1996, the FCC adopted rules to permit geographic
partitioning and spectrum disaggregation for all broadband PCS licensees.
This rule will give the existing licensees and potential new entrants
greater flexibility to determine how much spectrum they will need for the
geographic areas in which they provide service. The Company has entered
negotiations with the winners of the FCC's A- and B-Block auctions for the
Minneapolis, Minnesota and the Des Moines, Iowa MTAs to partition or
disaggregate portions of the blocks that cover areas of interest to the
Company in Southeastern South Dakota, Northwestern Iowa and Southwestern
Minnesota. These negotiations have not reached a definitive point, and
there are no existing financial or other commitments between the parties.
There can be no assurance that these negotiations will be successful
for the Company.
Since there will be six PCS licensees competing with two established
cellular licensees in each market area, the Company expects the wireless
service market to be highly competitive. The Company initially plans to
focus on the use of its PCS services to provide fixed wireless services in
non-metropolitan areas, and to use the wireless services as a complement
and supplement to other services offered by the Company. There can be no
assurance that the Company will be able to make wireless services a
profitable part of its overall business.
The licensing, construction, operation, acquisition and sale of PCS
networks, as well as the number of PCS, cellular and other wireless
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licensees permitted in each market, are regulated by the FCC. Federal
law prohibits the states from regulating the rates charged by wireless
telecommunications carriers (including PCS and cellular). Although some
states petitioned the FCC for authority to regulate wireless rates, thus
far no such petitions have been successful. Federal law also expressly
prohibits the states from regulating the entry of wireless carriers.
However, to the extent not otherwise preempted, the states are permitted to
regulate any other terms and conditions of wireless services, including but
not limited to customer billing information and practices; consumer
protection matters; bundling of service and equipment; availability of
wholesale capacity; and facilities siting issues. There can be no
assurance that state agencies having jurisdiction over the Company's
business will not adopt regulations, impose taxes on PCS licenses or take
other actions that would adversely affect the business of the Company.
Federal and state regulators also will determine important aspects of the
Company's operations, such as technical aspects of and payments for
interconnection with landline and other wireless networks.
On July 26, 1996, the FCC released a report and order establishing
timetables for making emergency 911 services available by PCS and other
mobile services providers, including "enhanced 911" services that provide
the caller's telephone number, location and other useful information. By
late 1997, PCS providers must be able to process and transmit 911 calls
(without call validation), including those from callers with speech or
hearing disabilities. Assuming a cost recovery mechanism is in place, by
mid-1998 such providers must have completed actions enabling them to relay
a caller's automatic number identification and cell site, and by 2001 they
must be able to identify the location of a 911 caller within 125 meters in
67 percent of all cases. State actions incompatible with these FCC rules
are subject to preemption. Various parties have petitioned the FCC to
reconsider certain requirements imposed in the order.
On August 1, 1996, the FCC released a report and order expanding the
flexibility of PCS and other commercial mobile radio services to provide
fixed as well as mobile services. Such fixed services include, but need
not be limited to, "wireless local loop" services, E.G., to apartment and
office buildings, and wireless backup of PBXs and local area networks, to
be used in the event of interruptions due to weather or other emergencies.
A petition for reconsideration or clarification of aspects of the FCC's
order presently is pending.
PCS licenses are granted for a 10-year period, at the end of which
period the licensee may apply for renewal. The Company must obtain a
number of approvals, licenses and permits for the operation of its PCS
business, including land use regulatory approvals and licenses from the
Federal Aviation Administration in connection with its PCS towers.
Additionally, the wireless telecommunications industry is subject to
certain state and local governmental regulations. Operating costs also are
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affected by other government actions that are beyond the Company's control.
There is no assurance that the various federal, state and local agencies
responsible for granting such licenses, approvals and permits will do so or
that, once granted, those agencies will not revoke or fail to renew them.
Failure to obtain such licenses, approvals and permits would adversely
affect, delay commencement of or prohibit certain business operations
proposed by the Company.
CABLE TELEVISION REGULATION. The operation of cable television
systems is extensively regulated through a combination of federal
legislation and FCC regulations, by some state governments and by most
local government franchising authorities such as municipalities and
counties. The 1996 Act also is expected to have a profound effect on the
regulation of cable television operations. This new law will alter federal,
state and local laws and regulations regarding telecommunications providers
and cable television service providers, including the Company. The
discussion below summarizes the relevant provisions of the 1996 Act and
reviews the pre-existing federal cable television regulation as revised by
the 1996 Act.
THE TELECOMMUNICATIONS ACT OF 1996. The following is a summary
of certain provisions of the 1996 Act which could materially affect
the growth and operation of the cable television industry and the
cable and telecommunications services provided by the Company. The
FCC has undertaken, and continues to undertake, numerous rule-making
proceedings to interpret and implement the provisions discussed below.
It is not possible at this time to predict the effects of such rule-
making proceedings on the Company.
CABLE RATE REGULATION. Rate regulation of the Company's cable
television services is divided between the FCC and local units of
government, primarily the local municipalities in which the Company
provides services. The FCC's jurisdiction extends to the cable
programming service tier ("CPST"), which consists largely of
satellite-delivered programming (excluding basic tier programming and
programming offered on a per-channel or per-program basis). Local
units of government (commonly referred to as "local franchising
authorities" or "LFAs") are primarily responsible for regulating rates
for the basic tier of cable service ("BST"), which typically will
contain at least the local broadcast stations and public access,
educational and government ("PEG") channels. Equipment rates are also
regulated by LFAs. The FCC retains appeal jurisdiction from LFA
decisions. Cable services offered on a per-channel or per-program-
only basis remain unregulated. By virtue of its small size, the
Company is currently exempt from these regulations.
Because of the Company's rate structure and small size, there is
no CPST regulation of the Company's rates at the current time. If the
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Company's cable operations were to increase above the thresholds
established in 1996 or if the Company were to change its rate
structure with respect to cable services, additional regulations may
apply. Those additional regulations would include CPST rate
regulations, which would be triggered only by an LFA complaint. An
LFA complaint must be based upon more than one subscriber complaint.
Prior to the 1996 Act, a FCC review of CPST rates could be occasioned
by a single subscriber complaint to the FCC. The 1996 Act does not
disturb existing or pending CPST rate settlements between the Company
and the FCC. The Company's BST rates remain subject to LFA regulation
under the 1996 Act. Existing law precludes rate regulation wherever a
cable operator faces effective competition. The 1996 Act expands the
definition of effective competition to include any franchise area
where a LEC (or affiliate) provides video programming services to
subscribers by any means other than through direct broadcast satellite
service. There is no penetration minimum for the LEC to qualify as an
effective competitor, but it must provide comparable programming
services (12 channels including some broadcast channels) in the
franchise area. By virtue of its small size, the Company is currently
exempt from most of the regulations under the 1996 Act.
Under the 1996 Act, the Company will be allowed to aggregate on a
franchise, system, regional or company level its equipment costs into
broad categories, such as converter boxes, regardless of the varying
levels of functionality of the equipment within each such broad
category. The 1996 Act will allow the Company to average together
costs of different types of converters including non-addressable,
addressable and digital. The statutory changes will also facilitate
the rationalizing of equipment rates across jurisdictional boundaries.
These cost-aggregation rules do not apply to the limited equipment
used by "BST-only" subscribers.
CABLE UNIFORM RATE REQUIREMENTS. The 1996 Act immediately
relaxes the uniform rate requirements of the 1992 Cable Act by
specifying that such requirements do not apply where the operator
faces effective competition, and by exempting bulk discounts to
multiple dwelling units, although complaints regarding predatory
pricing may be made to the FCC. Upon a prima facie showing that there
are reasonable grounds to believe that the discounted price is
predatory, the cable system operator will have the burden of proving
otherwise.
SYSTEM SALES. The 1996 Act changes the definition of a cable
system so that competitive providers of video services will only be
regulated and franchised as a cable system if they use public
rights-of-way.
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CABLE POLE ATTACHMENTS. Under the 1996 Act, investor-owned
utilities must make poles and conduits available to cable systems
under delineated terms. Electric utilities are given the right to
deny access to particular poles on a nondiscriminatory basis for lack
of capacity, safety, reliability and generally accepted engineering
purposes. The current method for determining rates charged by
telephone and utility companies for cable delivery of cable and non-
cable services will continue for five years. However, the FCC will
establish a new formula for poles used by cable operators for
telecommunications services which will result in higher pole rental
rates for cable operators. Any increases pursuant to this formula may
not begin for five years and will be phased-in in equal increments
over the fifth through the tenth years. This new FCC formula does not
apply in states which certify that they regulate pole rents. Pole
owners must impute pole rentals to themselves if they offer
telecommunications or cable services. Cable operators need not pay
future make-ready on poles currently contracted if the make-ready is
required to accommodate the attachments of another user, including the
pole owner.
CABLE ENTRY INTO TELECOMMUNICATIONS. The 1996 Act declares that
no state or local laws or regulations may prohibit or have the effect
of prohibiting the ability of any entity to provide any interstate or
intrastate telecommunications service. States are authorized to
impose competitively neutral requirements regarding universal service,
public safety and welfare, service quality and consumer protection.
The 1996 Act further provides that cable operators and affiliates
providing telecommunications services are not required to obtain a
separate franchise from LFAs for such services. The 1996 Act
prohibits LFAs from requiring cable operators to provide
telecommunications service or facilities as a condition of a grant of
a franchise, franchise renewal or franchise transfer, except that LFAs
can seek institutional networks as part of such franchise
negotiations. The 1996 Act clarifies that traditional cable franchise
fees may only be based on revenues related to the provision of cable
television services. However, when cable operators provide
telecommunications services, LFAs may require reasonable,
competitively neutral compensation for management of the public
rights-of-way.
To facilitate the entry of new telecommunications providers
(including cable operators), the 1996 Act imposes interconnection
obligations on all telecommunications carriers. All carriers must
interconnect their networks with other carriers and may not deploy
network features and functions that interfere with interoperability.
Existing LECs also have the following obligations: (i) good faith
negotiation with carriers seeking interconnection; (ii) unbundling,
equal access and non-discrimination requirements; (iii) resale of
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services, including resale at wholesale rates (with an exception for
certain low-priced residence services to business customers); (iv)
notice of changes in the network that would affect interconnection and
interoperability; and (v) physical collocation unless the LEC
demonstrates that practical technical reasons, or space limitations,
make physical collocation impractical. The 1996 Act also directs the
FCC, within one year of enactment, to adopt regulations for existing
LECs to share infrastructure with qualifying carriers, and the FCC
released those regulations on February 7, 1997. Under the 1996 Act,
individual interconnection rates must be just and reasonable, based on
cost, and may include a reasonable profit. Cost of interconnection
will not be determined in an ROR proceeding. Traffic termination
charges shall be mutual and reciprocal. The 1996 Act contemplates
that interconnection agreements will be negotiated by the parties
and submitted to a state public utilities commission for approval.
A public utilities commission may become involved, at the request
of either party, if negotiations fail. If the state regulator
refuses to act, the FCC may determine the matter. If the public
utilities commission acts, an aggrieved party's remedy is to file a
case in federal district court.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION. The 1996 Act
allows telephone companies to compete directly with cable operators by
repealing the previous telephone company/cable cross-ownership ban and
the FCC's video dialtone regulations. This will allow LECs, including
the RBOCs, to compete with cable operators both inside and outside of
their telephone service areas. If a LEC provides video via radio
waves, it is subject to broadcast jurisdiction. If a LEC provides
common carrier channel service it is subject to common carrier
jurisdiction. An LEC providing video programming to subscribers is
otherwise regulated as a cable operator (including franchising, leased
access and customer service requirements), unless the LEC elects to
provide its programming via an open video system. LEC owned
programming services will also be fully subject to program access
requirements.
The 1996 Act replaces the FCC's video dialtone rules with an open
video system ("OVS") plan by which LECs can provide cable service in
their telephone service area. LECs complying with the FCC OVS
regulations will receive relaxed oversight. The 1996 Act requires the
FCC to act on any such OVS certification within 10 days of its filing.
Only the program access, negative option billing prohibition,
subscriber privacy, EEO, PEG, must-carry and retransmission consent
provisions of the Communications Act of 1934, as amended, will apply
to LECs providing OVS. Franchising, rate regulation, consumer service
provisions, leased access and equipment compatibility will not apply.
Cable copyright provisions will apply to programmers using OVS. LFAs
may require OVS operators to pay franchise fees only to the extent
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that the OVS provider or its affiliates provide cable services over
the OVS. OVS operators will be subject to LFA general right-of-way
management regulations. Such fees may not exceed the franchise fees
charged to cable operators in the area, and the OVS provider may pass
through the fees as a separate subscriber bill item.
The FCC has adopted regulations prohibiting an OVS operator from
discriminating among programmers, and ensuring that OVS rates, terms
and conditions for service are reasonable and nondiscriminatory.
Further, the FCC has adopted regulations prohibiting an LEC-OVS
operator, or its affiliates, from occupying more than one-third of the
system's activated channels when demand for channels exceeds supply,
although there are no numeric limits. The 1996 Act also mandates OVS
regulations governing channel sharing, extending the FCC's sports
exclusivity, network nonduplication and syndicated exclusivity
regulations and controlling the positioning of programmers on menus
and program guides. The 1996 Act does not require LECs to use
separate subsidiaries to provide incidental inter-LATA video or audio
programming services to subscribers or for their own programming
ventures. The validity of the FCC's rules currently is under review
in consolidated cases pending before the United States Court of
Appeals for the Fifth Circuit.
While there remains a general prohibition on LEC buyouts of cable
systems (any ownership interest exceeding 10 percent), cable operator
buyouts of LEC systems and joint ventures between cable operators and
LECs in the same market, the 1996 Act provides exceptions to this
prohibition. A rural exception permits buyouts where the purchased
system serves an area with fewer than 35,000 inhabitants outside an
urban area. Where an LEC purchases a cable system, that system, in
addition to any other system in which the LEC has an interest, may not
serve 10 percent or more of the LEC's telephone service area.
Additional exceptions are also provided for similar buyouts. The 1996
Act also provides the FCC with the power to grant waivers of the
buyout provisions in cases where (i) the cable operator or LEC would
be subject to undue economic distress, (ii) the system or facilities
would not be economically viable or (iii) the anticompetitive effects
of the proposed transaction are clearly outweighed by the effect of
the transaction in meeting community needs. The LFA must approve any
such waiver.
ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION.
The 1996 Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act.
Electric utilities must establish separate subsidiaries, known as
exempt telecommunications companies, and must apply to the FCC for
operating authority. The Company anticipates that large utility
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holding companies will become significant competitors to both cable
television and other telecommunications providers as a result of the
1996 Act.
CROSS-OWNERSHIP AND MUST-CARRY. The 1996 Act eliminates
broadcast/cable cross-ownership restrictions (including broadcast
network/cable restrictions), but leaves in place FCC regulations
prohibiting local cross-ownership between television stations and
cable systems. The FCC is empowered by the 1996 Act to adopt rules to
ensure carriage, channel positioning and non-discriminatory treatment
of non-affiliated broadcast stations by cable systems affiliated with
a broadcast network. Previous SMATV and MMDS cable cross-ownership
restrictions have been eliminated for cable operators subject to
effective competition. By virtue of its small size, the Company is
currently exempt from these regulations. The 1996 Act preserves local
television broadcasters' rights to signal carriage on cable systems
("must-carry"), and clarifies that the geographic scope of must-carry
is to be based on commercial publications which delineate television
markets based on viewing patterns. The FCC is directed to grant or
deny must-carry requests within 120 days of a complaint being filed
with the FCC.
CABLE EQUIPMENT COMPATIBILITY AND SCRAMBLING REQUIREMENTS. The
1996 Act directed the FCC to establish an equipment comparability rule
emphasizing that (i) narrow technical standards, mandating a minimum
degree of common design among televisions, VCRs and cable systems, and
relying heavily on the open marketplace, should be pursued, (ii)
competition for all converter features unrelated to security
descrambling should be maximized and (iii) adopted standards should
not affect unrelated telephone and computer features. The 1996 Act
directed the FCC to adopt regulations which assure the competitive
availability of converters ("navigation devices") from vendors other
than cable operators. The FCC's rules may not impinge upon signal
security concerns or theft of service protections. Waivers from these
requirements will be available if the cable operator shows the waiver
is necessary for the introduction of new services. Once the equipment
market becomes competitive, FCC regulations in this area will be
terminated.
The 1996 Act requires cable operators, upon subscriber request,
to fully scramble or block at no charge the audio and video portion of
any channel not specifically subscribed to by a household. Further,
the 1996 Act provides that sexually explicit programming must be fully
scrambled or blocked. If the cable operator cannot fully scramble or
block its signal, it must restrict transmission to those hours of the
day when children are unlikely to view such programming.
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PRE-EXISTING FEDERAL REGULATION. The 1984 Cable Act and the 1992
Cable Act regulated the cable television industry and the vast
majority of that regulation remains unchanged by the 1996 Act. The
1984 Cable Act created uniform national standards and guidelines for
the regulation of cable systems. Among other things, the 1984 Cable
Act generally preempted local control over cable rates in most areas.
In addition, the 1984 Cable Act affirmed the right of franchising
authorities (state or local, depending on the practice in individual
states) to award one or more franchises within their jurisdictions.
It also prohibited non-grandfathered cable systems from operating
without a franchise in such jurisdiction. The 1984 Cable Act (i)
requires cable television systems with 36 or more activated channels
to reserve a percentage of such channels for commercial use by
unaffiliated third parties, (ii) permits franchise authorities to
require the cable operator to provide channel capacity, equipment and
facilities for public, educational and governmental access and (iii)
regulates the renewal of franchises.
The 1992 Cable Act greatly expanded federal and local regulation
of the cable television industry. Certain of the more significant
areas of regulation imposed by the 1992 Cable Act are discussed below.
REGULATION OF PROGRAM LICENSING. The 1992 Cable Act directed the
FCC to promulgate regulations regarding the sale and acquisition of
cable programming between multichannel video program distributors
(including cable operators) and programming services in which a cable
operator has an attributable interest. The legislation and the
implementing regulations adopted by the FCC preclude most exclusive
programming contracts (unless the FCC first determines the contract
serves the public interest) and generally prohibit a cable operator
which has an attributable interest in a programmer from improperly
influencing the terms and conditions of sale to unaffiliated
multichannel video program distributors. Further, the 1992 Cable Act
requires that such cable affiliated programmers make their programming
services available to cable operators and competing video technologies
such as MMDS and DBS, and to telephone company providers of video
services, on terms and conditions that do not unfairly discriminate
among such competitors.
REGULATION OF CARRIAGE OF PROGRAMMING. Under the 1992 Cable Act,
the FCC adopted regulations prohibiting cable operators from requiring
a financial interest in a program service as a condition to carriage
of such service, coercing exclusive rights in a programming service or
favoring affiliated programmers so as to restrain unreasonably the
ability of unaffiliated programmers to compete.
REGULATION OF CABLE SERVICE RATES. The 1992 Cable Act subjected
the Company's cable systems to rate regulation, except in those cases
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where they face "effective competition." The FCC was required to
establish standards and procedures governing regulation of rates for
basic cable service, equipment and installation, which were then to be
implemented by state and local franchising authorities. The 1992
Cable Act also required the FCC, upon complaint from a franchising
authority or a cable subscriber, to review the reasonableness of rates
for CPSTs. The 1996 Act amended the 1992 Cable Act to allow only LFAs
to file complaints. Services offered on an individual basis, such as
pay television and pay-per-view services, were not subject to rate
regulation.
On April 1, 1993, the FCC adopted rate regulations governing
virtually all cable systems, which were revised on February 22, 1994.
Under these regulations, existing basic and CPST service rates
typically are evaluated against benchmark rates established by the FCC
and are subject to mandatory reductions. Equipment and installation
charges are regulated based on actual costs. As noted above, the 1996
Act provides that rate regulation of the CPST automatically sunsets on
March 31, 1999.
The FCC also allowed cable operators to elect to justify rates
under cost-of-service rules, which allow high cost systems to
establish rates in excess of the benchmark level. The FCC's interim
cost-of-service rules allowed a cable operator to recover through
rates for regulated cable services its normal operating expenses plus
a rate of return equal to 11.25 percent on the rate base. However,
the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets. As
a result, the Company pursued cost-of-service justifications in only a
few cases. On December 15, 1995, the FCC adopted slightly more
favorable cost-of-service rules.
The FCC's rate regulations generally permit cable operators to
adjust rates to account for inflation and increases in certain
external costs, including programming costs, to the extent such
increases exceed the rate of inflation. However, a cable operator may
pass through increases in the cost of programming services affiliated
with such cable operator to the extent such costs exceed the rate of
inflation only if the price charged by the programmer to the
affiliated cable operator reflects either prevailing prices offered in
the marketplace by the programmer to unaffiliated third parties or the
fair market value of the programming. The FCC's revised regulations
confirm that increases in pole attachment fees ordinarily will not be
accorded external cost treatment. The FCC recently adopted a method
for recovering external costs and inflation on an annual basis. The
new method minimizes the need for frequent rate adjustments and the
regulatory lag problems associated with the previous rate adjustment
methodology.
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The regulations also provide mechanisms for adjusting rates when
regulated tiers are affected by channel additions or deletions.
Additional programming costs resulting from channel additions can be
accorded the same external treatment as other program costs increases,
and cable operators presently are permitted to recover a mark-up on
their programming expenses. Under one option, operators were allowed
a flat ($.20) fee increase per channel added to an existing CPST, with
an aggregate cap on such increases ($1.20) plus a license fee reserve
($.30) through 1996. In 1997, an additional flat ($.20) fee increase
is available, and the license fees for additional channels and for
increases in existing channels are no longer subject to the aggregate
cap. This optional approach for adding services is scheduled to expire
on December 31, 1997.
The FCC adopted additional rules that permit channels of new
programming services to be added to cable systems in a separate new
product tier which the FCC has determined that it will not rate
regulate at this time. The FCC also has adopted rules allowing
operators to raise rates based on costs incurred in connection with a
substantial upgrade of the cable system. The FCC provided additional
rate relief for small operators, including the Company, and to any
additional systems that the Company acquires to the extent that the
systems are already eligible for this favorable treatment.
REGULATION OF CUSTOMER SERVICE. As required by the 1992 Cable
Act, the FCC has adopted comprehensive regulations establishing
minimum standards for customer service and technical system
performance. Local franchising authorities are allowed to enforce
stricter customer service requirements than the FCC standards.
REGULATION OF CARRIAGE OF BROADCAST STATIONS. The 1992 Cable Act
granted commercial broadcasters a choice of must-carry rights or
retransmission-consent rights, and gave noncommercial educational
broadcasters must-carry rights. By October 1993, cable operations
were required to secure permission from broadcasters that elected
retransmission-consent rights before retransmitting the broadcasters'
signals. Local and distant broadcasters can require cable operators
to make a payment as a condition to carriage of such broadcasters'
station on a cable system. Established superstations were not granted
such rights.
The 1992 Cable Act also imposed obligations to carry local
broadcast stations for such stations which chose a must-carry right,
as distinguished from the retransmission-consent right described
above. The 1992 Cable Act and the rules adopted by the FCC generally
provided for mandatory carriage by cable systems of all local full-
power commercial television broadcast signals selecting must-carry,
including the signals of stations carrying home-shopping programming
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and, depending on a cable system's channel capacity, non-commercial
television broadcast signals. The United States Supreme Court is
currently reviewing the constitutionality of the must-carry
regulations, which were upheld by a three-judge panel of the United
States District Court for the District of Columbia Circuit following
the Supreme Court's earlier remand of the case to that court.
OWNERSHIP REGULATIONS. The 1992 Cable Act required the FCC to:
(i) promulgate rules and regulations establishing reasonable limits on
the number of cable subscribers which may be served by a single
multiple system cable operator or entities in which it has an
attributable interest; (ii) prescribe rules and regulations
establishing reasonable limits on the number of channels on a cable
system that will be allowed to carry programming in which the owner of
such cable system has an attributable interest; and (iii) consider the
necessity and appropriateness of imposing limitations on the degree to
which multichannel video programming distributors (including cable
operators) may engage in the creation or production of video
programming. On September 23, 1993, the FCC adopted regulations
establishing a 30 percent limit on the number of homes nationwide that
a cable operator may reach through cable systems in which it holds an
attributable interest (attributable for these purposes is defined as a
five percent or greater ownership interest or the existence of any
common directors), with an increase to 35 percent if the additional
cable systems are minority controlled. However, the FCC stayed the
effectiveness of its ownership limits pending the appeal of a
September 16, 1993 decision by the United States District Court for
the District of Columbia which, among other things, found
unconstitutional the provision of the 1992 Cable Act requiring the FCC
to establish such ownership limits. On appeal, however, the United
States Court of Appeals for the District of Columbia Circuit upheld
the provision. As a result, the Company's ability to acquire
interests in additional cable systems may be affected.
On September 23, 1993, the FCC also adopted regulations limiting
carriage by a cable operator of national programming services in which
that operator holds an attributable interest (using the same
attribution standards as discussed above) to 40 percent of the first
75 activated channels on each of the cable operator's systems. The
rules provide for the use of two additional channels or a 45 percent
limit, whichever is greater, provided that the additional channels
carry minority controlled programming services. The regulations also
grandfather existing carriage arrangements which exceed the channel
limits, but require new channel capacity to be devoted to unaffiliated
programming services until the system achieves compliance with the
regulations. Channels beyond the first 75 activated channels are not
subject to such limitations, and the rules do not apply to local or
regional programming services.
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In the same rule-making proceeding, the FCC concluded that
additional restrictions on the ability of multichannel distributors to
engage in the creation or production of video programming presently
are unwarranted.
Under the 1992 Cable Act and the FCC's regulations, a cable
operator could not hold a license for MMDS and DBS systems within the
same geographic area in which it provides cable service. The 1996 Act
would allow such ownership if effective competition exists in that
geographic area.
The 1992 Cable Act contains numerous other provisions which,
together with the 1984 Cable Act, create a comprehensive regulatory
framework. Violation by a cable operator of the statutory provisions
or the rules and regulations of the FCC can subject the operator to
substantial monetary penalties and other significant sanctions such as
suspension of licenses and authorizations, issuance of cease and
desist orders and imposition of penalties. Many of the specific
obligations imposed on the operation of cable television systems under
these laws and regulations are complex, burdensome and increase the
Company's cost of doing business.
COPYRIGHT REGULATIONS. The Copyright Revision Act of 1976 (the
"Copyright Act") provides cable television operators with a compulsory
license for retransmission of broadcast television programming without
having to negotiate with the stations or individual copyright owners
for retransmission consent for the programming. The availability of
the compulsory license is conditioned upon the cable operators'
compliance with applicable FCC regulations, certain reporting
requirements and payment of appropriate license fees, including
interest charges for late payments, pursuant to the schedule of fees
established by the Copyright Act and regulations issued thereunder.
The Copyright Act also empowers the Copyright Office to periodically
review and adjust copyright royalty rates based on inflation and/or
petitions for adjustments due to modifications of FCC rules. The FCC
has recommended to Congress the abolition of the compulsory license
for cable television carriage of broadcast signals, a proposal that
has received substantial support from members of Congress. Any
material change in the existing statutory copyright scheme could
significantly increase the costs of programming and be adverse to the
business interests of the Company.
PRIVACY. The 1984 Cable Act imposes a number of restrictions on
the manner in which cable system operators can collect and disclose
data about individual system customers. The statute also requires
that the system operator must periodically provide all customers with
written information about its policies regarding the collection and
handling of customer data, their privacy rights under federal law and
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their enforcement rights. In the event that a cable operator is found
to have violated the customer privacy provisions of the 1984 Cable
Act, it could be required to pay damages, attorneys' fees and other
costs. Under the 1992 Cable Act, the privacy requirements are
strengthened to require that cable operators take such actions as are
necessary to prevent unauthorized access to personally identifiable
information.
STATE AND LOCAL REGULATION. Because cable television systems
use local streets and rights-of-way, cable television systems are
generally licensed or franchised by local municipal or county
governments and, in some cases, by centralized state authorities with
such franchises being given for fixed periods of time subject to
extension or renewal largely at the discretion of the issuing
authority. The specific terms and conditions of such franchises vary
significantly depending on the locality, population, competitive
services and a number of other factors. While this variance takes
place among systems of essentially the same size in the same state,
franchises generally are comprehensive in nature and impose
requirements on the cable operator relating to all aspects of cable
service including franchise fees, technical requirements, channel
capacity, subscriber rates, consumer and service standards, access
channel and studio facilities, insurance and penalty provisions.
Local franchise authorities generally control the sale or transfer of
cable systems to third parties. The franchising process, like the
federal regulatory climate, is highly politicized and no assurances
can be given that the Company's franchises will be extended or renewed
or that other problems will not be encountered at the local level. In
connection with the franchise renewal process, LFAs commonly request
the provision of enhanced cable system technology as a condition of
franchise renewal. The 1984 Cable Act grants certain protective
procedures in connection with renewal of cable franchises, which
procedures were further clarified by the renewal provisions of the
1992 Cable Act.
PROPOSED CHANGES IN REGULATION. The regulation of cable
television systems at the federal, state and local levels is subject
to the political process and has been in constant flux over the past
decade. Material changes in the law and regulatory requirements must
be anticipated and there can be no assurance that the Company's
business will not be affected adversely by future legislation, new
regulation or deregulation. Legislative, administrative and/or
judicial action may change all or portions of the foregoing statements
relating to competition and regulation.
CABLE PROVISION OF INTERNET SERVICES. Transmitting indecent
material via the Internet is made criminal by the 1996 Act. However,
on-line access providers are exempted from criminal liability for
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simply providing interconnection service; they are also granted an
affirmative defense from criminal or other action where in "good
faith" they restrict access to indecent materials. The 1996 Act
further exempts on-line access providers from civil liability for
actions taken in good faith to restrict access to obscene, excessively
violent or otherwise objectionable material.
REGULATION OF INTERNET SERVICES. Internet-related services are not
currently subject to direct regulation by the FCC or any other United
States agency, other than regulation applicable to businesses generally.
The FCC recently requested comments on a petition filed by the America's
Carriers Telecommunication Association which requests that the FCC regulate
certain voice transmissions over the Internet as telecommunications
services. Changes in the regulatory environment relating to the
telecommunications or Internet-related services industry could have an
adverse effect on the Company's Internet-related services business. The
1996 Act may permit telecommunications companies, RBOCs or others to
increase the scope or reduce the cost of their Internet access services.
Given the present unsettled nature of the regulation of Internet services,
the Company cannot predict the effect that the 1996 Act or any future
legislation, regulation or regulatory changes may have on its business.
In addition to the regulatory uncertainties, the law relating to the
liability of on-line services providers and Internet access providers for
information carried on, disseminated through or hosted on their systems is
currently unsettled. Several private lawsuits seeking to impose such
liability are currently pending. In one case brought against an Internet
access provider, RELIGIOUS TECHNOLOGY CENTER V. NETCOM ON-LINE
COMMUNICATION SERVICES, INC., the United States District Court for the
Northern District of California ruled in a preliminary phase that under
certain circumstances Internet access providers could be held liable for
copyright infringement. The case has been settled by the parties.
The 1996 Act prohibits and imposes criminal penalties and civil
liability for the use of an interactive computer service for transmitting
certain types of information and content, such as indecent or obscene
communications. On June 12, 1996, however, a panel of three federal judges
granted a preliminary injunction barring enforcement of this portion of the
1996 Act to the extent that enforcement is based upon allegations other
than obscenity or child pornography as an impermissible restriction on the
First Amendment's right of free speech. That decision has been appealed to
the United States Supreme Court. In addition, Congress, in consultation
with the United States Patent and Trademark Office and the Clinton
Administration's National Information Infrastructure Task Force, is
currently considering legislation to address the liability of on-line
service providers and Internet access providers, and numerous states have
adopted or are currently considering similar types of legislation. The
imposition upon Internet access providers or Web hosting sites of potential
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liability for materials carried on or disseminated through their systems
could require the Company to implement measures to reduce its exposure to
such liability, which may require the expenditure of substantial resources
or the discontinuation of certain product or service offerings. The Company
believes that it is currently unsettled whether the 1996 Act prohibits and
imposes liability for any services provided by Iway should the content or
information transmitted be subject to the 1996 Act.
The law relating to the liability of on-line service providers and
Internet access providers in relation to information carried, disseminated
or hosted also is being discussed by the World Intellectual Property
Organization in the context of ongoing consideration of updating existing,
and adopting new, international copyright treaties. Similar developments
are ongoing in the United Kingdom and other jurisdictions. The scope of
authority of various regulatory bodies in relation to on-line services is
currently uncertain.
The Office of Telecommunications in the United Kingdom recently has
published a consultative document setting out a number of issues for
discussion, including the roles of traditional telecommunications and
broadcasting regulators with respect to on-line services. The Securities
Investment Board in the United Kingdom is investigating the status of on-
line services and the transmission of investment information over networks
controlled by access providers. Such transmissions may make an access
provider liable for any violation of securities and other financial
services legislation and regulations. Decisions regarding regulation,
enforcement, content liability and the availability of Internet access in
other countries may significantly affect the ability to offer certain
services worldwide and the development and profitability of companies
offering Internet and on-line services in the future. For example, it has
been reported that CompuServe recently removed certain content from its
services worldwide in reaction to law enforcement activities in Germany,
and it has been reported that an Internet access provider in Germany has
been advised by prosecutors that it may have liability for disseminating
neo-Nazi writings by providing access to the Internet where these materials
are available.
The increased attention focused upon liability issues as a result of
these lawsuits, legislation and legislative proposals could affect the
growth of Internet use. Any costs incurred as a result of liability or
asserted liability for information carried on or disseminated through its
systems could have a material adverse effect on the business, financial
condition and results of operations of the Company.
SUMMARY ONLY. The foregoing is only a summary of some of the present
and proposed federal, state and local regulations and legislation relating
to the Company's businesses. Other existing federal regulations, copyright
licensing and, in many jurisdictions, state and local regulatory
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requirements, currently are the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative
proposals which could change, in varying degrees, the manner in which the
Company operates. Neither the outcome of these proceedings nor their impact
upon the Company can be predicted at this time.
EMPLOYEES
As of December 31, 1996, the Company employed 76 employees in the
United States, none of whom were subject to any collective bargaining
agreements.
ENVIRONMENTAL AND OTHER MATTERS
Except for site-specific issues, environmental issues tend to impact
members of the telecommunications industry in consistent ways. The
Environmental Protection Agency ("EPA") and other agencies regulate a
number of chemicals and substances that may be present in facilities used
in the provision of telecommunications services. These include
preservatives which may be present in certain wood poles, asbestos which
may be present in certain underground duct systems and lead which may be
present in certain cable sheathing. Components of the Company's network
may include one or more of these chemicals or substances. The Company
believes that in their present uses, any such facilities of the Company
pose no significant environmental or health risk that derives from EPA
regulated substances. If EPA regulation of any such substance is
increased, or if any facilities are disturbed or modified in such a way
as to require removal of the substance(s), special handling, storage and
disposal may be required for any such facilities removed from use. At
this time the Company is not subject to any environmental litigation.
PROPERTIES
The tangible assets of the Company include a substantial investment
in telecommunications and cable equipment. The net book value of the
Company's fixed assets was $14.4 million at December 31, 1996.
The principal properties of the Company do not lend themselves to
simple description by character and location. The Company's investment in
property, plant and equipment consisted of the following at December 31,
1995 and 1996:
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<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
(IN THOUSANDS)
<CAPTION>
FIXED ASSETS 1996 1995
<S> <C> <C>
Telecommunications Plant $16,923 $15,452
Cable Systems 4,870 1,355
Other Equipment 2,510 2,100
Land and Buildings 1,604 1,581
Other 354 462
</TABLE>
Telecommunications plant consists of switching equipment, transmission
equipment and related facilities, aerial cable, underground cable, conduit
and wiring. Cable systems consist of head-end, distribution and subscriber
equipment. Other equipment consists of public telephone instruments and
telephone equipment (including PBXs) used or leased by the Company in its
operations, poles, furniture, office equipment and vehicles and other work
equipment. Land and buildings consist of land owned in fee and
improvements thereto, principally central office buildings. Other property
consists primarily of plant under construction, capital leases and
leasehold improvements.
The Company's rights-of-way for its telecommunications and cable
transmission systems are typically held under leases, easements, licenses
or governmental permits. All other major equipment and physical facilities
are owned in fee and are operated, constructed and maintained pursuant to
rights-of-way, easements, permits, licenses or consents on or across
properties owned by others.
The Company believes that standard practices prevailing in the
telephone industry are followed by the Company's telephone operating
subsidiaries in the construction and maintenance of plant and facilities,
and that all properties presently being used for operations of the Company
are suitable, well maintained and adequately equipped for the purposes for
which they are used. Substantially all of the Company's properties are
subject to mortgage liens held by the RUS and Rural Telephone Finance
Cooperative.
The following property is owned in fee by the Company:
Headquarters building - Irene, South Dakota
13,000 square feet, single story brick, with 8,500 sq. ft. for
offices, 3,500 being remodeled for office space and 1,200 for storage.
Originally built in 1977 and expanded twice since then.
Main warehouse - Irene, South Dakota
5,000 square feet, metal structure.
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Service building - Irene, South Dakota
3,000 square feet, metal structure, with 600 sq. ft. in office space
and the balance in storage.
Network switching center - Lennox, South Dakota
1,360 sq. ft. for switching, 2,000 sq. feet for storage.
New network switching center - Viborg, South Dakota
Under construction (site preparation only to date), 7,000 sq. ft.,
single story brick, on six-acre site in an industrial park.
Switching and equipment buildings
Irene, South Dakota - telephone 900 sq. ft.
Wakonda, South Dakota - 800 sq. ft.
Gayville, South Dakota - 600 sq. ft.
Parker, South Dakota - 1,400 sq. ft.
Alsen, South Dakota - 1,000 sq. ft., plus 400 sq. ft. for storage
building.
Flyger, South Dakota - 900 sq. ft.
Worthing, South Dakota - 1,100 sq. ft.
Beresford, South Dakota - 700 sq. ft.
Hurley, South Dakota - 900 sq. ft.
Sundowner site - Sioux Falls, South Dakota - 200 sq. ft. with
additional 250 sq. ft. building on order, one-hundred foot
wireless equipment tower under construction, on 2.5 acre site
(owned by the Company).
The following property is leased by the Company:
Beresford, South Dakota - 250 sq. ft. (office)
9th & Phillips site - Sioux Falls, South Dakota - 3,000 sq. ft.
(office - TCIC and Iway operations).
The Company also has various CATV equipment buildings, all of which
are small (less than 300 sq. ft.) and most of which are on leased land in
various communities served by the Company. This list of properties does
not include properties owned or leased by subsidiaries of the Company, none
of which is material. All properties owned by the Company are subject to
liens for loans obtained in the ordinary course of business.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company.
The Company is subject from time to time to legal proceedings and claims
that arise in the ordinary course of business and frequently participates
in regulatory proceedings in front of the South Dakota Public Utilities
Commission. However, in the opinion of management, none of these
proceedings is material to the Company's consolidated financial condition
or results of operations.
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MARKET FOR COMMON AND PREFERRED STOCK AND DIVIDENDS
MARKET INFORMATION AND HOLDERS. There is no established public
trading market for Cooperative Common Stock. Shares of Cooperative Common
Stock may only be sold to individuals or entities who are eligible for
membership in the Cooperative at the $5.00 par value, and only after
providing the Cooperative a right of first refusal. Members are entitled
to own only one share of Cooperative Common Stock. There are no
outstanding options or warrants to purchase shares of Cooperative Common
Stock, nor are there any outstanding securities that are convertible into
shares of Cooperative Common Stock. The Cooperative has not agreed to
register under the Securities Act any Cooperative Common Stock for sale by
security holders and Rule 144 issued pursuant to such act is not available
for sales of Cooperative Common Stock by Members. As of December 31, 1996,
there were 5,237 Members of record of the Cooperative.
There also is no established public trading market for Preferred
Stock. Shares of Preferred Stock currently outstanding are subject to
substantial restrictions on transferability. At the date of this
Prospectus and Ballot/Proxy Statement, there are outstanding options and
warrants to purchase up to 2,016 shares of Preferred Stock. There are no
outstanding securities that are convertible into shares of Preferred Stock.
The Cooperative has not agreed to register under the Securities Act any
Preferred Stock for sale by security holders and Rule 144 issued pursuant
to such act is not available for sales of Preferred Stock. As of the date
of this Prospectus and Ballot/Proxy Statement, there were seven holders of
record of Preferred Stock.
If the Conversion or the Merger is consummated, the Resulting Company
expects to issue up to 1,050,000 shares of Resulting Company common stock
and warrants and options to purchase no more than 200,000 shares of
Resulting Company common stock in connection with such consummation. (See
"THE CONVERSION" and "THE MERGER.")
DIVIDENDS. The Cooperative's articles of incorporation prohibit the
Cooperative from paying dividends on Cooperative Common Stock. Although
the Resulting Company, as a business corporation, would have the ability to
pay dividends, certain covenants in existing loan agreements between the
Cooperative and the RUS to which the Resulting Company would be subject, as
well as federal statutes and regulations which apply to RUS borrowers,
limit the circumstances under which the Resulting Company would be
permitted to pay dividends or make other distributions to stockholders.
The RUS must authorize distributions other than in shares of stock unless
certain financial ratio requirements are met. The Cooperative's articles
of incorporation permit the Cooperative to pay dividends on Preferred
Stock, although dividends have never been declared or paid on Preferred
Stock.
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CERTAIN AGREEMENTS AFFECTING CAPITAL STOCK
TCIC AND IWAY AGREEMENTS. In connection with the Cooperative's
acquisition of TCIC and Iway, the Cooperative entered into two agreements,
one with the former shareholders of TCIC (the "TCIC Agreement") and another
with the former shareholders (collectively, together with the former TCIC
shareholders, the "Sellers") of Iway (the "Iway Agreement."). Under the
terms of these agreements, the Cooperative issued an aggregate 931 shares
of Preferred Stock to the TCIC Sellers and an aggregate 241 shares of
Preferred Stock to the Iway Sellers.
The Preferred Stock has no voting rights, except as otherwise provided
by SDBCA, and has no right to dividends unless the Cooperative's Board
of Directors declares dividends on the Preferred Stock. In the event
that the Cooperative liquidates, dissolves or otherwise winds up its
affairs, the holders of the Preferred Stock would receive a liquidation
preference in the amount of $1,000 per share of Preferred Stock. This
liquidation preference would be paid to the holders of the Preferred Stock
prior to any payment to the holders of Cooperative Common Stock.
Furthermore, the TCIC Agreement and the Iway Agreement expressly
acknowledge that the Cooperative anticipates converting itself into a
business corporation and becoming a public corporation with shares of stock
registered under the Securities Act. If the Conversion or the Merger is
not consummated prior to September 1, 1997, the holders of the Preferred
Stock issued under the TCIC Agreement and the Iway Agreement are entitled
to a "Non-Liquidity Fee" in the amount of $80 annually per share until the
Conversion or the Merger is consummated. Non-Liquidity Fees accrue on June
15 and December 15 of each year during the terms of the agreements (with
certain exceptions). The first accrual date is December 15, 1997, and the
Non-Liquidity Fee accrued on that date would be $26.67 per share of
Preferred Stock. On each subsequent accrual date, if any, prior to the
consummation of the Conversion and/or the Merger, the Non-Liquidity Fee
accrued would be $40 per share of Preferred Stock. Non-Liquidity Fees may
be paid in any form that the Cooperative's Board of Directors determines,
including cash or the issuance of one additional share of Preferred Stock
for each $1,000 of Non-Liquidity Fees. No interest is payable on Non-
Liquidity Fees accrued but not paid. Any dividends paid with respect to
shares of Preferred Stock reduce the amount of accrued but unpaid Non-
Liquidity Fees.
In the event that the Conversion or the Merger is consummated, the
Preferred Stock would automatically be converted into shares of Resulting
Company common stock. Under the TCIC Agreement, the number of shares of
Resulting Company common stock to be issued in exchange for the Preferred
Stock would be such that the TCIC Sellers, as the sole owners of the 931
shares of Preferred Stock, would collectively receive a number of shares of
Resulting Company common stock that would equal 6.75 percent of the
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outstanding Resulting Company common stock immediately after the Conversion
or the Merger, assuming (i) that the Conversion or the Merger took place on
November 30, 1996, and (ii) that all Capital Credits outstanding on the
books of the Cooperative on that date, reduced by the amount of cash used
by the Cooperative to retire Capital Credits or cash out odd-lot holders
(subject to a $500,000 limit), were converted into additional shares of
Resulting Company common stock. An identical provision is contained in the
Iway Agreement, except that the percentage of outstanding Resulting Company
common stock that the Iway Sellers would receive immediately after the
Conversion or the Merger, as the sole owners of 241 shares of Preferred
Stock, is 1.75 percent rather than 6.75 percent.
STOCK OPTIONS. As part of its executive compensation of Thomas W.
Hertz, Chief Executive Officer and General Manager of the Cooperative, and
Craig A. Anderson, Executive Vice President - Marketing and Chief Financial
Officer of the Cooperative, the Board of Directors of the Cooperative has
granted to each of Messrs. Hertz and Anderson stock options to purchase 767
shares of Preferred Stock, which would automatically become options to
purchase Resulting Company common stock if the Conversion or the Merger is
consummated. (See "ADDITIONAL SECURITIES OF THE RESULTING COMPANY--Stock
Options.")
WARRANTS. Pursuant to the TCIC Agreement and the Iway Agreement, and
as part of the consideration therefor, the Board of Directors of the
Cooperative granted to the TCIC Sellers and the Iway Sellers warrants to
purchase up to an aggregate of 482 shares of Preferred Stock ("Warrants"),
which would automatically become Warrants to purchase Resulting Company
common stock if the Conversion or the Merger is consummated. (See
"ADDITIONAL SECURITIES OF THE RESULTING COMPANY--Warrants.")
STANDSTILL AGREEMENTS. In connection with the issuance of shares of
Preferred Stock to the TCIC Sellers and Iway Sellers, the Cooperative
entered into standstill agreements ("Standstill Agreements") with each of
such persons which restrict the ability of the TCIC Sellers and Iway
Sellers from selling such stock and taking various other actions, as
specified in the Standstill Agreements. The restrictions embodied in the
Standstill Agreements would continue to be applicable to shares of
Resulting Company common stock issuable to the TCIC Sellers and Iway
Sellers in exchange for their Preferred Stock if the Conversion or the
Merger is consummated. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Standstill Agreements.")
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is provided by the Cooperative's management
as its analysis of the Cooperative's financial condition and results of
operations. This analysis should be read in conjunction with the separate
historical financial statements of the Cooperative and notes thereto
included as Appendix G to this Prospectus and Ballot/Proxy Statement.
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TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
OVERVIEW
The Company is a diversified telecommunications services company. The
Company, either directly or through wholly owned subsidiaries, currently
provides wireless local and network access services, long distance
telephone services, operator assisted calling services, telecommunications
equipment sale and leasing services, cable television services and Internet
access and related services. (See "DAKOTA COOPERATIVE TELECOMMUNICATIONS,
INC.--Business.")
The Company's local exchange services in South Dakota provide a
majority of the Company's revenue and income. In 1996, the Company made
the strategic decision to expand its operations into related
telecommunications businesses, including expanding its cable television
services. During 1996, the Company purchased 19 additional cable
television systems. In December 1996, the Company, through a wholly owned
subsidiary, merged with TCIC, a South Dakota-based provider of long
distance and operator services. Also in December 1996 the Company merged
with Iway, one of South Dakota's largest Internet service providers. Both
TCIC and Iway continue to operate as wholly owned subsidiaries of the
Cooperative.
1996 was a year of repositioning for the Company. In late 1995, the
Company finalized its plans to substantially rebuild its telecommunications
network to increase the number and quality of the telecommunications
services it can offer and to provide an infrastructure for future expansion
into new markets. As a result, the Company reassessed the remaining useful
life of its existing facilities in 1995 and significantly increased its
capital expenditures in 1996. In addition, to implement its growth plans,
the Company acquired additional operator services, Internet and cable
television businesses and expanded its employee base from 34 employees at
December 31, 1995 to 76 employees at December 31, 1996, resulting in
additional increases in amortization expense and employee-related operating
expenses. The Company's rebuilding plans call for a substantial increase
in capital expenditures in 1997 to approximately $16,000,000, which the
Company plans to finance primarily through additional long-term debt.
While the Company anticipates that its revenue base will continue to grow
in 1997 and 1998 as it markets new services, the resultant higher expense
levels from a combination of higher amortization, depreciation and interest
expense, as well as additional employee expense, will likely cause the
Company to recognize net after-tax losses in those years.
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<TABLE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
<CAPTION>
DOLLARS IN THOUSANDS 1995 1996
<S> <C> <C> <C>
Capital Expenditures $1,554.1 $5,751.6
Cash Provided from Operations 1,950.2 1,961.8
Cash Used for Investment 725.7 7,516.2
Cash Provided from Financing 103.3 1,353.0
Long-Term Debt Incurred 342.0 4,399.3
Total Capital Structure 18,470.0 21,750.8
Percent Debt to Total Capital 71% 71%
</TABLE>
The Company's total capital structure was $21,751,000 at December 31,
1996, compared to a total capital structure of $18,470,000 at December 31,
1995. The increase in total capital in 1996 of $3,281,000 was composed
primarily of additional outstanding long-term debt of $2,284,000,
$1,172,000 in additional capital from the issuance of preferred stock to
acquire TCIC and Iway in December 1996 and a decrease of $160,000 due to a
net loss in 1996.
Cash provided from operations, which is the Company's primary source
of liquidity, was $1,962,000 in 1996 and $1,951,000 in 1995, reflecting a
relatively stable operating cash flow in spite of the additional 19 cable
systems purchased during 1996. Cash used in investing activities was
$7,516,000 in 1996, up from $725,700 in 1995. This increase is primarily
due to increased capital expenditures in 1996 as the Company began
rebuilding its transmission network. Investing activities for 1995 also
included cash totaling $1,142,000 that was received from the sale of the
Company's investment in certain cellular operations. Cash provided from
financing activities was $1,353,000 in 1996, up from $103,300 in 1995.
The increase in 1996 was primarily attributable to increased long-term
borrowings to finance the Company's 1996 capital expenditures program.
The Company believes that it has adequate internal and external resources
available to finance its ongoing operating requirements but will need
additional long-term financing to meet its planned $15,000,000 network
construction program.
The Company's existing long-term debt consists primarily of a series
of loans from the RUS (formerly the Rural Electrification Association).
The weighted average interest rate on these loans at December 31, 1996 was
4.4 percent. At December 31, 1996, the Company had an unused borrowing
capacity under its current RUS loan commitment of $3,983,000. In addition,
in 1996 the Company applied to the RUS to redesign and increase its
commitment to $28,000,000 to finance its network upgrade program. The RUS
has not yet approved this request and there is no assurance that such
approval can be obtained.
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During 1996, the Company and its subsidiaries increased long-term debt
by $4,399,000, compared to a $342,000 increase in 1995. Approximately
$3,300,000 of the 1996 increase was related to the acquisition of 19
additional cable television systems and was obtained from the Rural
Telephone Finance Cooperative ("RTFC"). The balance of the 1996 loans and
the 1995 borrowings were obtained from the RUS. The Company and its
subsidiaries expect these and other sources to continue to be available for
future borrowings.
RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED OPERATIONS. In 1996, revenues increased to
$7,809,000, up from $6,116,000 in 1995. This represents an increase of 28
percent in 1996 compared to 1995. This increase reflects the addition of
19 new cable systems during 1996 as well as rate increases for the
Company's local telephone services. Total costs and expenses increased to
$7,731,000, up from $5,274,000 in 1995. This represents an increase of 47
percent in 1996 compared to 1995. The increase in 1996 expenses reflects
the additional operating expense associated with the 19 new cable systems
as well as an increase in depreciation and amortization expense and
employee costs for the Company's telephone operations. The 1995 increase
reflects primarily a reduction in the estimated useful lives of the
Company's primary fixed assets which substantially increased depreciation
expenses. The Company's consolidated net income for 1996 was a loss of
$160,000 compared to net income of $1,133,000 in 1995, a decrease of 114
percent in 1996 compared to 1995. The 1995 results include a one-time
pre-tax net gain in the amount of $686,000 related to the sale of a
cellular investment made by the Company.
The following sections discuss the reasons for these results in the
Company's two major business segments, Telephone Operations and Cable
Television Operations.
<TABLE>
TELEPHONE OPERATIONS
<CAPTION>
DOLLARS IN THOUSANDS 1995 1996
<S> <C> <C> <C>
Local Service $ 856.1 $1,058.7
Long Distance Toll Service 1,931.7 1,996.3
Access Service 2,761.8 3,267.0
Other Revenues 34.5 140.8
-------- --------
Total Revenue $5,584.1 $6,462.7
Depreciation and Amortization 1,632.2 2,011.0
Other Costs and Expenses 3,220.0 3,997.6
-------- --------
Operating Income (Loss) $ 731.9 $ 454.1
Access Lines 5,935 5,973
</TABLE>
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<PAGE>
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services. Local
service revenues increased $202,600 or 24 percent in 1996 compared
to 1995. The 1996 increase was due primarily to a local service rate
increase approved by the Board of Directors in December 1995. There are no
local rate requests currently pending for the Company nor does the Company
currently anticipate any local rate increases during 1997. The Company's
local service rates are not currently regulated by the FCC or the South
Dakota Public Utilities Commission.
Long distance toll revenues are received from customers who elect to
use the Company to complete their intrastate and interstate long distance
calls. Long distance toll revenues increased $64,600 or three percent in
1996 compared to 1995. These changes primarily reflect fluctuations in
minutes of use by the Company's customers.
Access revenues are received from IXCs for their use of the Company's
local exchange facilities in providing long distance services to IXCs'
customers. Switched access service revenues are derived from usage-based
charges paid by IXCs for access to the Company's network. Special access
revenues arise from access charges paid by IXCs and end-users who have
private networks. Access revenues increased $505,200 or 18 percent in
1996 compared to 1995. The Company reassesses its access rates and
underlying cost studies annually and adjusts its tariff rate filings and
participation in NECA and USF revenue pools accordingly. In 1996, the
Company received approval from the South Dakota Public Utilities
Commission to increase its intrastate access rates approximately 20
percent. The Company anticipates that its operating costs will continue
to increase in 1997 and, accordingly, anticipates that its access revenue
will increase in 1997.
Depreciation and amortization expenses increased by $378,800 or
23 percent in 1996 as a result of the Company's additional capital
expenditures for the year and the amortization of costs associated
with its acquisitions of TCIC and Iway.
Other telephone costs and expenses increased $777,600 or 24 percent
for 1996, primarily due to expensing of $550,000 of costs associated with
the abandonment of the acquisition of eight wireline telephone exchanges.
The other expense increase of $227,600 in 1996 was primarily due to an
increase in network repair maintenance activities which were postponed in
earlier years.
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<TABLE>
CABLE TELEVISION OPERATIONS
<CAPTION>
DOLLARS IN THOUSANDS 1995 1996
<S> <C> <C> <C>
Cable Service Revenue $ 469.4 $1,300.5
Other Revenue 61.9 45.6
-------- --------
Total Cable Revenue 531.3 1,346.1
Depreciation & Amortization 68.8 423.4
Costs and Expenses 352.6 1,298.9
-------- --------
Operating Income (Loss) $110.0 ($376.2)
Subscribers 1,740 5,474
</TABLE>
The Company's cable service revenues increased $831,000 or 177 percent
in 1996 due to the acquisition of 19 additional cable systems during the
year.
Depreciation and amortization expenses increased by $354,600 or 515
percent in 1996 as a result of the Company's purchase of 19 additional
cable systems during the year with $113,900 primarily due to the Company's
reassessment of the remaining useful life of its existing cable system
assets.
Other costs and expenses increased $946,400 or 268 percent in 1996
compared to 1995. Operating expenses increased in 1996 primarily due to
the increased level of all expenses associated with the acquisition of 19
additional systems.
OTHER INCOME, NET
Other income, net consists primarily of interest and dividend income,
interest expense and gains and losses from the disposition of non-operating
assets and investments. Other income decreased $1,000,000 or 170 percent
in 1996 primarily due to the unusual net after-tax increase in 1995 from
the one-time sale of the Company's investment in cellular telephone
operations. The 1996 decrease also reflects additional interest expense
from the Company's increased long-term debt over 1995.
<TABLE>
INTEREST EXPENSE
<CAPTION>
DOLLARS IN THOUSANDS 1995 1996
<S> <C> <C>
$592.1 $723.8
</TABLE>
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Interest expense increased $131,700 or 22 percent in 1996 due to the
addition of long-term borrowings to finance the Company's 1996 capital
expenditures and the acquisition of 19 additional cable television systems
and the business operations of TCIC and Iway. The Company anticipates that
it will borrow substantial additional long-term funds in 1997 to finance
its network rebuilding project and, accordingly, anticipates that future
interest expense will increase significantly.
INCOME TAXES
The Company historically has operated as a stock cooperative and has
been granted tax exempt status under Section 501(c)(12) of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, income tax
expense has been related only to certain ancillary operations, such as the
Company's cable television operation and its prior investment in cellular
operations. Income tax expense decreased $477,500 or 158 percent in 1996
due to the carryback of certain net operating losses to prior years.
FINANCIAL STATEMENTS
The audited consolidated financial statements of Dakota Cooperative
Telecommunications, Inc. for the years ended December 31, 1996 and 1995,
together with the notes thereto and the report of Olsen Thielen & Co., Ltd.
dated January 18, 1997, are included as Appendix G to this Prospectus and
Ballot/Proxy Statement.
DAKOTA TELECOMMUNICATIONS GROUP, INC.
BUSINESS
DTG would be the successor to the Cooperative if the Conversion is
consummated and currently does not exist as a separate entity. If the
Conversion is consummated, the business of DTG initially would be identical
to the business of the Cooperative. For a description of the business of
the Cooperative, see "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Business."
PROPERTIES AND LEGAL PROCEEDINGS
If the Conversion is consummated, the properties and legal proceedings
of DTG would be identical to those of the Cooperative. (See "DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC.--Properties" and "--Legal Proceedings.")
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION AND HOLDERS. There would be no established trading
market for DTG Common Stock as the successor to the Cooperative. (See
"DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Market for Common and
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Preferred Stock and Dividends.") If the Conversion is adopted but the Plan
of Merger is not approved, DTG intends to enter into negotiations with one
or more regional brokerage firms to act as a market maker for shares of DTG
Common Stock and intends, at a future date, to apply to have shares of DTG
Common Stock quoted for trading on The Nasdaq Stock Market. There can be
no assurance that DTG would be successful in finding a brokerage firm to
act as a market maker for DTG Common Stock or that shares of DTG Common
Stock would ever be quoted for trading on The Nasdaq Stock Market.
Similarly, there can be no assurance that a trading market would develop or
be maintained for shares of DTG Common Stock or, if it did, that it would
provide holders of DTG Common Stock a meaningful opportunity to liquidate
their equity interest in DTG at a fair value.
DIVIDENDS. As the successor to the Cooperative, DTG would have no
history of paying dividends. Unlike the Cooperative, after the Conversion
DTG would be permitted by law to pay dividends to its shareholders,
although certain covenants in existing loan agreements between the Coopera-
tive and the RUS, to which DTG would become subject, as well as federal
statutes and regulations which apply to RUS borrowers, limit the
circumstances under which DTG would be permitted to pay dividends or make
other distributions to shareholders. The RUS must authorize distributions
other than in shares of stock unless certain financial ratio requirements
are met. The amount and timing of any future dividend payments would be
based on a number of factors, including the capital requirements of DTG's
business and the financial condition of DTG. There can be no assurance
that DTG would pay any dividends at any time. DTG does not intend to pay
dividends at any time in the foreseeable future. In the future, it is
possible that agreements with lenders could continue to limit or restrict,
or place additional limitations or restrictions upon, DTG's ability to pay
dividends or the amount of dividends that DTG may pay to its shareholders.
The dividend rights of DTG Common Stock also would be subject to the rights
of any DTG Preferred Stock which may be issued in the future.
STOCK OPTIONS. If the Conversion is consummated, the options described
in "DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Certain Agreements
Affecting Capital Stock" would automatically become options to purchase
shares of DTG Common Stock. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Stock Options.")
WARRANTS. If the Conversion is consummated, the Warrants described in
"DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Certain Agreements Affecting
Capital Stock" would automatically become Warrants to purchase shares of DTG
Common Stock. (See "ADDITIONAL SECURITIES OF THE RESULTING COMPANY--
Warrants.")
FINANCIAL STATEMENTS
DTG does not exist as an entity separate from the Cooperative and,
therefore, it does not have historical financial statements. DTG would be
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<PAGE>
the successor to the Cooperative. See Appendix G to this Prospectus and
Ballot/Proxy Statement for historical financial statements of the
Cooperative and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS" for pro forma financial statements that give effect to the
Conversion.
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
BUSINESS
DTG Delaware is a business corporation formed under Delaware law with
general business purposes and is currently a wholly owned subsidiary of the
Cooperative. Before the proposed Merger, DTG Delaware will have no
business history. If the Merger is consummated, the business of DTG
Delaware would be identical to the business of DTG (which would be
identical to the business of the Cooperative prior to the Conversion).
For a description of the business of the Cooperative, see "DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC.--Business."
PROPERTIES AND LEGAL PROCEEDINGS
If the Merger is approved and consummated, the properties and legal
proceedings of DTG Delaware would be identical to those of DTG, which,
after the Conversion, would be identical to those of the Cooperative. (See
"DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Properties" and "--Legal
Proceedings.")
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION AND HOLDERS. There is no trading market for DTG
Delaware Common Stock. At the date of this Prospectus and Ballot/Proxy
Statement, there are no options or warrants to purchase, or securities
convertible into, shares of DTG Delaware Common Stock. DTG Delaware has not
agreed to register under the Securities Act any securities for sale by the
security holder and Rule 144 pursuant to such act is not available for
sales of DTG Delaware Common Stock by its stockholder. If the Merger is
consummated, DTG Delaware intends, at a future date, to enter into
negotiations with one or more regional brokerage firms to act as a market
maker for shares of DTG Delaware Common Stock and intends to apply to have
shares of DTG Delaware Common Stock quoted for trading on The Nasdaq Stock
Market. There can be no assurance that DTG Delaware would be successful in
finding a brokerage firm to act as a market maker for DTG Delaware Common
Stock or that shares of DTG Delaware Common Stock would ever be quoted for
trading on The Nasdaq Stock Market. Similarly, there can be no assurance
that a trading market would develop or be maintained for shares of DTG
Delaware Common Stock or, if it did, that it would provide holders of DTG
Delaware Common Stock a meaningful opportunity to liquidate their equity
interest in DTG Delaware at a fair value.
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<PAGE>
DIVIDENDS. Under the Delaware Law and DTG Delaware's Certificate
of Incorporation, DTG Delaware is permitted to pay dividends to its
stockholders. DTG Delaware currently has no business history, has only
nominal assets and liabilities and has not paid dividends on DTG Delaware
Common Stock. If the Merger is consummated, holders of DTG Delaware Common
Stock would be entitled to receive dividends if, as and when declared by
DTG Delaware's Board of Directors out of funds legally available for that
purpose. However, certain covenants in existing loan agreements between
the Cooperative and the RUS, to which DTG Delaware would become subject,
as well as federal statutes and regulations which apply to RUS borrowers,
limit the circumstances under which DTG Delaware would be permitted to pay
dividends or make other distributions to stockholders. RUS must authorize
distributions other than in shares of stock unless certain financial ratio
requirements are met. The amount and timing of any future dividend
payments would be based on a number of factors, including the capital
requirements of DTG Delaware's business and the financial condition of DTG
Delaware. There can be no assurance that DTG Delaware would pay any
dividends at any time. DTG Delaware does not intend to pay dividends at
any time in the foreseeable future. In the future, it is possible that
agreements with lenders could continue to limit or restrict, or place
additional limitations or restrictions upon, DTG Delaware's ability to pay
dividends or the amount of dividends that DTG Delaware may pay to its
stockholders. The dividend rights of DTG Delaware Common Stock are subject
to the rights of any DTG Delaware Preferred Stock which may be issued in
the future.
STOCK OPTIONS. If the Merger is consummated, the options described in
"DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Agreements Affecting Capital
Stock" would automatically become options to purchase shares of DTG
Delaware Common Stock. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Stock Options.")
WARRANTS. If the Merger is consummated, the Warrants described in
"DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.--Certain Agreements Affecting
Capital Stock" would automatically become Warrants to purchase shares of
DTG Delaware Common Stock. (See "ADDITIONAL SECURITIES OF THE RESULTING
COMPANY--Warrants.")
FINANCIAL STATEMENTS
DTG Delaware has nominal assets and liabilities and no income. If the
Merger is consummated, DTG Delaware would assume all of the operations,
assets and liabilities of DTG and DTG Delaware's consolidated financial
position would be substantially identical to that of DTG immediately prior
to the Merger (which in turn would be substantially identical to the
Cooperative's consolidated financial position immediately prior to the
Conversion.) For this reason, historical financial statements of DTG
Delaware have not been included in this Prospectus and Ballot/Proxy
157
<PAGE>
Statement. See Appendix G to this Prospectus and Ballot/Proxy Statement
for historical financial statements of the Cooperative and "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS" for pro forma financial
statements that give effect to the Merger.
DISSENTERS' RIGHTS
Under the provisions of the SDBCA and the Cooperative Act, Members of
the Cooperative and holders of Preferred Stock and Capital Credits are not
entitled to assert dissenters' rights in connection with the Conversion.
Under the provisions of Section 47-6-23 of the SDBCA, any shareholder
of DTG may dissent from the proposed Merger and be paid the "fair value" of
that person's shares of DTG Common Stock issuable in the Conversion by
complying with the procedures set forth in Sections 47-6-23 through 47-6-50
of the SDBCA. Any shareholder who delivers written notice of dissent to
the Cooperative, on behalf of DTG, at or before the special meeting and who
does not vote for approval of the Plan of Merger at the special meeting has
the right to receive the fair value of the person's shares if the Plan of
Merger is approved and the proposed Merger is consummated. A shareholder
may not dissent as to less than all of the shares beneficially owned by him
or her.
A shareholder who wishes to dissent must follow certain required
procedures. To claim dissenters' rights, a shareholder initially must:
(i) refrain from voting in favor of the Plan of Merger
(there is no requirement that a shareholder vote against approval
of the Plan of Merger); and
(ii) deliver to the Cooperative, on behalf of DTG, before
the vote is taken on the Plan of Merger at the special meeting, a
written notice of dissent (voting against approval of the Plan of
Merger will not satisfy this requirement). The notice must state
that the shareholder intends to demand payment for the person's
shares if the Plan of Merger is approved and the transactions
contemplated by the Plan of Merger are consummated.
If the Plan of Merger is approved, DTG must thereafter give notice of
such approval to each shareholder who properly demanded the right to
receive the fair value of the person's shares. Within 30 days (or such
longer period as may be permitted by DTG in the notice) of the date the
notice is delivered, the shareholder must file with DTG a written demand
for payment (in the form contained in the notice), including a
certification as to the date that the shareholder acquired beneficial
ownership of the shares and deposit Cooperative Certificates (if any)
in accordance with the terms of the notice.
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A shareholder who properly demands payment and deposits the person's
Cooperative Certificates (if any) retains all other rights of a shareholder
until those rights are canceled or modified by the taking of the actions
contemplated by the Plan of Merger. A shareholder who does not demand
payment or deposit the person's Cooperative Certificates as required in the
notice loses his or her dissenters' rights.
If the transactions contemplated by the Plan of Merger do not occur, a
court determines that the shareholder is not entitled to payment or the
shareholder otherwise loses dissenters' rights, the shareholder will not be
entitled to receive the payment demanded for the person's shares. If the
transactions contemplated by the Plan of Merger do not occur, a dissenting
shareholder will be reinstated to the person's rights as a shareholder.
Immediately upon consummation of the transactions contemplated by the
Plan of Merger or receipt by DTG of the demand for payment if the
transactions contemplated by the Plan of Merger have already been
consummated, DTG must send to the dissenting shareholder the amount that
DTG estimates to be the fair value of the person's shares, plus accrued
interest, if any. The payment must be accompanied by (i) DTG's balance
sheet and statement of income for a fiscal year ended not more than 16
months before the date of payment, together with the latest available
interim financial statements, (ii) a statement of DTG's estimate of the
fair value of the shares and (iii) a notice of the dissenter's right to
demand payment based on the dissenting shareholder's estimate of the fair
value of the person's shares, accompanied by a copy of Sections 47-6-23
through 47-6-50 of the SDBCA.
Within 30 days after DTG has made payment for the shares, the
shareholder may notify DTG in writing of the person's own estimate of the
fair value of the shares and the amount of interest due, and demand payment
of that estimate, less any payment already forwarded to him or her. The
shareholder's right to pursue further a differing amount for the person's
shares terminates if the shareholder fails to act within that 30-day
period.
If the shareholder demands an amount for the person's shares
different than that paid by DTG, then, within 60 days after receiving the
shareholder's demand for payment of a different amount, DTG may file an
action in an appropriate court to determine the fair value of the
shareholder's shares and accrued interest. If DTG does not file the action
within the 60-day period, DTG will be required to pay the dissenting
shareholder the amount the shareholder has demanded.
This summary discussion of Sections 47-6-23 through 47-6-50 is not
intended to be a complete description of the provisions of those sections
and is qualified in its entirety by reference to Sections 47-6-23 through
47-6-50 of the SDBCA, a copy of which is attached as Appendix H to this
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<PAGE>
Prospectus and Ballot/Proxy Statement and incorporated by reference in this
Prospectus and Ballot/Proxy Statement.
DTG AND DTG DELAWARE ARE NOT OBLIGATED TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE PLAN OF MERGER IF DISSENTERS' RIGHTS ARE ASSERTED WITH
RESPECT TO MORE THAN FIVE PERCENT OF THE NUMBER OF SHARES OF DTG COMMON
STOCK ISSUABLE IN THE CONVERSION. DTG AND DTG DELAWARE WILL REQUIRE STRICT
COMPLIANCE WITH SECTIONS 47-6-23 THROUGH 47-6-50 OF THE SDBCA BY ANY
SHAREHOLDER SEEKING TO ASSERT DISSENTERS' RIGHTS.
THE ABOVE DISCUSSION OF RIGHTS OF DISSENTING SHAREHOLDERS
DOES NOT CONSTITUTE LEGAL ADVICE. SHAREHOLDERS SEEKING TO EXERCISE
AND PERFECT DISSENTERS' RIGHTS SHOULD SEEK LEGAL COUNSEL.
VOTING AND MANAGEMENT INFORMATION
VOTING SECURITIES AND MEMBERS OF THE COOPERATIVE
Each member of record of the Cooperative at the close of business on
the Record Date will be entitled to one vote for each matter presented for
Member action at the special meeting. As of December 31, 1996, there were
5,237 Members of the Cooperative.
No Member can own more than one share of Cooperative Common Stock.
The following table shows certain information concerning the number of
shares of Cooperative Common Stock held as of the date of this Prospectus
and Ballot/Proxy Statement by each of the Cooperative's directors, each of
the named executive officers and all of the Cooperative's directors and
executive officers as a group:
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<PAGE>
<TABLE>
<CAPTION>
DTG COMMON STOCK
ISSUABLE IN THE
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1> CONVERSION
--------------------------------------------- ----------------------
SOLE SHARED
VOTING AND VOTING OR TOTAL PERCENT TOTAL PERCENT
DISPOSITIVE DISPOSITIVE BENEFICIAL OF FOLLOWING OF
NAME OF BENEFICIAL OWNER POWER POWER<F2> OWNERSHIP CLASS CONVERSION<F3> CLASS<F4>
- ------------------------ ----------- ----------- ---------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Anderson --- --- --- --- ______ <F*>
Ross L. Benson 1 1 <F*> ______ <F*>
Dale Q. Bye 1 --- 1 <F*> ______ <F*>
Edward D. Christensen, Jr. 1 --- 1 <F*> ______ <F*>
Jeffrey J. Goeman 1 1 <F*> ______ <F*>
Thomas W. Hertz --- --- --- --- ______ <F*>
James H. Jibben 1 --- 1 <F*> ______ <F*>
Palmer O. Larson 1 --- 1 <F*> ______ <F*>
John A. Roth 1 --- 1 <F*> ______ <F*>
John A. Schaefer 1 --- 1 <F*> ______ <F*>
All directors and executive 6 2 8 <F*> ______ _____%
officers as a group
____________________________
<FN>
<F*>Less than 1 percent
(Footnotes begin on page 112.)
</FN>
</TABLE>
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF DTG
Holders of record of rights to receive shares of DTG Common Stock
issuable in the Conversion as of the Record Date will be entitled to vote
at the special meeting. If the Conversion is adopted by the Members of the
Cooperative, approximately 1,050,000 shares of DTG Common Stock and
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warrants and options to purchase no more than 200,000 shares of DTG Common
Stock would be issuable as of the Record Date. Each share of DTG Common
Stock is entitled to one vote on each matter presented for shareholder
action at the special meeting.
To the knowledge of the Cooperative, no person would own more than
five percent of the shares of DTG Common Stock issuable in the Conversion.
The following table shows certain information concerning the number of
shares of DTG Common Stock that would be held as of the date of this
Prospectus and Ballot/Proxy Statement by each of the individuals who will
be DTG's directors, each of the named individuals who will be executive
officers of DTG and all of the individuals who will be DTG's directors and
executive officers upon consummation of the Conversion as a group:
<TABLE>
<CAPTION>
DTG DELAWARE COMMON
STOCK TO BE RECEIVED
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1> IN THE MERGER
--------------------------------------------- --------------------
SOLE SHARED
VOTING AND VOTING OR TOTAL PERCENT TOTAL PERCENT
DISPOSITIVE DISPOSITIVE BENEFICIAL OF FOLLOWING OF
NAME OF BENEFICIAL OWNER POWER<F3> POWER<F2><F3> OWNERSHIP<F3> CLASS<F4> MERGER<F5> CLASS<F6>
- ------------------------ ----------- ------------- ------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Anderson ______ ______ ______ ______ ______ ______
Ross L. Benson ______ ______ ______ ______ ______ ______
Dale Q. Bye ______ ______ ______ ______ ______ ______
Edward D. Christensen, Jr. ______ ______ ______ ______ ______ ______
Jeffrey J. Goeman ______ ______ ______ ______ ______ ______
Thomas W. Hertz ______ ______ ______ ______ ______ ______
James H. Jibben ______ ______ ______ ______ ______ ______
Palmer O. Larson ______ ______ ______ ______ ______ ______
John A. Roth ______ ______ ______ ______ ______ ______
John A. Schaefer ______ ______ ______ ______ ______ ______
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<PAGE>
All directors and executive ______ ______ ______ ______ ______ ______
officers as a group
_____________________________
(Footnotes begin on page 112.)
</TABLE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDER OF DTG DELAWARE
As of the date of this Prospectus and Ballot/Proxy Statement, there
were 100 shares of DTG Delaware Common Stock issued and outstanding. Each
share of DTG Delaware Common Stock is entitled to one vote on each matter
presented for stockholder action.
The following table sets forth information concerning the number of
shares of DTG Delaware Common Stock held as of the date of this Prospectus
and Ballot/Proxy Statement by the only stockholder of record as of that
date. No director or executive officer of DTG Delaware currently owns any
shares of DTG Delaware Common Stock.
<TABLE>
<CAPTION>
DTG DELAWARE COMMON
STOCK TO BE RECEIVED
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1> IN THE MERGER
--------------------------------------------- --------------------
TOTAL
NAME AND ADDRESS SOLE VOTING AND TOTAL BENEFICIAL PERCENT FOLLOWING PERCENT
OF BENEFICIAL OWNER DISPOSITIVE POWER OWNERSHIP OF CLASS MERGER<F7> OF CLASS
- ------------------- ----------------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Dakota Cooperative 100 100 100% 0 <F*>
Telecommunications, Inc.
Post Office Box 66
29705 453rd Avenue
Irene, South Dakota 57037-0066
<FN>
________________________________
<F*>Less than 1 percent
<F1> The numbers of shares stated are based on information furnished by
each person listed and include shares personally owned of record by
that person and shares which under applicable regulations are deemed
to be otherwise beneficially owned by that person. Under these
regulations, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares voting power or
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<PAGE>
dispositive power with respect to the security. Voting power includes
the power to vote or to direct the voting of the security.
Dispositive power includes the power to dispose or to direct the
disposition of the security. A person also will be considered the
beneficial owner of a security if the person has a right to acquire
beneficial ownership of the security within 60 days.
<F2> These numbers include shares over which the listed person is legally
entitled to share voting or dispositive power by reason of joint
ownership, trust or other contract or property right, and shares held
by spouses and children over whom the listed person may have
substantial influence by reason of relationship.
<F3> This column reflects the number of shares of DTG Common Stock issuable
to the specified person in the Conversion based upon a conversion
ratio of one share of DTG Common Stock for each share of Cooperative
Common Stock, 80.8216445 shares of DTG Common Stock for each share of
Preferred Stock and 0.2 of a share of DTG Common Stock for each
Capital Credit.
<F4> This column reflects the percentage of the shares of DTG Common Stock
issuable in the Conversion which the specified person will hold
following consummation of the Conversion. These percentages were
computed with reference to a total of 1,046,505 shares of DTG Common
Stock and warrants and options to purchase no more than 200,000 shares
of DTG Common Stock issuable in the Conversion based on the conversion
ratios listed in Footnote 3 above.
<F5> This column reflects the number of shares of DTG Delaware Common Stock
that would be issued to the specified person in exchange for the
number of shares of DTG Common Stock shown in the "Total Beneficial
Ownership" column for such person, based upon a conversion ratio of
one share of DTG Delaware Common Stock for each share of DTG Common
Stock.
<F6> This column reflects the percentage of the outstanding shares of DTG
Delaware Common Stock which the specified person would hold following
consummation of the Merger. These percentages were computed with
reference to a total of 1,046,505 shares of DTG Delaware Common Stock
outstanding, representing 1,046,505 shares of DTG Delaware Common
Stock and warrants and options to purchase no more than 200,000 shares
of DTG Delaware Common Stock to be issued in the Merger based on the
conversion ratio (1-to-1) and the number of shares of DTG Common Stock
issuable in the Conversion.
<F7> All currently outstanding shares of DTG Delaware Common Stock, each of
which is held by the Cooperative, would be canceled in the Merger.
</FN>
</TABLE>
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Cooperative's current Board is and the Resulting Company's Board
of Directors following the Conversion or the Merger would be divided into
three classes, which will be as nearly equal in number as possible. Each
class of directors serves a successive three-year term of office.
Biographical information concerning the persons who are now or would
be directors or executive officers of the Resulting Company after the
consummation of the Conversion or the Merger is presented below. Thomas W.
Hertz and Craig A. Anderson do not currently serve as directors of the
Cooperative. Except as otherwise indicated, all of the named individuals
have had the same principal employment for over five years. Executive
officers are and would be appointed annually and serve at the pleasure of
the Board of Directors of the Cooperative or the Resulting Company (as
applicable).
DIRECTORS WITH TERMS EXPIRING IN 2000
Thomas W. Hertz (age 50) has been a director and Chief Executive
Officer and President of DTG Delaware since its formation (February 1997),
Chief Executive Officer of the Cooperative since July 1996 and General
Manager of the Cooperative since December 1995. Prior to December 1995,
Mr. Hertz was an attorney in private practice with the law firm of Ulmer,
Hertz & Bertsch, P.C. Mr. Hertz's law firm provided services to the
Cooperative during 1995 in the amount of $68,708 while Mr. Hertz was a
shareholder in that firm. Mr. Hertz's proportionate interest in such
fees was $41,225. Mr. Hertz would be the Chief Executive Officer and
President of the Resulting Company. Mr. Hertz will continue as a
director of DTG Delaware if the Merger is consummated. The Board of
Directors of DTG intends to add Mr. Hertz to the Board of DTG if only
the Conversion is consummated to fill a vacancy in the class of
directors whose terms will expire in 2000.
Palmer O. Larson (age 73) has been a director of the Cooperative since
1976 and a director of DTG Delaware since its formation (February 1997).
Mr. Larson is a semi-retired agribusiness (farm) owner and operator.
John (Jack) A. Roth (age 66) has been a director of the Cooperative
since 1970 and a director of DTG Delaware since its formation (February
1997). Mr. Roth retired as an agent for State Farm Insurance in Parker,
South Dakota, after working as an insurance agent for 33 years.
DIRECTORS WITH TERMS EXPIRING IN 1999
Ross L. Benson (age 62) has been a director of the Cooperative since
1980 and a director of DTG Delaware since its formation (February 1997).
Mr. Benson is an agribusiness (farm) owner and operator.
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<PAGE>
Dale Q. Bye (age 66) has been a director of the Cooperative since 1975
and a director of DTG Delaware since its formation (February 1997). Mr.
Bye is Treasurer of the Cooperative. Mr. Bye is a semi-retired
agribusiness (farm) owner and operator.
James H. Jibben (age 46) has been a director of the Cooperative since
1988 and a director of DTG Delaware since its formation (February 1997).
Mr. Jibben is President of the Cooperative. Mr. Jibben is an agribusiness
(farm) owner and operator.
DIRECTORS WITH TERMS EXPIRING IN 1998
Craig A. Anderson (age 41) has been a director and Executive Vice
President - Marketing, Chief Financial Officer and Treasurer of DTG
Delaware since its formation (February 1997) and Executive Vice President -
Marketing and Chief Financial Officer of the Cooperative since January 1,
1997. Prior to January 1, 1997, Mr. Anderson was Vice President -
Marketing of the Cooperative from September 1996 to January 1, 1997. From
January 1994 until September 1996, Mr. Anderson was an independent business
consultant and from September 1994 until December 1995 attended the
University of South Dakota, earning a Masters of Business Administration
and Masters in Professional Accounting. From November 1992 until May
1994, Mr. Anderson was a director and Vice President - Chief Financial
Officer and Secretary of the Austad Company (a catalog retailer of golf
equipment). From July 1989 to September 1992, Mr. Anderson served as a
director and Vice President - Chief Financial Officer, General Counsel and
Secretary of Dial-Net, Inc. (a long distance reseller). Mr. Anderson would
be Executive Vice President - Marketing, Chief Financial Officer and
Treasurer of the Resulting Company. Mr. Anderson will continue as a
director of DTG Delaware if the Merger is consummated. The Board of
Directors of DTG intends to add Mr. Anderson to the Board of DTG if only
the Conversion is consummated to fill a vacancy in the class of directors
whose terms will expire in 1998.
Jeffrey J. Goeman (age 39) has been a director of the Cooperative
since 1988 and a director of DTG Delaware since its formation (February
1997). Mr. Goeman is Vice President of the Cooperative. Mr. Goeman is
President of and has owned and operated Goeman Auction Service and Real
Estate, Inc. in Lennox, South Dakota (a real estate brokerage and
appraisal and auction firm) since 1980.
Edward D. Christensen, Jr. (age 71) has been a director of the
Cooperative since 1975 and a director of DTG Delaware since its formation
(February 1997). Mr. Christensen is a semi-retired agribusiness (farm)
owner and operator.
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John A. Schaefer (age 71) has been a director of the Cooperative since
1974 and a director of DTG Delaware since its formation (February 1997).
Mr. Schaefer is the Secretary of the Cooperative. Mr. Schaefer is retired.
He formerly was an agribusiness (farm) owner and operator.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS OF THE COOPERATIVE
The following table shows certain information concerning the
compensation paid to Thomas W. Hertz, Chief Executive Officer and General
Manager of the Cooperative, for services rendered during the years ended
December 31, 1996 and 1995. No other executive officer of the Cooperative
earned cash compensation in excess of $100,000 during 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION<F1>
- --------------------------- ---- -------- ----- ----------------
<S> <C> <C> <C> <C>
Thomas W. Hertz 1996 $117,501 $15,000 $1,439.00
Chief Executive Officer 1995 $ 20,455 -- $ 72.00
and General Manager
<FN>
_________________________________
<F1> All other compensation for 1996 and 1995 represents premiums paid by
the Cooperative for life insurance for the benefit of Mr. Hertz.
</FN>
</TABLE>
PREFERRED STOCK OPTIONS
The Cooperative has adopted stock option agreements granting to each
of Thomas W. Hertz, Chief Executive Officer and General Manager of the
Cooperative, and Craig A. Anderson, Executive Vice President - Marketing
and Chief Financial Officer of the Cooperative, options to purchase 767
shares of Preferred Stock at a price of $1,000 per share, which options
would be converted in connection with the Conversion or the Merger into
options to purchase common stock of the Resulting Company at a price of
$12.37 per share. (See "ADDITIONAL SECURITIES OF THE RESULTING COMPANY--
Stock Options")
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<PAGE>
During 1996, the Cooperative compensated its directors at the rate of
$500 per regular monthly board meeting attended, $250 per special board
meeting attended and $100.00 per telephonic board meeting attended. Directors
also are provided with travel and accident insurance at a cost of $125 per
year per director. Directors are eligible to participate in the
Cooperative's medical reimbursement plan.
DTG would be the successor to the Cooperative and currently has no
directors or executive officers and has paid no compensation to directors
or executive officers. DTG Delaware currently does not compensate its
directors and executive officers.
INTERESTS OF CERTAIN PERSONS
As of the date of this Prospectus and Ballot/Proxy Statement,
directors and executive officers of the Cooperative are entitled to eight
votes on matters presented for Member action, or less than one percent of
the total Member votes. (See "VOTING AND MANAGEMENT INFORMATION--Voting
Securities and Members of the Cooperative.")
As of the date of this Prospectus and Ballot/Proxy Statement,
individuals who would be the directors and executive officers of DTG would
beneficially own less than one percent of the shares of DTG Common Stock
issuable in the Conversion, assuming that the Conversion was consummated on
such date. (See "VOTING AND MANAGEMENT INFORMATION--Voting Securities and
Principal Shareholders of DTG.")
As of the date of this Prospectus and Ballot/Proxy Statement,
directors and executive officers of DTG Delaware would hold less than one
percent of the shares of DTG Delaware Common Stock to be issued in the
Merger, assuming that the Merger was consummated as of such date. (See
"VOTING AND MANAGEMENT INFORMATION--Voting Securities and Principal
Stockholder of DTG Delaware.")
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Cooperative has entered into separate but substantially identical
Employment Agreements ("Agreements") with its Chief Executive Officer and
General Manager, Thomas W. Hertz, and its Executive Vice President -
Marketing and Chief Financial Officer, Craig A. Anderson (the
"Executives"). Each Agreement is for a three-year term of employment,
expiring December 31, 2000. The employment term under each Agreement will
be automatically extended for an additional year at the end of each year,
unless either party gives written notice that the employment term under the
Agreement is not to be extended further, in which case the employment term
under the Agreement will expire at the end of two additional years, except
that the employment term under the Agreement will also be extended
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automatically for three years following the date of any Change in Control
(defined as described under "INDEMNITY AGREEMENTS") occurring during the
employment term under the Agreement.
The Agreements provide minimum salaries of $135,000 per year for
Thomas W. Hertz and $100,000 per year for Craig A. Anderson, and also
provide for an annual bonus to each of the Executives equal to 15 percent
of the increase, if any, in corporate net income over prior year net
income. "Net income," for purposes of the bonus calculations, is pre-tax
net income before depreciation, amortization and other non-cash expenses,
before annual bonuses under the two Agreements and after eliminating the
effect of extraordinary items.
Under the Agreements, the Cooperative or the Executive may terminate
the Executive's employment at any time upon 30 days' notice. If the
Cooperative terminates the Executive's employment involuntarily during the
term of the employment under the Agreements other than as the result of a
Disability or for Cause, or if the Executive terminates the employment for
Good Reason during the employment term under the Agreements, the Agreements
entitle the terminated Executive to Severance Pay. "Disability" is defined
as the Executive's inability to substantially perform his duties for a
continuous period of nine months. "Cause" is defined as willful and
continued failure by the Executive to substantially perform his duties
after notice of the deficiency, or willful misconduct by the Executive that
is materially injurious to the Cooperative and occurs without good-faith
belief by the Executive that the action was in the best interests of the
Cooperative. Termination for Cause requires the affirmative vote of two-
thirds of the Board of Directors. "Good Reason" is defined to include:
(i) a material breach by the Cooperative of the Agreements or any other
agreement with the Executive; (ii) assignment to the Executive of duties
inconsistent with his position; (iii) removal of the Executive from his
position; (iv) relocation of the Cooperative's principal executive offices
outside a 60-mile radius from Irene, South Dakota or any requirement by the
Cooperative that Executive be located other than at the executive offices
or that he engage in substantially increased job related travel; or (v)
failure of the Cooperative to obtain the agreement of any successor to
assume the Agreements. The Executive may not terminate his employment with
Good Reason without first giving the Cooperative notice and 10 days'
opportunity to cure any occurrence constituting Good Reason.
"Severance Pay" under the Agreements consists of continuation of the
Executive's salary, bonus and benefits for the unexpired employment term
under the Agreements at the time of the termination (with a minimum annual
bonus each year equal to that of the year before the termination),
reasonable out-placement services and immediate vesting of all restricted
stock and stock option rights. Severance Pay is not reduced by any post-
termination employment or other income of the Executive. If the Executive
dies while entitled to receive Severance Pay, the remaining Severance Pay
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is to be paid to the Executive's estate. If a termination entitling the
Executive to Severance Pay occurs after a Change in Control, or if the
Cooperative defaults on Severance Pay obligations, the monthly salary and
bonus payments are accelerated and become payable immediately in a lump
sum.
The Agreements prohibit the Executive from competing with the
Cooperative during his employment, and after his employment while he is
receiving Severance Pay. The Executive may end the post-employment
noncompetition period at any time by renouncing any right to further
Severance Pay.
The Agreements provide for payment of the Executive's reasonable legal
fees and expenses incurred in seeking to enforce the Executive's rights
under the Agreements, to the extent the Executive is successful in his
claims, with payment made contemporaneously but with the Executive required
to repay any amount to which he is ultimately found not to be entitled.
The Agreements also provide that the Cooperative will make the Executive
whole for any taxes, interest or penalties incurred by the Executive on
account of the characterization of any payment to which the Executive is
entitled from the Cooperative as an "excess parachute payment" under
Section 280G of the Code or any successor provision of the Code, so that
the net payments to the Executive after all such taxes, interest and
penalties will be the same as if no such characterization had occurred.
If the Conversion and/or Merger is consummated, the Resulting Company
would assume the Agreements according to their terms.
ADDITIONAL SECURITIES OF THE RESULTING COMPANY
PREFERRED STOCK PURCHASE RIGHTS PLAN
If the Conversion or the Merger is consummated, the Board of Directors
of the Resulting Company currently intends to enact as soon as is
reasonably practicable a preferred stock purchase rights plan that is
designed to protect stockholder interests in the event the Resulting
Company is confronted with coercive or unfair takeover tactics. The plan
would be implemented by the dividend of one Series A Preferred Stock
Purchase Right to each stockholder of record on a record date to be fixed
by the Board of Directors of the Resulting Company. The plan would not
be submitted for stockholder approval. The following description sets
forth the principal terms of the rights plan which the Board of
Directors currently intends to enact.
Under the plan as currently contemplated, one Series A Preferred Stock
Purchase Right (a "Right") would attach to each share of Resulting Company
common stock outstanding on the date the plan is implemented. Each Right
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would entitle the registered holder to purchase from the Resulting Company
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Preferred Stock at a price of $100.00 per Unit (the "Purchase Price"),
subject to adjustment. An aggregate of 15,000 shares of Series A Junior
Participating Preferred Stock is authorized in the corporate charter of the
Resulting Company specifically for use in connection with the rights plan.
Upon issuance, each share of Series A Junior Participating Preferred Stock
would have 100 votes and a preferential quarterly dividend equal to the
greater of $10 per share or 100 times the dividend declared on Resulting
Company common stock. The description and terms of the Rights would be set
forth in a Rights Agreement (the "Rights Agreement") between the Resulting
Company and a third party (typically a bank or other financial institution)
as rights agent (the "Rights Agent").
Under the intended rights plan, until the earlier to occur of (i) 10
days following a public announcement that a person or group of affiliated
or associated persons acquired, or obtained the right to acquire,
beneficial ownership of 15 percent or more of the outstanding shares of
Resulting Company common stock (such person is referred to as an "Acquiring
Person" and the date upon which such person becomes an Acquiring Person is
referred to as the "Stock Acquisition Date"), (ii) 10 business days
following the commencement or announcement of an intention to commence a
tender or exchange offer, the consummation of which would result in
beneficial ownership by a person of 15 percent or more of the outstanding
shares of Resulting Company common stock or (iii) 10 business days after
the Board of Directors determined, pursuant to certain criteria set forth
in the Rights Agreement, that a person beneficially owning 10 percent or
more of the outstanding shares of Resulting Company common stock was an
"Adverse Person" (the earlier of such dates is the "Distribution Date"),
the Rights would be evidenced with respect to any of the Resulting Company
common stock certificates outstanding by such Resulting Company common
stock certificates. Until the Distribution Date, the Rights would be
transferred with and only with such Resulting Company common stock
certificates. New Resulting Company common stock certificates issued after
the date the plan was implemented, but prior to the Distribution Date (or,
if earlier, the redemption or expiration of the Rights), would contain a
notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or, if earlier, the redemption or expiration of the
Rights), the surrender for transfer of any certificates for Resulting
Company common stock also would constitute the transfer of the Rights
associated with the Resulting Company common stock represented by such
certificates. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights (the "Rights Certificates")
would be mailed to holders of record of the Resulting Company common stock
as of the close of business on the Distribution Date and such separate
Rights Certificates alone would evidence the Rights. Except as otherwise
determined by the Board of Directors, only shares of Resulting Company
common stock issued prior to the Distribution Date would be issued with
Rights.
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The Rights would not be exercisable until the Distribution Date. The
Rights would expire 10 years from the date of issuance, unless earlier
redeemed by the Resulting Company as described below.
The Purchase Price payable, and the number of one one-hundredths of a
share of Series A Junior Participating Preferred Stock or other securities
or property issuable, upon exercise of a Right would be subject to
adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of,
the Series A Junior Participating Preferred Stock, (ii) upon the grant to
holders of the Series A Junior Participating Preferred Stock of certain
rights or warrants to subscribe for Series A Junior Participating Preferred
Stock or convertible securities at less than the current market price of
the Series A Junior Participating Preferred Stock or (iii) upon the
distribution to holders of the Series A Junior Participating Preferred
Stock of evidences of indebtedness or assets (excluding regular periodic
cash dividends out of earnings or retained earnings at a rate not in excess
of 125 percent of the rate of the last cash dividend theretofore paid or
dividends payable in Series A Junior Participating Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price would be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional shares of Series A Junior
Participating Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share of Series A Junior Participating
Preferred Stock) would be issued and, in lieu thereof, an adjustment in
cash would be made based on the market price of the Series A Junior
Participating Preferred Stock on the last trading date prior to the date of
exercise.
If at any time following the Stock Acquisition Date, the Resulting
Company was acquired in a merger or other business combination transaction
or if 50 percent or more of its assets or earning power was sold, proper
provision would be made so that each holder of a Right would thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Right. Alternatively, if at
any time following the Distribution Date, (i) the Resulting Company was the
surviving corporation in a merger with an Acquiring Person and its
Resulting Company common stock was not changed or exchanged, (ii) an
Acquiring Person engaged in certain specified self-dealing transactions
with the Resulting Company, (iii) an Acquiring Person became the beneficial
owner of more than 15 percent of the then outstanding shares of Resulting
Company common stock or (iv) a person had been or was designated as an
Adverse Person by the Resulting Company's Board of Directors in accordance
with the criteria set forth in the Rights Agreement, proper provision would
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be made so that each holder of a Right, other than the Acquiring Person,
Adverse Person and certain related parties (whose Rights would thereafter
be void), would thereafter have the right to receive upon exercise of a
Right that number of shares of Resulting Company common stock having a
market value of two times the exercise price of such Right.
At any time prior to the designation of a person as an Adverse Person
under the Rights Agreement or the close of business on the 15th day after
the Stock Acquisition Date, the Resulting Company could redeem the Rights
in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). Immediately upon the action of the Board of Directors electing to
redeem the Rights, the Resulting Company would make announcement thereof,
and upon such election, the right to exercise the Rights would terminate
and the only right of the holders of Rights would be to receive the
Redemption Price.
Until a Right was exercised, the holder thereof, as such, would have
no rights as a stockholder of the Resulting Company, including, without
limitation, the right to vote or to receive dividends. While the
distribution of the Rights would not be taxable to stockholders or to the
Resulting Company, stockholders would recognize taxable income if the
Rights are redeemed and may, depending on the circumstances, recognize
taxable income when the Rights become exercisable or are exercised.
Other than those provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement would be
subject to amendment by the Board of Directors of the Resulting Company
prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement could be amended by the Board to cure
any ambiguity, to make changes which do not adversely affect the interests
of holders of Rights (excluding the interests of any Acquiring Person or
Adverse Person) or to shorten or lengthen any time period under the Rights
Agreement, except that no amendment to adjust the time period governing
redemption could be made at a time when the Rights are not redeemable.
In connection with the implementation of the intended rights plan, the
Rights Agreement would be executed and a copy filed with the Commission as
an Exhibit to a Registration Statement on Form 8-A. A copy of the Rights
Agreement also would be available from the Resulting Company.
STOCK OPTIONS
To provide an incentive for Thomas W. Hertz, Chief Executive Officer
and General Manager of the Cooperative, and Craig A. Anderson, Executive
Vice President - Marketing and Chief Financial Officer of the Cooperative
(collectively, the "Optionees"), to operate the Cooperative to promote the
Cooperative's long-term growth and profitability and to help align the
economic interests with those of Members and holders of Preferred Stock and
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Capital Credits, effective as of January 1, 1997, the Board of Directors of
the Cooperative adopted stock option agreements granting options to each
Optionee to purchase up to an aggregate of 767 shares of Preferred Stock at
a price of $1,000 per share. These options would automatically become
options to purchase Resulting Company common stock (converted on the same
basis as currently outstanding shares of Preferred Stock, i.e.
approximately 80.8-to-1) if the Conversion or Merger is consummated.
The options call for delayed vesting so that 20 percent of each option
becomes exercisable at the earlier of (i) 90 days after the date the
Preferred Stock is converted into Resulting Company common stock, assuming
the Conversion or Merger is consummated or (ii) January 1, 1998.
Thereafter, an additional 20 percent of each option becomes exercisable
on each anniversary date of the stock option agreements if the Optionees
are then employed by the Cooperative (or the Resulting Company, as
applicable) until the total number of shares subject to each option become
exercisable. Each option remains outstanding for 10 years from the date
it was granted. The options are non-transferable.
Under the terms of the stock option agreements, the options are not
incentive stock options under Section 422 of the Code. The options were
not subject to tax when they were granted. Upon exercise, the Optionees
will recognize compensation income in the amount of the spread between the
market value of the options and the option exercise price. The Cooperative
(or the Resulting Company, as applicable) will receive a corresponding
deduction. The option price must be paid in cash or shares of stock of the
Cooperative (or the Resulting Company, as applicable), valued at the market
value on the date of exercise.
If the Conversion or the Merger is consummated, the options auto-
matically will become options to purchase Resulting Company common stock.
On a fully diluted basis, assuming that all vesting periods and other
restrictions contained in the options have been satisfied or lapsed and all
the options were exercised in full, each Optionee would own approximately
five percent of the total number of shares of Resulting Company common stock
that would be outstanding after the Conversion or the Merger. The exercise
price of Resulting Company common stock under the stock option agreements
would be $12.37 per share.
WARRANTS
Pursuant to the TCIC Agreement and the Iway Agreement, and as part of
the consideration therefor, the Board of Directors of the Cooperative
granted warrants to purchase shares of Preferred Stock to each of the
former shareholders of TCIC and Iway ("Warrants"), which would
automatically become Warrants to purchase Resulting Company common stock if
the Conversion or the Merger is consummated. The Warrants allow each
holder to purchase a specified number of shares (a total of 482 shares
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under all Warrants) of Preferred Stock at a price of $1,000 per share. The
number of shares that each holder may purchase was based on the person's
share ownership of TCIC and Iway, respectively, at the time of the mergers.
The Warrants are exercisable immediately and remain outstanding until
the later of (i) six months after the public registration of Resulting
Company common stock into which the Preferred Stock would be mandatorily
converted if the Conversion or the Merger is consummated or (ii) January
2, 1998. The Warrants are non-transferable.
Upon exercise, each Warrant holder would be deemed to have purchased
the underlying stock which will then have a basis equal to the purchase
price plus any basis that the holder has in the holder's Warrant. Upon
subsequent sale, the proceeds will be capital gain or loss to the holder
with no tax impact on the Cooperative or the Resulting Company, as
applicable. The Cooperative or the Resulting Company, as applicable, would
receive the purchase price for the exercise of each Warrant as an addition
to its capital.
If the Conversion or the Merger is consummated, the Warrants would
automatically become Warrants to purchase an aggregate of 38,956 shares of
Resulting Company common stock at a price of $12.37 per share. The
exercise price for the Warrants must be paid in cash.
STANDSTILL AGREEMENTS
In connection with the Cooperative's acquisition of TCIC and Iway, the
Cooperative entered into standstill agreements (the "Standstill
Agreements") with each of the former shareholders of TCIC and Iway
(collectively, the "Sellers"). The Sellers received shares of Preferred
Stock and Warrants to purchase shares of Preferred Stock as a result of the
TCIC Agreement and the Iway Agreement. Those agreements contemplated that
the Preferred Stock would be converted in the future into Resulting Company
common stock.
Under the Standstill Agreements, the Sellers agreed to refrain from
certain actions, including: (i) acquiring any Resulting Company common
stock in excess of five percent of the Resulting Company common stock
outstanding at any time during the term of the Standstill Agreements, with
certain exceptions such as the sale or transfer of shares among the
Sellers; (ii) making or participating in any "solicitation of proxies," as
that term is defined in Regulation 14A under the Exchange Act; (iii)
forming, joining or participating in a "group," as that term is defined in
Section 13(d)(3) of the Exchange Act, with respect to any Resulting Company
common stock; (iv) initiating or participating in any stockholder proposal
to be voted upon by the holders of Resulting Company common stock or
calling any special meeting of stockholders of the Resulting Company;
(v) depositing any shares of Resulting Company common stock into a voting
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trust or subjecting them to a voting agreement; or (vi) seeking in any way
to gain control of the Resulting Company or its Board of Directors or
seeking to influence the Resulting Company's management or policies.
The Standstill Agreements further provide that the Sellers will not
dispose of any shares of Resulting Company common stock (with certain
exceptions) except in accordance with certain provisions of the Standstill
Agreements. The Standstill Agreements grant to the Resulting Company a
"First Purchase Option" to buy all, but not less than all, of the Sellers'
shares of Resulting Company common stock that they wish to sell ("First
Option Shares") for a period of three years following the date that the
Preferred Stock is converted into Resulting Company common stock. Under
the First Purchase Option, if a Seller desires to sell any of the person's
shares of Resulting Company common stock, the Seller must first notify the
Resulting Company, which then has 30 days to determine whether to purchase
the First Option Shares. If the Resulting Company exercises its option, it
must purchase all of the First Option Shares. If the Resulting Company
does not exercise its First Purchase Option, the Seller who gave the notice
may then sell those First Option Shares to a third party at the same price
specified in the person's initial notice to the Resulting Company.
However, if the Seller fails to sell the First Option Shares to a third
party within 60 days after the Resulting Company's option expires, then the
process must start over.
Under the Standstill Agreements, in the event that a third party makes
a tender offer (a "Tender Offer") for shares of Resulting Company common
stock, then the Sellers must grant the Resulting Company an option (the
"Tender Offer Option") to purchase all, but not less than all, of the
shares that the Sellers wish to sell in the Tender Offer. This process
works much the same as for a First Purchase Option, except that the
deadlines are much shorter. In addition, if a competing tender offer
arises prior to the closing of the sale pursuant to the Tender Offer Option
at a higher per-share price, the Sellers can withdraw their notice of the
Tender Offer Option, after which the process starts over. The price per
share pursuant to the Tender Offer Option is the product of (i) the number
of shares subject to the Tender Offer Option with respect to which the
Resulting Company exercises its option, multiplied by (ii) the Tender
Offer price per share as in effect on the last day specified in the Tender
Offer on which the offeror may accept shares of Resulting Company common
stock for payment or exchange. If the Resulting Company fails to exercise
its Tender Offer Option, then the Sellers can sell their shares in the
Tender Offer, but at a price not less than that specified in the notice
of the Tender Offer Option.
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1997 STOCK INCENTIVE PLAN
The Board of Directors of the Cooperative firmly believes that the
Resulting Company's long-term interests will be best advanced by aligning
the interests of its business leaders and employees with the interests of
its stockholders. Therefore, to attract and retain directors, officers and
other management employees of exceptional abilities, and to provide an
increased incentive for such directors, officers and employees to make
significant and extraordinary contributions to the long-term performance
and growth of the Resulting Company and its subsidiaries, the Board of
Directors of the Cooperative, on behalf of DTG, and the Board of Directors
of DTG Delaware adopted the 1997 Stock Incentive Plan (the "Plan").
The Boards of Directors believe that adoption of the Plan is advisable to
make shares of the Resulting Company's stock available for awards and stock
options.
It is presently contemplated that the Plan would primarily be used to
grant stock options. However, the Plan also would permit the grant of
other forms of long-term incentive compensation if determined to be
desirable to advance the purposes of the Plan. These other forms of long-
term incentive compensation include stock appreciation rights, tax benefit
rights, restricted stock and stock awards (together with stock options,
collectively referred to as "Incentive Awards"). By combining in a single
plan many of the types of incentives commonly used in long-term incentive
compensation programs, it is intended that the Plan would provide
significant flexibility for the Resulting Company to tailor specific long-
term incentives that would best promote the objectives of the Plan and in
turn promote the interests of the Resulting Company's stockholders.
The following is a summary of the principal features of the Plan. The
summary is qualified in its entirety by reference to the terms of the Plan
set forth in Appendix I to this Prospectus and Ballot/Proxy Statement.
Persons eligible to receive Incentive Awards under the Plan (with
certain limitations discussed below) would include nonemployee directors
(currently eight persons), corporate executive officers (currently five
persons) and other corporate, divisional and subsidiary officers and
employees (currently approximately 71 persons) of the Resulting Company and
its subsidiaries in consideration of the services of these persons to the
Resulting Company. Except as described herein, the Board of Directors has
not determined to grant Incentive Awards to any eligible recipient. A
maximum of 175,000 shares of the Resulting Company's common stock (either
DTG Common Stock if the Conversion is consummated or DTG Delaware Common
Stock if the Merger is consummated) ("Common Stock"), would be available
for Incentive Awards under the Plan (subject to certain antidilution
adjustments). Additional individuals may become executive officers,
corporate, divisional or subsidiary officers, or employees in the future
and could participate in the Plan. Because nonemployee directors, officers
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and employees of the Resulting Company and its subsidiaries may receive
Incentive Awards under the Plan, they may be deemed to have an interest in
the Plan. The benefits payable under the Plan presently are not
determinable and the benefits that would have been payable had the Plan
been in effect during the most recent fiscal year are similarly not
determinable. The Plan would not be qualified under Section 401(a) of the
Code, and would not be subject to the Employee Retirement Income Security
Act of 1974 ("ERISA").
The Plan would be administered by the Compensation Committee of the
Board of Directors of the Resulting Company or such other committee as the
Board may designate for that purpose (the "Committee"). It is currently
intended that the Committee would consist of not less than two directors,
all of whom shall be "Non-Employee Directors" as defined in Rule 16b-3
issued by the Commission. As discussed below, members of the Committee
would receive nondiscretionary stock option grants based upon a specified
formula. The Committee would make determinations, subject to the terms
of the Plan, as to the persons to receive Incentive Awards, the amount of
Incentive Awards to be granted to each person, the time of each grant,
the terms and duration of each grant and all other determinations
necessary or advisable for administration of the Plan. The Committee
could amend the terms of Incentive Awards granted under the Plan from
time to time in a manner consistent with the Plan.
The principal stock option features of the Plan provide that the
Resulting Company may grant to participants options to purchase shares of
Common Stock at stated prices for specified periods of time. Certain stock
options that could be granted to employees under the Plan may qualify as
incentive stock options as defined in Section 422 of the Code. Other stock
options, including all options that could be granted to directors who are
not employees, would not be incentive stock options within the meaning of
the Code. Stock options could be granted at any time prior to the
termination date for making Incentive Awards according to the terms of the
Plan or termination of the Plan by action of the Committee or the Board of
Directors.
The Committee would set forth the terms of individual grants of stock
options in stock option agreements. The stock option agreements would
contain terms, conditions and restrictions consistent with the provisions
of the Plan that the Committee determined appropriate. These restrictions
could include vesting requirements to encourage long-term ownership of
shares. The stock option price per share would be determined by the
Committee and would be a price equal to or higher than the par value of
Common Stock on the date of grant. Options qualified as incentive stock
options under the Code must be at prices at least equal to market value on
the date of grant. As of the date of this Prospectus and Ballot/Proxy
Statement, there was no market for Common Stock. When exercising all or a
portion of a stock option, a participant could pay with cash or, with the
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consent of the Committee, with shares of Common Stock or other
consideration substantially equal to cash. If shares of Common Stock are
used to pay the exercise price and the Committee consents, a participant
could use the value of shares received upon exercise for further exercises
in a single transaction, permitting a participant to fully exercise a large
stock option with a relatively small initial cash or stock payment. The
Committee also could authorize payment of all or a portion of the stock
option price in the form of a promissory note or installments on terms
approved by the Committee. The Board of Directors could restrict or
suspend the power of the Committee to permit these loans and could require
that adequate security be provided.
Each nonemployee director of the Resulting Company would be entitled
to receive semi-annually, on June 30 and December 31 of each year, stock
options to purchase 200 shares of Common Stock at 100 percent of the market
value on the date of grant. The stock options would be issued for a term
of 10 years using a form of agreement substantially similar to the standard
form of stock option agreement established by the Compensation Committee
for executive officers, adjusted as necessary due to the recipient's status
as a nonemployee director. The formula grant provisions for nonemployee
directors may be amended by the Board of Directors not more than once every
six months, other than to comport with changes in the Code, the Exchange
Act or the rules thereunder. Nonemployee directors may pay the exercise
price using previously held shares of Common Stock to the extent that other
participants are permitted to do so.
Although the term of each stock option would be determined by the
Committee, no stock option would be exercisable under the Plan after the
expiration of 10 years from the date it was granted. Stock options
generally would be exercisable for limited periods of time in the event a
stock option holder died, became disabled or was terminated without cause.
If a stock option holder was terminated for cause, the stock option holder
would forfeit all rights to exercise any outstanding stock options. If a
stock option holder retired, the option holder could exercise the option
for the remainder of the term of the option unless the term of the option
agreement or grant provided otherwise. Incentive stock options granted to
participants under the Plan generally could not be transferred except by
will or by the laws of descent and distribution. Any other stock option
granted to participants under the Plan would be transferable unless
transfer is restricted by the terms of the grant.
Under the Code, a participant exercising an incentive stock option
would not recognize income at the time of the exercise. The difference
between the market value and the exercise price would, however, be a tax
preference item for purposes of calculating alternative minimum tax. Upon
sale of the stock, as long as the participant held the stock for at least
one year after the exercise of the stock option and at least two years
after the grant of the stock option, the participant's basis would equal
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the stock option price, and the participant would pay tax on the difference
between the sale proceeds and the stock option price as capital gain. The
Resulting Company would receive no deduction for federal income tax
purposes. If, before the expiration of either of the above holding
periods, the participant sold shares acquired under an incentive stock
option, the tax deferral would be lost and the participant would recognize
compensation income equal to the difference between the stock option price
and the fair market value at the time of exercise, but not more than the
maximum amount that would not result in a loss on the disposition. The
Resulting Company would then receive a corresponding deduction for federal
income tax purposes. Additional gains, if any, recognized by the
participant would result in the recognition of short- or long-term capital
gain.
Federal income tax laws provide different rules for stock options that
do not qualify as incentive stock options ("Nonqualified Options"). Under
current federal income tax laws, a participant would not recognize any
income and the Resulting Company would not receive a deduction at the time
a Nonqualified Option is granted. If a Nonqualified Option is exercised,
the participant would recognize compensation income in the year of exercise
equal to the difference between the stock option price and the fair market
value on the date of exercise. The Resulting Company would receive a
corresponding deduction for federal income tax purposes. The participant's
tax basis in the shares acquired would be increased by the amount of
compensation income recognized. Sale of the stock after exercise would
result in recognition of short- or long-term capital gain or loss.
In addition to the authority to grant stock options under the Plan,
the Committee also could grant stock appreciation rights and tax benefit
rights, which would be subject to such terms and conditions as the
Committee determined appropriate. A stock appreciation right could relate
to a particular option and could be granted at the same time or after a
related option was granted. A stock appreciation right granted in tandem
with an option would permit a participant to receive, in exchange for the
right to exercise a related option, a payment from the Resulting Company in
cash or stock equal to the difference between the market value of the
shares at the time of exercise of the stock appreciation right and the
option price of such shares. A tax benefit right is a cash payment
received by a participant upon exercise of a stock option. The amount of
the payment would not exceed the amount determined by multiplying the
ordinary income realized by the participant (and deductible by the
Resulting Company) upon exercise of stock options that are not incentive
stock options, or upon a disqualifying disposition of an incentive stock
option, by the maximum federal income tax rate (including any surtax or
similar charge or assessment) for corporations plus the applicable state
and local tax imposed on the exercise of the stock option or disqualifying
disposition. Unless the Committee provided otherwise, the net amount of a
tax benefit right, subject to withholding, could be used to pay a portion
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of the stock option price. Tax benefit rights could be issued under the
Plan with respect to stock options granted not only under the Plan but also
with respect to existing stock options awarded under any other plan of the
Resulting Company that has been approved by the stockholders as of the date
of the Plan.
The Plan also would give the Committee authority to make stock awards.
A stock award is an award of Common Stock that is subject to terms and
conditions determined by the Committee at the time of the award. Stock
award recipients would generally have all voting, dividend, liquidation and
other rights with respect to shares of Common Stock received upon becoming
the holder of record of the Common Stock. However, the Committee could
impose restrictions on the assignment or transfer of Common Stock awarded
under a stock award.
Finally, the Plan would allow the Committee to award restricted stock,
subject to such terms and conditions, consistent with the provisions of the
Plan, that the Committee from time to time determined. As with stock
option grants, the Committee would set forth the terms of individual awards
of restricted stock in restricted stock agreements. Unless the Committee
provided otherwise in a restricted stock agreement, if a participant's
employment is terminated during the restricted period set by the Committee
for any reason other than death, disability or retirement (as defined in
the Plan), the participant's restricted stock would be entirely forfeited.
If the participant's employment terminated during the restricted period by
reason of death, disability or retirement, the restrictions on the
participant's shares would terminate automatically with respect to that
number of shares (rounded to the nearest whole number) equal to the total
number of shares of restricted stock awarded to the participant multiplied
by the number of full months that have elapsed since the date of grant
divided by the maximum number of full months of the Restricted Period. All
remaining shares would be forfeited and returned to the Company, unless the
Committee provided otherwise.
Without Committee authorization, a recipient of restricted stock would
not be allowed to sell, exchange, transfer, pledge, assign or otherwise
dispose of the stock other than to the Resulting Company or by will or the
laws of descent or distribution. In addition, the Committee could impose
other restrictions on shares of restricted stock. However, holders of
restricted stock would enjoy all other rights of a stockholder with respect
to restricted stock, including the right to vote restricted shares at
stockholders' meetings and the right to receive all dividends paid with
respect to shares of Common Stock. Any securities received by a holder of
restricted stock pursuant to a stock dividend, stock split,
recapitalization, merger, consolidation, combination or exchange of shares
would be subject to the same terms, conditions and restrictions that were
applicable to the restricted stock for which the shares were received.
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Generally, a participant would not recognize income upon the award of
restricted stock. However, a participant would be required to recognize
compensation income on the value of restricted stock at the time the
restricted stock vested (when the restrictions lapse). At the time the
participant recognized this compensation income, the Resulting Company
would be entitled to a corresponding deduction for federal income tax
purposes. If restricted stock was forfeited by a participant, the
participant would not recognize income and the Resulting Company would not
receive a deduction. Prior to the lapse of restrictions, dividends paid on
restricted stock would be reported as compensation income to the
participant and the Resulting Company would receive a corresponding
deduction.
A participant could, within 30 days after the date of an award of
restricted stock, elect to report compensation income for the tax year in
which the award of restricted stock occurred. If the participant made such
an election, the amount of compensation income would be the value of the
restricted stock at the time of the award. Any later appreciation in the
value of the restricted stock would be treated as capital gain and realized
only upon the sale of the restricted stock. Dividends received after such
an election was made would be taxable as dividends and not treated as
additional compensation income. If, however, restricted stock was
forfeited after the participant had made an election as described above,
the participant would not be allowed any deduction for the amount earlier
taken into income. Upon the sale of restricted stock, a participant would
realize capital gain (or loss) in the amount of the difference between the
sale price and the value of the stock previously reported by the
participant as compensation income.
Upon the occurrence of a "Change in Control" of the Resulting Company
(as defined in the Plan and under "INDEMNITY AGREEMENTS"), all outstanding
stock options would become immediately exercisable in full and would remain
exercisable in accordance with their terms and all other outstanding
Incentive Awards under the Plan would immediately become fully vested and
nonforfeitable. In addition, the Committee, without the consent of any
affected participant, could determine that some or all participants holding
outstanding stock options would receive cash in an amount equal to the
greater of the excess over the exercise price per share of each stock
option of: (i) the maximum price of the shares on The Nasdaq Stock Market
immediately before the effective date of the change in control or (ii) the
price per share actually paid in connection with any change in control of
the Resulting Company.
If Incentive Awards are made under the Plan, the Resulting Company
could withhold from any cash otherwise payable to a participant or require
a participant to remit to the Resulting Company an amount sufficient to
satisfy federal, state and local withholding taxes. Tax withholding
obligations could be satisfied by withholding Common Stock to be received
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upon exercise of an option or the vesting of restricted stock or by
delivery to the Resulting Company of previously owned shares of Common
Stock.
The Board of Directors could terminate the Plan at any time and could
from time to time amend the Plan as it considered proper and in the best
interests of the Resulting Company, provided that no amendment could impair
any outstanding Incentive Award without the consent of the participant
except according to the terms of the Plan or Incentive Award. No
termination, amendment or modification could become effective with respect
to any Incentive Award outstanding under the Plan without the prior written
consent of the participant holding the award unless the amendment or
modification operated to the benefit of the participant. Subject to
stockholder approval, the Plan would take effect on the effective date of
the Conversion, and, unless previously terminated by the Board of
Directors, no awards could be made under the Plan after 10 years following
that date.
The Resulting Company intends to register shares covered by the Plan
under the Securities Act before any Incentive Award could be exercised.
A vote for the Conversion or the Merger will be deemed to be a vote
for the Plan.
INDEMNITY AGREEMENTS
As an additional measure to strengthen the protection afforded the
directors and executive officers of the Resulting Company, the Board of
Directors of the Cooperative, on behalf of DTG, and the Board of Directors
of DTG Delaware believe it is in the best interests of the Resulting
Company to enter into an indemnity agreement (the "Indemnity Agreement")
with each of its directors and executive officers ("Business Leaders"). If
the Conversion or the Merger is consummated, it is anticipated that the
Indemnity Agreement would be entered into between the Resulting Company and
each of its director and executive officers.
Set forth below is a summary of certain key provisions of the
Indemnity Agreement. The summary is qualified in its entirety by reference
to the full text of the Indemnity Agreements set forth in Appendix J to this
Prospectus and Ballot/Proxy Statement. The Indemnity Agreement is based on
the indemnification provisions set forth in Section 145 of the Delaware Law
and Sections 47-2-58.2 through 47-2-58.7 of the SDBCA, with certain
changes or additions discussed below.
The Indemnity Agreement establishes a presumption that a Business
Leader has met the applicable standard of conduct required for
indemnification under either the SDBCA or the Delaware Law, as the case may
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be. Under the Indemnity Agreement, a Business Leader will be indemnified
unless a majority of a quorum of disinterested directors or, in the event
of a Change in Control (as defined below) of the Resulting Company or if a
quorum of disinterested directors cannot be obtained, independent legal
counsel, determines that the applicable standard of conduct has not been
met. The burden of proof is on the Board of Directors or independent
counsel, as the case may be, to overcome the presumption that a Business
Leader is entitled to indemnification. If the Board of Directors or
independent legal counsel determines that a Business Leader did not meet
the standard of conduct required for indemnification, the Indemnity
Agreement allows the Business Leader to petition a court for an
independent determination of whether the Business Leader is entitled to
indemnification under the Indemnity Agreement. In such a proceeding, the
Resulting Company has the burden of proving that the Executive did not
meet the applicable standard of conduct.
The Indemnity Agreement also provides that litigation and
investigation expenses will be advanced to a Business Leader upon the
Business Leader's request, provided that the Business Leader undertakes to
repay amounts advanced if it is ultimately determined that the Business
Leader is not entitled to indemnification for such expenses.
The Indemnity Agreement further provides that the Resulting Company
will indemnify a Business Leader for costs, including the satisfaction of a
judgment, fine or penalty incurred in, or any amount paid in settlement of,
any proceeding, including a proceeding brought by or in the name of the
Resulting Company (such as a stockholder derivative suit), if such expenses
and costs (i) would have been covered under the liability insurance policy
presently covering the Business Leader or under any future policy
maintained by the Resulting Company or (ii) are indemnifiable under the
SDBCA or the Delaware Law (as the case may be), as those laws may change or
be interpreted from time to time.
Without limiting a Business Leader's right to indemnification under
any other provisions of the Indemnity Agreement, the Indemnity Agreement
provides that a Business Leader involved in a derivative suit shall be
indemnified for expenses and amounts paid in settlement unless (i) the
Board of Directors or independent legal counsel, as the case may be,
determines that the Business Leader did not act in good faith or acted in a
manner opposed to the best interests of the Resulting Company or (ii) the
Business Leader was adjudged liable to the Resulting Company, in which case
any indemnification must be authorized by a court. If the Board of
Directors or independent legal counsel finds that the Business Leader did
not meet the applicable standard of conduct, the Business Leader may
petition a court to make an independent determination of whether the
Business Leader is entitled to indemnification under the Indemnity
Agreement.
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The Indemnity Agreement also provides for partial indemnification of
costs and expenses in the event a Business Leader is not entitled to full
indemnification under the terms of the Indemnity Agreement. Under the
Indemnity Agreement, a Business Leader is automatically entitled to
indemnification for expenses incurred in successfully defending against any
claim, whether on the merits or otherwise.
In addition, the Indemnity Agreement provides that, in the event of a
Change in Control or a potential Change of Control of the Resulting Company
as described below, the Resulting Company must establish, upon a Business
Leader's request, a trust funded in an amount sufficient to satisfy the
Resulting Company's anticipated indemnification obligations to the
Business Leader. Thus, each Business Leader who will be the beneficiary
of the trust will determine whether the trust will be established or
funded. The trust is to be used to advance expenses to a Business Leader
and to pay any amount subject to indemnification under the Indemnity
Agreement. The amount or amounts to be deposited in the trust
will be determined by a majority vote of a quorum consisting of
disinterested directors, the Executive Committee of the Board of Directors
or the Chief Executive Officer of the Resulting Company, or, if all of
those individuals are not disinterested, by independent legal counsel.
Funds placed into such a trust will revert to the Resulting Company if
(i) a Change in Control has not occurred and (ii) the Executive Committee
of the Board of Directors or the Chief Executive Officer determines that
the need for the trust no long exists. Prior to a Change in Control of the
Resulting Company, a Business Leader may not be indemnified in connection
with an action, suit or proceeding initiated by the Business Leader against
the Resulting Company or other Business Leaders unless the Resulting
Company consents to such action or joins in it.
The term "Change in Control" as used in the Indemnity Agreement means
the following: (i) the failure of the "Continuing Directors" at any time
to constitute at least a majority of the members of the Board of Directors;
(ii) the acquisition by any "person" (as defined in Section 13(d) and
14(d)(2) of the Exchange Act), other than the Resulting Company, its
subsidiaries or their employee benefit plans, of beneficial ownership of 20
percent or more of the outstanding common stock or the combined voting
power of the Resulting Company's securities entitled to vote generally in
the election of directors; (iii) the approval by the stockholders of the
Resulting Company of a reorganization, merger or consolidation, unless with
or into certain permitted successor entities; or (iv) the approval by the
stockholders of a complete liquidation or dissolution of the Resulting
Company or the sale or disposition of all or substantially all of the
Resulting Company's assets, other than to certain permitted successor
entities. For purposes of this definition, the term "Continuing Directors"
means the persons who are directors at the time the Indemnity Agreement is
signed, as well as subsequent directors whose election or nomination as a
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director was approved by two-thirds of the then-Continuing Directors. The
term excludes certain persons that became directors as a result of election
contests within the meaning of Rule 14a-11 under the Exchange Act or other
types of proxy solicitations.
A Business Leader's rights under the Indemnity Agreement are not
exclusive of any other rights that the Business Leader may have under the
SDBCA or the Delaware Law (as the case may be), the Resulting Company's
certificate or articles of incorporation or bylaws, any other agreement or
any vote of stockholders or disinterested directors. The Indemnity
Agreement does prevent, however, double payment and specifically provides
that if the Resulting Company pays a Business Leader pursuant to the
Indemnity Agreement, the Resulting Company will be subrogated to the
Business Leader's rights to recover from third parties.
In accordance with Article IX of DTG's proposed Amended Articles of
Incorporation and Article XIV of DTG Delaware's Certificate of
Incorporation, the Indemnity Agreement is designed to provide the maximum
protection allowed by law. Although the enforceability of the provisions
of the Indemnity Agreement has not been tested in court and remains subject
to public policy considerations, the Board of Directors believes that such
provisions are permitted under the SDBCA and the Delaware Law.
The Indemnity Agreement is intended to supplement the protection from
liability presently provided to Business Leaders, in light of: (i) the
increasing hazard of litigation, and its related expense, directed against
directors and officers of publicly held companies; (ii) the decrease in
dollar amounts of insurance and the broadening of exclusions and increase
in deductibles under the directors' and officers' liability insurance
policies of many companies, together with a dramatic rise in the cost of
such insurance; and (iii) the potential inability to continue to attract
and retain qualified directors and officers in light of such developments.
In the event that the Resulting Company is required under the
Indemnity Agreement to reimburse a Business Leader for a large damage award
entered against such individual, the Indemnity Agreement could adversely
affect the stockholders' holdings in the Resulting Company by reducing
the Resulting Company's equity. In addition, to the extent that the
Resulting Company is required to indemnify Business Leaders under the
Indemnity Agreement for liability in situations not covered by the
Resulting Company's liability insurance, the Resulting Company's obligation
to pay such amounts of liability could adversely affect the equity of the
Resulting Company and therefore could be detrimental to its stockholders.
The Cooperative's Board of Directors believes that it is essential
that the Resulting Company provide the maximum possible protection to its
directors and officers to be able to attract and retain qualified
individuals to serve as its business leaders. In light of these
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considerations, the Board of Directors of the Cooperative, on behalf of
DTG, and the Board of Directors of DTG Delaware have determined that the
Indemnity Agreement is reasonable, fair and prudent to the Business Leaders
and the stockholders of the Resulting Company and is necessary to promote
and ensure the best interests of the Resulting Company and its
stockholders.
At present, there is no pending litigation or proceeding involving a
director or officer of the Cooperative, DTG or DTG Delaware where
indemnification would be required or permitted under the Indemnity
Agreement, nor is the Board of Directors of the Cooperative or DTG Delaware
aware of any threatened litigation or proceeding which could result in a
claim for indemnification. The Boards of Directors did not approve the
Indemnity Agreement in response to any specific resignation, threat of
resignation or refusal to serve by any current or potential director or
officer.
A vote for the Conversion or the Merger will be deemed to be a vote
for approval of the form of the Indemnity Agreement.
GENERAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated combined financial statements and schedules of the
Cooperative included in this Prospectus and Ballot/Proxy Statement have
been audited by Olsen Thielen & Co., Ltd., independent auditors, as stated
in their report, and have been so used in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters in connection with the proposed Conversion and
the proposed Merger will be passed upon for the Cooperative, DTG and DTG
Delaware by their legal counsel, Warner Norcross & Judd LLP of Grand
Rapids, Michigan.
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No person is authorized to give any information or to make any
representation not contained in this Prospectus and Ballot/Proxy Statement
in connection with the offering and solicitation made hereby. If given or
made, such information or representation should not be relied upon as
having been authorized. This Prospectus and Ballot/Proxy Statement does
not constitute an offer to sell, or a solicitation of an offer to purchase,
the securities offered by this Prospectus and Ballot/Proxy Statement, or
the solicitation of a ballot/proxy, in any jurisdiction to or from any
person to whom it is unlawful to make such offer, or solicitation of an
offer, or ballot/proxy solicitation in such jurisdiction. Neither the
delivery of this Prospectus and Ballot/Proxy Statement nor any distribution
of the securities this Prospectus and Ballot/Proxy Statement offers shall,
under any circumstances, create any implication that there has been no
change in the information contained herein or in the affairs of the
Cooperative, DTG or DTG Delaware since the date hereof.
TABLE OF CONTENTS
PAGE
INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . .1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Dakota Cooperative Telecommunications, Inc. and Dakota
Telecommunications Group, Inc.. . . . . . . . . . . . . . . . . . .3
Dakota Telecommunications Group (Delaware), Inc.. . . . . . . . . . .3
Summary of Certain Aspects of the Conversion. . . . . . . . . . . . .4
Summary of Certain Aspects of the Merger. . . . . . . . . . . . . . .7
Market Information. . . . . . . . . . . . . . . . . . . . . . . . . .9
Selected Consolidated Financial Data. . . . . . . . . . . . . . . . 10
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Regulatory and Legislative. . . . . . . . . . . . . . . . . . . . . 17
Rapid Technological Changes; Dependence Upon
Product Development. . . . . . . . . . . . . . . . . . . . . . . . 19
Dependence Upon Technology. . . . . . . . . . . . . . . . . . . . . 19
Significant Capital Requirements. . . . . . . . . . . . . . . . . . 19
Financial Leverage; Debt Service, Interest Rate
Fluctuations, Possible Reduction in Liquidity,
Dividend Restrictions and Other Restrictive
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Losses. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Variability of Quarterly Operating Results. . . . . . . . . . . . . 21
Acquisition Strategy . . . . . . . . . . . . . . . . . . . . . . . 21
Network Expansion and Implementation. . . . . . . . . . . . . . . . 21
Dependence on Availability of Transmission Facilities . . . . . . . 22
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Dependence upon Network Infrastructure; Risk of
System Failure; Security Risks . . . . . . . . . . . . . . . . . . 22
Dependence upon Suppliers; Sole and Limited Sources
of Supply for Internet Operations. . . . . . . . . . . . . . . . . 22
Expansion of Sales and Marketing Activities . . . . . . . . . . . . 22
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . 23
Potential Liability of On-line Service Providers. . . . . . . . . . 23
Anti-Takeover Considerations. . . . . . . . . . . . . . . . . . . . 24
Absence of Prior Trading Market; Potential Volatility
of Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . 25
Certain Standstill Agreements . . . . . . . . . . . . . . . . . . . 25
Covenants in Rural Utilities Services Loan Agreements . . . . . . . 26
Certain Credit Risks. . . . . . . . . . . . . . . . . . . . . . . . 26
GENERAL VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 26
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Voting by Ballot. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Voting by Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Ballot and Proxy Solicitation . . . . . . . . . . . . . . . . . . . 27
Voting Rights and Record Date for Conversion. . . . . . . . . . . . 27
Voting Rights and Record Date for Merger. . . . . . . . . . . . . . 27
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Background of the Conversion. . . . . . . . . . . . . . . . . . . . 28
Board Recommendation and Reasons for the
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Conversion of Shares of Cooperative Common Stock
and Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . 30
Conversion of Current and Former Members'
Capital Credits. . . . . . . . . . . . . . . . . . . . . . . . . . 30
No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . 31
Distribution of DTG Common Stock. . . . . . . . . . . . . . . . . . 31
Effective Time of the Conversion. . . . . . . . . . . . . . . . . . 32
Cooperative Stock Options and Warrants. . . . . . . . . . . . . . . 32
Management After the Conversion . . . . . . . . . . . . . . . . . . 32
Conditions to the Conversion and Abandonment. . . . . . . . . . . . 32
Description of DTG Capital Stock. . . . . . . . . . . . . . . . . . 33
Statutory Provisions Affecting Control of DTG . . . . . . . . . . . 33
Other Provisions Affecting Control of DTG . . . . . . . . . . . . . 37
Comparison of Rights of Members of the Cooperative
to Rights of Shareholders of DTG . . . . . . . . . . . . . . . . . 41
Indemnification and Limitation of Liability . . . . . . . . . . . . 44
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . 46
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 47
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . 47
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THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . 47
Board Recommendation and Reasons for the Merger . . . . . . . . . . 47
Conversion of Rights to Receive Shares of DTG
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Cessation of Shareholder Status and Distribution of
DTG Delaware Common Stock. . . . . . . . . . . . . . . . . . . . . 49
Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . 49
DTG Stock Options and Warrants. . . . . . . . . . . . . . . . . . . 50
Management After the Merger . . . . . . . . . . . . . . . . . . . . 50
Conditions to the Merger and Abandonment. . . . . . . . . . . . . . 50
Description of DTG Delaware Capital Stock . . . . . . . . . . . . . 51
Stock Options and Warrants. . . . . . . . . . . . . . . . . . . . . 52
Statutory Provisions Affecting Control of DTG Delaware. . . . . . . 52
Other Provisions Affecting Control of DTG Delaware. . . . . . . . . 53
Comparison of Rights of Shareholders of DTG to
Rights of Stockholders of DTG Delaware . . . . . . . . . . . . . . 56
Indemnification and Limitation of Liability . . . . . . . . . . . . 21
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . 63
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 64
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 64
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.. . . . . . . . . . . . . . . . . . . . . . 68
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Environmental and Other Matters . . . . . . . . . . . . . . . . . . 99
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .101
Market for Common and Preferred Stock and
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Certain Agreements Affecting Capital Stock. . . . . . . . . . . . .102
Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . .103
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .107
DAKOTA TELECOMMUNICATIONS
GROUP, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Properties and Legal Proceedings. . . . . . . . . . . . . . . . . .108
Market for Common Stock and Dividends . . . . . . . . . . . . . . .108
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .108
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DAKOTA TELECOMMUNICATIONS
GROUP (DELAWARE), INC.. . . . . . . . . . . . . . . . . . . . . . .109
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Properties and Legal Proceedings. . . . . . . . . . . . . . . . . .109
Market for Common Stock and Dividends . . . . . . . . . . . . . . .109
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .110
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .110
VOTING AND MANAGEMENT INFORMATION. . . . . . . . . . . . . . . . . . . .112
Voting Securities and Members of the Cooperative. . . . . . . . . .112
Voting Securities and Principal Shareholders
of DTG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
Voting Securities and Principal Stockholder of
DTG Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . .114
Directors and Executive Officers. . . . . . . . . . . . . . . . . .116
Compensation of Executive Officers and Directors
of the Cooperative . . . . . . . . . . . . . . . . . . . . . . . .117
Preferred Stock Options . . . . . . . . . . . . . . . . . . . . . .118
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . .118
Employment Agreements, Termination of Employment
and Change in Control Arrangements . . . . . . . . . . . . . . . .119
ADDITIONAL SECURITIES OF THE
RESULTING COMPANY . . . . . . . . . . . . . . . . . . . . . . . . .120
Preferred Stock Purchase Rights Plan. . . . . . . . . . . . . . . .120
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
Standstill Agreements . . . . . . . . . . . . . . . . . . . . . . .124
1997 STOCK INCENTIVE PLAN. . . . . . . . . . . . . . . . . . . . . . . .125
INDEMNITY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .129
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .132
Independent Public Accountants. . . . . . . . . . . . . . . . . . .132
Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . .132
Appendix A--Proposed Amendment to Articles of Incorporation of the
Cooperative
Appendix B--Proposed Amended Articles of Incorporation of DTG
Appendix C--Proposed Bylaws of DTG
Appendix D--Agreement and Plan of Merger
Appendix E--Certificate of Incorporation of DTG Delaware
Appendix F--Bylaws of DTG Delaware
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Appendix G--Consolidated Financial Statements
Appendix H--Dissenters' Rights
Appendix I--1997 Stock Incentive Plan
Appendix J--Indemnity Agreements
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Cooperative is subject to the South Dakota Cooperative Association
Act (the "Cooperative Act"). For a description of the provisions of the
Cooperative Act related to indemnification of a director or officer of a
cooperative, see "THE CONVERSION--Indemnification and Limitation of
Liability." The Cooperative's bylaws contain provisions with respect to
indemnification. The Cooperative's articles of incorporation do not
contain provisions with respect to indemnification. (See "THE CONVERSION--
Indemnification and Limitation of Liability.")
If the Conversion is consummated, DTG would be subject to the South
Dakota Business Corporation Act (the "SDBCA.") For a description of the
provisions of the SDBCA related to indemnification of a director or officer
of a South Dakota business corporation, see "THE MERGER--Indemnification
and Limitation of Liability" and "THE CONVERSION--Indemnification and
Limitation of Liability." DTG's proposed Amended Articles of Incorporation
and Bylaws contain provisions regarding the indemnification of DTG's
directors and officers. (See "THE MERGER--Indemnification and Limitation
of Liability" and "THE CONVERSION--Indemnification and Limitation of
Liability.")
If the Merger is consummated, DTG Delaware would be subject to the
Delaware General Corporation Law (the "Delaware Law"). For a description
of the provisions of the Delaware Law related to indemnification of a
director or officer of a Delaware business corporation, see "THE MERGER--
Indemnification and Limitation of Liability." DTG Delaware's Certificate
of Incorporation and Bylaws contain provisions regarding the
indemnification of DTG Delaware's directors and executive officers.
(See "THE MERGER--Indemnification and Limitation of Liability.")
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this
Registration Statement:
NUMBER EXHIBIT
- ------ -------
2.1 PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION OF DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. Attached as Appendix A to
the Prospectus and Ballot/Proxy Statement.
2.2 AGREEMENT AND PLAN OF MERGER. Attached as Appendix D to the
Prospectus and Ballot/Proxy Statement.
2.3 MERGER AGREEMENT DATED NOVEMBER 27, 1996 BETWEEN DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC., DAKOTA ACQUISITION CORP. #2 AND I-WAY
PARTNERS, INC.
2.4 MERGER AGREEMENT DATED NOVEMBER 27, 1996 BETWEEN DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC., DAKOTA ACQUISITION CORP. #1 AND TCIC
COMMUNICATIONS, INC.
3.1 AMENDED ARTICLES OF INCORPORATION OF DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
3.2 AMENDED BYLAWS OF DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
3.3 AMENDED ARTICLES OF INCORPORATION OF DAKOTA TELECOMMUNICATIONS
GROUP, INC. Attached as Appendix B to the Prospectus and
Ballot/Proxy Statement.
3.4 BYLAWS OF DAKOTA TELECOMMUNICATIONS GROUP, INC. Attached as
Appendix C to the Prospectus and Ballot/Proxy Statement.
3.5 CERTIFICATE OF INCORPORATION OF DAKOTA TELECOMMUNICATIONS GROUP
(DELAWARE), INC. Attached as Appendix E to the Prospectus and
Ballot/Proxy Statement.
3.6 BYLAWS OF DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
Attached as Appendix F to the Prospectus and Ballot/Proxy
Statement.
4.1 ARTICLES OF INCORPORATION OF DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC. (included in Exhibit 3.1).
4.2 BYLAWS OF DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. (included
in Exhibit 3.2).
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NUMBER EXHIBIT
- ------ -------
4.3 AMENDED ARTICLES OF INCORPORATION OF DAKOTA TELECOMMUNICATIONS
GROUP, INC. (included in Exhibit 3.3).
4.4 BYLAWS OF DAKOTA TELECOMMUNICATIONS GROUP, INC. (included in
Exhibit 3.4).
4.5 CERTIFICATE OF INCORPORATION OF DAKOTA TELECOMMUNICATIONS GROUP
(DELAWARE), INC. (included in Exhibit 3.5).
4.6 BYLAWS OF DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
(included in Exhibit 3.6).
4.7 STANDSTILL AGREEMENT DATED NOVEMBER 27, 1996 AMONG DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. AND THE SELLING
SHAREHOLDERS OF TCIC COMMUNICATIONS, INC.
4.8 STANDSTILL AGREEMENT DATED NOVEMBER 27, 1996 AMONG DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. AND THE SELLING
SHAREHOLDERS OF I-WAY, PARTNERS, INC.
4.9 DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. COMMON STOCK
CERTIFICATE.
4.10 DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. PREFERRED STOCK
CERTIFICATE (SPECIMEN).
4.11 DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. FORM OF WARRANT
AGREEMENT.
4.12 DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. FORM OF OPTION
AGREEMENT.
4.13 AGREEMENT REGARDING STOCK (I-WAY PARTNERS, INC.) DATED
NOVEMBER 27, 1996.
4.14 AGREEMENT REGARDING STOCK (TCIC COMMUNICATIONS, INC.)
DATED NOVEMBER 27, 1996.
4.15 DAKOTA TELECOMMUNICATIONS GROUP, INC. COMMON STOCK
CERTIFICATE.<F*>
4.16 DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC. COMMON STOCK
CERTIFICATE.<F*>
4.17 TELEPHONE LOAN CONTRACT 515-A DATED SEPTEMBER 4, 1952
195
<PAGE>
NUMBER EXHIBIT
- ------ -------
4.18 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-B DATED AUGUST 11, 1955
4.19 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-C DATED OCTOBER 9, 1958
4.20 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-D DATED MARCH 8, 1961
4.21 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-E DATED AUGUST 20, 1964
4.22 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-F DATED JUNE 1, 1967
4.23 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-G DATED DECEMBER 20, 1968
4.24 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-H DATED DECEMBER 8, 1970
4.25 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-K1 DATED OCTOBER 2,1972
4.26 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-L8 DATED JUNE 4, 1973
4.27 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-M8 DATED AUGUST 29, 1973
4.28 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-N8 DATED MAY 13, 1976
4.29 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-P8 DATED JULY 20, 1977
4.30 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-R8 DATED NOVEMBER 22, 1982
4.31 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-S8 DATED FEBRUARY 4, 1986
4.32 AMENDMENT TO TELEPHONE LOAN CONTRACT 515-T8 DATED SEPTEMBER 25, 1991
4.33 DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. RESTATED MORTGAGE,
SECURITY AGREEMENT, AND FINANCING STATEMENT (515-S8) AND
SUPPLEMENT DATED APRIL 13, 1992
4.34 DAKOTA TELECOM, INC. LOAN AGREEMENT WITH RURAL TELEPHONE
FINANCE COOPERATIVE (JANUARY 29, 1996)
4.35 DAKOTA TELECOM, INC. LOAN AGREEMENT WITH RURAL TELEPHONE
FINANCE COOPERATIVE (JUNE 27, 1996)
4.36 The Registrant has several classes of long-term debt instruments
outstanding in addition to that described in Exhibits 4.17
through 4.34 above. The amount of these classes of debt
outstanding on Februray 18, 1997 does not exceed 10 percent
of the Registrant's total consolidated assets. The Registrant
agrees to furnish copies of any agreement defining the rights of
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NUMBER EXHIBIT
- ------ -------
holders of any such long-term indebtedness to the Securities and
Exchange Commission upon request.
5 OPINION OF COUNSEL REGARDING THE LEGALITY OF THE SECURITIES BEING
REGISTERED.
8 OPINION OF OLSEN, THIELEN & CO., LTD. REGARDING TAX MATTERS.
10.1 1997 STOCK INCENTIVE PLAN. <F**>Attached as Appendix I to the
Prospectus and Ballot/Proxy Statement.
10.2 FORM OF INDEMNITY AGREEMENT. <F**>Attached as Appendix J to the
Prospectus and Ballot/Proxy Statement.
10.3 EMPLOYMENT AGREEMENT OF THOMAS W. HERTZ.<F**>
10.4 EMPLOYMENT AGREEMENT OF CRAIG A. ANDERSON.<F**>
10.5 EARLY RETIREMENT AND CONSULTING AGREEMENT OF ROBERT R. DENEUI.<F**>
10.6 The registrant is a party to a number of loan contracts that are
material to the registrant's business (included in Exhibits
4.16 through 4.35).
21 SUBSIDIARIES OF REGISTRANT.
23.1 CONSENT OF COUNSEL (included in Exhibit 5).
23.2 CONSENT OF INDEPENDENT ACCOUNTANTS (COOPERATIVE FINANCIAL
STATEMENTS).
23.3 CONSENT OF OLSEN THIELEN & CO., LTD. (included in Exhibit 8).
24 LIMITED POWERS OF ATTORNEY.
27 FINANCIAL DATA SCHEDULE.
99.1 COOPERATIVE PRESIDENT'S LETTER TO MEMBERS.
99.2 COOPERATIVE PRESIDENT'S LETTER TO CAPITAL CREDIT HOLDERS AND
HOLDERS OF PREFERRED STOCK
99.3 FORM OF BALLOT FOR DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
197
<PAGE>
NUMBER EXHIBIT
- ------ -------
99.4 FORM OF PROXY FOR DAKOTA TELECOMMUNICATIONS GROUP, INC.
_______________
<F*>To be filed by Amendment.
<F**>Management contract or compensatory plan or arrangement
(b) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules
have been omitted because they are not applicable.
198
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The registrant will:
(a) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation form the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price present no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(b) For determining liability under the Securities Act, treat
each post-effect amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(c) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of
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<PAGE>
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of
such issue.
(3) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Prospectus and Ballot/Proxy Statement pursuant to Item 4, 10(b), 11,
or 13 of this form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
200
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irene,
State of South Dakota, on February 18, 1997.
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
(TO BECOME DAKOTA TELECOMMUNICATIONS GROUP,
INC.)
(Registrant)
By /S/ THOMAS W. HERTZ
Thomas W. Hertz, Chief Executive Officer and
General Manager
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
February 18, 1997 */S/ ROSS J. BENSON
Ross L. Benson, Director
February 18, 1997 */S/ DALE Q. BYE
Dale Q. Bye, Director and Treasurer
February 18, 1997 */S/ EDWARD D. CHRISTENSEN, JR.
Edward D. Christensen, Jr., Director
February 18, 1997 */S/ JEFFREY J. GOEMAN
Jeffrey J. Goeman, Director and Vice President
February 18, 1997 */S/ JAMES H. JIBBEN
James H. Jibben, Director and President
February 18, 1997 */S/ PALMER O. LARSON
Palmer O. Larson, Director
February 18, 1997 */S/ JOHN (JACK) A. ROTH
John (Jack) A. Roth, Director
February 18, 1997 */S/ JOHN A. SCHAEFER
John A. Schaefer, Director and Secretary
201
<PAGE>
February 18, 1997 /S/ THOMAS W. HERTZ
Thomas W. Hertz, Chief Executive Officer and
General Manager
February 18, 1997 /S/ CRAIG A. ANDERSON
Craig A. Anderson, Executive Vice President -
Marketing and Chief Financial Officer
(Principal Accounting and Financial
Officer)
*By /S/ THOMAS W. HERTZ
Thomas W. Hertz
Attorney-in-Fact
202
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irene,
State of South Dakota, on February 18, 1997.
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
(Registrant)
By /S/ THOMAS W. HERTZ
Thomas W. Hertz, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
February 18, 1997 */S/ ROSS L. BENSON
Ross L Benson, Director
February 18, 1997 */S/ DALE Q. BYE
Dale Q. Bye, Director
February 18, 1997 */S/ EDWARD D. CHRISTENSEN, JR.
Edward D. Christensen, Jr., Director
February 18, 1997 */S/ JEFFREY J. GOEMAN
Jeffrey J. Goeman, Director
February 18, 1997 */S/ JAMES H. JIBBEN
James H. Jibben, Chairman of the Board and
Director
February 18, 1997 */S/ PALMER O. LARSON
Palmer O. Larson, Director
February 18, 1997 */S/ JOHN (JACK) A. ROTH
John (Jack) A. Roth, Director
February 18, 1997 */S/ JOHN A. SCHAEFER
John A. Schaefer, Director
203
<PAGE>
February 18, 1997 /S/ THOMAS W. HERTZ
Thomas W. Hertz, Director, President and
Chief Executive Officer
February 18, 1997 /S/ CRAIG A. ANDERSON
Craig A. Anderson, Director, Executive Vice
President - Marketing, Chief Financial
Officer and Treasurer (Principal
Accounting and Financial Officer)
*By /S/ THOMAS W. HERTZ
Thomas W. Hertz
Attorney-in-Fact
204
<PAGE>
APPENDIX A
AMENDMENTS TO ARTICLES OF INCORPORATION
OF DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
TO EFFECT CONVERSION TO BUSINESS CORPORATION
AND RECLASSIFICATION OF SHARES
WHEREAS, the Board of Directors of Dakota Cooperative
Telecommunications, Inc. (the "Cooperative") believes it is in the best
interests of the Cooperative and its members ("Members") and holders of
Preferred Stock (defined below) and Capital Credits (defined below) for the
Cooperative to convert from a South Dakota cooperative association into a
South Dakota business corporation and become subject to the provisions of
the South Dakota Business Corporation Act (the "Conversion"); and
WHEREAS, the South Dakota Business Corporation Act provides that
a cooperative association may convert itself into a business corporation by
adopting an amendment to its articles of incorporation by which it elects
to become subject to the provisions of the South Dakota Business
Corporation Act; and
WHEREAS, the Board of Directors of the Cooperative has approved
the amendments to the Cooperative's articles of incorporation set forth
below (the "Amendments") to effect the Conversion and directed the
Amendments be submitted to the Cooperative's Members for approval in
accordance with the provisions of the South Dakota Cooperative Association
Act and the Cooperative's articles of incorporation;
IT IS THEREFORE RESOLVED, that the articles of incorporation of
the Cooperative be amended in their entirety to provide as set forth in
EXHIBIT A to these Amendments, which Exhibit is hereby incorporated by
reference;
FURTHER RESOLVED, that, at the Effective Time of the Conversion
(as defined below), each share of the Cooperative's common stock, $5.00 par
value per share ("Old Common Stock"), issued and outstanding immediately
before the Effective Time will automatically become and be converted into
the right to receive one validly issued, fully paid and nonassessable share
of common stock, without par value, of the resulting business corporation
("New Common Stock");
FURTHER RESOLVED, that, at the Effective Time of the Conversion,
each share of the Cooperative's Non-Voting Non-Cumulative Preferred Stock,
$100.00 par value per share ("Preferred Stock"), issued and outstanding
immediately before the Effective Time will automatically become and be
converted into the right to receive 80.8216445 validly issued, fully paid
and nonassessable shares of New Common Stock;
A-1
<PAGE>
FURTHER RESOLVED, that, at the Effective Time of the Conversion,
each Warrant to purchase shares of Preferred Stock issued and outstanding
immediately before the Effective Time will automatically become and be
converted into an issued and outstanding Warrant to purchase 80.8216445
validly issued, fully paid and nonassessable shares of New Common Stock
upon the same terms as set forth in each existing Warrant;
FURTHER RESOLVED, that, at the Effective Time of the Conversion,
each Option to purchase shares of Preferred Stock issued and outstanding at
the Effective Time will automatically become and be converted into an
issued and outstanding Option to purchase 80.8216445 validly issued, fully
paid and nonassessable shares of New Common Stock upon the same terms as
set forth in each existing Option;
FURTHER RESOLVED, that, at the Effective Time of the Conversion,
each dollar credited on the books of the Cooperative to the capital account
of each Member and former Member (a "Capital Credit") will be retired in
full and will automatically become and be converted into the right to
receive 0.2 of a validly issued, fully paid and nonassessable share of New
Common Stock;
FURTHER RESOLVED, that, at the Effective Time of the Conversion,
each share of Old Common Stock and Preferred Stock outstanding immediately
prior to the Effective Time shall be deemed to be no longer outstanding and
each Capital Credit recorded immediately prior to the Effective Time shall
be deemed retired in full, and shall represent solely the right to receive
shares of New Common Stock, together with any dividends and other
distributions payable as provided in these Amendments, but subject to
payment of cash in lieu of fractional shares or credits as provided in
these Amendments;
FURTHER RESOLVED, that, after the Effective Time of the
Conversion, certificates representing shares of Old Common Stock or
Preferred Stock ("Old Certificates") shall be exchangeable by the holders
thereof for, and holders of Capital Credits shall be entitled to receive in
consideration for retirement of Capital Credits, stock certificates
representing the number of shares of New Common Stock to which such holders
shall be entitled in the following manner:
(i) Each person's total Capital Credit balance will be
determined by first allocating the person's portion of all unallocated
Capital Credits for the year ended December 31, 1996 to the person's
capital account based on the person's total patronage in 1996. No
Capital Credits will be allocated for 1997. Next, any unpaid overdue
amounts owed to the Cooperative for past services, plus interest on
such amounts calculated in accordance with Section 9.02 of the
Cooperative's bylaws, will be offset against the person's capital
account. As an alternative, each holder will have the option of
A-2
<PAGE>
paying such overdue amounts, plus interest due thereon, and preventing
a reduction in the holder's Capital Credit balance. The resulting
Capital Credit balance, if positive, will be divided by $5.00 to
determine the number of shares of New Common Stock to be issued in the
Conversion to retire Capital Credits. Fractional shares will not be
issued. Each person who would otherwise have been entitled to receive
a fraction of a share of New Common Stock in the Conversion will
receive instead cash in an amount equal to that fraction multiplied by
$5.00. If the Cooperative has no record of the current address of
holders of accounts with positive Capital Credit balances, the
resulting business corporation will allocate such amounts into a
special Cooperative Equity Suspense Account. Following the forfeiture
provisions of Section 47-16-54 of the South Dakota Cooperative
Association Act, the resulting business corporation will attempt to
locate the holders of such accounts. If it is unable to do so, the
amounts in the Cooperative Equity Suspense Account will be forfeited
and reallocated as additional paid-in capital.
(ii) As soon as practicable after the Effective Time of the
Conversion or after a Capital Credit holder is located, the resulting
business corporation shall send or cause to be sent to each record
holder of Old Common Stock and Preferred Stock outstanding immediately
prior to the Effective Time of the Conversion, and each holder of a
Capital Credit as reflected on the books of the Cooperative,
transmittal materials for use in exchanging that holder's Old
Certificates for, or for obtaining in consideration of Capital
Credits, New Common Stock certificates. The transmittal materials
will contain instructions with respect to the surrender of Old
Certificates.
(iii) The resulting business corporation shall issue and
deliver stock certificates together with checks for the amount of cash
payable for fractional shares of New Common Stock to Members and
holders of Preferred Stock and Capital Credits in the names and to the
addresses that appear on the Cooperative's stock records as of the
Effective Time of the Conversion, or in such other name or to such
other address as may be specified by the holder in transmittal
documents received by the resulting business corporation; provided,
that:
(a) The resulting business corporation shall have received
properly executed transmittal materials and, with respect to each
Member or holder of Preferred Stock, all of the Old Certificates
held by that holder, or an affidavit of loss and indemnity bond
for such certificate or certificates; and
(b) Such transmittal materials, certificates, affidavits
and bonds are in a form and condition reasonably acceptable to
the resulting business corporation.
A-3
<PAGE>
(iv) On or after the Effective Time, there shall be no transfers
on the Cooperative's stock transfer books or books of account of the
shares of Old Common Stock or Preferred Stock or Capital Credits which
were issued and outstanding immediately prior to the Effective Time.
If, after the Effective Time, Old Certificates are properly presented
for transfer, or a request is made for transfer of a Capital Credit,
then they shall be canceled or retired, as applicable, and exchanged
for stock certificates representing shares of New Common Stock as
provided in these Amendments.
(v) The resulting business corporation shall have discretion to
determine reasonable rules and procedures relating to the exchange of
Old Certificates and the issuance and delivery of certificates of New
Common Stock into which shares of Old Common Stock and Preferred Stock
and Capital Credits are converted in the Conversion and governing the
payment for fractional shares or interests;
FURTHER RESOLVED, that, notwithstanding any other provision of
these Amendments, no certificates or scrip representing fractional shares
of New Common Stock shall be issued in the Conversion (taking into account
all shares and Capital Credits held by a particular holder) upon the
surrender of Old Certificates or retirement of Capital Credits. No
fractional interest in any share of New Common Stock resulting from the
Conversion shall be entitled to any part of a dividend, distribution or
stock split with respect to shares of New Common Stock nor entitle the
record holder to vote or exercise any rights of a shareholder with respect
to that fractional interest. In lieu of issuing any fractional share, each
holder of an Old Certificate or Capital Credit who would otherwise have
been entitled to a fractional share of New Common Stock upon surrender of
all Old Certificates and retirement of Capital Credits shall be paid an
amount in cash (without interest) equal to such fraction of a share
multiplied by $5.00;
FURTHER RESOLVED, that the Conversion shall become effective at
the date and time (the "Effective Time") set forth in a Certificate of
Amendment of the Articles of Incorporation to be issued by the Secretary of
the State of South Dakota;
FURTHER RESOLVED, that, at the Effective Time, the Bylaws of the
Cooperative shall be amended in their entirety to provide as set forth in
EXHIBIT B to these Amendments, which Exhibit is hereby incorporated by
reference;
FURTHER RESOLVED, that, if the proposed Agreement and Plan of
Merger between the Cooperative, on behalf of the resulting business
corporation, and Dakota Telecommunications Group (Delaware), Inc. ("DTG
Delaware"), dated as of February 14, 1997 (the "Plan of Merger"), is
approved, no shares of New Common Stock will be issued in the Conversion;
A-4
<PAGE>
instead, holders of rights to receive shares of New Common Stock, or rights
to purchase shares of New Common Stock, will instead receive shares of
common stock, without par value, of DTG Delaware ("DTG Delaware Common
Stock"), or rights to purchase shares of DTG Delaware Common Stock, as
provided in the Plan of Merger, together with checks for the amount of cash
payable for fractional shares of New Common Stock; and
FURTHER RESOLVED, that the Cooperative's directors and officers
are hereby authorized to perform any and all acts, execute any and all
documents, agreements, contracts and certificates for and in the name of
the Cooperative and to do any and all things as they, in their sole
discretion, deem necessary, desirable or convenient to give effect and to
implement or carry out the intent and purposes of these resolutions; and
all actions already taken on behalf of the Cooperative to implement these
Amendments are hereby fully ratified, approved and confirmed.
A-5
<PAGE>
APPENDIX B
AMENDED ARTICLES OF INCORPORATION
OF
DAKOTA TELECOMMUNICATIONS GROUP, INC.
(A SOUTH DAKOTA CORPORATION)
Pursuant to the provisions of Sections 47-15-8 of the South
Dakota Cooperative Association Act, as amended, the undersigned corporation
executes the following Amended Articles of Incorporation:
ARTICLE I
The name of the corporation is DAKOTA TELECOMMUNICATIONS GROUP,
INC.
ARTICLE II
The corporation shall be subject to the South Dakota Business
Corporation Act.
ARTICLE III
The period of duration of the corporation shall be perpetual.
ARTICLE IV
The purpose of the corporation is: (i) to engage in the business
of telecommunications, internet communications, cable television and other
cable communications, and any business relating thereto, and to hold the
securities of other companies who engage in such businesses or other
business permissible under the laws of their states of incorporation, and
(ii) to engage in any other business incidental or related thereto, and
such other business or business activities as shall be considered desirable
by the directors, and to make and execute any and all agreements for the
purpose outlined, including agreements for borrowing of money, to
construct, own, purchase, maintain, operate, sell, lease or dispose of real
and personal property which may be necessary or advisable for the carrying
on of the business of the corporation; and to do all other things
subsidiary, necessary or contingent for carrying out and into effect the
main purposes of the corporation; to enter into partnerships; and any and
all other lawful purposes for which corporations may be incorporated under
the South Dakota Business Corporation Act.
<PAGE>
ARTICLE V
The total authorized capital stock of the corporation is five
million (5,000,000) shares of common stock without par value, and two
hundred fifty thousand (250,000) shares of preferred stock without par
value, of which fifteen thousand (15,000) shares shall be designated as
Series A Junior Participating Preferred Stock.
The following provisions are applicable to the authorized stock
of the corporation:
(A) PROVISIONS APPLICABLE TO COMMON STOCK.
(1) All shares of common stock shall be of one class. Each
holder of common stock shall be entitled to one vote for each
share held by the shareholder.
(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 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 shareholders ratably
in proportion to the number of shares of common stock held by
them. 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 person 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.
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(B) PROVISIONS APPLICABLE TO PREFERRED STOCK:
(1) Provisions to be Fixed by the Board of Directors:
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, full or limited, or without voting powers, and with such
designations, preferences and relative, participating,
conversion, optional or other 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 these Amended
Articles of Incorporation, or any amendments 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.
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(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 series for retirement or
to other corporation 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 or any other 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 these
Amended Articles of Incorporation.
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(2) Provisions Applicable to All Preferred Stock:
(a) All preferred stock shall rank equally and be
identical in all respects except as to the matters permitted
to be fixed by the Board of Directors, and all shares of any
one series thereof shall be identical in every particular
except as to the date, if any, from which dividends on such
shares shall accumulate.
(b) 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 South Dakota Business Corporation Act, 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.
(3) Provisions Applicable To Series A Junior Participating
Preferred Stock:
(a) 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.
(b) DIVIDENDS AND DISTRIBUTIONS.
(i) 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
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share (rounded to the nearest cent) equal to the
greater of (A) $10 or (B) 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 (B) 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.
(ii) The corporation shall declare a dividend or
distribution on the Series A Junior Participating
Preferred Stock as provided in paragraph (i) 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.
(iii) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Junior
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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.
(c) VOTING RIGHTS. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following
voting rights:
(i) 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 (A) declare any dividend on Common Stock payable in
shares of Common Stock, (B) subdivide the outstanding Common
Stock, or (C) 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
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<PAGE>
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.
(ii) 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.
(iii) (A) If at any time dividends on any Series A
Junior Participating Preferred Stock shall be in arrears in
an amount equal to six (6) 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 (6) quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect
two (2) Directors.
(B) 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 (C) below 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
ten percent (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 (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors. If the
number which may be so elected at any special meeting does
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<PAGE>
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.
(C) 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 ten percent (10%) of the total
number of shares of Preferred Stock outstanding,
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
paragraph (C) 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 ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the provisions
of this paragraph (C), 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.
(D) 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 (2) Directors
voting as a class, after the exercise of which right (X) the
Directors so elected by the holders of Preferred Stock shall
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<PAGE>
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 (B) above)
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 paragraph 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.
(E) 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 by-laws irrespective of any increase made
pursuant to the provisions of paragraph (B) above (such
number being subject, however, to change thereafter in any
manner provided by law or in the articles of incorporation
or by-laws). 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.
(iv) 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.
(d) Certain Restrictions:
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating
Preferred Stock as provided in Section 3(b) 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
(A) 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;
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<PAGE>
(B) 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;
(C) 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;
(D) 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.
(ii) 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 (i) above, purchase or otherwise acquire
such shares at such time and in such manner.
(e) 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
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<PAGE>
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 are outstanding, the Board of Directors, acting by
resolution duly adopted, may file a Certificate of Designation,
Preferences and Rights pursuant to the South Dakota Business
Corporation Act 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.
(f) LIQUIDATION, DISSOLUTION OR WINDING UP.
(i) 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
(x) the Series A Liquidation Preference by (y) 100 (as
appropriately adjusted as set forth in subparagraph (iii)
below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common
Stock) (such number in clause (y), 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 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 1 with
respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
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(ii) 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.
(iii) In the event the corporation shall at any time
after the 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 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.
(g) 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 the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
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(h) NO REDEMPTION. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
(i) RANKING. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the corporation's
Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall
provide otherwise.
(j) 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.
(k) 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 VI
The street address (which is the mailing address) of the
registered office of the corporation is 29705 453rd Avenue, Post Office Box
66, Irene, South Dakota 57037. The name of the registered agent at the
registered office is Craig A. Anderson.
ARTICLE VII
When a compromise or arrangement or a plan of reorganization of
this corporation is proposed between this corporation and its creditors or
any class of them or between this corporation and its shareholders or any
class of them, a court of equity jurisdiction within the state, on
application of this corporation or of a creditor or shareholder thereof, or
on application of a receiver appointed for the corporation, may order a
meeting of the creditors or class of creditors or of the shareholders or
class of shareholders to be affected by the proposed compromise or
arrangement or reorganization, to be summoned in such manner as the court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, or of the shareholders or class of
shareholders to be affected by the proposed compromise or arrangement or a
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reorganization, agree to a compromise or arrangement or a reorganization of
this corporation as a consequence of the compromise or arrangement, the
compromise or arrangement and the reorganization, if sanctioned by the
court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders and also on this corporation.
ARTICLE VIII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(A) To make, alter 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) By a majority of the whole Board, 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 he or they 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 to
authorize amending the Articles of Incorporation, adopting an
agreement of merger or consolidation, recommending to the
shareholders the sale, lease, exchange or other disposition of
all or substantially all of the corporation's property and assets
other than in the usual and regular course of its business,
recommending to the shareholders a dissolution of the corporation
or a revocation of a dissolution, or amending the Bylaws of the
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corporation; and, unless the resolution or Bylaws expressly so
provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
(E) When and as authorized by the shareholders in
accordance with statute, 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
for the best interests of the corporation.
(F) To elect and determine the duties of the officers of
the corporation and to establish the rights, powers, duties,
rules and 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
shareholders, 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 shareholders which shall
impair or impede the implementation of the foregoing.
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ARTICLE IX
Directors and executive officers (as such term may be defined in
the Bylaws of the corporation governing indemnification) of the corporation
shall be indemnified as of right 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 or other enterprise 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 such person and incurred by such person in
respect of such service whether or not the corporation would have the power
to indemnify such person against such liability by law or under the
provisions of this paragraph. The provisions of this paragraph shall be
applicable 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 paragraph. The provisions of this paragraph are not exclusive of
any other rights to which those seeking indemnification may be entitled
pursuant to law, contract, agreement, Bylaw, vote of the shareholders or
otherwise.
ARTICLE X
Any action required or permitted to be taken by the shareholders
of the corporation must be effected at a duly called annual or special
meeting of shareholders of the corporation and may not be effected by any
consent in writing by such shareholders, except that any such action may be
taken upon the signing of a consent in writing by all the shareholders of
the corporation entitled to vote thereon. Except as otherwise required by
law and subject to the rights of the holders of preferred stock, special
meetings of shareholders of the corporation may be called by an executive
officer whenever directed by the Board of Directors. Such request shall
state the purpose of the proposed meeting.
ARTICLE XI
Members of the Board of Directors of the corporation shall be
selected, replaced and removed as follows:
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(A) NUMBER OF DIRECTORS. The number of the directors of
the corporation shall be as fixed in a Bylaw, but shall not be
less than nine, provided that any amendment to such Bylaw must be
adopted by the affirmative vote of at least 80 percent of the
entire Board of Directors.
(B) CLASSIFICATION. 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 shareholders, 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 annual meeting of
shareholders held in the third year following the year of their
election.
(C) NOMINATIONS OF DIRECTOR CANDIDATES.
(1) Nominations of candidates for election as
directors of the corporation at any meeting of shareholders
called for election of directors (an "Election Meeting") may
be made by the Board of Directors or by any shareholder
entitled to vote at such Election Meeting.
(2) Nominations made by the Board of Directors shall
be made at a meeting of the Board of Directors, or by
written consent of directors in lieu of a meeting, not less
than 30 days prior to the date of the Election Meeting, and
such nominations shall be reflected in the minute books of
the corporation as of the date made. At the request of the
Secretary of the corporation, each proposed nominee shall
provide the corporation with such information concerning
himself as is required under the rules of the Securities and
Exchange Commission to be included in the corporation's
proxy statements soliciting proxies for his election as a
director.
(3) Any shareholder who intends to make a nomination
at an Election Meeting shall deliver, not less than 120 days
prior to the date of notice of the Election Meeting in the
case of an annual meeting, and not more than 7 days
following the date of notice of the meeting in the case of a
special meeting, a notice to the Secretary of the
corporation setting forth: (i) the name, age, business
address and residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of
each such nominee; (iii) the number of shares of capital
stock of the corporation which are beneficially owned by
each such nominee; (iv) a statement that each such nominee
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is willing to be nominated and serve; and (v) such other
information concerning each such nominee as would be
required under the rules of the Securities and Exchange
Commission in a proxy statement soliciting proxies for the
election of such nominees.
(4) If the chairman of the Election Meeting determines
that a nomination was not made in accordance with the
foregoing procedures, such nomination shall be void.
(D) VACANCIES AND NEWLY CREATED DIRECTORSHIPS. 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. Each director chosen to fill a vacancy shall hold office
for the unexpired term of such person's predecessor in office and
each director chosen to fill a newly created directorship shall
hold office until the next election of directors. When the
number of directors is changed, any newly created or eliminated
directorships shall be so apportioned among the classes as to
make all classes as nearly equal in number as possible. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director and
any such incumbent director shall serve out the remainder of such
director's term.
(E) REMOVAL. 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, but only for cause, and only by
shareholder action. The vote for removal shall be by a majority
of shares entitled to vote at an election of directors except as
provided below. If less than the entire board is to be removed,
no one of the directors may be removed if the votes cast against
his or her removal would be sufficient to elect him or her if
then cumulatively voted at an election of the class of directors
of which he or she is a part. If holders of a class or series of
stock are entitled to elect one or more directors, this paragraph
applies, with respect to removal of a director so elected, to the
vote of the holders of the outstanding shares of that class or
series of stock.
Except as may be provided otherwise by law, cause for
removal shall be construed to exist only if: (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
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subject to direct appeal; (2) such director has been adjudicated
by a court of competent jurisdiction to be liable for negligence,
or misconduct, in the performance of such person'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) such director has become mentally incompetent,
whether or not so adjudicated, which mental incompetency directly
affects such person'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) of this paragraph which is
initiated by the Board of Directors for submission to the
shareholders shall require the affirmative vote of at least two-
thirds of the total number of directors then in office, exclusive
of the director who is the subject of the removal action and who
shall not be entitled to vote thereon.
(F) QUALIFICATIONS AND DUTIES OF DIRECTORS.
(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 he or she was elected or until his or her resignation
or removal; PROVIDED FURTHER, that it shall be the duty of
any such director promptly to notify the Board of Directors
that he or she 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 he or she 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 XII shall apply to such terms used in this
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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 XII, 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 percent of the outstanding securities of any
class or series of voting securities issued by, or at
least 15 percent 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 percent of the consolidated current assets of
the corporation as of the quarter then most
recently ended or render the corporation
insolvent;
(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 XII of these Articles of
Incorporation), including without limitation
claims arising under any indemnity or employ-
ment contract; or
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<PAGE>
(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.
(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
shareholders 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 shareholder 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
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been brought to the attention of the Board (whether in a
shareholder 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.
(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 he or she 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 shareholder who is uncertain whether any
person the shareholder 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 shareholder has such uncertainty concerning the
candidate, explain why the shareholder believes that the
candidate should not be considered a Plaintiff or Related
Person and include an undertaking by or on behalf of the
shareholder that, if the candidate is determined not to be a
Plaintiff or Related Person, the shareholder promptly will
inform the Board in the manner specified in Paragraph (4)
above if any time prior to the election of directors next
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<PAGE>
occurring the shareholder learns of any fact or circumstance
(whether in existence on the date of the request or arising
afterward) which has given the shareholder 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
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 shareholder. With respect to any meeting at which
directors are to be elected, a shareholder 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 shareholder 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 shareholder 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
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<PAGE>
following such action, the requesting shareholder 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 shareholder
request), the shareholder 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 5 days in advance of the last date on which the
requesting shareholder 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
shareholder a period of 5 days following the date on which
notice of the Board's determination is given to the
shareholder 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 5
days in advance of the last date on which the requesting
shareholder 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
shareholder a period of 15 days following the date on which
notice of the Board's determination is given to the
shareholder 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 shareholder is afforded an additional time
period within which to give notice of intention to nominate,
the Board may afford the other shareholders of the
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corporation a comparable additional period of time within
which to give such notice.
ARTICLE XII
(A) HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
In addition to any affirmative vote required by (1) law, and
(2) these Amended Articles of Incorporation, including, without
limitation, Article XIV, and except as otherwise expressly
provided in Section (B) of this Article, the affirmative vote of
the holders of not less than 80 percent 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 Shareholder
(as these terms are defined below).
(B) WHEN HIGHER VOTE NOT REQUIRED. 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) DEFINITIONS. For the purposes of this Article and
Articles XIII through XVIII, 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 or organization, other than
this corporation or a Subsidiary of this corporation,
in which the person is an officer, director or partner,
or is, directly or indirectly, the beneficial owner of
10 percent or more of any class of equity securities;
(b) Any officer, director, partner, trustee or
similar fiduciary of the specified person, or any
Affiliate or other Associate of the person;
(c) Any trust or other estate in which the person
has a beneficial interest of 10 percent 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
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(d) Any relative or spouse of the person, or any
relative of the spouse, who has the same home as the
person or who is a director or officer of the
corporation or any of its Affiliates.
(3) A person shall be a "beneficial owner" of any
Voting Stock:
(a) Which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly,
whether of record or not;
(b) Which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right
to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding upon the
exercise of conversion rights, exchange rights,
warrants or options or otherwise; or (ii) the right to
vote pursuant to any agreement, arrangement or
understanding; or
(c) Which is beneficially owned, directly or
indirectly (including shares deemed owned through
application of clauses (a) and (b) above), by any other
person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
(4) The term "Business Combination" means:
(a) Any merger or consolidation of the
corporation or any Subsidiary into or with an
Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder or into or with another
person which, after such merger or consolidation, would
be an Affiliate or an Associate of an Interested
Shareholder, in each case irrespective of which person
is the surviving entity in such merger or
consolidation;
(b) The sale, exchange, lease, mortgage, pledge,
transfer or other disposition to or with an Interested
Shareholder or any Affiliate or Associate of such
Interested Shareholder by the corporation or any of its
Subsidiaries (in a single transaction or a series of
related transactions) of all or substantially all, or
any Substantial Part (as defined below), of the assets
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<PAGE>
of the corporation or any Subsidiary (including,
without limitation, any securities issued by a
Subsidiary);
(c) Any purchase, exchange, lease or other
acquisition by the corporation or any Subsidiary (in a
single transaction or a series of related transactions)
of all or substantially all, or any Substantial Part,
of the assets or business of an Interested Shareholder
or any Affiliate or Associate of such Interested
Shareholder;
(d) The adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed
by or on behalf of an Interested Shareholder or any
Affiliate or Associate of an Interested Shareholder;
(e) The acquisition of beneficial ownership by an
Interested Shareholder or any Affiliate or Associate of
an Interested Shareholder upon issuance or transfer by
the corporation or any Subsidiary (in one transaction
or a series of transactions) of any securities of the
corporation or any Subsidiary or any rights, warrants
or options to acquire any such securities;
(f) The acquisition by the corporation or any
Subsidiary of any securities of an Interested
Shareholder or any Affiliate or Associate of an
Interested Shareholder;
(g) Any reclassification of securities (including
any reverse stock split), recapitalization or
reorganization of the corporation, any merger or
consolidation with any Subsidiary, any partial
liquidation, spin-off, split-off or split-up of the
corporation or any Subsidiary or any other transaction
(whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly
or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or
convertible securities of the corporation or any
Subsidiary which is directly or indirectly owned by an
Interested Shareholder or any Affiliate or Associate of
an Interested Shareholder;
(h) Any loan or other extension of credit by the
corporation or any Subsidiary to an Interested
Shareholder or any guarantees by the corporation or any
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Subsidiary of any loan or other extension of credit by
any person to an Interested Shareholder;
(i) Any transaction or series of related
transactions having, directly or indirectly, the same
effect as any of the foregoing; or
(j) Any agreement, contract or other arrangement
providing for any of the transactions described in this
definition of Business Combination.
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 Shareholder, but
also a series of separate transactions with an Interested
Shareholder or any Affiliate or Associate of such Interested
Shareholder.
(5) A "Continuing Director" is a member of the Board
of Directors who is not an Affiliate, Associate or a
representative of the Interested Shareholder and was either
(a) first elected as a director prior to the time that the
Interested Shareholder became an Interested Shareholder, or
(b) was designated, before his or her 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.
(6) "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 securities, by contract or otherwise.
(7) "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
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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.
(8) The term "Interested Shareholder" means:
(a) Any person (other than the corporation, any
Subsidiary or any employee benefit plan of the
corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in
such capacity) who or which, together with any
Affiliates and Associates, is the beneficial owner of 10
percent or more of the outstanding shares of Voting
Stock of the corporation as of: (i) the time any
definitive agreement relating to a Business Combination
is entered into; (ii) the record date for the
determination of shareholders entitled to notice of and
to vote on a Business Combination; or (iii) immediately
prior to the consummation of a Business Combination;
(b) Any Affiliate or Associate of the person in
the foregoing subparagraph (8)(a) of this Section;
(c) Any Affiliate of the corporation which at any
time within the 2-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10 percent or more of the outstanding
Voting Stock of the corporation; or
(d) Any person who is an assignee of or has
otherwise succeeded to any shares of Voting Stock which
were at any time within the 2-year period immediately
prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a
public offering within the meaning of the Securities
Act of 1933, as amended.
(9) The term "person" means any individual,
corporation, group 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
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for the purposes of the definition of Interested Shareholder
set forth in paragraph (8) 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 percent 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 all outstanding
shares of capital stock of the corporation entitled to vote
generally in the election of directors of the corporation
considered for the purposes of this Article as one class.
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) INTERESTED SHAREHOLDER. For purposes of determining
whether a person is an Interested Shareholder, the number of
shares of Voting Stock deemed to be outstanding shall include
shares deemed owned by that person through application of
paragraph (C)(3), defining "beneficial 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.
(E) DETERMINATIONS BY CONTINUING DIRECTORS. A majority of
the Continuing Directors shall have the power and duty to
determine, for purposes of this Article and Article XIV, on the
basis of information known to them:
(1) The number of Voting Shares 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 "beneficial owner" set forth above;
(4) Whether the assets subject to any Business
Combination constitute a "Substantial Part" as defined
above;
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(5) Whether two or more transactions constitute a
"series of related transactions" as described above;
(6) Such other matters with respect to which a
determination is required under this Article and Article
XIV.
Any such determination shall be conclusive and binding for all
purposes of this Article and Article XIV.
ARTICLE XIII
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 shareholders; the
Board of Directors shall not initiate, approve, adopt or recommend any such
offer which in its judgment would not be in the best interests of the
corporation and its shareholders. In evaluating a proposed offer to
determine whether it would be in the best interests of the corporation and
its shareholders, 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 shareholders 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
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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 XIV
(A) In addition to any affirmative vote required by
(1) law, and (2) the other provisions of these Amended Articles
of Incorporation, including without limitation Article XII and
except as otherwise expressly provided in paragraph (B) of this
Article, the affirmative vote of not less than 80 percent of the
outstanding shares of Voting Stock held by shareholders who are
not Interested Shareholders shall be required for the approval or
authorization of any Business Combination of the corporation or
any Subsidiary with any Interested Shareholder (as these terms
are defined in Article XII).
(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 law and any other provision of these Amended
Articles 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:
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(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 shareholders
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
shareholders 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
Shareholder has previously paid for shares of such
class of Voting Stock. If the Interested Shareholder
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 Shareholder
became an Interested Shareholder:
(i) Such Interested Shareholder 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
Shareholder (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;
(iii) The Interested Shareholder 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
Shareholder or as a result of a prorated stock
dividend or stock split);
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(iv) The Interested Shareholder 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 Shareholder; and
(v) The Interested Shareholder shall not
have received the benefit, directly or indirectly
(except proportionately as a shareholder), 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 shareholders of
the corporation for the purpose of soliciting
shareholder 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 shareholders 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 5 years between the date that the
Interested Shareholder became an Interested Shareholder and
the date that the Business Combination is consummated.
(C) For the purposes of this Article the following
definitions shall apply:
(1) All the definitions set forth in Article XII(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
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aggregate amount, if any, by which 6 percent 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 Shareholder
within the 5-year period immediately prior to the
Announcement Date, or in the transaction in which the
shareholder became an Interested Shareholder, 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 Shareholder 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 Shareholder for
any shares of the class or series of stock acquired by
it within the 5-year period immediately prior to the
Announcement Date, or in the transaction in which the
shareholder became an Interested Shareholder, 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 5
years immediately preceding the Announcement Date.
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.
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(3) "Announcement Date" means the first general public
announcement or the first communication generally to
shareholders 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 Shareholder first became an Interested
Shareholder.
(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 quotation during the 30-day period
preceding the date in question as listed on the
National Association of Securities Dealers, Inc.
automatic quotation system 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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(6) "Valuation Date" means:
(a) In a Business Combination voted upon by
shareholders, the day prior to the date of the
shareholder 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
shareholders, 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 XII(E);
(2) The market value of any consideration other than
cash to be received by shareholders;
(3) Whether or not any consideration other than cash
to be received by shareholders is readily marketable;
(4) The amount of the Minimum Price Per Share;
(5) Whether or not the consideration to be received by
shareholders 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 Shareholder 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
shareholders 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.
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ARTICLE XV
Except to the extent prohibited by the South Dakota Business
Corporation Act, as amended, no director of the corporation shall be
personally liable to the corporation or its shareholders for monetary
damages for breach of fiduciary duty by such director as a director.
ARTICLE XVI
The provisions of Sections 47-33-8 through 47-33-16, inclusive,
of the South Dakota Business Corporation Act, applicable generally to
control share acquisitions, shall not apply to the acquisition of any
shares or class of shares of the corporation's capital stock.
ARTICLE XVII
To the extent that Article XVII, Section 8 of the South Dakota
Constitution and Section 47-4-5 of the South Dakota Business Corporation
Act may be construed to limit the increase in the indebtedness of the
corporation, at any time after the date of these Amended Articles of
Incorporation and from time to time thereafter, the indebtedness of the
corporation may be increased to up to One Hundred Million Dollars
($100,000,000) without consent or approval under such laws.
ARTICLE XVIII
The corporation reserves the right to amend, alter, change or
repeal any provision contained in these Amended Articles of Incorporation,
in the manner now or hereafter prescribed by statute and these Amended
Articles of Incorporation, and all rights conferred upon shareholders
herein are granted subject to this reservation.
(A) No amendment to these Amended Articles of Incorporation
shall alter, modify or repeal any or all of the provisions of
Article XIV of these Amended Articles of Incorporation, or this
paragraph (A) of Article XVIII, unless adopted by the affirmative
vote of not less than 80 percent of the outstanding shares of
Voting Stock held by shareholders who are not Interested
Shareholders.
(B) No amendment to these Amended Articles of Incorporation
shall alter, modify or repeal any or all of the provisions of
Articles VIII, IX, XI, XII, XIII or XV of these Amended Articles of
Incorporation, or this paragraph (B) of Article XVIII, and the
shareholders of the corporation shall not have the right to
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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 percent of the outstanding shares of Voting
Stock; provided, that this paragraph (B) shall not apply to, and
such 80 percent 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.
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APPENDIX C
BYLAWS
OF
DAKOTA TELECOMMUNICATIONS GROUP, INC.
ARTICLE I
OFFICES
The corporation may have offices at such places, both within and
without the State of South Dakota, as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. TIMES AND PLACES OF MEETINGS. All meetings of the
shareholders shall be held, except as otherwise provided by statute or
these Bylaws, at such time and place as may be fixed from time to time by
the Board of Directors. Meetings of shareholders shall be held in the
State of South Dakota, or such other state as may be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of the shareholders
shall be held on the fourth Thursday of April if not a legal holiday, and
if a legal holiday, then on the next secular day following, at such hour as
shall be stated in the notice of the meeting, or on such other date as may
be fixed from time to time by the Board of Directors, at which they shall
elect the successors of the class of directors whose term expires at the
meeting, together with directors to fill newly created directorships,
and transact such other business as may properly be brought before the
meeting.
SECTION 3. NOTICE OF ANNUAL MEETING. Except as otherwise
required by statute, written notice of the annual meeting shall be given
personally or by mail to each shareholder entitled to vote thereat at least
ten (10) but not more than fifty (50) days before the date of the meeting.
Attendance of a shareholder at a meeting shall constitute both (a) a waiver
of notice or defective notice, except when the shareholder attends a
meeting for the express purpose of objecting, at the beginning of the
meeting, to holding the meeting or transacting any business because the
meeting has not been lawfully called or convened, and (b) waiver of
objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, except
when the shareholder objects to considering the matter when it is presented.
<PAGE>
SECTION 4. SHAREHOLDER LIST. The officer or agent who has
charge of the stock ledger of the corporation shall prepare and make before
every meeting of shareholders a complete list of the shareholders entitled
to vote at the meeting, arranged by class or series in alphabetical order,
showing the address of and the number of shares registered in the name of
each shareholder. Such list shall be open to the examination of any
shareholder, for any purpose germane to the meeting, during the whole time
thereof and may be inspected by any shareholder who is present.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by an executive officer whenever directed by the
Board of Directors. Such request shall state the purpose of the proposed
meeting.
SECTION 6. NOTICE OF SPECIAL MEETINGS. Written notice of a
special meeting of shareholders, stating the time, place and object
thereof, shall be given personally or by mail to each shareholder entitled
to vote thereat at least ten (10) but not more than fifty (50) days before
the date fixed for the meeting.
SECTION 7. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business, except as otherwise provided
by statute or by the Articles of Incorporation. The shareholders present
in person or by proxy at such meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. Whether or not a quorum is present, the meeting may be
adjourned by a vote of the shares present.
Except when the holders of a class or series of shares are
entitled to vote separately on an item of business, shares of all classes
and series entitled to vote shall be combined as a single class and series
for the purpose of determining a quorum. When the holders of a class or
series of shares are entitled to vote separately on an item of business,
shares of that class or series entitled to cast a majority of the votes of
that class or series at a meeting constitute a quorum of that class or
series at that meeting, unless a greater or lesser quorum is provided by
statute or the Articles of Incorporation.
SECTION 8. VOTE REQUIRED. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting
power, present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by
express provision of the statutes or of the Articles of Incorporation, a
different vote is required, in which case such express provision shall
govern and control the decision of such question.
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SECTION 9. VOTING RIGHTS. Except as otherwise provided by the
Articles of Incorporation or the resolution or resolutions of the Board of
Directors creating any class of stock, each shareholder shall at every
meeting of shareholders be entitled to one (1) vote in person or by proxy
for each share of the capital stock having voting power held by such
shareholder. In all elections for directors the vote shall be taken by
ballot. A proxy shall be valid only with respect to the particular
meeting, or any adjournment or adjournments thereof, to which it
specifically pertains.
SECTION 10. CONDUCT OF MEETINGS. Meetings of shareholders
generally shall follow any accepted rules of parliamentary procedure,
subject to the following:
(a) The person presiding at the meeting (the "chairman")
shall have absolute authority over matters of procedure and there
shall be no appeal from the ruling of the chairman. If in his
absolute discretion, the chairman deems it advisable to dispense
with the rules of parliamentary procedure as to any one (1)
meeting of shareholders or part thereof, he shall so state and
shall clearly state the rules under which the meeting or
appropriate part thereof shall be conducted.
(b) If disorder should arise which, in the absolute
discretion of the chairman, prevents the continuation of the
legitimate business of the meeting, the chairman may quit the
chair and announce the adjournment of the meeting; and upon his
or her so doing, the meeting is immediately adjourned without the
necessity of any vote or further action of the shareholders.
(c) The chairman may ask or require anyone not a bona fide
shareholder of record on the record date, or a validly appointed
proxy of such a shareholder, to leave the meeting.
(d) The chairman may introduce nominations, resolutions or
motions submitted by the Board of Directors for consideration by
the shareholders without a motion or second. Except as the
chairman shall direct, a resolution or motion not submitted by
the Board of Directors shall be considered for vote only if
proposed by a shareholder of record on the record date or a
validly appointed proxy of such a shareholder and seconded by
such a shareholder or proxy other than the individual who
proposed the resolution or motion.
(e) Except as the chairman shall direct, and subject to any
other provisions of the Articles of Incorporation, no matter may
be presented to the meeting which has not been submitted in
writing to the Secretary for inclusion in the agenda at least 10
days before the date of the meeting.
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(f) When all shareholders present at a meeting in person or
by proxy have been offered an opportunity to vote on any matter
properly before a meeting, the chairman may at his discretion
declare the polls to be closed and no further votes may be cast
or changed after such declaration. If no such declaration is
made by the chairman, the polls shall remain open and
shareholders may cast additional votes or change votes until the
inspectors of election have delivered their final report to the
chairman.
(g) When the chairman has declared the polls to be closed
on all matters then before a meeting, the chairman may declare
the meeting to be adjourned pending determination of the results
by the inspectors of election. In such event, the meeting shall
be considered adjourned for all purposes, and the business of the
meeting shall be finally concluded upon delivery of the final
report of the inspectors of election to the chairman at or after
the meeting.
(h) When the chairman determines that no further matters
may properly come before a meeting, he may declare the meeting to
be adjourned, without motion, second or vote of the shareholders.
(i) When the chairman has declared a meeting to be
adjourned, unless the chairman has declared the meeting to be
adjourned until a later date, no further business may properly be
considered at the meeting even though shareholders or holders of
proxies representing a quorum may remain at the site of the
meeting.
SECTION 11. INSPECTORS OF ELECTION. The Board of Directors or,
if they shall not have so acted, the Chief Executive Officer may appoint,
at or prior to any meeting of shareholders, one or more persons (who may be
directors and/or employees of the corporation) to serve as inspectors of
election. The inspectors so appointed shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies and
shall receive votes or ballots, hear and determine challenges and questions
arising in connection with the right to vote, count and tabulate votes or
ballots, determine the result and do such acts as are proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM OF DIRECTORS. The number of
directors which shall constitute the whole Board shall be ten and in no
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event less than nine. The directors, other than those who may be elected
by the holders of any class or series of stock having a preference over
Common Stock as to dividends or upon liquidation, 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
shareholders, 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
annual meeting of shareholders held in the third year following the year of
their election. Directors need not be shareholders.
SECTION 2. POWERS. The business of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
SECTION 3. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled as provided in the Articles of Incorporation.
SECTION 4. RESIGNATION AND REMOVAL. Any director may resign at
any time and such resignation shall take effect upon receipt of written
notice thereof by the corporation or at such subsequent time as set forth
in the notice of resignation. Any or all of the directors may be removed,
but only for cause, as provided in the Articles of Incorporation.
SECTION 5. COMPENSATION OF DIRECTORS. Each director who is not
a salaried officer of the corporation may receive as compensation for his
services in that capacity such sums and such benefits as shall from time to
time be determined by the Board of Directors, plus traveling expenses and
other expenses necessary for attendance at regular or special meetings of
the Board of Directors and committees of the Board. Members of special or
standing committees may be allowed like compensation for attending
committee meetings. Nothing herein shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 6. PLACE OF MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of South Dakota.
SECTION 7. FIRST MEETING OF NEWLY ELECTED BOARD. The first
meeting of each newly elected Board of Directors shall be held following
the annual meeting of shareholders and no notice of such meeting shall be
necessary to the newly elected directors legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is not held
immediately following the annual meeting of shareholders, the meeting may
be held at such time and place as shall be specified in a notice given as
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hereinafter provided for special meetings of the Board of Directors or as
shall be specified in a written waiver signed by all of the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman, Chief Executive Officer, or
Secretary or by any two (2) directors on two (2) days' notice to each
director, either personally, by mail, by telegram or by facsimile
transmission.
SECTION 10. PURPOSE NEED NOT BE STATED. Neither the business to
be transacted at nor the purpose of any regular or special meeting of the
Board of Directors need be specified in the notice of such meeting.
SECTION 11. QUORUM. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business and the acts of a majority of the directors present at any meeting
at which there is a quorum shall be acts of the Board of Directors except
as may be otherwise specifically provided by statute or by the Articles of
Incorporation. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
SECTION 12. ACTION WITHOUT A MEETING. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting if, before or
after the action, all members of the Board or of such committee, as the
case may be, consent thereto in writing and such written consent is filed
with the minutes of the proceedings of the Board or committee.
SECTION 13. MEETING BY TELEPHONE OR SIMILAR EQUIPMENT. The
Board of Directors or any committee designated by the Board of Directors
may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means through
which all persons participating in the meeting can communicate with each
other and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
SECTION 14. WRITTEN NOTICE. Notices to directors shall be in
writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram or by facsimile transmission.
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SECTION 15. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provisions of the statutes or of the Articles of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto. The attendance of
a director at or participation in a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting, at the beginning of the meeting or upon his
arrival, to the meeting or the transaction of any business because the
meeting has not been lawfully called or convened and the person does not
thereafter vote for or assent to any action taken at the meeting.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the directors present at any meeting at
which there is a quorum, may appoint an Executive Committee whose
membership shall consist of two or more members of the Board of Directors
as it may deem advisable from time to time to serve at the pleasure of the
Board. The Board of Directors may also appoint directors to serve as
alternates for members of the committee in the absence or disability of
regular members. The Board of Directors may fill any vacancies as they
occur. The executive committee shall have and may exercise the powers of
the Board of Directors in the management of the business affairs and
property of the corporation during the intervals between meetings of the
Board of Directors, subject to law and to such limitations and controls as
the Board of Directors may impose from time to time.
SECTION 2. AUDIT COMMITTEE. The Audit Committee, if there be
one, shall cause a suitable examination of the financial records and
operations of the corporation and its subsidiaries to be made by the
internal auditor of the corporation. The Audit Committee shall also
recommend to the Board of Directors the employment of independent certified
public accountants to examine the financial statements of the corporation
and its subsidiaries, review examination reports of the corporation and its
subsidiaries prepared by regulatory authorities and report to the Board of
Directors at least once each calendar year.
SECTION 3. COMPENSATION COMMITTEE. The Compensation Committee,
if there be one, shall review the personnel policies, plans and programs of
the corporation, including individual salaries of executive officers, and
submit recommendations to the Board of Directors. The Compensation
Committee shall also review the administration and results of operation of
the corporation's pension plans, confer with and receive reports from the
actuaries and investment managers of the pension plans, make
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recommendations related to such plans and review all material pension plan
changes. The Compensation Committee shall also recommend to the Board of
Directors the retainer and attendance fee for nonemployee directors.
SECTION 4. NOMINATING COMMITTEE. The Nominating Committee, if
there be one, shall develop and recommend to the Board of Directors
criteria for the selection of candidates for directors, seek out and
receive suggestions concerning possible candidates, review and evaluate the
qualifications of possible candidates and recommend to the Board candidates
for vacancies occurring from time to time and for the slate of directors to
be proposed on behalf of the Board of Directors at the annual meeting of
shareholders. The Nominating Committee will consider nominees recommended
by the shareholders as properly submitted to the Secretary of the
corporation.
SECTION 5. OTHER COMMITTEES. The Board of Directors may
designate such other committees as it may deem appropriate and such
committees shall exercise the authority delegated to them.
SECTION 6. COMMITTEE MEETINGS. Each committee provided for
above shall meet as often as its business may require and may fix a day and
time each week or at other intervals for regular meetings, notice of which
shall not be required. Whenever the day fixed for a meeting shall fall on
a holiday, the meeting shall be held on the business day following or on
such other day as the committee may determine. Special meetings of the
committees may be called by the chairman of the committee or any two (2)
members other than the chairman and notice thereof may be given to the
members by telephone, telegram, letter or facsimile transmission. A
majority of its members shall constitute a quorum for the transaction of
the business of any committee. A record of the proceedings of each
committee shall be kept and presented to the Board of Directors.
SECTION 7. SUBSTITUTES. In the absence or disqualification of a
member of a committee, the members thereof present at a meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board to act at a meeting in
place of such absent or disqualified member.
ARTICLE V
OFFICERS
SECTION 1.
(a) CENTRAL STAFF. The executive officers of the
corporation shall be a Chairman of the Board, a President, one or
more Vice Presidents, a Secretary and a Treasurer who shall be
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appointed by the Board of Directors at its first meeting after
each regular annual meeting of shareholders. The Board of
Directors may also appoint such other officers as it may deem
necessary. The dismissal of an officer, the appointment of an
officer to fill the place of one who has been dismissed or has
ceased for any reason to be an officer, the appointment of any
additional officers and the change of an officer to a different
office may be made by the Board of Directors at any later
meeting. Each officer shall hold office at the pleasure of the
Board. The Chairman of the Board and President shall be chosen
from among the directors, but no other officer need be a
director. Either the Chairman of the Board or the President
shall also be designated as the Chief Executive Officer. Any two
(2) of the above offices, except those of the President and Vice
President, may be held by the same person.
(b) DIVISIONAL OFFICERS. The Board of Directors or the
Chief Executive Officer may, as they shall deem necessary,
designate certain individuals as divisional officers. Any titles
so given to divisional officers may be withdrawn at any time with
or without cause by the Board of Directors or the Chief Executive
Officer.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the shareholders and at all meetings of
the Board of Directors, shall be an ex officio voting member of all
standing committees designated by the Board of Directors, except the Audit
Committee and the Compensation Committee, and shall have such other duties
and powers as may be imposed or given by the Board of Directors. In the
case of absence or inability to act of the President or Chief Executive
Officer, the Chairman of the Board shall exercise all of the duties and
responsibilities of such officer until the Board of Directors shall
otherwise direct.
SECTION 3. PRESIDENT. The President shall, subject to the
direction of the Board of Directors, see that all orders and resolutions of
the Board of Directors are carried into effect and shall perform all other
duties necessary or appropriate to his office, subject, however, to his
right (unless otherwise limited by the Board of Directors) and the right of
the directors to delegate any specific powers to any other officer or
officers of the corporation. In the case of absence or inability to act of
the Chairman of the Board or the Chief Executive Officer, the President
shall exercise all of the duties and responsibilities of such officer until
the Board of Directors shall otherwise direct. The President shall be an
ex officio voting member of all standing committees designated by the Board
of Directors, except the Audit Committee and the Compensation Committee.
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SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer, in addition to his duties as Chairman of the Board or President,
as the case may be, shall have final authority, subject to the control of
the Board of Directors, over the general policy and business of the
corporation and shall have the general control and management of the
business and affairs of the corporation. The Chief Executive Officer shall
have the power, subject to the control of the Board of Directors, to
appoint, suspend or discharge and to prescribe the duties and to fix the
compensation of such agents and employees of the corporation, other than
the officers appointed by the Board, as he may deem necessary.
SECTION 5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall, subject only to the control of the Board of Directors, have general
charge, control and supervision over the financial policy and
administration of the corporation and shall have such other duties and
powers as may be imposed or given by the Board of Directors. The Chief
Financial Officer shall report only and directly to the Board of Directors.
SECTION 6. CHIEF OPERATING OFFICER. There may be elected a
Chief Operating Officer who shall, if elected, have general charge, control
and supervision over the administration and operations of the corporation
and shall have such other duties and powers as may be imposed or given by
the Board of Directors. If no Chief Operating Officer is elected, the
duties and powers of the Chief Operating Officer shall be performed by the
Chief Executive Officer.
SECTION 7. VICE PRESIDENTS. The Vice President or Vice
Presidents shall perform such duties and have such powers as the Chief
Executive Officer or the Board of Directors may from time to time
prescribe. The Board of Directors may at its discretion designate one or
more of the Vice Presidents to be an Executive Vice President or Senior
Vice President. Any Vice President so designated shall have such duties
and responsibilities as the Board shall prescribe.
SECTION 8. SECRETARY. The Secretary shall attend all meetings
of the shareholders, and of the Board of Directors and the Executive
Committee, and shall preserve in the books of the corporation true minutes
of the proceedings of all such meetings. He or she shall safely keep in
his or her custody the seal of the corporation, if any, and shall have
authority to affix the same to all instruments where its use is required or
appropriate. The Secretary shall give all notices required or appropriate
pursuant to statute, the Articles of Incorporation, Bylaws or resolution.
The Secretary shall perform such other duties as may be delegated by the
Board of Directors or by the Executive Committee.
SECTION 9. TREASURER. The Treasurer, who shall also be the
Chief Financial Officer, shall have custody of all corporate funds and
securities and shall keep in books belonging to the corporation full and
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accurate accounts of all receipts and disbursements. The Treasurer shall
deposit all moneys, securities and other valuable effects in the name of
the corporation in depositories as may be designated for that purpose by
the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive
Officer and directors at the regular meetings of the Board, and whenever
requested by them, an account of all his or her transactions as Treasurer
and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall deliver to the Chief Executive
Officer of the corporation and keep in force a bond in form, amount and
with a surety or sureties satisfactory to the Board of Directors,
conditioned for faithful performance of the duties of his or her office,
and for restoration to the corporation in case of his or her death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and property of whatever kind in his or her possession or
under his or her control belonging to the corporation.
SECTION 10. ASSISTANT SECRETARY AND ASSISTANT TREASURER. There
may be elected an Assistant Secretary and Assistant Treasurer who shall, in
the absence, disability or nonfeasance of the Secretary or Treasurer,
perform the duties and exercise the powers of such persons, respectively.
SECTION 11. OTHER OFFICERS. All other officers, as may from
time to time be appointed by the Board of Directors pursuant to paragraph
(a) of Section I of this Article V, shall perform such duties and exercise
such authority as the Board of Directors shall prescribe. All divisional
officers, as may from time to time be appointed by the Board of Directors
or the Chief Executive Officer pursuant to paragraph (b) of Section 1 of
this Article V, shall perform such duties and exercise such authority as
the Board of Directors or the Chief Executive Officer shall prescribe.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OTHER THAN IN ACTIONS BY OR IN THE
RIGHT OF THE CORPORATION. Any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (other than an action by or in
the right of the corporation) by reason of the fact that he or she is or
was a director or executive officer of the corporation or, while serving as
such a director or executive officer, is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee or agent
of another foreign or domestic corporation, partnership, limited liability
company, joint venture, trust or other enterprise, whether for profit or
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not, shall be indemnified by the corporation against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation or its shareholders, and with respect to
any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere
or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation
or its shareholders and, with respect to any criminal action or proceeding,
that he or she had reasonable cause to believe that such conduct was
unlawful. 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, except as
otherwise provided by statute or the Articles of Incorporation.
SECTION 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of
the fact that he or she is or was a director or executive officer of the
corporation or, while serving as such a director or executive officer, is
or was serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, limited liability company, joint venture, trust
or other enterprise, whether for profit or not, shall be indemnified by the
corporation against expenses (including attorneys' fees) and amounts paid
in settlement actually and reasonably incurred by him or her in connection
with such action or suit if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders. Indemnification shall not be made
for a claim, issue or matter in which the person has been found liable to
the corporation except to the extent authorized in Section 6 of this
Article. 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, except as
otherwise provided by statute or the Articles of Incorporation.
SECTION 3. EXPENSES. To the extent that a director or executive
officer, or other person whose indemnification is authorized by the Board
of Directors, has been successful on the merits or otherwise, including the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 1 or 2 of this Article, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against
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all expenses (including attorneys fees) actually and reasonably incurred by
him or her in connection therewith and any action, suit or proceeding
brought to enforce the mandatory indemnification provided in this Section.
SECTION 4. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 1 or 2 of this Article (unless ordered by a
court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification is proper in the
circumstances because the person acted in good faith and in a manner that
he or she reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal proceeding, that he or
she had no reasonable cause to believe that his conduct was unlawful and
upon an evaluation of the reasonableness of expenses and amounts paid in
settlement. Such determination and evaluation shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors
who are not parties or threatened to be made parties to such action, suit
or proceeding, or if such a quorum cannot be obtained, by a majority vote
of a committee duly designated by the Board consisting solely of two or
more directors not at the time parties or threatened to be made parties to
such action, suit or proceeding; (b) by independent legal counsel (who may
be the regular counsel of the corporation) in a written opinion, which
counsel shall be selected as provided in (a) above, provided that if a
committee cannot be designated as provided in (a) above, then the Board
shall select such independent counsel; or (c) by the shareholders, but
shares held by directors, officers, employees or agents who are parties or
threatened to be made parties to such action, suit or proceeding may not be
voted. In designating a committee under (a) above, or in the selection of
independent legal counsel in the event a committee cannot be designated
pursuant to (b) above, all directors may participate. The corporation may
indemnify a person for a portion of expenses (including reasonable
attorneys' fees), judgments, penalties, fines and amounts paid in
settlement for which the person is entitled to indemnification under
Sections 1 or 2 of this Article, even though the person is not entitled to
indemnification for the total amount of such expenses, judgments,
penalties, fines and amounts paid in settlement.
SECTION 5. ADVANCING OF EXPENSES. Expenses incurred in
defending a civil or criminal action, suit or proceeding described in
Sections 1 or 2 of this Article shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding if (a) the
person furnishes the corporation a written affirmation of his or her good
faith belief that he or she has met the applicable standard of conduct set
forth in Sections 1 and 2 of this Article; (b) the person furnishes the
corporation a written undertaking, executed personally or on his or her
behalf, to repay the advance if it is ultimately determined that he or she
did not meet the applicable standard of conduct; and (c) a determination is
made that the facts then known to those making the determination would not
preclude indemnification under the South Dakota Business Corporation Act.
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Determinations under this Section shall be made in the manner specified in
Section 4 of this Article. Notwithstanding the foregoing, in no event
shall any advance be made in instances where the Board or independent legal
counsel reasonably determines that such person deliberately breached his or
her duty to the corporation or its shareholders.
SECTION 6. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. A director, executive officer or other person who is a
party or threatened to be made a party to an action, suit or proceeding may
apply for indemnification to the court conducting the proceeding. On
receipt of an application, the court may order indemnification if it
determines that the person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
he met the applicable standard of conduct set forth in Sections 1 and 2 of
this Article or was adjudged liable as described in Section 2 of this
Article, provided, that if he was adjudged liable, his indemnification
shall be limited to reasonable expenses incurred.
SECTION 7. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification or advancement of expenses provided by this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the
Articles of Incorporation, any Bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators. The total amount of expenses advanced
or indemnified from all sources shall not exceed the amount of actual
expenses incurred by the person seeking indemnification or advancement of
expenses. All rights to indemnification under this Article shall be deemed
to be provided by a contract between the corporation and the director,
officer, employee or agent who serves in such capacity at any time while
these Bylaws and other relevant provisions of the South Dakota Business
Corporation Act and other applicable law, if any, are in effect. Any
repeal or modification thereof shall not affect any rights or obligations
then existing.
SECTION 8. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, limited liability company, joint
venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out
of his or her status as such, whether or not the corporation would have the
power to indemnify him or her against such liability under the provisions
of this Article.
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SECTION 9. MERGERS. For the purposes of this Article,
references to the "corporation" include all constituent corporations
absorbed in a consolidation or merger, as well as the resulting or
surviving corporation, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, limited liability company, joint venture, trust
or other enterprise, whether for profit or not, shall stand in the same
position under the provisions of this Article with respect to the resulting
or surviving corporation if he or she had served the resulting or surviving
corporation in the same capacity.
SECTION 10. EXECUTIVE OFFICERS. For purposes of this Article,
the "executive officers" of the corporation shall be the Chairman of the
Board, the President, the Chief Executive Officer, the Chief Financial
Officer, one or more Vice Presidents, the Secretary and the Treasurer. The
Board of Directors may by resolution designate such other persons as
"executive officers" for purposes of this Article as the Board of Directors
may in its sole discretion determine to be desirable.
SECTION 11. SAVINGS CLAUSE. If this Article or any portion
thereof shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify each
director, executive officer or other person whose indemnification is
authorized by the Board of Directors as to expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding and an action by the
corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated or by any other applicable
law.
ARTICLE VII
SUBSIDIARIES
SECTION 1. SUBSIDIARIES. The Board of Directors, the Chief
Executive Officer or any executive officer designated by the Board of
Directors may vote the shares of stock owned by the corporation in any
subsidiary, whether wholly or partly owned by the corporation, in such
manner as they may deem in the best interests of the corporation,
including, without limitation, for the election of directors of any
subsidiary corporation, for any amendments to the charter or bylaws of any
such subsidiary corporation or for the liquidation, merger or sale of
assets of any such subsidiary corporation. The Board of Directors, the
Chief Executive Officer or any executive officer designated by the Board of
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Directors may cause to be elected to the Board of Directors of any such
subsidiary corporation such persons as they shall designate, any of whom
may, but need not be, directors, executive officers or other employees or
agents of the corporation. The Board of Directors, the Chief Executive
Officer or any executive officer designated by the Board of Directors may
instruct the directors of any such subsidiary corporation as to the manner
in which they are to vote upon any issue properly coming before them as the
directors of such subsidiary corporation and such directors shall have no
liability to the corporation as the result of any action taken in
accordance with such instructions.
SECTION 2. SUBSIDIARY OFFICERS NOT EXECUTIVE OFFICERS. The
officers of any subsidiary corporation shall not, by virtue of holding such
title and position, be deemed to be executive officers of the corporation,
nor shall any such officer of a subsidiary corporation, unless he or she
shall also be a director or executive officer of the corporation, be
entitled to have access to any files, records or other information relating
or pertaining to the corporation, its business and finances or to attend or
receive the minutes of any meetings of the Board of Directors or any
committee of the corporation, except as and to the extent expressly
authorized and permitted by the Board of Directors or the Chief Executive
Officer.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the corporation shall
be entitled to have a certificate in the name of the corporation, signed by
the President or a Vice President and the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by him
or her in the corporation.
SECTION 2. FACSIMILE SIGNATURE. Where a certificate is signed
(a) by a transfer agent or an assistant transfer agent, or (b) by a
transfer clerk acting on behalf of the corporation and a registrar, the
signature of any such President, Vice President, Secretary or Assistant
Secretary may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon
a certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been
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lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or his legal representative, to agree to indemnify the
corporation and/or give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
SECTION 5. FIXING OF RECORD DATE BY BOARD. For the purpose of
determining the shareholders entitled to notice of or to vote at any
meeting of shareholders, or any adjournment thereof, or to express consent
to or dissent from any corporate action in writing without a meeting, or
for the purpose of determining shareholders entitled to receive payments of
any dividend or the distribution or allotment of any rights or evidences of
interests arising out of any change, conversion or exchange of capital
stock, or for the purpose of any other action, the Board of Directors may
fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than fifty (50) days nor less
than ten (10) days before the date of any such meeting, nor more than fifty
(50) days prior to effectuation of any other action proposed to be taken.
Only shareholders of record on a record date so fixed shall be entitled to
notice of and to vote at such meeting or to receive payment of any dividend
or the distribution or allotment of any rights or evidences of interests
arising out of any change, conversion or exchange of capital stock.
SECTION 6. PROVISION FOR RECORD DATE IN THE ABSENCE OF BOARD
ACTION. If a record date is not fixed by the Board of Directors: (a) the
record date for determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall be the close of business on the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; and (b) the record date for determining shareholders
entitled to express consent to corporate action in writing, without a
meeting, when no prior action by the Board of Directors is necessary, shall
be the day on which the first written consent is expressed; and (c) the
record date for determining shareholders for any other purpose shall be the
close of business on the day on which the resolution of the Board relating
thereto is adopted.
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SECTION 7. ADJOURNMENTS. When a determination of shareholders
of record entitled to notice of or to vote at a meeting of shareholders has
been made as provided in this Article, the determination applies to any
adjournment of the meeting, unless the Board fixes a new record date for
the adjourned meeting.
SECTION 8. REGISTERED SHAREHOLDERS. The corporation shall be
entitled to recognize the exclusive rights of a person registered on its
books as the owner of shares to receive dividends and to vote as such owner
and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of South Dakota.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Articles of
Incorporation.
SECTION 2. RESERVES. Before payment of any dividends, there may
be set aside out of any funds of the corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies,
for equalizing dividends, for repairing or maintaining any property of the
corporation or for such other purpose as the directors shall think
conducive to the interests of the corporation and the directors may modify
or abolish any such reserve in the manner in which it was created.
SECTION 3. CHECKS. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
SECTION 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
SECTION 5. SEAL. The corporate seal, if any, shall have
inscribed thereon the name of the corporation, and the words "Corporate
Seal, South Dakota." The seal may be used by causing it or a facsimile
thereof to be impressed, affixed, reproduced or otherwise.
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ARTICLE X
AMENDMENTS
Subject to any provisions of the Articles of Incorporation,
these Bylaws may be amended, altered, changed or repealed at any regular or
special meeting of the Board of Directors. Subject to any provisions of
the Articles of Incorporation, these Bylaws may also be amended, altered,
changed or repealed at any regular or special meeting of shareholders
provided that notice that amendment of the Bylaws is a purpose of the
meeting, and the proposed amendment, has been provided to the shareholders
as required under these Bylaws and applicable law.
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APPENDIX D
AGREEMENT AND PLAN OF MERGER
BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
(TO BECOME DAKOTA TELECOMMUNICATIONS GROUP, INC.)
AND
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
Dated as of February 14, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "PLAN OF MERGER") is made as of
February 14, 1997, between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a
South Dakota cooperative association (the "COOPERATIVE") on behalf of
DAKOTA TELECOMMUNICATIONS GROUP, INC., an anticipated successor by law to
the Cooperative and South Dakota corporation ("DTG"), and DAKOTA
TELECOMMUNICATIONS GROUP (DELAWARE), INC., a Delaware corporation ("DTG
DELAWARE"). The executive offices of the Cooperative, DTG and DTG Delaware
are located at 29705 453rd Avenue, Irene, South Dakota.
The Board of Directors of the Cooperative believes that it would be in
the best interests of the Cooperative and its members ("MEMBERS") to
convert from a cooperative association into a business corporation, and has
approved proposed amendments to the Cooperative's articles of incorporation
to effect such a conversion (the "CONVERSION") and has submitted such
amendments to the Members for adoption. If the Conversion is adopted and
consummated, DTG would be the successor, by operation of law, to the
Cooperative. The Board of Directors of the Cooperative also believes that,
if the Conversion is consummated, it would be in the best interests of DTG
and its shareholders to change its state of incorporation to Delaware.
Accordingly, the Cooperative's Board of Directors, on behalf of DTG, has
adopted and approved this Plan of Merger providing that, if the Conversion
is adopted and consummated, DTG be merged with and into DTG Delaware in
accordance with this Plan of Merger and in accordance with the Business
Corporation Act of the State of South Dakota, as amended (the "SDBCA"), and
the General Corporation Law of the State of Delaware, as amended (the
"DGCL"), and has directed that this Plan of Merger be submitted to DTG's
shareholders for approval. The transactions contemplated by and described
in this Plan of Merger are referred to as the "MERGER." The Merger will
not be submitted for approval to DTG's shareholders, and this Plan of
Merger will become null and void, if the Conversion is not adopted and
consummated.
If the Conversion is consummated, DTG will be the successor to the
Cooperative and will be a business corporation governed by the SDBCA. DTG
will have authorized capital stock consisting of 5,000,000 shares of common
stock, without par value ("DTG COMMON STOCK"), and 250,000 shares of
preferred stock, without par value ("DTG PREFERRED STOCK"), 15,000 of which
will be designated as Series A Junior Participating Preferred Stock. As
of the date of this Plan of Merger, there are no shares of DTG Common Stock
issued and outstanding and no shares of DTG Preferred Stock issued and
outstanding. If the Conversion is adopted, up to 1,205,000 shares of DTG
Common Stock and no shares of DTG Preferred Stock will be issuable. The
number of shares of DTG Common Stock issuable in the Conversion is subject
to change upon the occurrence of certain events, including, without
limitation, an increase or decrease in the number of Members of the
Cooperative and the issuance of additional shares of Cooperative Preferred
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Stock from the date of this Plan of Merger through the Effective Time of
the Merger (as defined in Section 1.2 of this Plan of Merger). Each share
of DTG Common Stock issuable in the Conversion will be entitled to one vote
on all matters submitted for a vote of the shareholders, including the
approval of this Plan of Merger.
DTG Delaware is a business corporation formed under the DGCL with
general business purposes and is a wholly-owned subsidiary of the
Cooperative. As of the date of this Plan of Merger, DTG Delaware has
authorized capital stock consisting of 750 shares of common stock, without
par value ("DTG DELAWARE COMMON STOCK"), ofwhich 100 are issued and
outstanding and owned by the Cooperative. The number of issued and
outstanding shares of DTG Delaware Common Stock is not subject to change
before the Effective Time of the Merger. Each share of DTG Delaware Common
Stock is entitled to one vote on all matters submitted for a vote of the
stockholder, including the approval of this Plan of Merger. Subject to the
approval of this Plan of Merger, and by operation hereof, at the Effective
Time of the Merger the authorized capital stock of DTG Delaware will
consist of 5,000,000 shares of DTG Delaware Common Stock, and 250,000
shares of preferred stock ("DTG DELAWARE PREFERRED STOCK"), 15,000 of which
shall be designated as Series A Junior Participating Preferred Stock.
ACCORDINGLY, in consideration of the foregoing and of the premises
contained in this Plan of Merger, the parties agree:
ARTICLE I - THE TRANSACTION
Subject to the terms and conditions of this Plan of Merger, the Merger
shall be carried out in the following manner:
1.1 APPROVAL OF PLAN OF MERGER. As soon as practicable after this
Plan of Merger has been executed and delivered, a registration statement to
be filed by the Cooperative, on behalf of DTG, and DTG Delaware with the
Securities and Exchange Commission (the "SEC") has become effective (the
"REGISTRATION STATEMENT"), and the Conversion has been adopted and
consummated, this Plan of Merger shall be submitted to DTG's shareholders
and DTG Delaware's stockholder for approval at a meeting properly called,
noticed and held for that purpose (the "SHAREHOLDERS' MEETINGS"). At the
respective Shareholders' Meetings and in any proxy materials used in
connection therewith, the Board of Directors of the Cooperative, on behalf
of DTG, shall recommend that DTG's shareholders vote for approval of this
Plan of Merger and the Board of Directors of DTG Delaware shall recommend
that DTG Delaware's stockholder vote for approval of this Plan of Merger.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall be consummated as
promptly as possible following approval by the shareholders of DTG and
stockholder of DTG Delaware by executing and filing certificates of merger
(the "CERTIFICATES OF MERGER") and such other documents and instruments as
may be required under the SDBCA and DGCL in the manner required by law.
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The "EFFECTIVE TIME OF THE MERGER" shall be the time and date specified in
the Certificates of Merger to be issued by or filed with the respective
Secretaries of State of the states of South Dakota and Delaware.
1.3 MERGER OF DTG WITH AND INTO DTG DELAWARE. At the Effective Time
of the Merger, DTG shall be merged with and into DTG Delaware. DTG and DTG
Delaware are each sometimes referred to as a "CONSTITUENT CORPORATION"
prior to the Merger. At the Effective Time of the Merger, the Constituent
Corporations shall become a single corporation, which shall be DTG Delaware
(the "SURVIVING CORPORATION").
1.4 EFFECTS OF THE MERGER. The effect of the Merger upon each of the
Constituent Corporations and the Surviving Corporation shall be as provided
in Chapter 47-6 of the SDBCA and as provided in Subchapter IX of the DGCL
with respect to the merger of a domestic and a foreign corporation where
the surviving corporation will be subject to the laws of the State of
Delaware.
1.5 ADDITIONAL ACTIONS. If, at any time after the Effective Time of
the Merger, the Surviving Corporation shall determine that further
assignments or assurances or any other acts are necessary or desirable to
vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its rights, title or interest in, to or under any of the
rights, properties or assets of DTG acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger, or
to otherwise carry out the purposes of this Plan of Merger, then DTG shall
be deemed to have granted to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all such deeds, assignments and
assurances and to do all acts necessary, proper or convenient to accomplish
this purpose. This limited power of attorney shall only be operative
following the Effective Time of the Merger. The proper officers and
directors of the Surviving Corporation shall be fully authorized in the
name of DTG to take any and all such action contemplated by this Section.
1.6 SURVIVING CORPORATION. Immediately after the Effective Time of
the Merger, the Surviving Corporation shall have the following attributes
until the attributes are subsequently changed in the manner provided by
law:
1.6.1 NAME. The name of the Surviving Corporation shall be
"Dakota Telecommunications Group, Inc."
1.6.2 CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of DTG Delaware as in effect immediately prior to the
Effective Time of the Merger except as follows (and subject to future
amendment as provided therein or under applicable law):
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(i) Article I of the Certificate of Incorporation shall be
restated in its entirety to read:
The name of the corporation shall be "Dakota
Telecommunications Group, Inc."
(ii) Article IV of the Certificate of Incorporation shall be
restated in its entirety to read:
The total number of shares which the corporation shall have
authority to issue is five million two hundred fifty thousand
(5,250,000) shares, which shall be divided into two classes as
follows: (A) five million (5,000,000) 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
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
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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,
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
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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
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.
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(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.
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
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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.
(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
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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.
(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
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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,
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
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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.
(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.
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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.
(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
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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
Junior Participating Preferred Stock and Common Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders
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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
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
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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.
1.6.3 BYLAWS. The bylaws of the Surviving Corporation shall
be the Bylaws of DTG Delaware as in effect immediately prior to the
Effective Time of the Merger, subject to future amendment as provided
therein or under applicable law.
1.6.4 DIRECTORS. The directors of the Surviving Corporation
shall be the same as the directors of DTG Delaware immediately prior to
the Effective Time of the Merger.
1.6.5 OFFICERS. The officers of the Surviving Corporation
shall be the same as the officers of DTG Delaware immediately prior to
the Effective Time of the Merger.
ARTICLE II - CONVERSION AND EXCHANGE OF SHARES
Subject to the terms and conditions of this Plan of Merger, the
exchange of DTG Common Stock for DTG Delaware Common Stock shall be
effected as follows:
2.1 CONVERSION OF SHARES. At the Effective Time of the Merger:
2.1.1 CONVERSION OF DTG COMMON STOCK. Each whole share of DTG
Common Stock issuable in the Conversion shall automatically become and
be converted into the right to receive one validly issued, fully paid
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and nonassessable share of DTG Delaware Common Stock (the "CONVERSION
RATIO").
2.1.2 CONVERSION OF DTG DELAWARE COMMON STOCK. Each share of
DTG Delaware Common Stock outstanding immediately prior to the
Effective Time of the Merger shall be canceled and no consideration
shall be issuable or payable with respect to any such share.
2.2 CESSATION OF SHAREHOLDER STATUS. As of the Effective Time of
the Merger, record holders of shares of DTG Common Stock issuable in the
Conversion shall cease to be shareholders of DTG and shall have no rights
as DTG shareholders, except as provided in Section 47-6-23 of the SDBCA.
Certificates representing shares of DTG Common Stock will not be issued.
Certificates that represented shares of Cooperative Common Stock and
Preferred Stock ("COOPERATIVE CERTIFICATES") outstanding immediately prior
to the effective time of the Conversion will then represent the right to
receive shares of DTG Delaware Common Stock in accordance with Section
2.1.1 of this Plan of Merger.
2.3 SURRENDER OF COOPERATIVE CERTIFICATES AND DISTRIBUTION OF DTG
DELAWARE COMMON STOCK. After the Effective Time of the Merger, Cooperative
Certificates shall be exchangeable by the holders thereof for new stock
certificates representing the number of shares of DTG Delaware Common Stock
to which such holders shall be entitled in the following manner:
2.3.1 TRANSMITTAL MATERIALS. As soon as practicable after the
Effective Time of the Merger, DTG Delaware shall send or cause to be
sent to each person to whom shares of DTG Common Stock are issuable in
connection with the Conversion transmittal materials for use in
exchanging that holder's Cooperative Certificates (as applicable) for
DTG Delaware Common Stock certificates. The transmittal materials
will contain instructions with respect to the surrender of Cooperative
Certificates.
2.3.2 DELIVERY OF NEW CERTIFICATES. As soon as practicable
following the Effective Time of the Merger, and following receipt of
the proper transmittal documents and Cooperative Certificates (as
applicable), DTG Delaware will issue and deliver new stock
certificates in the names and to the addresses that appear on the
stock records of DTG as of the Effective Time of the Merger, or in
such other name or to such other address as may be properly specified
in the transmittal documents received by DTG Delaware, provided, that:
(i) RECEIPT OF COOPERATIVE CERTIFICATES. With respect to
each DTG shareholder, DTG Delaware shall have received all of the
applicable Cooperative Certificates or an affidavit of loss and
indemnity bond for such certificate or certificates, together
with properly executed transmittal materials; and
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(ii) SATISFACTORY FORM. Such certificates, transmittal
materials, affidavits and bonds are in a form and condition
reasonably acceptable to DTG Delaware.
2.4 DIVIDENDS PENDING SURRENDER. Subject to applicable laws of
escheat, whenever a dividend is declared by DTG Delaware on DTG Delaware
Common Stock which is payable to the stockholders of record of DTG Delaware
as of a record date on or after the Effective Time of the Merger, the
declaration shall include dividends on all shares issuable under this Plan
of Merger, provided that no person shall be entitled to receive a
distribution of any such dividend until the physical exchange of such
Cooperative Certificates for new DTG Delaware Common Stock certificates
shall have been effected. Upon the physical exchange of such Cooperative
Certificates, DTG Delaware shall pay an amount equal to all such dividends
(without interest thereon and less the amount of taxes, if any, which may
have been imposed or paid thereon) declared and paid with respect to the
shares of DTG Delaware Common Stock represented thereby.
2.5 STOCK TRANSFERS. On or after the Effective Time of the Merger,
there shall be no transfers on the Cooperative's or DTG's stock transfer
books of the shares of DTG Common Stock which were issuable immediately
prior to the Effective Time of the Merger. If, after the Effective Time of
the Merger, Cooperative Certificates are properly presented for transfer,
then they shall be canceled and exchanged for stock certificates
representing shares of DTG Delaware Common Stock as provided in this Plan
of Merger. After the Effective Time of the Merger, ownership of such
shares as are represented by any Cooperative Certificates may be
transferred only on the stock transfer records of DTG Delaware.
2.6 DTG DELAWARE'S DISCRETION. DTG Delaware shall have sole
discretion to determine reasonable rules and procedures relating to the
exchange of Cooperative Certificates and the issuance and delivery of new
certificates of DTG Delaware Common Stock into which shares of DTG Common
Stock are converted in the Merger.
ARTICLE III - CONDITIONS PRECEDENT TO MERGER
All obligations of the parties under this Plan of Merger are subject
to the fulfillment (or waiver in writing by a duly authorized officer of
the party entitled to the benefit of the applicable condition) of each of
the following conditions:
3.1 ADOPTION OF THE CONVERSION BY MEMBERS. The amendment to the
articles of incorporation of the Cooperative to effect the Conversion must
be adopted by the Members as required by the Cooperative Association Act of
the State of South Dakota and the Conversion must be consummated.
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3.2 REQUIRED APPROVALS. The Cooperative, on behalf of DTG, and DTG
Delaware shall have received:
3.2.1 REGULATORY. Any and all such approvals, consents,
authorizations and licenses of all regulatory and other governmental
authorities having jurisdiction as may be required to permit the
performance by DTG Delaware and DTG of their respective obligations
under this Plan of Merger and the consummation of the Merger.
3.2.2 SHAREHOLDER OR STOCKHOLDER. Requisite approval of the
shareholders or stockholder, as the case may be, of this Plan of
Merger and the Merger.
3.3 ORDER, DECREE, ETC. Neither DTG Delaware nor DTG shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of the
Merger.
3.4 DISSENTERS' RIGHTS. Holders of not more than 5% of the number of
shares of DTG Common Stock issuable in the Conversion shall have asserted
dissenters' rights under Section 47-6-23 of the SDBCA with respect to the
Merger.
3.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and shall not be subject to a stop order
or any threatened stop order.
ARTICLE IV - ABANDONMENT OF MERGER
This Plan of Merger may be terminated and the Merger abandoned at any
time prior to the Effective Time of the Merger (notwithstanding that
approval of this Plan of Merger by the shareholders of DTG and the
stockholder of DTG Delaware may have previously been obtained) by mutual
consent of the Boards of Directors of DTG Delaware and DTG or, prior to the
consummation of the Conversion, the Board of Directors of the Cooperative,
on behalf of DTG.
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In Witness Whereof, the undersigned parties hereto have duly executed
and acknowledged this Plan of Merger as of the date first written above.
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
By /S/ THOMAS W. HERTZ
Thomas W. Hertz
President and Chief Executive Officer
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. (TO
BECOME DAKOTA TELECOMMUNICATIONS GROUP, INC.)
By /S/ THOMAS W. HERTZ
Thomas W. Hertz
Chief Executive Officer and General Manager
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<PAGE>
APPENDIX E
CERTIFICATE OF INCORPORATION
OF
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), 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 (DELAWARE), 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 of stock which the
corporation shall have authority to issue is 750 shares. All such shares
are to be Common Stock, no par value per share, and are to be of one class.
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
<PAGE>
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
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
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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
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
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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
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
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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.
(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
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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.
(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
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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
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
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(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.
(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
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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.
(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
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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
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
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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
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,
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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.
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
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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
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
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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
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
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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.
(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;
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(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,
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
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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.
(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
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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
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.
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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
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;
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(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;
(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
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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.
(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
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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.
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.
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(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.
(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;
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(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.
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
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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.
(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.
Dated: February 13, 1997 /S/ CRAIG A. ANDERSON
Craig A. Anderson
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APPENDIX F
BYLAWS
OF
DAKOTA TELECOMMUNICATIONS GROUP (DELAWARE), INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State
of Delaware.
SECTION 2. OTHER OFFICES. The corporation may have offices
at such places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. TIMES AND PLACES OF MEETINGS. All meetings of the
stockholders shall be held, except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws, at such time and place as may
be fixed from time to time by the Board of Directors. Meetings of
stockholders may be held within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of the
stockholders shall be held each year at such time and on such day as may be
designated by the Board of Directors. Annual meetings shall be held to
elect, by a plurality vote, successors to those members of the Board of
Directors whose terms expire at the meeting and to transact only such other
business as may be properly brought before the meeting in accordance with
these Bylaws.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
stockholders may be called by an executive officer whenever directed by the
Board of Directors. Such request shall state the purpose of the proposed
meeting.
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SECTION 4. WRITTEN NOTICE. Written notice of all meetings of
stockholders, stating the place, date and hour, and in the case of a
special meeting, the purpose or purposes thereof, shall be given to each
stockholder entitled to vote thereat, not less than 10 nor more than 60
days before the date fixed for the meeting.
SECTION 5. WAIVER OF NOTICE. Whenever notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation or by these Bylaws, a written waiver, signed by the person
entitled to notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or by these Bylaws.
SECTION 6. STOCKHOLDER LIST. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least 10
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 7. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided
by statute or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the officer of the corporation presiding as chairman of the
meeting shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present or represented. At such adjourned meetings at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
SECTION 8. VOTE REQUIRED. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting
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power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the Certificate of Incorporation a
different vote is required, in which case such express provision shall
govern and control the decision of such question.
SECTION 9. VOTING RIGHTS. Except as otherwise provided by
the Certificate of Incorporation or the resolution or resolutions of the
Board of Directors creating any class of stock, each stockholder shall at
every meeting of stockholders be entitled to one vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder.
SECTION 10. ACTION WITHOUT A MEETING. Unless otherwise
provided in the Certificate of Incorporation, no action required or
permitted to be taken at any annual or special meeting of stockholders of
the corporation may be taken by written consents without a meeting.
SECTION 11. CONDUCT OF MEETINGS. Meetings of stockholders
generally shall follow accepted rules of parliamentary procedure, subject
to the following:
(a) The chairman of the meeting shall have absolute
authority over matters of procedure and there shall be no appeal
from the ruling of the chairman. If, in his or her absolute
discretion, the chairman deems it advisable to dispense with the
rules of parliamentary procedure as to any one meeting of
stockholders or part thereof, the chairman shall so state and
shall clearly state the rules under which the meeting or
appropriate part thereof shall be conducted.
(b) If disorder should arise which, in the absolute
discretion of the chairman, prevents the continuation of the
legitimate business of the meeting, the chairman may quit the
chair and announce the adjournment of the meeting; and upon his
or her so doing, the meeting is immediately adjourned without the
necessity of any vote or further action of the stockholders.
(c) The chairman may ask or require anyone not a bona fide
stockholder of record on the record date, or a validly appointed
proxy of such a stockholder, to leave the meeting.
(d) The chairman may introduce nominations, resolutions or
motions submitted by the Board of Directors for consideration by
the stockholders without a motion or second. Except as the
chairman shall direct, a resolution or motion not submitted by
the Board of Directors shall be considered for vote only if
proposed by a stockholder of record on the record date or a
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validly appointed proxy of such a stockholder and seconded by
such a stockholder or proxy other than the individual who
proposed the resolution or motion.
SECTION 12. INSPECTORS OF ELECTION. The Board of Directors
or, if they shall not have so acted, the Chief Executive Officer shall
appoint, prior to any meeting of stockholders, one or more inspectors (who
may be directors and/or employees of the corporation) to act at the meeting
and make a written report thereof. The corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to
the best of the inspector's ability.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM OF DIRECTORS. The number of
directors which shall constitute the whole Board shall be not less than
three and shall be determined from time to time by resolution of the Board
of Directors as provided in the Certificate of Incorporation. The
directors, other than those who may be elected by the holders of any class
or series of stock having a preference over Common Stock as to dividends or
upon liquidation, 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 annual meeting of stockholders held
in the third year following the year of their election. Directors need not
be stockholders.
SECTION 2. POWERS. The business of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
SECTION 3. VACANCIES. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled as provided in the Certificate of Incorporation.
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SECTION 4. RESIGNATION AND REMOVAL. Any director may resign
at any time as provided in the Certificate of Incorporation. Any or all of
the directors may be removed, but only for cause, as provided in the
Certificate of Incorporation.
SECTION 5. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, the Board
of Directors shall have the authority to fix the compensation of directors.
The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board or a stated salary as director. No
such payment shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 6. PLACE OF MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
SECTION 7. FIRST MEETING OF NEWLY ELECTED BOARD. The first
meeting of each newly elected Board of Directors shall be held following
the annual meeting of stockholders and no notice of such meeting shall be
necessary to the newly elected directors legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is not held
immediately following the annual meeting of stockholders, the meeting may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors or as
shall be specified in a written waiver signed by all of the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board
of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the Chairman, Chief Executive Officer or
Secretary or by any two directors on two days' notice to each director,
either personally, by mail, by telegram or by facsimile transmission.
SECTION 10. PURPOSE NEED NOT BE STATED. Neither the business
to be transacted at nor the purpose of any regular or special meeting of
the Board of Directors need be specified in the notice of such meeting.
SECTION 11. QUORUM. At all meetings of the Board of Directors
a majority of the directors shall constitute a quorum for the transaction
of business and the acts of a majority of the directors present at any
meeting at which there is a quorum shall be acts of the Board of Directors
except as may be otherwise specifically provided by statute or by the
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Certificate of Incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 12. ACTION WITHOUT A MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if a written
consent thereto is signed by all members of the Board or of such committee,
as the case may be, and such written consent is filed with the minutes of
the proceedings of the Board or committee.
SECTION 13. MEETING BY TELEPHONE OR SIMILAR EQUIPMENT. The
Board of Directors or any committee designated by the Board of Directors
may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means through
which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
SECTION 14. WRITTEN NOTICE. Notices to directors shall be in
writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram or by facsimile transmission, which
shall be deemed given at the time when the same shall be sent.
SECTION 15. WAIVER OF NOTICE. Whenever notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation or by these Bylaws, a written waiver, signed by the person
entitled to notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except when a director
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the directors or members
of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or by these
Bylaws.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the directors present at any meeting at
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which there is a quorum, may appoint an Executive Committee whose
membership shall consist of two or more members of the Board of Directors
as it may deem advisable from time to time to serve at the pleasure of the
Board. The Board of Directors may also appoint directors to serve as
alternates for members of the committee in the absence or disability of
regular members. The Board of Directors may fill any vacancies as they
occur. The Executive Committee shall have and may exercise the powers of
the Board of Directors in the management of the business affairs and
property of the corporation during the intervals between meetings of the
Board of Directors, subject to law and to such limitations and controls as
the Board of Directors may impose from time to time.
SECTION 2. AUDIT COMMITTEE. The Audit Committee, if there be
one, shall cause a suitable examination of the financial records and
operations of the corporation and its subsidiaries to be made by the
internal auditor of the corporation. The Audit Committee shall also
recommend to the Board of Directors the employment of independent certified
public accountants to examine the financial statements of the corporation
and its subsidiaries, review examination reports of the corporation and its
subsidiaries prepared by regulatory authorities and report to the Board of
Directors at least once each calendar year.
SECTION 3. COMPENSATION COMMITTEE. The Compensation Committee,
if there be one, shall review the personnel policies, plans and programs of
the corporation, including individual salaries of executive officers, and
submit recommendations to the Board of Directors. The Compensation
Committee shall also review the administration and results of operation of
the corporation's pension plans, confer with and receive reports from the
actuaries and investment managers of the pension plans, make
recommendations related to such plans and review all material pension plan
changes. The Compensation Committee shall also recommend to the Board of
Directors the retainer and attendance fee for nonemployee directors.
SECTION 4. NOMINATING COMMITTEE. The Nominating Committee, if
there be one, shall develop and recommend to the Board of Directors
criteria for the selection of candidates for directors, seek out and
receive suggestions concerning possible candidates, review and evaluate the
qualifications of possible candidates and recommend to the Board candidates
for vacancies occurring from time to time and for the slate of directors to
be proposed on behalf of the Board of Directors at the annual meeting of
stockholders. The Nominating Committee will consider nominees recommended
by the stockholders as properly submitted to the Secretary of the
corporation.
SECTION 5. OTHER COMMITTEES. The Board of Directors may
designate such other committees as it may deem appropriate and such
committees shall exercise the authority delegated to them.
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SECTION 6. COMMITTEE MEETINGS. Each committee provided for
above shall meet as often as its business may require and may fix a day and
time each week or at other intervals for regular meetings, notice of which
shall not be required. Whenever the day fixed for a meeting shall fall on
a holiday, the meeting shall be held on the business day following or on
such other day as the committee may determine. Special meetings of the
committees may be called by the chairman of the committee or any two
members other than the chairman and notice thereof may be given to the
members by telephone, telegram, letter or facsimile transmission. A
majority of its members shall constitute a quorum for the transaction of
the business of any committee. A record of the proceedings of each
committee shall be kept and presented to the Board of Directors.
SECTION 7. SUBSTITUTES. In the absence or disqualification of a
member of a committee, the members thereof present at a meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board to act at a meeting in
place of such absent or disqualified member.
ARTICLE V
OFFICERS
SECTION 1.
(a) CENTRAL STAFF. The officers of the corporation shall
be chosen by the Board of Directors at its first meeting after
the annual meeting of stockholders, or as soon as practicable
after the annual election of directors in each year, and shall
include a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board of Directors may also appoint one or more
Vice Presidents, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as the Board may deem
necessary. The Chairman of the Board and President shall be
chosen from among the directors, but no other officer need be a
director. Either the Chairman of the Board or the President
shall also be designated as the Chief Executive Officer. Any two
of the above offices, except those of the President and Vice
President, may be held by the same person.
(b) DIVISIONAL OFFICERS. The Board of Directors or the
Chief Executive Officer may, as they shall deem necessary,
designate certain individuals as divisional officers. Any titles
so given to divisional officers may be withdrawn at any time with
or without cause by the Board of Directors or the Chief Executive
Officer.
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SECTION 2. TERM OF OFFICE. Each officer shall hold office
at the pleasure of the Board. The Board of Directors may remove any
officer for cause or without cause. Any officer may resign his or her
office at any time, such resignation to take effect upon receipt of written
notice thereof by the corporation unless otherwise specified in the
resignation. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall, when present, preside at all meetings of the stockholders and at all
meetings of the Board of Directors, and shall have such other duties and
powers as may be imposed or given by the Board of Directors. In the case
of absence or inability to act of the President or Chief Executive Officer,
the Chairman of the Board shall exercise all of the duties and
responsibilities of such officer until the Board of Directors shall
otherwise direct.
SECTION 4. PRESIDENT. The President shall, subject to the
direction of the Board of Directors, see that all orders and resolutions of
the Board of Directors are carried into effect and shall perform all other
duties necessary or appropriate to the President's office, subject,
however, to his right (unless otherwise limited by the Board of Directors)
and the right of the directors to delegate any specific powers to any other
officer or officers of the corporation. In the case of absence or
inability to act of the Chairman of the Board or the Chief Executive
Officer, the President shall exercise all of the duties and
responsibilities of such officer until the Board of Directors shall
otherwise direct.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer, in addition to his duties as Chairman of the Board or President,
as the case may be, shall have final authority, subject to the control of
the Board of Directors, over the general policy and business of the
corporation and shall have the general control and management of the
business and affairs of the corporation. The Chief Executive Officer shall
have the power, subject to the control of the Board of Directors, to
appoint, suspend or discharge and to prescribe the duties and to fix the
compensation of such agents and employees of the corporation, other than
the officers appointed by the Board, as he or she may deem necessary.
SECTION 6. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall, subject only to the control of the Board of Directors, have
general charge, control and supervision over the financial policy and
administration of the corporation and shall have such other duties and
powers as may be imposed or given by the Board of Directors. The Chief
Financial Officer shall report only and directly to the Board of Directors.
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SECTION 7. CHIEF OPERATING OFFICER. There may be elected a
Chief Operating Officer who shall, if elected, have general charge, control
and supervision over the administration and operations of the corporation
and shall have such other duties and powers as may be imposed or given by
the Board of Directors. If no Chief Operating Officer is elected, the
duties and powers of the Chief Operating Officer shall be performed by the
Chief Executive Officer.
SECTION 8. VICE PRESIDENTS. The Vice President or Vice
Presidents shall perform such duties and have such powers as the Chief
Executive Officer or the Board of Directors may from time to time
prescribe. The Board of Directors may at its discretion designate one or
more of the Vice Presidents to be an Executive Vice President or Senior
Vice President. Any Vice President so designated shall have such duties
and responsibilities as the Board shall prescribe.
SECTION 9. SECRETARY. The Secretary shall attend all
meetings of the stockholders, and of the Board of Directors and the
Executive Committee, and shall preserve in the books of the corporation
true minutes of the proceedings of all such meetings. The Secretary shall
safely keep in his or her custody the seal of the corporation, if any, and
shall have authority to affix the same to all instruments where its use is
required or appropriate. The Secretary shall give all notices required or
appropriate pursuant to statute, the Certificate of Incorporation, Bylaws
or resolution. The Secretary shall perform such other duties as may be
delegated by the Board of Directors or by the Executive Committee.
SECTION 10. TREASURER. The Treasurer, who shall also be the
Chief Financial Officer, shall have custody of all corporate funds and
securities and shall keep in books belonging to the corporation full and
accurate accounts of all receipts and disbursements. The Treasurer shall
deposit all moneys, securities and other valuable effects in the name of
the corporation in depositories as may be designated for that purpose by
the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive
Officer and directors at the regular meetings of the Board, and whenever
requested by them, an account of all his or her transactions as Treasurer
and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall deliver to the Chief Executive
Officer of the corporation and keep in force a bond in form, amount and
with a surety or sureties satisfactory to the Board of Directors,
conditioned for faithful performance of the duties of his or her office,
and for restoration to the corporation in case of his or her death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and property of whatever kind in his or her possession or
under his or her control belonging to the corporation.
F-10
<PAGE>
SECTION 11. ASSISTANT SECRETARY AND ASSISTANT TREASURER.
There may be elected an Assistant Secretary and Assistant Treasurer who
shall, in the absence, disability or nonfeasance of the Secretary or
Treasurer, perform the duties and exercise the powers of such persons,
respectively.
SECTION 12. OTHER OFFICERS. All other officers, as may from
time to time be appointed by the Board of Directors, shall perform such
duties and exercise such authority as the Board of Directors shall
prescribe. All divisional officers, as may from time to time be appointed
by the Board of Directors or the Chief Executive Officer, shall perform
such duties and exercise such authority as the Board of Directors or the
Chief Executive Officer shall prescribe.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OTHER THAN IN ACTIONS BY OR IN THE RIGHT
OF THE CORPORATION. Any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that the person is or was a director, or executive officer of the
corporation or, is or was a director or executive officer of the
corporation and is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust or other enterprise,
whether for profit or not, shall be indemnified by the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, that the person had
reasonable cause to believe that such conduct was unlawful. 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, except as otherwise provided by law.
F-11
<PAGE>
SECTION 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director or executive officer of the
corporation, or is or was a director or executive officer of the
corporation and is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust or other enterprise,
whether for profit or not, shall be indemnified by the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or
suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification shall not be made for a claim, issue or matter in which the
person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application, that despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery of the State of
Delaware or such other court shall deem proper. Persons who are not
directors or executive officers of a corporation may be similarly
identified in respect of such service to the extent authorized at any time
by the Board of Directors, except as otherwise provided by law.
SECTION 3. EXPENSES. To the extent that a director, officer or other
person whose indemnification is authorized by the Board of Directors, has
been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in Section 1 or 2 of this Article, or in defense
of any claim, issue or matter therein, he or she shall be indemnified
against all expenses (including attorneys fees) actually and reasonably
incurred by him or her in connection therewith.
SECTION 4. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 1 or 2 of this Article (unless ordered by a
court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in Sections 1 and 2. Such determination shall be made (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel
(who may be the regular counsel of the corporation) in a written opinion,
or (3) by the stockholders.
F-12
<PAGE>
SECTION 5. ADVANCEMENT OF EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding described in Sections 1 or 2
of this Article shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board
of Directors in the manner provided in Section 4 upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he or she
is not entitled to be indemnified by the corporation as authorized in this
section.
SECTION 6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification and advancement of expenses provided by this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in the person's
official capacity and as to action in another capacity while holding such
office and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators.
SECTION 7. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust
or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of this
Article.
SECTION 8. MERGERS. For the purposes of this Article, references to
the "corporation" include all constituent corporations absorbed in a
consolidation or merger, as well as the resulting or surviving corporation,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, whether for profit or not, shall stand in the
same position under the provisions of this Article with respect to the
resulting or surviving corporation if he or she had served the resulting or
surviving corporation in the same capacity.
F-13
<PAGE>
ARTICLE VII
SUBSIDIARIES
SECTION 1. SUBSIDIARIES. The Board of Directors, the Chief
Executive Officer or any executive officer designated by the Board of
Directors may vote the shares of stock owned by the corporation in any
subsidiary, whether wholly or partly owned by the corporation, in such
manner as they may deem in the best interests of the corporation,
including, without limitation, for the election of directors of any
subsidiary corporation, for any amendments to the charter or bylaws of any
such subsidiary corporation or for the liquidation, merger or sale of
assets of any such subsidiary corporation. The Board of Directors, the
Chief Executive Officer or any executive officer designated by the Board of
Directors may cause to be elected to the Board of Directors of any such
subsidiary corporation such persons as they shall designate, any of whom
may, but need not be, directors, executive officers or other employees or
agents of the corporation. The Board of Directors, the Chief Executive
Officer or any executive officer designated by the Board of Directors may
instruct the directors of any such subsidiary corporation as to the manner
in which they are to vote upon any issue properly coming before them as the
directors of such subsidiary corporation and such directors shall have no
liability to the corporation as the result of any action taken in
accordance with such instructions.
SECTION 2. SUBSIDIARY OFFICERS NOT EXECUTIVE OFFICERS. The
officers of any subsidiary corporation shall not, by virtue of holding such
title and position, be deemed to be officers of the corporation, nor shall
any such officer of a subsidiary corporation, unless such officer shall
also be a director or officer of the corporation, be entitled to have
access to any files, records or other information relating or pertaining to
the corporation, its business and finances or to attend or receive the
minutes of any meetings of the Board of Directors or any committee of the
corporation, except as and to the extent expressly authorized and permitted
by the Board of Directors or the Chief Executive Officer.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the Chief Executive Officer, President or a Vice President
and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares
owned by such stockholder in the corporation.
F-14
<PAGE>
SECTION 2. FACSIMILE SIGNATURE. Where a certificate is
signed (a) by a transfer agent or an assistant transfer agent, or (b) by a
transfer clerk acting on behalf of the corporation and a registrar, the
signature of any such Chief Executive Officer, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be a
facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon a certificate,
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the
same effect as if the person were such officer, transfer agent or registrar
at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged
to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or the person's legal
representative, to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
SECTION 5. FIXING OF RECORD DATE BY BOARD. For the purpose
of determining the stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or to express consent
to or dissent from any corporate action in writing without a meeting, or
for the purpose of determining stockholders entitled to receive payments of
any dividend or the distribution or allotment of any rights or evidences of
interests arising out of any change, conversion or exchange of capital
stock, or for the purpose of any other action, the Board of Directors may
fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than 60 days nor less than 10
days before the date of any such meeting, nor more than 60 days prior to
effectuation of any other action proposed to be taken. Only stockholders
of record on a record date so fixed shall be entitled to notice of and to
vote at such meeting or to receive payment of any dividend or the
distribution or allotment of any rights or evidences of interests arising
out of any change, conversion or exchange of capital stock.
F-15
<PAGE>
SECTION 6. ADJOURNMENTS. When a determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders has been made as provided in this Article, the determination
applies to any adjournment of the meeting, unless the Board fixes a new
record date for the adjourned meeting.
SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive rights of a person registered on its
books as the owner of shares to receive dividends and to vote as such owner
and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting pursuant to law. Dividends may be paid in cash,
in property or in shares of capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividends, there
may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, for equalizing dividends, for repairing or maintaining any
property of the corporation or for such other purpose as the directors
shall think conducive to the interests of the corporation and the directors
may modify or abolish any such reserve in the manner in which it was
created.
SECTION 3. CHECKS. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
SECTION 5. SEAL. The corporate seal, if any, shall have
inscribed thereon the name of the corporation, and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof
to be impressed, affixed, reproduced or otherwise.
F-16
<PAGE>
ARTICLE X
AMENDMENTS
Subject to any provisions of the Certificate of Incorporation,
these Bylaws may be amended, altered, changed or repealed at any regular or
special meeting of the Board of Directors. Subject to any provisions of the
Certificate of Incorporation, these Bylaws may also be amended, altered,
changed or repealed at any regular or special meeting of stockholders
provided that notice that amendment of the Bylaws is a purpose of the
meeting, and the proposed amendment has been provided to the stockholders
as required under these Bylaws and applicable law.
F-17
<PAGE>
APPENDIX G
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
AND SUBSIDIARIES
IRENE, SOUTH DAKOTA
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH INDEPENDENT
AUDITORS' REPORT
DECEMBER 31, 1996
[LOGO] OLSEN THIELEN & CO., LTD.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
G-1
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONTENTS
===========================================================================
PAGE
INDEPENDENT AUDITORS' REPORT G-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheet G-4
Consolidated Statement of Operations G-5
Consolidated Statement of Stockholders' Equity G-6
Consolidated Statement of Cash Flows G-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS G-8-15
G-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dakota Cooperative Telecommunications, Inc.
and Subsidiaries
Irene, South Dakota
We have audited the accompanying consolidated balance sheet of Dakota
Cooperative Telecommunications, Inc. (a South Dakota Cooperative) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dakota
Cooperative Telecommunications, Inc. and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/OLSEN THIELEN & CO., LTD.
St. Paul, Minnesota
January 18, 1997 OLSEN THIELEN & CO., LTD.
G-3
<PAGE>
<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
===========================================================================
ASSETS
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,121,444 $ 6,322,884
Temporary Cash Investments 1,249,000 --
Accounts Receivable, Less Allowance for
Uncollectibles of $152,300 and $80,700 1,784,895 1,223,123
Deposits 274,889 719,708
Income Taxes Receivable 248,500 --
Materials and Supplies 694,097 417,709
Prepaid Expenses 168,078 110,136
----------- -----------
Total Current Assets 6,540,903 8,793,560
----------- -----------
INVESTMENTS AND OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 1,830,959 --
Other Intangible Assets 509,559 --
Deposit 61,905 --
Other Investments 63,817 30,840
Deferred Charges 56,628 255,991
----------- -----------
Total Investments and Other Assets 2,522,868 286,831
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 14,441,104 11,041,284
----------- -----------
TOTAL ASSETS $23,504,875 $20,121,675
=========== ===========
</TABLE>
G-4
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 697,700 $ 579,100
Accounts Payable 399,694 449,384
Accrued Income Taxes -- 260,655
Other Current Liabilities 497,388 261,743
----------- -----------
Total Current Liabilities 1,594,782 1,550,882
----------- -----------
LONG-TERM DEBT 15,338,395 13,054,725
----------- -----------
DEFERRED CREDITS 159,482 100,763
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock 26,185 26,125
Preferred Stock 1,172,000 --
Capital Credits 4,732,723 4,643,909
Retained Earnings 481,308 745,271
----------- -----------
Total Stockholders' Equity 6,412,216 5,415,305
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,504,875 $20,121,675
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-5
<PAGE>
<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
===========================================================================
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Local Network $ 1,058,667 $ 856,133
Network Access 3,266,969 2,761,839
Long Distance Network 1,996,301 1,931,722
Cable Television Service 1,300,512 469,440
Other 186,393 96,395
----------- -----------
Total Operating Revenues 7,808,842 6,115,529
----------- -----------
COSTS AND EXPENSES:
Plant Operations 2,114,266 1,472,697
Depreciation and Amortization 2,434,416 1,701,020
Customer 500,802 405,673
General and Administrative 1,817,869 1,325,025
Other Operating Expenses 863,639 369,242
----------- -----------
Total Operating Expenses 7,730,992 5,273,657
----------- -----------
OPERATING INCOME 77,850 841,872
----------- -----------
OTHER INCOME AND (EXPENSES):
Interest and Dividend Income 309,982 330,395
Interest Expense (723,778) (592,070)
Income From Cellular Investments -- 168,788
Gain on Sale of Cellular Investments -- 686,336
----------- -----------
Net Other Income and (Expenses) (413,796) 593,449
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (335,946) 1,435,321
INCOME TAX EXPENSE (BENEFIT) (175,712) 301,859
----------- -----------
NET INCOME (LOSS) $ (160,234) $ 1,133,462
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-6
<PAGE>
<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
===========================================================================
<CAPTION>
COMMON PREFERRED CAPITAL RETAINED
STOCK STOCK CREDITS EARNINGS TOTAL
------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE on December 31, 1994 $25,835 $ -- $4,049,248 $182,421 $4,257,504
Net Income 570,612 562,850 1,133,462
Common Stock Issued, Net 290 290
Retirement of Capital
Credits to Estates (16,772) (16,772)
Excise Tax Refund 40,821 40,821
------- ---------- ---------- -------- ----------
BALANCE on December 31, 1995 26,125 -- 4,643,909 745,271 5,415,305
Net Income (Loss) 103,729 (263,963) (160,234)
Common Stock Issued, Net 60 60
Preferred Stock Issued
(1,172 Shares) 1,172,000 1,172,000
Retirement of Capital
Credits to Estates (14,915) (14,915)
------- ---------- ---------- -------- ----------
BALANCE on December 31, 1996 $26,185 $1,172,000 $4,732,723 $481,308 $6,412,216
======= ========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-7
<PAGE>
<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
===========================================================================
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (160,234) $1,133,462
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided By Operating Activities:
Depreciation and Amortization 2,469,873 1,735,090
Deferred Charges 208,248 --
Deposits 274,889 --
Income From Cellular Investments -- (168,788)
Gain on Sale of Cellular Investments -- (686,336)
Receivables (155,521) (450,599)
Income Taxes Receivable (248,500) --
Other Current Assets (52,618) (3,340)
Accounts Payable (379,143) 21,254
Accrued Income Taxes (260,655) 260,655
Other Current Liabilities 206,778 76,610
Deferred Credits 58,719 32,159
---------- ----------
Net Cash Provided By
Operating Activities 1,961,836 1,950,167
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property, Plant and Equipment, Net (5,751,604) (1,554,131)
Sale of Cellular Investment -- 1,141,620
Deposits 107,822 (212,464)
Purchase of Temporary Cash Investments (1,249,000) --
Purchase of Other Investments (32,977) (12,063)
Purchase of Other Intangible Assets (541,300) --
Deferred Charges (8,885) (88,677)
Acquisition Costs, Net of Cash Acquired (40,295) --
---------- ----------
Net Cash Used In Investing Activities (7,516,239) (725,715)
---------- ----------
G-8
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt 4,399,270 342,000
Principal Payments of Long-Term Debt (2,844,967) (562,942)
Construction Contracts Payable (182,912) 299,822
Retirement of Capital Credits (14,915) (16,772)
Excise Tax Refund -- 40,821
Other (3,513) 399
---------- ----------
Net Cash Provided by Financing Activities 1,352,963 103,328
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,201,440) 1,327,780
CASH AND CASH EQUIVALENTS at Beginning of Year 6,322,884 4,995,104
---------- ----------
CASH AND CASH EQUIVALENTS at End of Year $2,121,444 $6,322,884
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-9
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF OPERATIONS - The Company is a diversified telecommunications
services company, which, directly or through wholly-owned subsidiaries,
provides wireline local and network access services, long-distance
telephone services, operator assisted calling services,
telecommunications equipment sale and leasing services, cable
television services, Internet access and related services. The
principal market for these telecommunications and cable services are
local residential and business customers residing in southeastern South
Dakota, with a portion of its cable television customers in northwestern
Iowa and southwestern Minnesota.
Local service rates charged to telephone customers are established by
the Company and are subject to approval of Rural Utilities Service
before becoming effective. Toll and access rates are subject to state
and Federal Communications Commission regulation. Rates charged cable
television customers are established by the Company.
B. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Dakota Cooperative Telecommunications, Inc. and
its wholly owned subsidiaries, Dakota Telecom, Inc., Iway, Inc., TCIC
Communications, Inc. and Dakota Telecommunications Systems, Inc. and its
wholly owned subsidiary, Dakota Wireless Systems, Inc. All significant
intercompany transactions and accounts have been eliminated.
C. BASIS OF ACCOUNTING - The accounting policies of the Company are in
conformity with generally accepted accounting principles and the Company
does not have any regulatory assets or liabilities as defined by
Financial Accounting Standards Board Statement No. 71, "Accounting for
the Effects of Certain Types of Regulation".
D. ACCOUNTING ESTIMATES - The presentation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
E. CASH INVESTMENTS - Cash and cash equivalents include general funds and
short-term investments with original maturities of three months or less.
Investments with original maturities of three months to twelve months are
G-10
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
classified as temporary cash investments. Cash investments are valued at
market value.
F. MATERIALS AND SUPPLIES - Inventories are recorded at average unit cost.
G. PROPERTY, PLANT AND DEPRECIATION - Property, plant and equipment are
recorded at original cost. Additions, improvements or major renewals
are capitalized. If the telecommunication and cable television utility
plant is sold, retired or otherwise disposed of in the ordinary course
of business, the cost plus removal costs less salvage, is charged to
accumulated depreciation.
Depreciation is computed using principally the straight-line method
based upon the estimated service lives of the depreciable assets.
H. EXCESS OF COST OVER NET ASSETS ACQUIRED - The excess of cost over net
assets of acquired companies is being expensed equally over fifteen
years and is shown net of accumulated amortization of $10,032 at
December 31, 1996.
I. OTHER INTANGIBLE ASSETS - Other intangible assets consist of customer
lists and is being expensed equally over fifteen years and shown net of
accumulated amortization of $31,741 at December 31, 1996.
J. OTHER INVESTMENTS - Other investments are recorded at cost.
K. CAPITAL CREDITS - The Company operates as a cooperative. Amounts
received from the furnishing of telephone service, interest income and
other nonoperating operations in excess of costs and expenses are
assigned to telephone patrons on a patronage basis to the extent they are
not needed to offset prior losses.
Dividend income from the subsidiaries will be allocated to telephone
patrons on a patronage basis when received.
L. REVENUE RECOGNITION - Revenues are recognized when earned, regardless
of the period in which they are billed. Network access and long distance
revenues are furnished in conjunction with interexchange carriers and are
determined by cost separation studies. Revenues include estimates
pending finalization of cost studies. Network access revenues are based
upon interstate tariffs filed with the Federal Communications Commission by
the National Exchange Carriers Association and state tariffs filed with
G-11
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
state regulatory agencies. Management believes recorded revenues are
reasonable based on estimates of final cost separation studies which are
typically settled within two years.
M. INCOME TAXES AND EXCISE TAX REFUNDS - The Parent Company operates as a
cooperative and has been granted tax exempt status under Section 501(c)12
of the Internal Revenue Code; therefore the Parent Company income is not
taxable. Under the Internal Revenue Code a tax exempt telephone company
is entitled to a refund for overpayment of federal excise taxes by its
patrons. Excise tax refunds are allocated to telephone patrons' along
with net income. The State of South Dakota does not have an income tax.
The wholly owned subsidiaries, Dakota Telecom, Inc., Iway, Inc., TCIC
Communications, Inc., Dakota Telecommunications Systems, Inc., (and its
wholly owned subsidiary Dakota Wireless Systems, Inc.) are taxable at the
federal level and in Minnesota and Iowa for operations in those states.
Income taxes for these companies are provided for the tax effects of
transactions reported in the financial statements and include taxes
currently payable and deferred income taxes which reflect the estimated
income tax consequences of the differences between the income tax bases of
assets and liabilities and their financial reporting bases. The
differences relate to taxable subsidiaries' property and equipment.
N. CREDIT RISK - Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of temporary
cash investments. The Company places its temporary cash investments with
high credit quality financial institutions and, by policy, generally
limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's large number of customers. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant
credit risk on temporary cash investments.
O. RECLASSIFICATIONS - Certain reclassifications have been made to the
1995 financial statements to conform to the 1996 presentations. These
reclassifications had no effect on net income.
G-12
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 2 - INVESTMENT IN CELLULAR ENTITIES AND GAIN ON SALE OF CELLULAR
INVESTMENTS
In 1995, the Company sold its investment in Sioux Falls Cellular Limited
Partnership and Dakota Systems, Inc. for cash. The gain on the sale of the
investments was $686,336 ($456,413 net of income taxes).
The Company's share of operating gains for the cellular franchises were
$168,788 in 1995.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
The cost and estimated useful lives of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land $ 101,573 $ 98,072
Buildings 16-33 years 1,486,491 1,483,236
Leasehold Improvements 3-5 15,677 --
Machinery and Equipment 5-7 1,499,518 1,173,137
Furniture and Fixtures 3-20 1,010,234 926,621
Telecommunications Plant 4-25 16,922,589 15,451,807
Cable Television Plant 8-12 4,869,851 1,355,252
Construction In Progress -- 354,025 461,819
----------- -----------
26,259,958 20,949,944
Less Accumulated
Depreciation 11,818,854 9,908,660
----------- -----------
Total $14,441,104 $11,041,284
=========== ===========
</TABLE>
Depreciation included in costs and expenses was $2,392,643 in 1996 and
$1,701,020 in 1995.
The Company intends to add new construction in 1997 of approximately
$16,000,000.
G-13
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 4 - LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Rural Utilities Service (RUS) mortgage notes:
2% payable in quarterly installments $ 2,595,175 $ 2,845,775
5% payable in monthly installments 10,756,343 10,158,861
----------- -----------
13,351,518 13,004,636
RUS - Rural Communication Development
Fund 5% mortgage note -- 217,955
Rural Telephone Finance Cooperative (RTFC)
Mortgage Note, matures 2006, variable
interest rate (6.3% at December 31, 1996) 1,537,537 --
Norwest Bank South Dakota, N.A. matures 1998,
variable interest rate (prime plus one percent,
9.25% at December 31, 1996) payable upon
maturity 330,000 --
Norwest Bank South Dakota, N.A. matures 1998,
variable interest rate (prime plus one percent,
9.25% at December 31, 1996) payable upon
maturity 650,469
Unsecured Notes to a Preferred Shareholder,
matures 1998, variable interest rate (prime
plus one percent, 9.25% at December 31,
1996), payable upon maturity 45,000 --
Other 4,661 111,412
G-14
<PAGE>
Construction Contracts Payable 116,910 299,822
----------- -----------
16,036,095 13,633,825
Amount Due Within One Year (697,700) (579,100)
----------- -----------
Total Long-Term Debt $15,338,395 $13,054,725
=========== ===========
</TABLE>
G-15
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 4 - LONG-TERM DEBT (CONTINUED)
Substantially all telephone company assets are pledged as security for the
RUS mortgage notes. RUS mortgage notes mature in twenty to thirty-five
years at various dates ranging from 1997 to 2021. No principal payments on
RUS notes are required for the first two to three years after issuance. The
RTFC loan is collaterialized by the cable plant located in ten cities in
southeastern South Dakota.
The $330,000 Norwest Bank loan is secured by the assets of Iway, Inc. and
guaranteed by the former shareholders of I-Way Partners, Inc. and the
$650,469 Norwest Bank loan is secured by the assets of two of the former
shareholders of TCIC Communications, Inc. and their personal guarantees.
The former shareholders of I-Way Partners, Inc. and TCIC Communications,
Inc. are preferred shareholders of the Company.
Approximate annual principal payments on the existing debt for the next
five years are: 1997 - $697,700; 1998 - $1,744,700; 1999 - $738,600; 2000
- - $754,600 and 2001 - $768,800.
Unadvanced loan funds of $3,983,175 are available to the Company on loan
commitments from RUS. Loan proceeds will be used to refinance current
construction and to finance future construction.
G-16
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 5 - CAPITAL STOCK
<TABLE>
<CAPTION>
COMMON PREFERRED
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ ----------
<S> <C> <C> <C> <C>
BALANCE - December 31, 1994 5,167 $25,835 -- $ --
Issued 457 2,285
Redeemed (399) (1,995)
----- -------
BALANCE - December 31, 1995 5,225 26,125
Issued 456 2,280 1,172 1,172,000
Redeemed (444) (2,220)
----- ------- ----- ----------
BALANCE - December 31, 1996 5,237 $26,185 1,172 $1,172,000
===== ======= ===== ==========
</TABLE>
The Company's common stock has a par value of $5.00 per share. There are
15,000 shares authorized. No person may own more than one share of common
stock and each holder of common stock has one vote in the affairs of the
Company. Nonvoting preferred stock has a par value of $100.00 per share and
there are 63,000 shares authorized. The preferred stock is shown on the
balance sheet at its redemption value of $1,000 per share. Preferred
shareholders are entitled to a Non-Liquidity Fee of $80 per share payable
semi-annually in cash or preferred stock at the discretion of the Company.
Preferred shareholders also were granted warrants which entitled them to
purchase additional preferred stock at $1,000 per share. At December 31,
1996 there were warrants outstanding which may be exercised through
January 2, 1998 to purchase 482 shares of preferred stock. Effective
January 1, 1997, the Company granted management options to purchase up to
1,534 shares of preferred stock at $1,000 per share.
G-17
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 6 - CAPITAL CREDITS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Assignable $ 103,729 $ 611,433
Assigned to date 5,577,780 4,966,236
---------- ----------
Total 5,681,509 5,577,669
Retired to date (948,786) (933,760)
---------- ----------
Balance $4,732,723 $4,643,909
========== ==========
</TABLE>
The long-term debt agreements with the Rural Utilities Service contain
restrictions on retirements of capital credits, capital stock, and equity
capital. The restrictions are related in general to the Company's adjusted
net worth and assets as defined in the agreements. The Company may,
however, make distributions in any calendar year equal to twenty-five
percent of the net income of the immediate preceding calendar year.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and temporary cash investments approximates
their fair value due to the short maturity of the instruments. The fair
value of the Company's long-term debt, after deducting current maturities,
is estimated to be $12,905,145 at December 31, 1996 and $10,068,719 at
December 31, 1995, compared to carrying values of $15,338,395 and
$13,054,725, respectively. The fair value estimates are based on the
overall weighted rates and maturity compared to rates and terms currently
available in the long-term financing markets.
NOTE 8 - DEPOSITS
In October, 1996 Dakota Wireless Systems, Inc. entered into an agreement
with another company to bid on a license for a Broadband Personal
Communications Services System to provide service to Southeastern South
Dakota and Northwestern Iowa and on January 14, 1997 was awarded the
license. The Company made a deposit of $61,905 as of December 31, 1996 and
has a future commitment of $194,051.
G-18
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 8 - DEPOSITS (CONTINUED)
On December 7, 1994, the Company and its wholly owned subsidiary, Dakota
Telecommunications Systems, Inc., entered into an agreement with U S West
Communications, Inc. to purchase the assets and acquire the right to
provide and operate wireline telecommunication services in eight exchanges
in the state of South Dakota for $10,144,884. In 1996, the Company
canceled the agreement. The Company has a $549,778 earnest money deposit
on the purchase. The deposit was written down by $274,889 to the estimated
recoverable amount of $274,889. In addition, the Company charged $275,252
of related acquisition costs to net income in 1996.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
CASH PAYMENTS FOR:
Interest $ 730,633 $592,067
Income Taxes $ 283,415 $ 18,875
NONCASH FINANCING ACTIVITY:
Preferred Stock Issued for Acquisition of I-Way
Partners, Inc. and TCIC Communications, Inc. $1,172,000
</TABLE>
NOTE 10 - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Current $ (225,740) $279,530
Deferred 50,028 22,329
---------- --------
Total $ (175,712) $301,859
========== ========
</TABLE>
G-19
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 10 - INCOME TAXES (CONTINUED)
The differences between the statutory federal rate and the effective tax
rate were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Consolidated Income (Loss) Before Income Taxes $ (335,946) $1,435,321
Less Tax Exempt Income (100,729) (534,077)
---------- ----------
Taxable Income (Loss) $ (436,675) $ 901,244
========== ==========
Statutory Tax Rate 35.0% 35.0%
Effect of Graduated Rates and Other 5.2 (1.5)
---------- ----------
Effective Tax Rate 40.2% 33.5%
========== ==========
</TABLE>
Deferred tax liabilities of $88,932 and $38,904 as of December 31, 1996 and
1995 are included on the balance sheet as deferred credits.
NOTE 11 - PENSION PLANS
Pension benefits for substantially all employees are provided through the
National Telephone Cooperative Association Retirement and Security Program
(a defined benefit plan) and Savings Plan (a defined contribution plan).
The Company makes annual contributions to the plans equal to the amounts
accrued for pension expense. The Retirement and Security Program is a
multi-employer plan and the accumulated benefits and plan assets are not
determined or allocated separately by individual employer. The total
pension costs for 1996 and 1995 were $150,220 and $114,663.
NOTE 12 - CHANGE IN ACCOUNTING ESTIMATE
Effective January 1, 1996, the Company revised its estimate of the useful
lives of telecommunication computers and fiber optic cable which were being
G-20
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 12 - CHANGE IN ACCOUNTING ESTIMATE (CONTINUED)
depreciated over 12 and 25 years. The revised useful lives are 4 and 10
years.
Effective February 1, 1996, the Company revised its estimate of the useful
lives of cable television plant. Previously the plant was depreciated over
20 years. The revised useful life of the plant ranges from eight to twenty
years. These changes were made to better reflect the estimated periods
during which such assets will remain in service. The 1996 changes
increased depreciation expense by approximately $189,000 in 1996.
Effective January 1, 1995, the Company revised its estimate of the useful
lives of central office equipment. Previously central office equipment was
depreciated over 16.67 years and the revised useful life was three years.
The change increased depreciation expense approximately $660,000 in 1995.
NOTE 13 - ACQUISITIONS
In the first half of 1996, Dakota Telecom, Inc. purchased nineteen cable
service areas in three separate purchase transactions and one asset
exchange transaction. The total purchase price was $3,858,704. Customer
lists acquired for $541,300 are being expensed equally over fifteen years.
Operations of the service areas purchased are included in the consolidated
statements of operations subsequent to their purchase.
In December, 1996 the Company acquired I-Way Partners, Inc. and TCIC
Communications, Inc. in exchange for 1,172 shares of preferred stock valued
at $1,172,000. The acquisitions were accounted for as purchases. The
excess of the aggregate purchase price and liabilities assumed exceed the
fair value of the assets by $1,840,991 and is being expensed equally over
fifteen years. Operations of the companies acquired are included in the
consolidated statement of operations subsequent to their purchase. The
following table summarizes the unaudited consolidated pro forma results of
operations, assuming the acquisition had occurred at the beginning of each
of the following years:
G-21
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 13 - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Total Revenues $9,474,178 $7,455,901
Net Income (Loss) (616,726) 477,417
</TABLE>
NOTE 14 - SEGMENT INFORMATION
The Company operates in two businesses: telecommunications and cable
television. Industry segment information is as follows:
G-22
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 14 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Telecommunications $ 6,462,704 $ 5,584,155
Cable Television 1,346,138 531,374
----------- -----------
$ 7,808,842 $ 6,115,529
=========== ===========
Operating Income (Loss):
Telecommunications $ 454,097 $ 731,944
Cable Television (376,247) 109,928
----------- -----------
$ 77,850 $ 841,872
=========== ===========
Identifiable Assets:
Telecommunications $18,246,345 $18,084,644
Cable Television 5,258,530 2,037,031
----------- -----------
$23,504,875 $20,121,675
=========== ===========
Depreciation and Amortization Expense:
Telecommunications $ 2,011,046 $ 1,632,197
Cable Television 423,370 68,823
----------- -----------
$ 2,434,416 $ 1,701,020
=========== ===========
Capital Expenditures:
Telecommunications $ 1,930,389 $ 1,516,061
Cable Television 3,821,215 38,070
----------- -----------
$ 5,751,604 $ 1,554,131
=========== ===========
</TABLE>
G-23
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================================================
NOTE 15 - CHANGE IN CORPORATE STRUCTURE
The Company intends to file a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933 and to submit to
its common stockholders (members) a proposal to convert from a tax exempt
cooperative into a taxable business corporation.
In the proposed conversion, owners of the Cooperative's common stock,
capital credits and preferred stock, issued and outstanding, would receive
common shares of the business corporation.
G-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
TCIC Communications, Inc.
I-Way Partners, Inc.
Sioux Falls, South Dakota
We have audited the accompanying combined statements of operations and
accumulated deficit, and cash flows of TCIC Communications, Inc. and I-Way
Partners, Inc. for the eleven months ended November 30, 1996. These
financial statements are the responsibility of the Companies management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of TCIC Communications, Inc. and I-
Way Partners, Inc. combined operations and cash flows for the eleven months
ended November 30, 1996, in conformity with generally accepted accounting
principles.
St. Paul, Minnesota /s/OLSEN THIELEN & CO., LTD.
January 18, 1997 OLSEN THIELEN & CO., LTD.
G-25
<PAGE>
<TABLE>
TCIC COMMUNICATIONS, INC.
AND
I-WAY PARTNERS, INC.
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
ELEVEN MONTHS ENDED NOVEMBER 30, 1996
===========================================================================
<CAPTION>
<S> <C>
REVENUE $ 1,665,336
COSTS AND EXPENSES 1,822,014
-----------
OPERATING LOSS (156,678)
INTEREST EXPENSE 187,314
-----------
NET LOSS (343,992)
ACCUMULATED DEFICIT, at Beginning of Period (1,828,423)
-----------
ACCUMULATED DEFICIT, at End of Period $(2,172,415)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-26
<PAGE>
<TABLE>
TCIC COMMUNICATIONS, INC.
AND
I-WAY PARTNERS, INC.
COMBINED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED NOVEMBER 30, 1996
===========================================================================
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (343,992)
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 78,444
(Increase) Decrease In:
Accounts Receivable (75,559)
Prepaid Expense (86)
Increase (Decrease) In:
Accounts Payable 90,723
Accrued Interest Payable 105,054
Other Accrued Expenses (1,829)
----------
Net Cash Used In Operating Activities (147,245)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (203,109)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Line of Credit (144,998)
Proceeds from Long-Term Debt 375,000
Payments of Long-Term Debt (68,845)
Payments of Shareholder Notes Payable (190,667)
Proceeds of Shareholder Notes Payable 361,667
----------
Net Cash Provided By Financing Activities 332,157
----------
NET DECREASE IN CASH (18,197)
CASH at Beginning of Period 24,325
----------
CASH at End of Period $ 6,128
==========
G-27
<PAGE>
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest Paid $ 89,880
==========
Common Stock Exchanged for Shareholder Notes Payable
and Accrued Interest, a Non-Cash Financing Activity $1,443,616
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
G-28
<PAGE>
TCIC COMMUNICATIONS, INC.
AND
I-WAY PARTNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
===========================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS - TCIC Communications, Inc. is a provider of
operator and interexchange telecommunications services and I-Way
Partners, Inc. is a provider of internet hardware and access with offices
in Sioux Falls, South Dakota. The Companies grant credit to customers,
substantially all of whom are local residents or businesses in
southeastern South Dakota. Concentrations of credit risk with respect to
trade receivables are limited due to the Company's large number of
customers.
B. PRINCIPLES OF COMBINATION - The Companies are owned and controlled by a
group of similar shareholders. All intercompany transactions and
accounts have been eliminated.
C. ACCOUNTING ESTIMATES - The presentation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
D. PROPERTY AND DEPRECIATION - Property and equipment are recorded at
original cost. Additions, improvements or major renewals are
capitalized. Any gains or losses on property and equipment retirements
are reflected currently in operations.
Depreciation is computed using the straight-line method at rates based
on recommended service lives for income tax reporting which approximate
the assets' useful lives as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Telecommunications Equipment 5 Years
Computers 5 Years
Office Furniture and Equipment 5-7 Years
Leasehold Improvements 3-5 Years
</TABLE>
G-29
<PAGE>
E. REVENUE RECOGNITION - Revenue is recognized when earned. Revenue
earned and unbilled is included in accounts receivable and was $15,370
at November 30, 1996.
F. INCOME TAXES - The Companies have elected to have their income taxed to
the shareholders under Subchapter S of the Internal Revenue Code.
Therefore, the statements do not include a provision for income taxes.
NOTE 2 - RELATED PARTY TRANSACTIONS
I-Way Partners, Inc. purchased goods and services for $14,091 and equipment
for $135,539 from Datanet, Inc., which is owned by shareholders of the
Companies.
NOTE 3 - CAPITAL STOCK
In 1996, the articles of incorporation of TCIC Communications, Inc. were
amended to increase the authorized stock to 2,500,000 shares and in
November 1996, $1,089,000 of notes payable to shareholders and $354,616 of
unpaid interest were exchanged for 1,443,616 shares of common stock.
NOTE 4 - MERGER
On December 2, 1996, the Companies were merged into a subsidiaries of
Dakota Cooperative Telecommunications, Inc. The names of the surviving
companies are TCIC Communications, Inc. and Iway, Inc.
NOTE 5 - LEASE
TCIC rents its principal office. This lease is on a month to month basis.
The rent expense was $35,897 in 1996.
G-30
<PAGE>
APPENDIX H
47-6-23. DISSENT BY SHAREHOLDER - RIGHT TO RECEIVE PAYMENT FOR SHARES.
Any shareholder of a domestic corporation shall have the right to
dissent from, and to obtain payment for his shares in the event of, any of
the following corporate actions:
(1) Any plan of merger or consolidation to which the corporation is a
party;
(2) Any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of
its business, including a sale in dissolution, but not including a sale
pursuant to an order of a court having jurisdiction in the premises or a
sale for cash on terms requiring that all or substantially all of the net
proceeds of sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of sale;
(3) Any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) Any amendment of the articles of incorporation which materially
and adversely affects the rights appurtenant to the shares of the
dissenting shareholder in that it:
(a) Alters or abolishes a preferential right to such shares;
(b) Creates, alters or abolishes a right in respect of the
redemption of such shares, including a provision respecting a sinking
fund for the redemption or repurchase of such shares;
(c) Alters or abolishes a preemptive right of the holder of such
shares to acquire shares or other securities;
(d) Excludes or limits the right of the holder of such shares to
vote on any matter, or to cumulate his votes, except as such right may
be limited by dilution through the issuance of shares or other
securities with similar voting rights; or
(5) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles of incorporation, the bylaws, or a
resolution of the board of directors directs that dissenting shareholders
shall have a right to obtain payment for their shares.
47-6-23.1. DISSENT AS TO LESS THAN ALL SHARES HELD - BENEFICIAL OWNER.
A record holder of shares may assert dissenters' rights as to less
than all of the shares registered in his name only if he dissents with
respect to all the shares beneficially owned by any one person, and
discloses the name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if the shares
as to which he has dissented and his other shares were registered in the
names of different shareholders.
A beneficial owner of shares who is not the record holder may assert
dissenters' rights with respect to shares held on his behalf, and shall be
treated as a dissenting shareholder under the terms of this section if he
submits to the corporation at the time of or before the assertion of these
rights a written consent of the record holder.
<PAGE>
47-6-23.2. RIGHTS OF SHAREHOLDERS NOT ENTITLED TO VOTE ON MERGER.
The right to obtain payment under <Section> 47-6-23 does not apply to
the shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.
47-6-23.3. SHAREHOLDER ENTITLED TO PAYMENT MAY NOT ATTACK VALIDITY OF
ACTION.
A shareholder of a corporation who has a right under <Section> 47-6-23
to obtain payment for his shares may not, at law or in equity, attack the
validity of the corporate action that gives rise to his right to obtain
payment, have the action set aside or rescinded, unless the corporate
action is unlawful or fraudulent with regard to the complaining shareholder
or to the corporation.
47-6-40. DEFINITIONS.
Terms used in this chapter mean:
(1) "Corporation," the issuer of the shares held by the dissenter
before the corporate action, or the successor by merger or consolidation of
that issuer;
(2) "Dissenter," a shareholder or beneficial owner who is entitled to
and does assert dissenters' rights under this chapter, and who has
performed every act required up to the time involved for the assertion of
such rights;
(3) "Fair value" of shares, their value immediately before the
effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of such
corporate action unless such exclusion would be inequitable;
(4) "Interest," interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at such rate as is
fair and equitable under all the circumstances.
47-6-41. NOTICE TO SHAREHOLDERS OF RIGHT TO DISSENT AND OBTAIN PAYMENT.
If a proposed corporate action which would give rise to dissenters'
rights under this chapter is submitted to a vote at a meeting of
shareholders, the notice of meeting shall notify all shareholders that they
have or may have a right to dissent and obtain payment for their shares by
complying with the terms of this chapter, and shall be accompanied by a
copy of <Sections> 47-6-23 to 47-6-23.3, inclusive, and <Sections> 47-6-40
to 47-6-50, inclusive.
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47-6-42. NOTICE OF INTENT TO DISSENT - REFRAINING FROM VOTING - EFFECT OF
FAILURE.
If the proposed corporate action is submitted to a vote at a meeting
of shareholders, any shareholder who wishes to dissent and obtain payment
for his shares shall file with the corporation, prior to the vote, a
written notice of intention to demand that he be paid fair compensation for
his shares if the proposed action is effectuated, and shall refrain from
voting his shares in approval of such action. A shareholder who fails in
either respect acquires no right to payment of his shares under this
section or <Sections> 47-6-23 to 47-6-23.3, inclusive.
47-6-43. NOTICE OF PROCEDURE FOR DEMANDING PAYMENT AND DEPOSITING
CERTIFICATES.
If the proposed corporate action is approved by the required vote at a
meeting of shareholders, the corporation shall mail a further notice to all
shareholders who gave due notice of intention to demand payment and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment for their shares a notice of the adoption of the plan of
corporate action. The notice shall (1) state where and when a demand for
payment shall be sent and certificates of certificated shares shall be
deposited in order to obtain payment, (2) inform holders of uncertificated
shares to what extent transfer of shares will be restricted from the time
that demand for payment is received, (3) supply a form for demanding
payment which includes a request for certification of the date on which the
shareholder, or the person on whose behalf the shareholder dissents,
acquired beneficial ownership of the shares, and (4) be accompanied by a
copy of <Sections> 47-6-23 to 47-6-23.3, inclusive, and <Sections> 47-6-40
to 47-6-50, inclusive. The time set for the demand and deposit shall be
not less than thirty days from the mailing of the notice.
47-6-44. FAILURE TO DEMAND PAYMENT OR DEPOSIT CERTIFICATES - WAIVER -
RESTRICTIONS ON TRANSFERS.
A shareholder who fails to demand payment, or fails, in the case of
certificated shares, to deposit certificates, as required by a notice
pursuant to <Section> 47-6-43 has no right under this chapter to receive
payment for his shares. If the shares are not represented by certificates,
the corporation may restrict their transfer from the time of receipt of
demand for payment until effectuation of the proposed corporate action, or
the release of restrictions under the terms of <Sections> 47-6-45 and 47-6-
46. The dissenter shall retain all other rights of a shareholder until
these rights are modified by effectuation of the proposed corporate action.
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<PAGE>
47-6-45. RETURN OF CERTIFICATES OR RELEASE OF RESTRICTIONS ON FAILURE TO
EFFECTUATE ACTION - NEW NOTICE.
Within sixty days after the date set for demanding payment and
depositing certificates, if the corporation has not effectuated the
proposed corporate action and remitted payment for shares pursuant to this
chapter, it shall return any certificates that have been deposited, and
release uncertificated shares from any transfer restriction imposed by
reason of the demand for payment.
If uncertificated shares have been released from transfer
restrictions, and deposited certificates have been returned, the
corporation may at any later time send a new notice conforming to the
requirements of <Section> 47-6-43 with like effect.
47-6-46. REMITTANCE OF PAYMENT TO DISSENTING SHAREHOLDERS - INFORMATION TO
ACCOMPANY REMITTANCE.
Immediately upon effectuation of the proposed corporate action, or
upon receipt of demand for payment if the corporate action has already been
effectuated, the corporation shall remit to dissenters who have made demand
and, if their shares are certificated, have deposited their certificates
the amount which the corporation estimates to be the fair value of the
shares, with interest if any has accrued. The remittance shall be
accompanied by:
(1) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than sixteen months before the date of
remittance, together with the latest available interim financial
statements;
(2) A statement of the corporation's estimate of fair value of the
shares; and
(3) A notice of the dissenter's right to demand supplemental payment,
accompanied by a copy of <Sections> 47-6-23 to 47-6-23.3, inclusive, and
<Sections> 47-6-40 to 47-6-50, inclusive.
47-6-47. DEMAND FOR DEFICIENCY - FAILURE TO DEMAND AS WAIVER.
If the corporation fails to remit as required by <Section> 47-6-46 or
if the dissenter believes that the amount remitted is less than the fair
value of his shares, or that the interest is not correctly determined, he
may send the corporation his own estimate of the value of the shares or of
the interest and demand payment of the deficiency.
If the dissenter does not file such an estimate within thirty days
after the corporation's mailing of its remittance, he shall be entitled to
no more than the amount remitted.
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<PAGE>
47-6-48. PETITION FOR JUDICIAL DETERMINATION OF VALUE OF SHARES - PARTIES
- PROCEDURE - EFFECT OF FAILURE TO FILE.
Within sixty days after receiving a demand for payment pursuant to
<Section> 47-6-47, if any such demands for payment remained unsettled, the
corporation shall file in an appropriate court a petition requesting that
the fair value of the shares and interest thereon be determined by the
court.
An appropriate court shall be a court of competent jurisdiction in the
county of this state where the registered office of the corporation is
located. If, in the case of a merger or consolidation or exchange of
shares, the corporation is a foreign corporation without a registered
office in this state the petition shall be filed in the county where the
registered office of the domestic corporation was last located.
All dissenters, wherever residing, whose demands have not been settled
shall be made parties to the proceeding as in an action against their
shares. A copy of the petition shall be served on each such dissenter; if
a dissenter is a nonresident, the copy may be served on him by registered
or certified mail or by publication as provided by law.
The jurisdiction of the court shall be plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall
have such power and authority as shall be specified in the order of their
appointment or in any amendment thereof. The dissenters shall be entitled
to discovery in the same manner as parties in other civil suits.
All dissenters who are made parties shall be entitled, after a hearing
without a jury, to judgment for the amount by which the fair value of their
shares is found to exceed the amount previously remitted with interest.
If the corporation fails to file a petition as provided in this
section, each dissenter who made a demand and who has not already settled
his claim against the corporation shall be paid by the corporation the
amount demanded by him with interest, and may sue therefor in an
appropriate court.
47-6-49. ASSESSMENT OF COSTS AND EXPENSES OF ACTION.
The costs and expenses of any proceeding under <Section> 47-6-48,
including the reasonable compensation and expenses of appraisers appointed
by the court, shall be determined by the court and assessed against the
corporation, except that any part of the costs and expenses may be
apportioned and assessed as the court considers equitable against all or
some of the dissenters who are parties and whose action in demanding
supplemental payment the court finds to be arbitrary, vexatious, or not in
good faith.
Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court considers equitable against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this section, and may be assessed
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against either the corporation or a dissenter in favor of any other party,
if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith in respect to
the rights provided by <Sections> 47-6-23 to 47-6-23.3, inclusive, and
<Sections> 47-6-40 to 47-6-50, inclusive.
If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and should
not be assessed against the corporation it may award to these counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who
were benefited.
47-6-50. VALUE OF SHARES NOT BENEFICIALLY OWNED BY DISSENTER ON DATE OF
FIRST ANNOUNCEMENT.
Notwithstanding <Sections> 47-6-40 to 47-6-49, inclusive, the
corporation may elect to withhold the remittance required by <Section> 47-
6-46 from any dissenter with respect to shares of which the dissenter or
the person on whose behalf the dissenter acts was not the beneficial owner
on the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action. With respect to such shares,
the corporation shall, upon effectuating the corporate action, state to
each dissenter its estimate of the fair value of the shares, state the rate
of interest to be used, explaining the basis thereof, and offer to pay the
resulting amounts on receiving the dissenter's agreement to accept them in
full satisfaction.
If the dissenter believes that the amount offered is less than the
fair value of the shares and interest determined according to this section,
he may within thirty days after the date of mailing of the corporation's
offer, mail the corporation his own estimate of fair value and interest,
and demand their payment. If the dissenter fails to do so, he shall be
entitled to no more than the corporation's offer.
If the dissenter makes a demand as provided herein the provisions of
<Sections> 47-6-48 and 47-6-49 shall apply to further proceedings on the
dissenter's demand.
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<PAGE>
APPENDIX I
DAKOTA TELECOMMUNICATIONS GROUP, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1
ESTABLISHMENT OF PLAN; PURPOSE OF PLAN
1.1 ESTABLISHMENT OF PLAN. The Corporation hereby establishes the
1997 STOCK INCENTIVE PLAN (the "Plan") for its directors, corporate,
divisional and Subsidiary officers and other key employees. The Plan
permits the grant and award of Stock Options, Stock Appreciation Rights,
Restricted Stock, Stock Awards and Tax Benefit Rights.
1.2 PURPOSE OF PLAN. The purpose of the Plan is to provide
directors, officers and key management employees of the Corporation, its
divisions and its Subsidiaries with an increased incentive to make
significant and extraordinary contributions to the long-term performance
and growth of the Corporation and its Subsidiaries, to join the interests
of directors, officers and key employees with the interests of the
Corporation's shareholders through the opportunity for increased stock
ownership and to attract and retain officers and key employees of
exceptional abilities. The Plan is further intended to provide flexibility
to the Corporation in structuring long-term incentive compensation to best
promote the foregoing objectives.
SECTION 2
DEFINITIONS
The following words have the following meanings unless a
different meaning is plainly required by the context:
2.1 "Act" means the Securities Exchange Act of 1934, as amended.
2.2 "Board" means the Board of Directors of the Corporation.
2.3 "Change in Control" means (a) the failure of the Continuing
Directors at any time to constitute at least a majority of the
members of the Board; (b) the acquisition by any Person other
than an Excluded Holder of beneficial ownership (within the
meaning of Rule 13d-3 issued under the Act) of 20% or more of the
outstanding Common Stock or the combined voting power of the
Corporation's outstanding securities entitled to vote generally
in the election of directors; (c) the approval by the
shareholders of the Corporation of a reorganization, merger or
consolidation, unless with or into a Permitted Successor; or
<PAGE>
(d) the approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation or the
sale or disposition of all or substantially all of the assets of
the Corporation other than to a Permitted Successor.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the Compensation Committee of the Board or such
other committee as the Board shall designate to administer the
Plan. The Committee shall consist of at least two members of the
Board and all of its members shall be "Non-Employee Directors" as
defined in Rule 16b-3 issued under the Act.
2.6 "Common Stock" means the Common Stock of the Corporation, no par
value.
2.7 "Corporation" means Dakota Telecommunications Group, Inc. and its
successors and assigns.
2.8 "Continuing Directors" mean the individuals constituting the
Board as of the date this Plan was adopted and any subsequent
directors whose election or nomination for election by the
Corporation's shareholders was approved by a vote of two-thirds
of the individuals who are then Continuing Directors, but
specifically excluding any individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as the term is used in Rule 14a-11 of
Regulation 14A issued under the Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board.
2.9 "Employee Benefit Plan" means any plan or program established by
the Corporation or a Subsidiary for the compensation or benefit
of employees of the Corporation or any of its Subsidiaries.
2.10 "Excluded Holder" means (a) any Person who at the time this Plan
was adopted was the beneficial owner of 20% or more of the
outstanding Common Stock; or (b) the Corporation, a Subsidiary or
any Employee Benefit Plan of the Corporation or a Subsidiary or
any trust holding Common Stock or other securities pursuant to
the terms of an Employee Benefit Plan.
2.11 "Incentive Award" means the award or grant of a Stock Option,
Stock Appreciation Right, Restricted Stock, Stock Award or Tax
Benefit Right to a Participant pursuant to the Plan.
2.12 "Market Value" shall have the following meanings. If Common
Stock is listed for trading on The Nasdaq Stock Market (or any
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successor exchange that is the primary stock exchange for trading
of Common Stock), "Market Value" shall equal the mean of the
highest and lowest sales prices of shares of Common Stock
reported on The Nasdaq Stock Market (or any successor exchange
that is the primary stock exchange for trading of Common Stock)
on the date of grant, or if The Nasdaq Stock Market (or any such
successor) is closed on that date, the last preceding date on
which The Nasdaq Stock Market (or any such successor) was open
for trading and on which shares of Common Stock were traded. If
Common Stock is not listed on The Nasdaq Stock Market, "Market
Value" of Common Stock shall be an amount determined by the
Committee, in its discretion.
2.13 "Participant" means a corporate officer, divisional officer or
any key employee of the Corporation, its divisions or its
Subsidiaries who the Committee determines is eligible to
participate in the Plan and who is designated to be granted an
Incentive Award under the Plan.
2.14 "Permitted Successor" means a corporation which, immediately
following the consummation of a transaction specified in clauses
(c) and (d) of the definition of "Change in Control" above,
satisfies each of the following criteria: (a) 60% or more of the
outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation
entitled to vote generally in the election of directors (in each
case determined immediately following the consummation of the
applicable transaction) is beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were
the beneficial owners of the Corporation's outstanding Common
Stock and outstanding securities entitled to vote generally in
the election of directors (respectively) immediately prior to the
applicable transaction; (b) no Person other than an Excluded
Holder beneficially owns, directly or indirectly, 20% or more of
the outstanding common stock of the corporation or the combined
voting power of the outstanding securities of the corporation
entitled to vote generally in the election of directors (for
these purposes the term Excluded Holder shall include the
corporation, any Subsidiary of the corporation and any Employee
Benefit Plan of the corporation or any such Subsidiary or any
trust holding common stock or other securities of the corporation
pursuant to the terms of any such Employee Benefit Plan); and (c)
at least a majority of the board of directors is comprised of
Continuing Directors.
2.15 "Person" has the same meaning as set forth in Sections 13(d) and
14(d)(2) of the Act.
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2.16 "Restricted Period" means the period of time during which
Restricted Stock awarded under the Plan is subject to
restrictions. The Restricted Period may differ among
Participants and may have different expiration dates with respect
to shares of Common Stock covered by the same Incentive Award.
2.17 "Restricted Stock" means Common Stock awarded to a Participant
pursuant to Section 7 of the Plan.
2.18 "Retirement" means the voluntary termination of all employment by
a Participant, or the voluntary termination of a Participant as a
director of the Corporation (as applicable), after the
Participant has attained 62 years of age, or such other age as
shall be determined by the Committee in its sole discretion or as
otherwise may be set forth in the Incentive Award agreement or
other grant document with respect to a Participant and a
particular Incentive Award.
2.19 "Stock Appreciation Right" means any right granted to a
Participant pursuant to Section 6 of the Plan.
2.20 "Stock Award" means an award of Common Stock awarded to a
Participant pursuant to Section 8 of the Plan.
2.21 "Stock Option" means the right to purchase Common Stock at a
stated price for a specified period of time. For purposes of the
Plan, a Stock Option may be either an incentive stock option
within the meaning of Section 422(b) of the Code or a
nonqualified stock option.
2.22 "Subsidiary" means any corporation or other entity of which 50%
or more of the outstanding voting stock or voting ownership
interest is directly or indirectly owned or controlled by the
Corporation or by one or more Subsidiaries of the Corporation.
2.23 "Tax Benefit Right" means any right granted to a Participant
pursuant to Section 9 of the Plan.
SECTION 3
ADMINISTRATION
3.1 POWER AND AUTHORITY. The Committee shall administer the Plan,
shall have full power and authority to interpret the provisions of the Plan
and Incentive Awards granted under the Plan and shall have full power and
authority to supervise the administration of the Plan and Incentive Awards
granted under the Plan. All determinations, interpretations and selections
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made by the Committee regarding the Plan shall be final and conclusive.
The Committee shall hold its meetings at such times and places as it deems
advisable. Action may be taken by a written instrument signed by a
majority of the members of the Committee and any action so taken shall be
fully as effective as if it had been taken at a meeting duly called and
held. The Committee shall make such rules and regulations for the conduct
of its business as it deems advisable. The members of the Committee shall
not be paid any additional fees for their services.
3.2 GRANTS OR AWARDS TO PARTICIPANTS. In accordance with and subject
to the provisions of the Plan, the Committee shall have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as are consistent with the terms of the Plan,
including, without limitation, the following: (a) the persons who shall be
selected as Participants; (b) the nature and the extent of the Incentive
Awards to be made to each Participant (including the number of shares of
Common Stock to be subject to each Incentive Award, any exercise price, the
manner in which an Incentive Award will vest or become exercisable and the
form of payment for the Incentive Award); (c) the time or times when
Incentive Awards will be granted; (d) the duration of each Incentive Award;
and (e) the restrictions and other conditions to which payment or vesting
of Incentive Awards may be subject.
3.3 AMENDMENTS OR MODIFICATIONS OF AWARDS. The Committee shall have
the authority to amend or modify the terms of any outstanding Incentive
Award in any manner, provided that the amended or modified terms are not
prohibited by the Plan as then in effect, including, without limitation,
the authority to: (a) modify the number of shares or other terms and
conditions of an Incentive Award; (b) extend the term of an Incentive
Award; (c) accelerate the exercisability or vesting or otherwise terminate
any restrictions relating to an Incentive Award; (d) accept the surrender
of any outstanding Incentive Award; and (e) to the extent not previously
exercised or vested, authorize the grant of new Incentive Awards in
substitution for surrendered Incentive Awards. Notwithstanding the
foregoing or any other provision of the Plan, the terms of Stock Options
automatically granted to nonemployee directors under the Plan shall not be
amended or modified without the approval of the Board, except as necessary
or desirable to comply with applicable laws, rules and regulations.
3.4 INDEMNIFICATION OF COMMITTEE MEMBERS. Each person who is or
shall have been a member of the Committee shall be indemnified and held
harmless by the Corporation from and against any cost, liability or expense
imposed or incurred in connection with such person's or the Committee's
taking or failing to take any action under the Plan. Each such person
shall be justified in relying on information furnished in connection with
the Plan's administration by any appropriate person or persons.
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SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
4.3 of the Plan, a maximum of one hundred seventy-five thousand (175,000)
shares of Common Stock shall be available for Incentive Awards under the
Plan. Such shares shall be authorized and may be either unissued or
treasury shares.
4.2 ADJUSTMENTS. If the number of shares of Common Stock outstanding
changes by reason of a stock dividend, stock split, recapitalization,
merger, consolidation, combination, exchange of shares or any other change
in the corporate structure or shares of the Corporation, the number and
kind of securities subject to and reserved under the Plan, together with
applicable exercise prices, shall be appropriately adjusted. No fractional
shares shall be issued pursuant to the Plan and any fractional shares
resulting from adjustments shall be eliminated from the respective
Incentive Awards, with an appropriate cash adjustment for the value of any
Incentive Awards eliminated. If an Incentive Award is canceled,
surrendered, modified, exchanged for a substitute Incentive Award or
expires or terminates during the term of the Plan but prior to the exercise
or vesting of the Incentive Award in full, the shares subject to but not
delivered under such Incentive Award shall be available for other Incentive
Awards. If shares subject to and otherwise deliverable upon the exercise
of an Incentive Award are surrendered to the Corporation in connection with
the exercise or vesting of an Incentive Award, the surrendered shares
subject to the Incentive Award shall be available for other Incentive
Awards.
SECTION 5
STOCK OPTIONS
5.1 GRANT. A Participant may be granted one or more Stock Options
under the Plan. The Committee, in its discretion, may provide in the
initial grant of a Stock Option for the subsequent automatic grant of
additional Stock Options for the number of shares, if any, that are subject
to the initial Stock Option and surrendered to the Corporation in
connection with the exercise of the initial or any subsequently granted
Stock Option. Stock Options shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by
the Committee in its sole discretion. In addition, the Committee may vary,
among Participants and among Stock Options granted to the same Participant,
any and all of the terms and conditions of the Stock Options granted under
the Plan. The Committee shall have complete discretion in determining the
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number of Stock Options granted to each Participant. The Committee may
designate whether or not a Stock Option is to be considered an incentive
stock option as defined in Section 422(b) of the Code.
5.2 GRANTS TO NONEMPLOYEE DIRECTORS. All nonemployee directors who
are serving on the applicable date shall automatically receive semi-
annually, on June 30 and December 31 of each year, a Stock Option to
purchase 200 shares of Common Stock at 100% of the Market Value on the date
of grant. Such Stock Options shall be issued for a term of 10 years using
a form of agreement substantially similar to the standard form of Stock
Option agreement established by the Committee for executive officer
Participants, adjusted as necessary due to the recipient's status as a
nonemployee director. These formula grant provisions for nonemployee
directors may be amended by the Board of Directors not more than once every
six months, other than to comply with changes to the Code, the Act or the
rules thereunder. Nonemployee directors may pay the exercise price in any
manner permitted for exercises by other Participants. Stock Options
granted to nonemployee directors of the Company shall not qualify as
incentive stock options.
5.3 STOCK OPTION AGREEMENTS. Stock Options shall be evidenced by
stock option agreements containing such terms and conditions, consistent
with the provisions of the Plan, as the Committee shall from time to time
determine. To the extent not covered by the stock option agreement, the
terms and conditions of this Section 5 shall govern.
5.4 STOCK OPTION PRICE. The per share Stock Option price shall be
determined by the Committee, but shall be a price that is equal to or
higher than the par value of the Corporation's Common Stock; provided, that
the per share Stock Option price for any shares designated as incentive
stock options shall be equal to or greater than 100% of the Market Value on
the date of grant.
5.5 MEDIUM AND TIME OF PAYMENT. The exercise price for each share
purchased pursuant to a Stock Option granted under the Plan shall be
payable in cash or, if the Committee consents, in shares of Common Stock
(including Common Stock to be received upon a simultaneous exercise) or
other consideration substantially equivalent to cash. The time and terms
of payment may be amended with the consent of a Participant before or after
exercise of a Stock Option. The Committee may from time to time authorize
payment of all or a portion of the Stock Option price in the form of a
promissory note or other deferred payment installments according to such
terms as the Committee may approve. The Board may restrict or suspend the
power of the Committee to permit such loans and may require that adequate
security be provided.
5.6 STOCK OPTIONS GRANTED TO TEN PERCENT SHAREHOLDERS. No Stock
Option granted to any Participant who at the time of such grant owns,
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together with stock attributed to such Participant under Section 424(d) of
the Code, more than 10% of the total combined voting power of all classes
of stock of the Corporation or any of its Subsidiaries may be designated as
an incentive stock option, unless such Stock Option provides an exercise
price equal to at least 110% of the Market Value of the Common Stock and
the exercise of the Stock Option after the expiration of 5 years from the
date of grant of the Stock Option is prohibited by its terms.
5.7 LIMITS ON EXERCISABILITY. Stock Options shall be exercisable for
such periods, not to exceed 10 years from the date of grant, as may be
fixed by the Committee. At the time of the exercise of a Stock Option, the
holder of the Stock Option, if requested by the Committee, must represent
to the Corporation that the shares are being acquired for investment and
not with a view to the distribution thereof. The Committee may in its
discretion require a Participant to continue the Participant's service with
the Corporation and its Subsidiaries for a certain length of time prior to
a Stock Option becoming exercisable and may eliminate such delayed vesting
provisions.
5.8 RESTRICTIONS ON TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents
(before or after the option grant) or unless the stock option
agreement or grant provides otherwise; (i) no incentive stock
option granted under the Plan may be sold, exchanged,
transferred, pledged, assigned or otherwise alienated or
hypothecated except by will or the laws of descent and
distribution; and (ii) all Stock Options that are not incentive
stock options may be transferred; PROVIDED, that as a condition
to any such transfer the transferee must execute a written
agreement permitting the Corporation to withhold from the shares
subject to the Incentive Award a number of shares having a Market
Value at least equal to the amount of any federal, state or local
withholding or other taxes associated with or resulting from the
exercise of a Stock Option.
(b) OTHER RESTRICTIONS. The Committee may impose other
restrictions on any shares of Common Stock acquired pursuant to
the exercise of a Stock Option under the Plan as the Committee
deems advisable, including, without limitation, restrictions
under applicable federal or state securities laws.
5.9 TERMINATION OF EMPLOYMENT OR DIRECTOR OR OFFICER STATUS.
(a) GENERAL. If a Participant ceases to be employed by or
an officer of the Corporation or one of its Subsidiaries for any
reason or if a director ceases to serve as a director of the
Corporation for any reason, other than the Participant's or
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director's death, disability, Retirement or termination for
cause, the Participant or director may exercise his Stock Options
only for a period of 3 months after such termination of
employment or director or officer status, but only to the extent
the Participant or director was entitled to exercise the Stock
Options on the date of termination, unless the Committee
otherwise consents or the terms of the stock option agreement or
grant provide otherwise. For purposes of the Plan, the following
shall not be deemed a termination of employment or director or
officer status: (i) a transfer of an employee from the
Corporation to any Subsidiary; (ii) a leave of absence, duly
authorized in writing by the Corporation, for military service or
for any other purpose approved by the Corporation if the period
of such leave does not exceed 90 days; (iii) a leave of absence
in excess of 90 days, duly authorized in writing by the
Corporation, provided that the employee's right to reemployment
is guaranteed either by statute or contract; or (iv) a
termination of employment with continued service as an officer.
(b) DEATH. If a Participant dies either while an employee
or officer of the Corporation or one of its Subsidiaries or after
the termination of employment other than for cause but during the
time when the Participant could have exercised a Stock Option
under the Plan, or if a director dies while serving as a director
of the Corporation or after ceasing to be a director but during
such time as the director or former director could have exercised
a Stock Option under the Plan, the Stock Option issued to such
Participant, director or former director shall be exercisable by
the personal representative of such Participant, director or
former director or other successor to the interest of the
Participant, director or former director for 1 year after the
Participant's, director's or former director's death, but only to
the extent that the Participant, director or former director was
entitled to exercise the Stock Option on the date of death or
termination of employment or status as a director, whichever
first occurred, unless the Committee otherwise consents or the
terms of the stock option agreement or grant provide otherwise.
(c) DISABILITY. If a Participant ceases to be an employee
or officer of the Corporation or one of its Subsidiaries, or a
director ceases to be a director, due to the Participant's or
director's disability, the Participant or director may exercise a
Stock Option for a period of 1 year following such termination of
employment or director status, but only to the extent that the
Participant or director was entitled to exercise the Stock Option
on the date of such event, unless the Committee otherwise
consents or the terms of the Stock Option agreement or grant
provide otherwise.
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(d) PARTICIPANT RETIREMENT. If a Participant Retires as an
employee or officer of the Corporation or one of its Subsidiaries
or if a director retires, any Stock Option granted under the Plan
may be exercised during the remaining term of the Stock Option,
unless the terms of the stock option agreement or grant provide
otherwise.
(e) TERMINATION FOR CAUSE. If a Participant is terminated
for cause, the Participant shall have no further right to
exercise any Stock Option previously granted, unless the
Committee and the Board determine otherwise.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 GRANT. A Participant may be granted one or more Stock
Appreciation Rights under the Plan and such Stock Appreciation Rights shall
be subject to such terms and conditions, consistent with the other
provisions of the Plan, as shall be determined by the Committee in its sole
discretion. A Stock Appreciation Rights may relate to a particular Stock
Option and may be granted simultaneously with or subsequent to the Stock
Option to which it relates. Stock Appreciation Rights shall be subject to
the same restrictions and conditions as Stock Options under subsections
5.6, 5.7 and 5.8 of the Plan. To the extent granted in tandem with a Stock
Option, the exercise of a Stock Appreciation Right shall, in exchange for
the right to exercise a related Stock Option, entitle a Participant to an
amount equal to the appreciation in value of the shares covered by the
related Stock Option surrendered. Such appreciation in value shall be
equal to the excess of the Market Value of such shares at the time of the
exercise of the Stock Appreciation Right over the option price of such
shares.
6.2 EXERCISE; PAYMENT. To the extent granted in tandem with a Stock
Option, Stock Appreciation Rights may be exercised only when a related
Stock option could be exercised and only when the Market Value of the stock
subject to the Stock Option exceeds the exercise price of the Stock Option.
The Committee shall have discretion to determine the form of payment made
upon the exercise of a Stock Appreciation Right, which could take the form
of shares of Common Stock.
SECTION 7
RESTRICTED STOCK
7.1 GRANT. A Participant may be granted Restricted Stock under the
Plan. Restricted Stock shall be subject to such terms and conditions,
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consistent with the other provisions of the Plan, as shall be determined by
the Committee in its sole discretion. The Committee may impose such
restrictions or conditions, consistent with the provisions of the Plan, to
the vesting of Restricted Stock as it deems appropriate.
7.2 TERMINATION OF EMPLOYMENT OR OFFICER STATUS.
(a) GENERAL. In the event of termination of employment or
officer status during the Restricted Period for any reason other
than death, disability, Retirement or termination for cause, then
any shares of Restricted Stock still subject to restrictions at
the date of such termination shall automatically be forfeited and
returned to the Corporation; PROVIDED, that in the event of a
voluntary or involuntary termination of the employment or officer
status of a Participant by the Corporation, the Committee may, in
its sole discretion, waive the automatic forfeiture of any or all
such shares of Restricted Stock and/or may add such new
restrictions to such shares of Restricted Stock as it deems
appropriate. For purposes of the Plan, the following shall not
be considered a termination of employment or officer status: (i)
a transfer of an employee from the Corporation to any Subsidiary;
(ii) a leave of absence, duly authorized in writing by the
Corporation, for military service or for any other purpose
approved by the Corporation if the period of such leave does not
exceed 90 days; (iii) a leave of absence in excess of 90 days
duly authorized in writing by the Corporation, provided that the
employee's right to reemployment is guaranteed either by statute
or contract; and (iv) a termination of employment with continued
service as an officer.
(b) DEATH, RETIREMENT OR DISABILITY. Unless the Committee
otherwise consents or unless the terms of the restricted stock
agreement or grant provide otherwise, in the event a Participant
terminates his employment with the Corporation because of death,
disability or Retirement during the Restricted Period, the
restrictions applicable to the shares of Restricted Stock shall
terminate automatically with respect to that number of shares
(rounded to the nearest whole number) equal to the total number
of shares of Restricted Stock granted to such Participant
multiplied by the number of full months that have elapsed since
the date of gant divided by the maximum number of full months of
the Restricted Period. All remaining shares shall be forfeited
and returned to the Corporation; PROVIDED, that the Committee
may, in its sole discretion, waive the restrictions remaining on
any or all such remaining shares of Restricted Stock either
before or after the death, disability or Retirement of the
Participant.
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(c) TERMINATION FOR CAUSE. If a Participant's employment
is terminated for cause, the Participant shall have no further
right to exercise or receive any Restricted Stock and all
Restricted Stock still subject to restrictions at the date of
such termination shall automatically be forfeited and returned to
the Corporation, unless the Committee and the Board determine
otherwise.
7.3 RESTRICTIONS ON TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents or
unless the terms of the restricted stock agreement or grant
provide otherwise: (i) shares of Restricted Stock shall not be
sold, exchanged, transferred, pledged, assigned or otherwise
alienated or hypothecated during the Restricted Period except by
will or the laws of descent and distribution; and (ii) all rights
with respect to Restricted Stock granted to a Participant under
the Plan shall be exercisable during the Participant's lifetime
only by such Participant, his guardian or legal representative.
(b) OTHER RESTRICTIONS. The Committee may impose other
restrictions on any shares of Common Stock acquired pursuant to
an award of Restricted Stock under the Plan as the Committee
deems advisable, including, without limitation, restrictions
under applicable federal or state securities laws.
7.4 LEGENDING OF RESTRICTED STOCK. Any certificates evidencing
shares of Restricted Stock awarded pursuant to the Plan shall bear the
following legend:
The shares represented by this certificate were issued
subject to certain restrictions under the Dakota
Telecommunications Group, Inc. 1997 Stock Incentive Plan (the
"Plan"). A copy of the Plan is on file in the office of the
Secretary of the Corporation. This certificate is held subject
to the terms and conditions contained in a restricted stock
agreement that includes a prohibition against the sale or
transfer of the stock represented by this certificate except in
compliance with that agreement and that provides for forfeiture
upon certain events.
7.5 REPRESENTATIONS AND WARRANTIES. A Participant who is awarded
Restricted Stock shall represent and warrant that the Participant is
acquiring the Restricted Stock for the Participant's own account and
investment and without any intention to resell or redistribute the
Restricted Stock. The Participant shall agree not to resell or distribute
such Restricted Stock after the Restricted Period except upon such
conditions as the Corporation may reasonably specify to ensure compliance
with federal and state securities laws.
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7.6 RIGHTS AS A SHAREHOLDER. A Participant shall have all voting,
dividend, liquidation and other rights with respect to Restricted Stock
held of record by such Participant as if the Participant held unrestricted
Common Stock; PROVIDED, that the unvested portion of any award of
Restricted Stock shall be subject to any restrictions on transferability or
risks of forfeiture imposed pursuant to Sections 7.2 and 7.3 of the Plan.
Unless the Committee otherwise determines or unless the terms of the
restricted stock agreement or grant provide otherwise, any noncash
dividends or distributions paid with respect to shares of unvested
Restricted Stock shall be subject to the same restrictions as the shares to
which such dividends or distributions relate.
SECTION 8
STOCK AWARDS
8.1 GRANT. A Participant may be granted one or more Stock Awards
under the Plan in lieu of, or as payment for, the rights of a Participant
under any other compensation plan, policy or program of the Corporation or
its Subsidiaries. Stock Awards shall be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion.
8.2 RIGHTS AS A SHAREHOLDER. A Participant shall have all voting,
dividend, liquidation and other rights with respect to shares of Common
Stock issued to the Participant as a Stock Award under this Section 8 upon
the Participant becoming the holder of record of the Common Stock granted
pursuant to such Stock Awards; provided, that the Committee may impose such
restrictions on the assignment or transfer of Common Stock awarded pursuant
to a Stock Award as it deems appropriate.
SECTION 9
TAX BENEFIT RIGHTS
9.1 GRANT. A Participant may be granted Tax Benefit Rights under the
Plan to encourage a Participant to exercise Stock Options and provide
certain tax benefits to the Corporation. A Tax Benefit Right entitles a
Participant to receive from the Corporation or a Subsidiary a cash payment
not to exceed the amount calculated by multiplying the ordinary income, if
any, realized by the Participant for federal tax purposes as a result of
the exercise of a nonqualified stock option, or the disqualifying
disposition of shares acquired under an incentive stock option, by the
maximum federal income tax rate (including any surtax or similar charge or
assessment) for corporations, plus the applicable state and local tax
imposed on the exercise of the Stock Option or the disqualifying
disposition.
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9.2 RESTRICTIONS. A Tax Benefit Right may be granted only with
respect to a Stock Option issued and outstanding or to be issued under the
Plan or any other plan of the Corporation or its Subsidiaries that has been
approved by the shareholders as of the date of the Plan and may be granted
concurrently with or after the grant of the Stock Option. Such rights with
respect to outstanding Stock Options shall be issued only with the consent
of the Participant if the effect would be to disqualify an incentive stock
option, change the date of grant or the exercise price or otherwise impair
the Participant's existing Stock Options.
9.3 TERMS AND CONDITIONS. The Committee shall determine the terms
and conditions of any Tax Benefit Rights granted and the Participants to
whom such rights will be granted with respect to Stock Options under the
Plan or any other plan of the Corporation. The Committee may amend,
cancel, limit the term of or limit the amount payable under a Tax Benefit
Right at any time prior to the exercise of the related Stock Option, unless
otherwise provided under the terms of the Tax Benefit Right. The net
amount of a Tax Benefit Right, subject to withholding, may be used to pay a
portion of the Stock Option price, unless otherwise provided by the
Committee.
SECTION 10
CHANGE IN CONTROL
10.1 ACCELERATION OF VESTING. If a Change in Control of the
Corporation shall occur, then, unless the Committee or the Board otherwise
determines with respect to one or more Incentive Awards, without action by
the Committee or the Board: (a) all outstanding Stock Options shall become
immediately exercisable in full and shall remain exercisable during the
remaining term thereof, regardless of whether the Participants to whom such
Stock Options have been granted remain in the employ or service of the
Corporation or any Subsidiary; and (b) all other outstanding Incentive
Awards shall become immediately fully vested and nonforfeitable.
10.2 CASH PAYMENT FOR STOCK OPTIONS. If a Change in Control of the
Corporation shall occur, then the Committee, in its sole discretion, and
without the consent of any Participant affected thereby, may determine that
some or all Participants holding outstanding Stock Options shall receive,
with respect to some or all of the shares of Common Stock subject to such
Stock Options, as of the effective date of any such Change in Control of
the Corporation, cash in an amount equal to the greater of the excess of
(a) the highest sales price of the shares on The Nasdaq Stock Market on the
date immediately prior to the effective date of such Change in Control of
the Corporation or (b) the highest price per share actually paid in
connection with any Change in Control of the Corporation over the exercise
price per share of such Stock Options.
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SECTION 11
GENERAL PROVISIONS
11.1 NO RIGHTS TO AWARDS. No Participant or other person shall have
any claim to be granted any Incentive Award under the Plan and there is no
obligation of uniformity of treatment of Participants or holders or
beneficiaries of Incentive Awards under the Plan. The terms and conditions
of Incentive Awards of the same type and the determination of the Committee
to grant a waiver or modification of any Incentive Award and the terms and
conditions thereof need not be the same with respect to each Participant.
11.2 WITHHOLDING. The Corporation or a Subsidiary shall be entitled
to: (a) withhold and deduct from future wages of a Participant (or from
other amounts that may be due and owing to a Participant from the
Corporation or a Subsidiary), or make other arrangements for the collection
of, all legally required amounts necessary to satisfy any and all federal,
state and local withholding and employment-related tax requirements
attributable to an Incentive Award, including, without limitation, the
grant, exercise or vesting of, or payment of dividends with respect to, an
Incentive Award or a disqualifying disposition of Common Stock received
upon exercise of an incentive stock option; or (b) require a Participant
promptly to remit the amount of such withholding to the Corporation before
taking any action with respect to an Incentive Award. Unless the Committee
determines otherwise, withholding may be satisfied by withholding Common
Stock to be received upon exercise or by delivery to the Corporation of
previously owned Common Stock. The Corporation may establish such rules
and procedures concerning timing of any withholding election as it deems
appropriate to comply with Rule 16b-3 under the Act.
11.3 COMPLIANCE WITH LAWS; LISTING AND REGISTRATION OF SHARES. All
Incentive Awards granted under the Plan (and all issuances of Common Stock
or other securities under the Plan) shall be subject to all applicable
laws, rules and regulations, and to the requirement that if at any time the
Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares covered thereby upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the grant of such Incentive Award or
the issue or purchase of shares thereunder, such Incentive Award may not be
exercised in whole or in part, or the restrictions on such Incentive Award
shall not lapse, unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
11.4 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Corporation or any Subsidiary from adopting
or continuing in effect other or additional compensation arrangements,
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including the grant of stock options and other stock-based awards, and such
arrangements may be either generally applicable or applicable only in
specific cases.
11.5 NO RIGHT TO EMPLOYMENT. The grant of an Incentive Award shall
not be construed as giving a Participant the right to be retained in the
employ of the Corporation or any Subsidiary. The Corporation or any
Subsidiary may at any time dismiss a Participant from employment, free from
any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any written agreement with a Participant.
11.6 GOVERNING LAW. The validity, construction and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of South Dakota and applicable
federal law.
11.7 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of the Plan and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.
SECTION 12
TERMINATION AND AMENDMENT
The Board may terminate the Plan at any time, or may from time to
time amend the Plan as it deems proper and in the best interests of the
Corporation, provided that no such amendment may impair any outstanding
Incentive Award without the consent of the Participant, except according to
the terms of the Plan or the Incentive Award. No termination, amendment or
modification of the Plan shall become effective with respect to any
Incentive Award previously granted under the Plan without the prior written
consent of the Participant holding such Incentive Award unless such
amendment or modification operates solely to the benefit of the
Participant.
SECTION 13
EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall take effect [Effective Date of
Conversion/Merger]. Unless earlier terminated by the Board of Directors,
the Plan shall terminate on [ten years from the Effective Date of
Conversion/Merger]. No Incentive Award shall be granted under the Plan
after such date.
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APPENDIX J
INDEMNITY AGREEMENT
THIS AGREEMENT ("Agreement") is made as of ___________, 1997,
by and between DAKOTA TELECOMMUNICATIONS GROUP, INC., a [South
Dakota/Delaware] corporation (the "Corporation"), and __________________
("Indemnitee").
It is essential to the Corporation to attract and retain as
directors and officers the most capable persons available. The substantial
increase in corporate litigation subjects directors and officers of
publicly-traded companies to expensive litigation risks at the same time
that the availability of economic directors' and officers' liability
insurance has been severely limited. In furtherance of the express policy
of the Corporation to indemnify its directors and officers so as to provide
them with the maximum possible protection permitted by law, and in
consideration of Indemnitee's agreement to serve as a director or officer
of the Corporation, the parties are entering into this Agreement.
ACCORDINGLY, the parties agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement:
(a) "Expenses" means all costs, expenses and obligations paid or
incurred in connection with investigating, litigating, being a witness
in, defending or participating in, or preparing to litigate, defend,
be a witness in or participate in any matter that is the subject of a
Proceeding (as defined below), including attorneys' and accountants'
fees and court costs.
(b) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether
brought by or in the right of the Corporation or otherwise and whether
of a civil, criminal, administrative or investigative nature, in which
Indemnitee may be or may have been involved as a party or otherwise by
reason of the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Corporation, or by reason of any
action taken by Indemnitee or any inaction on Indemnitee's part while
acting as a director, officer, employee, agent or fiduciary of the
Corporation, or by reason of the fact that Indemnitee is or was
serving at the request of the Corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise.
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(c) "Resolution Costs" includes any amount paid in connection
with a Proceeding and in satisfaction of a judgment, fine, penalty or
any amount paid in settlement.
SECTION 2. AGREEMENT TO SERVE. Indemnitee agrees to serve as a
director and/or officer of the Corporation for so long as Indemnitee is
duly elected or appointed or until the tender of Indemnitee's written
resignation.
SECTION 3. INDEMNIFICATION. The indemnification provided under this
Agreement shall be as follows:
(a) The Corporation shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by Indemnitee in connection
with any Proceeding. Additionally, in any Proceeding other than a
Proceeding by or in the right of the Corporation, the Corporation
shall indemnify Indemnitee against all Resolution Costs actually and
reasonably incurred by Indemnitee in connection with the Proceeding.
No indemnification shall be made under this subsection:
(i) with respect to remuneration paid to Indemnitee if it
is determined by a final judgment or other final adjudication
that the remuneration was in violation of law;
(ii) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Corporation
pursuant to the provisions of Section 16 of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state or local law;
(iii) on account of Indemnitee's conduct that is determined
by a final judgment or other final adjudication to have been
knowingly fraudulent, deliberately dishonest or willful
misconduct;
(iv) on account of Indemnitee's conduct that a final
judgment or other final adjudication is determined to have been
in bad faith, in opposition to best interests of the Corporation
or produced an unlawful personal benefit;
(v) with respect to a criminal proceeding if the Indemnitee
knew or reasonably should have known that Indemnitee's conduct
was illegal; or
(vi) if a final decision by a court having jurisdiction in
the matter determines that indemnification under this Agreement
is not lawful.
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(b) In addition to any indemnification provided under Subsection
3(a) above, the Corporation shall indemnify Indemnitee against any
Expenses or Resolution Costs incurred by Indemnitee, regardless of the
nature of the Proceeding that Expenses and/or Resolution Costs were
incurred, if the Expenses or Resolution Costs would have been covered
under any directors' and officers' liability insurance policies in
effect on the effective date of this Agreement or that become
effective on any later date.
(c) In addition to any indemnification provided under
Subsections 3(a) and 3(b) above, the Corporation shall provide
Indemnitee, to the fullest extent allowed by law as now or later
enacted or interpreted, with indemnification against any Expenses
and/or Resolution Costs incurred by Indemnitee in connection with any
Proceeding. To the extent a change in the laws of the State of [South
Dakota/Delaware] (whether by statute or judicial decision) permits
greater indemnification, either by agreement or otherwise, than
presently provided by law or this Agreement, it is the intent of the
parties that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by the change.
(d) Without limiting Indemnitee's right to indemnification under
any other provision of this Agreement, the Corporation shall indemnify
Indemnitee in accordance with the provisions of this subsection if
Indemnitee is a party to or threatened to be made a party to or
otherwise involved in any Proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact
that Indemnitee was or is a director and/or officer of the Corporation
or is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all Expenses actually and
reasonably incurred by Indemnitee and any amounts paid by Indemnitee
in settlement of the Proceeding, but only if Indemnitee acted in good
faith in a manner that Indemnitee reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no
indemnification shall be made under this subsection in respect of any
claim, issue or matter that Indemnitee shall have been adjudged to be
liable to the Corporation in the performance of his duty to the
Corporation, unless and only to the extent that any court in which the
Proceeding was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity, in
which event indemnification shall be limited to expenses actually and
reasonably incurred.
(e) Notwithstanding anything in this Agreement to the contrary,
before a Change in Control (as defined in Section 5 below), Indemnitee
shall not be entitled to indemnification pursuant to this Agreement in
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connection with any Proceeding initiated by Indemnitee against the
Corporation or any director, officer, employee, agent or fiduciary of
the Corporation (in such capacity) unless the Corporation has joined
in or consented to the initiation of the Proceeding.
SECTION 4. PAYMENT OF INDEMNIFICATION.
(a) Expenses incurred by the Indemnitee and subject to
indemnification under Section 3 above shall be paid directly by the
Corporation or reimbursed to the Indemnitee within two (2) days after
the receipt of a written request of the Indemnitee providing that
Indemnitee undertakes to repay any amount paid or advanced under this
Section to the extent that it is ultimately determined that Indemnitee
is not entitled to indemnification under Section 3.
(b) Except as otherwise provided in Section 4(a) above, any
indemnification under Section 3 above shall be made no later than
thirty (30) days after receipt by the Corporation of the written
request of Indemnitee, unless within that 30-day period the Board of
Directors, by a majority vote of a quorum consisting of directors who
are not parties to the Proceeding, determines that the Indemnitee is
not entitled to the indemnification set forth in Section 3 or unless
the Board of Directors refers the Indemnitee's indemnification request
to independent legal counsel. In cases where there are no directors
who are not parties to the Proceeding, the indemnification request
shall be referred to independent legal counsel. If the
indemnification request is referred to independent legal counsel, then
Indemnitee shall be paid no later than forty-five (45) days after
Indemnitee's initial request to the Corporation unless within that
time independent legal counsel presents to the Board of Directors a
written opinion stating in unconditional terms that indemnification is
not allowed under Section 3 of this Agreement. If a Change in Control
occurs and results in individuals who were directors before the
circumstances giving rise to the Change in Control ceasing for any
reason to constitute a majority of the Board of Directors, the above
determination, if any, shall be made by independent legal counsel and
not the Board of Directors. The Corporation agrees to pay the
reasonable fees of the independent legal counsel and to fully
indemnify that counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant to this
Agreement. If there has not been a Change in Control, independent
legal counsel shall be selected by the Board of Directors, and if
there has been a Change in Control, the independent legal counsel
shall be selected by Indemnitee.
(c) The right to indemnification payments as provided by this
Agreement shall be enforceable by Indemnitee in any court of competent
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jurisdiction. The burden of proving that indemnification is not
permitted by this Agreement shall be on the Corporation or on the
person challenging the indemnification. Neither the failure of the
Corporation, including its Board of Directors, to have made a
determination prior to the commencement of any Proceeding that
indemnification is proper, nor an actual determination by the
Corporation, including its Board of Directors or independent legal
counsel, that indemnification is not proper, shall bar an action by
Indemnitee to enforce this Agreement or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement.
If the Board of Directors or independent legal counsel determines in
accordance with Section 4(b) above that Indemnitee would not be
permitted to be indemnified in whole or in part, Indemnitee shall have
the right to commence litigation in any court in the State of South
Dakota having subject matter jurisdiction and that venue is proper
seeking an independent determination by the court or challenging the
determination by the Board of Directors or independent legal counsel,
and the Corporation hereby consents to service of process and to
appear in that Proceeding. Expenses incurred by Indemnitee in
connection with successfully establishing Indemnitee's right to
indemnification, in whole or in part, shall also be reimbursed by the
Corporation.
SECTION 5. ESTABLISHMENT OF TRUST. In the event of a Potential
Change in Control of the Corporation (as defined below), the Corporation
shall, upon written request by Indemnitee, create a trust for the benefit
of the Indemnitee and from time to time upon written request of Indemnitee
shall fund the trust in an amount sufficient to satisfy any and all
Expenses or Resolution Costs that may properly be subject to
indemnification under Section 3 above anticipated at the time of each
request. The amount or amounts to be deposited in the trust pursuant to
this funding obligation shall be determined by a majority vote of a quorum
consisting of directors who are not parties to the Proceeding or the Chief
Executive Officer of the Corporation. If all of those individuals are
parties to the Proceeding, the amount or amounts to be deposited in the
trust shall be determined by independent legal counsel. The terms of the
trust shall provide that upon a Change in Control (i) the trust shall not
be revoked or the principal of the trust fund invaded, without the written
consent of the Indemnitee; (ii) the trustee shall advance, within two (2)
business days of a request by the Indemnitee, any amount properly payable
to Indemnitee under Subsection 4(a) of this Agreement; (iii) the trust
shall continue to be funded by the Corporation in accordance with the
funding obligation set forth above; (iv) the trustee shall promptly pay to
the Indemnitee all amounts that the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise; and (v) all
unexpended funds in the trust shall revert to the Corporation upon a final
determination by a court of competent jurisdiction that the Indemnitee has
been fully indemnified under the terms of this Agreement. The trustee
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shall be chosen by the Indemnitee and shall be a national or state bank
having a combined capital and surplus of not less than $50,000,000. At the
time of each draw from the trust fund, the Indemnitee shall provide the
trustee with a written request providing that Indemnitee undertakes to
repay the amount to the extent that it is ultimately determined that
Indemnitee is not entitled to indemnification. Any funds, including
interest or investment earnings, remaining in the trust fund shall revert
and be paid to the Corporation if (i) a Change in Control has not occurred;
and (ii) if the Board of Directors or the Chief Executive Officer of the
Corporation determines that the circumstances giving rise to that
particular funding of the trust no longer exists. Nothing in this section
shall relieve the Corporation of any of its obligations under this
Agreement.
For purposes of this Agreement, the following definitions shall
apply:
(a) "Change in Control" shall mean (i) the failure of the
Continuing Directors at any time to constitute at least a majority of
the members of the Corporation's Board of Directors; (ii) the
acquisition by any Person (as defined in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Act")) other than an
Excluded Holder of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of twenty percent (20%) or more of
the outstanding Common Stock or the combined voting power of the
Corporation's outstanding securities entitled to vote generally in the
election of directors; (iii) the approval by the shareholders of the
Corporation of a reorganization, merger or consolidation, unless with
or into a Permitted Successor; or (iv) the approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or the sale or disposition of all or
substantially all of the assets of the Corporation other than to a
Permitted Successor.
(b) "Continuing Directors" mean the individuals constituting the
Corporation's Board of Directors as of the date of this Agreement and
any subsequent directors whose election or nomination for election by
the Corporation's shareholders was approved by a vote of two-thirds
(2/3) of the individuals who are then Continuing Directors, but
specifically excluding any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as the term is used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Corporation's Board of Directors.
(c) "Excluded Holder" means the Corporation, a Subsidiary or any
employee benefit plan (i.e., any plan or program established by the
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Corporation or a Subsidiary for the compensation or benefit of
employees of the Corporation or any of its Subsidiaries) of the
Corporation or a Subsidiary or any trust holding Common Stock or other
securities pursuant to the terms of an employee benefit plan.
(d) "Permitted Successor" means a corporation which, immediately
following the consummation of a transaction specified in clauses (iii)
and (iv) of the definition of "Change in Control" above, satisfies
each of the following criteria: (A) sixty percent (60%) or more of
the outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation entitled
to vote generally in the election of directors (in each case
determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Corporation's outstanding Common Stock and outstanding securities
entitled to vote generally in the election of directors (respectively)
immediately prior to the applicable transaction, (B) no Person other
than an Excluded Holder beneficially owns, directly or indirectly,
twenty percent (20%) or more of the outstanding common stock of the
corporation or the combined voting power of the outstanding securities
of the corporation entitled to vote generally in the election of
directors (for these purposes the term Excluded Holder shall include
the corporation, any Subsidiary of the corporation and any employee
benefit plan of the corporation or any such Subsidiary or any trust
holding common stock or other securities of the corporation pursuant
to the terms of any such employee benefit plan), and (C) at least a
majority of the board of directors is comprised of Continuing
Directors.
(e) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization or other entity or governmental body.
(f) A "Potential Change in Control" shall be deemed to have
occurred if (i) the Corporation enters into an agreement, the
consummation of that would result in the occurrence of a Change in
Control; (ii) any person (including the Corporation) publicly
announces an intention to take or to consider taking actions that once
consummated would constitute a Change in Control; or (iii) the Board
of Directors adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred.
(g) "Subsidiary" means any corporation or other entity of which
fifty percent (50%) or more of the outstanding voting stock or voting
ownership interest is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries of the Corporation.
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SECTION 6. PARTIAL INDEMNIFICATION; SUCCESSFUL DEFENSE. If
Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of the Expenses or
Resolution Costs actually and reasonably incurred by Indemnitee but not,
however, for the total amount, the Corporation shall nevertheless indemnify
Indemnitee for the portion of the Expenses or Resolution Costs that
Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all claims relating in whole or in
part to a Proceeding or in defense of any issue or matter in a Proceeding,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection with that Proceeding.
SECTION 7. CONSENT. Unless a Change in Control has occurred, the
Corporation shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding made without
the Corporation's written consent. The Corporation shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Corporation
nor the Indemnitee shall unreasonably withhold their consent to any
proposed settlement.
SECTION 8. SEVERABILITY. If this Agreement or any portion of this
Agreement (including any provision within a single section, subsection or
sentence) shall be held to be invalid, void or otherwise unenforceable on
any ground by any court of competent jurisdiction, the Corporation shall
nevertheless indemnify Indemnitee as to any Expenses or Resolution Costs
with respect to any Proceeding to the full extent permitted by law or any
applicable portion of this Agreement that shall not have been invalidated,
declared void or otherwise held to be unenforceable.
SECTION 9. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification provided by this Agreement shall be in addition to any
other rights that Indemnitee may be entitled under the
[Articles/Certificate] of Incorporation, the Bylaws, any agreement, any
vote of shareholders or disinterested directors, the [South Dakota Business
Corporation Act/Delaware General Corporation Law], or otherwise, both as to
actions in Indemnitee's official capacity and as to actions in another
capacity while holding office.
SECTION 10. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon
a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
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SECTION 11. SUBROGATION. In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent of the payment
to all of the rights of recovery of Indemnitee, who shall execute all
documents required and shall do everything that may be necessary to secure
those rights, including the execution of all documents necessary to enable
the Corporation to effectively bring suit to enforce those rights.
SECTION 12. NO DUPLICATION OF PAYMENTS. The Corporation shall not be
liable under this Agreement to make any payment to the extent Indemnitee
has otherwise actually received payment (under any insurance policy, Bylaw
or otherwise) of the amounts otherwise indemnifiable under this Agreement.
SECTION 13. NOTICE. Indemnitee shall, as a condition precedent to
his right to be indemnified under this Agreement, give to the Corporation
notice in writing as soon as practicable of any claim for which indemnity
will or could be sought under this Agreement. Notice to the Corporation
shall be directed to Dakota Telecommunications Group, Inc., P.O. Box 66,
Highway 46, Irene, South Dakota 57037, Attention: Chairman of the Board,
with a copy to the President (or to any other individual or address that
the Corporation designates in writing to Indemnitee). Notice shall be
deemed received three (3) days after the date postmarked if sent by prepaid
mail properly addressed. In addition, Indemnitee shall give the
Corporation any information and cooperation that it may reasonably require
and is within Indemnitee's power to give.
SECTION 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original, and all
of which taken together shall constitute a single document.
SECTION 15. CONTINUATION OF INDEMNIFICATION. The indemnification
rights provided to Indemnitee under this Agreement, including the right
provided under Subsection 4(a) above, shall continue after Indemnitee has
ceased to be a director, officer, employee, agent or fiduciary of the
Corporation or any other corporation, partnership, joint venture, trust or
other enterprise that Indemnitee served in any of those capacities at the
request of the Corporation.
SECTION 16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Corporation and Indemnitee and their
respective successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation, spouses,
heirs, and personal and legal representatives.
SECTION 17. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of [South
Dakota/Delaware] applicable to contracts made and to be performed in that
State without giving effects to the principles of conflicts of laws.
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SECTION 18. LIABILITY INSURANCE. To the extent the Corporation
maintains an insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by the policy or
policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any officer, employee, agent or fiduciary of the
Corporation.
SECTION 19. PERIOD OF LIMITATIONS. No legal action shall be brought
and no cause of action shall be asserted by or on behalf of the Corporation
or any affiliate of the Corporation against Indemnitee, Indemnitee's
spouse, heirs, executors or personal or legal representatives after the
expiration of two (2) years from the date of accrual of the cause of
action, and any claim or cause of action of the Corporation or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within the two (2) year period; provided,
however, that if any shorter period of limitations is otherwise applicable
to any cause of action the shorter period shall govern.
SECTION 20. AMENDMENTS; WAIVER. No supplement, modification,
amendment, or waiver of this Agreement or any of its terms shall be binding
unless executed in writing by all of the parties to this Agreement or, in
the case of waiver, by the party against whom the waiver is asserted. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions of this Agreement (whether or
not similar) nor shall any waiver constitute a continuing waiver.
The parties have executed this Agreement as of the date stated in the
first paragraph of this Agreement.
ATTEST: DAKOTA TELECOMMUNICATIONS
GROUP, INC.
_____________________________ By _____________________________________
Secretary Its _________________________________
INDEMNITEE
________________________________________
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<PAGE>
EXHIBIT 2.3
MERGER AGREEMENT
by and among
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.,
DAKOTA ACQUISITION CORP. #2
and
I-WAY PARTNERS, INC.
November 27, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Merger of I-WAY with and into Acquisition Corp.. . . 1
Section 1.2. Shareholder Approval . . . . . . . . . . . . . . . . 1
Section 1.3. Closing. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Effective Time . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Effects of the Merger . . . . . . . . . . . . . . . 2
Section 1.6. Surviving Corporation. . . . . . . . . . . . . . . . 2
Section 1.7. Conversion of I-WAY Shares . . . . . . . . . . . . . 2
Section 1.8. Conveyances to Surviving Corporation . . . . . . . . 3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
OF SELLERS AND I-WAY . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Disclosure Schedule. . . . . . . . . . . . . . . . . 4
Section 2.2. Organization and Good Standing . . . . . . . . . . . 4
Section 2.3. Capitalization of I-WAY; Ownership . . . . . . . . . 4
Section 2.4. Financial Statements.. . . . . . . . . . . . . . . . 4
Section 2.5. Books and Records. . . . . . . . . . . . . . . . . . 5
Section 2.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7. No Material Adverse Change; Absence of Restricted
Events . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.8. Employees; Labor Relations . . . . . . . . . . . . . 6
Section 2.9. Employee Benefit Plans . . . . . . . . . . . . . . . 6
Section 2.10. Title to and Condition of Properties;
Encumbrances . . . . . . . . . . . . . . . . . . . . 7
Section 2.11. Litigation . . . . . . . . . . . . . . . . . . . . . 8
Section 2.12. Authorization and Enforceability; No Conflict with
Other Instruments or Proceedings . . . . . . . . . . 8
Section 2.13. Contracts. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.14. Intellectual Property. . . . . . . . . . . . . . . . 9
Section 2.15. Insurance. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.16. Certain Relationships. . . . . . . . . . . . . . . 10
Section 2.17. Permits, Tariffs and Licenses; Compliance with
Legal Requirements . . . . . . . . . . . . . . . . . 10
Section 2.18. Investment Intent. . . . . . . . . . . . . . . . . 10
Section 2.19. No Broker's Fees . . . . . . . . . . . . . . . . . 11
Section 2.20. Accuracy of Statements . . . . . . . . . . . . . . 11
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF DAKOTA AND
ACQUISITION CORP.. . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Organization and Good Standing . . . . . . . . . . 11
Section 3.2. Capitalization of Acquisition Corp. . . . . . . . 11
<PAGE>
Section 3.3. Books and Records . . . . . . . . . . . . . . . . 12
Section 3.4. Taxes . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.5. No Material Adverse Change; Absence of Restricted
Events . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6. Litigation . . . . . . . . . . . . . . . . . . . . 12
Section 3.7. Authorization and Enforceability; No Conflict with
Other Instruments or Proceedings . . . . . . . . . 13
Section 3.8. Permits, Tariffs and Licenses; Compliance with
Legal Requirements . . . . . . . . . . . . . . . . 13
Section 3.9. No Broker's Fees . . . . . . . . . . . . . . . . . 14
Section 3.10. Accuracy of Statements . . . . . . . . . . . . . . 14
ARTICLE 4 - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Indemnification and Reimbursement by Sellers . . . . 14
Section 4.2. Indemnification and Reimbursement by Dakota and
Acquisition Corp . . . . . . . . . . . . . . . . . . 14
Section 4.3. Indemnification Procedures.. . . . . . . . . . . . . 15
Section 4.4. Basket . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 5 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 6 - GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1. Non-Compete. . . . . . . . . . . . . . . . . . . . . 23
Section 6.2. Survival of Representations, Warranties, Covenants
and Agreements . . . . . . . . . . . . . . . . . . . 24
Section 6.3. Binding Effect; Benefits; Assignment . . . . . . . . 24
Section 6.4. Entire Agreement . . . . . . . . . . . . . . . . . . 24
Section 6.5. Amendment and Waiver . . . . . . . . . . . . . . . . 25
Section 6.6. Governing Law. . . . . . . . . . . . . . . . . . . . 25
Section 6.7. Public Disclosure. . . . . . . . . . . . . . . . . . 25
Section 6.8. Notices. . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.9. Counterparts . . . . . . . . . . . . . . . . . . . . 26
Section 6.10. Expenses . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.11. Severability . . . . . . . . . . . . . . . . . . . . 26
Section 6.12. Headings; Construction; Time of Essence. . . . . . . 26
EXHIBITS
Exhibit A--List of Sellers
Exhibit B--Agreement Regarding Dakota Preferred Stock
Exhibit C--Articles of Merger and related Plan of Merger
Exhibit D--Form of Warrant
Exhibit E--Form of Standstill Agreement
<PAGE>
DISCLOSURE SCHEDULE
Schedule 1--Organization and Good Standing of I-WAY
Schedule 2--Financial Statements
Schedule 3--Taxes
Schedule 4--Restricted Events
Schedule 5--Employees; Labor Relations
Schedule 6--Employee Benefit Plans
Schedule 7--Real Property, Leaseholds or other interests
Schedule 8--Authorization and Enforceability; No Conflict
Schedule 9--Contracts
Schedule 10--Intellectual Property
Schedule 11--Insurance
Schedule 12--Certain Relationships
Schedule 13--Permits and Licenses; Compliance with Legal Requirements
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made as of
November 27, 1996, by and among Dakota Cooperative Telecommunications,
Inc., a South Dakota cooperative corporation ("Dakota"), Dakota Acquisition
Corp. #2, a South Dakota corporation and wholly owned subsidiary of Dakota
("Acquisition Corp.") and I-Way Partners, Inc., a South Dakota corporation
("I-WAY"). This Agreement is joined in by all of the shareholders of I-WAY
as identified on EXHIBIT A to this Agreement (each a "Seller" and
collectively "Sellers"). Capitalized terms used in this Agreement and not
otherwise defined are defined in Article 5 of this Agreement.
Sellers and the boards of directors of Dakota, Acquisition Corp.
and I-WAY each deem it desirable and in the best interests of their
respective corporations for I-WAY to become affiliated with Dakota through
the merger of I-WAY with and into Acquisition Corp. (the "Merger") in
accordance with the provisions of the South Dakota Business Corporation Act
(the "Act") and the terms and conditions of this Agreement. The boards of
directors and shareholders of Acquisition Corp. and I-WAY have unanimously
approved this Agreement and the transactions contemplated hereby (including
the Merger).
ACCORDINGLY, in consideration of the representations, warranties
and covenants contained in this Agreement, the Parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. MERGER OF I-WAY WITH AND INTO ACQUISITION CORP.
Subject to the other conditions set forth in this Agreement, I-WAY and
Acquisition Corp. will be, at the Effective Time, merged into a single
surviving corporation, which will be Acquisition Corp. (sometimes referred
to in this Agreement as the "Surviving Corporation"). The Surviving
Corporation will continue its corporate existence under the name "Iway,
Inc." and will remain a South Dakota corporation governed by and subject to
the laws of that state.
SECTION 1.2. SHAREHOLDER APPROVAL. This Agreement and the
Merger have been approved by the shareholders of I-WAY and Acquisition
Corp. in accordance with the applicable laws of the State of South Dakota.
SECTION 1.3. CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the
offices of Dakota, East Highway 46, Irene, South Dakota 57037, at 10 a.m.
local time, on November 27, 1996, or at such other place or time as the
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Parties may agree. At the Closing, the Parties will cause the Articles of
Merger to be filed in accordance with the Act and shall take all other
lawful actions and do all other lawful things called for by this Agreement
or necessary to cause the Merger to become effective and to consummate the
transactions contemplated by this Agreement. In addition, at the Closing
the Parties will execute the agreements attached as EXHIBITS B, D and E to
this Agreement, and Sellers will deliver a letter of resignation and
release of claims executed by each director and officer of I-WAY and such
additional agreements, instruments or certificates as Dakota may reasonably
require.
SECTION 1.4. EFFECTIVE TIME. The Merger will become effective
at the date and time set forth in the Articles of Merger and related Plan
of Merger attached as EXHIBIT C to this Agreement following the issuance of
a Certificate of Merger by the Secretary of the State of South Dakota. The
time and date on which the Merger shall become effective is referred to in
this Agreement as the "Effective Time."
SECTION 1.5. EFFECTS OF THE MERGER. The effect of the Merger on
I-WAY and Acquisition Corp. will be as provided in Sections 47-6-9 through
47-6-12, inclusive, of the Act with respect to the merger of two domestic
corporations where the surviving corporation will be governed by the laws
of the State of South Dakota.
SECTION 1.6. SURVIVING CORPORATION. Immediately after the
Effective Time, the Surviving Corporation will have the following
attributes until they are subsequently changed in the manner provided by
law: (i) the name of the Surviving Corporation will be "Iway, Inc.";
(ii) the articles of incorporation and bylaws of Acquisition Corp. (except
for the name as described above) will be the articles of incorporation and
bylaws of the Surviving Corporation; and (iii) the persons who, immediately
before the Effective Time, constitute the board of directors and officers
of Acquisition Corp. will be the directors and officers, respectively, of
the Surviving Corporation and will hold office until their respective
successors are duly elected and qualified.
SECTION 1.7. CONVERSION OF I-WAY SHARES. As a result of the
Merger, the I-WAY Shares will automatically be converted into shares of
Dakota Preferred Stock as follows:
(a) CONVERSION OF I-WAY SHARES. At the Effective Time,
each of the I-WAY Shares outstanding immediately before the
Effective Time will automatically become and be converted into
the right to receive (i) .00344 validly issued, fully paid and
nonassessable shares of Non-Voting, Non-Cumulative Preferred
Stock, par value $100 per share, of Dakota (the "Dakota Preferred
Stock"), issued pursuant to the terms of Dakota's Articles of
Incorporation and subject to the additional terms as provided in
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EXHIBIT B to this Agreement, and (ii) warrants to acquire .00049
additional shares of Dakota Preferred Stock in accordance with
the terms and conditions of EXHIBIT D to this Agreement (the
"Warrants").
(b) CONVERSION OF ACQUISITION CORP. COMMON STOCK. At the
Effective Time, each share of Acquisition Corp.'s common stock,
no par value per share, outstanding immediately before the
Effective Time will continue to be outstanding without change and
will constitute all of the outstanding capital stock of the
Surviving Corporation as of such date.
(c) EXCHANGE OF I-WAY CERTIFICATES. At the Effective Time,
Sellers will surrender their outstanding certificate or
certificates representing the I-WAY Shares to Dakota and receive
in exchange therefor certificates representing the number of
shares of Dakota Preferred Stock into which the I-WAY Shares
represented by the certificate or certificates so surrendered
will have been converted as described above. The holders of I-WAY
Shares outstanding immediately before the Effective Time will
have no rights as I-WAY shareholders as of the Effective Time and
each certificate representing the I-WAY Shares will represent
only the right to receive shares of Dakota Preferred Stock and
Warrants as provided in this Agreement. On and after the
Effective Time, there will be no transfer of I-WAY Shares on the
stock books of I-WAY and ownership of I-WAY Shares may be
transferred only on the stock books of Acquisition Corp.
SECTION 1.8. CONVEYANCES TO SURVIVING CORPORATION. I-WAY hereby
agrees that from time to time after the Effective Time, as and when
requested by the Surviving Corporation, or by its successors and assigns,
it will execute and deliver, or cause to be executed and delivered, all
such deeds, conveyances, assignments, assurances and other instruments, and
will take or cause to be taken such further or other action as the
Surviving Corporation, its successors or assigns, may deem necessary or
desirable to vest or perfect in or confirm to the Surviving Corporation,
its successors and assigns, title to and possession of all the property,
rights, privileges, powers, immunities, franchises, interests and assets
acquired or to be acquired by the Surviving Corporation as a result of, or
in connection with, the Merger and to otherwise carry out the intent and
purposes of this Agreement. I-WAY hereby grants to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all
such deeds, conveyances, assignments and assurances and to do all acts
necessary, proper or convenient to accomplish this purpose. The directors
and officers of the Surviving Corporation will be fully authorized in the
name of I-WAY to take any and all such action contemplated by this
Agreement.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND I-WAY
Sellers and I-WAY, jointly and severally, represent and warrant
to Dakota and Acquisition Corp. as follows:
SECTION 2.1. DISCLOSURE SCHEDULE. Sellers have delivered to
Dakota and Acquisition Corp. a disclosure schedule (the "Disclosure
Schedule"), which includes the numbered schedules specifically referred to
in this Article 2. The information contained in the Disclosure Schedule is
complete and accurate in all respects and all documents that are attached
to or form a part of the Disclosure Schedule are true and complete copies
of the genuine original documents they purport to represent.
SECTION 2.2. ORGANIZATION AND GOOD STANDING. I-WAY is a
corporation duly organized, validly existing and in good standing under the
laws of the State of South Dakota, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use and to perform its
obligations under Applicable Contracts. I-WAY is duly qualified to do
business as a foreign corporation and is in good standing in each state or
other jurisdiction in which either the ownership or use of the properties
owned or used by I-WAY or the nature of the activities conducted by I-WAY
requires such qualification. Copies of I-WAY's Organizational Documents
are attached to SCHEDULE 1 of the Disclosure Schedule. I-WAY does not
have any subsidiaries and, except as disclosed on SCHEDULE 1, does not own
or have any right to acquire any equity interest in any other Person.
SECTION 2.3. CAPITALIZATION OF I-WAY; OWNERSHIP. The
authorized capital stock of I-WAY consists 500,000 shares of common stock,
$1 par value per share, of which 70,000 shares are issued and outstanding
(i.e., the I-WAY Shares). There are no other authorized classes or series
of capital stock or other equity securities of I-WAY. All of the I-WAY
Shares were validly issued, are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights of any shareholder.
There are no outstanding Contracts that require Sellers to sell any I-WAY
Shares or that require I-WAY to issue or sell any shares of capital stock
of I-WAY or securities convertible into shares of capital stock of I-WAY.
Sellers own, beneficially and of record, all of the I-WAY Shares, as set
forth on EXHIBIT A to this Agreement, free and clear of all Encumbrances.
After the Effective Time, the I-WAY Pre-Incorporation Agreement dated as of
November 15, 1994, as the same may have been amended, shall automatically
terminate and be of no further effect and neither I-WAY nor the Surviving
Corporation shall have any obligation thereunder.
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SECTION 2.4. FINANCIAL STATEMENTS. Copies of the compiled
financial statements for I-WAY at and for the fiscal year ended
December 31, 1995, together with the notes thereto, are attached to
SCHEDULE 2 of the Disclosure Schedule (the "Financial Statements"). Also
attached to SCHEDULE 2 are copies of the interim balance sheets and interim
statements of income of I-WAY at and for each month-end during the current
fiscal year (through September 30, 1996), each prepared internally by I-WAY,
together with the notes thereto, if any (the "Interim Financial
Statements"). The Interim Financial Statements include the balance sheet
of I-WAY at September 30, 1996 (the "Balance Sheet"). The Financial
Statements and Interim Financial Statements are correct and complete in all
respects and present fairly the financial condition of I-WAY at the dates
indicated and its results of operations for the periods then ended, all in
accordance with GAAP applied on a basis consistent throughout such periods
and consistent with prior periods (subject, in the case of the Interim
Financial Statements, to (a) normal recurring year-end adjustments, the
effect of which will not individually or in the aggregate be materially
adverse, and (b) the absence of notes to the Interim Financial Statements
which, if presented, would not differ materially from those included in the
Financial Statements for the fiscal year ended December 31, 1995). I-WAY
has no liabilities, obligations or contingencies of any nature (whether
known or unknown and whether absolute, accrued, contingent or otherwise),
except for liabilities, obligations or contingencies (including
contingencies for bad debt) as and to the extent reflected or reserved
against in the Balance Sheet and current liabilities incurred in the
Ordinary Course of Business since September 30, 1996, which will not,
individually or in the aggregate, materially adversely affect I-WAY or its
business. Except for the reserve for bad debt reflected on the Balance
Sheet or as disclosed on SCHEDULE 2 of the Disclosure Schedule, all
accounts receivable of I-WAY are valid and will be collected in full within
60 days following the Closing Date.
SECTION 2.5. BOOKS AND RECORDS. The books of account, minute
books, stock record books and other records of I-WAY, all of which have
been made available to Dakota and Acquisition Corp., are complete and
correct and have been maintained in accordance with sound business
practices and applicable Legal Requirements and reflect only actual
transactions. The minute books of I-WAY contain accurate and complete
records of all meetings held and all corporate action taken by the
shareholders or board of directors of I-WAY (or any committee of the board
of directors). All of these books and records are in the possession of I-WAY.
SECTION 2.6. TAXES. I-WAY has timely (a) filed all Tax Returns
pursuant to applicable Legal Requirements; (b) paid or made proper
provision for payment of all Taxes due and payable by it; and (c) withheld
or collected all Taxes required by applicable Legal Requirements and, to
the extent required, paid such Taxes to the proper Governmental Body or
other Person. The charges, accruals and reserves with respect to the Taxes
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on the books of I-WAY are adequate (determined in accordance with GAAP) and
are at least equal to I-WAY's liability for Taxes. I-WAY has not signed
an extension with any Governmental Body concerning any liability for Taxes
and no open matters exist for any prior periods, nor has I-WAY signed any
waiver of any limitations period. There is no proposed Tax assessment
against I-WAY and no deficiency has been asserted against I-WAY as a result
of any examination by the IRS or other Governmental Body that has not been
paid or finally settled and no grounds exist for the assertion of any
deficiency for any periods that have not been audited by the IRS or other
applicable Governmental Body. There is no Proceeding pending or, to the
Knowledge of Sellers and I-WAY, Threatened for collection of Taxes with
respect to I-WAY. A copy of I-WAY's federal income Tax Return with
supporting schedules filed for the fiscal year ended December 31, 1995 is
attached to SCHEDULE 3 of the Disclosure Schedule.
SECTION 2.7. NO MATERIAL ADVERSE CHANGE; ABSENCE OF RESTRICTED
EVENTS. Since January 1, 1996, I-WAY has conducted its operations and
affairs only in the Ordinary Course of Business; there has not been any
material adverse change in the business, operations, properties, prospects,
assets, financial condition, income or expenses of I-WAY; and no event has
occurred or circumstance exists that may result in such a material adverse
change. Except as disclosed on SCHEDULE 4 of the Disclosure Schedule,
since January 1, 1996, no Restricted Event has occurred with respect to I-WAY.
SECTION 2.8. EMPLOYEES; LABOR RELATIONS. SCHEDULE 5 of the
Disclosure Schedule contains the following information for each employee of
I-WAY (including each employee on leave of absence or layoff status):
name; job title; current compensation paid or payable; vacation accrued;
and service credited for purposes of vesting and eligibility to participate
under any of I-WAY's Employee Benefit Plans. To the Knowledge of Sellers
and I-WAY, no key employee of I-WAY intends to terminate his or her
employment with I-WAY. Each of I-WAY's employees is employed on an "at
will" basis. I-WAY is not now and has never been a party to any collective
bargaining or other labor Contract. Since January 1, 1996, there has not
been, there is not presently pending or existing and to the Knowledge of
Sellers and I-WAY there is not Threatened, any Labor Activity. No event
has occurred or circumstance exists that could provide the basis for any
Labor Activity. There is no lockout of any employees by I-WAY and no such
action is contemplated by I-WAY. I-WAY complies and has complied, in all
material respects, with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, disability, affirmative
action, conditions of employment, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar Taxes,
occupational safety and health and plant closing. I-WAY is not liable for
the payment of any Taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing Legal
Requirements. The books and records of I-WAY reflect all existing
obligations of I-WAY to make employment-related payments to present or
former employees.
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SECTION 2.9. EMPLOYEE BENEFIT PLANS. SCHEDULE 6 of the
Disclosure Schedule sets forth each Employee Benefit Plan maintained by
I-WAY or covering current or former (including retired) employees of I-WAY.
Copies of all written Employee Benefit Plans and all agreements adopted or
other material used in connection with or relating to such Employee Benefit
Plans (including descriptions of vacation, separation and other personnel
policies together with copies of Forms 5500) are also attached to
SCHEDULE 6. I-WAY has timely performed all of its obligations (including,
to the extent applicable, reporting, disclosure, prohibited transaction,
IRS qualification and funding and contribution payment obligations) under
its Employee Benefit Plans. Each Employee Benefit Plan and the
administration of each Employee Benefit Plan, complies and has complied
with all applicable Legal Requirements. Neither I-WAY nor any predecessor
or Affiliate of I-WAY has ever established, maintained or contributed to or
otherwise participated in, or had an obligation to establish, maintain,
contribute to or otherwise participate in, any Multi-Employer Retirement
Plan. No Employee Benefit Plan has incurred an "accumulated funding
deficiency" within the meaning of the Code. All terminations (total or
partial) of Employee Benefit Plans have been done in compliance with the
Code and with notice and disclosure to the Pension Benefit Guaranty
Corporation and all such terminations have been completed.
SECTION 2.10. TITLE TO AND CONDITION OF PROPERTIES;
ENCUMBRANCES. I-WAY does not own or have any interest in real property
other than leasehold interests. SCHEDULE 7 of the Disclosure Schedule
contains a list of all leaseholds interests of I-WAY. Except as disclosed
on SCHEDULE 7, I-WAY owns and has good and marketable title to all the
properties and assets (whether tangible or intangible) located in or at the
facilities operated by I-WAY or reflected as owned in the books and records
of I-WAY, including all of the properties and assets reflected in the
Balance Sheet (except for personal property sold since the date of the
Balance Sheet in the Ordinary Course of Business). Except as disclosed on
SCHEDULE 7 of the Disclosure Schedule, all properties and assets reflected
in the Balance Sheet are free and clear of all Encumbrances. All personal
property owned by I-WAY will be in the possession of I-WAY on the Closing
Date or at such other location as is specified on SCHEDULE 7. To the
Knowledge of Sellers, all buildings, plants and structures leased by I-WAY
lie wholly within the boundaries of the real property owned or leased by
I-WAY and do not encroach upon the property of, or otherwise conflict with
the property rights of, any other Person and no other Person's property
encroaches upon the property of, or otherwise conflicts with the property
rights of, I-WAY. None of I-WAY's property is the subject of any proposed
or pending condemnation action. All boundaries are what they appear to be
from visual inspection. The buildings, plants, structures and equipment of
I-WAY (a) are structurally sound, are in good operating condition and
repair and are adequate for the uses to which they are being put and
adequately serviced by utilities; (b) do not need maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material
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in nature or cost; (c) are sufficient for the continued conduct of I-WAY's
business after the Closing in substantially the same manner as conducted
before the Closing; and (d) comply with all Legal Requirements and
restrictive covenants. To the Knowledge of Sellers, no real property
previously or currently owned or leased by I-WAY (or any predecessor or
Affiliate of I-WAY) has been or is in violation of any Environmental Law.
To the Knowledge of Sellers, no Encumbrance exists and no condition exists
which could result in the filing or creation of an Encumbrance against any
property of I-WAY or the Surviving Corporation under any Environmental Law.
I-WAY has not been requested or required by any Governmental Body to
perform any investigatory or remedial activity under or in connection with
an Environmental Law, nor has it received any notice from any Person under
any Environmental Law.
SECTION 2.11. LITIGATION. There is no Proceeding or Order
pending against I-WAY or that otherwise relates to or may affect the
business of, or any of the property or assets owned or used by, I-WAY or
that may interfere with the transactions contemplated by this Agreement.
No such Proceeding or Order has been, to the Knowledge of I-WAY, Threatened
and no event has occurred or circumstance exists that may give rise to or
serve as a basis for any such Proceeding or Order.
SECTION 2.12. AUTHORIZATION AND ENFORCEABILITY; NO CONFLICT WITH
OTHER INSTRUMENTS OR PROCEEDINGS.
(a) Sellers and I-WAY have full capacity, power and
authority to enter into, deliver and perform this Agreement and
to carry out the transactions contemplated by this Agreement.
This Agreement is binding upon Sellers and I-WAY and is
enforceable against Sellers and I-WAY in accordance with its
terms.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
by this Agreement have been authorized by all necessary corporate
actions and will not (i) contravene the Organizational Documents
or result in a Breach of any provision of, or constitute a
default under, any Applicable Contract; (ii) violate any Legal
Requirement or Order or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify any
Governmental Authorization applicable to I-WAY; (iii) result in
the imposition of any Tax on I-WAY or the Surviving Corporation
or accelerate any indebtedness of I-WAY or increase the rate of
interest payable by I-WAY with respect to any indebtedness;
(iv) result in any Encumbrance being created or imposed upon or
with respect to any of the property or assets owned or used by I-WAY;
or (v) subject Dakota or the Surviving Corporation to
liability for or claims of tortious interference with contractual
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rights. Except for the filings to be made on the Closing Date
with the Secretary of the State of South Dakota as contemplated
by Article 1 of this Agreement, all consents, approvals or
authorizations of or declarations, filings or registrations with
any Person required in connection with the execution, delivery or
performance of this Agreement or the consummation of the
transactions contemplated by this Agreement are set forth on
SCHEDULE 8 of the Disclosure Schedule and will be obtained or
made, as applicable, by Sellers or I-WAY before the Closing.
SECTION 2.13. CONTRACTS. SCHEDULE 9 of the Disclosure Schedule
sets forth (and includes a copy of) each Material Contract to which I-WAY
is a party or by which I-WAY is bound or affected. Each Material Contract
is in full force and effect and is valid and enforceable in accordance with
its terms. I-WAY and each other Person that is a party to a Material
Contract has complied and is complying with the terms of the applicable
Material Contract and no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with or
result in a violation or Breach of, or give I-WAY or any other Person the
right to declare a default under, any Material Contract. No Material
Contract contains any provision that would interfere with the Surviving
Corporation's assumption, after the Merger, of obligations and benefits
under the Contract upon the same terms that are currently applicable to
I-WAY, and I-WAY is not bound by or subject to any Contracts which may be
accelerated, terminated or otherwise materially affected by virtue of the
change of control of I-WAY upon consummation of the Merger.
SECTION 2.14. INTELLECTUAL PROPERTY. SCHEDULE 10 of the
Disclosure Schedule sets forth all registered Intellectual Property Assets
presently owned or used by I-WAY. Unless otherwise indicated on
SCHEDULE 10, I-WAY will own the entire right, title and interest in and to
all Intellectual Property Assets on the Closing Date free and clear of all
Encumbrances, and following the Closing the Surviving Corporation will have
the right to use such Intellectual Property Assets without payment to any
other Person. There is no infringement of or unlawful use by any Person of
any Intellectual Property Assets owned or used by I-WAY, and I-WAY has not
infringed or unlawfully used any Intellectual Property Assets of any other
Person. SCHEDULE 10 also sets forth a list of all Contracts relating to
Intellectual Property Assets to which I-WAY is a party or by which I-WAY is
bound or affected. The Intellectual Property Assets are all those
necessary for the operation of I-WAY's business as presently conducted and
are sufficient in form and quality so that after the Closing the Surviving
Corporation can sell the products and provide the services sold or provided
by I-WAY before the Closing in a manner that meets applicable
specifications and conforms to commercially acceptable quality standards.
SECTION 2.15. INSURANCE. SCHEDULE 11 of the Disclosure Schedule
contains a list of all policies of liability, crime, fidelity, life, fire,
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product liability, workers' compensation, health, director and officer
liability and other forms of insurance owned or maintained by I-WAY,
including for each policy: the name of the insurer; the amount of
coverage; the type of insurance; the policy number; the renewal or
expiration date; and all pending claims under the policy. All of the
insurance policies listed on SCHEDULE 11 are outstanding and in full force,
all premiums with respect to the policies are currently paid and all duties
of the insureds under the policies have been fully discharged.
SECTION 2.16. CERTAIN RELATIONSHIPS. Except as disclosed on
SCHEDULE 12 of the Disclosure Schedule, no Seller or any Related Person is
an owner, shareholder, creditor, director, agent, consultant or employee
of, or lender to, any Person engaged in a business that acts as a supplier
of any goods or services to I-WAY or any part of which is in actual or
potential competition with I-WAY. Except as disclosed in SCHEDULE 12 of the
Disclosure Schedule, I-WAY does not have any outstanding indebtedness to
Sellers or any Related Person and neither Sellers nor any Related Person
has any outstanding indebtedness to I-WAY.
SECTION 2.17. PERMITS, TARIFFS AND LICENSES; COMPLIANCE WITH
LEGAL REQUIREMENTS. All Governmental Authorizations necessary for I-WAY to
carry on its business as presently conducted are identified on SCHEDULE 13
of the Disclosure Schedule and have been timely obtained, are in full force
and effect and have been complied with. All fees and charges incident to
those Governmental Authorizations have been fully paid and are current and
no suspension, revocation, cancellation or limitation of any Governmental
Authorization has been, to the Knowledge of Sellers and I-WAY, Threatened
or could result by reason of the transactions contemplated by this
Agreement. I-WAY is not subject to, nor, to the Knowledge of Sellers and
I-WAY, has it been Threatened with, any Adverse Consequence as the result
of a failure to comply with any Legal Requirement applicable to it or the
conduct or operation of its business or the ownership or use of any of its
properties or assets and no event has occurred or circumstance exists (with
or without notice or lapse of time) that may give rise to any such Adverse
Consequence. I-WAY is presently and during all applicable limitations
periods has been, in all material respects, in full compliance with all
applicable Legal Requirements. Neither I-WAY nor any other Person
associated with or acting on behalf of I-WAY has used any I-WAY funds for
unlawful contributions, gifts, entertainment or other expenses or made any
direct or indirect unlawful payments from I-WAY funds or established or
maintained any unlawful or unrecorded funds. Neither I-WAY nor any
predecessor or Affiliate of I-WAY is or has been in violation of, or has
Environmental Liability under, any Environmental Law. There are no past or
present conditions, circumstances, activities, practices, omissions, plans
or contractual undertakings that will interfere with or prevent continued
compliance by the Surviving Corporation with Environmental Laws and the
requirements of any permits or licenses issued under any Environmental Law
or that will give rise to any Environmental Liability or other obligation
under any Environmental Law.
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SECTION 2.18. INVESTMENT INTENT. Sellers are acquiring the
Dakota Preferred Stock for their own accounts and not with a view to their
distribution within the meaning of the Securities Act of 1933, as amended
("Securities Act"). Sellers have no plan or intention to sell or otherwise
dispose of the shares of Dakota Preferred Stock to be received by them in
the Merger or any shares of Dakota common stock received by them upon the
automatic conversion of Dakota Preferred Stock in the event Dakota's common
stock is registered under the Securities Act.
SECTION 2.19. NO BROKER'S FEES. Neither Sellers, I-WAY nor
anyone acting on Sellers' or I-WAY's behalf has incurred any liability or
obligation to pay fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which
Dakota, I-WAY or the Surviving Corporation could be liable.
SECTION 2.20. ACCURACY OF STATEMENTS. No representation or
warranty made by Sellers in this Agreement, the Disclosure Schedule or any
statement, certificate or schedule furnished to Dakota or Acquisition Corp.
pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF DAKOTA AND ACQUISITION CORP.
Dakota and Acquisition Corp., jointly and severally, represent
and warrant to Sellers and I-WAY as follows:
SECTION 3.1. ORGANIZATION AND GOOD STANDING. Dakota is a
cooperative corporation and Acquisition Corp. is a business corporation
each duly organized, validly existing and in good standing under the laws
of the State of South Dakota, with full corporate power and authority to
conduct their business as they are now being conducted, to own or use the
properties and assets that they purport to own or use and to perform their
obligations under Applicable Contracts. Neither the ownership or use of
the properties owned or used by Dakota or Acquisition Corp. nor the nature
of the activities conducted by Dakota or Acquisition Corp. requires them to
be qualified or registered to do business in any state or jurisdiction
other than South Dakota.
SECTION 3.2. CAPITALIZATION OF ACQUISITION CORP.; OWNERSHIP.
The authorized capital stock of Acquisition Corp. consists of 2,000 shares
of common stock, no par value per share, of which 1,000 shares are issued
and outstanding. All of the issued and outstanding common shares of
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Acquisition Corp. are owned by Dakota. The authorized capital stock of
Dakota consists of 15,000 shares of common stock, $5 par value per share,
of which approximately 6,000 shares are issued and outstanding and 63,000
shares of preferred stock, $100 par value per share, none of which is
outstanding. All Dakota Preferred Stock to be issued in the Merger or
pursuant to the Warrants will, when issued, be duly authorized, validly
issued, fully paid and nonassessable and will not be subject to any
preemptive rights. Except as provided in Dakota's Organizational Documents
and the Warrants, there are no outstanding Contracts that require Dakota or
Acquisition Corp. to sell any of their common or preferred shares or that
require Dakota or Acquisition Corp. to issue or sell any shares of capital
stock or securities convertible into shares of capital stock of Dakota or
Acquisition Corp.
SECTION 3.3. BOOKS AND RECORDS. The books of account, minute
books, stock record books and other records of Dakota and Acquisition Corp.
are complete and correct and have been maintained in accordance with sound
business practices and applicable Legal Requirements and reflect only
actual transactions. The minute books of Dakota and Acquisition Corp.
contain accurate and complete records of all meetings held, and all
corporate action taken, by their respective shareholders or board of
directors (or any committee of the board of directors).
SECTION 3.4. TAXES. Dakota has timely (a) filed all Tax Returns
pursuant to applicable Legal Requirements; (b) paid or made proper
provision for payment of all Taxes due and payable by it; and (c) withheld
or collected all Taxes required by applicable Legal Requirements and, to
the extent required, paid such Taxes to the proper Governmental Body or
other Person. The charges, accruals and reserves with respect to the Taxes
on the books of Dakota are adequate (determined in accordance with GAAP)
and are at least equal to Dakota's liability for Taxes. Dakota has not
signed an extension with any Governmental Body concerning any liability for
Taxes and no open matters exist for any prior periods, nor has Dakota
signed any waiver of any limitations period. There is no proposed Tax
assessment against Dakota and no deficiency has been asserted against
Dakota as a result of any examination by the IRS or other Governmental Body
that has not been paid or finally settled, and no grounds exist for the
assertion of any deficiency for any periods that have not been audited by
the IRS or other applicable Governmental Body. There is no Proceeding
pending or, to the Knowledge of Dakota, Threatened for collection of Taxes
with respect to Dakota. Copies of Dakota's federal income Tax Returns with
supporting schedules filed for the fiscal years ended December 31, 1995 and
December 31, 1994 have been provided to Sellers.
SECTION 3.5. NO MATERIAL ADVERSE CHANGE; ABSENCE OF RESTRICTED
EVENTS. Since January 1, 1996, Dakota has conducted its operations and
affairs only in the Ordinary Course of Business; there has not been any
material adverse change in the business, operations, properties, prospects,
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assets, financial condition, income or expenses of Dakota; and no event
has occurred or circumstance exists that may result in such a material
adverse change. Since January 1, 1996, no Restricted Event has occurred
with respect to Dakota.
SECTION 3.6. LITIGATION. Except for docketed Proceedings before
the South Dakota Public Utilities Commission (which will not, individually
or in the aggregate, materially adversely affect Dakota or its business),
there is no Proceeding or Order pending against Dakota or that otherwise
relates to or may affect the business of, or any of the property or assets
owned or used by, Dakota or that may interfere with the transactions
contemplated by this Agreement. No such Proceeding or Order has been, to
the Knowledge of Dakota, Threatened and no event has occurred or
circumstance exists that may give rise to or serve as a basis for any such
Proceeding or Order.
SECTION 3.7. AUTHORIZATION AND ENFORCEABILITY; NO CONFLICT WITH
OTHER INSTRUMENTS OR PROCEEDINGS.
(a) Dakota and Acquisition Corp. have full capacity, power
and authority to enter into, deliver and perform this Agreement
and to carry out the transactions contemplated by this Agreement.
This Agreement is binding upon Dakota and Acquisition Corp. and
is enforceable against Dakota and Acquisition Corp. in accordance
with its terms.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
by this Agreement have been authorized by all necessary corporate
actions and will not (i) contravene the Organizational Documents
or result in a Breach of any provision of, or constitute a
default under, any Applicable Contract; (ii) violate any Legal
Requirement or Order or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify any
Governmental Authorization applicable to Dakota or the Surviving
Corporation; (iii) result in the imposition of any Tax on the
Surviving Corporation or accelerate any indebtedness of Dakota or
the Surviving Corporation or increase the rate of interest
payable by Dakota or the Surviving Corporation with respect to
any indebtedness; or (iv) result in any Encumbrance being created
or imposed upon or with respect to any of the property or assets
owned or used by Dakota or Acquisition Corp.
SECTION 3.8. PERMITS, TARIFFS AND LICENSES; COMPLIANCE WITH
LEGAL REQUIREMENTS. All Governmental Authorizations necessary for Dakota
to carry on its business as presently conducted have been timely obtained,
are in full force and effect and have been complied with. All fees and
charges incident to those Governmental Authorizations have been fully paid
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and are current and no suspension, revocation, cancellation or limitation
of any Governmental Authorization has been, to the Knowledge of Dakota,
Threatened or could result by reason of the transactions contemplated by
this Agreement. Dakota is not subject to, nor, to the Knowledge of Dakota
has it been Threatened with, any Adverse Consequence as the result of a
failure to comply with any Legal Requirement applicable to it or the
conduct or operation of its business or the ownership or use of any of its
properties or assets and no event has occurred or circumstance exists (with
or without notice or lapse of time) that may give rise to any such Adverse
Consequence. Dakota is presently and during all applicable limitations
periods has been, in all material respects, in full compliance with all
applicable Legal Requirements. Neither Dakota nor any other Person
associated with or acting on behalf of Dakota has used any Dakota funds for
unlawful contributions, gifts, entertainment or other expenses or made any
direct or indirect unlawful payments from Dakota funds or established or
maintained any unlawful or unrecorded funds. Neither Dakota nor any
predecessor or Affiliate of Dakota is or has been in violation of, or has
Environmental Liability under, any Environmental Law. There are no past or
present conditions, circumstances, activities, practices, omissions, plans
or contractual undertakings that will interfere with or prevent continued
compliance by the Dakota with Environmental Laws and the requirements of
any permits or licenses issued under any Environmental Law or that will
give rise to any Environmental Liability or other obligation under any
Environmental Law.
SECTION 3.9. NO BROKER'S FEES. Neither Dakota, Acquisition
Corp., nor anyone acting on their behalf has incurred any liability or
obligation to pay fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which
Sellers or I-WAY could become liable.
SECTION 3.10. ACCURACY OF STATEMENTS. No representation or
warranty made by Dakota or Acquisition Corp. in this Agreement or any
statement, certificate or schedule furnished to Sellers or I-WAY pursuant
to this Agreement or in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein
not misleading.
ARTICLE 4
INDEMNIFICATION
SECTION 4.1. INDEMNIFICATION AND REIMBURSEMENT BY SELLERS.
Sellers will jointly and severally indemnify and hold harmless Dakota,
Acquisition Corp. and their respective Representatives and Affiliates, and
will reimburse Dakota, Acquisition Corp. and their respective
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Representatives and Affiliates, for all Adverse Consequences arising from
or related to (a) any Breach by Sellers or I-WAY of any representation,
warranty, covenant or obligation of Sellers in this Agreement or any other
instrument or document delivered by Sellers or I-WAY to Dakota or
Acquisition Corp. pursuant to this Agreement; and (b) the enforcement of
indemnification rights under this Article 4.
SECTION 4.2. INDEMNIFICATION AND REIMBURSEMENT BY DAKOTA AND
ACQUISITION CORP. Dakota and Acquisition Corp. will jointly and severally
indemnify and hold harmless Sellers and their respective Representatives
and Affiliates, and will reimburse Sellers and their respective
Representatives and Affiliates, for all Adverse Consequences arising from
or related to (a) any Breach by Dakota or Acquisition Corp. of any
representation, warranty, covenant or obligation of Dakota or Acquisition
Corp. in this Agreement or any other instrument or document delivered by
Dakota or Acquisition Corp. to Sellers or I-WAY pursuant to this Agreement;
and (b) the enforcement of indemnification rights under this Article 4.
SECTION 4.3. INDEMNIFICATION PROCEDURES.
(a) THIRD-PARTY CLAIMS.
(i) Promptly after receipt by a Person entitled to be
indemnified under this Article 4 (an "Indemnified Party") of
notice of the commencement of any Proceeding against it,
such Indemnified Party will, if a claim for indemnification
is to be made against a Party (an "Indemnifying Party")
under this Article 4, give notice to the Indemnifying Party
of the commencement of such Proceeding. The failure to
promptly notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability that it may have to an
Indemnified Party except to the extent that the defense of
such action was irreparably and materially prejudiced by the
Indemnifying Party's failure to provide prompt notice.
(ii) If any Proceeding is brought against an
Indemnified Party and it gives notice to the Indemnifying
Party of the commencement of such Proceeding, the
Indemnifying Party will, unless the claim involves Taxes, be
entitled to participate in such Proceeding and, to the
extent that it wishes (unless (A) the Indemnifying Party is
also a party to such Proceeding and the Indemnified Party
determines in good faith that joint representation would be
inappropriate or (B) the Indemnifying Party fails to provide
reasonable assurances to the Indemnified Party of its
financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume
the defense of such Proceeding with counsel satisfactory to
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the Indemnified Party. Following a proper assumption of
defense by an Indemnifying Party, as long as the
Indemnifying Party diligently conducts such defense, it will
not be liable for any subsequent fees of legal counsel or
other expenses incurred by the Indemnified Party in
connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the Indemnifying
Party assumes the defense of a Proceeding, (A) it will be
conclusively established for purposes of this Agreement that
the claims made in that Proceeding are within the scope of
and subject to indemnification; (B) no compromise or
settlement of such claims may be effected by the
Indemnifying Party without the Indemnified Party's consent
unless (x) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any
Person and no effect on any other claims that may be made by
or against the Indemnified Party and (y) the sole relief
provided is monetary damages that are paid in full by the
Indemnifying Party concurrently with the compromise or
settlement; and (C) the Indemnifying Party will have no
liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is
given to an Indemnifying Party of the commencement of any
Proceeding and the Indemnifying Party does not within ten
days give notice to the Indemnified Party of its election to
assume the defense of such Proceeding, the Indemnifying
Party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the
Indemnified Party.
(iii) Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a
reasonable probability that a Proceeding may adversely
affect it or its Affiliates other than as a result of
monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Party
may, by notice to the Indemnifying Party, assume the
exclusive right to defend, compromise or settle such
Proceeding, but the Indemnifying Party will not be bound by
any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which
may not be unreasonably withheld).
(iv) The Parties will make available to each other and
each other's legal counsel and other professional advisors
all of its or his books and records relating to a third-party
claim and each Party will render to the other assistance as may
be reasonably required in order to insure the proper and adequate
defense of a third-party claim.
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(v) Each Party hereby consents to the non-exclusive
jurisdiction of any court in which a Proceeding is brought
against any Indemnified Party for purposes of any claim that
an Indemnified Party may have under this Agreement with
respect to such Proceeding or the matters alleged therein.
(b) OTHER CLAIMS. A claim for indemnification for any
matter not involving a third-party claim may be asserted by
notice to the Party from whom indemnification is sought.
SECTION 4.4. BASKET. No Party will have any liability under
this Article 4 with respect to claims for Breach of any representation or
warranty set forth in this Agreement until the aggregate amount of
liability relating to Breaches of representations or warranties exceeds
$20,000 (the "Basket"); provided that the Basket shall not be applicable to
and there shall be first dollar indemnity for Breach of Sections 2.19 and
3.9, the last sentence of Section 2.3, actual fraud or an intentional
Breach.
ARTICLE 5
DEFINITIONS
For purposes of this Agreement, the following terms shall have
the meanings specified or referred to in this Article 5:
"ACQUISITION CORP." has the meaning set forth in the first
paragraph of this Agreement.
"ACT" has the meaning set forth in the second paragraph of this
Agreement.
"ADVERSE CONSEQUENCE" means any loss, cost, liability, penalty,
Tax, claim, damage, expense (including cost of investigation, defense,
settlement and reasonable attorneys' and other professional fees),
responsibility, disability, remedial action or diminution of value, in any
case net of insurance recoveries or tax benefits actually received by the
applicable Party.
"AFFILIATE" means, with respect to a specified Person, a Person
that directly, or indirectly through one or more subsidiaries, controls, is
controlled by, or is under common control with the specified Person.
"AGREEMENT" has the meaning set forth in the first paragraph of
this Agreement.
"APPLICABLE CONTRACT" means any Contract (a) under which the
applicable Party has or may acquire any rights; (b) under which the
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applicable Party is or may become subject to any obligation or liability;
or (c) by which the applicable Party or any of the property or assets owned
or used by the applicable Party is or may become bound.
"BALANCE SHEET" has the meaning set forth in Section 2.4 of this
Agreement.
"BASKET" has the meaning set forth in Section 4.4 of this
Agreement.
"BREACH" means, as to any representation, warranty, covenant,
obligation or other provision of this Agreement or any instrument or
document delivered pursuant to this Agreement, (a) any inaccuracy in, or
any failure to perform or comply with, such representation, warranty,
covenant, obligation or other provision or (b) any claim by any Person or
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation or other provision, in
either case regardless of whether deliberate, reckless, negligent, innocent
or unintentional.
"CLOSING" has the meaning set forth in Section 1.3 of this
Agreement.
"CLOSING DATE" means the date and time as of which the Closing
actually takes place.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACT" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that
is legally binding.
"DAKOTA" has the meaning set forth in the first paragraph of this
Agreement.
"DAKOTA PREFERRED STOCK" has the meaning set forth in
Section 1.7(a) of this Agreement.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 2.1 of
this Agreement.
"EFFECTIVE TIME" has the meaning set forth in Section 1.4 of this
Agreement.
"EMPLOYEE BENEFIT PLAN" means any "employee pension benefit plan"
or "employee welfare benefit plan" as defined under ERISA, any incentive
compensation plan, benefit plan for retired employees, plan or Contract
providing for bonuses, pensions, profit-sharing, stock options, stock
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purchase rights, restricted or deferred stock, deferred compensation,
insurance, health care or retirement benefits of any nature, in each case
whether written or oral, together with any trusts created thereunder.
"ENCUMBRANCE" means any charge, claim, community property
interest, condition, equitable interest, mortgage, lien, option, pledge,
security interest, right of first refusal or restriction of any kind,
including any restriction on use, voting (in the case of any security),
transfer, receipt of income or exercise of any other attribute of
ownership.
"ENVIRONMENT" means soil, land surface or subsurface strata,
surface waters (including navigable waters and ocean waters), groundwaters,
drinking water supply, steam sediments, ambient air (including indoor air),
plant and animal life and any other environmental medium or natural
resource.
"ENVIRONMENTAL LAW" means any Legal Requirement designed: (a) to
advise appropriate authorities, employees and the public of intended,
Threatened or actual releases of pollutants or hazardous substances or
materials, violations or discharge limits or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment; (b) to prevent or
acceptably minimize the release or emission of pollutants or hazardous
substances or materials into the Environment; (c) to reduce the quantities,
prevent the release and minimize the hazardous characteristics of wastes
that are generated; (d) to regulate the generation, treatment, storage,
handling or disposal of hazardous substances; (e) to assure that products
are designed, formulated, packaged or used so that they do not present
unreasonable risks to human health or the Environment when used or disposed
of; (f) to protect resources, species or ecological amenities; (g) to
acceptably minimize the risks inherent in transportation of hazardous
substances, pollutants, oil or other potentially harmful substances; (h) to
clean up pollutants that have been released, prevent the threat of release
or pay the costs of such clean up or prevention; (i) to make responsible
parties pay private parties, or groups of them, for damages done to their
health or Environment, or to permit self-appointed representatives of the
public interest to recover for injuries done to public assets; or (j) to
regulate in any manner the potential impact of an activity on the
Environment.
"ENVIRONMENTAL LIABILITY" means any Adverse Consequence arising
from or relating to Environmental Law or Occupational Safety and Health Law
with respect to acts or omissions by I-WAY or any predecessor or Affiliate
or conditions in existence or events or circumstances having occurred, in
each case on or before the Closing Date, including (a) any environmental,
health or safety matters or conditions (including on-site or off-site
contamination, occupational safety and health and regulation of chemical
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substances or products); and (b) any responsibility for response costs,
corrective action or actions to achieve compliance, including any cleanup,
removal, containment or other remediation or response action ("Cleanup")
required by applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages. The terms "removal," "remedial," and "response action" include
the types of activities covered by the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. <Section>
9601 et seq., as amended, or any similar state law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 2.4
of this Agreement.
"GAAP" means generally accepted United States accounting
principles.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent,
certificate, tariff, license, permit, waiver or other authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
"GOVERNMENTAL BODY" means any: (a) nation, state, county, city,
town, village, district or other jurisdiction of any nature; (b) federal,
state, local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental
agency, branch, department, official or entity and any court or other
tribunal); (d) multi-national organization or body; or (e) body exercising,
or entitled or purporting to exercise, any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power of
any nature.
"I-WAY" has the meaning set forth in the first paragraph of this
Agreement.
"I-WAY SHARES" means all of the outstanding shares of common
stock of I-WAY, $1 par value per share.
"INDEMNIFIED PARTY" has the meaning set forth in Section 4.3 of
this Agreement.
"INDEMNIFYING PARTY" has the meaning set forth in Section 4.3 of
this Agreement.
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"INTELLECTUAL PROPERTY ASSETS" include all (a) legal names of
Persons, fictional business names, trading names, registered and
unregistered trademarks, service marks and applications for any of them;
(b) patents and patent applications; (c) copyrights both in published works
and unpublished works; (d) rights in mask works; (e) trade dress; and (f)
know-how, trade secrets, confidential information, software, technical
information, process technology, plans, drawings, specifications, bills of
material, blue prints and other similar data.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in
Section 2.4 of this Agreement.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual awareness of a particular fact or other
matter or awareness that a reasonably prudent individual could be expected
to obtain in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"LABOR ACTIVITY" means any strike, slowdown, picketing, work
stoppage, labor arbitration or Proceeding concerning the grievance of any
employee, application or complaint filed by an employee or union with the
National Labor Relations Board or any comparable Governmental Body,
organizational activity, application for certification of a collective
bargaining agent or other labor dispute against or affecting I-WAY or its
premises.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, multinational or other constitution, law,
ordinance, principle of common law, statute, code, regulation, rule, treaty
or tariff.
"MATERIAL CONTRACT" means any Applicable Contract: (a) that
involves performance of services or delivery of goods or materials by or to
I-WAY of an amount in excess of $5,000; (b) that involves expenditures or
receipts by or of I-WAY in excess of $5,000; (c) that relates to the
ownership, sale or use of real or personal property, except those relating
to personal property having a value per item or aggregate payments of less
than $5,000 and with a term of less than one year; (d) that relates to
Intellectual Property Assets; (e) that involves the sharing of profits,
losses, costs or liabilities by I-WAY with any other Person or by any other
Person with I-WAY; (f) that provides for payments to or by any Persons
based on sales, purchases or profits, other than direct payments for goods;
(g) that grants a power of attorney; (h) that was entered into other than
in the Ordinary Course of Business and contains or provides for an
undertaking by I-WAY to be responsible for consequential damages; (i) that
relates to capital expenditures in excess of $5,000; (j) that limits the
freedom of I-WAY to compete in any line of business or geographic area;
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(k) that contains a guaranty by I-WAY of performance or payment by another
Person; (1) that relates to indebtedness for borrowed money or that creates
an Encumbrance in any of I-WAY's properties or assets; (m) that relates to
the length, duration or condition of employment or the termination thereof
and which cannot be terminated by I-WAY on notice without liability;
(n) that is with any customer of I-WAY; and (o) that amends, supplements or
modifies any of the foregoing.
"MERGER" has the meaning set forth in the second paragraph of
this Agreement.
"MULTI-EMPLOYER RETIREMENT PLAN" has the meaning set forth in
Section 3(37)(A) of ERISA.
"OCCUPATIONAL SAFETY AND HEALTH LAW" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards and any program, whether
governmental or private, designed to provide safe and healthful working
conditions.
"ORDER" means any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means in accordance with the usages
of trade prevailing in the industry in which the applicable Party operates
and in accordance with the applicable Party's historical and customary
day-to-day practices with respect to the activity in question.
"ORGANIZATIONAL DOCUMENTS" means the complete articles or
certificate of incorporation and the bylaws of the applicable Party,
including all amendments.
"PARTY" or "PARTIES" means the signatories to this Agreement, or
any of them as the context indicates.
"PERSON" means any individual, corporation (including any non-
profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization or other
entity or Governmental Body.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" means with respect to a particular individual:
(a) each other member of such individual's Family; (b) any Person that is
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directly or indirectly controlled by any one or more members of such
individual's Family; (c) any Person in which members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and (d)
any Person with respect to which one or more members of such individual's
Family serves as a director, officer, partner, executor or trustee (or in a
smaller capacity). For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual; (ii) the individual's spouse;
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree; and (iv) any other natural
person who resides with such individual; and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least 20% of the outstanding voting power
of a Person or equity securities or other equity interests representing at
least 20% of the outstanding equity securities or equity interests in a
Person.
"REPRESENTATIVE" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor or other
representative of such Person, including legal counsel, accountants and
financial advisors.
"RESTRICTED EVENT" means (a) any declaration or payment of any
dividend or other distribution or payment in respect of shares of capital
stock; (b) any amendment of the Organizational Documents; (c) any payment
or increase of any bonuses, salaries or other compensation to any
shareholder, director, officer or (except in the Ordinary Course of
Business) employee or entry into any employment, severance or similar
Contract with any director, officer or employee; (d) the adoption of, or
increase in the payments to or benefits under, any Employee Benefit Plan
for or with any employees of the applicable Party; (e) any damage to or
destruction or loss of any property or assets of the applicable Party,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, operations, income,
expenses or prospects of the applicable Party; (f) the entry into,
termination of or receipt of notice of termination of any license,
distributorship, dealer, sales representative, joint venture, credit or
similar Contract or transaction involving a total remaining commitment by
the applicable Party of more than $10,000; (g) any sale (other than sales
of inventory in the Ordinary Course of Business), lease or other
disposition of any property or asset of the applicable Party or the
imposition of any Encumbrance on any material property or asset of the
applicable Party, including the sale, lease or disposition of any
Intellectual Property Asset; (h) the cancellation or waiver of any claims
or rights with a value to the applicable Party in excess of $10,000; (i)
any material change in the accounting methods used by the applicable Party;
or (j) any agreement or commitment, whether written or oral, to do any of
the foregoing.
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SELLERS" has the meaning set forth in the first paragraph of
this Agreement and when used in the Agreement means the Sellers
collectively and each of them individually.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.1
of this Agreement.
"TAX" means any tax (including, without limitation, any income
tax, capital gains tax, value-added tax, sales tax, property tax, gift tax,
estate tax or withholding tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or other fee and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected
by or under the authority of any Governmental Body or payable pursuant to
any tax-sharing agreement or any other Contract relating to the sharing of
payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.
"TAX RETURN" means any return (including, without limitation, any
information return), report, statement, schedule, notice, form or other
document or information filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"THREATENED" means, as to any claim, Proceeding, dispute, action
or other matter, that a demand or statement has been made (orally or in
writing), a notice has been given (orally or in writing) or an event has
occurred or some other circumstance exists that would lead a prudent Person
to conclude that such a claim, Proceeding, dispute, action or other matter
is reasonably likely to be asserted, commenced, taken or otherwise pursued
in the future.
"WARRANTS" has the meaning set forth in Section 1.7(a) of this
Agreement.
ARTICLE 6
GENERAL
SECTION 6.1. NON-COMPETE. In consideration of the consummation
of the transactions contemplated by this Agreement and other good and
valuable consideration, Sellers agree that they will not for the shorter of
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(a) a period of five years from the Closing Date or (b) as long as Dakota
and/or the Surviving Corporation are engaged in the business of providing
telecommunications service, directly or indirectly compete or participate
in the ownership, management, financing or control of, or act as a
consultant or agent for, any Person which competes or plans to compete,
directly or indirectly, with Dakota, the Surviving Corporation or any of
their respective Affiliates. The geographic scope of the foregoing
covenant is the entire United States, including each and every state,
county and municipality therein. Sellers further agree that, for the
period specified, they will not induce any employee of the Surviving
Corporation to leave the Surviving Corporation's employment or directly or
indirectly assist any other Person in requesting or inducing any employee
of the Surviving Corporation to leave his or her employment. Finally,
Sellers agree that they will not, from the date of this Agreement and
forever afterward, use or disclose to any Person any proprietary, secret or
confidential information concerning I-WAY or the Surviving Corporation,
including customer names and business and trade secrets. If any court of
competent jurisdiction finds that the time period of the foregoing
covenants is too lengthy, that the geographic scope is too large or that
the scope of the restrictions is too broad, the restrictive time period
shall be deemed to be the longest period permissible by law and the
geographic scope and the scope of the restrictions shall be deemed to
comprise the largest scope permissible by law under the circumstances. It
is the Parties' intent to protect and preserve the business and goodwill of
I-WAY to be acquired by Acquisition Corp. and thus the Parties agree and
direct that the time period and scope of the covenants set forth in this
Section 6.1 be the maximum permissible duration and size. The foregoing
shall not prohibit Sellers from owning not more than five percent (5%) of
the outstanding capital stock of any company whose stock is listed on a
national securities exchange or quoted on NASDAQ.
SECTION 6.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS. Except as otherwise expressly indicated in this Agreement,
all representations, warranties, covenants and agreements made by any Party
to this Agreement will survive the Closing and any investigation at any
time made by or on behalf of any Party before or after the Closing for a
period of two years from the Closing Date. Notwithstanding the foregoing,
the representations and warranties set forth in Sections 2.6, 2.10, 2.17,
2.19 and 3.8 of this Agreement, and Sections 2.20 and 3.10 to the extent
they relate to the foregoing sections, shall survive until the statute of
limitation periods applicable to the underlying claims which may give rise
to an indemnity claim expire and the representations and warranties set
forth in Sections 2.3 and 3.2 of this Agreement shall survive forever. The
making of a claim for indemnification under Article 4 will toll the running
of the applicable limitations period set forth above with respect to such
claim.
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SECTION 6.3. BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the
terms of this Agreement will be binding upon, inure to the benefit of and
be enforceable by and against the heirs and legal representatives of
Sellers and the successors and authorized assigns of Dakota and Acquisition
Corp. Except as otherwise expressly provided in this Agreement, nothing in
this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement, this
Agreement being for the exclusive benefit of the Parties and their
respective heirs, legal representatives, successors and assigns. Neither
Party will assign any of its or his respective rights or obligations under
this Agreement to any other Person without the prior written consent of the
other Parties.
SECTION 6.4. ENTIRE AGREEMENT. This Agreement, and the exhibits
and schedules to this Agreement (including the Disclosure Schedule), and
the agreements referred to in this Agreement set forth the entire agreement
and understanding of the Parties in respect of the transactions
contemplated by this Agreement and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made
by either Party that is not embodied in this Agreement or in the documents
referred to in this Agreement, and neither Party will be bound by or liable
for any alleged representation, promise, inducement or statement of
intention not so set forth.
SECTION 6.5. AMENDMENT AND WAIVER. This Agreement may be
amended, modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions hereof may be waived only by a
written instrument executed by the Parties or, in the case of a waiver, by
or on behalf of the Party waiving compliance. The failure of any Party at
any time to require performance of any provision of this Agreement will in
no manner affect the right of that Party at a later time to enforce such
provision. No waiver by any Party of any condition or of any Breach of any
term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, will be deemed to be or construed as a further
or continuing waiver of any such condition or of any Breach of the term,
covenant, representation or warranty or any other term, covenant,
representation or warranty set forth in this Agreement.
SECTION 6.6. GOVERNING LAW. This Agreement will be governed by
and construed in accordance with the laws of the State of South Dakota as
applicable to Contracts made and to be performed in the State of South
Dakota without regard to conflict of laws principles.
SECTION 6.7. PUBLIC DISCLOSURE. Except as may be required by
applicable law or the rules of any national securities exchange or
quotation system, no Party will make any public disclosure of the existence
or terms of this Agreement or the transactions contemplated by this
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Agreement without the prior written consent of the other Parties, which
consent will not be unreasonably withheld.
SECTION 6.8. NOTICES. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement will be
in writing and will be deemed to have been duly given if delivered by hand,
sent by facsimile with confirmation, sent by a nationally recognized
overnight mail service or mailed first class, postage prepaid:
(a) If to Dakota or with a copy to:
Acquisition Corp.:
Dakota Cooperative Warner Norcross & Judd LLP
Telecommunications, Inc. 900 Old Kent Building
P.O. Box 66, Highway 46 111 Lyon Street, N.W.
Irene, South Dakota 57037 Grand Rapids, Michigan 49503
Telephone: (605) 263-3301 Telephone: (616) 752-2000
Facsimile: (605) 263-3995 Facsimile: (616) 752-2500
Attention: Mr. Craig A. Anderson Attention: Tracy T. Larsen,
Esq.
(b) If to Sellers: with a copy to:
To the individuals at the Leonard, Street and Deinard
addresses and telephone and 150 South Fifth Street,
facsimile numbers listed on Ste 2300
EXHIBIT A to this Agreement Minneapolis, Minnesota 55402
Telephone: (612) 335-1500
Facsimile: (612) 335-1657
Attention: John T. Roberts, Esq.
A Party may change its address, telephone number or facsimile number by
prior written notice to the other Parties.
SECTION 6.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed will be deemed to be an
original and such counterparts will together constitute one and the same
agreement.
SECTION 6.10. EXPENSES. Each Party will pay its or his own
respective expenses, costs and fees (including attorneys' and accountants'
fees) incurred in connection with the negotiation, preparation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement, and none of such expenses, costs or fees
will be paid by I-WAY.
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SECTION 6.11. SEVERABILITY. Any provision, or clause of any
provisions, of this Agreement that may be found to be contrary to South
Dakota law or otherwise unenforceable will not affect the remaining terms
of this Agreement, which will be construed as if the unenforceable
provision or clause were absent from this Agreement.
SECTION 6.12. HEADINGS; CONSTRUCTION; TIME OF ESSENCE. The
headings of the sections and paragraphs in this Agreement have been
inserted for convenience of reference only and will not restrict or
otherwise modify any of the terms or provisions of this Agreement. Unless
otherwise expressly provided, the word "including" whenever used in this
Agreement does not limit the preceding words or terms. With regard to all
dates and time periods set forth or referred to in this Agreement, time is
of the essence.
[The remainder of this page is intentionally left blank.]
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<PAGE>
The Parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /s/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Dakota"
DAKOTA ACQUISITION CORP. #2
By /s/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Acquisition Corp."
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<PAGE>
I-WAY PARTNERS, INC.
By /s/ DOUG SCHNEIDER
Its PRESIDENT
"I-WAY"
/s/ JOEL T. HAGEN
Joel T. Hagen
/s/ JOHN F. ARCHER
John F. Archer
/s/ JEFFREY G. PARKER
Jeffrey G. Parker
/s/ DONALD B. GRAHAM
Donald B. Graham
/s/ DOUG SCHNEIDER
Doug Schneider
/s/ GERY BAAR
Gery Baar
/s/ DOUGLAS ENGLISH
Douglas English
"Sellers"
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<PAGE>
EXHIBIT A
<TABLE>
LIST OF SELLERS
<CAPTION>
NAME AND ADDRESS OF SELLER NUMBER OF I-WAY SHARES OWNED
<S> <C>
Mr. Joel T. Hagen 7,000
Hagen, Wilka & Archer, P.C.
100 South Phillips Avenue, Suite 418
P.O. Box 964
Sioux Falls, SD 57101-0954
Mr. John F. Archer 7,000
Hagen, Wilka & Archer, P.C.
100 South Phillips Avenue, Suite 418
P.O. Box 964
Sioux Falls, SD 57101-0964
Mr. Jeffrey Parker 7,000
Parker Transfer & Storage
1700 F Avenue
Sioux Falls, SD 57104
Dr. Donald B. Graham 7,000
Surgical Associates, Ltd.
1201 Euclid Avenue, Suite 201
Sioux Falls, SD 57105
Mr. Doug Schneider 7,000
140 North Phillips Avenue, Suite 404
Sioux Falls, SD 57102
Mr. Gery Baar 17,500
4401 Tomar Road
Sioux Falls, SD 57105
Mr. Douglas English 17,500
909 Plum Creek Road
Sioux Falls, SD 57105
</TABLE>
<PAGE>
EXHIBIT C
ARTICLES OF MERGER
and related
PLAN OF MERGER
<PAGE>
EXHIBIT D
FORM OF WARRANT
<PAGE>
EXHIBIT E
FORM OF STANDSTILL AGREEMENT
<PAGE>
EXHIBIT 2.4
MERGER AGREEMENT
by and among
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.,
DAKOTA ACQUISITION CORP. #1
and
TCIC COMMUNICATIONS, INC.
November 27, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Merger of TCIC with and into Acquisition Corp. . . . 1
Section 1.2. Shareholder Approval . . . . . . . . . . . . . . . . 1
Section 1.3. Closing. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Effective Time . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Effects of the Merger . . . . . . . . . . . . . . . 2
Section 1.6. Surviving Corporation. . . . . . . . . . . . . . . . 2
Section 1.7. Conversion of TCIC Shares. . . . . . . . . . . . . . 2
Section 1.8. Conveyances to Surviving Corporation . . . . . . . . 3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
OF SELLERS AND TCIC. . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Disclosure Schedule. . . . . . . . . . . . . . . . . 4
Section 2.2. Organization and Good Standing . . . . . . . . . . . 4
Section 2.3. Capitalization of TCIC; Ownership . . . . . . . . . 4
Section 2.4. Financial Statements.. . . . . . . . . . . . . . . . 4
Section 2.5. Books and Records. . . . . . . . . . . . . . . . . . 5
Section 2.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7. No Material Adverse Change; Absence of Restricted
Events.. . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.8. Employees; Labor Relations . . . . . . . . . . . . . 6
Section 2.9. Employee Benefit Plans.. . . . . . . . . . . . . . . 6
Section 2.10. Title to and Condition of Properties; Encumbrances . 7
Section 2.11. Litigation . . . . . . . . . . . . . . . . . . . . . 8
Section 2.12. Authorization and Enforceability; No Conflict with
Other Instruments or Proceedings.. . . . . . . . . . 8
Section 2.13. Contracts. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.14. Intellectual Property. . . . . . . . . . . . . . . . 9
Section 2.15. Insurance. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.16. Certain Relationships. . . . . . . . . . . . . . . . 9
Section 2.17. Permits, Tariffs and Licenses; Compliance with Legal
Requirements . . . . . . . . . . . . . . . . . . . . 10
Section 2.18. Investment Intent. . . . . . . . . . . . . . . . . 10
Section 2.19. No Broker's Fees . . . . . . . . . . . . . . . . . 10
Section 2.20. Accuracy of Statements . . . . . . . . . . . . . . 10
<PAGE>
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF DAKOTA AND
ACQUISITION CORP.. . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Organization and Good Standing . . . . . . . . . . 11
Section 3.2. Capitalization of Acquisition Corp. . . . . . . . 11
Section 3.3. Books and Records . . . . . . . . . . . . . . . . 11
Section 3.4. Taxes . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.5. No Material Adverse Change; Absence of Restricted
Events . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6. Litigation . . . . . . . . . . . . . . . . . . . . 12
Section 3.7. Authorization and Enforceability; No Conflict with
Other Instruments or Proceedings . . . . . . . . . 12
Section 3.8. Permits, Tariffs and Licenses; Compliance with
Legal Requirements . . . . . . . . . . . . . . . . 13
Section 3.9. No Broker's Fees . . . . . . . . . . . . . . . . . 14
Section 3.10. Accuracy of Statements . . . . . . . . . . . . . . 14
ARTICLE 4 - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Indemnification and Reimbursement by Sellers . . . . 14
Section 4.2. Indemnification and Reimbursement by Dakota and
Acquisition Corp.. . . . . . . . . . . . . . . . . . 14
Section 4.3. Indemnification Procedures.. . . . . . . . . . . . . 14
Section 4.4. Basket . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 5 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 6 - GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1. Non-Compete. . . . . . . . . . . . . . . . . . . . . 23
Section 6.2. Survival of Representations, Warranties, Covenants
and Agreements . . . . . . . . . . . . . . . . . . . 24
Section 6.3. Binding Effect; Benefits; Assignment . . . . . . . . 24
Section 6.4. Entire Agreement . . . . . . . . . . . . . . . . . . 25
Section 6.5. Amendment and Waiver . . . . . . . . . . . . . . . . 25
Section 6.6. Governing Law. . . . . . . . . . . . . . . . . . . . 25
Section 6.7. Public Disclosure. . . . . . . . . . . . . . . . . . 25
Section 6.8. Notices. . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.9. Counterparts . . . . . . . . . . . . . . . . . . . . 26
Section 6.10. Expenses . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.11. Severability . . . . . . . . . . . . . . . . . . . . 26
Section 6.12. Headings; Construction; Time of Essence. . . . . . . 27
<PAGE>
EXHIBITS
Exhibit A--List of Sellers
Exhibit B--Agreement Regarding Dakota Preferred Stock
Exhibit C--Articles of Merger and related Plan of Merger
Exhibit D--Form of Warrant
Exhibit E--Form of Standstill Agreement
DISCLOSURE SCHEDULE
Schedule 1--Organization and Standing of TCIC
Schedule 2--Financial Statements
Schedule 3--Taxes
Schedule 4--Restricted Events
Schedule 5--Employee Relations
Schedule 6--Employee Benefit Plans
Schedule 7--Real Property, Leaseholds or other interests
Schedule 8--Authorization and Enforceability; No Conflict
Schedule 9--Contracts
Schedule 10--Intellectual Property
Schedule 11--Insurance
Schedule 12--Permits and Licenses; Compliance with Law
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made as of
November 27, 1996, by and among Dakota Cooperative Telecommunications,
Inc., a South Dakota cooperative corporation ("Dakota"), Dakota Acquisition
Corp. #1, a South Dakota corporation and wholly owned subsidiary of Dakota
("Acquisition Corp.") and TCIC Communications, Inc., a South Dakota
corporation ("TCIC"). This Agreement is joined in by all of the
shareholders of TCIC as identified on EXHIBIT A to this Agreement (each a
"Seller" and collectively "Sellers"). Capitalized terms used in this
Agreement and not otherwise defined are defined in Article 5 of this
Agreement.
Sellers and the boards of directors of Dakota, Acquisition Corp.
and TCIC each deem it desirable and in the best interests of their
respective corporations for TCIC to become affiliated with Dakota through
the merger of TCIC with and into Acquisition Corp. (the "Merger") in
accordance with the provisions of the South Dakota Business Corporation Act
(the "Act") and the terms and conditions of this Agreement. The boards of
directors and shareholders of Acquisition Corp. and TCIC have unanimously
approved this Agreement and the transactions contemplated hereby (including
the Merger).
ACCORDINGLY, in consideration of the representations, warranties
and covenants contained in this Agreement, the Parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. MERGER OF TCIC WITH AND INTO ACQUISITION CORP.
Subject to the other conditions set forth in this Agreement, TCIC and
Acquisition Corp. will be, at the Effective Time, merged into a single
surviving corporation, which will be Acquisition Corp. (sometimes referred
to in this Agreement as the "Surviving Corporation"). The Surviving
Corporation will continue its corporate existence under the name "TCIC
Communications, Inc." and will remain a South Dakota corporation governed
by and subject to the laws of that state.
SECTION 1.2. SHAREHOLDER APPROVAL. This Agreement and the
Merger have been approved by the shareholders of TCIC and Acquisition Corp.
in accordance with the applicable laws of the State of South Dakota.
SECTION 1.3. CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the
offices of Dakota, East Highway 46, Irene, South Dakota 57037, at 10 a.m.
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<PAGE>
local time, on November 27, 1996, or at such other place or time as the
Parties may agree. At the Closing, the Parties will cause the Articles of
Merger to be filed in accordance with the Act and shall take all other
lawful actions and do all other lawful things called for by this Agreement
or necessary to cause the Merger to become effective and to consummate the
transactions contemplated by this Agreement. In addition, at the Closing
the Parties will execute the agreements attached as EXHIBITS B, D and E to
this Agreement, and Sellers will deliver a letter of resignation and
release of claims executed by each director and officer of TCIC and such
additional agreements, instruments or certificates as Dakota may reasonably
require.
SECTION 1.4. EFFECTIVE TIME. The Merger will become effective
at the date and time set forth in the Articles of Merger and related Plan
of Merger attached as EXHIBIT C to this Agreement following the issuance of
a Certificate of Merger by the Secretary of the State of South Dakota. The
time and date on which the Merger shall become effective is referred to in
this Agreement as the "Effective Time."
SECTION 1.5. EFFECTS OF THE MERGER. The effect of the Merger on
TCIC and Acquisition Corp. will be as provided in Sections 47-6-9 through
47-6-12, inclusive, of the Act with respect to the merger of two domestic
corporations where the surviving corporation will be governed by the laws
of the State of South Dakota.
SECTION 1.6. SURVIVING CORPORATION. Immediately after the
Effective Time, the Surviving Corporation will have the following
attributes until they are subsequently changed in the manner provided by
law: (i) the name of the Surviving Corporation will be "TCIC
Communications, Inc."; (ii) the articles of incorporation and bylaws of
Acquisition Corp. (except for the name as described above) will be the
articles of incorporation and bylaws of the Surviving Corporation; and
(iii) the persons who, immediately before the Effective Time, constitute
the board of directors and officers of Acquisition Corp. will be the
directors and officers, respectively, of the Surviving Corporation and will
hold office until their respective successors are duly elected and
qualified.
SECTION 1.7. CONVERSION OF TCIC SHARES. As a result of the
Merger, the TCIC Shares will automatically be converted into shares of
Dakota Preferred Stock as follows:
(a) CONVERSION OF TCIC SHARES. At the Effective Time, each
of the TCIC Shares outstanding immediately before the Effective
Time will automatically become and be converted into the right to
receive (i) .000619 validly issued, fully paid and nonassessable
shares of Non-Voting, Non-Cumulative Preferred Stock, par value
$100 per share, of Dakota (the "Dakota Preferred Stock"), issued
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<PAGE>
pursuant to the terms of Dakota's Articles of Incorporation and
subject to the additional terms as provided in EXHIBIT B to this
Agreement, and (ii) warrants to acquire .000298 additional shares
of Dakota Preferred Stock in accordance with the terms and
conditions of EXHIBIT D to this Agreement (the "Warrants").
(b) CONVERSION OF ACQUISITION CORP. COMMON STOCK. At the
Effective Time, each share of Acquisition Corp.'s common stock,
no par value per share, outstanding immediately before the
Effective Time will continue to be outstanding without change and
will constitute all of the outstanding capital stock of the
Surviving Corporation as of such date.
(c) EXCHANGE OF TCIC CERTIFICATES. At the Effective Time,
Sellers will surrender their outstanding certificate or
certificates representing the TCIC Shares to Dakota and receive
in exchange therefor certificates representing the number of
shares of Dakota Preferred Stock into which the TCIC Shares
represented by the certificate or certificates so surrendered
will have been converted as described above. The holders of TCIC
Shares outstanding immediately before the Effective Time will
have no rights as TCIC shareholders as of the Effective Time and
each certificate representing the TCIC Shares will represent only
the right to receive shares of Dakota Preferred Stock and
Warrants as provided in this Agreement. On and after the
Effective Time, there will be no transfer of TCIC Shares on the
stock books of TCIC and ownership of TCIC Shares may be
transferred only on the stock books of Acquisition Corp.
SECTION 1.8. CONVEYANCES TO SURVIVING CORPORATION. TCIC hereby
agrees that from time to time after the Effective Time, as and when
requested by the Surviving Corporation, or by its successors and assigns,
it will execute and deliver, or cause to be executed and delivered, all
such deeds, conveyances, assignments, assurances and other instruments, and
will take or cause to be taken such further or other action as the
Surviving Corporation, its successors or assigns, may deem necessary or
desirable to vest or perfect in or confirm to the Surviving Corporation,
its successors and assigns, title to and possession of all the property,
rights, privileges, powers, immunities, franchises, interests and assets
acquired or to be acquired by the Surviving Corporation as a result of, or
in connection with, the Merger and to otherwise carry out the intent and
purposes of this Agreement. TCIC hereby grants to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all
such deeds, conveyances, assignments and assurances and to do all acts
necessary, proper or convenient to accomplish this purpose. The directors
and officers of the Surviving Corporation will be fully authorized in the
name of TCIC to take any and all such action contemplated by this
Agreement.
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<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND TCIC
Sellers and TCIC, jointly and severally, represent and warrant to
Dakota and Acquisition Corp. as follows:
SECTION 2.1. DISCLOSURE SCHEDULE. Sellers have delivered to
Dakota and Acquisition Corp. a disclosure schedule (the "Disclosure
Schedule"), which includes the numbered schedules specifically referred to
in this Article 2. The information contained in the Disclosure Schedule is
complete and accurate in all respects and all documents that are attached
to or form a part of the Disclosure Schedule are true and complete copies
of the genuine original documents they purport to represent.
SECTION 2.2. ORGANIZATION AND GOOD STANDING. TCIC is a
corporation duly organized, validly existing and in good standing under the
laws of the State of South Dakota, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use and to perform its
obligations under Applicable Contracts. TCIC is duly qualified to do
business as a foreign corporation and is in good standing in each state or
other jurisdiction in which either the ownership or use of the properties
owned or used by TCIC or the nature of the activities conducted by TCIC
requires such qualification. Copies of TCIC's Organizational Documents are
attached to SCHEDULE 1 of the Disclosure Schedule. TCIC does not have any
subsidiaries and, except as disclosed on SCHEDULE 1, does not own or have
any right to acquire any equity interest in any other Person.
SECTION 2.3. CAPITALIZATION OF TCIC; OWNERSHIP. The authorized
capital stock of TCIC consists of 2,500,000 shares of common stock, $1 par
value per share, of which 1,504,222 shares are issued and outstanding
(i.e., the TCIC Shares). There are no other authorized classes or series
of capital stock or other equity securities of TCIC. All of the TCIC
Shares were validly issued, are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights of any shareholder.
There are no outstanding Contracts that require Sellers to sell any TCIC
Shares or that require TCIC to issue or sell any shares of capital stock of
TCIC or securities convertible into shares of capital stock of TCIC.
Sellers own, beneficially and of record, all of the TCIC Shares, as set
forth on EXHIBIT A to this Agreement, free and clear of all Encumbrances.
After the Effective Time, the TCIC Shareholder Agreement dated as of August
31, 1990, as the same may have been amended, shall automatically terminate
and be of no further effect and neither TCIC nor the Surviving Corporation
shall have any obligation thereunder.
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<PAGE>
SECTION 2.4. FINANCIAL STATEMENTS. Copies of the compiled
financial statements for TCIC at and for the fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993, together with
the notes thereto, are attached to SCHEDULE 2 of the Disclosure Schedule
(the "Financial Statements"). Also attached to SCHEDULE 2 are copies of
the interim balance sheets and interim statements of income of TCIC at and
for each month-end during the current fiscal year (through October 31,
1996), each prepared internally by TCIC, together with the notes thereto,
if any (the "Interim Financial Statements"). The Interim Financial
Statements include the balance sheet of TCIC at October 31, 1996 (the
"Balance Sheet"). The Financial Statements and Interim Financial
Statements are correct and complete in all respects and present fairly the
financial condition of TCIC at the dates indicated and its results of
operations for the periods then ended, all in accordance with GAAP applied
on a basis consistent throughout such periods and consistent with prior
periods (subject, in the case of the Interim Financial Statements, to
(a) normal recurring year-end adjustments, the effect of which will not
individually or in the aggregate be materially adverse, and (b) the absence
of notes to the Interim Financial Statements which, if presented, would not
differ materially from those included in the Financial Statements for the
fiscal year ended December 31, 1995). TCIC has no liabilities, obligations
or contingencies of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise), except for liabilities,
obligations or contingencies (including contingencies for bad debt) as and
to the extent reflected or reserved against in the Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since
October 31, 1996, which will not, individually or in the aggregate,
materially adversely affect TCIC or its business. Except for the reserve
for bad debt reflected on the Balance Sheet, all accounts receivable of
TCIC are valid and will be collected in full (a) other than with respect to
"0+ Service," within 60 days following the Closing Date, and (b) with
respect to "0+ Service," within 120 days following the Closing Date.
SECTION 2.5. BOOKS AND RECORDS. The books of account, minute
books, stock record books and other records of TCIC, all of which have been
made available to Dakota and Acquisition Corp., are complete and correct
and have been maintained in accordance with sound business practices and
applicable Legal Requirements and reflect only actual transactions. The
minute books of TCIC contain accurate and complete records of all meetings
held and all corporate action taken by the shareholders or board of
directors of TCIC (or any committee of the board of directors). All of
these books and records are in the possession of TCIC.
SECTION 2.6. TAXES. TCIC has timely (a) filed all Tax Returns
pursuant to applicable Legal Requirements; (b) paid or made proper
provision for payment of all Taxes due and payable by it; and (c) withheld
or collected all Taxes required by applicable Legal Requirements and, to
the extent required, paid such Taxes to the proper Governmental Body or
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<PAGE>
other Person. The charges, accruals and reserves with respect to the Taxes
on the books of TCIC are adequate (determined in accordance with GAAP) and
are at least equal to TCIC's liability for Taxes. TCIC has not signed an
extension with any Governmental Body concerning any liability for Taxes and
no open matters exist for any prior periods, nor has TCIC signed any waiver
of any limitations period. There is no proposed Tax assessment against
TCIC and no deficiency has been asserted against TCIC as a result of any
examination by the IRS or other Governmental Body that has not been paid or
finally settled and no grounds exist for the assertion of any deficiency
for any periods that have not been audited by the IRS or other applicable
Governmental Body. There is no Proceeding pending or, to the Knowledge of
Sellers and TCIC, Threatened for collection of Taxes with respect to TCIC.
Copies of TCIC's federal income Tax Returns with supporting schedules filed
for the fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993 are attached to SCHEDULE 3 of the Disclosure Schedule.
SECTION 2.7. NO MATERIAL ADVERSE CHANGE; ABSENCE OF RESTRICTED
EVENTS. Since January 1, 1996, TCIC has conducted its operations and
affairs only in the Ordinary Course of Business; there has not been any
material adverse change in the business, operations, properties, prospects,
assets, financial condition, income or expenses of TCIC; and no event has
occurred or circumstance exists that may result in such a material adverse
change. Except as disclosed on SCHEDULE 4 of the Disclosure Schedule,
since January 1, 1996, no Restricted Event has occurred with respect to
TCIC.
SECTION 2.8. EMPLOYEES; LABOR RELATIONS. SCHEDULE 5 of the
Disclosure Schedule contains the following information for each employee of
TCIC (including each employee on leave of absence or layoff status): name;
job title; current compensation paid or payable; vacation accrued; and
service credited for purposes of vesting and eligibility to participate
under any of TCIC's Employee Benefit Plans. To the Knowledge of Sellers
and TCIC, no key employee of TCIC intends to terminate his or her
employment with TCIC. Each of TCIC's employees is employed on an "at
will" basis. TCIC is not now and has never been a party to any collective
bargaining or other labor Contract. Since January 1, 1996, there has not
been, there is not presently pending or existing and to the Knowledge of
Sellers and TCIC there is not Threatened, any Labor Activity. No event has
occurred or circumstance exists that could provide the basis for any Labor
Activity. There is no lockout of any employees by TCIC and no such action
is contemplated by TCIC. TCIC complies and has complied, in all material
respects, with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, disability, affirmative action,
conditions of employment, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar Taxes, occupational
safety and health and plant closing. TCIC is not liable for the payment of
any Taxes, fines, penalties or other amounts, however designated, for
failure to comply with any of the foregoing Legal Requirements. The books
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<PAGE>
and records of TCIC reflect all existing obligations of TCIC to make
employment-related payments to present or former employees.
SECTION 2.9. EMPLOYEE BENEFIT PLANS. SCHEDULE 6 of the
Disclosure Schedule sets forth each Employee Benefit Plan maintained by
TCIC or covering current or former (including retired) employees of TCIC.
Copies of all written Employee Benefit Plans and all agreements adopted or
other material used in connection with or relating to such Employee Benefit
Plans (including descriptions of vacation, separation and other personnel
policies together with copies of Forms 5500) are also attached to
SCHEDULE 6. TCIC has timely performed all of its obligations (including,
to the extent applicable, reporting, disclosure, prohibited transaction,
IRS qualification and funding and contribution payment obligations) under
its Employee Benefit Plans. Each Employee Benefit Plan and the
administration of each Employee Benefit Plan, complies and has complied
with all applicable Legal Requirements. Neither TCIC nor any predecessor
or Affiliate of TCIC has ever established, maintained or contributed to or
otherwise participated in, or had an obligation to establish, maintain,
contribute to or otherwise participate in, any Multi-Employer Retirement
Plan. No Employee Benefit Plan has incurred an "accumulated funding
deficiency" within the meaning of the Code. All terminations (total or
partial) of Employee Benefit Plans have been done in compliance with the
Code and with notice and disclosure to the Pension Benefit Guaranty
Corporation and all such terminations have been completed.
SECTION 2.10. TITLE TO AND CONDITION OF PROPERTIES;
ENCUMBRANCES. TCIC does not own or have any interest in real property
other than leasehold interests. SCHEDULE 7 of the Disclosure Schedule
contains a list of all leaseholds interests of TCIC. Except as disclosed
on SCHEDULE 7, TCIC owns and has good and marketable title to all the
properties and assets (whether tangible or intangible) located in or at the
facilities operated by TCIC or reflected as owned in the books and records
of TCIC, including all of the properties and assets reflected in the
Balance Sheet (except for personal property sold since the date of the
Balance Sheet in the Ordinary Course of Business). Except as disclosed on
SCHEDULE 7 of the Disclosure Schedule, all properties and assets reflected
in the Balance Sheet are free and clear of all Encumbrances. All personal
property owned by TCIC will be in the possession of TCIC on the Closing
Date or at such other location as is specified on SCHEDULE 7. To the
Knowledge of Sellers, all buildings, plants and structures leased by TCIC
lie wholly within the boundaries of the real property owned or leased by
TCIC and do not encroach upon the property of, or otherwise conflict with
the property rights of, any other Person and no other Person's property
encroaches upon the property of, or otherwise conflicts with the property
rights of, TCIC. None of TCIC's property is the subject of any proposed or
pending condemnation action. All boundaries are what they appear to be
from visual inspection. The buildings, plants, structures and equipment of
TCIC (a) are structurally sound, are in good operating condition and repair
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and are adequate for the uses to which they are being put and adequately
serviced by utilities; (b) do not need maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature
or cost; (c) are sufficient for the continued conduct of TCIC's business
after the Closing in substantially the same manner as conducted before the
Closing; and (d) comply with all Legal Requirements and restrictive
covenants. To the Knowledge of Sellers, no real property previously or
currently owned or leased by TCIC (or any predecessor or Affiliate of TCIC)
has been or is in violation of any Environmental Law. To the Knowledge of
Sellers, no Encumbrance exists and no condition exists which could result
in the filing or creation of an Encumbrance against any property of TCIC or
the Surviving Corporation under any Environmental Law. TCIC has not been
requested or required by any Governmental Body to perform any investigatory
or remedial activity under or in connection with an Environmental Law, nor
has it received any notice from any Person under any Environmental Law.
SECTION 2.11. LITIGATION. Except for docketed Proceedings
before the South Dakota Public Utilities Commission (which will not,
individually or in the aggregate, materially adversely affect TCIC or its
business) and except for the pending Proceeding in South Dakota Public
Utilities Commission Docket No. 96-107, there is no Proceeding or Order
pending against TCIC or that otherwise relates to or may affect the
business of, or any of the property or assets owned or used by, TCIC or
that may interfere with the transactions contemplated by this Agreement.
No such Proceeding or Order has been, to the Knowledge of TCIC, Threatened
and no event has occurred or circumstance exists that may give rise to or
serve as a basis for any such Proceeding or Order.
SECTION 2.12. AUTHORIZATION AND ENFORCEABILITY; NO CONFLICT WITH
OTHER INSTRUMENTS OR PROCEEDINGS.
(a) Sellers and TCIC have full capacity, power and
authority to enter into, deliver and perform this Agreement and
to carry out the transactions contemplated by this Agreement.
This Agreement is binding upon Sellers and TCIC and is
enforceable against Sellers and TCIC in accordance with its
terms.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
by this Agreement have been authorized by all necessary corporate
actions and will not (i) contravene the Organizational Documents
or result in a Breach of any provision of, or constitute a
default under, any Applicable Contract; (ii) violate any Legal
Requirement or Order or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify any
Governmental Authorization applicable to TCIC; (iii) result in
the imposition of any Tax on TCIC or the Surviving Corporation or
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accelerate any indebtedness of TCIC or increase the rate of
interest payable by TCIC with respect to any indebtedness;
(iv) result in any Encumbrance being created or imposed upon or
with respect to any of the property or assets owned or used by
TCIC; or (v) subject Dakota or the Surviving Corporation to
liability for or claims of tortious interference with contractual
rights. Except for the filings to be made on the Closing Date
with the Secretary of the State of South Dakota as contemplated
by Article 1 of this Agreement, all consents, approvals or
authorizations of or declarations, filings or registrations with
any Person required in connection with the execution, delivery or
performance of this Agreement or the consummation of the
transactions contemplated by this Agreement are set forth on
SCHEDULE 8 of the Disclosure Schedule and will be obtained or
made, as applicable, by Sellers or TCIC before the Closing.
SECTION 2.13. CONTRACTS. SCHEDULE 9 of the Disclosure Schedule
sets forth (and includes a copy of) each Material Contract to which TCIC is
a party or by which TCIC is bound or affected. Each Material Contract is
in full force and effect and is valid and enforceable in accordance with
its terms. TCIC and each other Person that is a party to a Material
Contract has complied and is complying with the terms of the applicable
Material Contract and no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with or
result in a violation or Breach of, or give TCIC or any other Person the
right to declare a default under, any Material Contract. No Material
Contract contains any provision that would interfere with the Surviving
Corporation's assumption, after the Merger, of obligations and benefits
under the Contract upon the same terms that are currently applicable to
TCIC, and TCIC is not bound by or subject to any Contracts which may be
accelerated, terminated or otherwise materially affected by virtue of the
change of control of TCIC upon consummation of the Merger.
SECTION 2.14. INTELLECTUAL PROPERTY. SCHEDULE 10 of the
Disclosure Schedule sets forth all registered Intellectual Property Assets
presently owned or used by TCIC. Unless otherwise indicated on
SCHEDULE 10, TCIC will own the entire right, title and interest in and to
all Intellectual Property Assets on the Closing Date free and clear of all
Encumbrances, and following the Closing the Surviving Corporation will have
the right to use such Intellectual Property Assets without payment to any
other Person. There is no infringement of or unlawful use by any Person of
any Intellectual Property Assets owned or used by TCIC, and TCIC has not
infringed or unlawfully used any Intellectual Property Assets of any other
Person. SCHEDULE 10 also sets forth a list of all Contracts relating to
Intellectual Property Assets to which TCIC is a party or by which TCIC is
bound or affected. The Intellectual Property Assets are all those
necessary for the operation of TCIC's business as presently conducted and
are sufficient in form and quality so that after the Closing the Surviving
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Corporation can sell the products and provide the services sold or provided
by TCIC before the Closing in a manner that meets applicable specifications
and conforms to commercially acceptable quality standards.
SECTION 2.15. INSURANCE. SCHEDULE 11 of the Disclosure Schedule
contains a list of all policies of liability, crime, fidelity, life, fire,
product liability, workers' compensation, health, director and officer
liability and other forms of insurance owned or maintained by TCIC,
including for each policy: the name of the insurer; the amount of
coverage; the type of insurance; the policy number; the renewal or
expiration date; and all pending claims under the policy. All of the
insurance policies listed on SCHEDULE 11 are outstanding and in full force,
all premiums with respect to the policies are currently paid and all duties
of the insureds under the policies have been fully discharged.
SECTION 2.16. CERTAIN RELATIONSHIPS. Except as disclosed on
SCHEDULE 12 of the Disclosure Schedule, no Seller or any Related Person is
an owner, shareholder, creditor, director, agent, consultant or employee
of, or lender to, any Person engaged in a business that acts as a supplier
of any goods or services to TCIC or any part of which is in actual or
potential competition with TCIC. Except as disclosed in SCHEDULE 12 of the
Disclosure Schedule, TCIC does not have any outstanding indebtedness to
Sellers or any Related Person and neither Sellers nor any Related Person
has any outstanding indebtedness to TCIC.
SECTION 2.17. PERMITS, TARIFFS AND LICENSES; COMPLIANCE WITH
LEGAL REQUIREMENTS. All Governmental Authorizations necessary for TCIC to
carry on its business as presently conducted are identified on SCHEDULE 13
of the Disclosure Schedule and have been timely obtained, are in full force
and effect and have been complied with. All fees and charges incident to
those Governmental Authorizations have been fully paid and are current and
no suspension, revocation, cancellation or limitation of any Governmental
Authorization has been, to the Knowledge of Sellers and TCIC, Threatened or
could result by reason of the transactions contemplated by this Agreement.
TCIC is not subject to, nor, to the Knowledge of Sellers and TCIC, has it
been Threatened with, any Adverse Consequence as the result of a failure to
comply with any Legal Requirement applicable to it or the conduct or
operation of its business or the ownership or use of any of its properties
or assets and no event has occurred or circumstance exists (with or without
notice or lapse of time) that may give rise to any such Adverse
Consequence. TCIC is presently and during all applicable limitations
periods has been, in all material respects, in full compliance with all
applicable Legal Requirements. Neither TCIC nor any other Person
associated with or acting on behalf of TCIC has used any TCIC funds for
unlawful contributions, gifts, entertainment or other expenses or made any
direct or indirect unlawful payments from TCIC funds or established or
maintained any unlawful or unrecorded funds. Neither TCIC nor any
predecessor or Affiliate of TCIC is or has been in violation of, or has
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Environmental Liability under, any Environmental Law. There are no past or
present conditions, circumstances, activities, practices, omissions, plans
or contractual undertakings that will interfere with or prevent continued
compliance by the Surviving Corporation with Environmental Laws and the
requirements of any permits or licenses issued under any Environmental Law
or that will give rise to any Environmental Liability or other obligation
under any Environmental Law.
SECTION 2.18. INVESTMENT INTENT. Sellers are acquiring the
Dakota Preferred Stock for their own accounts and not with a view to their
distribution within the meaning of the Securities Act of 1933, as amended
("Securities Act"). Sellers have no plan or intention to sell or otherwise
dispose of the shares of Dakota Preferred Stock to be received by them in
the Merger or any shares of Dakota common stock received by them upon the
automatic conversion of Dakota Preferred Stock in the event Dakota's common
stock is registered under the Securities Act.
SECTION 2.19. NO BROKER'S FEES. Neither Sellers, TCIC nor
anyone acting on Sellers' or TCIC's behalf has incurred any liability or
obligation to pay fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which
Dakota, TCIC or the Surviving Corporation could be liable.
SECTION 2.20. ACCURACY OF STATEMENTS. No representation or
warranty made by Sellers in this Agreement, the Disclosure Schedule or any
statement, certificate or schedule furnished to Dakota or Acquisition Corp.
pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF DAKOTA AND ACQUISITION CORP.
Dakota and Acquisition Corp., jointly and severally, represent
and warrant to Sellers and TCIC as follows:
SECTION 3.1. ORGANIZATION AND GOOD STANDING. Dakota is a
cooperative corporation and Acquisition Corp. is a business corporation
each duly organized, validly existing and in good standing under the laws
of the State of South Dakota, with full corporate power and authority to
conduct their business as they are now being conducted, to own or use the
properties and assets that they purport to own or use and to perform their
obligations under Applicable Contracts. Neither the ownership or use of
the properties owned or used by Dakota or Acquisition Corp. nor the nature
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of the activities conducted by Dakota or Acquisition Corp. requires them to
be qualified or registered to do business in any state or jurisdiction
other than South Dakota.
SECTION 3.2. CAPITALIZATION OF ACQUISITION CORP.; OWNERSHIP.
The authorized capital stock of Acquisition Corp. consists of 2,000 shares
of common stock, no par value per share, of which 1,000 shares are issued
and outstanding. All of the issued and outstanding common shares of
Acquisition Corp. are owned by Dakota. The authorized capital stock of
Dakota consists of 15,000 shares of common stock, $5 par value per share,
of which approximately 6,000 shares are issued and outstanding and 63,000
shares of preferred stock, $100 par value per share, none of which is
outstanding. All Dakota Preferred Stock to be issued in the Merger or
pursuant to the Warrants will, when issued, be duly authorized, validly
issued, fully paid and nonassessable and will not be subject to any
preemptive rights. Except as provided in Dakota's Organizational Documents
and the Warrants, there are no outstanding Contracts that require Dakota or
Acquisition Corp. to sell any of their common or preferred shares or that
require Dakota or Acquisition Corp. to issue or sell any shares of capital
stock or securities convertible into shares of capital stock of Dakota or
Acquisition Corp.
SECTION 3.3. BOOKS AND RECORDS. The books of account, minute
books, stock record books and other records of Dakota and Acquisition Corp.
are complete and correct and have been maintained in accordance with sound
business practices and applicable Legal Requirements and reflect only
actual transactions. The minute books of Dakota and Acquisition Corp.
contain accurate and complete records of all meetings held, and all
corporate action taken, by their respective shareholders or board of
directors (or any committee of the board of directors).
SECTION 3.4. TAXES. Dakota has timely (a) filed all Tax Returns
pursuant to applicable Legal Requirements; (b) paid or made proper
provision for payment of all Taxes due and payable by it; and (c) withheld
or collected all Taxes required by applicable Legal Requirements and, to
the extent required, paid such Taxes to the proper Governmental Body or
other Person. The charges, accruals and reserves with respect to the Taxes
on the books of Dakota are adequate (determined in accordance with GAAP)
and are at least equal to Dakota's liability for Taxes. Dakota has not
signed an extension with any Governmental Body concerning any liability for
Taxes and no open matters exist for any prior periods, nor has Dakota
signed any waiver of any limitations period. There is no proposed Tax
assessment against Dakota and no deficiency has been asserted against
Dakota as a result of any examination by the IRS or other Governmental Body
that has not been paid or finally settled, and no grounds exist for the
assertion of any deficiency for any periods that have not been audited by
the IRS or other applicable Governmental Body. There is no Proceeding
pending or, to the Knowledge of Dakota, Threatened for collection of Taxes
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with respect to Dakota. Copies of Dakota's federal income Tax Returns with
supporting schedules filed for the fiscal years ended December 31, 1995,
December 31, 1994 and December 31, 1993 have been provided to Sellers.
SECTION 3.5. NO MATERIAL ADVERSE CHANGE; ABSENCE OF RESTRICTED
EVENTS. Since January 1, 1996, Dakota has conducted its operations and
affairs only in the Ordinary Course of Business; there has not been any
material adverse change in the business, operations, properties, prospects,
assets, financial condition, income or expenses of Dakota; and no event
has occurred or circumstance exists that may result in such a material
adverse change. Since January 1, 1996, no Restricted Event has occurred
with respect to Dakota.
SECTION 3.6. LITIGATION. Except for docketed Proceedings before
the South Dakota Public Utilities Commission (which will not, individually
or in the aggregate, materially adversely affect Dakota or its business),
there is no Proceeding or Order pending against Dakota or that otherwise
relates to or may affect the business of, or any of the property or assets
owned or used by, Dakota or that may interfere with the transactions
contemplated by this Agreement. No such Proceeding or Order has been, to
the Knowledge of Dakota, Threatened and no event has occurred or
circumstance exists that may give rise to or serve as a basis for any such
Proceeding or Order.
SECTION 3.7. AUTHORIZATION AND ENFORCEABILITY; NO CONFLICT WITH
OTHER INSTRUMENTS OR PROCEEDINGS.
(a) Dakota and Acquisition Corp. have full capacity, power
and authority to enter into, deliver and perform this Agreement
and to carry out the transactions contemplated by this Agreement.
This Agreement is binding upon Dakota and Acquisition Corp. and
is enforceable against Dakota and Acquisition Corp. in accordance
with its terms.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
by this Agreement have been authorized by all necessary corporate
actions and will not (i) contravene the Organizational Documents
or result in a Breach of any provision of, or constitute a
default under, any Applicable Contract; (ii) violate any Legal
Requirement or Order or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify any
Governmental Authorization applicable to Dakota or the Surviving
Corporation; (iii) result in the imposition of any Tax on the
Surviving Corporation or accelerate any indebtedness of Dakota or
the Surviving Corporation or increase the rate of interest
payable by Dakota or the Surviving Corporation with respect to
any indebtedness; or (iv) result in any Encumbrance being created
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or imposed upon or with respect to any of the property or assets
owned or used by Dakota or Acquisition Corp.
SECTION 3.8. PERMITS, TARIFFS AND LICENSES; COMPLIANCE WITH
LEGAL REQUIREMENTS. All Governmental Authorizations necessary for Dakota
to carry on its business as presently conducted have been timely obtained,
are in full force and effect and have been complied with. All fees and
charges incident to those Governmental Authorizations have been fully paid
and are current and no suspension, revocation, cancellation or limitation
of any Governmental Authorization has been, to the Knowledge of Dakota,
Threatened or could result by reason of the transactions contemplated by
this Agreement. Dakota is not subject to, nor, to the Knowledge of Dakota
has it been Threatened with, any Adverse Consequence as the result of a
failure to comply with any Legal Requirement applicable to it or the
conduct or operation of its business or the ownership or use of any of its
properties or assets and no event has occurred or circumstance exists (with
or without notice or lapse of time) that may give rise to any such Adverse
Consequence. Dakota is presently and during all applicable limitations
periods has been, in all material respects, in full compliance with all
applicable Legal Requirements. Neither Dakota nor any other Person
associated with or acting on behalf of Dakota has used any Dakota funds for
unlawful contributions, gifts, entertainment or other expenses or made any
direct or indirect unlawful payments from Dakota funds or established or
maintained any unlawful or unrecorded funds. Neither Dakota nor any
predecessor or Affiliate of Dakota is or has been in violation of, or has
Environmental Liability under, any Environmental Law. There are no past or
present conditions, circumstances, activities, practices, omissions, plans
or contractual undertakings that will interfere with or prevent continued
compliance by the Dakota with Environmental Laws and the requirements of
any permits or licenses issued under any Environmental Law or that will
give rise to any Environmental Liability or other obligation under any
Environmental Law.
SECTION 3.9. NO BROKER'S FEES. Neither Dakota, Acquisition
Corp., nor anyone acting on their behalf has incurred any liability or
obligation to pay fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which
Sellers or TCIC could become liable.
SECTION 3.10. ACCURACY OF STATEMENTS. No representation or
warranty made by Dakota or Acquisition Corp. in this Agreement or any
statement, certificate or schedule furnished to Sellers or TCIC pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein
not misleading.
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ARTICLE 4
INDEMNIFICATION
SECTION 4.1. INDEMNIFICATION AND REIMBURSEMENT BY SELLERS.
Sellers will jointly and severally indemnify and hold harmless Dakota,
Acquisition Corp. and their respective Representatives and Affiliates, and
will reimburse Dakota, Acquisition Corp. and their respective
Representatives and Affiliates, for all Adverse Consequences arising from
or related to (a) any Breach by Sellers or TCIC of any representation,
warranty, covenant or obligation of Sellers in this Agreement or any other
instrument or document delivered by Sellers or TCIC to Dakota or
Acquisition Corp. pursuant to this Agreement; and (b) the enforcement of
indemnification rights under this Article 4.
SECTION 4.2. INDEMNIFICATION AND REIMBURSEMENT BY DAKOTA AND
ACQUISITION CORP. Dakota and Acquisition Corp. will jointly and severally
indemnify and hold harmless Sellers and their respective Representatives
and Affiliates, and will reimburse Sellers and their respective
Representatives and Affiliates, for all Adverse Consequences arising from
or related to (a) any Breach by Dakota or Acquisition Corp. of any
representation, warranty, covenant or obligation of Dakota or Acquisition
Corp. in this Agreement or any other instrument or document delivered by
Dakota or Acquisition Corp. to Sellers or TCIC pursuant to this Agreement;
and (b) the enforcement of indemnification rights under this Article 4.
SECTION 4.3. INDEMNIFICATION PROCEDURES.
(a) THIRD-PARTY CLAIMS.
(i) Promptly after receipt by a Person entitled to be
indemnified under this Article 4 (an "Indemnified Party") of
notice of the commencement of any Proceeding against it,
such Indemnified Party will, if a claim for indemnification
is to be made against a Party (an "Indemnifying Party")
under this Article 4, give notice to the Indemnifying Party
of the commencement of such Proceeding. The failure to
promptly notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability that it may have to an
Indemnified Party except to the extent that the defense of
such action was irreparably and materially prejudiced by the
Indemnifying Party's failure to provide prompt notice.
(ii) If any Proceeding is brought against an
Indemnified Party and it gives notice to the Indemnifying
Party of the commencement of such Proceeding, the
Indemnifying Party will, unless the claim involves Taxes, be
entitled to participate in such Proceeding and, to the
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extent that it wishes (unless (A) the Indemnifying Party is
also a party to such Proceeding and the Indemnified Party
determines in good faith that joint representation would be
inappropriate or (B) the Indemnifying Party fails to provide
reasonable assurances to the Indemnified Party of its
financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume
the defense of such Proceeding with counsel satisfactory to
the Indemnified Party. Following a proper assumption of
defense by an Indemnifying Party, as long as the
Indemnifying Party diligently conducts such defense, it will
not be liable for any subsequent fees of legal counsel or
other expenses incurred by the Indemnified Party in
connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the Indemnifying
Party assumes the defense of a Proceeding, (A) it will be
conclusively established for purposes of this Agreement that
the claims made in that Proceeding are within the scope of
and subject to indemnification; (B) no compromise or
settlement of such claims may be effected by the
Indemnifying Party without the Indemnified Party's consent
unless (x) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any
Person and no effect on any other claims that may be made by
or against the Indemnified Party and (y) the sole relief
provided is monetary damages that are paid in full by the
Indemnifying Party concurrently with the compromise or
settlement; and (C) the Indemnifying Party will have no
liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is
given to an Indemnifying Party of the commencement of any
Proceeding and the Indemnifying Party does not within ten
days give notice to the Indemnified Party of its election to
assume the defense of such Proceeding, the Indemnifying
Party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the
Indemnified Party.
(iii) Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a
reasonable probability that a Proceeding may adversely
affect it or its Affiliates other than as a result of
monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Party
may, by notice to the Indemnifying Party, assume the
exclusive right to defend, compromise or settle such
Proceeding, but the Indemnifying Party will not be bound by
any determination of a Proceeding so defended or any
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compromise or settlement effected without its consent (which
may not be unreasonably withheld).
(iv) The Parties will make available to each other and
each other's legal counsel and other professional advisors
all of its or his books and records relating to a third-party
claim and each Party will render to the other assistance as may
be reasonably required in order to insure the proper and adequate
defense of a third-party claim.
(v) Each Party hereby consents to the non-exclusive
jurisdiction of any court in which a Proceeding is brought
against any Indemnified Party for purposes of any claim that
an Indemnified Party may have under this Agreement with
respect to such Proceeding or the matters alleged therein.
(b) OTHER CLAIMS. A claim for indemnification for any
matter not involving a third-party claim may be asserted by
notice to the Party from whom indemnification is sought.
SECTION 4.4. BASKET. No Party will have any liability under
this Article 4 with respect to claims for Breach of any representation or
warranty set forth in this Agreement until the aggregate amount of
liability relating to Breaches of representations or warranties exceeds
$40,000 (the "Basket"); provided that the Basket shall not be applicable to
and there shall be first dollar indemnity for Breach of Sections 2.19 and
3.9, the last sentence of Section 2.3, actual fraud or an intentional
Breach.
ARTICLE 5
DEFINITIONS
For purposes of this Agreement, the following terms shall have
the meanings specified or referred to in this Article 5:
"ACQUISITION CORP." has the meaning set forth in the first
paragraph of this Agreement.
"ACT" has the meaning set forth in the second paragraph of this
Agreement.
"ADVERSE CONSEQUENCE" means any loss, cost, liability, penalty,
Tax, claim, damage, expense (including cost of investigation, defense,
settlement and reasonable attorneys' and other professional fees),
responsibility, disability, remedial action or diminution of value, in any
case net of insurance recoveries or tax benefits actually received by the
applicable Party.
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"AFFILIATE" means, with respect to a specified Person, a Person
that directly, or indirectly through one or more subsidiaries, controls, is
controlled by, or is under common control with the specified Person.
"AGREEMENT" has the meaning set forth in the first paragraph of
this Agreement.
"APPLICABLE CONTRACT" means any Contract (a) under which the
applicable Party has or may acquire any rights; (b) under which the
applicable Party is or may become subject to any obligation or liability;
or (c) by which the applicable Party or any of the property or assets owned
or used by the applicable Party is or may become bound.
"BALANCE SHEET" has the meaning set forth in Section 2.4 of this
Agreement.
"BASKET" has the meaning set forth in Section 4.4 of this
Agreement.
"BREACH" means, as to any representation, warranty, covenant,
obligation or other provision of this Agreement or any instrument or
document delivered pursuant to this Agreement, (a) any inaccuracy in, or
any failure to perform or comply with, such representation, warranty,
covenant, obligation or other provision or (b) any claim by any Person or
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation or other provision, in
either case regardless of whether deliberate, reckless, negligent, innocent
or unintentional.
"CLOSING" has the meaning set forth in Section 1.3 of this
Agreement.
"CLOSING DATE" means the date and time as of which the Closing
actually takes place.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACT" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that
is legally binding.
"DAKOTA" has the meaning set forth in the first paragraph of this
Agreement.
"DAKOTA PREFERRED STOCK" has the meaning set forth in
Section 1.7(a) of this Agreement.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 2.1 of
this Agreement.
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"EFFECTIVE TIME" has the meaning set forth in Section 1.4 of this
Agreement.
"EMPLOYEE BENEFIT PLAN" means any "employee pension benefit plan"
or "employee welfare benefit plan" as defined under ERISA, any incentive
compensation plan, benefit plan for retired employees, plan or Contract
providing for bonuses, pensions, profit-sharing, stock options, stock
purchase rights, restricted or deferred stock, deferred compensation,
insurance, health care or retirement benefits of any nature, in each case
whether written or oral, together with any trusts created thereunder.
"ENCUMBRANCE" means any charge, claim, community property
interest, condition, equitable interest, mortgage, lien, option, pledge,
security interest, right of first refusal or restriction of any kind,
including any restriction on use, voting (in the case of any security),
transfer, receipt of income or exercise of any other attribute of
ownership.
"ENVIRONMENT" means soil, land surface or subsurface strata,
surface waters (including navigable waters and ocean waters), groundwaters,
drinking water supply, steam sediments, ambient air (including indoor air),
plant and animal life and any other environmental medium or natural
resource.
"ENVIRONMENTAL LAW" means any Legal Requirement designed: (a) to
advise appropriate authorities, employees and the public of intended,
Threatened or actual releases of pollutants or hazardous substances or
materials, violations or discharge limits or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment; (b) to prevent or
acceptably minimize the release or emission of pollutants or hazardous
substances or materials into the Environment; (c) to reduce the quantities,
prevent the release and minimize the hazardous characteristics of wastes
that are generated; (d) to regulate the generation, treatment, storage,
handling or disposal of hazardous substances; (e) to assure that products
are designed, formulated, packaged or used so that they do not present
unreasonable risks to human health or the Environment when used or disposed
of; (f) to protect resources, species or ecological amenities; (g) to
acceptably minimize the risks inherent in transportation of hazardous
substances, pollutants, oil or other potentially harmful substances; (h) to
clean up pollutants that have been released, prevent the threat of release
or pay the costs of such clean up or prevention; (i) to make responsible
parties pay private parties, or groups of them, for damages done to their
health or Environment, or to permit self-appointed representatives of the
public interest to recover for injuries done to public assets; or (j) to
regulate in any manner the potential impact of an activity on the
Environment.
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"ENVIRONMENTAL LIABILITY" means any Adverse Consequence arising
from or relating to Environmental Law or Occupational Safety and Health Law
with respect to acts or omissions by TCIC or any predecessor or Affiliate
or conditions in existence or events or circumstances having occurred, in
each case on or before the Closing Date, including (a) any environmental,
health or safety matters or conditions (including on-site or off-site
contamination, occupational safety and health and regulation of chemical
substances or products); and (b) any responsibility for response costs,
corrective action or actions to achieve compliance, including any cleanup,
removal, containment or other remediation or response action ("Cleanup")
required by applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages. The terms "removal," "remedial," and "response action" include
the types of activities covered by the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. <Section>
9601 et seq., as amended, or any similar state law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 2.4
of this Agreement.
"GAAP" means generally accepted United States accounting
principles.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent,
certificate, tariff, license, permit, waiver or other authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
"GOVERNMENTAL BODY" means any: (a) nation, state, county, city,
town, village, district or other jurisdiction of any nature; (b) federal,
state, local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental
agency, branch, department, official or entity and any court or other
tribunal); (d) multi-national organization or body; or (e) body exercising,
or entitled or purporting to exercise, any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power of
any nature.
"INDEMNIFIED PARTY" has the meaning set forth in Section 4.3 of
this Agreement.
"INDEMNIFYING PARTY" has the meaning set forth in Section 4.3 of
this Agreement.
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<PAGE>
"INTELLECTUAL PROPERTY ASSETS" include all (a) legal names of
Persons, fictional business names, trading names, registered and
unregistered trademarks, service marks and applications for any of them;
(b) patents and patent applications; (c) copyrights both in published works
and unpublished works; (d) rights in mask works; (e) trade dress; and (f)
know-how, trade secrets, confidential information, software, technical
information, process technology, plans, drawings, specifications, bills of
material, blue prints and other similar data.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in
Section 2.4 of this Agreement.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual awareness of a particular fact or other
matter or awareness that a reasonably prudent individual could be expected
to obtain in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"LABOR ACTIVITY" means any strike, slowdown, picketing, work
stoppage, labor arbitration or Proceeding concerning the grievance of any
employee, application or complaint filed by an employee or union with the
National Labor Relations Board or any comparable Governmental Body,
organizational activity, application for certification of a collective
bargaining agent or other labor dispute against or affecting TCIC or its
premises.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, multinational or other constitution, law,
ordinance, principle of common law, statute, code, regulation, rule, treaty
or tariff.
"MATERIAL CONTRACT" means any Applicable Contract: (a) that
involves performance of services or delivery of goods or materials by or to
TCIC of an amount in excess of $5,000; (b) that involves expenditures or
receipts by or of TCIC in excess of $5,000; (c) that relates to the
ownership, sale or use of real or personal property, except those relating
to personal property having a value per item or aggregate payments of less
than $5,000 and with a term of less than one year; (d) that relates to
Intellectual Property Assets; (e) that involves the sharing of profits,
losses, costs or liabilities by TCIC with any other Person or by any other
Person with TCIC; (f) that provides for payments to or by any Persons
based on sales, purchases or profits, other than direct payments for goods;
(g) that grants a power of attorney; (h) that was entered into other than
in the Ordinary Course of Business and contains or provides for an
undertaking by TCIC to be responsible for consequential damages; (i) that
relates to capital expenditures in excess of $5,000; (j) that limits the
freedom of TCIC to compete in any line of business or geographic area;
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<PAGE>
(k) that contains a guaranty by TCIC of performance or payment by another
Person; (1) that relates to indebtedness for borrowed money or that creates
an Encumbrance in any of TCIC's properties or assets; (m) that relates to
the length, duration or condition of employment or the termination thereof
and which cannot be terminated by TCIC on notice without liability;
(n) that is with any customer of TCIC; and (o) that amends, supplements or
modifies any of the foregoing.
"MERGER" has the meaning set forth in the second paragraph of
this Agreement.
"MULTI-EMPLOYER RETIREMENT PLAN" has the meaning set forth in
Section 3(37)(A) of ERISA.
"OCCUPATIONAL SAFETY AND HEALTH LAW" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards and any program, whether
governmental or private, designed to provide safe and healthful working
conditions.
"ORDER" means any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means in accordance with the usages
of trade prevailing in the industry in which the applicable Party operates
and in accordance with the applicable Party's historical and customary
day-to-day practices with respect to the activity in question.
"ORGANIZATIONAL DOCUMENTS" means the complete articles or
certificate of incorporation and the bylaws of the applicable Party,
including all amendments.
"PARTY" or "PARTIES" means the signatories to this Agreement, or
any of them as the context indicates.
"PERSON" means any individual, corporation (including any non-
profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization or other
entity or Governmental Body.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" means with respect to a particular individual:
(a) each other member of such individual's Family; (b) any Person that is
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<PAGE>
directly or indirectly controlled by any one or more members of such
individual's Family; (c) any Person in which members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and (d)
any Person with respect to which one or more members of such individual's
Family serves as a director, officer, partner, executor or trustee (or in a
smaller capacity). For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual; (ii) the individual's spouse;
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree; and (iv) any other natural
person who resides with such individual; and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least 20% of the outstanding voting power
of a Person or equity securities or other equity interests representing at
least 20% of the outstanding equity securities or equity interests in a
Person.
"REPRESENTATIVE" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor or other
representative of such Person, including legal counsel, accountants and
financial advisors.
"RESTRICTED EVENT" means (a) any declaration or payment of any
dividend or other distribution or payment in respect of shares of capital
stock; (b) any amendment of the Organizational Documents; (c) any payment
or increase of any bonuses, salaries or other compensation to any
shareholder, director, officer or (except in the Ordinary Course of
Business) employee or entry into any employment, severance or similar
Contract with any director, officer or employee; (d) the adoption of, or
increase in the payments to or benefits under, any Employee Benefit Plan
for or with any employees of the applicable Party; (e) any damage to or
destruction or loss of any property or assets of the applicable Party,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, operations, income,
expenses or prospects of the applicable Party; (f) the entry into,
termination of or receipt of notice of termination of any license,
distributorship, dealer, sales representative, joint venture, credit or
similar Contract or transaction involving a total remaining commitment by
the applicable Party of more than $10,000; (g) any sale (other than sales
of inventory in the Ordinary Course of Business), lease or other
disposition of any property or asset of the applicable Party or the
imposition of any Encumbrance on any material property or asset of the
applicable Party, including the sale, lease or disposition of any
Intellectual Property Asset; (h) the cancellation or waiver of any claims
or rights with a value to the applicable Party in excess of $10,000; (i)
any material change in the accounting methods used by the applicable Party;
or (j) any agreement or commitment, whether written or oral, to do any of
the foregoing.
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<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SELLERS" has the meaning set forth in the first paragraph of
this Agreement and when used in the Agreement means the Sellers
collectively and each of them individually.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.1
of this Agreement.
"TAX" means any tax (including, without limitation, any income
tax, capital gains tax, value-added tax, sales tax, property tax, gift tax,
estate tax or withholding tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or other fee and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected
by or under the authority of any Governmental Body or payable pursuant to
any tax-sharing agreement or any other Contract relating to the sharing of
payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.
"TAX RETURN" means any return (including, without limitation, any
information return), report, statement, schedule, notice, form or other
document or information filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"TCIC" has the meaning set forth in the first paragraph of this
Agreement.
"TCIC SHARES" means all of the outstanding shares of common stock
of TCIC, $1 par value per share.
"THREATENED" means, as to any claim, Proceeding, dispute, action
or other matter, that a demand or statement has been made (orally or in
writing), a notice has been given (orally or in writing) or an event has
occurred or some other circumstance exists that would lead a prudent Person
to conclude that such a claim, Proceeding, dispute, action or other matter
is reasonably likely to be asserted, commenced, taken or otherwise pursued
in the future.
"WARRANTS" has the meaning set forth in Section 1.7(a) of this
Agreement.
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<PAGE>
ARTICLE 6
GENERAL
SECTION 6.1. NON-COMPETE. In consideration of the consummation
of the transactions contemplated by this Agreement and other good and
valuable consideration, Sellers agree that they will not for the shorter of
(a) a period of five years from the Closing Date or (b) as long as Dakota
and/or the Surviving Corporation are engaged in the business of providing
telecommunications service, directly or indirectly compete or participate
in the ownership, management, financing or control of, or act as a
consultant or agent for, any Person which competes or plans to compete,
directly or indirectly, with Dakota, the Surviving Corporation or any of
their respective Affiliates. The geographic scope of the foregoing
covenant is the entire United States, including each and every state,
county and municipality therein. Sellers further agree that, for the
period specified, they will not induce any employee of the Surviving
Corporation to leave the Surviving Corporation's employment or directly or
indirectly assist any other Person in requesting or inducing any employee
of the Surviving Corporation to leave his or her employment. Finally,
Sellers agree that they will not, from the date of this Agreement and
forever afterward, use or disclose to any Person any proprietary, secret or
confidential information concerning TCIC or the Surviving Corporation,
including customer names and business and trade secrets. If any court of
competent jurisdiction finds that the time period of the foregoing
covenants is too lengthy, that the geographic scope is too large or that
the scope of the restrictions is too broad, the restrictive time period
shall be deemed to be the longest period permissible by law and the
geographic scope and the scope of the restrictions shall be deemed to
comprise the largest scope permissible by law under the circumstances. It
is the Parties' intent to protect and preserve the business and goodwill of
TCIC to be acquired by Acquisition Corp. and thus the Parties agree and
direct that the time period and scope of the covenants set forth in this
Section 6.1 be the maximum permissible duration and size. The foregoing
shall not prohibit Sellers from owning not more than five percent (5%) of
the outstanding capital stock of any company whose stock is listed on a
national securities exchange or quoted on NASDAQ.
SECTION 6.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS. Except as otherwise expressly indicated in this Agreement,
all representations, warranties, covenants and agreements made by any Party
to this Agreement will survive the Closing and any investigation at any
time made by or on behalf of any Party before or after the Closing for a
period of two years from the Closing Date. Notwithstanding the foregoing,
the representations and warranties set forth in Sections 2.6, 2.10, 2.17,
2.19 and 3.8 of this Agreement, and Sections 2.20 and 3.10 to the extent
they relate to the foregoing sections, shall survive until the statute of
limitation periods applicable to the underlying claims which may give rise
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<PAGE>
to an indemnity claim expire and the representations and warranties set
forth in Sections 2.3 and 3.2 of this Agreement shall survive forever. The
making of a claim for indemnification under Article 4 will toll the running
of the applicable limitations period set forth above with respect to such
claim.
SECTION 6.3. BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the
terms of this Agreement will be binding upon, inure to the benefit of and
be enforceable by and against the heirs and legal representatives of
Sellers and the successors and authorized assigns of Dakota and Acquisition
Corp. Except as otherwise expressly provided in this Agreement, nothing in
this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement, this
Agreement being for the exclusive benefit of the Parties and their
respective heirs, legal representatives, successors and assigns. Neither
Party will assign any of its or his respective rights or obligations under
this Agreement to any other Person without the prior written consent of the
other Parties.
SECTION 6.4. ENTIRE AGREEMENT. This Agreement, and the exhibits
and schedules to this Agreement (including the Disclosure Schedule), and
the agreements referred to in this Agreement set forth the entire agreement
and understanding of the Parties in respect of the transactions
contemplated by this Agreement and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made
by either Party that is not embodied in this Agreement or in the documents
referred to in this Agreement, and neither Party will be bound by or liable
for any alleged representation, promise, inducement or statement of
intention not so set forth.
SECTION 6.5. AMENDMENT AND WAIVER. This Agreement may be
amended, modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions hereof may be waived only by a
written instrument executed by the Parties or, in the case of a waiver, by
or on behalf of the Party waiving compliance. The failure of any Party at
any time to require performance of any provision of this Agreement will in
no manner affect the right of that Party at a later time to enforce such
provision. No waiver by any Party of any condition or of any Breach of any
term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, will be deemed to be or construed as a further
or continuing waiver of any such condition or of any Breach of the term,
covenant, representation or warranty or any other term, covenant,
representation or warranty set forth in this Agreement.
SECTION 6.6. GOVERNING LAW. This Agreement will be governed by
and construed in accordance with the laws of the State of South Dakota as
applicable to Contracts made and to be performed in the State of South
Dakota without regard to conflict of laws principles.
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<PAGE>
SECTION 6.7. PUBLIC DISCLOSURE. Except as may be required by
applicable law or the rules of any national securities exchange or
quotation system, no Party will make any public disclosure of the existence
or terms of this Agreement or the transactions contemplated by this
Agreement without the prior written consent of the other Parties, which
consent will not be unreasonably withheld.
SECTION 6.8. NOTICES. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement will be
in writing and will be deemed to have been duly given if delivered by hand,
sent by facsimile with confirmation, sent by a nationally recognized
overnight mail service or mailed first class, postage prepaid:
(a) If to Dakota or with a copy to:
Acquisition Corp.:
Dakota Cooperative Warner Norcross & Judd LLP
Telecommunications, Inc. 900 Old Kent Building
P.O. Box 66, Highway 46 111 Lyon Street, N.W.
Irene, South Dakota 57037 Grand Rapids, Michigan 49503
Telephone: (605) 263-3301 Telephone: (616) 752-2000
Facsimile: (605) 263-3995 Facsimile: (616) 752-2500
Attention: Mr. Craig A. Anderson Attention: Tracy T. Larsen,
Esq.
(b) If to Sellers: with a copy to:
To the individuals at the Leonard, Street and Deinard
addresses and telephone and 150 South Fifth Street,
facsimile numbers listed on Ste 2300
EXHIBIT A to this Agreement Minneapolis, Minnesota 55402
Telephone: (612) 335-1500
Facsimile: (612) 335-1657
Attention: John T. Roberts,
Esq.
A Party may change its address, telephone number or facsimile number by
prior written notice to the other Parties.
SECTION 6.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed will be deemed to be an
original and such counterparts will together constitute one and the same
agreement.
SECTION 6.10. EXPENSES. Each Party will pay its or his own
respective expenses, costs and fees (including attorneys' and accountants'
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<PAGE>
fees) incurred in connection with the negotiation, preparation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement, and none of such expenses, costs or fees
will be paid by TCIC.
SECTION 6.11. SEVERABILITY. Any provision, or clause of any
provisions, of this Agreement that may be found to be contrary to South
Dakota law or otherwise unenforceable will not affect the remaining terms
of this Agreement, which will be construed as if the unenforceable
provision or clause were absent from this Agreement.
SECTION 6.12. HEADINGS; CONSTRUCTION; TIME OF ESSENCE. The
headings of the sections and paragraphs in this Agreement have been
inserted for convenience of reference only and will not restrict or
otherwise modify any of the terms or provisions of this Agreement. Unless
otherwise expressly provided, the word "including" whenever used in this
Agreement does not limit the preceding words or terms. With regard to all
dates and time periods set forth or referred to in this Agreement, time is
of the essence.
[The remainder of this page is intentionally left blank.]
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<PAGE>
The Parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /s/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Dakota"
DAKOTA ACQUISITION CORP. #1
By /s/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Acquisition Corp."
TCIC COMMUNICATIONS, INC.
By /s/ JEFFREY G. PARKER
Its PRESIDENT
"TCIC"
/s/ JOEL T. HAGEN
Joel T. Hagen
/s/ JOHN F. ARCHER
John F. Archer
/s/ JEFFREY G. PARKER
Jeffrey G. Parker
/s/ DONALD B. GRAHAM
Donald B. Graham
/s/ DOUG SCHNEIDER
Doug Schneider
"Sellers"
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<PAGE>
EXHIBIT A
<TABLE>
LIST OF SELLERS
<CAPTION>
NAME AND ADDRESS OF SELLER NUMBER OF TCIC SHARES OWNED
<S> <C>
Mr. Joel T. Hagen 167,136
Hagen, Wilka & Archer, P.C.
100 South Phillips Avenue, Suite 418
P.O. Box 964
Sioux Falls, SD 57101-0954
Mr. John F. Archer 167,136
Hagen, Wilka & Archer, P.C.
100 South Phillips Avenue, Suite 418
P.O. Box 964
Sioux Falls, SD 57101-0964
Mr. Jeffrey Parker 501,407
Parker Transfer & Storage
1700 F Avenue
Sioux Falls, SD 57104
Dr. Donald B. Graham 501,407
Surgical Associates, Ltd.
1201 Euclid Avenue, Suite 201
Sioux Falls, SD 57105
Mr. Doug Schneider 167,136
140 North Phillips Avenue, Suite 404
Sioux Falls, SD 57102
</TABLE>
<PAGE>
EXHIBIT C
ARTICLES OF MERGER
and related
PLAN OF MERGER
<PAGE>
EXHIBIT D
FORM OF WARRANT
<PAGE>
EXHIBIT 3.1
AMENDED
ARTICLES OF INCORPORATION
ARTICLE ONE. The name of the Cooperative is Dakota Cooperative
Telecommunications, Inc.
ARTICLE TWO. The cooperative is formed to engage in any activity
within the purposes for which cooperative may be organized.
ARTICLE THREE. The principal place of business of the cooperative and
its principal office is Irene, Clay County, South Dakota 57037.
ARTICLE FOUR. The affairs of the cooperative will be conducted by a
board of directors. The number of directors will be as stated in the
bylaws. The present members of the board of directors who have been or
will hereafter be elected will hold office as provided by the bylaws.
<TABLE>
<CAPTION>
NAMES OF PRESENT OFFICERS AND DIRECTORS RESIDENCES
<S> <C> <C>
Ross Benson Hurley, SD 57036
Dale Bye (Treasurer) Gayville, SD 57031
Edward Christensen, Jr. Freeman, SD 57029
Jeff Goeman (Vice President) Lennox, SD 57039
James Jibben (President) Chancellor, SD 57015
Palmer O. Larson Worthing, SD 57077
John A. Roth Parker, SD 57053
John Schaefer (Secretary) Wakonda, SD 57073
</TABLE>
ARTICLE FIVE.
(a) The amount of authorized capital stock of the cooperative
will be $6,375,000.00. The stock will be divided as follows:
<TABLE>
<CAPTION>
CLASS NO. OF SHARES PAR VALUE PER SHARE
<S> <C> <C> <C>
common 15,000 $5.00
preferred 63,000 $100.00
</TABLE>
(b) No share will be issued for less than par value. No share
will be issued unless it has been paid for in full, either in cash,
property or the equivalent, as may be determined by the Board of
<PAGE>
Directors. No shareholder has any preferential, preemptive or other
right to subscribe for or to buy any share of capital stock.
(c) No shareholder is liable for the debts of the cooperative in
any greater amount than his unpaid subscription.
(d) Share of common stock are membership stock, and may be
issued to any person who: 1) pays at least the par value, and 2)
agrees to purchase service or equipment from the cooperative as
specified in the bylaws, and 3) agrees to comply with and be bound by
the charter and bylaws of the cooperative, and 4) agrees to comply
with and be bound by any rules adopted by the Board of Directors.
(e) No person may own more than one share of common stock of the
cooperative. Each holder of common stock has one vote in the affairs
of the cooperative.
(f) Any person who desires to sell a share of common stock of
the cooperative must first offer the share to the cooperative. The
cooperative has the exclusive option to buy the share at par value
within 30 days after the offer. If the cooperative does exercise its
option to purchase within 30 days, the shareholder may then sell the
share, but only to a person eligible for membership in the
cooperative, and who has complied with the applicable provisions of
the charter and bylaws of the cooperative. Shares of common stock
acquired by the cooperative may be held as treasury stock, or may be
transferred or issued to any person eligible for membership, and who
complies with the applicable provisions of the charter and bylaws of
the cooperative.
(g) Ownership of the preferred stock will be evidenced by a
preferred stock certificate. The certificate form will be determined
by the Board of Directors. The certificates will be signed by the
President and the Secretary.
(h) Holders of preferred stock do not thereby have voting rights
in the affairs of the cooperative.
(i) Upon dissolution or distribution of the entire assets of the
cooperative the holders of preferred stock will receive par value for
their stock before any distribution is made on the common stock.
(j) No dividends may be paid on common stock. The rate of
dividend if any, on preferred stock may be fixed by the Board of
Directors.
ARTICLE SIX. A director of this corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for
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<PAGE>
breach of fiduciary duty as a director; provided, however, that this
provision does not eliminate or limit the liability of a director for any
breach of the director's duty of loyalty to the corporation or its
shareholders for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for any violation of
Section 47-5-15 to 47-5-19, inclusive, of the South Dakota Codified Laws,
1983 Revision, as amended, or for any transaction from which the director
derived an improper personal benefit.
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<PAGE>
EXHIBIT 3.2
AMENDED BYLAWS OF
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
ARTICLE I
MEMBERSHIP
SECTION 1.01. ELIGIBILITY. Any natural person, firm, association,
corporation business trust, partnership, Federal agency, State or political
subdivision thereof, or any body politic (each hereinafter referred to as
"person," "applicant," "him" or "his") shall be eligible to become a member
of, and, at one or more premises owned or directly occupied or used by him,
to receive telecommunications services from Dakota Cooperative
Telecommunications, Inc., (hereinafter called "Cooperative"). No person
shall hold more than one membership in the Cooperative.
SECTION 1.02. APPLICATION FOR MEMBERSHIP; RENEWAL OF PRIOR
APPLICATION. Application for membership-wherein the applicant shall agree
to purchase telecommunications services from the Cooperative and to be
bound by and to comply with all of the provisions of the Cooperative's
Articles of Incorporation and Bylaws, and all rules, regulations and rate
schedules established pursuant thereto, as all the same then exist or may
thereafter be duly adopted or amended (the obligations embraced by such
agreement being hereinafter called "membership obligations")-shall be made
in writing on such form as is provided therefor by the Cooperative. With
respect to any particular classification of service for which the Board of
Directors shall require it, such application shall be accompanied by a
supplemental contract, executed by the applicant on such form as is
provided therefor by the Cooperative. The Membership application shall be
accompanied by the membership fee provided for in Section 1.03 (together
with any service security deposit, service connection deposit or fee,
facilities extension deposit, or contribution in aid of construction that
may be required by the Cooperative), which fee (and such service security
deposit, service connection deposit or fee, facilities extension deposit,
or contribution in aid of construction, if any) shall be refunded in the
event the application is by Board resolution denied. Any former member of
the Cooperative may, by the sole act of paying a new membership fee and any
outstanding account plus accrued interest thereon at the South Dakota legal
rate on judgements in effect when such account first became overdue,
compounded annually (together with any service security deposit, service
connection deposit or fee, facilities extension deposit, or contribution in
aid of construction that may be required by the Cooperative), renew and
reactivate any prior application for membership to the same effect as
though the application had been newly made on the date of such payment.
SECTION 1.03. MEMBERSHIP FEE; SERVICE SECURITY AND FACILITIES
EXTENSION DEPOSITS; CONTRIBUTION IN AID OF CONSTRUCTION. The membership
fee shall be as fixed from time to time by the Board of Directors. The
membership fee (together with any service security deposit, service
<PAGE>
connection deposit or fee, facilities extension deposit, contribution in
aid of construction or any combination thereof, if required by the
Cooperative), shall entitle the member to one service connection, and one
share of common stock of the Cooperative. A service connection deposit or
fee, in such amount as shall be prescribed by the Cooperative (together
with a service security deposit, a facilities extension deposit or
contribution in aid of construction or any combination thereof, if required
by the Cooperative), shall be paid by the member of each additional service
connection requested by him.
SECTION 1.04. JOINT MEMBERSHIP. A husband and wife, by specifically
so requesting in writing, may be accepted into joint membership or, if one
of them is already a member, may automatically convert such membership into
a joint membership. The words "member," "applicant," "person," "his" and
"him," as used in these Bylaws, shall include a husband and wife applying
for or holding a joint membership, unless otherwise clearly distinguished
in the text; and all provisions relating to the rights, powers, terms,
conditions, obligations, responsibilities and liabilities of membership,
shall apply equally, severally and jointly to them. Without limiting the
generality of the foregoing.
(a) The presence at a meeting of either or both shall
constitute the presence of one member and a joint waiver of
notice of the meeting.
(b) The vote of either or both shall constitute,
respectively, one joint vote: PROVIDED, that if both are present
but in disagreement on such vote, each shall cast only one-half
(1/2) vote.
(c) Notice to, or waiver of notice signed by, either or
both shall constitute, respectively, a joint notice or waiver of
notice.
(d) Suspension or termination in any manner of either shall
constitute, respectively, suspension or termination of the joint
membership.
(e) Either, but not both concurrently, shall be eligible to
serve as a director of the Cooperative, but only if the person
serving meets the qualifications required therefor; and
(f) Neither will be permitted to have any additional
service connections except through their one joint membership.
SECTION 1.05. ACCEPTANCE INTO MEMBERSHIP. Upon complying with the
requirements set forth in Section 1.02, any applicant shall automatically
become a member on the date of his connection for telecommunications
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service: PROVIDED, that the Board of Directors may by resolution deny an
application and refuse to extend service upon its determination that the
applicant is not willing or is not able to satisfy and abide by the
Cooperative's terms and conditions of membership or that such application
should be denied for other good cause: PROVIDED FURTHER, that any person
whose application for sixty (60) days or longer, has been submitted to but
not approved by the Board of Directors may, by filing written request
therefor with the Cooperative at least thirty (30) days prior to the next
meeting of the members, have his application submitted to and approved or
disapproved by the vote of the members at such meeting, at which the
applicant shall be entitled to be present and be heard.
SECTION 1.06. PURCHASE OF TELECOMMUNICATIONS SERVICES: SHARED TENANT
SERVICES; APPLICATION OF PAYMENTS TO ALL ACCOUNTS. The Cooperative shall
make all reasonable efforts to furnish its members with adequate and
dependable telecommunications service, although it cannot and therefore
does not guarantee a continuous and uninterrupted supply thereof; and each
member shall pay for all telecommunications services purchased from the
Cooperative, at the times, and in accordance with the rules, regulations,
and rate schedules (including any monthly minimum amount that may be
charged without regard to the amount of telecommunications services
actually used) established by the Board of Directors and, if in effect, in
accordance with the provisions of any supplemental contract that may have
been entered as provided for in Section 1.02. Use of telecommunications
services such as, but not limited to, shared tenant services on such
premises, regardless of the source thereof, by means of facilities which
shall be interconnected with Cooperative facilities, shall be subject to
appropriate regulations as shall be fixed from time to time by the
Cooperative. Each member shall also pay all other amounts owed by him to
the Cooperative as and when they become due and payable. When the member
has more than one service connection from the Cooperative, any payment by
him for service from the Cooperative shall be deemed to be allocated and
credited on a pro rata basis to his outstanding accounts for all such
service connections, notwithstanding that the Cooperative's actual
accounting procedures do not reflect such allocation and proration.
SECTION 1.07. EXCESS PAYMENTS TO BE CREDITED AS MEMBER-FURNISHED
CAPITAL. All amounts paid for telecommunications services in excess of the
cost thereof shall be furnished by members as capital, and each member
shall be credited with the capital so furnished as provided in Article IX
of these Bylaws.
SECTION 1.08. WIRING OF PREMISES; RESPONSIBILITY THEREFOR;
RESPONSIBILITY FOR TAMPERING OR BYPASSING AND FOR DAMAGE TO COOPERATIVE
PROPERTIES; EXTENT OF COOPERATIVE RESPONSIBILITY; INDEMNIFICATION. Each
member shall cause all premised receiving telecommunications services
pursuant to his membership to become and to remain wired in accordance with
the specifications of the Cooperative. Each member shall be responsible
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for-and shall indemnify the Cooperative and its employees, agents and
independent contractors against death, injury, loss or damage resulting
from any defect in or improper use of maintenance of-such premises and all
wiring and apparatuses connected thereto or used thereon. Each member
shall make available to the Cooperative a suitable site, as determined by
the Cooperative, whereon to place the Cooperative's physical facilities for
the furnishing of telecommunications services, and shall permit the
Cooperative's authorized employees, agents and independent contractors to
have access thereto safely and without interference from hostile dogs or
any other hostile source for bill collecting and for inspection,
maintenance, replacement, relocation, repair or disconnection of such
facilities at all reasonable times. As part of the consideration for such
service, each member shall be the Cooperative's bailee of such facilities,
and shall use his best efforts to prevent others from so doing. Each
member shall also provide such protective devices to his premises of
apparatuses as the Cooperative shall from time to time require in order to
protect the Cooperative's physical facilities and their operation and to
prevent any interference with or damage to such facilities. If such
facilities are interfered with, impaired in their operation or damaged by
the member, or by any other person when the member's reasonable care and
surveillance should have prevented such, the member shall indemnify the
Cooperative and its employees, agents and independent contractors against
death, injury, loss or damage resulting therefrom, including but not
limited to the Cooperative's cost of repairing, replacing or relocating any
such facilities and its loss, if any, of revenues resulting from the
failure or defective functioning of its equipment. The Cooperative shall,
however, in accordance with its applicable service rules and regulations,
indemnify the member for any overcharges from services that may result from
any error occurring in the Cooperative's billing procedures. In no event
shall the responsibility of the Cooperative for furnishing
telecommunications services extend beyond the point of delivery.
SECTION 1.09. MEMBER TO GRANT EASEMENTS TO COOPERATIVE. Each member
shall, upon being requested so to do by the Cooperative, execute and
deliver to the Cooperative grants of easement or right-of-way over, on and
under such land owned or leased by or mortgaged to the member, and in
accordance with such reasonable terms and conditions, as the Cooperative
shall require for furnishing of telecommunications services to him for the
construction, operation, maintenance, interconnection (specifically
including, but not limited to, interconnection with facilities of other
telecommunications companies), or relocation of the Cooperative's
telecommunications facilities.
ARTICLE II
MEMBERSHIP SUSPENSION AND TERMINATION
SECTION 2.01. SUSPENSION; REINSTATEMENT. Upon his failure, after the
expiration of the initial time limit prescribed either in a specific notice
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to him or in the Cooperative's generally publicized applicable rules and
regulations, to pay any amounts due the Cooperative or to cease any other
noncompliance with his membership obligations, a person's membership shall
automatically be suspended; and he shall not during such suspension be
untitled to receive telecommunications services from the Cooperative or to
cast a vote at any meeting of the members. Payment of all amounts due the
Cooperative, including any additional charges required for such
reinstatement, and/or cessation of any other noncompliance with his
membership obligations within the final time limit provided in such notice
or rules and regulations shall automatically reinstate the membership, in
which event the member shall thereafter be entitled to receive
telecommunications services from the Cooperative and to vote at the
meetings of its members.
SECTION 2.02. TERMINATION BY EXPULSION; RENEWED MEMBERSHIP. Upon his
failure of a suspended member to be automatically reinstated to membership,
as provided in Section 2.01, he may, without further notice, but only after
due hearing if such is requested by him, be expelled by resolution of the
Board of Directors at any subsequently held regular or special meeting of
the Board. Any person so expelled may, by delivering written notice to
that effect to the Cooperative at least ten (10) days prior to the next
meeting of the members, appeal to and be present and heard at such meeting,
which may vote approval of such expulsion or disapproval thereof, in which
latter event such person's membership shall be reinstated retroactively to
the date of his expulsion. After any final effective expulsion of a
member, he may not again become a member except upon new application
therefor duly approved as provided in Section 1.05. The Board of
Directors, acting upon principles of general application in such cases, may
establish such additional terms and conditions for renewed membership as it
determines to be reasonably necessary to assure the applicant's compliance
with all his membership obligations.
SECTION 2.03. TERMINATION BY WITHDRAWAL OR RESIGNATION. A member may
withdraw from membership upon such generally applicable conditions as the
Board of Directors shall prescribe and upon either (a) ceasing to (or, with
the approval of the Board of Directors, resigning his membership in favor
of a new applicant who also shall) own or directly occupy or use all
premises being furnished telecommunications services pursuant to his
membership, or (b) except when the Board of Directors specifically waives
such conditions, abandoning totally and permanently the use of
telecommunications services on such premises.
SECTION 2.04. TERMINATION BY DEATH OR CESSATION OF EXISTENCE;
CONTINUATION OF MEMBERSHIP IN REMAINING OR NEW PARTNERS. Except as
provided in Section 2.06, the death of an individual human member shall
automatically terminate his membership. The cessation of the legal
existence of any other type of member shall automatically terminate such
membership: PROVIDED, that upon the dissolution for any reason of a
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partnership, such membership shall continue to be held by such remaining
and/or new partner or partners as retain the listed directory number or
numbers pursuant to such members in the same manner and to the same effect
as though such membership had never been held by different partners:
PROVIDED FURTHER, that neither a withdrawing partner nor his estate shall
be released from any debts then due the Cooperative.
SECTION 2.05. EFFECT OF TERMINATION. Upon the termination in any
manner of a person's membership, he or his estate, as the case may be,
shall be entitled to refund of his membership fee (and to his service
amounts due the Cooperative; but neither he nor his estate, as the case may
be, shall be released from any debts or other obligations then remaining
due the Cooperative. Notwithstanding the suspension or expulsion of a
member, as provided for the Sections 2.01 and 2.02, such suspension or
expulsion shall not, unless the Board of Directors shall expressly so
elect, constitute such release of such person from his membership
obligations as to entitle him to purchase from any other person any
telecommunications services for use at the premises to which such service
has theretofore been furnished by the Cooperative pursuant to such
membership.
SECTION 2.06. EFFECT OF DEATH, LEGAL SEPARATION OR DIVORCE UPON A
JOINT MEMBERSHIP. Upon the death of either spouse of a joint membership,
such membership shall continue to be held solely by the survivor, in the
same manner and to the same effect as though such membership had never been
joint: PROVIDED, that the estate of the deceased spouse shall not be
released from any debts due the Cooperative. Upon the legal separation or
divorce of the holders of a joint membership, such membership shall
continue to be held solely be the one who retains the listed directory
number or numbers covered by such membership in the same manner and to the
same effect as though such membership had never been joint: PROVIDED, that
the other spouse shall not be released from any debts due the Cooperative.
SECTION 2.07. BOARD ACKNOWLEDGMENT OF MEMBERSHIP TERMINATION;
ACCEPTANCE OF MEMBERS RETROACTIVELY. Upon the termination of a person's
membership for any reason, the Board of Directors, so soon as practicable
after such termination is made known to it, shall by appropriate resolution
formally acknowledge such termination, effective as of the date on which
the Cooperative ceased furnishing telecommunications services to such
person. Upon discovery that the Cooperative has been furnishing
telecommunications services to any person other than a member, it shall
cease furnishing such service unless such person applies for, and the Board
of Directors approves, membership retroactively to the date on which such
person first began receiving such service, in which event the Cooperative,
to the extent practicable, shall correct its membership and all related
records accordingly.
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ARTICLE III
MEETINGS OF MEMBERS
SECTION 3.01. ANNUAL MEETING. For the purpose of electing directors,
hearing and passing upon reports covering the previous fiscal year, and
transacting such other business as may properly come before the meeting,
the annual meeting of the members shall be held at a time, date and
location in any of the counties in South Dakota within which the
cooperative serves. It shall be the responsibility of the Board of
Directors to make adequate plans and preparations for and to encourage
member attendance at, the annual meeting. Failure to hold the annual
meeting at the designated time and place shall not work a forfeiture or
dissolution of the Cooperative.
SECTION 3.02. SPECIAL MEETINGS. A special meeting of the members may
be called by the President, by the Board of Directors, or by petition
signed by members having at least one-fifth of the votes entitled to be
cast at such meeting. It shall thereupon be the duty of the Secretary to
cause notice of such meeting to be given as hereinafter provided in
Section 3.03. Such a meeting shall be held at such place in one of the
counties in South Dakota within which provided in Section 3.03. Such a
meeting shall be held at such place in one of the counties in South Dakota
within which the Cooperative serves, on such date, not sooner than forty
(40) days after the call for such meeting is made or a petition therefor is
filed, and beginning at such hour as shall be designated by him or those
calling or petitioning for the same.
SECTION 3.03. NOTICE OF MEMBER MEETINGS. Written or printed notice
of the place, day and hour of the meeting and, in the case of a special
meeting or of an annual meeting at which business requiring special notice
is to be transacted, the purpose or purposes of the meeting shall be
delivered to each member not less than ten (10) days nor more than thirty
(30) days prior to the date of the meeting, either personally or by mail,
by or at the direction of the President or the Secretary (and, in the case
of a special meeting, at the direction of him or those calling the
meeting). Any such notice delivered by mail may be included with member
service billings or as an integral part of or with the Cooperative's
monthly newsletter. No matter the carrying of which, as provided by law,
or by the Cooperative's Articles of Incorporation or Bylaws requires the
affirmative votes of at least a majority of all the Cooperative's members,
shall be acted upon at any meeting of the members unless notice of such
matter shall have been contained in the notice of the meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail addressed to the member at his address as it appears on the records of
the Cooperative, with postage thereon prepaid and postmarked at least ten
(10) days prior to the meeting date. In making such computation, the date
of the meeting shall not be counted. The incidental and nonintended
failure of any member to receive a notice deposited in the mail addressed
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to the member at his address as shown on the Cooperative's books shall not
invalidate any action which may be taken by the members at any such
meeting, and the attendance in person of a member at any meeting of the
members shall constitute a waiver of notice of such meeting unless such
attendance shall be for the express purpose of objecting to the transaction
of any business, or one or more items of business, on the ground that the
meeting was not lawfully called or convened. Any member attending any
meeting for the purpose of making such objection shall notify the Secretary
prior to or at the beginning of the meeting of his objection.
SECTION 3.04. QUORUM. Business may not be transacted at any meeting
of the members unless there are present in person at least fifty (50)
persons, or a majority of all the Cooperative's members, whichever is
lesser, except that, if less than a quorum is present at any meeting, a
majority of those present in person may without further notice adjourn the
meeting to another time and date not less than forty (40) days later and to
any place in one of the counties in South Dakota within which the
Cooperative serves: PROVIDED, that the Secretary shall notify any absent
members of the time, date and place of such adjourned meeting by delivering
notice thereof as provided in Section 3.03. At all meetings of the
members, whether a quorum be present or not, the Secretary shall annex to
the meeting minutes, or incorporate therein by reference, a list of those
members who were registered as present in person.
SECTION 3.05. VOTING. Each member who is not in a status of
suspension, as provided for in Section 2.01, shall be entitled to only one
vote upon each matter submitted to a vote at any meeting of the members.
Voting by members other than members who are natural persons shall be
allowed upon the presentation to the Cooperative, prior to or upon
registration at each member meeting, of satisfactory evidence entitling the
person presenting the same to vote. At all meetings of the members, all
questions shall be decided by a majority of the members voting thereon,
except as otherwise provided by law or by the Cooperative's Articles of
Incorporation or these Bylaws. Members may not cumulate their votes or
vote by proxy. Voting by mail is permitted where specified by law except
that voting by mail is not permitted for the election of directors.
SECTION 3.06. CREDENTIALS AND ELECTION COMMITTEE. The Board of
Directors shall, before any meeting of the members, appoint a Credentials
and Election Committee. The Committee shall consist of an uneven number of
Cooperative members not less than five (5) nor more than eleven (11) who
are not members of the Nominating committee or existing Cooperative
employees, agents, officers, directors or known candidates for director,
and who are not close relatives or members of the same household thereof.
In appointing the Committee, the Board shall have regard for the equitable
representation of the several areas served by the Cooperative. The
committee shall elect its own chairman and secretary prior to the member
meeting. It shall be the responsibility of the Committee to establish or
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approve the manner of conducting member registration and any ballot or
other voting, to pass upon all questions that may arise with respect to the
registration of members in person, to count all ballots or other votes cast
in any election or in any other matter, to rule upon the effect of any
ballots or other vote irregularly or indecisively marked or cast, to rule
upon all other questions that may arise relating to member voting and the
election of directors (including but not limited to the validity of
petitions of petitions of nomination or the qualifications of candidates
and the regularity of the nomination and election of directors, and to pass
upon any protest or objection filed with respect to any election or to
conduct affecting the results of any election. In the event a protest or
objection is filed concerning any election, such protest or objection must
be filed during or within three (3) business days following the adjournment
of, the meeting in which the voting is conducted. The Committee shall
thereupon be reconvened, upon notice from its chairman, not less than seven
(7) days after such protest or objection is filed. The Committee shall
hear such evidence; as it is presented by the protester(s) or objector(s),
who may be heard in person, by council, or both, and any opposing evidence;
and the Committee, by a vote of majority of those present and voting,
shall, within a reasonable time but no later than thirty (30) days after
such hearing, render its decision, the result of which may be to affirm the
election, to change to outcome thereof, or to set it aside. The Committee
may not affirmatively act on any matter unless a majority of the the
committee is present. The committee's decision (as reflected by a majority
of those actually present and voting) on all matters covered by the Section
shall be final.
SECTION 3.07. ORDER OF BUSINESS. The order of business at the annual
meeting of the members and, insofar as practicable or desirable, at all
other meetings of the members shall be essentially as follows:
(1) Report on the number of members present in person in
order to determine the existence of a quorum.
(2) Reading of the notice of the meeting and proof of the
due giving thereof, or of the waiver or waivers of notice of the
meeting, as the case may be.
(3) Reading of unapproved minutes of previous meetings of
the members and the taking of necessary action thereon.
(4) Presentation and consideration of reports of officers,
directors and committees.
(5) Election of directors.
(6) Unfinished business.
(7) New business; and
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(8) Adjournment.
Notwithstanding the foregoing, the Board of Directors or the members
themselves may from time to time establish a different order of business
for the purpose of assuring the earlier consideration of and action upon
any item of business the transaction of which is necessary of desirable in
advance of any other item of business: PROVIDED, that no business other
than adjournment of the meeting to another time and place may be transacted
until and unless the existence of quorum is first established.
ARTICLE IV
DIRECTORS
SECTION 4.01. NUMBER AND GENERAL POWERS. The business and affairs of
the Cooperative shall be managed by a Board of not less than seven (7) nor
more than eleven (11) Directors. The Board shall exercise all of the
powers of the Cooperative except such as are by law or by the Cooperative's
Articles of Incorporation or Bylaws conferred upon or reserved to the
members.
SECTION 4.02. QUALIFICATIONS. No person shall be eligible to become
or remain a director of the Cooperative who is a close relative of an
incumbent director or of an employee of the Cooperative, or is not a member
in good standing of the Cooperative and receiving service therefrom at his
primary residential abode. No person shall be eligible to become or remain
a director of, or to hold any other position of trust in, the Cooperative
who is not at least legal voting age or is in any way employed by or
financially interested in a competing enterprise, or a business primarily
engaged in selling telecommunications appliances, fixture or supplies to,
among other, the members of the Cooperative. Upon establishment of the
fact that a nominee for director lacks eligibility under this Section or as
may be provided elsewhere in these Bylaws, it shall be the duty of the
chairman presiding at the meeting at which such nominee would otherwise be
voted upon to disqualify such nominee. Upon the establishment of the fact
that any person being considered for, or already holding, a directorship or
other position of trust in the Cooperative lacks eligibility under the
Section, it shall be the duty of the Board of Directors to withhold such
position from such person, or to cause him to be removed therefrom, as the
case may be. Nothing contained in this Section shall, or shall be
construed to, affect in any manner whatsoever the validity of any action
taken at any meeting of the Board of Directors, unless such action is taken
with respect to a matter which is affected by the provisions of this
Section and in which one or more of the directors have an interest adverse
to that of the Cooperative.
SECTION 4.03. ELECTION. At each annual meeting of the members,
directors shall be elected by secret written ballot by the members from
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among those members who are natural persons: PROVIDED, that when the number
of nominees does not exceed the number of directors to be elected from a
particular Directorate District, and if there is no objection, secret
written balloting may be dispensed with in respect of that particular
election and voting may be conducted in any other proper manner. Directors
shall be elected by a plurality of the votes cast unless the members in
advance of any balloting resolve that a majority of the votes cast shall be
required to elect, and this Bylaw provision shall be drawn to the attention
of the members and explained to them prior to any balloting. Drawing by
lot shall resolve where necessary, any tie votes.
SECTION 4.04. TENURE. Directors shall be so nominated and elected
that one director from or with respect to each of Directorate Nos. 1, 4, 5
and 9 shall be elected for three-year terms at an annual member meeting;
one director from or with respect to each of the Directorate Districts Nos.
2, 6 and 8 shall be elected for three-year terms at the next succeeding
annual member meeting; and one director from or with respect to each of
Directorate Districts, Nos. 3, 7 and 10 shall be elected for three-year
terms at the next succeeding annual member meeting, and so forth: PROVIDED,
that the terms of no two directors from the same Directorate District shall
coincide. Upon their election, directors shall, subject to the provisions
of these Bylaws, with respect to the removal of Directors, serve until the
annual meeting of the members of the year in which their terms expire or
until their successors shall have been elected and shall have qualified.
If for any reason an election of directors shall not be held at an annual
meeting of the members duly fixed and called pursuant to these Bylaws, such
election may be held at an adjournment of such meeting or at a subsequently
held special or the next annual meeting of the members. Failure of an
election for a given year shall allow the incumbents whose directorships
would have been voted on to hold over only until the next member meeting at
which a quorum is present.
SECTION 4.05. DIRECTORATE DISTRICTS. The territory served by the
Cooperative shall be divided into ten (10) Directorate Districts. Each
District shall be represented by one director, as follows:
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<TABLE>
<CAPTION>
Directorate Number of
District No. Description Directors
<S> <C> <C> <C>
1 Wakonda/Alsen and Beresford 1
South of Highway #46
2 Gayville/Volin and Irene 1
South of Highway #46
3 Eliminated 0
4 Eliminated 0
5 Flyger and Irene
North of Highway #46 1
6 Hurley/Davis 1
7 Parker/Monroe 1
8 Chancellor 1
9 Lennox 1
10 Worthing and Beresford 1
North of Highway #46
</TABLE>
District boundaries are determined in accordance with maps on file at
the Cooperative headquarters, and generally correspond to the like-named
exchanges.
Every year the Board of Directors, not less than ninety (90) days
prior to the first date on which the annual member meeting may be scheduled
pursuant to these Bylaws to be held, shall review the Districts and
directories and, if determining that the Districts should be altered as to
boundaries or number or that the number of District directors should be
increased or reduced, so as to correct any substantially inequitable
factors regarding the residences of members, the number of geographic
location of Districts or the number of such directors, shall appropriately
amend these Bylaws accordingly and may, after such amendments become
effective, appoint any additional directors if so provided for by such
amendments, and may appropriately fix their respective initial terms, not
to exceed three years. The Board of Directors shall cause all such
amendments and the names, addresses, and initial terms of any such newly
appointed additional directors to be noticed in writing to the members not
less than ten (10) days prior to the date on which the Committee on
Nominations for the next annual member meeting shall first convene.
After the date of the notice of amendments, these Bylaws shall have
been effectively amended accordingly, except that such District and/or the
number of District directors may also be changed by amendment of these
Bylaws by the members from time to time: PROVIDED, that any change so made
by action of the Board shall be in full force and effect until at least the
completion of the election of directors at the annual meeting of the
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members first thereafter held; AND PROVIDED FURTHER, that no such amendment
shall become effective so as to cause the vacancy of any director's office
prior to the time his term would normally expire unless he consents thereto
in writing.
SECTION 4.06. NOMINATIONS. Any fifteen (15) or more members of the
Cooperative, acting together, may make nominations in writing over their
signatures, listing their nominee(s) for director(s), not less than twenty-
five (25) days prior to the meeting, and the Secretary shall post such
nominations at principal office of the Cooperative. The Secretary shall
mail to the members with the notice of the meeting, or separately, but at
least (10) days prior to the date of the meeting, a statement of the names
and addresses of all nominee(s) for each Directorate District from or with
respect to which one or more directors must be elected. Nominations from
the floor shall not be permitted. Notwithstanding the provisions contained
in the Section, failure to comply with any of such provisions shall not
affect in any manner whatsoever the validity of any action taken by the
Board of Directors after the election of directors.
SECTION 4.07. VOTING FOR DIRECTORS; VALIDITY OF BOARD ACTION. In the
election of directors, each member shall be entitled to cast the number of
votes (but not cumulatively) which corresponds to the total number of
directors to be elected, but no member may vote for more nominees than the
number of directors that are to be elected from or with respect to any
particular Directorate District. Ballots marked in violation of the
foregoing restriction with respect to one or more Directorate Districts
shall be invalid and shall not be counted with respect to such district or
Districts. Notwithstanding the provisions contained in this Section,
failure to comply with any of such provisions shall not affect in any
manner whatsoever the validity of any action taken by the board of
directors after the election of directors.
SECTION 4.08. REMOVAL OF DIRECTORS BY MEMBERS. Any member may bring
one or more charges for cause against any one or more directors and may
request the removal of such director(s) by reason thereof by filing with
the Secretary such charge(s) in writing together with a petition signed by
not less than ten (10) percent of the total membership of the Cooperative,
which petition calls for a special member meeting, the stated purpose of
which shall be to hear and act on such charges and, if one or more
directors are recalled, to elect their successor(s) and specify the place,
time and date thereof not less than forty (40) days after filing of such
petition, or which requests that the matter be acted upon at the subsequent
annual member meeting if such meeting will be held no sooner than forty
(40) days after the filing of such petition. Each page of the petition
shall, in the forepart thereof, state the name(s) and address(es) of the
member(s) filing such charge(s), a verbatim statement of such charge(s) and
the name(s) of the director(s) against whom such charge(s) is (are) being
made. The petition shall be signed by each member in the same name as he
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is billed by the Cooperative and shall state the signatory's address as the
same appears on such billings. Notice of such charge(s) verbatim, of the
director(s) against whom the charge(s) have been made, of the member(s)
filing the charge(s) and the purpose of the meeting shall be contained in
the notice of the meeting, or separately noticed to the members not less
than ten (10) days prior to the member meeting at which the matter will be
acted upon: PROVIDED, that the notice shall set forth only twenty (20) of
the names (in alphabetical order) of the members filing one or more charges
if twenty (20) or more members file the same charge(s) against the same
director(s). Such director(s) shall be informed in writing of the charges
after they have been validly filed and at least twenty (20) days prior to
the meeting of the members at which the charge(s) is (are) to be
considered, and shall have an opportunity at the meeting to be heard in
person, by witnesses, by counsel or any combination of such, and to present
evidence in respect of the charge(s); and the person(s) bringing the
charge(s) shall have the same opportunity, but must be heard first. The
question of the removal of such director(s) shall, separately for each if
more than one has been charged, be considered and voted upon at such
meeting, and any vacancy created by such removal shall be filled by vote of
the members at such meeting without compliance with the foregoing
provisions with respect to nominations, except that nominations shall be
made from the floor: PROVIDED, that the question of the removal of a
director shall not be voted upon at all unless some evidence in support of
the charge(s) against him shall have been presented during the meeting
through oral statements, documents or otherwise. A newly elected director
shall be from or with respect to the same Directorate District as with the
director whose office he succeeds and shall serve the unexpired portion of
the removed director's term.
SECTION 4.09. VACANCIES. Subject to the provisions of these Bylaws
with respect to the filling of vacancies caused by the removal of directors
by the members, a vacancy occurring in the Board of Directors shall be
filled by the Board Directors. A director thus elected shall serve out the
unexpired term of the director whose office was originally vacated and
until a successor is elected and qualified, PROVIDED, that such a director
shall be from or with respect to the same Directorate District as was the
director whose office was vacated.
SECTION 4.10. COMPENSATION; EXPENSE. Directors shall, as determined
by resolution of the Board of Directors, receive, on a per diem basis, a
fixed fee, which may include insurance benefits, for attending meetings
authorized by the Board of Directors. Directors shall also receive
advancement or reimbursement of any travel and out-of-pocket expenses
actually, necessarily and reasonably incurred in attending such meetings
and performing such business. No director shall receive compensation for
serving the Cooperative, unless the payment and amount of such compensation
shall be specifically authorized by a vote of the members or such payment
and amount shall be specifically authorized by the Board of Directors upon
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their certification of such as an emergency measure: PROVIDED, that a
director who is also an officer of the Board, and who as such officer
performs regular or periodic duties of a substantial nature for the
Cooperative in its fiscal affairs, may be compensated in such amount as
shall be fixed and authorized in advance of such service by the Board of
Directors.
SECTION 4.11. RULES, REGULATIONS, RATE SCHEDULES AND CONTRACTS. The
Board of Directors shall have power to make, adopt, amend, abolish and
promulgate such rules, regulation, rate schedules, contracts, security
deposits and any other types of deposits, payment or charges, including
contributions in aid of construction, not inconsistent with law or the
Cooperative's Articles of Incorporation or Bylaws, as it may deem advisable
for the management administration and regulation of the business and
affairs of the Cooperative.
SECTION 4.12. ACCOUNTING SYSTEM AND REPORTS. The Board of Directors
shall cause to be established and maintained a complete accounting system
of the Cooperative's financial operations and condition, and shall, after
the close of each fiscal year, cause to be made a full, complete and
independent audit of the Cooperative's accounts, books and records
reflecting financial operations during, and the financial condition as of
the end of, such year. A full and accurate summary of such audit reports
shall be submitted to the members at or prior to the succeeding annual
meeting of the members. The Board may authorize special audits, complete
or partial, at any time for any specified period of time.
SECTION 4.13. EXECUTIVE COMMITTEE. The Board of Directors may
appoint an Executive Committee consisting of at least 3 of the elected
officers, one of whom shall be the President or Vice President. Such
committee shall not have any power with respect to either (I) powers
reserved by the Board to itself, or (II) apportionment or distribution of
proceeds, or (III) election of officers, or (IV) filling vacancies in the
board or the Executive Committee, or (V) amendments to the Bylaws, or (VI)
the employment, resignation or discharge of any Manager for this
Cooperative, or (VII) calling any meeting of the members, or (VIII) meeting
or acting at any time when either the Board of Directors or the members are
holding a meeting; but said committee shall have all other powers of the
Board of Directors.
SECTION 4.14. "CLOSE RELATIVE" DEFINED. As used in these Bylaws,
"close relative" means a person who by blood or in law, including half,
foster, step and adoptive kin, is either a spouse, child, grandchild,
parent, grandparent, brother or sister of the principal.
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ARTICLE V
MEETINGS OF DIRECTORS
SECTION 5.01. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held, without notice immediately after the adjournment
of the annual meeting of the members, or as soon thereafter as conveniently
may be, at such site as designated by the Board in advance of the annual
member meeting. A regular meeting of the Board of Directors shall also be
held monthly at such date, time and place in one of the counties in South
Dakota within which the Cooperative serves as the Board shall provide by
resolution. Such regular monthly meeting may be held without notice other
than such resolution fixing the date, time and place thereof, except when
business to be transacted there at shall require special notice: PROVIDED,
that any director absent from any meeting of the Board at which such a
resolution initially determines or makes any change in the date, time or
place of a regular meeting shall be entitled to receive written notice of
such determination of change at last five (5) days prior to the next
meeting of the Board: AND PROVIDED FURTHER, that, if a policy therefore is
established by the Board, the President may change the date, time or place
of a regular monthly meeting for good cause and upon not less than five (5)
days notice thereof to all directors.
SECTION 5.02. SPECIAL MEETINGS. Special Meetings of the Board of
Directors may be called by the President, by the Board resolution, or by
any three (3) directors, and it shall thereupon be the duty of the
Secretary to cause notice of such meeting to be given as hereinafter
provided in Section 5.03. The Board, the President, or the directors
calling the meeting shall fix the date, time and place for the meeting,
which shall be held in one of the counties in South Dakota within which the
Cooperative serves, unless all directors consent to its being held in some
other place in South Dakota or elsewhere. Special meetings, upon proper
notice as otherwise provided in Section 5.03, may also be held via
telephone conference call, without regard to the actual location of the
directors at the time of such a telephone conference meeting, if all the
directors consent thereto.
SECTION 5.03. NOTICE OF DIRECTORS MEETINGS. Written notice of the
date, time, place (or telephone conference call) and purpose or purposes of
any special meeting of the Board and, when the business to be transacted
there at shall require such, of any regular meeting of the Board shall be
given to each director not less than five (5) days prior thereto, either
personally or by mail, by or at the direction of the Secretary, by him or
those calling it in case of a meeting whose date, time and place have
already been fixed by Board resolution. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed
to the director at his address as it appears on the records of the
Cooperative, with first class postage thereon prepaid, and postmarked at
least five (5) days prior to the meeting date. The attendance of a
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director at any meeting of the Board shall constitute a waiver of notice of
such meeting unless such attendance shall be for the express purpose of
objecting to the transaction of any business, or of one or more items of
business, on the ground that the meeting shall not have been lawfully
called or convened.
SECTION 5.04. QUORUM. The presence in person of a majority of the
directors in office shall be required for the transaction of business and
the affirmative votes of a majority of the directors present and voting
shall be required for any action to be taken: PROVIDED, that a director who
by law or these Bylaws is disqualified from voting on a particular matter
shall not, with respect to consideration of an action upon that matter, be
counted in determining the number of directors in office or present: AND
PROVIDED FURTHER, that if less than a quorum be present at a meeting, a
majority of the directors present may adjourn the meeting from time to
time, but shall cause the absent directors to be duly and timely notified
of the date, time and place of such adjourned meeting.
ARTICLE VI
OFFICERS; MISCELLANEOUS
SECTION 6.01. NUMBER AND TITLE. The officers of the Cooperative
shall be a President, Vice President, Secretary and Treasurer, and such
other officers as may from time to time be determined by the Board of
Directors. The offices of Secretary and Treasurer may be held by the same
person.
SECTION 6.02. ELECTION AND TERM OF OFFICE. The four officers named
in Section 6.01 shall be elected by secret written ballot, annually and
without prior nomination, by and from the Board of Directors at the first
meeting of the Board held after the annual meeting of the members. If the
election of such officers shall not be held at such meeting, it shall be
held as soon thereafter as conveniently may be. Each such officer shall
hold office until the meeting of the Board first held after the next
succeeding annual meeting of the members or until his successor shall have
been duly elected and shall have qualified, subject to the provisions of
the Bylaws with respect to the removal of directors and to the removal of
officers by the Board of Directors. Any other officers may be elected by
the Board from among such persons, and with such title, tenure and
responsibilities and authorities, as the Board of Directors may from time
to time deem advisable.
SECTION 6.03. REMOVAL. Any officer, agent or employee elected or
appointed by the Board of Directors may be removed by the Board whenever in
its judgment the best interests of the Cooperative will thereby be served.
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SECTION 6.04. VACANCIES. A vacancy in any office elected or
appointed by the Board of Directors shall be filled by the Board for the
uexpired portion of the term.
SECTION 6.05. PRESIDENT. The President shall-
(a) Be the principal executive officer of the Cooperative
and shall preside at all meetings of the Board of Directors, and,
unless determined otherwise by the Board of Directors, at all
meetings of the members.
(b) Sign, with the Secretary, certificates of membership
the issue of which shall have been authorized by resolution of
the Board of Directors, and may sign any deeds, mortgages, deeds
of trust, notes, bonds, contracts or other instruments authorized
by the Board of Directors to be executed, except in cases in
which the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Cooperative, or shall be required
by law to be otherwise signed or executed; and
(c) In general, perform all duties incident to the office
of President and such other duties as may be prescribed by the
Board of Directors from time to time.
SECTION 6.06. VICE PRESIDENT. In the absence of the President, or in
event of his inability or refusal to act, the Vice President shall perform
the duties of the President, and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the President; and shall
perform such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 6.07. SECRETARY. The Secretary shall-
(a) Keep, or cause to be kept, the minutes of meetings of
the members and of the Board of Directors in one or more books
provided for that purpose.
(b) See that all notices are duly given in accordance with
these Bylaws or as required by law.
(c) Be custodian of the corporate records and of the seal
of the Cooperative and see that the seal of the Cooperative is
affixed to all certificates of membership prior to the issue
thereof and to all documents the execution of which, on behalf of
the Cooperative under its seal, is duly authorized in accordance
with the provision of these Bylaws, or is required by law.
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(d) Keep, or cause to be kept, a register of the name and
post office address of each member, which address shall be
furnished to the Cooperative by such member.
(e) Sign, with the President, certificates of membership
the issue of which shall have been authorized by resolution of
the Board of Directors.
(f) Have general charge of the books of the Cooperative in
which a record of the members is kept.
(g) Keep on file at all times a complete copy of the
Cooperative's Articles of Incorporation and Bylaws, together with
all amendments thereto, which copies shall always be open to the
inspection of any member, and, at the expense of the Cooperative,
furnish a copy of such documents and of all amendments thereto
upon request to any member; and
(h) In general, perform all duties incident to the office
of the Secretary and such other duties as from time to time may
be assigned to him by the Board of Directors.
SECTION 6.08. TREASURER. The Treasurer shall-
(a) Have charge and custody of and be responsible for all
funds and securities of the Cooperative.
(b) Receive and give receipts for monies due and payable to
the Cooperative from any source whatsoever, and deposit or invest
all such monies in the name of the Cooperative in such bank or
banks or in such financial institutions or securities as shall be
selected in accordance with the provisions of these Bylaws; and
(c) In general perform all the duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 6.09. DELEGATION OF SECRETARY'S AND TREASURER'S
RESPONSIBILITIES. Notwithstanding the duties, responsibilities and
authorities of the Secretary and of the Treasurer hereinbefore provided in
Sections 6.07 and 6.08, the Board of Directors by resolution may, except as
otherwise limited by law, delegate, wholly or in part, the responsibility
and authority for, and the regular or routine administration of, one or
more of each such officer's such duties to one or more agents, other
officers or employees of the Cooperative who are not directors. To the
extent that the Board does so delegate with respect to any such officer,
that officer as such shall be relieved from such duties, responsibilities
and authorities.
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SECTION 6.10. GENERAL MANAGER; EXECUTIVE VICE PRESIDENT. The Board
of Directors may appoint a General Manager, who may be, but who shall not
be required to be, a member of the Cooperative, and who also may be
designated Executive Vice President. Such officer shall perform such
duties as the Board of Directors may from time to time require and shall
have such authority as the Board of Directors may from time to time vest in
him.
SECTION 6.11. BONDS. The Board of Directors shall require the
Treasurer and any other officer, agent or employee of the Cooperative
charged with responsibility for the custody of any of its funds or property
to give bond in such sum and with such surety as the Board of Directors
shall determine. The Board of Directors in its discretion may also require
any other officer, agent or employee of the Cooperative to give bond in
such amount and with such surety as it shall determine. The costs of all
such bonds shall be borne by the Cooperative.
SECTION 6.12. COMPENSATION; INDEMNIFICATION. The compensation, if
any, of any officer, agent or employee who is also a director or close
relative of a director shall be determined as provided in Section 4.10 of
these Bylaws, and the powers, duties and compensation of any other
officers, agents and employees shall be fixed or a plan therefor approved
by the Board of Directors. The Cooperative shall indemnify present and
former directors, officers, including the General Manager (or, if so
titled, the Executive Vice President) agents and employees in accordance
with and to the fullest extent allowable under S.D. Codified Laws Ann.
Section 47-21-21.1: PROVIDED, the Cooperative may purchase insurance to
cover such indemnification; to the extent that such insurance is purchased
and covers such liabilities without regard to indemnifications by the
Cooperative, the Cooperative shall not be financially obligated in any
manner.
SECTION 6.13. REPORTS. The officers of the Cooperative shall submit
at each annual meeting of the members reports covering the business of the
Cooperative for the previous fiscal year and showing the condition of the
Cooperative at the close of such fiscal year.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.01. CONTRACTS. Except as otherwise provided by law or
these Bylaws, the Board of Directors may authorize any Cooperative officer,
agent or employee to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Cooperative, and such authority
may be general or confined to specific instances.
SECTION 7.02. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, and all notes, bonds or other evidences of
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indebtedness, issued in the name of the Cooperative, shall be signed or
countersigned by such officer, agent or employee of the Cooperative and in
such manner as shall from time to time be determined by resolution of the
Board of Directors.
SECTION 7.03. DEPOSITS; INVESTMENTS. All funds of the Cooperative
shall be deposited or invested from time to time to the credit of the
Cooperative in such bank or banks or in such financial securities or
institutions as the Board of Directors may select.
ARTICLE VIII
MEMBERSHIP CERTIFICATES
SECTION 8.01. CERTIFICATE OF MEMBERSHIP. Membership in the
Cooperative may, if the Board so resolves be evidenced by a certificate of
membership, which shall be in such form and shall contain such provisions
as shall be determined by the Board of Directors contrary to, or
inconsistent with, the Cooperative's Articles of Incorporation or its
Bylaws. Such certificate, if authorized to be issued by the Board, shall
be signed by the President and by the Secretary, and the seal shall be
affixed thereto: PROVIDED, that the seal and the signatures of the
President and the Secretary may be imprinted thereon by facsimile.
SECTION 8.02. ISSUE OF MEMBERSHIP CERTIFICATES. No membership
certificate shall be issued for less than the membership fee fixed by the
Board of Directors nor until such membership fee, any required service
security deposits, facilities extension deposits, service connection fees,
or contributions in aid of construction have been fully paid.
SECTION 8.03. LOST CERTIFICATE. In case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such
terms and such indemnity to the Cooperative as the Board of Directors may
prescribe.
ARTICLE IX
NON-PROFIT OPERATION
SECTION 9.01. INTEREST OR DIVIDENDS ON CAPITAL. The Cooperative
shall at times be operated on a cooperative non-profit basis for the mutual
benefit of its patrons. No interest or dividends shall be paid or payable
by the Cooperative on any capital furnished by its patrons through their
patronage.
SECTION 9.02. PATRONAGE CAPITAL IN CONNECTION WITH FURNISHINGS
TELECOMMUNICATIONS SERVICES. In the furnishing of telecommunications
services the Cooperative's operations shall be so conducted that all
patrons will, through their patronage, furnish capital for the Cooperative.
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In order to induce patronage and to assure that the Cooperative will
operate on a nonprofit basis, the Cooperative is obligated to account on a
patronage basis to all its patrons for all amounts received and receivable
from the furnishing of telecommunications services in excess of operating
costs and expenses properly chargeable against the furnishing of
telecommunications services. All such amounts in excess of operating costs
and expenses at the moment of receipt by the Cooperative are received with
the understanding that they are furnished by the patrons as capital. The
Cooperative is obligated to pay by credits to a capital account for each
patron all such amounts in excess of operating costs and expenses. The
books and records of the Cooperative shall be set up and kept in such a
manner that at the end of each fiscal year the amount of capital, if any,
so furnished by each patron is clearly reflected and credited in an
appropriate record to the capital account of each patron, and the
Cooperative shall within a reasonable time after the close of the fiscal
year notify each patron of the amount of capital so credited to his
account: PROVIDED, that individual notices of such amounts furnished by
each patron shall not be required if the Cooperative notifies all patrons
of the aggregate amount of such excess and provides a clear explanation of
how each patron may compute and determine for himself the specific amount
of capital so credited to him. All such amounts credited to the capital
account of a patron shall have the same status as though they had been paid
to the patron in cash in pursuance of a legal obligation to do so and the
patron had then furnished the Cooperative corresponding amounts for
capital.
All other amounts received by the Cooperative form its operations in
excess of costs and expenses shall, insofar as permitted by law, be (a)
used to offset any losses incurred during the current or any prior fiscal
year and (b) to the extent not needed for that purpose, allocated to its
patrons on a patronage basis, and any amount so allocated shall be included
as a part of the capital credited to the accounts of patrons, as herein
provided.
In the event of dissolution or liquidation of the Cooperative, after
all outstanding indebtedness of the Cooperative shall have been paid,
outstanding capital credits shall be retired without priority on a pro rate
basis before any payments are made on account of property rights of
members: PROVIDED, that insofar as gains may at that time be distributed to
all persons who were patrons during the period the asset was owned by the
Cooperative in proportion to the amount of business done by such patrons
during that period insofar as is practicable, as determined by the Board of
Directors before any payments are made on account of property rights of
members. If, at any time prior to dissolution of liquidation, the Board of
Directors shall determine that the financial condition of the Cooperative
will not be impaired thereby, the capital then credited to patrons'
accounts may be retired in full or in part. Any such retirements of
capital shall be made in order of priority according to the year in which
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the capital was furnished and credited, the capital furnished prior to
January 1, 1984; for capital furnished after December 31, 1983, the board
of directors shall determine the method, basis, priority and order of
retirement, of any: PROVIDED, however, that the Board of Directors shall
have the power to adopt rules providing for the separate retirement of that
portion of capital credited to the accounts of patrons which corresponds to
capital credited to the account of the Cooperative by an organization
furnishing telecommunications services or any other service or supply to
the Cooperative. Such rules shall (a) establish a method for determining
the portion of such capital credited to each patron for each applicable
fiscal year, (b) provide for separate identification on the Cooperative's
books of such portions of capital credited to the Cooperative's patrons,
(c) provide for appropriate notifications to patrons with respect to such
portions of capital credited to their accounts and (d) preclude a general
retirement of such portions of capital credited to patrons for any fiscal
year prior to the general retirement of other capital credited to patrons
for the same year or of any capital credited to patrons for any prior
fiscal year. Capital credited to the account of each patron shall be
assignable only on the books of the Cooperative pursuant to written
instructions from the assignor and only to successors in interest or
successors in occupancy in all or a part of such patron's premises served
by the Cooperative, unless the Board of Directors, acting under policies of
general application, shall determine otherwise.
Notwithstanding any other provisions of these Bylaws, the Board of
Directors shall at its discretion have the power at any time upon the death
of any patron who was natural person (or, if as so provided for in the
preceding paragraph, upon the death of an assignee of the capital credits
of a patron, which assignee was a natural person), if the legal
representatives of his estate shall request in writing that the capital so
crediting or assigned, as the case may be, be retired prior to the time
such capital would otherwise be retired under the provisions of the Bylaws,
to retire such capital immediately upon such terms and conditions as the
Board of Directors, acting under policies of general application to
situations of like kind, and such legal representatives, shall agree upon:
PROVIDED, however, that the Board of Directors shall determine that the
financial condition of the Cooperative will not be impaired thereby.
The Cooperative, before retiring any capital credited to any patron's
account, shall deduct therefrom any amount owing by such patron to the
Cooperative, together with interest thereon at the South Dakota legal rate
on judgments in effect when such amount became overdue, compounded
annually.
The patrons of the Cooperative, by dealing with the Cooperative,
acknowledge that the terms and provisions of the Articles of Incorporation
and Bylaws shall constitute and be a contract between the Cooperative and
each patron, and both the Cooperative and the patrons are bound by such
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contract, as fully as though each patron had individually signed a separate
instrument containing such terms and provisions. The provisions of this
Article of the Bylaws shall be called to the attention of each patron of
the Cooperative by posting in a conspicuous place in the Cooperative's
offices.
SECTION 9.03. PATRONAGE REFUNDS IN CONNECTION WITH FURNISHING OTHER
SERVICES. If the Cooperative should engage in the business of furnishing
goods or services other than telecommunications services, all amounts
received and receivable therefrom which are in excess of costs and expenses
properly chargeable against the furnishing of such goods or services shall
insofar as permitted by law, be prorated annually on a patronage basis and
returned to those patrons from whom such amounts were obtained at such time
and in such order of priority as the Board of Directors shall determine.
ARTICLE X
WAIVER OF NOTICE
Any member or director may waive, in writing, any notice of meetings
required to be given by these Bylaws or any notices that may otherwise be
legally required, either before or after such notice is required to be
given.
ARTICLE XI
DISPOSITION AND PLEDGING OF PROPERTY:
DISTRIBUTION OF SURPLUS ASSETS ON DISSOLUTION
SECTION 11.01. DISPOSITION AND PLEDGING OF PROPERTY.
(a) Not inconsistently with South Dakota law and subsection
(b) hereof, the members of the Cooperative may, at a duly held
meeting of the members, authorize the sale, lease, lease-sale,
exchange, transfer or other disposition of all or a substantial
portion of the Cooperative's property and assets by the
affirmative votes of a majority of the total members of the
Cooperative. However, the Board of Directors, without
authorization by the members, shall have full power and authority
(1) to borrow monies from any source and in such amount as the
Board may from time to time determine, (2) to mortgage or
otherwise pledge or encumber any or all of the Cooperative's
property or assets as security therefor, and (3) to sell, lease,
lease-sell, exchange, transfer or otherwise dispose of
merchandise and property no longer necessary or useful for the
operation of the Cooperative, or less than a substantial portion
of the Cooperative's property and assets. "Substantial portion"
means twenty (20) percent or more of the Cooperative's total
assets as reflected on its books at the time of the transaction.
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(b) Supplementary to the first sentence of the foregoing
subsection (a) and any other applicable provisions of law or
these Bylaws, no sale, lease, lease-sale, exchange, transfer or
other disposition of all or a substantial portion of the
Cooperative's property and assets shall be authorized except in
conformity with the following:
(1) If the Board of Directors looks with favor upon
any proposal for such sale, lease, lease-sale, exchange,
transfer or other disposition, it shall first cause three
(3) independent, non-affiliated appraisers, expert in such
matters, to render their individual opinions as to the value
of the Cooperative with respect to such a sale, lease,
lease-sale, exchange, transfer or other disposition and as
to any other terms and conditions which should be
considered. The three (3) such appraisers shall be
designated by a Circuit Court Resident Judge for the
Judicial Circuit in South Dakota in which the Cooperative's
headquarters are located. If such judge refuses to make
such designations, they shall be made by the Board of
Directors.
(2) If the Board of Directors, after receiving such
appraisals (and other terms and conditions which are
submitted, if any), determine that the proposal should be
submitted for consideration by the members, it shall first
give every other rural telecommunications cooperative
corporately sited and operating in South Dakota (which has
not made such an offer for such sale, lease, lease-sale,
exchange, transfer or other disposition) an opportunity to
submit competing proposals. Such opportunity shall be in
the form of a written notice to such rural
telecommunications cooperative, which notice shall be
attached to a copy of the proposal which the Cooperative has
already received and copies of the respective reports of the
three (3) appraisers. Such rural telecommunications
cooperative shall be given not less than thirty (30) days
during which to submit competing proposals, and the actual
minimum period withing which proposals are to be submitted
shall be stated in the written notice given to them.
(3) If the Board then determines that favorable
consideration should be given to the initial or any
subsequent proposal which has been submitted to it, it shall
so notify the members not less than sixty (60) days before
noticing a special meeting of the members thereon or, if
such be the case, the next annual member meeting, expressing
in detail each of any such proposals, and shall call a
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special meeting of the members for consideration thereof and
action thereon, which meeting shall be held not less than
ten (10) days nor more than twenty-five (25) days after the
giving of notice thereof to the members: PROVIDED, that
consideration and action by the members may be given at the
next annual member meeting if the Board so determines and if
such annual meeting is held not less than ten (10) days nor
more than twenty-five (25) days after the giving of notice
of such meeting.
(4) Any fifty (50) or more members, by so petitioning
the Board not less than thirty (30) days prior to the date
of such special or annual meeting, may cause the
Cooperative, with the cost to be borne by the Cooperative,
to mail to all members any opposing or alternative positions
which they may have to the proposals that have been
submitted or any recommendations that the Board has made.
The provisions of this subsection (b) shall not apply to a sale, lease,
lease-sale, exchange, transfer or other disposition to one or more other
rural telecommunications cooperatives if the substantive or actual legal
effect thereof is to merge or consolidate with such other one or more rural
telecommunications cooperatives.
SECTION 11.02. DISTRIBUTION OF SURPLUS ASSETS ON DISSOLUTION. Upon
the Cooperative's dissolution, any assets remaining after all liabilities
of obligations of the Cooperative have been satisfied and discharged,
including retirement of outstanding capital credits and refund of
membership fees, shall, to the extent practicable as determined by the
Board of Directors, not inconsistently with the provisions of the third
paragraph of Section 9.02 of these Bylaws, by distributed without priority
but on a patronage basis among all persons who are or have been members of
the Cooperative: PROVIDED, HOWEVER, that, if in the judgment of the Board
the amount of such surplus is too small to justify the expense of making
such distribution, the Board may, is lieu, thereof, donate, or provide for
the donation of such surplus to one or more nonprofit charitable or
educational organizations that are exempt from Federal income taxation.
ARTICLE XII
FISCAL YEAR
The Cooperative's fiscal year shall begin on the first day of the
month of January of each year and end on the last day of the month of
December following.
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ARTICLE XIII
RULES OF ORDER
Parliamentary procedure at all meetings of the members, of the
Board of Directors, of any committees provided for in these Bylaws and of
any other committee of the members or Board of Directors which may from
time to time be duly established shall be governed by the most recent
edition of Robert's Rules of Order, except to the extent such procedure is
otherwise determined by law or by the Cooperative's Articles of
Incorporation or Bylaws.
ARTICLE M
AMENDMENTS
These Bylaws may be altered, amended or repealed by the
affirmative vote of not less than a majority of the members present and
voting at any regular or special member meeting, but only if the notice of
such meeting shall have contained a copy of the proposed alteration,
amendment or repeal or an accurate summary explanation thereof. The Board
of Directors may make and amend any bylaws except only Articles I, II, III,
IV, and XI of these Bylaws PROVIDED, that any bylaw adopted or amended by
the Board of Directors shall be reported at the next regular member
meeting, and PROVIDED FURTHER, that any bylaw adopted or amended by the
Board of Directors shall be subject to amendment or repeal by the members.
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EXHIBIT 4.7
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT is made as of November 27, 1996, among
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a South Dakota cooperative
corporation ("Dakota"), and JOEL T. HAGEN, JOHN F. ARCHER, JEFFREY G.
PARKER, DONALD B. GRAHAM and DOUG SCHNEIDER (collectively "Sellers").
Capitalized terms used in this Agreement and not otherwise defined are
defined in the Merger Agreement (the "Merger Agreement") to which this
Agreement is an exhibit.
Pursuant to the Merger Agreement, Sellers will receive shares of
Dakota Preferred Stock in connection with the merger of TCIC
Communications, Inc. with and into Dakota Acquisition Corp. #1, a wholly-
owned subsidiary of Dakota. The Dakota Preferred Stock is automatically
convertible into shares of Dakota common stock upon the occurrence of
certain events specified in the Agreement attached as Exhibit B to the
Merger Agreement. As a condition to the execution of the Merger Agreement
and the consummation of the transactions contemplated thereby, Dakota has
requested Sellers to enter into this Standstill Agreement (the "Standstill
Agreement"), and this Standstill Agreement is part of the consideration for
the Merger Agreement.
NOW, THEREFORE, Dakota and Sellers represent, warrant, covenant
and agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For the purposes of this Standstill
Agreement, the following terms have the meanings indicated:
(a) "Common Stock" shall mean the common stock into
which the Dakota Preferred Stock is convertible in the
Conversion (as defined below). For purposes of this
definition, the term Common Stock shall include any
Stockholder Purchase Rights ("Rights") or other rights, if
any, evidenced by the certificates for such Common Stock.
(b) "Option" shall mean either the First Purchase
Option or the Tender Offer Option, as such terms are defined
in Section 4.1 and 4.2 hereof, respectively.
(c) "Separated Rights" shall mean any Purchase Rights
which are no longer evidenced by certificates for Common
Stock, but are evidenced by separate Rights certificates.
<PAGE>
(d) "Conversion" means the conversion of the Dakota
Preferred Stock into Common Stock as provided in EXHIBIT B to
the Merger Agreement.
(e) "Conversion Date" means the date of the Conversion,
as more particularly defined in Section 9 of the Agreement
attached as EXHIBIT B to the Merger Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Sellers represent and warrant to Dakota as follows:
SECTION 2.1. The execution, delivery and performance of
this Standstill Agreement by Sellers does not and will not
result in violation of, be in conflict with, or constitute a
default under (a) any decree, judgment, ruling or order
applicable to Sellers, or (b) any instrument, contract, or
other agreement to which Sellers are a party or by which
Sellers are bound.
SECTION 2.2. The terms of this Standstill Agreement are
contractual, not merely recital; this Standstill Agreement is
the result of negotiations between the parties; Sellers agree
that the principle of contract construction against the
drafter shall not apply to the interpretation, construction
or enforcement of this Standstill Agreement.
SECTION 3. COVENANTS OF SELLERS. Sellers, and each of them,
covenant as follows:
SECTION 3.1. Sellers, without the prior written consent
of the Board of Directors of Dakota, will not, prior to five
(5) years following the Conversion Date, directly or
indirectly, (a) acquire or agree to acquire, by purchase or
otherwise, any Common Stock or other voting securities of
Dakota in excess of five percent (5%) of the Common Stock at
any time outstanding during the term of this Standstill
Agreement, except in connection with and as a result of (i)
the declaration of a dividend upon, or the making of a
distribution in respect of, the Common Stock payable in
Common Stock or other voting securities of Dakota, (ii) the
subdivision of the outstanding Common Stock into a greater
number of shares, (iii) the reclassification of the
outstanding Common Stock, (iv) the exercise by Sellers of
Separated Rights, or (v) the sale and transfer of Common
Stock among Sellers; (b) make, or in any manner participate
in (other than in conjunction with all other directors of
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Dakota), any "solicitation" of "proxies" (as such terms are
defined in Regulation 14A of the Securities Exchange Act of
1934); (c) form, join or in any way participate in a "group"
(as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) with respect to any Common
Stock or other voting securities of Dakota; (d) initiate any
proposal to be voted upon or consented to by Dakota's
shareholders or convene any meeting of Dakota's shareholders
or influence or attempt to influence or in any manner assist
any other Person with respect to the initiation of such a
proposal or the convening of such a meeting; (e) deposit any
Common Stock or other voting securities of Dakota into a
voting trust or subject any Common Stock or other voting
securities of Dakota to any arrangement or agreement (other
than this Standstill Agreement) with respect to the voting of
such Common Stock or other voting securities; or (f)
otherwise act, alone or in concert with others, to seek to
control the management, Board of Directors or policies of
Dakota (except in accordance with this Standstill Agreement
or any other written agreement hereafter entered into between
Dakota and Sellers).
SECTION 3.2. Sellers will be present (in person or by
proxy) at all meetings of Dakota's shareholders so that all
Common Stock owned by Sellers may be counted for the purpose
of determining the presence of a quorum at such meetings.
SECTION 3.3. Sellers will not, prior to three (3) years
following the Conversion Date, directly or indirectly, sell,
transfer or otherwise dispose of, or offer or agree to sell,
transfer or otherwise dispose of, any Common Stock or other
voting securities of Dakota other than in the manner set
forth in Section 4 hereof; PROVIDED, HOWEVER, that the
foregoing restriction shall not apply to sales, transfers or
dispositions of Common Stock or other voting securities of
Dakota, together with any related Rights, made:
(a) pursuant to a merger or subsidiary merger
between Dakota and a third party following which the
Common Stock or other voting securities of Dakota shall
no longer be outstanding;
(b) on a recognized securities market in
compliance with Rule 144 of the Securities Act of 1933,
which shall for purposes of this Standstill Agreement be
deemed applicable to Sellers, PROVIDED, HOWEVER, that
Sellers shall not engage in market transactions that
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<PAGE>
would adversely affect the market price of the Common
Stock, but will sell their Common Stock, if at all, in a
gradual manner to facilitate widespread distribution;
(c) to immediate family members or otherwise
pursuant to testamentary dispositions, provided that the
transferee, and any subsequent transferee, of such
Common Stock shall, prior to such transfer, agree to be
bound by the terms and conditions of this Standstill
Agreement; and
SECTION 4. FIRST PURCHASE OPTION; TENDER OFFER OPTION; TERMS
AND CONDITIONS.
SECTION 4.1. FIRST PURCHASE OPTION. Sellers shall sell
to Dakota (or its designee), at Dakota's option (the "First
Purchase Option"), all, but not less than all, of the Common
Stock owned by Sellers which such Sellers desire to sell,
transfer or otherwise dispose of, other than pursuant to a
tender or exchange offer for the Common Stock which is
governed by Section 4.2 hereof or pursuant to the provisos
set forth in section 3 hereof. The First Purchase Option
shall apply to, and may be exercised in connection with, each
sale, transfer or other disposition of Common Stock desired
to be made by Sellers prior to three (3) years following the
Conversion Date. The First Purchase Option shall be
exercisable on the following terms and conditions:
(a) In the event Sellers desire to sell, transfer
or otherwise dispose of any Common Stock, other than
pursuant to a tender or exchange offer covered by
Section 4.2 hereof (such shares being known as the
"First Purchase Option Shares"), Sellers shall promptly
deliver or cause to be delivered a written notice to
Dakota of Sellers' desire to sell, transfer or otherwise
dispose of such Common Stock (the "Sales Notice"), which
Sales Notice shall specify the number of Common Stock
Sellers' desire to sell, transfer or otherwise dispose
of, whether such Common Stock is to be sold on the over-the-counter
market, on a national securities exchange or to a private
purchaser, and if to a private purchaser, the name of such
private purchaser and the purchase price for the Common Stock.
(b) The First Purchase Option shall remain open
and exercisable by Dakota for thirty (30) days following
the receipt by Dakota of a Sales Notice. The First
Purchase Option may be exercised with respect to all,
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<PAGE>
but not less than all, of the First Purchase Option
Shares specified in such Sales Notice at the private
sales price, if such Common Stock were to be sold in a
private sale, or if such Common Stock were to be sold on
the over- the-counter market or on a national securities
exchange, the market price on the date that the Election
Notice is given by Dakota. Dakota shall provide written
notice to Sellers of its intent to exercise the First
Purchase Option (an "Election Notice") prior to the
thirtieth (30th) day following the receipt by Dakota of
the Sales Notice.
(c) The closing of any purchase of First Purchase
Option Shares by Dakota upon exercise of the First
Purchase Option shall take place within ten (10) days
following the day that the Election Notice is provided
to Sellers by Dakota (unless a later date is agreed to
by Sellers), on which closing date delivery of such
First Purchase Option Shares will be accepted and
payment made therefor as specified in Section 4.4
hereof.
(d) In the event that Dakota fails to timely
exercise the First Purchase Option, Sellers shall be
free to sell, transfer or otherwise dispose of the
number of First Purchase Option Shares specified in the
Sales Notice to Dakota at a price per share, in the case
of a private sale, not less than the price specified in
the Sales Notice; PROVIDED HOWEVER, that if the Sellers
fail to close any sale to be made pursuant to this
Section 4.1(d) within sixty (60) days following the
thirtieth (30th) day after the receipt of the Sales
Notice by Dakota, such First Purchase Option Shares
shall again become subject to the restrictions set forth
in this Standstill Agreement and such shares may not be
sold, transferred or otherwise disposed of unless the
Sellers provide a new Sales Notice and afford Dakota a
new First Purchase Option with respect to such shares.
(e) The First Purchase Option shall extend to and
cover any and all Separated Rights owned by the Sellers
such that, for each Common Stock purchased by Dakota
upon exercise of a First Purchase Option after the
Distribution Date (as defined in the Rights Agreement),
Dakota shall be entitled to purchase at the market
price, if any, one (1) Separated Right.
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SECTION 4.2. TENDER OFFER OPTION. Notwithstanding the
provisions of Section 4.1 hereof and subject to Section 4.2(e)
hereof, Sellers shall sell to Dakota (or its designee), at
Dakota's option (the "Tender Offer Option"), all, but not less
than all, of the Common Stock owned by Sellers which such Sellers
desire to tender or sell pursuant to a bona fide tender or exchange
offer for the Common Stock (a "Tender Offer"), other than a Tender
Offer made by Dakota pursuant to Rule 13e-4 under the Securities
Exchange Act of 1934. The Tender Offer Option shall apply to,
and may be exercised in connection with, each Tender Offer announced
prior to three (3) years following the Conversion Date. The
Tender Offer Option shall be exercisable on the following
terms and conditions:
(a) In the event Sellers desire to tender or sell
Common Stock pursuant to a Tender Offer (such shares
being known as the "Tender Offer Option Shares"),
Sellers shall promptly, but in any event at least five
(5) days prior to the first date specified in the Tender
Offer on which the offeror therein may accept Common
Stock for payment or exchange (the "Tender Offer
Termination Date"), deliver or cause to be delivered a
written notice to Dakota of Sellers' desire to tender
Tender Offer Option Shares pursuant to a Tender Offer
(the "Tender Notice"), which Tender Notice shall specify
the number of Tender Offer Option Shares Sellers' desire
to tender pursuant to such Tender Offer, the name of the
offeror, the Tender Offer Termination Date and the
Tender Offer price per share of Common Stock.
(b) Subject to the other provisions of this
Standstill Agreement, the Tender Offer Option may be
exercised by written notice by Dakota to Sellers of
Dakota's election to exercise the Tender Offer Option
(an "Exercise Notice") delivered to Sellers at least
twenty-four (24) hours prior to the Tender Offer
Termination Date. The Tender Offer Option may be
exercised with respect to all, but not less than all, of
the Tender Offer Option Shares specified in the Tender
Notice.
(c) Subject to Section 4.2(b) hereof, the closing
of any sale of Tender Offer Option Shares upon exercise
by Dakota of the Tender Offer Option shall take place
not later than five (5) days following the date on which
Sellers would have been paid if they had tendered such
Common Stock to the offeror in the Tender Offer (unless
a later date is agreed to by Sellers), on which closing
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<PAGE>
date delivery of such Tender Offer Option Shares will be
accepted and payment made therefor as specified in
Section 4.4 hereof; PROVIDED, HOWEVER, that in the event
a competing Tender Offer is made prior to such closing
date at a price per share higher than a price offered in
the Tender Offer described in the Tender Notice
previously delivered to Dakota, Sellers shall have the
right to withdraw such Tender Notice and, subject to the
Tender Offer Option and upon compliance with the
provisions of this Section 4.2, to tender, or cause to
be tendered, Common Stock into such competing Tender
Offer.
(d) The purchase price of the Tender Offer Option
Shares purchased by Dakota pursuant to the Tender Offer
Option shall be the product of (i) the number of such
Tender Offer Option Shares upon which Dakota has
exercised its Tender Offer Option multiplied by (ii) the
Tender Offer price per share of Common Stock as in
effect on the last date specified in the Tender Offer on
which the offeror therein may accept Common Stock for
payment or exchange. For purposes of the preceding
clause (ii), if the Tender Offer price is payable in
whole or in part in property other than cash, the price
allocable to such property shall be equal to the fair
market value of such property on the date Dakota
receives the related Tender Notice.
(e) In the event that Dakota fails to timely
exercise the Tender Offer Option in connection with any
Tender Offer, Sellers shall be free to tender and sell
in such Tender Offer up to the number of Tender Offer
Option Shares specified in the Tender Notice at a price
per share of Common Stock not less than the Tender Offer
price specified in the Tender Notice.
(f) The Tender Offer Option shall extend to and
cover any and all Separated Rights owned by Sellers such
that, for each Common Stock purchased by Dakota upon
exercise of a Tender Offer Option after the Distribution
Date (as defined in the Rights Agreement), Dakota shall
be entitled to purchase at the market price, if any, one
(1) Separated Right.
SECTION 4.3. CLOSING. Subject to the other provisions
of this Standstill Agreement, the closing of the purchase of
Common Stock pursuant to any exercise of an Option shall take
place on the applicable closing date at the principal
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executive offices of Dakota or at such other place as shall
be mutually acceptable to the parties. At such closing,
Sellers shall deliver, or cause to be delivered, to Dakota
(a) all of the certificates evidencing the Common Stock with
respect to which such Option is being exercised, duly
endorsed to Dakota or accompanied by appropriate stock
powers, and (b) all of the certificates evidencing the
Separated Rights, if any, which Dakota is entitled to receive
pursuant to Section 4.1 or 4.2 hereof, as the case may be,
and Dakota shall deliver to Sellers the purchase price for
such Common Stock in immediately available funds.
SECTION 4.4. PAYMENT. All sums and amounts payable or
to be payable pursuant to the provisions of this Standstill
Agreement shall be payable by wire transfer or certified
check.
SECTION 4.5. ADJUSTMENT OF PURCHASE PRICE. The
purchase price payable for each Common Stock purchased
pursuant to Section 4.1 or 4.2 hereof shall be appropriately
adjusted in the event Dakota, prior to the closing date on
which such purchase price is payable, (a) pays a stock
dividend or otherwise makes a distribution in Common Stock or
other voting securities of Dakota (other than Separated
Rights), (b) subdivides the outstanding Common Stock into a
greater number of Common Stock, (c) combines the outstanding
Common Stock into a smaller number of Common Stock, or (d)
issues by reclassification any Common Stock.
SECTION 4.6. ASSIGNABILITY OF OPTIONS. Dakota may
assign either or both of the Options in whole or part in its
sole discretion. Dakota may designate in an Exercise Notice
any Person or Persons to take title to all or any part of the
Common Stock and Separated Rights, if any, being purchased in
connection with the exercise described in such Exercise
Notice.
SECTION 4.7. OPTIONS NOT MUTUALLY EXCLUSIVE. Neither
the existence of the Tender Offer Option nor its
exercisability in any set of circumstances shall restrict
Dakota's ability to exercise the First Purchase Option in the
same set of circumstances with respect to Common Stock other
than the Tender Offer Option Shares relating to a Tender
Offer as to which Dakota has been delivered a Tender Notice,
provided that the conditions precedent to the exercise of the
First Purchase Option have been met.
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<PAGE>
SECTION 5. SPECIFIC ENFORCEMENT. Sellers and Dakota
acknowledge and agree that irreparable damage would occur to the other
party in the event any of the provisions of this Standstill Agreement
were not performed in accordance with their specific terms or were
otherwise breached and agree that Sellers and Dakota shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of
this Standstill Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United
States or any state thereof, in addition to any other remedy to which
Dakota may be entitled at law or in equity.
SECTION 6. LEGENDS AND STOP TRANSFER ORDERS. The
certificates representing Common Stock which Sellers shall receive
pursuant to the Conversion and all certificates representing Separated
Rights associated with such Common Stock, which Sellers may receive at
or subsequent to such time, shall bear the following legend, which shall
remain thereon as long as such Common Stock or Separated Rights are
subject to the restrictions contained in this Standstill Agreement:
The securities represented by this certificate are
subject to the provisions of an Agreement, dated as of
November 27, 1996, between Dakota Telecommunications, Inc.
and Joel T. Hagen, John F. Archer, Jeffrey G. Parker, Donald
B. Graham and Doug Schneider, and may not be sold or
transferred except in accordance therewith. A copy of the
Agreement is on file at the corporate office of Dakota
Telecommunications, Inc.
Dakota may enter a stop transfer order with the transfer agent or agents
of the Common Stock or Separated Rights to enforce compliance with the
requirements of this Standstill Agreement. Dakota agrees, if requested
to do so by Sellers, to remove promptly any stop transfer order with
respect to, and issue promptly unlegended certificates in substitution
for, certificates for any Common Stock or Separated Rights that have
been sold or otherwise transferred by Sellers in compliance with
Section 4 hereof.
SECTION 7. IMPLEMENTATION OF STANDSTILL AGREEMENT; REFERENCE
TO SELLERS. Dakota and Sellers each agree that they will take or cause
to be taken all such action and will execute and deliver or cause to be
executed and delivered all such documents as the other may reasonably
request in order to carry out and implement the terms and provisions of
this Standstill Agreement. Reference in this Standstill Agreement to
Sellers shall mean all Sellers collectively and each Seller
individually.
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SECTION 8. SEVERABILITY. If any part of this Standstill
Agreement is held to be invalid, void or unenforceable, the remaining
terms and provisions of the Standstill Agreement will remain in full
force and effect.
SECTION 9. GOVERNING LAW. This Standstill Agreement will be
governed by and construed in accordance with the laws of the State of
South Dakota.
SECTION 10. NOTICES. Unless otherwise specified herein, all
notices to any Party hereunder shall be in writing and shall be given to
such Party at its address provided in the Merger Agreement. Each such
notice shall be effective when it is received.
SECTION 11. SUCCESSORS AND ASSIGNS. This Standstill
Agreement shall be binding upon and inure to the benefit of Sellers and
their successors and assigns and Dakota and its successors and assigns.
SECTION 12. AMENDMENT. This Standstill Agreement may not be
amended except by an instrument in writing signed by Dakota and each of
the parties to be bound by such amendment.
SECTION 13. COUNTERPARTS; HEADINGS. This Standstill
Agreement may be executed in two or more counterparts, each of which
will be an original, but all of which taken together will constitute one
and the same agreement. The headings contained in this Standstill
Agreement are for reference only and shall not affect in any way the
meaning or interpretation of this Standstill Agreement.
SECTION 14. ENTIRE AGREEMENT. This Standstill Agreement
embodies the entire agreement and understanding between the parties with
respect to its subject matter. This Standstill Agreement may not be
modified, amended, altered or supplemented except by a written agreement
signed by Dakota and Sellers.
IN WITNESS WHEREOF, the parties have executed and
delivered this Standstill Agreement as of the date first above written.
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DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ CRAIG A. ANDERSON
Its VICE PRESIDENT
/S/ JOEL T. HAGEN
Joel T. Hagen
/S/ JOHN F. ARCHER
John F. Archer
/S/ JEFFREY G. PARKER
Jeffrey G. Parker
/S/ DONALD B. GRAHAM
Donald B. Graham
/S/ DOUG SCHNEIDER
Doug Schneider
"Sellers"
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EXHIBIT 4.8
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT is made as of November 27, 1996, among
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a South Dakota cooperative
corporation ("Dakota"), and JOEL T. HAGEN, JOHN F. ARCHER, JEFFREY G.
PARKER, DONALD B. GRAHAM, DOUG SCHNEIDER, GERY BAAR and DOUGLAS ENGLISH
(collectively "Sellers"). Capitalized terms used in this Agreement and not
otherwise defined are defined in the Merger Agreement (the "Merger
Agreement") to which this Agreement is an exhibit.
Pursuant to the Merger Agreement, Sellers will receive shares of
Dakota Preferred Stock in connection with the merger of I-Way Partners,
Inc. with and into Dakota Acquisition Corp. #2, a wholly-owned subsidiary
of Dakota. The Dakota Preferred Stock is automatically convertible into
shares of Dakota common stock upon the occurrence of certain events
specified in the Agreement attached as Exhibit B to the Merger Agreement.
As a condition to the execution of the Merger Agreement and the
consummation of the transactions contemplated thereby, Dakota has requested
Sellers to enter into this Standstill Agreement (the "Standstill
Agreement"), and this Standstill Agreement is part of the consideration for
the Merger Agreement.
NOW, THEREFORE, Dakota and Sellers represent, warrant, covenant
and agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For the purposes of this Standstill
Agreement, the following terms have the meanings indicated:
(a) "Common Stock" shall mean the common stock into
which the Dakota Preferred Stock is convertible in the
Conversion (as defined below). For purposes of this
definition, the term Common Stock shall include any
Stockholder Purchase Rights ("Rights") or other rights, if
any, evidenced by the certificates for such Common Stock.
(b) "Option" shall mean either the First Purchase
Option or the Tender Offer Option, as such terms are defined
in Section 4.1 and 4.2 hereof, respectively.
(c) "Separated Rights" shall mean any Purchase Rights
which are no longer evidenced by certificates for Common
Stock, but are evidenced by separate Rights certificates.
<PAGE>
(d) "Conversion" means the conversion of the Dakota
Preferred Stock into Common Stock as provided in EXHIBIT B to
the Merger Agreement.
(e) "Conversion Date" means the date of the Conversion,
as more particularly defined in Section 9 of the Agreement
attached as EXHIBIT B to the Merger Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Sellers represent and warrant to Dakota as follows:
SECTION 2.1. The execution, delivery and performance of
this Standstill Agreement by Sellers does not and will not
result in violation of, be in conflict with, or constitute a
default under (a) any decree, judgment, ruling or order
applicable to Sellers, or (b) any instrument, contract, or
other agreement to which Sellers are a party or by which
Sellers are bound.
SECTION 2.2. The terms of this Standstill Agreement are
contractual, not merely recital; this Standstill Agreement is
the result of negotiations between the parties; Sellers agree
that the principle of contract construction against the
drafter shall not apply to the interpretation, construction
or enforcement of this Standstill Agreement.
SECTION 3. COVENANTS OF SELLERS. Sellers, and each of them,
covenant as follows:
SECTION 3.1. Sellers, without the prior written consent
of the Board of Directors of Dakota, will not, prior to five
(5) years following the Conversion Date, directly or
indirectly, (a) acquire or agree to acquire, by purchase or
otherwise, any Common Stock or other voting securities of
Dakota in excess of five percent (5%) of the Common Stock at
any time outstanding during the term of this Standstill
Agreement, except in connection with and as a result of (i)
the declaration of a dividend upon, or the making of a
distribution in respect of, the Common Stock payable in
Common Stock or other voting securities of Dakota, (ii) the
subdivision of the outstanding Common Stock into a greater
number of shares, (iii) the reclassification of the
outstanding Common Stock, (iv) the exercise by Sellers of
Separated Rights, or (v) the sale and transfer of Common
Stock among Sellers; (b) make, or in any manner participate
in (other than in conjunction with all other directors of
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Dakota), any "solicitation" of "proxies" (as such terms are
defined in Regulation 14A of the Securities Exchange Act of
1934); (c) form, join or in any way participate in a "group"
(as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) with respect to any Common
Stock or other voting securities of Dakota; (d) initiate any
proposal to be voted upon or consented to by Dakota's
shareholders or convene any meeting of Dakota's shareholders
or influence or attempt to influence or in any manner assist
any other Person with respect to the initiation of such a
proposal or the convening of such a meeting; (e) deposit any
Common Stock or other voting securities of Dakota into a
voting trust or subject any Common Stock or other voting
securities of Dakota to any arrangement or agreement (other
than this Standstill Agreement) with respect to the voting of
such Common Stock or other voting securities; or (f)
otherwise act, alone or in concert with others, to seek to
control the management, Board of Directors or policies of
Dakota (except in accordance with this Standstill Agreement
or any other written agreement hereafter entered into between
Dakota and Sellers).
SECTION 3.2. Sellers will be present (in person or by
proxy) at all meetings of Dakota's shareholders so that all
Common Stock owned by Sellers may be counted for the purpose
of determining the presence of a quorum at such meetings.
SECTION 3.3. Sellers will not, prior to three (3) years
following the Conversion Date, directly or indirectly, sell,
transfer or otherwise dispose of, or offer or agree to sell,
transfer or otherwise dispose of, any Common Stock or other
voting securities of Dakota other than in the manner set
forth in Section 4 hereof; PROVIDED, HOWEVER, that the
foregoing restriction shall not apply to sales, transfers or
dispositions of Common Stock or other voting securities of
Dakota, together with any related Rights, made:
(a) pursuant to a merger or subsidiary merger
between Dakota and a third party following which the
Common Stock or other voting securities of Dakota shall
no longer be outstanding;
(b) on a recognized securities market in
compliance with Rule 144 of the Securities Act of 1933,
which shall for purposes of this Standstill Agreement be
deemed applicable to Sellers, PROVIDED, HOWEVER, that
Sellers shall not engage in market transactions that
would adversely affect the market price of the Common
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Stock, but will sell their Common Stock, if at all, in a
gradual manner to facilitate widespread distribution;
(c) to immediate family members or otherwise
pursuant to testamentary dispositions, provided that the
transferee, and any subsequent transferee, of such
Common Stock shall, prior to such transfer, agree to be
bound by the terms and conditions of this Standstill
Agreement; and
SECTION 4. FIRST PURCHASE OPTION; TENDER OFFER OPTION; TERMS
AND CONDITIONS.
SECTION 4.1. FIRST PURCHASE OPTION. Sellers shall sell
to Dakota (or its designee), at Dakota's option (the "First
Purchase Option"), all, but not less than all, of the Common
Stock owned by Sellers which such Sellers desire to sell,
transfer or otherwise dispose of, other than pursuant to a
tender or exchange offer for the Common Stock which is
governed by Section 4.2 hereof or pursuant to the provisos
set forth in section 3 hereof. The First Purchase Option
shall apply to, and may be exercised in connection with, each
sale, transfer or other disposition of Common Stock desired
to be made by Sellers prior to three (3) years following the
Conversion Date. The First Purchase Option shall be
exercisable on the following terms and conditions:
(a) In the event Sellers desire to sell, transfer
or otherwise dispose of any Common Stock, other than
pursuant to a tender or exchange offer covered by
Section 4.2 hereof (such shares being known as the
"First Purchase Option Shares"), Sellers shall promptly
deliver or cause to be delivered a written notice to
Dakota of Sellers' desire to sell, transfer or otherwise
dispose of such Common Stock (the "Sales Notice"), which
Sales Notice shall specify the number of Common Stock
Sellers' desire to sell, transfer or otherwise dispose
of, whether such Common Stock is to be sold on the over-the-counter
market, on a national securities exchange or to a private
purchaser, and if to a private purchaser, the name of such
private purchaser and the purchase price for the Common Stock.
(b) The First Purchase Option shall remain open
and exercisable by Dakota for thirty (30) days following
the receipt by Dakota of a Sales Notice. The First
Purchase Option may be exercised with respect to all,
but not less than all, of the First Purchase Option
-4-
<PAGE>
Shares specified in such Sales Notice at the private
sales price, if such Common Stock were to be sold in a
private sale, or if such Common Stock were to be sold on
the over- the-counter market or on a national securities
exchange, the market price on the date that the Election
Notice is given by Dakota. Dakota shall provide written
notice to Sellers of its intent to exercise the First
Purchase Option (an "Election Notice") prior to the
thirtieth (30th) day following the receipt by Dakota of
the Sales Notice.
(c) The closing of any purchase of First Purchase
Option Shares by Dakota upon exercise of the First
Purchase Option shall take place within ten (10) days
following the day that the Election Notice is provided
to Sellers by Dakota (unless a later date is agreed to
by Sellers), on which closing date delivery of such
First Purchase Option Shares will be accepted and
payment made therefor as specified in Section 4.4
hereof.
(d) In the event that Dakota fails to timely
exercise the First Purchase Option, Sellers shall be
free to sell, transfer or otherwise dispose of the
number of First Purchase Option Shares specified in the
Sales Notice to Dakota at a price per share, in the case
of a private sale, not less than the price specified in
the Sales Notice; PROVIDED HOWEVER, that if the Sellers
fail to close any sale to be made pursuant to this
Section 4.1(d) within sixty (60) days following the
thirtieth (30th) day after the receipt of the Sales
Notice by Dakota, such First Purchase Option Shares
shall again become subject to the restrictions set forth
in this Standstill Agreement and such shares may not be
sold, transferred or otherwise disposed of unless the
Sellers provide a new Sales Notice and afford Dakota a
new First Purchase Option with respect to such shares.
(e) The First Purchase Option shall extend to and
cover any and all Separated Rights owned by the Sellers
such that, for each Common Stock purchased by Dakota
upon exercise of a First Purchase Option after the
Distribution Date (as defined in the Rights Agreement),
Dakota shall be entitled to purchase at the market
price, if any, one (1) Separated Right.
SECTION 4.2. TENDER OFFER OPTION. Notwithstanding the
provisions of Section 4.1 hereof and subject to Section 4.2(e)
-5-
<PAGE>
hereof, Sellers shall sell to Dakota (or its designee), at
Dakota's option (the "Tender Offer Option"), all, but not less
than all, of the Common Stock owned by Sellers which such
Sellers desire to tender or sell pursuant to a bona fide
tender or exchange offer for the Common Stock (a "Tender Offer"),
other than a Tender Offer made by Dakota pursuant to Rule 13e-4
under the Securities Exchange Act of 1934. The Tender Offer
Option shall apply to, and may be exercised in connection with,
each Tender Offer announced prior to three (3) years following
the Conversion Date. The Tender Offer Option shall be exercisable
on the following terms and conditions:
(a) In the event Sellers desire to tender or sell
Common Stock pursuant to a Tender Offer (such shares
being known as the "Tender Offer Option Shares"),
Sellers shall promptly, but in any event at least five
(5) days prior to the first date specified in the Tender
Offer on which the offeror therein may accept Common
Stock for payment or exchange (the "Tender Offer
Termination Date"), deliver or cause to be delivered a
written notice to Dakota of Sellers' desire to tender
Tender Offer Option Shares pursuant to a Tender Offer
(the "Tender Notice"), which Tender Notice shall specify
the number of Tender Offer Option Shares Sellers' desire
to tender pursuant to such Tender Offer, the name of the
offeror, the Tender Offer Termination Date and the
Tender Offer price per share of Common Stock.
(b) Subject to the other provisions of this
Standstill Agreement, the Tender Offer Option may be
exercised by written notice by Dakota to Sellers of
Dakota's election to exercise the Tender Offer Option
(an "Exercise Notice") delivered to Sellers at least
twenty-four (24) hours prior to the Tender Offer
Termination Date. The Tender Offer Option may be
exercised with respect to all, but not less than all, of
the Tender Offer Option Shares specified in the Tender
Notice.
(c) Subject to Section 4.2(b) hereof, the closing
of any sale of Tender Offer Option Shares upon exercise
by Dakota of the Tender Offer Option shall take place
not later than five (5) days following the date on which
Sellers would have been paid if they had tendered such
Common Stock to the offeror in the Tender Offer (unless
a later date is agreed to by Sellers), on which closing
date delivery of such Tender Offer Option Shares will be
-6-
<PAGE>
accepted and payment made therefor as specified in
Section 4.4 hereof; PROVIDED, HOWEVER, that in the event
a competing Tender Offer is made prior to such closing
date at a price per share higher than a price offered in
the Tender Offer described in the Tender Notice
previously delivered to Dakota, Sellers shall have the
right to withdraw such Tender Notice and, subject to the
Tender Offer Option and upon compliance with the
provisions of this Section 4.2, to tender, or cause to
be tendered, Common Stock into such competing Tender
Offer.
(d) The purchase price of the Tender Offer Option
Shares purchased by Dakota pursuant to the Tender Offer
Option shall be the product of (i) the number of such
Tender Offer Option Shares upon which Dakota has
exercised its Tender Offer Option multiplied by (ii) the
Tender Offer price per share of Common Stock as in
effect on the last date specified in the Tender Offer on
which the offeror therein may accept Common Stock for
payment or exchange. For purposes of the preceding
clause (ii), if the Tender Offer price is payable in
whole or in part in property other than cash, the price
allocable to such property shall be equal to the fair
market value of such property on the date Dakota
receives the related Tender Notice.
(e) In the event that Dakota fails to timely
exercise the Tender Offer Option in connection with any
Tender Offer, Sellers shall be free to tender and sell
in such Tender Offer up to the number of Tender Offer
Option Shares specified in the Tender Notice at a price
per share of Common Stock not less than the Tender Offer
price specified in the Tender Notice.
(f) The Tender Offer Option shall extend to and
cover any and all Separated Rights owned by Sellers such
that, for each Common Stock purchased by Dakota upon
exercise of a Tender Offer Option after the Distribution
Date (as defined in the Rights Agreement), Dakota shall
be entitled to purchase at the market price, if any, one
(1) Separated Right.
SECTION 4.3. CLOSING. Subject to the other provisions
of this Standstill Agreement, the closing of the purchase of
Common Stock pursuant to any exercise of an Option shall take
place on the applicable closing date at the principal
executive offices of Dakota or at such other place as shall
-7-
<PAGE>
be mutually acceptable to the parties. At such closing,
Sellers shall deliver, or cause to be delivered, to Dakota
(a) all of the certificates evidencing the Common Stock with
respect to which such Option is being exercised, duly
endorsed to Dakota or accompanied by appropriate stock
powers, and (b) all of the certificates evidencing the
Separated Rights, if any, which Dakota is entitled to receive
pursuant to Section 4.1 or 4.2 hereof, as the case may be,
and Dakota shall deliver to Sellers the purchase price for
such Common Stock in immediately available funds.
SECTION 4.4. PAYMENT. All sums and amounts payable or
to be payable pursuant to the provisions of this Standstill
Agreement shall be payable by wire transfer or certified
check.
SECTION 4.5. ADJUSTMENT OF PURCHASE PRICE. The
purchase price payable for each Common Stock purchased
pursuant to Section 4.1 or 4.2 hereof shall be appropriately
adjusted in the event Dakota, prior to the closing date on
which such purchase price is payable, (a) pays a stock
dividend or otherwise makes a distribution in Common Stock or
other voting securities of Dakota (other than Separated
Rights), (b) subdivides the outstanding Common Stock into a
greater number of Common Stock, (c) combines the outstanding
Common Stock into a smaller number of Common Stock, or (d)
issues by reclassification any Common Stock.
SECTION 4.6. ASSIGNABILITY OF OPTIONS. Dakota may
assign either or both of the Options in whole or part in its
sole discretion. Dakota may designate in an Exercise Notice
any Person or Persons to take title to all or any part of the
Common Stock and Separated Rights, if any, being purchased in
connection with the exercise described in such Exercise
Notice.
SECTION 4.7. OPTIONS NOT MUTUALLY EXCLUSIVE. Neither
the existence of the Tender Offer Option nor its
exercisability in any set of circumstances shall restrict
Dakota's ability to exercise the First Purchase Option in the
same set of circumstances with respect to Common Stock other
than the Tender Offer Option Shares relating to a Tender
Offer as to which Dakota has been delivered a Tender Notice,
provided that the conditions precedent to the exercise of the
First Purchase Option have been met.
-8-
<PAGE>
SECTION 5. SPECIFIC ENFORCEMENT. Sellers and Dakota
acknowledge and agree that irreparable damage would occur to the other
party in the event any of the provisions of this Standstill Agreement
were not performed in accordance with their specific terms or were
otherwise breached and agree that Sellers and Dakota shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of
this Standstill Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United
States or any state thereof, in addition to any other remedy to which
Dakota may be entitled at law or in equity.
SECTION 6. LEGENDS AND STOP TRANSFER ORDERS. The
certificates representing Common Stock which Sellers shall receive
pursuant to the Conversion and all certificates representing Separated
Rights associated with such Common Stock, which Sellers may receive at
or subsequent to such time, shall bear the following legend, which shall
remain thereon as long as such Common Stock or Separated Rights are
subject to the restrictions contained in this Standstill Agreement:
The securities represented by this certificate are
subject to the provisions of an Agreement, dated as of
November 27, 1996, between Dakota Telecommunications, Inc.
and Joel T. Hagen, John F. Archer, Jeffrey G. Parker, Donald
B. Graham and Doug Schneider, and may not be sold or
transferred except in accordance therewith. A copy of the
Agreement is on file at the corporate office of Dakota
Telecommunications, Inc.
Dakota may enter a stop transfer order with the transfer agent or agents
of the Common Stock or Separated Rights to enforce compliance with the
requirements of this Standstill Agreement. Dakota agrees, if requested
to do so by Sellers, to remove promptly any stop transfer order with
respect to, and issue promptly unlegended certificates in substitution
for, certificates for any Common Stock or Separated Rights that have
been sold or otherwise transferred by Sellers in compliance with
Section 4 hereof.
SECTION 7. IMPLEMENTATION OF STANDSTILL AGREEMENT; REFERENCE
TO SELLERS. Dakota and Sellers each agree that they will take or cause
to be taken all such action and will execute and deliver or cause to be
executed and delivered all such documents as the other may reasonably
request in order to carry out and implement the terms and provisions of
this Standstill Agreement. Reference in this Standstill Agreement to
Sellers shall mean all Sellers collectively and each Seller
individually.
-9-
<PAGE>
SECTION 8. SEVERABILITY. If any part of this Standstill
Agreement is held to be invalid, void or unenforceable, the remaining
terms and provisions of the Standstill Agreement will remain in full
force and effect.
SECTION 9. GOVERNING LAW. This Standstill Agreement will be
governed by and construed in accordance with the laws of the State of
South Dakota.
SECTION 10. NOTICES. Unless otherwise specified herein, all
notices to any Party hereunder shall be in writing and shall be given to
such Party at its address provided in the Merger Agreement. Each such
notice shall be effective when it is received.
SECTION 11. SUCCESSORS AND ASSIGNS. This Standstill
Agreement shall be binding upon and inure to the benefit of Sellers and
their successors and assigns and Dakota and its successors and assigns.
SECTION 12. AMENDMENT. This Standstill Agreement may not be
amended except by an instrument in writing signed by Dakota and each of
the parties to be bound by such amendment.
SECTION 13. COUNTERPARTS; HEADINGS. This Standstill
Agreement may be executed in two or more counterparts, each of which
will be an original, but all of which taken together will constitute one
and the same agreement. The headings contained in this Standstill
Agreement are for reference only and shall not affect in any way the
meaning or interpretation of this Standstill Agreement.
SECTION 14. ENTIRE AGREEMENT. This Standstill Agreement
embodies the entire agreement and understanding between the parties with
respect to its subject matter. This Standstill Agreement may not be
modified, amended, altered or supplemented except by a written agreement
signed by Dakota and Sellers.
IN WITNESS WHEREOF, the parties have executed and
delivered this Standstill Agreement as of the date first above written.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ CRAIG A. ANDERSON
Its VICE PRESIDENT
-10-
<PAGE>
/S/ JOEL T. HAGEN
Joel T. Hagen
/S/ JOHN F. ARCHER
John F. Archer
/S/ JEFFREY G. PARKER
Jeffrey G. Parker
/S/ DONALD B. GRAHAM
Donald B. Graham
/S/ DOUG SCHNEIDER
Doug Schneider
/S/ GERY BAAR
Gery Baar
/S/ DOUGLAS ENGLISH
Douglas English
"Sellers"
-11-
<PAGE>
EXHIBIT 4.9
No. 19226 ONE Shares
Incorporated Under The laws of SOUTH Dakota
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
IRENE SOUTH DAKOTA
MEMBERSHIP CERTIFICATE
This is to certify that _____________________ of __________________,
South Dakota, is the owner of one share of Common Stock (hereinafter
called "Membership Certificate") in the Dakota Cooperative
Telecommunications, Inc., (hereinafter called the "Cooperative"),
of Irene, South Dakota.
This membership certificate is issued in consideration of the payment
of $5.00 (which is the par value thereof), receipt of which is hereby
acknowledged. It is issued in accordance with Chapter 11.11 of the South
Dakota Code of 1939 and all laws amendatory thereof and supplementary
thereto, and the articles of incorporation and bylaws of the Cooperative;
and is subject to all the conditions and restrictions specified in the
articles of incorporation and bylaws thereof.
IN WITNESS WHEREOF, the Cooperative has caused this certificate to be
signed by its President and Secretary and its corporate seal to be hereunto
affixed this ______ day of ________________, 19_____.
(Certain Conditions of Membership Stated on Back)
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
[SEAL]
__________________________ __________________________________
President Secretary
SHARES $5.00 EACH
<PAGE>
This certificate of common stock, and the membership evidenced thereby are
not transferable, except as provided in the bylaws of the cooperative, and
such membership may be terminated as provided in said bylaws. Upon
termination of the membership represented by the certificate, by death,
cessation of existence, expulsion or withdrawal, this certificate shall be
surrendered to the Cooperative, or in the case of a joint membership, the
holder thereof jointly, or either of them, but not both, shall be entitled
to one (1) vote and no more upon each matter submitted to a vote at all
meetings of the members of the Cooperative.
This certificate and the membership evidenced hereby are subject to all the
terms, conditions and limitations contained in the charter and bylaws of
the Cooperative and all amendments thereto and in the application of the
holder or holders hereof for membership in the Cooperative.
C E R T I F I C A T E
FOR
ONE
SHARES
OF THE
COMMON
STOCK
DAKOTA
COOPERATIVE
TELECOMMUNICATIONS,
INC.
ISSUED TO
DATE
FOR VALUE RECEIVED, ____ HEREBY SELL, ASSIGN, AND TRANSFER UNTO
______________________________________________________________
____________________________________ SHARES OF THE COMMON STOCK
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT _______________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
<PAGE>
DATED _________________
IN PRESENCE OF
______________________ ______________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.10
CERTIFICATE NO. *SPECIMEN*
FOR _______________________________________________________________________
___________________________________________________________________________
SHARES OF
PREFERRED STOCK
Issued to: ________________________________________________________________
___________________________________________________________________________
Date: ____________________________________________________________________
FROM WHOM TRANSFERRED:
___________________________________________________________________________
Dated:_____________________________________________________________________
No. Original Certificate: _________________________________________________
No. Original Shares: ______________________________________________________
No. of Shares Transferred: ________________________________________________
RECEIVED CERTIFICATE NO.: _________________________________________________
FOR _______ SHARES OF PREFERRED STOCK this _____ day of ____________ 19__.
__________________________________________________
<PAGE>
[EAGLE LOGO]
PREFERRED STOCK, $100 PAR VALUE
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
Certificate Shares
** ** ** **
INCORPORATED UNDER THE LAWS OF THE STATE OF SOUTH DAKOTA
THIS IS TO CERTIFY THAT *SPECIMEN* is the owner of _________________
____________________________ (____________) fully paid and non-assessable
shares of non-membership Preferred Stock, $100 par value, of
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
transferable only upon the prior written consent of the Cooperative and
only by the holder in person or by duly authorized attorney, upon surrender
of this certificate properly endorsed.
The Cooperative will furnish to a shareholder upon request and
without charge a full statement of the designation, relative rights,
preferences and limitations of the shares of each class of capital stock of
the Cooperative authorized for issuance, as well as the designation,
relative rights, preferences and limitations of each series of any class of
capital stock so far as the same may have been prescribed and the authority
of the board to designate and prescribe the relative rights, preferences
and limitations of other series. The shares represented hereby are issued
and shall be subject to all the provisions of the Articles of Incorporation
and Bylaws of the Cooperative, and all amendments thereto, and the
provisions of a certain Agreement dated November 27, 1996, a copy of which
is on file with the Cooperative, to all of which the holder by acceptance
hereof assents.
WITNESS the signatures of the Cooperative's duly authorized officers.
Dated: ______________, 19__
________________________________ ______________________________
Secretary President
<PAGE>
THIS CERTIFICATE OF PREFERRED STOCK IS NOT TRANSFERABLE, EXCEPT UPON THE
EXPRESS WRITTEN CONSENT OF THE COOPERATIVE.
THIS CERTIFICATE IS SUBJECT TO ALL THE TERMS, CONDITIONS AND LIMITATIONS
CONTAINED IN THE ARTICLES OF INCORPORATION AND BYLAWS OF THE COOPERATIVE
AND ALL AMENDMENTS THERETO AND THE TERMS OF A CERTAIN AGREEMENT DATED
NOVEMBER 27, 1996, A COPY OF WHICH IS ON FILE WITH THE COOPERATIVE.
THE COOPERATIVE HAS OFFERED AND SOLD THESE SHARES PURSUANT TO EXEMPTIONS
FROM REGISTRATION UNDER THE FEDERAL AND STATE SECURITIES LAWS. THE HOLDER
OF THE SHARES MAY NOT SELL OR TRANSFER THE SHARES UNLESS THE SALE OR
TRANSFER IS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE FEDERAL AND
APPLICABLE STATE SECURITIES LAWS, AND ONLY WITH THE PRIOR WRITTEN CONSENT
OF THE COOPERATIVE AS PROVIDED ABOVE.
FOR VALUE RECEIVED, ____________________ HEREBY SELL,
ASSIGN, AND TRANSFER UNTO ___________________________________
_____________________________________________________________
SHARES OF THE PREFERRED STOCK REPRESENTED BY THE WITHIN
CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
____________________________________ ATTORNEY TO TRANSFER THE
SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED _______________________, 19_____
________________________________
IN PRESENCE OF
________________________________
THIS CERTIFICATE OF PREFERRED STOCK IS NOT TRANSFERABLE, EXCEPT
UPON THE EXPRESS WRITTEN CONSENT OF THE COOPERATIVE.
THIS CERTIFICATE IS SUBJECT TO ALL THE TERMS, CONDITIONS AND
LIMITATIONS CONTAINED IN THE ARTICLES OF INCORPORATION AND BYLAWS
OF THE COOPERATIVE AND ALL AMENDMENTS THERETO AND THE TERMS OF A
CERTAIN AGREEMENT DATED NOVEMBER 27, 1996, A COPY OF WHICH IS ON
FILE WITH THE COOPERATIVE.
THE COOPERATIVE HAS OFFERED AND SOLD THESE SHARES PURSUANT TO
EXEMPTIONS FROM REGISTRATION UNDER THE FEDERAL AND STATE
SECURITIES LAWS. THE HOLDER OF THE SHARES MAY NOT SELL OR
TRANSFER THE SHARES UNLESS THE SALE OR TRANSFER IS REGISTERED OR
EXEMPT FROM REGISTRATION UNDER THE FEDERAL AND APPLICABLE STATE
SECURITIES LAWS, AND ONLY WITH THE PRIOR WRITTEN CONSENT OF THE
COOPERATIVE AS PROVIDED ABOVE.
<PAGE>
EXHIBIT 4.11
<TABLE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
WARRANT FOR PURCHASE OF PREFERRED STOCK
<CAPTION>
WARRANT NO. WARRANT HOLDER: WARRANT AMOUNT:
- ---------- -------------- --------------
<S> <C> <C>
1 Jeffrey G. Parker 3.4 Shares
2 Joel T. Hagen 3.4 Shares
3 John F. Archer 3.4 Shares
4 Donald B. Graham 3.4 Shares
5 Doug Schneider 3.4 Shares
6 Douglas English 8.5 Shares
7 Gery Baar 8.5 Shares
</TABLE>
<PAGE>
November 27, 1996
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
AND
________________
WARRANT FOR PURCHASE OF PREFERRED STOCK
This Warrant is made as of November 27, 1996, between, DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC., a South Dakota cooperative
corporation ("Dakota"), and ___________________ ("Holder"). This Warrant
is given pursuant to a Merger Agreement by which Holder and others agreed
to receive Dakota Preferred Stock and this Warrant as part of the Merger.
1. DEFINITIONS.
A. "AGREEMENT" means a certain agreement involving Dakota, the
undersigned and others relating to the Dakota Preferred Stock received
by the undersigned pursuant to the above referenced Merger Agreement.
The Agreement is attached as Exhibit B to the Merger Agreement.
B. "DAKOTA PREFERRED STOCK" means the Non-Voting, Non-
Cumulative Preferred Stock of Dakota.
2. GRANT OF WARRANT. Dakota hereby grants to Holder a right to
purchase ("Warrant") ______ shares of Dakota Preferred Stock at a Warrant
price of $1,000 per share, to be exercisable in accordance with this
Warrant.
3. TERM OF EXERCISABILITY OF WARRANT. This Warrant shall be
exercisable immediately, in whole or in part, and shall remain exercisable
for a period that will terminate 6 months following the public registration
of shares of Dakota's common stock into which the Preferred Stock may be
mandatorily converted under the Agreement and the issuance of a Certificate
of Amendment by the South Dakota Secretary of State with respect to an
amendment to Dakota's Articles of Incorporation to effect the conversion of
Dakota from a South Dakota cooperative corporation into a South Dakota
business corporation (the "Public Offering and Conversion"), but not before
January 2, 1998.
-1-
<PAGE>
4. EXERCISE. Holder will exercise this Warrant by giving Dakota a
written notice of the exercise of the Warrant. The notice shall be
effective when received by the Secretary or Treasurer at Dakota's main
office, accompanied by full cash payment of the Warrant price. Dakota will
deliver to Holder a certificate or certificates for such shares of stock;
PROVIDED, HOWEVER, that the time of delivery may be postponed for such
period as may be required for Dakota with reasonable diligence to comply
with any registration requirements under the Securities Act of 1933, the
Securities Exchange Act of 1934, any requirements under any other law or
regulation applicable to the issuance, listing or transfer of such shares.
If Holder fails to exercise the Warrants within the above period or fails
to accept delivery of and pay for all or any part of the number of shares
specified in the notice upon tender or delivery of the shares, Holder's
right to exercise the Warrant with respect to such undelivered shares shall
terminate.
5. TRANSFERABILITY. This warrant will not be registered under
applicable federal or state securities laws. This Warrant may not be sold,
transferred or otherwise disposed of voluntarily or by operation of law,
except that in the event of Holder's death, it may be exercised by Holder's
estate or with the prior written consent of Dakota which may be withheld in
its sole discretion. If any assignment, pledge, or transfer of this
Warrant, other than as provided in this Section 5, shall be made or
attempted, or if any attachment, execution, garnishment, or lien shall be
issued against or placed upon the same, this Warrant shall be void and of
no further effect. Dakota may, in the event it deems the same desirable to
assure compliance with applicable federal and state securities laws, place
an appropriate restrictive legend upon any certificate representing shares
issued pursuant to the exercise of this Warrant, and may also issue
appropriate stop transfer instructions to its transfer agent with respect
to such shares.
6. SHAREHOLDER RIGHTS. Holder shall have no rights as a shareholder
with respect to any shares covered by this Warrant until exercise of the
Warrant and payment for such shares.
7. DAKOTA PREFERRED STOCK SUBJECT TO AGREEMENT. The Dakota
Preferred Stock which is the subject of this Warrant is also subject to and
has the rights granted under the Agreement concerning the Dakota Preferred
Stock defined above from and after the date of exercise. Upon the
conversion of Dakota Preferred Stock into common stock as provided in the
Agreement, this Warrant shall be exercisable for the number of shares of
common stock into which the Dakota Preferred Stock subject to this Warrant
would have been convertible under the Agreement.
-2-
<PAGE>
8. CERTIFICATIONS. Holder hereby represents and warrants that
Holder is acquiring the Warrant granted under this Agreement for Holder'
own account and investment and without any intent to resell or distribute
the shares upon exercise of the Warrant. Holder shall not resell or
distribute the shares received upon exercise of the Warrant except in
compliance with such conditions as Dakota may reasonably specify to ensure
compliance with federal and state securities laws.
9. EFFECTIVE DATE. This Warrant shall be effective as of the date
first set forth above.
10. AMENDMENT. This Agreement shall not be modified except in a
writing executed by the parties.
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
By __________________________________________
Its ______________________________________
Holder:
_____________________________________________
-3-
<PAGE>
EXHIBIT 4.12
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
NON-QUALIFIED STOCK OPTION PLAN AND AGREEMENT
FOR PURCHASE OF PREFERRED STOCK
<TABLE>
<CAPTION>
OPTION NO. OPTION HOLDER NUMBER OF SHARES
--------- ------------- ----------------
<S> <C> <C> <C>
1 Thomas W. Hertz 767
2 Craig A. Anderson 767
</TABLE>
<PAGE>
Recipient: ______________ Number of Shares: ____
Effective Date: January ___, 1997 Option Exercise Price: $____
OPTION NO.____
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
NON-QUALIFIED STOCK OPTION PLAN AND AGREEMENT
FOR PURCHASE OF PREFERRED STOCK
This Non-Qualified Stock Option Plan and Agreement ("Agreement")
is made as of ___________________, 1997, between, DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC., a South Dakota cooperative corporation
("Dakota"), and _______________ ("Optionee"). This Agreement is
implemented to provide Optionee with an incentive to contribute to the
long-term growth and success of Dakota through stock ownership and to carry
out the agreement and understanding between the parties in connection with
the appointment of Optionee as an officer of Dakota.
1. GRANT OF OPTION. Dakota hereby grants to Optionee a right to
purchase ("Option") ______ shares of Dakota Preferred Stock according to
the terms of this Agreement. "Dakota Preferred Stock" means the Non-Voting,
Non-Cumulative Preferred Stock of Dakota. This Option is not an incentive
stock option as described in section 422 of the Internal Revenue Code.
2. VESTING DATES. This option shall vest and become exercisable as
follows, unless terminated or accelerated under the terms of this
agreement: 20% shall be exercisable on the earlier of (a) 90 days from the
date the Dakota Preferred Stock is converted into common stock as
contemplated in Section 8 below or (b) January 1, 1998, and an additional
20% shall be exercisable on each anniversary date of this Agreement if
Optionee is then employed by Dakota until the total number of shares
covered by this agreement become exercisable.
3. PURCHASE PRICE. The purchase price of the shares of the
Preferred Stock covered by the Option shall be the option exercise price
set forth above. Upon exercise, the option price shall be paid to Dakota
in full, either in cash, by check, by delivering the number of Dakota
shares having a fair market value equal to the cash amount for which they
are substituted, or by any combination of the foregoing. The fair market
value of a Dakota share for this purpose shall be determined by the Board
of Directors consistent with then current market conditions.
4. TERM OF EXERCISABILITY OF OPTION. This Option shall be
exercisable, subject to the vesting schedule above, in whole or in part,
for a period of ten (10) years from the date of this Agreement, unless
earlier terminated according to its terms.
<PAGE>
5. EXERCISE. Optionee will exercise this Option by giving Dakota a
written notice of the exercise of the Option. The notice shall be
effective when received by the Secretary or Treasurer at Dakota's main
office, accompanied by full payment of the Option price as provided in
Section 3 above. Dakota will deliver to Optionee a certificate or
certificates for such shares of stock; PROVIDED, HOWEVER, that the time of
delivery may be postponed for such period as may be required for Dakota
with reasonable diligence to comply with any registration requirements
under the Securities Act of 1933, the Securities Exchange Act of 1934 and
any requirements under any other law or regulation applicable to the
issuance, listing or transfer of such shares. If Optionee fails to
exercise the Options within the term or fails to accept delivery of and pay
for all or any part of the number of shares specified in the notice upon
tender or delivery of the shares, Optionee's right to exercise the Option
with respect to such undelivered shares shall terminate.
6. TRANSFERABILITY. This Option may not be registered under
applicable federal or state securities laws. This Option shall not be
sold, transferred or otherwise disposed of voluntarily or by operation of
law except by will or according to the laws of descent and distribution or
with the prior written consent of Dakota which may be withheld in its sole
discretion. If any assignment, pledge or transfer of this Option, other
than as provided in this Section 5, shall be made or attempted, or if any
attachment, execution, garnishment or lien shall be issued against or
placed upon the same, this Option shall be void and of no further effect.
Dakota may, in the event it deems the same desirable to assure compliance
with applicable federal and state securities laws, place an appropriate
restrictive legend upon any certificate representing shares issued pursuant
to the exercise of this Option, and may also issue appropriate stop
transfer instructions to its transfer agent with respect to such shares.
7. TERMINATION OF EMPLOYMENT STATUS. If Optionee ceases to be an
employee of Dakota or a subsidiary, and if his employment is terminated
because of retirement, disability, death or termination by Dakota without
cause, Optionee may exercise the Option to the extent it was exercisable on
the date of termination of employment for a period of 90 days from such
date except in the case of death the exercise period shall be one year.
Termination of employment for cause, or by the Optionee for any reason
other than retirement, disability or death, shall result in cancellation of
the Option as of the date of such termination. In the event of the death
of Optionee while employed, his legal representative or beneficiary may
exercise the Option for a period of one year from the date of death to the
extent which the Optionee was entitled to exercise the Option at the date
of death.
8. CORPORATE CHANGES. If Dakota is acquired by or merged with
another corporation in such a way that Dakota is neither the surviving nor
the parent company or if substantially all of Dakota's assets are sold,
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<PAGE>
then all Options shall be deemed to vest. Notwithstanding the foregoing,
the conversion from a cooperative corporation to a business corporation or
the reincorporation of that business corporation into a different state
shall not be deemed an acquisition or merger in which Dakota is not the
surviving corporation. Upon the occurance of certain events specified in
Section 9 of those certain Agreements dated as of November 27, 1996, by and
among Dakota and the former shareholders of TCIC Communications, Inc. and
I-Way Partners, Inc., the Dakota Preferred Stock underlying this Option
will automatically be converted into shares of common stock in a manner
consistent with such Agreements. Upon the conversion of Dakota Preferred
Stock into common stock, this Option shall be exercisable for the number of
shares of common stock into which Dakota Preferred Stock subject to this
Option would have been convertible. In the event of any stock dividend,
recapitalization, merger, consolidated, split-up, conversion, combination
or exchange of shares of Dakota, the number and class of shares covered by
this Option, and the exercise price, are subject to appropriate adjustment
as determined by the Board of Directors of Dakota.
9. SHAREHOLDER RIGHTS. Optionee shall have no rights as a
shareholder with respect to any shares covered by this Option until
exercise of the Option and payment for such shares.
10. CERTIFICATIONS. Optionee hereby represents and Options that
Optionee is acquiring the Option granted under this Agreement for Optionee'
own account and investment and without any intent to resell or distribute
the shares upon exercise of the Option. Optionee shall not resell or
distribute the shares received upon exercise of the Option except in
compliance with such conditions as Dakota may reasonably specify to ensure
compliance with federal and state securities laws.
11. BINDING. This Agreement is binding upon the parties and their
respective heirs, successors, and assigns.
12. AMENDMENT. This Agreement shall not be modified except in a
writing executed by the parties.
DAKOTA COOPERATIVE TELECOMMUNICATIONS,
INC.
By __________________________________________
Its ______________________________________
Optionee:
_____________________________________________
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<PAGE>
EXHIBIT 4.13
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of November 27, 1996,
by and among Dakota Cooperative Telecommunications, Inc., a South Dakota
cooperative corporation ("Dakota"), and Joel T. Hagen, John F. Archer,
Jeffrey G. Parker, Donald B. Graham, Doug Schneider, Gery Baar and Douglas
English (each a "Seller" and collectively "Sellers"). Capitalized terms
used in this Agreement and not otherwise defined are defined in the Merger
Agreement (the "Merger Agreement") to which this Agreement is an exhibit.
Pursuant to the Merger Agreement, Sellers will receive shares of
Dakota preferred stock (the "Dakota Preferred Stock") in connection with
the merger of I-Way Partners, Inc. with and into Dakota Acquisition Corp.
#2, a wholly owned subsidiary of Dakota. This Agreement sets forth certain
agreements between Dakota and Sellers (collectively the "Parties") with
respect to the Dakota Preferred Stock and certain other matters.
ACCORDINGLY, Dakota and Sellers agree as follows:
SECTION 1. CLASS AND AMOUNT. The Dakota Preferred Stock will
be Non-Voting Non-Cumulative Preferred Stock and there will be an aggregate
of 241 shares issued to Sellers in connection with the Merger.
SECTION 2. NO DIVIDENDS. Except as expressly provided in
this Agreement, no dividends or other distributions will be made on or with
respect to the Dakota Preferred Stock, unless subsequently declared by
Dakota's Board of Directors (the "Dakota Board of Directors") in its sole
discretion. Dividends may be declared on Dakota's common stock or other
preferred stock subsequently issued without being declared on the Dakota
Preferred Stock.
SECTION 3. LIQUIDATION PREFERENCE. Upon the liquidation,
dissolution or winding up of the affairs of Dakota, whether voluntary or
involuntary, Sellers will be entitled to receive in full, out of the assets
of Dakota available for distribution to members, including its capital,
before any amount is paid to, or distributed among, the holders of Dakota
common stock or other preferred stock of Dakota ranking junior to the
Dakota Preferred Stock, the sum of $1,000 per share of Dakota Preferred
Stock held by them as of such date, plus all accrued and unpaid Non-
Liquidity Fees owing under Section 4 below as of the time of payment.
SECTION 4. NON-LIQUIDITY FEES. The Parties are entering into
the Merger Agreement and consummating the Merger with the present
contemplation that Dakota will be converted into a business corporation
with shares of stock registered under the Securities Act of 1933, as
amended (the "Securities Act"). However, the Parties acknowledge that such
a conversion is subject to a variety of known and unknown contingencies
(including Dakota member approval) and accordingly may not take place at
<PAGE>
all or may not take place within the time period presently contemplated.
To compensate Sellers in the event the conversion is not completed or is
delayed beyond September 1, 1997, and in recognition of the transfer
restrictions placed on the Dakota Preferred Stock, Sellers will be entitled
to receive a non-liquidity fee ("Non-Liquidity Fee") of $80 per annum for
each share of Dakota Preferred Stock held by them, to be paid when, as and
if declared and ordered by the Dakota Board of Directors. The Non-
Liquidity Fees will accrue on the fifteenth day of June and December in
each year (each a "Non-Liquidity Fee Accrual Date"), except that if any
Non-Liquidity Fee Accrual Date is not a business day in Sioux Falls, South
Dakota, then the Non-Liquidity Fee Accrual Date will be the next business
day. The first Non-Liquidity Fee Accrual Date will be December 15, 1997
and will be for the period beginning September 1, 1997 and ending December
15, 1997. The amount of the Non-Liquidity Fee accrued for such initial
period will be $26.67 per share of Dakota Preferred Stock. Non-Liquidity
Fees do not accrue until the applicable Non-Liquidity Fee Accrual Date, at
which time they accrue in full, and no Non-Liquidity Fee shall accrue with
respect to any period prior to September 1, 1997. Accrued Non-Liquidity
Fees may be paid from time to time at the discretion of the Dakota Board of
Directors, and will continue to accumulate as accrued until paid. If
payment is made in an amount less than the total amount of the Non-
Liquidity Fees at the time accrued, it will be allocated on a pro rata
basis among all shares of Dakota Preferred Stock then held by Sellers. No
interest will accrue or be payable on any accrued but unpaid Non-Liquidity
Fees. At the election of the Dakota Board of Directors, Non-Liquidity Fees
may be paid in cash, by the issuance of additional shares of Dakota
Preferred Stock on the basis of one share of Dakota Preferred Stock for
each $1,000 of Non-Liquidity Fees accrued and owing or a combination of
cash and additional shares of Dakota Preferred Stock. Fractional shares of
Dakota Preferred Stock may be issued. In the event the Dakota Board of
Directors were to ever declare a dividend on the Dakota Preferred Stock,
the amount of such dividend will be deducted from any Non-Liquidity Fee
otherwise owing under this Agreement. Non-Liquidity Fees will cease to
accrue upon the earlier of (a) the termination of this Agreement under
Section 13 below or (b) the date the members of Dakota approve a plan to
liquidate and dissolve Dakota.
SECTION 5. VOTING. Except as provided by South Dakota law,
Sellers, as holders of shares of Dakota Preferred Stock, will have no vote
on any matter submitted to a vote of the members of Dakota.
SECTION 6. PREEMPTIVE RIGHTS. Sellers, as holders of shares
of Dakota Preferred Stock, will have no preemptive or preferential right to
subscribe for or purchase any shares of any class or series of capital
stock of Dakota, now or later authorized, or any securities convertible
into, or carrying options or warrants to purchase, shares of any class or
series of capital stock of Dakota, now or later authorized, whether issued
for cash, property, services, by way of capital stock of Dakota or
otherwise.
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<PAGE>
SECTION 7. LIMITATIONS. In addition to other rights as may
be provided under applicable law, without the written consent of the
holders of a majority of the then outstanding shares of Dakota Preferred
Stock, Dakota will not authorize or create any class or series of preferred
stock ranking prior to the Dakota Preferred Stock with respect to the
distribution of assets in liquidation.
SECTION 8. REDEMPTION. Except with respect to mandatory
conversion provided for in Section 9 of this Agreement, the shares of the
Dakota Preferred Stock are not redeemable without the consent of the
holders thereof.
SECTION 9. MANDATORY CONVERSION. At such time as (a)
Dakota's common stock is first registered under the Securities Act
(including a sufficient number of shares of Dakota common stock to be
issued pursuant to this Section 9), (b) the contemplated business
corporation conversion is approved by the requisite vote of Dakota's
members and (c) a Certificate of Amendment is issued by the South Dakota
Secretary of State concerning the amendments to Dakota's Articles of
Incorporation required to consummate the business corporation conversion
(the date on which the last of these requirements is satisfied being
referred to as the "Conversion Date"), the Dakota Preferred Stock will
automatically be converted into whole shares of Dakota common stock. The
number of shares of Dakota common stock issuable to Sellers upon such
conversion will be set such that Sellers, as the sole owners of the Dakota
Preferred Stock, will collectively receive such number of shares of Dakota
common stock that would equal 1.75 percent of the outstanding shares of
Dakota common stock after conversion assuming (y) that the conversion was
effected on November 30, 1996 and (z) that all patronage credits
outstanding on the books and records of Dakota as of that date, reduced by
the amount of cash used by Dakota in connection with the business
corporation conversion to retire patronage credits or cash out odd-lot
holders (not to exceed $500,000), were converted into additional
outstanding shares of Dakota common stock. Any shares of Dakota Preferred
Stock issued after the date of this Agreement in payment of any Non-
Liquidity Fee under Section 4 above or upon exercise of any Warrants
granted to Sellers shall be converted into shares of Dakota common stock at
the same per share ratio as the shares converted under the foregoing
conversion formula. On or after the Conversion Date, Sellers agree to
surrender their certificates representing Dakota Preferred Stock as
requested by Dakota and in a form properly endorsed and completed for
conversion and each Seller hereby irrevocably constitutes and appoints
Dakota as his lawful attorney-in-fact to execute and deliver any necessary
conveyances, assignments and assurances and to do all acts necessary,
proper and convenient to effectuate the foregoing surrender of the Dakota
Preferred Stock certificates and the conversion of the Dakota Preferred
Stock into shares of Dakota common stock. It is the intent of the Parties
that on the Conversion Date each certificate representing the Dakota
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<PAGE>
Preferred Stock will represent only the right to receive shares of Dakota
common stock as provided in this Agreement and no other right or benefit.
No certificates for fractional share interests of Dakota common stock need
to be issued upon conversion of the Dakota Preferred Stock. Instead, Dakota
may, in its sole discretion, settle all such fractional share interests in
cash.
SECTION 10. TRANSFER RESTRICTIONS. The Dakota Preferred Stock
will not be registered under applicable federal or state securities laws.
The Dakota Preferred Stock may not be sold, transferred or otherwise
disposed of to any Person whether voluntarily or by operation of law,
except by will or according to the laws of descent and distribution or with
the prior written consent of Dakota which may be withheld in its sole
discretion. If any assignment, pledge or transfer of the Dakota Preferred
Stock shall be made or attempted, or if any attachment, execution,
garnishment or lien shall be issued against or placed upon the same, the
Dakota Preferred Stock shall be void and of no further effect.
SECTION 11. IWAY, INC. BOARD REPRESENTATION. Upon the
issuance of the Dakota Preferred Stock and at all times that such stock
remains outstanding, one of the three seats on the Board of Directors of
Iway, Inc. will be filled by a designee of Sellers. Such designee will be
selected by Sellers by the affirmative vote or consent of the holders of a
majority of the then outstanding shares of Dakota Preferred Stock.
SECTION 12. OTHER RIGHTS. During such time as the Dakota
Preferred Stock remains outstanding, and subject to the confidentiality
undertakings below, Sellers will be entitled to receive monthly financial
statements for Dakota and its subsidiaries (prepared by management) and
such other information as is distributed to the holders of Dakota's common
stock. In addition, and again subject to the confidentiality undertakings
below, the designee of Sellers described in Section 11 of this Agreement
will be entitled to attend meetings of the Board of Directors (except
during any "executive session"). Sellers agree to treat in strict
confidence all documents, materials and other information obtained under
this Section 12 (collectively the "Dakota Information") and to not disclose
such Dakota Information to any third party or use such Dakota Information
other than for the sole and exclusive benefit of Dakota.
SECTION 13. TERMINATION. This Agreement will automatically
terminate at such time as the shares of Dakota Preferred Stock are
converted into shares of Dakota common stock under Section 9 of this
Agreement.
SECTION 14. BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the
terms of this Agreement will be binding upon, inure to the benefit of and
be enforceable by and against the permitted assigns, heirs and legal
representatives of Sellers and the successors and authorized assigns of
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<PAGE>
Dakota. Except as otherwise expressly provided in this Agreement, nothing
in this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement, this
Agreement being for the exclusive benefit of Dakota and Sellers and their
respective heirs, legal representatives, successors and assigns. Neither
Dakota nor any Seller will assign any of its or his respective rights or
obligations under this Agreement to any other Person without the prior
written consent of the other, and any such purported assignment shall be
null and void.
SECTION 15. ENTIRE AGREEMENT. This Agreement, the Merger
Agreement and the Exhibits thereto and Dakota's Amended Articles of
Incorporation as constituted on the date of this Agreement set forth the
entire agreement and understanding of Dakota and Sellers in respect of the
terms of the Dakota Preferred Stock and the other matters addressed in this
Agreement and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intention has been made by either
Dakota or Sellers that is not embodied in the Merger Agreement or the
Exhibits thereto, and neither Dakota nor Sellers will be bound by or liable
for any alleged representation, promise, inducement or statement of
intention not so set forth.
SECTION 16. AMENDMENT AND WAIVER. This Agreement may be
amended, modified, superseded or canceled and any of the terms, covenants
or conditions hereof may be waived only by a written instrument executed by
Dakota and Sellers or, in the case of a waiver, by or on behalf of the
Party waiving compliance. The failure of Dakota or Sellers at any time to
require performance of any provision of this Agreement will in no manner
affect the right of that Party at a later time to enforce such provision.
No waiver by Dakota or Sellers of any condition or of any Breach of any
term contained in this Agreement, in any one or more instances, will be
deemed to be or construed as a further or continuing waiver of any
condition or of any Breach of such term, or any other term set forth in
this Agreement.
SECTION 17. GOVERNING LAW. This Agreement will be governed by
and construed in accordance with the laws of the State of South Dakota as
applicable to Contracts made and to be performed in the State of South
Dakota without regard to conflict of laws principles.
SECTION 18. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed will be deemed to be an
original and such counterparts will together constitute one and the same
agreement.
SECTION 19. SEVERABILITY. Any provision, or clause of any
provisions, of this Agreement that may be found to be contrary to South
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<PAGE>
Dakota law or otherwise unenforceable will not affect the remaining terms
of this Agreement, which will be construed as if the unenforceable
provision or clause were absent from this Agreement.
SECTION 20. HEADINGS. The headings of the sections and
paragraphs in this Agreement have been inserted for convenience of
reference only and will not restrict or otherwise modify any of the terms
or provisions of this Agreement.
[The remainder of this page is intentionally left blank]
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<PAGE>
The parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Dakota"
/S/ JOEL T. HAGEN
Joel T. Hagen
/S/ JOHN F. ARCHER
John F. Archer
/S/ JEFFREY G. PARKER
Jeffrey G. Parker
/S/ DONALD B. GRAHAM
Donald B. Graham
/S/ DOUG SCHNEIDER
Doug Schneider
/S/ GERY BAAR
Gery Baar
/S/ DOUGLAS ENGLISH
Douglas English
"Sellers"
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<PAGE>
EXHIBIT 4.14
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of November 27, 1996,
by and among Dakota Cooperative Telecommunications, Inc., a South Dakota
cooperative corporation ("Dakota"), and Joel T. Hagen, John F. Archer,
Jeffrey G. Parker, Donald B. Graham and Doug Schneider (each a "Seller" and
collectively "Sellers"). Capitalized terms used in this Agreement and not
otherwise defined are defined in the Merger Agreement (the "Merger
Agreement") to which this Agreement is an exhibit.
Pursuant to the Merger Agreement, Sellers will receive shares of
Dakota preferred stock (the "Dakota Preferred Stock") in connection with
the merger of TCIC Communications, Inc. with and into Dakota Acquisition
Corp. #1, a wholly owned subsidiary of Dakota. This Agreement sets forth
certain agreements between Dakota and Sellers (collectively the "Parties")
with respect to the Dakota Preferred Stock and certain other matters.
ACCORDINGLY, Dakota and Sellers agree as follows:
SECTION 1. CLASS AND AMOUNT. The Dakota Preferred Stock will
be Non-Voting Non-Cumulative Preferred Stock and there will be an aggregate
of 931 shares issued to Sellers in connection with the Merger.
SECTION 2. NO DIVIDENDS. Except as expressly provided in
this Agreement, no dividends or other distributions will be made on or with
respect to the Dakota Preferred Stock, unless subsequently declared by
Dakota's Board of Directors (the "Dakota Board of Directors") in its sole
discretion. Dividends may be declared on Dakota's common stock or other
preferred stock subsequently issued without being declared on the Dakota
Preferred Stock.
SECTION 3. LIQUIDATION PREFERENCE. Upon the liquidation,
dissolution or winding up of the affairs of Dakota, whether voluntary or
involuntary, Sellers will be entitled to receive in full, out of the assets
of Dakota available for distribution to members, including its capital,
before any amount is paid to, or distributed among, the holders of Dakota
common stock or other preferred stock of Dakota ranking junior to the
Dakota Preferred Stock, the sum of $1,000 per share of Dakota Preferred
Stock held by them as of such date, plus all accrued and unpaid Non-
Liquidity Fees owing under Section 4 below as of the time of payment.
SECTION 4. NON-LIQUIDITY FEES. The Parties are entering into
the Merger Agreement and consummating the Merger with the present
contemplation that Dakota will be converted into a business corporation
with shares of stock registered under the Securities Act of 1933, as
amended (the "Securities Act"). However, the Parties acknowledge that such
a conversion is subject to a variety of known and unknown contingencies
(including Dakota member approval) and accordingly may not take place at
<PAGE>
all or may not take place within the time period presently contemplated.
To compensate Sellers in the event the conversion is not completed or is
delayed beyond September 1, 1997, and in recognition of the transfer
restrictions placed on the Dakota Preferred Stock, Sellers will be entitled
to receive a non-liquidity fee ("Non-Liquidity Fee") of $80 per annum for
each share of Dakota Preferred Stock held by them, to be paid when, as and
if declared and ordered by the Dakota Board of Directors. The Non-
Liquidity Fees will accrue on the fifteenth day of June and December in
each year (each a "Non-Liquidity Fee Accrual Date"), except that if any
Non-Liquidity Fee Accrual Date is not a business day in Sioux Falls, South
Dakota, then the Non-Liquidity Fee Accrual Date will be the next business
day. The first Non-Liquidity Fee Accrual Date will be December 15, 1997
and will be for the period beginning September 1, 1997 and ending December
15, 1997. The amount of the Non-Liquidity Fee accrued for such initial
period will be $26.67 per share of Dakota Preferred Stock. Non-Liquidity
Fees do not accrue until the applicable Non-Liquidity Fee Accrual Date, at
which time they accrue in full, and no Non-Liquidity Fee shall accrue with
respect to any period prior to September 1, 1997. Accrued Non-Liquidity
Fees may be paid from time to time at the discretion of the Dakota Board of
Directors, and will continue to accumulate as accrued until paid. If
payment is made in an amount less than the total amount of the Non-
Liquidity Fees at the time accrued, it will be allocated on a pro rata
basis among all shares of Dakota Preferred Stock then held by Sellers. No
interest will accrue or be payable on any accrued but unpaid Non-Liquidity
Fees. At the election of the Dakota Board of Directors, Non-Liquidity Fees
may be paid in cash, by the issuance of additional shares of Dakota
Preferred Stock on the basis of one share of Dakota Preferred Stock for
each $1,000 of Non-Liquidity Fees accrued and owing or a combination of
cash and additional shares of Dakota Preferred Stock. Fractional shares of
Dakota Preferred Stock may be issued. In the event the Dakota Board of
Directors were to ever declare a dividend on the Dakota Preferred Stock,
the amount of such dividend will be deducted from any Non-Liquidity Fee
otherwise owing under this Agreement. Non-Liquidity Fees will cease to
accrue upon the earlier of (a) the termination of this Agreement under
Section 13 below or (b) the date the members of Dakota approve a plan to
liquidate and dissolve Dakota.
SECTION 5. VOTING. Except as provided by South Dakota law,
Sellers, as holders of shares of Dakota Preferred Stock, will have no vote
on any matter submitted to a vote of the members of Dakota.
SECTION 6. PREEMPTIVE RIGHTS. Sellers, as holders of shares
of Dakota Preferred Stock, will have no preemptive or preferential right to
subscribe for or purchase any shares of any class or series of capital
stock of Dakota, now or later authorized, or any securities convertible
into, or carrying options or warrants to purchase, shares of any class or
series of capital stock of Dakota, now or later authorized, whether issued
for cash, property, services, by way of capital stock of Dakota or
otherwise.
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<PAGE>
SECTION 7. LIMITATIONS. In addition to other rights as may
be provided under applicable law, without the written consent of the
holders of a majority of the then outstanding shares of Dakota Preferred
Stock, Dakota will not authorize or create any class or series of preferred
stock ranking prior to the Dakota Preferred Stock with respect to the
distribution of assets in liquidation.
SECTION 8. REDEMPTION. Except with respect to mandatory
conversion provided for in Section 9 of this Agreement, the shares of the
Dakota Preferred Stock are not redeemable without the consent of the
holders thereof.
SECTION 9. MANDATORY CONVERSION. At such time as (a)
Dakota's common stock is first registered under the Securities Act
(including a sufficient number of shares of Dakota common stock to be
issued pursuant to this Section 9), (b) the contemplated business
corporation conversion is approved by the requisite vote of Dakota's
members and (c) a Certificate of Amendment is issued by the South Dakota
Secretary of State concerning the amendments to Dakota's Articles of
Incorporation required to consummate the business corporation conversion
(the date on which the last of these requirements is satisfied being
referred to as the "Conversion Date"), the Dakota Preferred Stock will
automatically be converted into whole shares of Dakota common stock. The
number of shares of Dakota common stock issuable to Sellers upon such
conversion will be set such that Sellers, as the sole owners of the Dakota
Preferred Stock, will collectively receive such number of shares of Dakota
common stock that would equal 6.75 percent of the outstanding shares of
Dakota common stock after conversion assuming (y) that the conversion was
effected on November 30, 1996 and (z) that all patronage credits
outstanding on the books and records of Dakota as of that date, reduced by
the amount of cash used by Dakota in connection with the business
corporation conversion to retire patronage credits or cash out odd-lot
holders (not to exceed $500,000), were converted into additional
outstanding shares of Dakota common stock. Any shares of Dakota Preferred
Stock issued after the date of this Agreement in payment of any Non-
Liquidity Fee under Section 4 above or upon exercise of any Warrants
granted to Sellers shall be converted into shares of Dakota common stock at
the same per share ratio as the shares converted under the foregoing
conversion formula. On or after the Conversion Date, Sellers agree to
surrender their certificates representing Dakota Preferred Stock as
requested by Dakota and in a form properly endorsed and completed for
conversion and each Seller hereby irrevocably constitutes and appoints
Dakota as his lawful attorney-in-fact to execute and deliver any necessary
conveyances, assignments and assurances and to do all acts necessary,
proper and convenient to effectuate the foregoing surrender of the Dakota
Preferred Stock certificates and the conversion of the Dakota Preferred
Stock into shares of Dakota common stock. It is the intent of the Parties
that on the Conversion Date each certificate representing the Dakota
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<PAGE>
Preferred Stock will represent only the right to receive shares of Dakota
common stock as provided in this Agreement and no other right or benefit.
No certificates for fractional share interests of Dakota common stock need
to be issued upon conversion of the Dakota Preferred Stock. Instead, Dakota
may, in its sole discretion, settle all such fractional share interests in
cash.
SECTION 10. TRANSFER RESTRICTIONS. The Dakota Preferred Stock
will not be registered under applicable federal or state securities laws.
The Dakota Preferred Stock may not be sold, transferred or otherwise
disposed of to any Person whether voluntarily or by operation of law,
except by will or according to the laws of descent and distribution or with
the prior written consent of Dakota which may be withheld in its sole
discretion. If any assignment, pledge or transfer of the Dakota Preferred
Stock shall be made or attempted, or if any attachment, execution,
garnishment or lien shall be issued against or placed upon the same, the
Dakota Preferred Stock shall be void and of no further effect.
SECTION 11. TCIC COMMUNICATIONS, INC. BOARD REPRESENTATION.
Upon the issuance of the Dakota Preferred Stock and at all times that such
stock remains outstanding, one of the three seats on the Board of Directors
of TCIC Communications, Inc. will be filled by a designee of Sellers. Such
designee will be selected by Sellers by the affirmative vote or consent of
the holders of a majority of the then outstanding shares of Dakota
Preferred Stock.
SECTION 12. OTHER RIGHTS. During such time as the Dakota
Preferred Stock remains outstanding, and subject to the confidentiality
undertakings below, Sellers will be entitled to receive monthly financial
statements for Dakota and its subsidiaries (prepared by management) and
such other information as is distributed to the holders of Dakota's common
stock. In addition, and again subject to the confidentiality undertakings
below, the designee of Sellers described in Section 11 of this Agreement
will be entitled to attend meetings of the Board of Directors (except
during any "executive session"). Sellers agree to treat in strict
confidence all documents, materials and other information obtained under
this Section 12 (collectively the "Dakota Information") and to not disclose
such Dakota Information to any third party or use such Dakota Information
other than for the sole and exclusive benefit of Dakota.
SECTION 13. TERMINATION. This Agreement will automatically
terminate at such time as the shares of Dakota Preferred Stock are
converted into shares of Dakota common stock under Section 9 of this
Agreement.
SECTION 14. BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the
terms of this Agreement will be binding upon, inure to the benefit of and
be enforceable by and against the permitted assigns, heirs and legal
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<PAGE>
representatives of Sellers and the successors and authorized assigns of
Dakota. Except as otherwise expressly provided in this Agreement, nothing
in this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement, this
Agreement being for the exclusive benefit of Dakota and Sellers and their
respective heirs, legal representatives, successors and assigns. Neither
Dakota nor any Seller will assign any of its or his respective rights or
obligations under this Agreement to any other Person without the prior
written consent of the other, and any such purported assignment shall be
null and void.
SECTION 15. ENTIRE AGREEMENT. This Agreement, the Merger
Agreement and the Exhibits thereto and Dakota's Amended Articles of
Incorporation as constituted on the date of this Agreement set forth the
entire agreement and understanding of Dakota and Sellers in respect of the
terms of the Dakota Preferred Stock and the other matters addressed in this
Agreement and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intention has been made by either
Dakota or Sellers that is not embodied in the Merger Agreement or the
Exhibits thereto, and neither Dakota nor Sellers will be bound by or liable
for any alleged representation, promise, inducement or statement of
intention not so set forth.
SECTION 16. AMENDMENT AND WAIVER. This Agreement may be
amended, modified, superseded or canceled and any of the terms, covenants
or conditions hereof may be waived only by a written instrument executed by
Dakota and Sellers or, in the case of a waiver, by or on behalf of the
Party waiving compliance. The failure of Dakota or Sellers at any time to
require performance of any provision of this Agreement will in no manner
affect the right of that Party at a later time to enforce such provision.
No waiver by Dakota or Sellers of any condition or of any Breach of any
term contained in this Agreement, in any one or more instances, will be
deemed to be or construed as a further or continuing waiver of any
condition or of any Breach of such term, or any other term set forth in
this Agreement.
SECTION 17. GOVERNING LAW. This Agreement will be governed by
and construed in accordance with the laws of the State of South Dakota as
applicable to Contracts made and to be performed in the State of South
Dakota without regard to conflict of laws principles.
SECTION 18. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed will be deemed to be an
original and such counterparts will together constitute one and the same
agreement.
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<PAGE>
SECTION 19. SEVERABILITY. Any provision, or clause of any
provisions, of this Agreement that may be found to be contrary to South
Dakota law or otherwise unenforceable will not affect the remaining terms
of this Agreement, which will be construed as if the unenforceable
provision or clause were absent from this Agreement.
SECTION 20. HEADINGS. The headings of the sections and
paragraphs in this Agreement have been inserted for convenience of
reference only and will not restrict or otherwise modify any of the terms
or provisions of this Agreement.
[The remainder of this page is intentionally left blank]
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The parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ CRAIG A. ANDERSON
Its VICE PRESIDENT
"Dakota"
/S/ JOEL T. HAGEN
Joel T. Hagen
/S/ JOHN F. ARCHER
John F. Archer
/S/ JEFFREY G. PARKER
Jeffrey G. Parker
/S/ DONALD B. GRAHAM
Donald B. Graham
/S/ DOUG SCHNEIDER
Doug Schneider
"Sellers"
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EXHIBIT 4.17
REA Project Designation:
SOUTH DAKOTA 515-A
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
Identified as form of document presented to
and approved by the board of directors
trustees of the above named corporation at a
meeting held September 30, 1952.
/s/ T.W. Diefendorf
Secretary of Meeting
No. A
<PAGE>
AGREEMENT, made as of September 5, 1952, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et
seq.) (hereinafter called the "Act"), between DAKOTA COOPERATIVE
TELEPHONE COMPANY, INC. (hereinafter called the "Borrower"), a
corporation existing under the laws of the State of South Dakota,
and UNITED STATES OF AMERICA (hereinafter call the "Government"),
acting through the Administrator of the Rural Electrification
Administration (hereinafter called the "Administrator")
WHEREAS, it is intended that the Government shall lend and the
Borrower shall borrow an amount not in excess of $1,027,000 to finance
partially the acquisition, construction and operation of a telephone system
in rural areas to bring telephone service to approximately 1,776
subscribers, upon the terms and conditions contained in this agreement, as
from time to time amended; and
WHEREAS, it is contemplated that the amount of such loan may be
increased from time to time for purposes permitted by the provisions of the
Act, as from time to time amended, and upon the terms and conditions
contained in this agreement, as from time to time amended (such loan and
any such increases in the amount thereof being hereinafter collectively
called the "Loan"); and
WHEREAS, the Administrator, in determining to enter into this
agreement, has relied upon the representation of the Borrower to him that
it is willing to furnish adequate telephone service to the widest
practicable number of persons in rural areas whom it is possible to serve,
and the Borrower has agreed to do so as hereinafter provided;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
ARTICLE I
LOAN, NOTES AND SECURITY
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of furnishing
telephone service in rural areas, the Government shall lend and the
Borrower shall borrower an amount not in excess of $1,027,000 which,
together with the sum of $88,364 in equity funds to be deposited by the
Borrower in the "Special Construction Account" hereinafter defined and
provided for in section 2.4, shall be used to finance, pursuant to the
provisions of the Act, the acquisition, construction and operation of
telephone lines and facilities (hereinafter called the "Project") to be
located in Counties of Clay, Hutchinson, McCook, Turner, and Yankton and in
counties contiguous thereto, all in the State of South Dakota.
<PAGE>
SEC. 1.2. NOTES. The debt created by the Loan shall be
evidenced by notes (such notes and any notes executed and delivered to
refund, or in substitution for, such notes being hereinafter collectively
called the "Notes") to be executed by the Borrower when and as the
Administrator shall determine, payable to the order of the Government. The
Notes shall bear interest at rates prescribed by applicable Federal
statutes, and shall otherwise be in form and substance satisfactory to the
Administrator. Interest shall accrue on the principal of each Note only in
respect of amounts which shall have been advanced to the Borrower from time
to time on account of the Loan and charged against such Note.
SEC. 1.3. LOAN CLOSING. The Administrator may from time to time
determine the amount required to enable the Borrower to perform its
obligations hereunder. Upon notification by the Administrator to the
Borrower in respect of any such determination, any reduction in the maximum
amount of the loan herein provided for resulting therefrom shall be
conclusive and binding upon both the Government and the Borrower, and the
Administrator shall cause such one or more of the Notes as he shall select
to be appropriately credited with an amount equal to such reduction, and
the principal amount of such Note or Notes shall, for the purposes of this
agreement, be deemed to be correspondingly reduced. When the Administrator
shall determine that no further funds are required to be advanced by the
Government hereunder in order to enable the Borrower to perform its
obligations hereunder, the Administrator shall, at such time thereafter as
he shall elect, execute and deliver to the Borrower a loan closing
certificate (hereinafter called the "loan closing certificate") which shall,
among other things, specify the date of the closing of the Loan and the
amount of the unpaid principal of and the accrued and unpaid interest on
each of the Notes.
SEC. 1.4. SECURITY. The Notes shall be secured by a mortgage
made by the Borrower to the Government (such mortgage being hereinafter
called the "Mortgage"), as supplemented by such supplemental mortgages made
by the Borrower to the Government as the Administrator shall from time to
time require, and the Notes shall also be secured by such chattel mortgages
and such supplemental or additional chattel mortgages, made by the Borrower
to the Government, as the Administrator shall from time to time require
(any such supplemental mortgage, and any such chattel mortgage,
supplemental or additional chattel mortgage, as the case may be, being
hereinafter called a "supplemental mortgage"). The Borrower shall also
take such other action as the Administrator shall from time to time require
to perpetuate or renew the lien of the Mortgage, or any supplemental
mortgage, so long as any part of the Loan or the interest thereon shall
remain unpaid. The Mortgage and all supplemental mortgages, if any, shall
be in form and substance satisfactory to the Administrator and collectively
shall cover all the property of the Borrower now owned or hereafter
acquired.
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ARTICLE II
ADVANCES AND DISPOSITION OF FUNDS
SECTION 2.1. PREREQUISITES TO ADVANCES.
(A) The Borrower shall deliver to the Government, when directed
by the Administrator and in form and substance satisfactory to him, the
following:
(1) one or more of the Notes, the Mortgage and such supplemental
mortgages as the Administrator shall require, all duly executed and
accompanied by proof of the due recordation and filing of the Mortgage
and any supplemental mortgage in every appropriate office specified by
the Administrator;
(2) evidence of appropriate corporate action authorizing the
execution and delivery of the Notes, the Mortgage, and any
supplemental mortgage and amendment to this agreement;
(3) evidence that the Borrower has duly registered when and
where required by law with all State and Federal authorities and
obtained therefrom all authorizations, permits, and approvals to the
extent required by law in order to enable the Borrower to enter into
this agreement and to execute and deliver the Notes, the Mortgage, and
any supplemental mortgage and amendment to this agreement;
(4) evidence that there has been no substantial adverse change
in the Borrower's financial condition or plant since the date of the
last financial statement submitted by the Borrower to the
Administrator;
(5) evidence that the Borrower is not involved in or threatened
with any litigation which may substantially and adversely affect the
Borrower's financial condition and that there are no liens or clouds
on title except the lien of the Mortgage and any supplemental
mortgage, on any of its property;
(6) evidence that the Borrower has duly adopted articles of
incorporation and bylaws in form and substance satisfactory to the
Administrator; and
(7) such opinions as the Administrator may require, by counsel
who shall have been previously approved by the Administrator.
(B) No funds shall be advanced on account of the Loan until the
Borrower shall have submitted evidence, satisfactory to the Administrator,
that it has:
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<PAGE>
(1) entered into binding sales contracts, in form and substance
satisfactory to the Administrator, providing for the transfer and
conveyance to the Borrower of (a) all properties used or useful in the
telephone business, owned or operated by Dakota State Telephone
Company, including, without limitation, real estate located at Davis,
in Turner County, South Dakota, at Yolin, in Yankton County, South
Dakota, at Irene, in Clay County, South Dakota, and at Monroe, in
Turner County, South Dakota; (b) all properties used or useful in the
telephone business owned or operated by Hurley Telephone Company,
including, without limitation, real estate located at Hurley, in
Turner County, South Dakota; and (c) properties used or useful in the
telephone business operated as a switcher line west of Hurley, South
Dakota, and switched at Hurley, owned by the Northwestern Bell
Telephone Company.
(2) obtained all necessary orders or approvals of appropriate
regulatory bodies, including, without limitation, certificates of
convenience and necessity, and approvals of the acquisition of
existing facilities listed in the preceding paragraph;
(3) adopted a schedule of rates, satisfactory to the
Administrator, and has obtained required approvals of such schedule of
rates by appropriate regulatory bodies;
(4) complied with all laws and regulations applicable to the
sale or issuance of membership and equity certificates, such
certificates to be in form and substance satisfactory to the
Administrator;
(5) obtained commitments or contracts, in form and substance
satisfactory to the Administrator, providing for all necessary toll
traffic, operator assistance and extended scope services to be
provided by connecting companies;
(6) obtained required franchises, in form and substance
satisfactory to the Administrator, from all incorporated communities
in which the Project will be located; and
(7) obtained the sum of $16,860 in initial equity payments, and
has deposited such sum in the Special Construction Account hereinafter
defined and provided for in section 2.4 hereof;
(C) The first advance of funds on account of the Loan, not in
excess of $85,614 shall be made by the Government to the Borrower (upon
compliance by the Borrower with all conditions of this agreement precedent
to the advance of funds on account of the Loan) only for the purpose of
enabling the Borrower to acquire the telephone facilities referred to in
section 2.1(B)(1) hereof. Thereafter, the Government shall be under no
obligation to make any further advances on account of the Loan until the
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<PAGE>
Borrower shall have submitted proof, satisfactory to the Administrator,
that it has obtained and recorded duly authorized and executed deeds and
bills of sale transferring and conveying the acquired properties to the
Borrower, in accordance with the terms of the sales contracts previously
approved by the Administrator.
SEC 2.2. REQUISITIONS. The Borrower shall from time to time
submit to the Administrator requisitions in such form and detail as the
Administrator shall prescribe requesting the Government to make advances on
account of the Loan. Each requisition shall be accompanied by the
following:
(a) evidence satisfactory to the Administrator that the
construction of the Project effected to the date of the requisition
complies with the provisions hereof;
(b) a certificate signed by such officers or employees of the
Borrower as shall be acceptable to the Administrator, which shall
specify all payments not previously accounted for theretofore made by
the Borrower from funds in the Special Construction Account provided
for in section 2.4 hereof;
(c) a statement, in such form and detail as the Administrator
shall prescribe, setting forth the purposes for which it is intended
the requested advance will be used by the Borrower; and
(d) such information, opinions, documents and proofs, of
whatever kind and nature, in addition to the foregoing, as may
reasonably be requested by the Administrator.
SEC. 2.3. ADVANCES. The Government, upon receipt of a
requisition and accompanying documents complying with the provisions of
section 2.2 hereof shall, within a reasonable time thereafter, if the
Borrower has complied with the provisions of section 2.1 hereof and all
other conditions precedent to the advance of funds on account of the Loan
to the satisfaction of the Administrator, make an advane to the Borrower
sufficient for such of the purposes specified in the statement of purposes
accompanying the requisition as the Administrator shall approve. The
Administrator may at any time, as a condition to making any advance on
account of the Loan, require compliance by the Borrower with any one or
more of the terms and conditions of this agreement to be performed by the
Borrower. Advances made by the Government pursuant to this section 2.3
shall be charged by the Government against any one or more of the Notes in
such manner and in such amounts as the Administrator shall determine. The
Government shall be under no obligation to make advances on account of the
Loan after the date of the closing of the Loan specified in the loan
closing certificate.
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<PAGE>
SEC. 2.4. SPECIAL CONSTRUCTION ACCOUNT. The Borrower shall hold
all moneys advanced to it by the Government hereunder in trust for the
Government and shall deposit such moneys promptly after the receipt thereof
in a bank or banks which shall meet the requirements specified in
section 4.4 hereof. Any account (hereinafter called "Special Construction
Account") in which any such moneys shall be deposited shall be designated
by the corporate name of the Borrower followed by the words "Trustee, REA
Construction Fund Account". All loan funds in any Special Construction
Account shall be used solely for the purposes specified in section 1.1
hereof. The Borrower shall also deposit in the Special Construction
Account, at such time or times as the Administrator may direct, on the same
terms and conditions, subject to the same requirements regarding
requisitions, and for the same purposes as funds advanced on account of the
Loan the sum of $88,364, obtained by the Borrower in accordance with
section 4.21 hereof (hereinafter called the "equity funds"). Until the
aggregate amount of withdrawls from the Special Construction Account shall
equal or exceed the amount of the equity funds, they shall be deemed to
have been made from the equity funds and not from funds advanced by the
Government to the Borrower. Subject to the provisions of section 5.2(c)
hereof, moneys in any Special Construction Account may be withdrawn only
upon checks, drafts or orders signed on behalf of the Borrower and
countersigned by an executive officer thereof.
SEC. 2.5. UNEXPENDED LOAN FUNDS. Any funds advanced on account
of the Loan remaining unexpended in any Special Construction Account upon
the closing of the Loan shall be forthwith remitted by the Borrower to the
Government and a credit in respect thereof allowed against any one or more
of the Notes to be designated by the Administrator.
SEC. 2.6. COMPLIANCE WITH RESTRICTIONS ON USE OF MATERIALS. No
advances will be made on account of the Loan for the construction of any
part of the Project with respect to which the Borrower shall have failed to
submit to the Government evidence satisfactory to the Administrator that
the Borrower has obtained from the appropriate agency or agencies of the
Government all necessary orders or approvals with respect to the use of the
materials required for the construction of such part of the Project. No
construction shall be undertaken except in accordance with authorizations
or regulations of the Office of Defense Mobilization or any other Federal
agency having jurisdiction in the premises.
SEC. 2.7. TERMINATION OF ADVANCES. If, within three years from
the date hereof, or, in case this agreement is amended to provide for an
increase in the amount of the Loan, then within three years from the date
of the latest such amendment, the Borrower has not complied with all
conditions precedent to the advance of the maximum amount of the Loan,
including the submission of requisitions therefor in compliance with
section 2.2 hereof, the Administrator may, at any time or times thereafter,
request the Borrower in writing to advise the Administrator whether the
Borrower will require any further advances on account of the Loan and, if
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<PAGE>
so, to submit evidence to the Administrator, within thirty days, of the
Borrower's need for additional time for compliance with such conditions.
Upon consideration of such evidence, if any, and all other relevant
circumstances, the Administrator may, in his discretion, by written notice
to the Borrower, terminate any obligation to advance all of any part of the
funds on account of the Loan not previously advaned to the Borrower, and
such action by the Administrator shall be conclusive.
ARTICLE III
CONSTRUCTION
SECTION 3.1. CONTRACT AND FORCE ACCOUNT. The Borrower shall
cause the project to be constructed under contract by a responsible
contractor or contractors approved by the Administrator, except to the
extent that the Administrator shall permit the Borrower to construct by
force account any portion of the Project. The term"force account" shall
mean construction by the Borrower and the furnishing by the Borrower of all
labor, transportation, materials, tools, supplies, and equipment used in
connection therewith. Force account construction shall be prosecuted
subject to such terms and conditions as the Administrator shall prescribe
and the Borrower shall keep accurate and detailed records of all costs and
expenses in connection therewith. The Project shall be constructed in such
sections as the Administrator shall direct.
SEC.3.2. COMMENCEMENT AND COMPLETION. The Project shall be
constructed in accordance with the approved plans and specifications
hereinafter provided for, the provisions of this agreement and all
contracts and subcontracts made pursuant hereto. Construction of the
respective sections of the Project shall be commenced promptly after the
Government shall have notified the Borrower to commence such construction,
and the Borrower shall cause such construction to be prosecuted diligently
and to be completed within such reasonable time as the Administrator shall
prescribe, unless prevented from so doing by causes beyond the control and
without the fault or negligence of the Borrower, including fires, floods,
strikes, and unusually severe weather conditions . The Borrower shall
cause the Project to be completed in such manner that it shall be free and
clear of all liens and lawful claims for liens except the liens of the
Mortgage and any supplemental mortgage.
SEC.3.3. BIDDING. The Borrower shall, if the Administrator
shall so require, invite bids for construction work pertaining to the
Project, and for materials, equipment, or supplies to be used therein, and
the Borrower shall include all persons designated by the Administrator
among those invited to submit bids. If the Administrator shall so require,
the Borrower shall open bids in the presence of a representative of the
Administrator and, in any event the Borrower shall open all bids publicly
at the time and place which shall have been specified in the notice to
bidders. The Borrower shall award each contract to the lowest responsible
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<PAGE>
bidder, unless all bids are rejected or the Administrator shall approve the
award of the contract to another responsible bidder upon a showing that the
award of the contract to such bidder is in the best interests of the
Borrower.
SEC. 3.4. INSPECTION BY ADMINISTRATOR. The Administrator may
supervise the construction and equipment of the Project, and shall have the
right to inspect, examine, and test all work and materials, and the
Borrower shall provide reasonable facilities therefor for the use of the
Administrator and his agents. The Administrator may reject any defective
material or workmanship and require that any such material shall be
replaced with proper material and that any such workmanship shall be
corrected.
SEC. 3.5. CERTIFICATES AND MAPS. The Borrower shall, at such
times as the Administrator shall determine, furnish to the Government
(a) such certificates of the approved engineer and of the officers and
employees of the Borrower as the Administrator shall require with respect
to construction of the Project, or any section thereof, and the cost
thereof; (b) a complete and detailed inventory and description of the
Project, or any section thereof; and (c) a map or maps, in form
satisfactory to the Administrator, showing the location and classification
of all exchanges, lines and other properties of the Borrower except those,
if any, not directly connected with the Project.
ARTICLE IV
PARTICULAR COVENANTS
SECTION 4.1. APPOINTMENTS BY BORROWEr. The Borrower shall
designate, subject to the Administrator's approval: (a) one or more
engineers (who may be a member or members of the Borrower's engineering
staff, if any, or an engineer or engineers regularly employed by the
Borrower) who shall perform the engineering services involved in the
construction of the Project or the several parts thereof, and execute all
certificates and other instruments pertaining to engineering details
required hereunder to be delivered to the Government; and (b) a person (who
may be regularly employed by the Borrower) who, subject to the general
policies fixed by the board of directors for the conduct of the Borrower's
business, shall have active charge of the management and operations of the
Borrower (the person so approved being hereinafter called the "Manager").
SEC. 4.2. SUBMISSION OF PLANS, SPECIFICATIONS AND CONTRACTS WITH
THIRD PARTIES. The Borrower shall submit, when the Administrator shall so
require and subject to the Administrator's approval:
(a) plans and specifications for the construction of each
section of the Project as shall be designated by the Administrator,
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identified by the signature of the approved engineer for such section
or sections, and, if the Administrator shall so require, certified by
the secretary of the Borrower as having been approved by the board of
directors thereof;
(b) a contract or contracts for the construction of the section
of the Project designated by the Administrator;
(c) a contract or contracts with an approved engineer for all
necessary engineering services in connection with the construction of
the several sections of the Project;
(d) contracts for toll traffic, operator assistance and extended
scope and for joint use of facilities;
(e) contracts for the acquisition of existing facilities to be
included in the Project;
(f) an option or options or contract or contracts, as the case
may be, for the purchase, lease or other acquisition of land for use
in connection with the construction or operation of the Project or any
part thereof; and
(g) a contract for the employment of a Manager and such other
managerial personnel as the Administrator shall specify.
SEC. 4.3. CONTRACTS SUBJECT TO THE ADMINISTRATOR'S APPROVAL.
Unless the effectiveness of each such contract shall be conditioned upon
the approval of the Administrator, the Borrower shall not enter into any
contracts for:
(a) the construction of any portion of the Project;
(b) engineering services pertaining to the construction of the
Project;
(c) the interchange of traffic and the division of toll
revenues;
(d) the joint use of telephone, telegraph or electric
facilities;
(e) the purchase in excess of $2,000 in any one instance of
materials, equipment or supplies for use in connection with the
construction or operation of the Project;
(f) the acquisition of existing facilities to be included in the
Project;
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(g) the purchase, lease or other acquisition of land for use in
connection with the construction or operation of the Project;
(h) management, accounting or other like services; and
(i) operator assistance services and extended scope service.
SEC. 4.4. DEPOSIT OF FUNDS. The Borrower shall not deposit or
allow to remain on deposit any of its funds, regardless of the source
thereof, in any bank which is not insured by the Federal Deposit Insurance
Corporation, or the successor thereof. The Borrower shall inform the
Administrator of the names of the banks which it has selected for deposit
of its funds.
SEC. 4.5. EASEMENTS AND PERMITs. The Borrower shall submit to
the Government, when required by the Administrator, evidence satisfactory
to the Administrator that the Borrower has obtained such easements from
landowners and releases from lienors and such franchises, authorizations,
permits, licenses, certificates of public convenience and necessity,
approvals, and orders from public bodies and others, as the Administrator
shall deem necessary or advisable in connection with the Project or the
Loan. If required so to do by the Administrator, the Borrower shall cause
such easements and releases to be recorded in appropriate offices of
record. Except with the consent of the Administrator, none of the funds
advanced on account of the Loan and none of the equity funds shall be used
by the Borrower to pay for easements obtained from landowners, or for
releases of liens affecting easements.
SEC. 4.6. AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of persons in rural
areas, and, subject to applicable laws, rules, regulations and orders of
regulatory bodies, shall, in the performance of such obligation, use the
funds in the Special Construction Account and such other funds as may from
time to time be available to it, either from surplus earnings, from
additional loans made to the Borrower by the Government, from increased
capital derived through the sale of additional memberships or otherwise as
the Borrower may elect, to extend service to all persons (hereinafter
called "applicants") in rural areas in the Borrower's telephone service
area (as such area is shown on the map which is a part of the Borrower's
application for the Loan, and which map, as revised by agreement between
the Borrower and the Administrator is incorporated herein by reference
hereto) who shall (a) desire such service and (b) shall meet all reasonable
requirements established by the Borrower as a condition of service. The
extension of service to all applicants in the telephone service area of the
Borrower is of the essence of the Borrower's obligations under this
agreement, and the failure or neglect of the Borrower to perform such
obligation shall be deemed to be an event of default hereunder and under
the Mortgage and any supplemental mortgage.
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SEC. 4.7. BOOKS AND RECORDS. The Borrower shall at all times
keep, in accordance with methods of accounting prescribed by the
Administrator, but subject to applicable laws and rules and regulations of
regulatory bodies, and shall safely preserve, books, records and accounts
in which full and true entries shall be made of all the dealings, business
and affairs of the Borrower. The Government, through its agents, or
through certified public accountants approved by the Administrator, to be
employed by the Borrower at its expense when so requested by the
Administrator, shall at all times during reasonable business hours have
access to and the right to inspect and make copies of all such books,
records, and accounts and all invoices, contracts, leases, pay-rolls,
canceled checks, statements, plans, specifications, drawings, and other
documents and papers of every kind belonging to or in the possession of the
Borrower in any wise pertaining to the Project. The Borrower, at such
times as the Administrator may designate, such submit to the Government
financial and operating reports in such form as shall be acceptable to the
Administrator.
SEC. 4.8. MORTGAGE COVENANTs. The Borrower shall perform all
covenants by it to be performed under the Mortgage and any supplemental
mortgage.
SEC. 4.9. CONTRACTOR'S BONDS. The Borrower shall forthwith,
upon receipt thereof, deliver to the Administrator any contractor's or
subcontractor's bond relating to the construction of the Project.
SEC. 4.10. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the State specified in the introductory
paragraph of this agreement and has corporate power to enter into this
agreement and perform every act required to be performed by it
hereunder;
(b) all proceedings prerequisite to the valid execution of this
agreement by it have been duly taken and all required authorizations
therefor have been secured; and
(c) it has not entered into any contract for the construction of
any portion of the Project, or for engineering or for other services
pertaining to the construction or operation of the Project, or for the
purchase of materials, equipment or supplies for use in connection
with the construction or operation of the Project, unless such
contract has (1) been approved by the Administrator, (2) will be
submitted for the approval of the Administrator or (3) the
effectiveness thereof has been made subject to the approval of the
Administrator;
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<PAGE>
(d) every statement contained in this agreement and in every
other document, statement, certificate and opinion submitted to the
Government by it or in its behalf is true and correct.
SEC. 4.11. FEES AND COMMISSIONS. No fee or commission has been
or shall be paid and no agreement therefor has been or shall be entered
into by the Borrower or any of its officers, employees, agents, or
representatives in order to obtain the Loan.
SEC. 4.12. "BUY AMERICAN" CLAUSE. The Borrower shall use or
cause to be used in connection with the expenditures of funds advanced on
account of the Loan only such unmanufactured articles, materials, and
supplies as have been mined or produced in the United States, and only such
manufactured articles, materials, and supplies as have been manufactured in
the United States substantially all from articles, materials, or supplies
mined, produced , or manufactured, as the case may be, in the United
States, except to the extent the Administrator shall determine that such
use shall be impracticable or that the cost thereof shall be unreasonable.
SEC. 4.13. NON-DISCRIMINATION CLAUSE. The Borrower, in the
performance of this agreement, shall not discriminate against any employee
or applicant for employment in regard to hire, tenure, terms or conditions
of employment because of race, creed, color or national origin. The
Borrower shall include in every contract involving the employment of
persons hereafter negotiated or renegotiated with any third party or
parties a provision obligating such party or parties not to discriminate in
performing the work required by such contract against any employee or
applicant for employment in regard to hire, tenure, terms or conditions of
employment because of race, creed, color or national origin.
SEC. 4.14. EVIDENCE OF FEASIBILITY. The Borrower shall,
whenever requested so to do by the Administrator, submit evidence
satisfactory to the Administrator of the economic and engineering
feasibility of each part of the Project designated by the Administrator.
If the Borrower shall fail to submit such evidence with respect to any such
part, the Government may refuse to make any advance or further advances
hereunder (in which case the Administrator may execute and deliver to the
Borrower a loan closing certificate as described in section 1.3 hereof) or
the Administrator may determine that such part shall not be constructed and
in such event the Borrower shall not construct such part. Any
determination by the Administrator hereunder shall be conclusive and
binding upon both the Government and the Borrower.
SEC. 4.15. PROOF OF TITLE. No funds shall be advanced on
account of the Loan to finance the acquisition of any real property by the
Borrower, or any construction thereon, until the Borrower shall have
submitted evidence satisfactory to the Administrator that it has acquired
or will acquire such right, title or interest in such real property as the
Administrator may require.
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<PAGE>
SEC. 4.16. COMMENCEMENT OF OPERATION. The Borrower shall not
operate any portion of the Project until the Borrower shall have furnished
evidence satisfactory to the Administrator that (a) such portion of the
Project has been properly constructed and is ready to be operated,
(b) there are sufficient subscribers ready to take service to permit the
economical operation of such portion of the Project, and (c) the Borrower
has complied with the provisions of the Mortgage concerning insurance in
respect of such portion of the Project. The Borrower shall not serve any
subscriber through the Project until the Borrower shall have furnished
evidence satisfactory to the Administrator that the telephone wiring and
equipment installed in such subscriber's premises are of a type and
quality, and have been installed, in accordance with the approved plans and
specifications.
SEC. 4.17. OPERATING AND MAINTENANCE PROCEDURES. The Borrower
shall, subject to applicable laws, rules, regulations and orders of
regulatory bodies, operate and maintain the Project in accordance with
operating and maintenance procedures and practices satisfactory to
the Administrator. The Borrower shall inaugurate and carry out such
personnel training programs, office procedures and equipment maintenance
programs as the Administrator may specify.
SEC. 4.18. MINUTES. The Borrower shall promptly submit to the
Government certified copies of the minutes of all meetings of its members
and of its directors.
SEC 4.19. SIGNS AND POLE MARKING. The Borrower shall erect and
maintain during the construction of the Project, in an appropriate place
where construction work on the Project is being prosecuted, a sign which
shall be subject to the approval of theAdministrator, bearing the legend
"Rural Electrification Administration Telephone Project under Federal
Government Loan", or such other legend of similar import as the
Administrator may designate. The Borrower shall at all times identify all
poles owned by it in such manner as the Administrator shall direct.
SEC. 4.20. SUPERVISOR: APPOINTMENT AND POWERS. If the
construction of the Project, or any part thereof, shall not proceed in
accordance with the terms hereof, or if, in the opinion of the
Administrator, action is necessary to protect the Government's security for
the Loan or is essential to achieve the objectives for which the Loan is
made, the Administrator may appoint, as the representative of the
Government, a supervisor (hereinafter called the "Supervisor") for the
Project or other property of the Borrower necessary to the construction or
operation of the Project and shall notify the Borrower of such appointment
and the duration thereof. The Supervisor shall take such steps as he deems
necessary to assure construction or operation of the Project in accordance
with the terms hereof, or such portion or portions thereof as may be
designated by the Administrator, or to assure performance of any
obligations which the Borrower may be obligated to perform pursuant to the
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<PAGE>
provisions of section 4.6 hereof, or to preserve the security of the Loan
and shall have the power to operate the Project and other property of the
Borrower necessary to the operation of the Project, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, directing the payment of
all expenses of the Borrower from any of its funds, termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries and expenses of all employees appointed by the
Supervisor shall be paid by the Borrower, provided, however, that the
salaries and expenses of the Supervisor and of any assistants who shall be
employees of the Government shall not be payable by the Borrower unless and
to the extent that the Administrator, upon written notification to the
Borrower shall so require. So long as the appointment of the Supervisor
shall be in effect, all checks, drafts, and orders drawn on any bank
account maintained by the Borrower shall be countersigned by the
Supervisor, except that, if the proper officers or employees of the
Borrower shall refuse to sign any such check, draft or order, the
Supervisor shall have full power and authority to sign such check, draft or
order for the Borrower without the requirement of any other signature
thereon, if the Supervisor shall certify to the bank upon which such check,
draft or order is drawn that the same is required to carry out the
obligations of the Borrower hereunder. The Borrower hereby constitutes the
Administrator its agent for the purpose of notifying any bank in which any
account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instructions of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
SEC. 4.21. EQUITY FUNDS. The Borrower shall submit to the
Administrator, with each requisition submitted by the Borrower pursuant to
section 2.2 hereof, evidence that it has collected and deposited in the
Special Construction Account equity payments averaging $49.64 for each of
the subscribers acquired in connection with the acquisition of the
facilities described in section 2.1(B)(1) hereof, before telephone service
to such acquired subscriber was improved by the Borrower, and averaging $50
for each of all other subscribers before telephone service to such new
subscriber was initially furnished by the Borrower, until a total of
$88,364 in equity funds on behalf of a total of $1,776 subscribers has been
collected and deposited.
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<PAGE>
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.1. EVENTS OF DEFAULT. The happening of any of the
following events (hereinafter called "events of default") shall constitute
a default by the Borrower hereunder:
(a) any failure to perform, or any violation of, any term,
covenant, promise, condition, or agreement on the part of the Borrower
to be performed hereunder at the time and in the manner herein
provided;
(b) any breach of any warranty or any material or substantial
inaccuracy in any representation on the part of the Borrower; or
(c) any event of default which is specified in the Mortgage or
any supplemental mortgage.
SEC. 5.2. REMEDIES UPON DEFAULT. Upon the happening of any
event of default, as specified in section 5.1, the Government or the holder
or holders of any one or more of the Notes, as their respective interests
may appear, may exercise any one or more of the following rights,
privileges, powers, and remedies, to the extent that the exercise thereof
is not prohibited by law:
(a) refuse to make any advance or any further advances on
account of the Loan, but any advance thereafter made by the Government
shall not constitute a waiver of such default;
(b) declare all unpaid principal of and all interest accrued on
any or all of the Notes held by such holder or holders (which may
include the Government) to be due and payable immediately and upon
such declaration all such principal and interest shall become due and
payable immediately, anything herein or in any other agreement to
which the Borrower shall be a party, or in the Notes or in the
Mortgage or any supplemental mortgage to the contrary notwithstanding;
(c) enter upon and take possession of the Project, take
possession of and utilize any and all equipment, materials, tools,
supplies, and appliances wherever located belonging to the Borrower,
take possession of any funds in any Special Construction Account, take
possession of all books, papers, records, documents, accounts, and
plans and specifications of the Borrower relating to the Project, and
complete or cause to be completed, by contract or otherwise, the
construction of the Project, or such portion thereof as the
Administrator may select, for the account of the Borrower, and the
amount paid therefor by the Government shall be considered an advance
on account of the Loan and if said amount, together with prior
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<PAGE>
advances, is in excess of the maximum amount which the Government
would otherwise be required to advance hereunder, the Borrower shall
immediately pay to the Government the amount of such excess; or
(d) appoint a Supervisor pursuant to section 4.20 hereof; or
(e) exercise any and all rights, privileges, remedies, powers,
claims, and demands which the Borrower may have against third persons
in any way relating or pertaining to the construction of the Project
and, for such purpose, the Borrower does hereby assign, transfer, and
set over to the Government any and all such rights, privileges,
remedies, powers, claims, and demands, except such as by law are not
transferable or assignable, which the Borrower hereby agrees to hold,
together with any and all proceeds resulting therefrom, in trust for
the benefit of the Government and the holder or holders of the Notes,
as their respective interests may appear.
SEC. 5.3. REMEDIES CUMULATIVE. Every right, privilege, power or
remedy herein or in the Notes or in the Mortgage or in any supplemental
mortgage conferred upon or reserved to the Government or any holder or
holders of the Notes shall be cumulative and shall be in addition to every
other right, privilege, power, and remedy now or hereafter existing at law
or in equity or by statute. The pursuit of any right, privilege, power or
remedy shall not be construed as an election.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. MEMBERS OF CONGRESS. No Member of or Delegate to
the Congress of the United States shall be admitted to any share or part of
this agreement or to any benefit to arise herefrom other than the receiving
of telephone service through the Project on the same terms accorded others
served through the Project.
SEC. 6.2. FALSE CLAIMS AND THE "KICK BACK" STATUTE. The
Borrower and each of the officers signing this agreement respectively
acknowledge that they have received copies of sections 286, 287, 641, 1001
and 1361 of Title 18, United States Code, Crimes and Criminal Procedure,
and regulations issued pursuant to Public Act No. 324, 73d Congress (40
U.S.C. 276 (b) (c)), commonly called the "Kick Back" Statute.
SEC. 6.3. DEFINITIONS. Whenever the following terms are used in
this agreement, unless the context indicates another or different meaning
or intent, they shall be construed to have meanings as follows:
(a) "Administrator" means the Administrator of the Rural
Electrification Administration or his duly authorized representative
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<PAGE>
or any other person or authority in whom may be vested the duties and
functions relating to loans for telephone service in rural areas made
pursuant to the Act which the Administrator is now or may hereafter be
authorized by law to perform;
(b) "plans and specifications" means the plans and
specifications for the Project originally approved by the
Administrator and shall include such changes and modifications thereof
as may from time to time be agreeed upon by the Borrower and the
Government;
(c) "note" includes bond;
(d) "section", as used in the phrase "section of the Project",
or "section of the System" or the like, means any part of the Project
or System; and
(e) "construction" includes "acquisition", and the word
"construct" includes the word "acquire".
SEC. 6.4. APPROVALS IN WRITING. No counsel, engineer, manager
or other person, or instrument, or act of the Borrower, who or which shall
be subject to the approval of the Administrator, shall be deemed to be
approved unless and until the Administrator shall have given such approval
in writing.
SEC. 6.5. WAIVER. The Administrator, in his absolute discretion
and upon such terms and conditions as he may determine, may waive the
performance or doing of any one or more of the acts to be performed or
things to be done by the Borrower, and any provision hereof may be modified
or amended by mutual consent of the Borrower and the Administrator. The
Borrower shall not claim any modification, amendment, rescission, release,
or annulment of any part hereof except pursuant to a written instrument
subscribed by the Administrator. The approval by or on behalf of the
Administrator of any advance of funds on account of the Loan shall
constitute a finding of sufficient performance by the Borrower of all acts
prerequisite to such advance or a waiver thereof; provided, however, that
any such waiver shall be effective only with reference to such advance and
shall not preclude the Administrator from requiring full performance of the
acts so waived as a prerequisite to any subsequent advance.
SEC. 6.6. NON-ASSIGNABILITY. The Borrower shall not assign this
agreement or any part hereof or any moneys due or to become due hereunder.
SEC. 6.7. DESCRIPTIVE HEADINGS; SEPARABILITY. The descriptive
headings of the various articles and sections hereof were formulated and
inserted for convenience only and shall not be deemed to affect the meaning
or construction of any of the provisions hereof. The invalidity of any one
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<PAGE>
or more phrases, clauses, sentences, paragraphs, or provisions of this
agreement shall not affect any remaining portion or portions hereof.
SEC. 6.8. NOTICES. All demands, notices, approvals,
designations, or directions permitted or required to be made upon or given
to the Borrower hereunder shall be mailed to the Borrower at Irene, South
Dakota, or such other address as the Borrower shall designate in writing to
the Administrator. All notices, designations, or communications permitted
or required to be given or sent to the Government or the Administrator
hereunder shall be mailed to the Administrator at Washington 25, D.C., or
such other address as the Administrator shall designate in writing to the
Borrower.
SEC. 6.9. DURATION OF AGREEMENT. Except where otherwise
required by the context, all provisions of this agreement shall continue in
full force and effect until all amounts owing by the Borrower to the
Government on account of the Loan shall have been paid, and upon such
payment, this agreement shall be deemed to have been fully performed.
SEC. 6.10. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
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<PAGE>
UNITED STATES OF AMERICA
by /s/ Wm. C. Wise
Acting Administrator
of
Rural Electrification Administration
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<PAGE>
EXHIBIT 4.18
REA Project Designation:
SOUTH DAKOTA 515-B IRENE
AMENDMENT
Dated as of August 11, 1955
to
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
Identified as form of document presented to
and approved by the board of directors
trustees of the above named corporation at a
meeting held September 27, 1955.
/s/ T. W. Diefendorf
Secretary of Meeting
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. A
<PAGE>
AGREEMENT, made as of August 11, 1955, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
et seq.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration (hereinafter called the
"Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952
(hereinafter called the "Loan Contract"), and intend by this agreement to
amend the Loan Contract by increasing the amount of the loan therein
provided for by an amount not in excess of $787,000, by increasing the
total number of subscribers to be served by the Project from 1,776 to
3,606, and in certain other respects:
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of the Loan Contract is
amended to read as follows:
SECTION 1.1 AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $1,814,000,
which, together with the sum of $121,538 in equity funds to be
deposited by the Borrower in the "Special Construction Account",
hereinafter defined and provided for in section 2.4, shall be used to
finance, pursuant to the provisions of the Act, the acquisition,
construction and operation of telephone lines and facilities
(hereinafter called the "Project"), to serve a total of approximately
3,606 subscribers, and to be located in the Counties of Clay,
Hutchinson, Lincoln, McCook, Turner and Yankton, and in counties
contiguous thereto, all in the State of South Dakota.
SEC. 2. Section 2.4 of article II of the Loan Contract is
amended by changing the figure $88,364 in the thirteenth line to $121,538,
by changing the figure 4.21 in the fourteenth line to 4.20 and by adding
the following sentence at the end thereof:
The Borrower shall expend each advance on account of the
Loan or equity funds only for such of the purposes specified
in the statement of purposes accompanying the requisition
for such advance or equity funds as shall have been approved
by the Administrator.
SEC. 3. Article II of the Loan Contract is further amended by
adding thereto a new section numbered and reading as follows:
<PAGE>
SEC. 2.8. PRE-REQUISITES TO CERTAIN ADVANCES. (A) The
Government shall be under no obligation to advance any portion of the
$787,000 (hereinafter called the "B loan"), included in the Loan by an
agreement made by and between the Borrower and the Government, dated
as of August 11, 1955, until the Borrower shall have submitted
evidence satisfactory to the Administrator in respect of the B loan
that it has:
(1) obtained all necessary orders or approvals of
appropriate regulatory bodies, including, without
limitation, a certificate of convenience and necessity,
and approvals of the acquisitions of existing
facilities hereinafter described in (5) of this
paragraph (A) and a schedule of rates satisfactory to
the Administrator;
(2) obtained commitments or contracts, in form and
substance satisfactory to the Administrator, providing
for all necessary toll traffic and operator assistance
services to be provided by, or for, connecting or other
companies;
(3) obtained a commitment or commitments in form and
substance satisfactory to the Administrator covering
all necessary joint use of facilities;
(4) obtained required franchises in form and substance
satisfactory to the Administrator for operation in all
incorporated communities in which the proposed system
will be located;
(5) entered into a binding sales contract, in form and
substance satisfactory to the Administrator, providing
for the transfer and conveyance to the Borrower of all
properties (including real estate) owned by or operated
by the Central Telephone Company (hereinafter called
the "Seller"), and located in and in the vicinities of
Parker, Lennox, Chancellor and Worthing, South Dakota;
and
(6) obtained under a method approved by the Administrator,
and deposited in the Special Construction Account
herein provided for in section 2.4 the sum of $14,540
in initial equity funds.
(B) Upon compliance with all of the conditions of this agreement
precedent to the advance of B loan funds, and when Midstate Telephone
Company and Sanborn Telephone Co-op participating with the Borrower in
the acquisition of all of the Seller's South Dakota telephone
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<PAGE>
properties have qualified for a release of funds under telephone loan
contracts with the Government sufficient to enable them with the
Borrower to close the acquisition from the Seller simultaneously, the
Government shall make an advance of B loan funds in the approximate
amount of $192,000, which shall be used by the Borrower only for the
purpose of consummating the acquisition of the telephone facilities
mentioned in (A) (5) of this section 2.8, and which are the Borrower's
part of the properties being purchased from the Seller by the three
participating cooperatives. The closing of the acquisition from the
Seller by the Borrower and the two other participating cooperatives
shall be simultaneous. The Government shall be under no obligation to
make any further advances on account of the B loan until the Borrower
has submitted evidence satisfactory, in form and substance to the
Administrator, that it has obtained title to its part of such
properties in accordance with the terms and conditions of the sales
agreement previously approved by the Administrator. Thereafter, the
Government shall be under no obligation to advance B loan funds on
account of the Loan, except for purposes other than the purchase or
construction of central office equipment, outside plant, station
equipment, land and buildings, until the Borrower has collected and
deposited at least $16,587 in equity funds in respect of the B loan,
including the initial equity funds required to have been deposited
under (A) (6) of this section 2.8.
SEC. 4. Article IV of the Loan Contract is amended by deleting
therefrom section 4.19 and by renumbering the remaining sections of article
IV accordingly.
SEC. 5. Renumbered section 4.19 (formerly section 4.20) of
article IV of the Loan Contract is amended to read as follows:
SEC. 4.19. SUPERVISOR: APPOINTMENT AND POWERS. If
the construction of the Project, or any part thereof, shall not
proceed in accordance with the terms hereof, or if, in the
opinion of the Administrator, action is necessary to protect the
Government's security for the Loan or is essential to achieve the
objectives for which the Loan is made, the Administrator may
appoint, as the representative of the Government, a supervisor
(hereinafter called the "Supervisor") for the Project or other
property of the Borrower necessary to the construction or
operation of the Project and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such
steps as he deems necessary to assure construction or operation
of the Project in accordance with the terms hereof, or such
portion or portions thereof as may be designated by the
Administrator, or to assure performance of any obligations which
the Borrower may be obligated to perform pursuant to the
provisions of section 4.6 hereof, or to preserve the security of
the Loan, and shall have power to operate the Project and other
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<PAGE>
property of the Borrower necessary to the operation of the
Project, and do all things reasonably incident to the exercise of
the powers herein granted, including, without limitation,
directing the conservation of any funds of the Borrower, the
collection of all debts due it, directing the payment of all
expenses of the Borrower from any of its funds, termination of
the employment of such employees of the Borrower as he shall
determine upon and the employment of such employees of the
Borrower as he shall determine upon and the employment of such
persons, on such terms and conditions as he may designate, as he
shall deem necessary to assist him in carrying out his functions.
The salaries, fees, disbursements and expenses of the Supervisor
and of any employee appointed by him shall be paid by the
Borrower, provided, however, that the salaries, fees,
disbursements and expenses of any Supervisor who shall be an
employee of the Government and of any assistants who shall be
employees of the Government shall not be payable by the Borrower
unless and to the extent that the Administrator, upon written
notification to the Borrower, shall so require. So long as the
appointment of the Supervisor shall be in effect, all checks,
drafts, and orders drawn on any bank account maintained by the
Borrower shall be countersigned by the Supervisor, except that,
if the proper officers or employees of the Borrower shall refuse
to sign any such check, draft or order, the Supervisor shall have
full power and authority to sign such check, draft or order for
the Borrower without the requirement of any other signature
thereon, if the Supervisor shall certify to the bank upon which
such check, draft or order is drawn that the same is required to
carry out the obligations of the Borrower hereunder. The
Borrower hereby constitutes the Administrator its agent for the
purpose of notifying any bank in which any account of the
Borrower shall be maintained of the appointment of a Supervisor
and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with
respect to the signing or countersigning of the checks, drafts or
orders drawn on any such account as in this section provided.
The Borrower shall comply with all reasonable instructions of the
Supervisor incident to carrying out the obligations of the
Borrower hereunder or the performance of the functions of the
Supervisor.
SEC. 6. Renumbered section 4.20 (formerly section 4.21) of
article IV of the Loan Contract is amended to read as follows:
SEC. 4.20. EQUITY FUNDS. The Borrower shall submit to
the Administrator, with each requisition submitted by the
Borrower pursuant to section 2.2 hereof, evidence satisfactory to
the Administrator to show that it has collected and deposited in
the Special Construction Account equity funds in an amount equal
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<PAGE>
to the product of $28 times the number of existing or acquired
subscribers for whom telephone service has been improved, plus
the product of $50 times the number of new subscribers for whom
telephone service has been initially furnished by the Borrower
until a total of $121,538, including deposits required prior to
the first advance of funds on account of the first loan to the
Borrower and on account of the B loan, has been collected and
depoisted on behalf of 3,606 existing and proposed subscribers
included in the Project.
SEC. 7. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ Fred H. Strong
Acting Administrator
of
Rural Electrification Administration
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<PAGE>
EXHIBIT 4.19
REA Project Designation:
SOUTH DAKOTA 515-C IRENE
AMENDMENT
Dated as of October 9, 1958
to
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. 2
<PAGE>
AGREEMENT, made as of October 9, 1958, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
a certain agreement, dated as of August 11, 1955, amending said telephone
loan contract (said telephone loan contract, as so amended, being
hereinafter called the "Loan Contract"), and intend by this agreement to
amend the Loan Contract by increasing the aggregate amount of the loans
therein provided for by an amount not in excess of $116,000, and in certain
other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of the Loan Contract is
amended to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $1,930,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 3,553 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, McCook, Turner and Yankton, and
in counties contiguous thereto, all in the State of South Dakota.
SEC. 2. Section 2.4 of article II of the Loan Contract is
amended to read as follows:
SEC. 2.4. SPECIAL CONSTRUCTION ACCOUNT. The Borrower shall
hold all moneys advanced to it by the Government hereunder in trust
for the Government and shall deposit such moneys promptly after the
receipt thereof in a bank or banks which shall meet the requirements
specified in section 4.4 hereof. Any account (herein called "Special
Construction Account") in which any such moneys shall be deposited
shall be designated by the corporate name of the Borrower followed by
the words "Trustee, REA Construction Fund Account". All loan funds in
any Special Construction Account shall be used solely for the
<PAGE>
construction and operation of the Project. The Borrower shall also
deposit all equity funds in the Special Construction Account on the
same terms and conditions and for the same purposes as funds advanced
on account of the Loan. Equity funds may be withdrawn from the
Special Construction Account only upon approval by the Administrator
of requisitions therefor submitted by the Borrower in accordance with
the requirements applicable to the requisitioning of loan funds, as
set forth in section 2.2 hereof. Until the aggregate amount of
withdrawals from the Special Construction Account shall equal or
exceed the amount of the equity funds, they shall be deemed, for
purposes of section 2.5 hereof, to have been made from the equity
funds and not from funds advanced by the Government to the Borrower.
Subject to the provisions of section 4.19 and section 5.2 (c) hereof,
moneys in any Special Construction Account may be withdrawn only upon
checks, drafts or orders signed on behalf of the Borrower and
countersigned by an executive officer thereof. The Borrower shall
expend each advance on account of the Loan or equity funds only for
such of the purposes specified in the statement of purposes
accompanying the requisition for such advance or equity funds as shall
have been approved by the Administrator.
SEC. 3. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.9. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$116,000 (hereinafter called the "C loan"), included in the Loan by an
agreement made by and between the Borrower and the Government, dated
as of October 9, 1958, until the Borrower in addition to complying
with all other prerequisites of this agreement to the advance of loan
funds, shall have submitted evidence, satisfactory to the
Administrator, in respect of the C loan, showing that it has:
(1) obtained all necessary orders or approvals of appropriate
regulatory bodies, including, without limitation, any
certificate of convenience and necessity required by law,
and approval of the acquisition of existing facilities
hereinafter described in (3) of this section 2.9;
(2) duly executed, recorded and filed a supplemental mortgage,
in form and substance satisfactory to the Administrator,
providing for revised financial and managerial controls; and
(3) entered into a binding sales agreement providing for the
acquisition by the Borrower of all telephone lines and
facilities (excluding real estate other than easements)
owned by Grant Township Telephone Company, a switcher
organization, and located in the vicinity of Worthing, South
Dakota.
-2-
<PAGE>
Upon compliance with all of the conditions of this agreement
precedent to the advance of C loan funds, the Government shall make an
advance of C loan funds (1) in the approximate amount of $1,700 which
shall be used by the Borrower only for the purpose of consummating the
acquisition of the telephone facilities mentioned in (3) of this
section 2.9, (2) in an additional amount to be approved by the
Administrator, to cover the cost of preloan engineering services and
(3) in the amount of $102,300 which shall be used by the Borrower to
complete construction in respect of prior loans. The Government shall
be under no obligation to make any further advances on account of the
C loan until the Borrower has submitted evidence satisfactory, in form
and substance to the Administrator, that it has obtained title to the
acquired properties in accordance with the terms and conditions of the
sales agreement previously approved by the Administrator.
SEC. 4. Section 4.19 of article IV of the Loan Contract is
amended to read as follows:
SEC. 4.19. SUPERVISOR: APPOINTMENT AND POWERS. If the
construction of the Project, or any section or sections thereof, shall
not proceed in accordance with the terms hereof, or if default shall
be made in the payment of any installment of or on account of interest
on or principal of any Note when and as the same shall be required to
be made and such default shall continue for thirty (30) days, the
Administrator may appoint a supervisor (hereinafter called the
"Supervisor") for the Project, or such section or sections thereof as
the Administrator shall designate, as the representative of the
Government and notify the Borrower of such appointment and the
duration thereof. The Supervisor shall take such steps as he deems
necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof
as may be designated by the Administrator, or to assure performance of
any other obligations of the Borrower pursuant to the provisions of
this agreement or of the Notes, and shall have power to operate the
Project and other property of the Borrower necessary to the operation
of the Project, and do all things reasonably incident to the exercise
of the powers herein granted, including, without limitation, directing
the conservation of any funds of the Borrower, the collection of all
debts due it, the payment of all expenses of the Borrower from any of
its funds, the termination of the employment of such employees of the
Borrower as he shall determine upon and the employment of such
persons, on such terms and conditions as he may designate, as he shall
deem necessary to assist him in carrying out his functions. The
salaries, fees, disbursements and the expenses of the Supervisor and
of any employee appointed by him shall be paid by the Borrower,
provided, however, that the salaries, fees, disbursements and expenses
of any Supervisor who shall be an employee of the Government and of
any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the
-3-
<PAGE>
Administrator, upon written notification to the Borrower, shall so
require. So long as the appointment of the Supervisor shall be in
effect, all checks, drafts, and orders drawn on any bank account
maintained by the Borrower shall be countersigned by the Supervisor,
except that, if the proper officers or employees of the Borrower shall
refuse to sign any such check, draft or order, the Supervisor shall
have full power and authority to sign such check, draft or order for
the Borrower without the requirement of any other signature thereon,
if such check, draft or order is required to carry out the obligations
of the Borrower hereunder. The Borrower hereby constitutes the
Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of
a Supervisor and of the provisions hereunder with respect thereto, and
agrees that such notice shall include a direction to any such bank
with respect to the signing or countersigning of the checks, drafts or
orders drawn on any such account as in this section provided. The
Borrower shall comply with all reasonable instructions of the
Supervisor incident to carrying out the obligations of the Borrower
hereunder or the performance of the functions of the Supervisor.
SEC. 5. Article IV of the Loan Contract is further amended by
deleting section 4.20 thereof.
SEC. 6. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
-4-
<PAGE>
UNITED STATES OF AMERICA
by /s/ David A. Howard
Administrator
of
Rural Electrification Administration
-5-
<PAGE>
EXHIBIT 4.20
REA Project Designation:
SOUTH DAKOTA 515-D IRENE
AMENDMENT
Dated as of March 8, 1961
to
TELEPHONE
LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. 2
<PAGE>
AGREEMENT, made as of March 8, 1961, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
two certain agreements, dated, respectively, as of August 11, 1955, and as
of October 9, 1958, amending said telephone loan contract (said telephone
loan contract, as so amended, being hereinafter called the "Loan
Contract"), and intend by this agreement to amend the Loan Contract by
increasing the aggregate amount of the loans therein provided for by an
amount not in excess of $210,000, and in certain other respects; and
WHEREAS, the parties also desire, in order to avoid possible
misinterpretation, to confirm their original intention that interest
payable on all notes executed pursuant to the Loan Contract, as amended
from time to time, shall be at the rate of two (2) per centum per annum,
the rate presently provided for under the Rural Electrification Act of
1936, as amended;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of the Loan Contract is
amended to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $2,140,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 3,783 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, McCook, Turner and Yankton, and
in counties contiguous thereto, all in the State of South Dakota.
SEC. 2. The second sentence of section 1.2 of article I of the
Loan Contract is amended to read as follows:
The Notes shall bear interest at the rate of two (2) per
centum per annum, and shall otherwise be in form and substance
satisfactory to the Administrator.
<PAGE>
SEC. 3. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.10. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$210,000 (hereinafter called the "D loan"), included in the Loan by an
agreement made by and between the Borrower and the Government, dated
as of March 8, 1961, until the Borrower in addition to complying with
all other prerequisites of this agreement to the advance of loan
funds, shall have submitted evidence, satisfactory to the
Administrator, in respect of the D loan, showing that it has:
(1) obtained all authorizations, certificates, permits and
approvals from regulatory bodies, as may be required by law;
(2) duly executed, recorded, filed and indexed a supplemental
mortgage, in form and substance satisfactory to the
Administrator; and
(3) obtained a commitment covering any extended area service to
be provided for or by, connecting or other companies.
SEC. 4. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
-2-
<PAGE>
UNITED STATES OF AMERICA
by /s/ Richard A. Dell
Acting Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT 4.21
REA Project Designation:
SOUTH DAKOTA 515-E IRENE
AMENDMENT
Dated as of August 20, 1964
to
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
Identified as form of document presented to
and approved by the board of directors
trustees of the above named corporation at a
meeting held September 28, 1964.
/s/ T. W. Diefendorf
Secretary of Meeting
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. A
<PAGE>
AGREEMENT, made as of August 20, 1964, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
three certain agreements, dated, respectively, as of August 11, 1955, as of
October 9, 1958, and as of March 8, 1961, amending said telephone loan
contract (said telephone loan contract, as so amended, being hereinafter
called the "Loan Contract"), and intend by this agreement to amend the Loan
Contract by increasing the aggregate amount of the loans therein provided
for by an amount not in excess of $499,000, and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of the Loan Contract is
amended to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $2,639,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 4,270 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, Minnehaha, McCook, Turner,
Union and Yankton, and in counties contiguous thereto, all in the
State of South Dakota.
SEC. 2. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.11. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$499,000 (hereinafter called the "E loan"), included in the Loan by an
agreement made by and between the Borrower and the Government, dated
as of August 20, 1964, until the Borrower in addition to complying
with all other prerequisites of this agreement to the advance of loan
funds, shall have submitted evidence, satisfactory to the
Administrator, in respect of the E loan, showing that it has:
<PAGE>
(1) obtained all authorizations, certificates, permits and
approvals from regulatory bodies, as may be required by law;
(2) duly executed, recorded, filed and indexed a supplemental
mortgage, in form and substance satisfactory to the
Administrator, providing for revised financial controls;
(3) obtained a commitment covering all switching service to be
provided by other companies, as may be necessary for the
proper operation of the Project; and
(4) through the use of $20,000 of general funds, obtained good
and sufficient title, under terms and conditions
satisfactory to the Administrator, and in compliance with
all applicable laws and regulations, to the Beresford rural
telephone properties, excluding real estate, all located
around the City of Beresford, South Dakota.
Upon compliance by the Borrower with all of the
conditions of this agreement precedent to the advance of E loan
funds, the Government shall make an advance of such funds, (1) in
the amount of $37,723, which shall be used by the Borrower to
reimburse its general funds expended for the acquisition of the
telephone facilities of Norway-Pleasant Telephone Company, North
Star Telephone Company, Brookland-Beresford Telephone Company,
Pleasant Telephone Company, and the Beresford rural properties,
(2) in the amount of $24,000, which shall be used by the Borrower
to reimburse its general funds in that amount used for interim
construction previously approved by the Administrator, (3) an
amount not to exceed $250,000, which shall be used by the
Borrower to discharge existing indebtedness incurred in
connection with interim construction approved by the
Administrator for short term financing and (4) an amount to be
approved by the Administrator for the cost of preloan engineering
Services. The Government shall be under no obligation to make
any further advances of E loan funds until the Borrower has
submitted evidence, in form and substance satisfactory to the
Administrator, that all such indebtedness incurred in connection
with such interim construction has been paid in full and that the
Mortgage, as amended and supplemented, is the first and only lien
against the Borrower's property.
SEC. 3. Section 4.13 of Article IV of the Loan Contract is
deleted and in lieu thereof there is inserted the following:
SEC. 4.13. EQUAL OPPORTUNITY CLAUSE. The Borrower hereby
agrees that it will incorporate or cause to be incorporated into any
contract for construction work, or modification thereof, as defined in
the rules and regulations of the President's Committee on Equal
-2-
<PAGE>
Employment Opportunity, which is paid for in whole or in part with
funds obtained from the Federal Government or borrowed on the credit
of the Federal Government pursuant to a grant, contract, loan,
insurance or guarantee, or undertaken pursuant to any Federal program
involving such grant, contract, loan, insurance or guarantee, the
following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, creed, color or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during
employment without regard to their race, creed, color or national
origin. Such action shall include, but not be limited to the
following: employment, upgrading, demotion or transfer; recruitment
or recruitment advertising; layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The contractor agrees to post in conspicuous places,
available to employees and applicants for employment, notices to be
provided setting forth the provisions of this nondiscrimination
clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, creed, color or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of
the notice in conspicuous places available to employees and applicants
for employment.
(4) The contractor will comply with all provisions of Executive
Order No. 10925 of March 6, 1961, as amended by Executive Order 11114
of June 22, 1963, and of the rules, regulations and relevant orders of
the President's Committee on Equal Employment Opportunity created
thereby.
(5) The contractor will furnish all information and reports
required by Executive Order 10925 of March 6, 1961, as amended by
Executive Order 11114 of June 22, 1963, and by the rules, regulations
and orders of the said Committee, or pursuant thereto, and will permit
access to his books, records and accounts by the administering agency
-3-
<PAGE>
and the Committee for purposes of investigation to ascertain
compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said
rules, regulations or orders, this contract may be cancelled,
terminated or suspended in whole or in part and the contractor may be
declared ineligible for further Government contracts or federally
assisted construction contracts in accordance with procedures
authorized in Executive Order No. 10925 of March 6, 1961, as amended
by Executive Order 11114 of June 22, 1963, and such other sanctions
may be imposed and remedies invoked as provided in the said Executive
Order or by rule, regulation or order of the President's Committee on
Equal Employment Opportunity, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
rules, regulations or orders of the President's Committee on Equal
Employment Opportunity issued pursuant to section 303 of Executive
Order 10925 of March 6, 1961, as amended by Executive Order 11114 of
June 22, 1963, so that such provisions will be binding upon each
subcontractor or vendor. The contractor will take such action with
respect to any subcontract or purchase order as the administering
agency may direct as a means of enforcing such provisions, including
sanctions for noncompliance: Provided, however, That in the event a
contractor becomes involved in, or is threatened with, litigation with
a subcontractor or vendor as a result of such direction by the agency,
the contractor may request the United States to enter into such
litigation to protect the interests of the United States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work
which it performs itself other than through the permanent work force
directly employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the President's Committee on Equal Employment
Opportunity in obtaining the compliance of contractors and
subcontractors with the equal opportunity clause and the rules,
regulations and relevant orders of the Committee, that it will furnish
the administering agency and the Committee such information as they
may require for the supervision of such compliance, and that it will
otherwise assist the administering agency in the discharge of the
agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11114 with a
contractor debarred from, or who has not demonstrated eligibility for,
Government contracts and federally assisted construction contracts
pursuant to Part III, Subpart D of Executive Order 10925 and will
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<PAGE>
carry out such sanctions and penalties for violation of the equal
opportunity clause as may be imposed upon contractors and
subcontractors by the administering agency or the Committee pursuant
to Part III, Subpart D of Executive Order 10925. In addition, the
Borrower agrees that if it fails or refuses to comply with these
undertakings the administering agency may cancel, terminate or suspend
in whole or in part this contract, may refrain from extending any
further assistance under any of its programs subject to Executive
Order 11114 until satisfactory assurance of future compliance has been
received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
SEC. 4. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ Richard A. Dell
Administrator
of
Rural Electrification Administration
-5-
<PAGE>
EXHIBIT 4.22
REA Project Designation:
SOUTH DAKOTA 515-F IRENE
AMENDMENT
Dated as of June 1, 1967
to
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. 2
<PAGE>
AGREEMENT, made as of June 1, 1967, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
four certain agreements, dated, respectively, as of August 11, 1955, as of
October 9, 1958, as of March 8, 1961, and as of August 20, 1964, amending
said telephone loan contract (said telephone loan contract, as so amended,
being hereinafter called the "Loan Contract"), and intend by this agreement
to amend the Loan Contract by increasing the aggregate amount of the loans
therein provided for by an amount not in excess of $1,087,000, and in
certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of the Loan Contract is
amended to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $3,726,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 4,285 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, Minnehaha, McCook, Turner,
Union and Yankton, and in counties contiguous thereto, all in the
State of South Dakota.
SEC. 2. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.12. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$1,087,000 (hereinafter called the "F loan"), included in the Loan by
an agreement made by and between the Borrower and the Government,
dated as of June 1, 1967, until the Borrower in addition to complying
with all other prerequisites of this agreement to the advance of Loan
funds, shall have submitted evidence, satisfactory to the
Administrator, in respect of the F loan, showing that it has:
<PAGE>
(1) obtained all authorizations, permits and approvals from
regulatory bodies, as may be required by law, including
approval of tariffs-or rate schedules for the Flyger, Imay
and Wavo exchanges which do not include zone or mileage
charges and are, also, otherwise satisfactory to the
Administrator;
(2) executed, recorded and filed a supplemental mortgage, in
form and substance satisfactory to the Administrator,
providing, among other things, controls over the level of
general funds of the Borrower; and
(3) obtained a commitment or commitments for all toll traffic,
operator assistance and extended area services to be
provided for or by connecting or other companies, as may be
necessary for the proper operation of the Project.
SEC. 3. Article II of the Loan Contract is amended by adding to
section 2.1(A) a new subsection numbered and reading as follows:
(8) evidence that the Borrower has duly adopted a tariff
which does not include mileage or zone charges for the lowest grade of
service provided in each central office area and which will provide
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes;
SEC. 4. Article II of the Loan Contract is amended by adding at
the end thereof the following two new sections:
SEC. 2.13. RELATION OF GENERAL FUNDS LEVEL TO ADVANCES.
The Borrower covenants and agrees that it will not, without the
approval of the Administrator, submit a requisition for the advance of
any funds on account of the Loan, nor use any funds advanced on
account of the Loan to reimburse its general funds, at any time or
times when the amount of its general funds either exceeds twenty
percent of its total telephone plant, or would exceed twenty percent
of its total telephone plant as a result of the intended use of such
advance to reimburse its general funds. Notwithstanding anything
contained in this agreement, the Government shall not be obligated at
any time or times to make an advance on account of the Loan if the
amount of the Borrower's general funds at such time or times either
exceeds twenty percent of its total telephone plant, or would exceed
twenty percent of its total telephone plant as a result of the
intended use of such advance to reimburse the Borrower's general
funds. As used in this section: (a) the term "general funds" means
the sum of the following accounts: "Investments in Affiliated
Companies", "Advances to Affiliated Companies", "Other Investments",
"Miscellaneous Physical Property", "Sinking Funds", "Cash" (except for
cash in the "Cash - REA Construction Fund - Trustee Account"),
-2-
<PAGE>
"Special Cash Deposits", "Working Funds", and "Temporary Cash
Investments"; and (b) the term "total telephone plant" means the sum
of the following accounts: "Telephone Plant in Service", "Telephone
Plant Under Construction", "Property Held for Future Telephone Use",
"Telephone Plant Acquisition Adjustment", and "Telephone Plant
Adjustment". Titles of accounts used in the foregoing definitions
shall have the meanings prescribed for them by the Federal
Communications Commission in its prevailing uniform system of accounts
for Class A telephone companies. These titles and definitions shall
also apply to accounts of the Borrower which have substantially the
same meanings as those referred to in such uniform system of accounts
regardless of the account title or the system of accounts actually
used by the Borrower.
SEC. 2.14. CONSTRUCTION SCHEDULE. Notwithstanding anything
contained in this agreement, the Government shall not be obligated to
advance to the Borrower any funds on account of the Loan (other than
funds hitherto approved by the Administrator for advances) except in
accordance with a schedule covering construction, and the use of the
Borrower's general funds and Loan funds therefor, which shall have
been submitted by the Borrower and approved in writing by the
Administrator. Such schedule shall reflect the policy of scheduling
construction in conformance with current national objectives, and may,
with the written approval of the Administrator, be amended from time
to time. To the extent that such schedule, as it may be amended,
fixes the time for final advance of funds on account of the Loan
beyond the period of time specified in section 2.7 of article II
hereof, the period of time specified in said section shall be
accordingly extended. Advances of Loan funds to reimburse general
funds used for construction shall be made only after the Administrator
has determined that the Borrower's financial and operating condition
require such reimbursement.
SEC. 5. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
-3-
<PAGE>
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ William P. Riley
Administrator
of
Rural Electrification Administration
-4-
<PAGE>
EXHIBIT 4.23
REA Project Designation:
SOUTH DAKOTA 515-G IRENE
AMENDMENT
Dated as of December 20, 1968
to
TELEPHONE
LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. 2
<PAGE>
AGREEMENT, made as of December 20, 1968, pursuant to
the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY,
INC. (hereinafter called the "Borrower"), a corporation
existing under the laws of the State of South Dakota, and
UNITED STATES OF AMERICA (hereinafter called the
"Government"), acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
five certain agreements, dated, respectively, as of August 11, 1955, as of
October 9, 1958, as of March 8, 1961, as of August 20, 1964, and as of
June 1, 1967, amending said telephone loan contract (said telephone loan
contract, as so amended, being hereinafter called the "Loan Contract"), and
intend by this agreement to amend the Loan Contract by increasing the
aggregate amount of the loans therein provided for by an amount not in
excess of $1,650,000, and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of Loan Contract is amended
to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $5,376,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 4,722 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, Minnehaha, McCook, Turner,
Union and Yankton, and in counties contiguous thereto, all in the
State of South Dakota.
SEC. 2. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.15. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$1,650,000 included in the Loan by an agreement made by and between
the Borrower and the Government, dated as of December 20, 1968, nor
$68,000 of prior loan funds, until the Borrower in addition to
complying with all other prerequisites of this agreement to the
<PAGE>
advance of Loan funds, shall have submitted evidence, satisfactory to
the Administrator, showing that it has:
(1) obtained a commitment or commitments from the Northwestern
Bell Telephone Company covering all proposed extended area
service between the Borrower's exchanges and those of
Northwestern Bell Telephone Company; and
(2) obtained all authorizations, permits and approvals of
regulatory bodies, as may be required by law, including,
without limitation, approval of rate schedules for the
Parmon, Hurdav and Lenchan exchanges which exclude mileage
or zone charges and which are otherwise satisfactory to the
Administrator.
SEC. 3. Sections 2.13 and 2.14 of article II of the Loan
Contract are amended to read as follows:
SEC. 2.13. RELATION OF GENERAL FUNDS LEVEL TO ADVANCES.
The Borrower covenants and agrees that it will not, without the
approval of the Administrator, submit a requisition for the advance of
any funds on account of the Loan, nor use any funds advanced on
account of the Loan to reimburse its general funds, at any time or
times when the amount of its general funds either exceeds fifteen
percent of its total telephone plant, or would exceed fifteen percent
of its total telephone plant as a result of the intended use of such
advance to reimburse its general funds. Notwithstanding anything
contained in this agreement, the Government shall not be obligated at
any time or times to make an advance on account of the Loan if the
amount of the Borrower's general funds at such time or times either
exceeds fifteen percent of its total telephone plant, or would exceed
fifteen percent of its total telephone plant as a result of the
intended use of such advance to reimburse the Borrower's general
funds. As used in this section: (a) the term "general funds" means
the sum of the following accounts: "Investments in Affiliated
Companies", "Advances to Affiliated Companies", "Other Investments",
"Miscellaneous Physical Property", "Sinking Funds", "Cash" (except for
cash in the "Cash - REA Construction Fund - Trustee Account"),
"Special Cash Deposits", "Working Funds", and "Temporary Cash
Investments"; and (b) the term "total telephone plant" means the sum
of the following accounts: "Telephone Plant in Service", "Telephone
Plant Under Construction", "Property Held for Future Telephone Use",
"Telephone Plant Acquisition Adjustment", and "Telephone Plant
Adjustment". Titles of accounts used in the foregoing definitions
shall have the meanings prescribed for them by the Federal
Communications Commission in its prevailing uniform system of accounts
for Class A telephone companies. These titles and definitions shall
also apply to accounts of the Borrower which have substantially the
-2-
<PAGE>
same meanings as those referred to in such uniform system of accounts
regardless of the account title or the system of accounts actually
used by the Borrower.
SEC. 2.14.CONSTRUCTION SCHEDULE. Notwithstanding anything
contained in this agreement, the Government shall not be obligated to
advance to the Borrower any funds on account of the Loan (other than
funds hitherto approved by the Administrator for advances) except in
accordance with a schedule covering construction, and the use of the
Borrower's general funds and Loan funds therefor, which shall have
been submitted by the Borrower and approved in writing by the
Administrator. Such schedule shall reflect the policy of scheduling
construction in conformance with current national objectives, and may,
with the written approval of the Administrator, be amended from time
to time. To the extent that such schedule, as it may be amended,
fixes the time for final advance of funds on account of the Loan
beyond the period of time specified in section 2.7 of article II
hereof, the period of time specified in said section shall be
accordingly extended. Advances of Loan funds to reimburse general
funds used for construction shall be made only after the Administrator
has determined that the Borrower's financial and operating condition
require such reimbursement. The authority granted to the Government
or the Administrator to withhold advances of Loan funds pursuant to
this section shall terminate on a date three years after the date of
the agreement between the Government and the Borrower which initially
incorporated the foregoing provisions, or on any earlier termination
date designated by the Administrator.
SEC. 4. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
(B. Maynard Christenson)
President
(Seal)
-3-
<PAGE>
Attest: /s/ T.W. Diefendorf
(T.W. Diefendorf)
Secretary
UNITED STATES OF AMERICA
by /s/ Darrell D. Capp
Administrator
of
Rural Electrification Administration
-4-
<PAGE>
EXHIBIT 4.24
REA Project Designation:
SOUTH DAKOTA 515-H IRENE
AMENDMENT
Dated as of December 8, 1970
to
TELEPHONE LOAN CONTRACT
Dated as of September 5, 1952, as amended,
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL ELECTRIFICATION ADMINISTRATION
No. 2
<PAGE>
AGREEMENT, made as of December 8, 1970, pursuant to the
Rural Electrification Act of 1936, as amended (7 U.S.C. 901
ET SEQ.) between DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration.
WHEREAS, the Government and the Borrower have heretofore entered
into a certain telephone loan contract, dated as of September 5, 1952, and
six certain agreements, dated, respectively, as of August 11, 1955, as of
October 9, 1958, as of March 8, 1961, as of August 20, 1964, as of June 1,
1967, and as of December 20, 1968, amending said telephone loan contract
(said telephone loan contract, as so amended, being hereinafter called the
"Loan Contract"), and intend by this agreement to amend the Loan Contract
by increasing the aggregate amount of the loans therein provided for by an
amount not in excess of $539,000, and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Government and the Borrower agree as follows:
SECTION 1. Section 1.1 of article I of Loan Contract is amended
to read as follows:
SECTION 1.1. AMOUNT AND PURPOSE. For the purpose of
furnishing telephone service in rural areas, the Government shall lend
and the Borrower shall borrow an amount not in excess of $5,915,000,
which, together with the sum of $80,465 (hereinafter called the
"equity funds"), to be deposited by the Borrower in the "Special
Construction Account" hereinafter defined and provided for in
section 2.4, shall be used to finance, pursuant to the provisions of
the Act, the acquisition, construction and operation of telephone
lines and facilities (hereinafter called the "Project"), to serve a
total of approximately 5,065 subscribers, and to be located in the
Counties of Clay, Hutchinson, Lincoln, Minnehaha, McCook, Turner,
Union and Yankton, and in counties contiguous thereto, all in the
State of South Dakota.
SEC. 2. Article II of the Loan Contract is amended by adding
thereto a new section numbered and reading as follows:
SEC. 2.16. ADDITIONAL PREREQUISITES TO CERTAIN ADVANCES.
The Government shall be under no obligation to advance any of the
$539,000 (hereinafter called the "H Section Funds"), included in the
Loan by an agreement made by and between the Borrower and the
Government, dated as of December 8, 1970, until the Borrower in
addition to complying with all other prerequisites of this agreement
<PAGE>
to the advance of Loan funds, shall have submitted evidence,
satisfactory to the Administrator, showing that it has:
(1) obtained commitments covering all toll traffic,
operator assistance, and extended area services to be
provided for, or by, connecting or other companies, as
may be necessary for the proper operation of the
Project; and
(2) obtained all authorizations, permits and approvals of
regulatory bodies, as may be required by law,
including, without limitation, approval of rate
schedules for the Alsen exchange which exclude mileage
or zone charges and which are otherwise satisfactory to
the Administrator; and
(3) obtained a binding sales agreement for the acquisition,
by the Borrower, of all facilities (including real
estate) owned and operated by the Alsen Community
Telephone Company, a cooperative organization
represented by Mr. Daniel Bylander, president, located
at and in the vicinity of Alsen, in Union and Clay
Counties, South Dakota.
The first advance of H Section Funds will be limited to $47,000 now
owed by the Borrower on the purchase price of the Alsen Community
Telephone Company being acquired, plus an amount to be approved by the
Administrator for preloan engineering services. Advances of H Section
Funds for other purposes will not be made until the Borrower has
submitted evidence, satisfactory to the Administrator, that it has
obtained title to the acquired properties in accordance with the terms
and conditions of the sales agreement, approved by the Administrator,
and that any indebtedness incurred through interim financing of the
acquisition subsequent to March 4, 1970, as approved by the
Administrator, and all associated liens, if any, have been discharged.
SEC. 3. Article II of the Loan Contract is amended by deleting
therefrom section 2.13 (relating to "Relation of General Funds Level to
Advances") and section 2.14 (relating to "Construction Schedule").
SEC. 4. Article IV of the Loan Contract is amended by adding a
new section numbered and reading as follows:
SEC. 4.20. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. The
Borrower shall, with respect to all facilities which may be part of
the System, comply with applicable water and air pollution control
standards and other environmental requirements imposed by federal or
state statutes or regulations.
-2-
<PAGE>
SEC. 5. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed, all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ E.C. Weitzell
Acting Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT 4.25
REA Project Designation:
SOUTH DAKOTA 515-K1 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of October 2, 1972
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of October 2 -----------------------,
1972, pursuant to the Rural Electrification Act of 1936,
as amended, between DAKOTA COOPERATIVE TELEPHONE COMPANY,
INC. -----------
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota ------------------
and UNITED STATES OF AMERICA (hereinafter called the
"Government"), acting through the Administrator of the Rural
Electrification Administration (hereinafter called the
"Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 ------ (such
agreement, as it may have been amended, being hereinafter called the "Loan
Contract"); and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $311,000
- ------------ (hereinafter called the "Loan Increase"), and in certain other
respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 3,729 the approximate number of subscribers to be
served thereby (aside from those served by "Existing Facilities", if any,
as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the aggregate amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section: None
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
<PAGE>
to the Borrower any portion of the Loan Increase, unless and until the
Borrower, in addition to complying with all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have delivered to the Administrator, in form and substance
satisfactory to him the following:
The first advance of funds on account of the loan increase will be limited
to the amount then owing, if any, for interim construction subsequent to
April 27, 1972, as approved by the Administrator, plus an amount to be
approved by the Administrator for the cost of preloan engineering services.
Advance on account of the Loan increases for other purposes will not be
made until the Borrower has submitted evidence, satisfactory to the
Administrator, that any debts incurred through interim construction, and
all prior liens have been discharged.
SEC. 5. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ David A. Hamil
Administrator
of
Rural Electrification Administration
-2-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes shall bear interest at the rate of two (2) per centum
per annum, and shall otherwise be in form and substance satisfactory to the
Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that such
provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
I-5
<PAGE>
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(H) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property of
the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
I-6
<PAGE>
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.26
REA Project Designation:
SOUTH DAKOTA 515-L8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of June 4, 1973
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of June 4, 1973, between DAKOTA
COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration (hereinafter called the
"Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 (such agreement, as
it may have been amended, being hereinafter called the "Loan Contract");
and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $389,000
(hereinafter called the "Loan Increase"), and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 3,729 the approximate number of subscribers to be
served thereby (aside from those served by "Existing Facilities", if any,
as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of (two)
per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
to the Borrower any portion of the Loan Increase unless and until the
following condition(s), in addition to all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have been satisfied:
(a) The Borrower shall have delivered to the Administrator,
in form and substance satisfactory to him, evidence that the
Borrower has duly authorized, executed, recorded and filed a
security instrument, in form and substance satisfactory to the
Administrator
SEC. 6. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ David A. Hamil
Administrator
of
Rural Electrification Administration
-2-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that such
provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
I-5
<PAGE>
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(H) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
I-6
<PAGE>
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.27
REA Project Designation:
SOUTH DAKOTA 515-M8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of August 29, 1973
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of August 29, 1973, between DAKOTA
COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration (hereinafter called the
"Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 (such agreement, as
it may have been amended, being hereinafter called the "Loan Contract");
and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $235,000
(hereinafter called the "Loan Increase"), and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 3873 the approximate number of subscribers to be
served thereby (aside from those served by "Existing Facilities", if any,
as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of two
(2) per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
to the Borrower any portion of the Loan Increase unless and until the
following condition(s), in addition to all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have been satisfied:
(a) the Borrower shall submit in form and substance
satisfactory to the Administrator, all franchises that may be
required by law from incorporated municipalities in which the
system will be located and,
(b) the Borrower shall submit evidence of good and
sufficient title to the existing telephone facilities, including
real estate, owned and operated by the Northwestern Bell
Telephone Company at and in the vicinity of Gayville, South
Dakota. under terms and conditions satisfactory to the
Administrator and in compliance with all applicable laws and
regulations.
The first advance of funds on account of the loan increase will be limited
to (1) the amount needed to discharge existing indebtedness incurred
through interim financing subsequent to April 25, 1973, as approved by the
Administrator, (2) $58,000 to consummate the acquisition of telephone
facilities from Northwestern Bell Telephone Company, (3) an amount to be
approved by the Administrator for the cost of preloan engineering services,
provided however, that the total of such amounts shall not exceed $235,000.
Advances on account of the loan increase for other purposes will not be
made until the Borrower has submitted evidence, satisfactory to the
Administrator, that any debts incurred through approved interim purposes
and all related liens have been discharged.
SEC. 6. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
-2-
<PAGE>
by DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
/s/ B. Maynard Christenson
President
(Seal)
Attest: /s/ T.W. Diefendorf
Secretary
UNITED STATES OF AMERICA
by /s/ David A. Hamil
Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that such
provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) HISTORIC PRESERVATION. The Borrower shall not, without
approval in writing by the Administrator, use any portion of the Loan to
construct any facilities which will involve any district, site, building,
I-5
<PAGE>
structure or object which is included in the National Register of Historic
Places, maintained by the Secretary of the Interior pursuant to the
Historic Sites Act of 1935 and the National Historic Preservation Act.
(H) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(I) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
I-6
<PAGE>
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.28
REA Project Designation:
SOUTH DAKOTA 515-N8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of May 13, 1976
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of May 13, 1976, between DAKOTA
COOPERATIVE TELEPHONE COMPANY, INC. ----------------------------
----------------------------------------------------------------
(hereinafter called the "Borrower"), a corporation existing under
the laws of the State of South Dakota -------------------, and
UNITED STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural Electrification
Administration (hereinafter called the "Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 ---------- (such
agreement, as it may have been amended, being hereinafter called the "Loan
Contract"); and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $1,804,000
- -------------- (hereinafter called the "Loan Increase"), and in certain
other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 4,457 --------- the approximate number of subscribers
to be served thereby (aside from those served by "Existing Facilities", if
any, as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by (a)
increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of two
- ---- (2) per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
to the Borrower any portion of the Loan Increase unless and until the
following condition(s), in addition to all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have been satisfied:
(a) the Administrator has determined that neither the Flood
Protection Act of 1973 (the "Flood Act"), nor any rule, regulation or order
issued to implement the Flood Act, restricts financial assistance
hereunder.
SEC. 6. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ M. R. Farrar
President
(Seal)
Attest: /s/ John A. Roth
Secretary
UNITED STATES OF AMERICA
by /s/ David A. Hamil
Administrator
of
Rural Electrification Administration
-2-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that
such provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) HISTORIC PRESERVATION. The Borrower shall not, without
approval in writing by the Administrator, use any portion of the Loan to
construct any facilities which will involve any district, site, building,
I-5
<PAGE>
structure or object which is included in the National Register of Historic
Places, maintained by the Secretary of the Interior pursuant to the
Historic Sites Act of 1935 and the National Historic Preservation Act.
(H) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(I) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
I-6
<PAGE>
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.29
REA Project Designation:
SOUTH DAKOTA 515-P8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of July 20, 1977
between
DAKOTA COOPERATIVE TELEPHONE COMPANY, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of July 20, 1977, between DAKOTA
COOPERATIVE TELEPHONE COMPANY, INC.
(hereinafter called the "Borrower"), a corporation existing
under the laws of the State of South Dakota, and UNITED
STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural
Electrification Administration (hereinafter called the
"Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 (such agreement, as
it may have been amended, being hereinafter called the "Loan Contract");
and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $498,000
(hereinafter called the "Loan Increase"), and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 4,538 the approximate number of subscribers to be
served thereby (aside from those served by "Existing Facilities", if any,
as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of two
(2) per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
to the Borrower any portion of the Loan Increase unless and until the
following condition(s), in addition to all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have been satisfied: NONE
The first advance of funds will be limited to the amount then owing, if
any, for interim construction, subsequent to October 8, 1976, as approved
by the Government, plus an amount to be approved by the Administrator for
the cost of preloan engineering services.
Advances for other purposes will not be made until the borrower has
submitted evidence, satisfactory to the Administrator, that the debts, if
any, incurred through interim construction and all related liens have been
discharged.
SEC. 6. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized, and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
DAKOTA COOPERATIVE TELEPHONE
COMPANY, INC.
by /s/ M. R. Farrar
President
(Seal)
Attest: /s/ John A. Roth
Secretary
-2-
<PAGE>
UNITED STATES OF AMERICA
by /s/ David A. Hamil
Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that
such provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) HISTORIC PRESERVATION. The Borrower shall not, without
approval in writing by the Administrator, use any portion of the Loan to
construct any facilities which will involve any district, site, building,
I-5
<PAGE>
structure or object which is included in the National Register of Historic
Places, maintained by the Secretary of the Interior pursuant to the
Historic Sites Act of 1935 and the National Historic Preservation Act.
(H) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(I) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
I-6
<PAGE>
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.30
REA Project Designation:
SOUTH DAKOTA 515-R8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of November 22, 1982
between
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of November 22-----------------------,
1982, between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.----
-------------------------------------------------------------
(hereinafter called the "Borrower"), a corporation existing under
the laws of the State of South Dakota --------------------, and
UNITED STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural Electrification
Administration (hereinafter called the "Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 ------------ (such
agreement, as it may have been amended, being hereinafter called the "Loan
Contract"); and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $4,185,000
- ------------------ (hereinafter called the "Loan Increase"), and in certain
other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 4,626----------- the approximate number of
subscribers to be served thereby (aside from those served by "Existing
Facilities", if any, as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of five
- ----- (5.0 ) per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or
the Loan Contract, the Government shall be under no obligation to advance
to the Borrower any portion of the Loan Increase unless and until the
following condition(s), in addition to all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds, shall have been satisfied:
(a) the Borrower shall have delivered to the Administrator, in
form and substance satisfactory to him, evidence that it has executed,
recorded and filed a security instrument, in form and substance
satisfactory to the Administrator.
If funds are borrowed for interim construction purposes, the first advance
of funds on account of the Loan Increase will be limited to (1) the amount
needed to discharge any indebtedness incurred through interim construction
subsequent to March 29, 1982, as approved by the Administrator, and (2) an
amount to be approved by the Administrator for the cost of preloan
engineering services.
Advances on account of the Loan Increase for other purposes will not be
made until the borrower has submitted evidence, satisfactory to the
Administrator, that any debts incurred through such interim construction
and any related liens have been discharged.
SEC. 6. ELECTRONIC FUNDS TRANSFER. Except as otherwise
prescribed by the Administrator, the Borrower shall make payments of all
principal of and interest on all notes issued by the Borrower pursuant to
the Loan Contract, as amended by this agreement and any subsequent
amendment, which payments, in the aggregate, exceed $10,000, by Electronic
Funds Transfer utilizing the Treasury Financial Communications
Systems/ Federal Reserve Communications System through the United States
Department of the Treasury account (021030004) at the Federal Reserve Bank
of New York, all in the manner prescribed by REA Bulletin 20-9; 320-12.
SEC. 7. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
has caused this agreement to be duly executed all as of the day and year
first above written.
-2-
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
by /s/ John Schaefer
President
(Seal)
Attest: /s/ Keith Hildebrand
Secretary
UNITED STATES OF AMERICA
by /s/ Harold V. Hunter
Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that
such provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) HISTORIC PRESERVATION. The Borrower shall not, without
approval in writing by the Administrator, use any portion of the Loan to
construct any facilities which will involve any district, site, building,
I-5
<PAGE>
structure or object which is included in the National Register of Historic
Places, maintained by the Secretary of the Interior pursuant to the
Historic Sites Act of 1935 and the National Historic Preservation Act.
(H) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(I) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
I-6
<PAGE>
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.31
REA Project Designation:
SOUTH DAKOTA 515-S8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of February 4, 1986
between
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
UNITED STATES OF AMERICA
No. 2
<PAGE>
AGREEMENT, made as of ----------------------- February 4,
1986 between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.----
-------------------------------------------------------------
(hereinafter called the "Borrower"), a corporation existing under
the laws of the State of South Dakota --------------------, and
UNITED STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural Electrification
Administration (hereinafter called the "Administrator").
WHEREAS, the Government and the Borrower have heretofore entered
into a telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952 ------------ (such
agreement, as it may have been amended, being hereinafter called the "Loan
Contract"); and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $4,140,000
- ------------------ (hereinafter called the "Loan Increase"), and in certain
other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 4,626 ----------- the approximate number of
subscribers to be served thereby (aside from those served by "Existing
Facilities", if any, as defined in the Loan Contract).
SEC. 2. Section 1.1 of the Loan Contract is amended by
(a) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (b) adding
the following to the counties listed in said Section:
NONE
SEC. 3. The provisions set forth in Exhibit I hereto, pages I-1
through I-5---, and by this reference made a part hereof, shall amend and
supersede all provisions of the Loan Contract inconsistent therewith. If
the Loan Contract does not include "System" as a defined term, any
reference to "System" in this agreement, including Exhibit I, shall be read
as "Project". If the Loan Contract does not include "Project" as a defined
term, any reference to "Project" in this agreement, including Exhibit I,
shall be read as "System".
SEC. 4. The debt created by the Loan Increase shall be evidenced
by additional notes to be executed by the Borrower pursuant to the Loan
<PAGE>
Contract, as amended hereby, which shall bear interest at the rate of five
- ---- (5.0 ) per centum per annum.
SEC. 5. Notwithstanding anything contained in this agreement or the
Loan Contract, the Government shall be under no obligation to advance to
the Borrower any portion of the Loan Increase in addition to the $176,000
of the prior Loan Increase provided for in the Telephone Loan Contract
Amendment dated November 22, 1982, unless and until the Borrower has duly
executed, recorded and filed a mortgage, in form and substance satisfactory
to the Administrator, and unless and until all other conditions of the Loan
Contract and this agreement which are precedent to the advance of loan
funds shall have been satisfied.
SEC. 6. Special Covenant:
The Borrower shall, as soon as possible after the construction
of any major portion of those facilities financed by the Loan
Increase is completed, or sooner if requested by the
Administrator, (a) adopt a tariff which (1) will provide for one-
party service, (2) does not include mileage or zone charges on
one-party service, and (3) is designed to produce revenues
sufficient to meet all necessary expenditures including all
interest and principal payments under the Notes, and (b) place
such tariff into effect as soon as permitted by applicable laws
and regulations.
SEC. 7. ELECTRONIC FUNDS TRANSFER. Except as otherwise
prescribed by the Administrator, the Borrower shall make payments of all
principal of and interest on all notes issued by the Borrower pursuant to
the Loan Contract, as amended by this agreement and any subsequent
amendment, which payments, in the aggregate, exceed $10,000, by Electronic
Funds Transfer utilizing the Treasury Financial Communications
Systems/ Federal Reserve Communications System through the United States
Department of the Treasury account (021030004) at the Federal Reserve Bank
of New York, all in the manner prescribed by REA Bulletin 20-9; 320-12.
SEC. 8. COUNTERPARTS. This agreement may be simultaneously
executed and delivered in two or more counterparts, each of which so
executed and delivered shall be deemed to be an original, and all shall
constitute but one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
has caused this agreement to be duly executed all as of the day and year
first above written.
-2-
<PAGE>
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
By /s/ Dale Q. Bye
President
(Seal)
Attest: /s/ John Schaefer
Secretary
UNITED STATES OF AMERICA
by /s/ Jack Van Mark
Acting Administrator
of
Rural Electrification Administration
-3-
<PAGE>
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I.
2. INTEREST ON NOTES.
The Notes with respect to any portion of the Loan shall bear
interest at the rate specified in the loan agreement relating thereto, and
shall otherwise be in form and substance satisfactory to the Administrator.
3. PREREQUISITES TO ADVANCES.
The Government shall be under no obligation to advance funds from
time to time on account of the Loan, unless and until the Borrower shall
have (a) complied with the provisions of section 2.1 of the Loan Contract
(or such other section thereof as is headed "Prerequisites to Advances"),
and (b) delivered to the Administrator, in form and substance satisfactory
to him, evidence that the Borrower has duly adopted a tariff which (1) will
provide for such grades of service as the Administrator may approve,
(2) does not include mileage or zone charges for the lowest grade of
service provided in each central office area and (3) is designed to produce
revenues sufficient to meet all necessary expenditures, including all
interest and principal payments under the Notes.
4. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank or banks, which shall meet
the requirements specified in section 4.3 of the Loan Contract (or such
other section thereof as is headed "Deposit of Funds"), and shall hold such
moneys in trust for the Government until disbursed. Any Special
Construction Account shall be designated by the corporate name of the
Borrower, followed by the words "Trustee, REA Construction Fund Account."
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment. If the Borrower is required
to obtain equity funds by the terms of the Loan Contract, as amended by
this Agreement or any subsequent amendment, the Borrower shall also deposit
all such equity funds in the Special Construction Account on the same terms
and conditions and for the same purposes as funds advanced on account of
I-1
<PAGE>
the Loan. Equity funds may be withdrawn from the Special Construction
Account only upon approval by the Administrator of requisitions therefor
submitted by the Borrower in accordance with the requirements applicable to
the requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section thereof as is headed "Requisitions") except
that to the extent equity funds (if required to be obtained) are expressly
required to be used for other purposes under the Loan Contract, as amended
by this Agreement and any subsequent amendment, they shall be used for such
other purposes. Until the aggregate amount of withdrawals from the Special
Construction Account shall equal or exceed the amount of the equity funds,
they shall be deemed to have been made from equity funds and not from funds
advanced by the Government to the Borrower. The Borrower shall expend each
advance on account of the Loan or equity funds, if any, only for such of
the purposes specified in the statement of purposes accompanying the
requisition for such advance or equity funds, if any, as shall have been
approved by the Administrator.
5. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the joint use of facilities
of other companies, as may be necessary for the construction or
proper operation of the System;
(2) a contract or contracts for the purchase, lease, or
other acquisition of land for use in connection with the
construction or operation of the System; and
(3) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System.
(B) EVIDENCE OF TARIFF. The Borrower shall deliver, when
requested by, and in form and substance satisfactory to, the Administrator,
evidence that the Borrower has in effect a tariff which will provide for
such grades of service as the Administrator may approve and which does not
include mileage or zone charges for the lowest grade of service provided in
each central office area.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from land
owners, or for releases of lien affecting easements.
I-2
<PAGE>
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra
charge as a contribution to the cost of construction of
facilities to provide such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to
time be available to it, either from surplus earnings, increased
equity capital, additional loans made by lenders other than the
Government, or otherwise as the Borrower may elect, and without
payment to the Borrower of any extra charge as a contribution to
construction of facilities to provide such service, to every
other unserved rural applicant for service in its telephone
service area if the cost of constructing the required line
extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant.
Such service shall be furnished pursuant to terms and conditions
set forth in the Borrower's tariff, as duly filed with or
approved by regulatory bodies having jurisdiction in the
premises, or in the absence of any such regulatory body, as
adopted by the Borrower; provided that the Borrower shall not
file with or submit for approval of appropriate regulatory bodies
or adopt any proposed tariff, or continue in effect any existing
tariff not required to be continued by any regulatory body,
unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 or in the rules and regulations of the Secretary of Labor, which is
paid for in whole or in part with funds obtained from the Federal
Government or borrowed on the credit of the Federal Government pursuant to
a grant, contract, loan, insurance or guarantee, or undertaken pursuant to
any Federal program involving such grant, contract, loan, insurance or
guarantee, the following equal opportunity clause:
During the performance of this contract, the contractor agrees as
follows:
I-3
<PAGE>
(1) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. The contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during employment
without regard to their race, color, religion, sex or national origin.
Such action shall include, but not be limited to the following:
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
contractor agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
(2) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(3) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
contractor's commitments under this section, and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
(4) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(5) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and
will permit access to his books, records and accounts by the administering
agency and the Secretary of Labor for purposes of investigation to
ascertain compliance with such rules, regulations and orders.
(6) In the event of the contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said rules,
regulations or orders, this contract may be cancelled, terminated or
suspended in whole or in part and the contractor may be declared ineligible
for further Government contracts or federally assisted construction
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed and remedies
invoked as provided in the said Executive Order or by rule, regulation or
order of the Secretary of Labor, or as otherwise provided by law.
(7) The contractor will include the provisions of paragraphs (1)
through (7) in every subcontract or purchase order unless exempted by
I-4
<PAGE>
rules, regulations or orders of the Secretary of Labor issued pursuant to
section 204 of Executive Order 11246 of September 24, 1965, so that
such provisions will be binding upon each subcontractor or vendor. The
contractor will take such action with respect to any subcontract or
purchase order as the administering agency may direct as a means of
enforcing such provisions, including sanctions for noncompliance:
Provided, however, That in the event a contractor becomes involved in, or
is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the agency, the contractor may request the United
States to enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above
equal opportunity clause in any federally assisted construction work which
it performs itself other than through the permanent work force directly
employed by an agency of government.
The Borrower agrees that it will cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the agency's primary responsibility for securing compliance. The Borrower
further agrees that it will refrain from entering into any contract or
contract modification subject to Executive Order 11246 with a contractor
debarred from, or who has not demonstrated eligibility for, Government
contracts and federally assisted construction contracts pursuant to
Part II, Subpart D of Executive Order 11246 and will carry out such
sanctions and penalties for violation of the equal opportunity clause as
may be imposed upon contractors and subcontractors by the administering
agency or the Secretary of Labor pursuant to Part II, Subpart D of
Executive Order 11246. In addition, the Borrower agrees that if it fails
or refuses to comply with these undertakings the administering agency may
cancel, terminate or suspend in whole or in part this contract, may refrain
from extending any further assistance under any of its programs subject to
Executive Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the Department
of Justice for appropriate legal proceedings.
(F) ENVIRONMENT. The Borrower shall, with respect to all
facilities which may be part of the System, comply with applicable water
and air pollution control standards and other environmental requirements
imposed by federal or state statutes or regulations.
(G) HISTORIC PRESERVATION. The Borrower shall not, without
approval in writing by the Administrator, use any portion of the Loan to
construct any facilities which will involve any district, site, building,
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<PAGE>
structure or object which is included in the National Register of Historic
Places, maintained by the Secretary of the Interior pursuant to the
Historic Sites Act of 1935 and the National Historic Preservation Act.
(H) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(I) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
6. COUNTERSIGNATURE.
Subject to the provisions of paragraph 7 of this Exhibit I and
section 5.2(c) of the Loan Contract (or subsection (c) of such other
section of the Loan Contract as is headed "Remedies upon Default"), moneys
in any Special Construction Account may be withdrawn only upon checks,
drafts or orders signed on behalf of the Borrower and countersigned by an
executive officer thereof.
7. SUPERVISOR: APPOINTMENT AND POWERS.
If the construction of the Project or any section or sections
thereof, shall not proceed in accordance with the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment to the
Loan Contract, or if default shall be made in the payment of any
installment of or on account of interest on or principal of any Note when
and as the same shall be required to be made and such default shall
continue for thirty (30) days, the Administrator may appoint a supervisor
(hereinafter called the "Supervisor") for the System, or such section or
sections thereof as the Administrator shall designate, as the
representative of the Government and notify the Borrower of such
appointment and the duration thereof. The Supervisor shall take such steps
as he deems necessary to assure construction or operation of the Project in
accordance with the terms hereof, or such portion or portions thereof as
may be designated by the Administrator, or to assure performance of any
other obligations of the Borrower pursuant to the provisions of the Loan
Contract, as amended by this Agreement and any subsequent amendment, or of
the Notes, and shall have power to operate the System and other property
of the Borrower necessary to the operation of the System, and do all things
reasonably incident to the exercise of the powers herein granted,
including, without limitation, directing the conservation of any funds of
the Borrower, the collection of all debts due it, the payment of all
expenses of the Borrower from any of its funds, the termination of the
employment of such employees of the Borrower as he shall determine upon and
the employment of such persons, on such terms and conditions as he may
I-6
<PAGE>
designate, as he shall deem necessary to assist him in carrying out his
functions. The salaries, fees, disbursements and the expenses of the
Supervisor and of any employee appointed by him shall be paid by the
Borrower; provided, however, that the salaries, fees, disbursements and
expenses of any Supervisor who shall be an employee of the Government, and
of any assistants who shall be employees of the Government, shall not be
payable by the Borrower unless and to the extent that the Administrator,
upon written notification to the Borrower, shall so require. So long as
the appointment of the Supervisor shall be in effect, all checks, drafts,
and orders drawn on any bank account maintained by the Borrower shall be
countersigned by the Supervisor, except that, if the proper officers or
employees of the Borrower shall refuse to sign any such check, draft or
order, the Supervisor shall have full power and authority to sign such
check, draft or order for the Borrower without the requirement of any other
signature thereon, if such check, draft or order is required to carry out
the obligations of the Borrower hereunder. The Borrower hereby constitutes
the Administrator its agent for the purpose of notifying any bank in which
any account of the Borrower shall be maintained of the appointment of a
Supervisor and of the provisions hereunder with respect thereto, and agrees
that such notice shall include a direction to any such bank with respect to
the signing or countersigning of the checks, drafts or orders drawn on any
such account as in this section provided. The Borrower shall comply with
all reasonable instruction of the Supervisor incident to carrying out the
obligations of the Borrower hereunder or the performance of the functions
of the Supervisor.
I-7
<PAGE>
EXHIBIT 4.32
T.L.C.A. - Additional REA Loan (Prior REA Loans) - 7/91.
REA Project Designation:
SOUTH DAKOTA 515-T8 IRENE
TELEPHONE LOAN
CONTRACT AMENDMENT
Dated as of September 25, 1991
between
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
UNITED STATES OF AMERICA
No. E
=======
<PAGE>
T.L.C.A. - Additional REA Loan (Prior REA Loans) - 7/91.
AGREEMENT, made as of September 25, 1991, pursuant to the Rural
Electrification Act of 1936, as amended (7 U.S.C. 901, ET. SEQ.), between
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. (hereinafter called the
"Borrower"), a corporation existing under the laws of the State of South
Dakota, and UNITED STATES OF AMERICA (hereinafter called the "Government"),
acting through the Administrator of the Rural Electrification
Administration (hereinafter called the "Administrator").
WHEREAS, the Borrower and the Government have heretofore entered
into a certain telephone loan contract, amending telephone loan contract,
consolidating telephone loan contract, or consolidating and amending
telephone loan contract, dated as of September 5, 1952, (such agreement, as
it may have been amended, being hereinafter called the "Loan Contract");
and
WHEREAS, it is intended by this agreement to amend the Loan
Contract by increasing the amount of the loan therein provided for through
a loan from the Government to the Borrower of not to exceed $7,855,000
(hereinafter called the "Loan Increase"), and in certain other respects;
NOW, THEREFORE, for and in consideration of the mutual agreements
herein contained, the Borrower and the Government agree as follows:
SECTION 1. The definition of "Project" in the Loan Contract is
amended by changing to 4,144 the number of subscribers to be served thereby
(aside from those served by "Existing Facilities", if any, as defined in
the Loan Contract).
SECTION 2. Section 1.1 of the Loan Contract is amended by
(1) increasing the maximum amount which the Government shall lend and the
Borrower shall borrow, by the amount of the Loan Increase, and (2) adding
the following to the counties listed in said section:
NONE.
SECTION 3. The provisions set forth in Exhibit I hereto, and by
this reference made a part hereof, shall amend and supersede all provisions
of the Loan Contract inconsistent therewith. If the Loan Contract does not
include "System" as a defined term, any reference to "System" in this
agreement, including Exhibit I, shall be read as "Project". If the Loan
Contract does not include "Project" as a defined term, any reference to
"Project" in this agreement, including Exhibit I, shall be read as
"System".
<PAGE>
T.L.C.A. - Additional REA Loan (Prior REA Loans) - 7/91.
SECTION 4. The date for the Forecast Period referred to in
section 9(A) of Exhibit I shall be December 31, 1994, and the ratio
referred to in (B) of said section 9 shall be 1.12.
SECTION 5 (A). Notwithstanding anything contained in this
agreement or the Loan Contract, the Government shall be under no obligation
to advance to the Borrower any portion of the Loan Increase, unless and
until the Borrower, in addition to complying with all other conditions of
the Loan Contract and this agreement which are precedent to the advance of
loan funds, shall have delivered to the Administrator, in form and
substance satisfactory to him, evidence that:
(1) the Borrower has authorized, executed, recorded and filed a
security instrument in form and substance satisfactory to the
Administrator; and
(2) Dakota Telecom, Inc. (hereinafter called "DTI"), has entered
into a billing and management agreement with the Borrower by which the
Borrower will provide DTI with the services of qualified service
technicians for the installation and maintenance of DTI's equipment,
and qualified management and office personnel to initiate service
order requests and to do all phases of billing, collections, and
accounting related to billing; which agreement is in form and
substance satisfactory to the Administrator.
SECTION 5 (B). The first advance of funds on account of the
Government loan increase shall be limited to:
(1) an amount to be determined by the Administrator for the cost
of preloan engineering services (as such term is defined at 7 C.F.R.
Part 1753.15); and
(2) an amount to be determined by the Administrator for the
cost, incurred subsequent to March 7, 1991, of construction which has
been approved by the Government.
SECTION 5 (C). The Government shall be under no obligation to
make any further advances on account of the Loan Increase unless and until
the Borrower has submitted evidence to the Administrator, in form and
substance satisfactory to him, that all indebtedness incurred for the
interim construction referred to in the above subsection (B) has been paid
in full and all associated liens, if any, have been duly discharged of
record.
-2-
<PAGE>
T.L.C.A. - Additional REA Loan (Prior REA Loans) - 7/91.
SECTION 6. The Notes, as defined in Exhibit I, which evidence
the debt created by the Loan Increase shall bear interest at the rate of
five (5.0) per centum per annum.
SECTION 7. This agreement may be simultaneously executed and
delivered in two or more counterparts, each of which so executed and
delivered shall be deemed to be an original, and all shall constitute but
one and the same instrument.
IN WITNESS WHEREOF the Borrower has caused this agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed
and attested by its officers thereunto duly authorized and the Government
has caused this agreement to be duly executed all as of the day and year
first above written.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
(Seal) by /s/ John A. Roth
President
Attest: /s/ John Schaefer
Secretary
UNITED STATES OF AMERICA
by /s/ William W. Lind
Acting Administrator
of
Rural Electrification Administration
-3-
<PAGE>
T.L.C.A. - REA Loans - 7/91
EXHIBIT I
1. DEFINITIONS.
Each term defined in the Loan Contract and in the agreement
("Underlying Agreement") of which this Exhibit I is a part shall have the
same meaning when used in this Exhibit I. As used in this Exhibit I, "this
Agreement" shall mean the Underlying Agreement together with this
Exhibit I; Outstanding Notes shall mean the mortgage note or notes payable
to the order of the Government, or to another lender and guaranteed by the
Government, executed and delivered by the Borrower pursuant to the Loan
Contract and which are presently outstanding.
2. NOTES.
The debt created by the Loan shall be evidenced by the
Outstanding Notes, by any notes to be executed by the Borrower payable to
the order of the Government, or to another lender and guaranteed by the
Government, on account of a loan made or guaranteed by the Government
pursuant to the Underlying Agreement, and by additional notes to be
executed by the Borrower payable to the order of the Government, or to
another lender and guaranteed by the Government (the Outstanding Notes,
other notes payable to the order of the Government, or to another lender
and guaranteed by the Government, and any notes executed and delivered to
refund, or in substitution for, such notes being hereinafter collectively
called the "Notes").
The Notes with respect to any portion of the Loan shall bear interest at
the rate specified in the loan agreement relating thereto. The Notes shall
otherwise be in form and substance satisfactory to the Administrator.
Interest shall accrue on each Note only in respect of amounts which shall
have been advanced to the Borrower from time to time on account of the
Loan, and which shall have been charged against such Note and shall remain
unpaid.
3. LOAN CLOSING.
The parties may from time to time determine by agreement the
amount required to enable the Borrower to perform its obligations
hereunder. If any reduction in the maximum amount of the Loan is thus
agreed upon, the Administrator shall cause such one or more of the Notes as
<PAGE>
T.L.C.A. - REA Loans - 7/91
may be agreed upon to be appropriately credited with an amount equal to
such reduction, and the principal amount of such Note or Notes shall, for
the purposes of this Agreement, be deemed to be correspondingly reduced.
When the Administrator and the Borrower shall agree that no further funds
are required to be advanced on account of the Loan in order to enable the
Borrower to perform its obligations hereunder to the Government, the
Administrator shall execute and deliver to the Borrower a loan closing
certificate (hereinafter called the "loan closing certificate") which
shall, among other things, specify the date of the closing of the Loan and
the amount of the unpaid principal of and accrued interest on each of the
Notes as appropriate.
4. SECURITY.
The Notes shall be secured by a security instrument (hereinafter
called the "Mortgage"), in form and substance satisfactory to the
Administrator, which shall cover all the property of the Borrower now owned
or hereinafter acquired and which shall confirm, fully convey and preserve
or renew the lien of any mortgage, supplemental mortgage, chattel mortgage,
supplemental chattel mortgage, deed of trust or supplemental deed of trust
heretofore given by the Borrower to secure any notes heretofore executed
and delivered by the Borrower to the Government.
The Notes shall also be secured by such supplemental mortgages, deeds of
trust, supplemental deeds of trust, chattel mortgages or additional chattel
mortgages and by such other action on the part of the Borrower as may be
required to confirm, fully convey, preserve or renew the lien of the
Mortgage as security for the Notes and to effectuate the intention of these
presents that the Mortgage shall cover all property of the Borrower,
whether now owned or hereinafter acquired (any such supplemental mortgage,
supplemental deed of trust, supplemental or additional chattel mortgage,
and any such other action, as the case may be, being hereinafter called
a "supplemental mortgage").
5. REQUISITIONS AND ADVANCES.
Loan funds shall be advanced to the Borrower only if the Borrower
has (1) complied with section 2.1 of the Loan Contract (or such other
section thereof as is headed "Prerequisites to Advances") and all other
conditions precedent to the advance of Loan funds, and (2) furnished the
Administrator with a requisition and accompanying documents complying with
section 2.2 of the Loan Contract (or such other section thereof as is
2
<PAGE>
T.L.C.A. - REA Loans - 7/91
headed "Requisitions"). Within a reasonable time thereafter, the
Government as requested by the Borrower shall advance Loan funds to the
Borrower sufficient in the aggregate for such of the purposes in the
statement accompanying the requisition as the Administrator shall approve.
The Administrator may at any time, as a condition to making any advance on
account of the Loan, require compliance by the Borrower with any one or
more of the covenants, terms or conditions of the Loan Contract and any
amendment thereto to be performed by the Borrower. The Government shall be
under no obligation to make advances on account of a loan after the date of
the closing of such loan as specified in a loan closing certificate.
6. SPECIAL CONSTRUCTION ACCOUNT.
The Borrower shall promptly deposit all moneys advanced to it by
the Government hereunder in a special construction account (hereinafter
called "Special Construction Account") in a bank, institution or other
depository, which shall meet the requirements specified in section 4.3 of
the Loan Contract (or such other section thereof as is headed "Deposit of
Funds"), and shall hold such moneys in trust for the Government until
disbursed. Any Special Construction Account shall be designated by the
corporate name of the Borrower, followed by the words "Trustee, REA
Construction Fund Account".
All loan funds in any Special Construction Account shall be used solely for
the purposes specified in section 1.1 of the Loan Contract, as amended by
this Agreement and any subsequent amendment.
If the Borrower is required to obtain equity funds by the terms of the Loan
Contract, as amended by this Agreement or any subsequent amendment, the
Borrower shall also deposit all such equity funds in the Special
Construction Account on the same terms and conditions and for the same
purposes as funds advanced on account of the Loan.
Equity funds may be withdrawn from the Special Construction Account only
upon approval by the Administrator of requisitions therefor submitted by
the Borrower in accordance with the requirements applicable to the
requisitioning of loan funds, as set forth in section 2.2 of the Loan
Contract (or such other section of the Loan Contract as is headed
"Requisitions") except that to the extent equity funds (if required to be
obtained) are expressly required to be used for other purposes under the
Loan Contract, as amended by this Agreement and any subsequent amendment,
they shall be used for such other purposes.
3
<PAGE>
T.L.C.A. - REA Loans - 7/91
Until the aggregate amount of withdrawals from the Special Construction
Account shall equal or exceed the amount of the equity funds, they shall be
deemed to have been made from equity funds and not from funds advanced by
the Government to the Borrower.
The Borrower shall expend each advance on account of the Loan or equity
funds, if any, only for such of the purposes specified in the statement of
purposes accompanying the requisition for such advance or equity funds, if
any, as shall have been approved by the Administrator.
7. UNEXPENDED LOAN FUNDS.
Any funds advanced on account of the Loan remaining in any
Special Construction Account upon the closing of such loan shall be
forthwith remitted to the Government. A credit in the amount of such
remittance shall be allowed against such one or more of the Notes as shall
be agreed upon by the Administrator and the Borrower.
8. LOAN RECISSIONS.
The Borrower may request recission of all or part of the
unadvanced portion of the Loan at any time. The Administrator shall comply
with such request if the Borrower demonstrates, to the satisfaction of the
Administrator, that (1) the purposes intended to be financed by the
unadvanced Loan funds have been completed, (2) sufficient funds are
available from non-governmental sources to complete such purposes, or
(3) the Loan funds being rescinded are no longer required to extend or
improve telephone service in rural areas. The Administrator shall not
initiate recission of the advanced portion of the Loan unless all of the
purposes for which telephone loans have been made to the Borrower under the
Act have been accomplished with Loan funds provided under the Act. Loan
funds that have been rescinded are no longer available to the Borrower.
9. TARIFF.
(A) The Borrower shall, during the period ending on the date
specified in the Underlying Agreement (the "Forecast Period"), (1) use its
diligent best efforts to obtain all regulatory body approvals, necessary to
place in effect and thereafter to maintain in effect a tariff which
(i) provides for such grades of service as the Administrator shall approve,
(ii) does not include mileage or zone charges for the lowest grade of
service provided in each central office area, and (iii) is designed to
4
<PAGE>
T.L.C.A. - REA Loans - 7/91
produce net income or margins, before interest but after taxes in such
amounts that, when divided by the amount of interest requirements on all of
the Borrower's outstanding and proposed loans, produces a ratio of at least
1.0, and (2) place such tariff into effect as soon as permitted by
applicable laws and regulations. The Borrower shall use its diligent best
efforts to obtain all necessary regulatory body approvals of such revisions
of its tariff as may be necessary from time to time to satisfy the
requirements of this provision.
(B) The Borrower shall continue to comply with the requirements
of this provision after the Forecast Period except that the required ratio
shall be changed to that specified in the Underlying Agreement.
(C) The Borrower shall provide the Administrator with evidence,
in form and substance satisfactory to him, that the Borrower is in full
compliance with this section whenever the Administrator shall request.
10. EVIDENCE OF TARIFF.
The Borrower shall deliver, when requested by, and in form and
substance satisfactory to, the Administrator, evidence that the Borrower
has duly adopted a tariff which (1) will provide for such grades of service
as the Administrator may approve, (2) does not include mileage or zone
charges for the lowest grade of service provided in each central office
area, and (3) is designed to produce net income or margins, before interest
but after taxes, at least equal to one hundred percent of the interest
requirements on all of the Borrower's outstanding and proposed loans.
11. CHANGES IN CERTAIN SECTIONS OF THE LOAN CONTRACT.
(A) Section 3.3 of the Loan Contract is amended by inserting the
words "for installation of station equipment" following the words "outside
plant and buildings" in said section.
(B) If the words "net income" appear in section 4.1 of the Loan
Contract, then the words "or net margins" shall be inserted immediately
thereafter.
(C) Section 4.2(A)(c) of the Loan Contract is amended by
inserting the words "for installation of station equipment" following the
words "outside plant and buildings" in said section.
5
<PAGE>
T.L.C.A. - REA Loans - 7/91
(D) Section 4.2(A) of the Loan Contract is amended by deleting
therefrom subsection (f) relating to contracts for the joint use of
facilities of other companies and relettering the remaining subsections
accordingly.
12. PARTICULAR COVENANTS.
(A) SUBMISSION OF CONTRACTS WITH THIRD PARTIES. The Borrower
shall submit, when requested by the Administrator and subject to the
Administrator's approval:
(1) a contract or contracts for the purchase, lease, or other
acquisition of land for use in connection with the construction or
operation of the System; and
(2) a contract or contracts for extended area service to be
provided by or for other companies, as may be necessary for the
proper operation of the System;
(B) DEPOSIT OF FUNDS. The Borrower shall not deposit or allow
to remain on deposit any of its funds, regardless of the source thereof, in
any bank, institution or other depository which is not fully insured by the
Federal government. The Borrower shall inform the Administrator of the
names of the banks, institutions or other depositories which it has
selected for deposit of its funds.
(C) EASEMENTS AND PERMITS - EQUITY FUNDS. If the Borrower is
required to obtain equity funds by the terms of the Loan Contract, as
amended by this Agreement or any subsequent amendment, none of such funds
shall be used by the Borrower to pay for easements obtained from landowners,
or for releases of lien affecting easements.
(D) AREA COVERAGE. The Borrower shall furnish adequate
telephone service to the widest practicable number of rural users in the
Borrower's telephone service area, as such area is shown on the map which
is a part of the Borrower's application for the Loan, and which map, as
revised by agreement between the Borrower and the Administrator, is
incorporated herein by reference thereto. In the performance of this
obligation, the Borrower shall (except to the extent that the
Administrator, upon request of the Borrower, may in writing authorize
deviations therefrom):
(1) furnish service to all applicants for service included
in the Project, without payment by such applicants of any extra charge
6
<PAGE>
T.L.C.A. - REA Loans - 7/91
as a contribution to the cost of construction of facilities to provide
such service; and
(2) take all action that may be required to enable it to
extend service, with the use of such funds as may from time to time be
available to it, either from surplus earnings, increased equity capital,
additional loans made by lenders other than the Government or otherwise
as the Borrower may elect, and without payment to the Borrower of any
extra charge as a contribution to construction of facilities to provide
such service, to every other unserved rural applicant for service in
its telephone service area if the cost of constructing the required
line extension for such applicant will not exceed seven times the
estimated annual local service revenues from such applicant. Such
service shall be furnished pursuant to terms and conditions set forth
in the Borrower's tariff, as duly filed with or approved by regulatory
bodies having jurisdiction in the premises, or in the absence of any
such regulatory body, as adopted by the Borrower, provided that the
Borrower shall not file with or submit for approval of appropriate
regulatory bodies or adopt any proposed tariff, or continue in effect
any existing tariff not required to be continued by any regulatory
body, unless under such tariff the Borrower will be obligated to serve
unserved rural applicants as provided herein.
(E) MORTGAGE COVENANTS. The Borrower shall perform all
covenants by it to be performed under the Mortgage and any supplemental
mortgage.
(F) REPRESENTATIONS AND WARRANTIES. The Borrower confirms as of
the date of this Agreement the representations and warranties set forth in
section 4.7 of the Loan Contract (or for such other section thereof as is
headed "Representations and Warranties"), and represents and warrants that
every statement contained in this Agreement and in every other document,
statement, certificate and opinion submitted to the Government by it or in
its behalf is true and correct.
(G) EQUAL OPPORTUNITY CLAUSE. The Borrower hereby agrees that
it will incorporate or cause to be incorporated into any contract for
construction work, or modification thereof, as defined in Executive Order
11246 of September 24, 1965 or in the rules and regulations of the Secretary
of Labor, which is paid for in whole or in part with funds obtained from the
Government or borrowed on the credit of the Federal Government pursuant to a
grant, contract, loan, insurance or guarantee, or undertaken pursuant to any
program involving such grant, contract, loan, insurance or guarantee, the
following equal opportunity clause:
7
<PAGE>
T.L.C.A. - REA Loans - 7/91
During the performance of this contract, the Contractor agrees as
follows:
(1) The Contractor will not discriminate against any
employee or applicant for employment because of race, color, religion,
sex or national origin. The Contractor will take affirmative action
to ensure that applicants are employed, and that employees are treated
during employment, without regard to their race, color, religion, sex
or national origin. Such action shall include, but not be limited to
the following: employment, upgrading, demotion or transfer;
recruitment or recruitment advertising; layoff or termination; rates
of pay or other forms of compensation; and selection for training,
including apprenticeship. The Contractor agrees to post in
conspicuous places, available to employees and applicants for
employment, notices to be provided setting forth the provisions of
this nondiscrimination clause.
(2) The Contractor will, in all solicitations or
advertisements for employees placed by or on behalf of the Contractor,
state that all qualified applicants will receive consideration for
employment without regard to race, color, religion, sex or national
origin.
(3) The Contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be provided
advising the said labor union or workers' representative of the
Contractor's commitments under this section, and shall post copies of
the notice in conspicuous places available to employees and applicants
for employment.
(4) The Contractor will comply with all provisions of
Executive Order 11246 of September 24, 1965, and of the rules,
regulations and relevant orders of the Secretary of Labor.
(5) The Contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the
rules, regulations and orders of the Secretary of Labor, or pursuant
thereto, and will permit access to his books, records, and accounts by
the administering agency and the Secretary of Labor for purposes of
investigation to ascertain compliance with such rules, regulations and
orders.
(6) In the event of the Contractor's noncompliance with the
nondiscrimination clauses of this contract or with any of the said
8
<PAGE>
T.L.C.A. - REA Loans - 7/91
rules, regulations or orders, this contract may be canceled,
terminated or suspended in whole or in part and the Contractor may be
declared ineligible for further Government contracts or federally
assisted construction contracts in accordance with procedures
authorized in Executive Order 11246 of September 24, 1965, and such
other sanctions may be imposed and remedies invoked as provided in
said Executive Order 11246 of September 24, 1965, or by rule,
regulation or order of the Secretary of Labor, or as otherwise provided
by law.
(7) The Contractor will include the portion of the sentence
immediately preceding paragraph (1) and the provisions of paragraphs
(1) through (7) in every subcontract or purchase order unless exempted
by rules, regulations or orders of the Secretary of Labor issued
pursuant to section 204 of Executive Order 11246 of September 24, 1965,
so that such provisions will be binding upon each subcontractor or
vendor. The Contractor will take such action with respect to any
subcontract or purchase order as the administering agency may direct as
a means of enforcing such provisions, including sanctions for
noncompliance: Provided, however, that in the event a contractor
becomes involved in, or is threatened with, litigation with a
subcontractor or vendor as a result of such direction by the
administering agency, the Contractor may request the United States to
enter into such litigation to protect the interests of the United
States.
The Borrower further agrees that it will be bound by the above equal
opportunity clause with respect to its own employment practices when it
participates in federally assisted construction work: Provided, that if
the Borrower so participating is a State or local government, the above
equal opportunity clause is not applicable to any agency, instrumentality
or subdivision of such government which does not participate in work on or
under the contract.
The Borrower agrees that it will assist and cooperate actively with the
administering agency and the Secretary of Labor in obtaining the compliance
of contractors and subcontractors with the equal opportunity clause and the
rules, regulations and relevant orders of the Secretary of Labor, that it
will furnish the administering agency and the Secretary of Labor such
information as they may require for the supervision of such compliance, and
that it will otherwise assist the administering agency in the discharge of
the administering agency's primary responsibility for securing compliance.
The Borrower further agrees that it will refrain from entering into any
contract or contract modification subject to Executive Order 11246 of
9
<PAGE>
T.L.C.A. - REA Loans - 7/91
September 24, 1965, with a contractor debarred from, or who has not
demonstrated eligibility for, Government contracts and federally assisted
construction contracts pursuant to Executive Order 11246 of September 24,
1965 and will carry out such sanctions and penalties for violation of the
equal opportunity clause as may be imposed upon contractors and
subcontractors by the administering agency or the Secretary of Labor
pursuant to Part II, Subpart D of Executive Order 11246 of September 24,
1965.
In addition, the Borrower agrees that if it fails or refuses to comply with
these undertakings, the administering agency may take any or all of the
following actions: cancel, terminate or suspend in whole or in part this
contract; refrain from extending any further assistance to the Borrower
under the program with respect to which the failure or refusal occurred
until satisfactory assurance of further compliance has been received from
such Borrower; and refer the case to the Department of Justice for
appropriate legal proceedings.
(H) COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. The Borrower
shall, with respect to all facilities which may be part of the System,
comply with all applicable water and air pollution control standards and
other environmental requirements imposed by Federal or state statutes,
regulations, licenses or permits.
(I) HISTORIC PRESERVATION. The Borrower shall not use any
portion of the Loan, without the prior written approval of the
Administrator, for any project, activity or program that can result in
changes in the character or use of any prehistoric or historic district,
site, building, structure or object included in, or eligible for inclusion
in, the National Register of Historic Places maintained by the Secretary of
the Interior pursuant to the National Historic Preservation Act, as amended.
(J) HISTORIC LANDMARKS. The Borrower shall not use any portion
of the Loan, without the prior written approval of the Administrator, for
any project, activity or program that may directly and adversely affect any
property that the Secretary of the Interior has designated a National
Historic Landmark pursuant to the National Historic Preservation Act, as
amended.
(K) ELECTRONIC FUNDS TRANSFER. Except as otherwise prescribed
by the Administrator, the Borrower shall make payment of all principal of
and interest on the Notes which payment in the aggregate exceeds $10,000,
by Electronic Funds Transfer utilizing the Fedwire Deposit System through
the United States Department of the Treasury account (021030004) at the
10
<PAGE>
T.L.C.A. - REA Loans - 7/91
Federal Reserve Bank of New York, all in the manner prescribed by REA
Bulletin 20-9:320-12.
(L) UNIFORM RELOCATION AND ACQUISITION ACT. The Borrower hereby
covenants that it shall, in acquiring real property, comply with the
provisions of the Uniform Relocation Assistance and Real Property
Acquisition Policies Act of 1970 (the "Uniform Act"), as amended by the
Uniform Relocation Act Amendments of 1987, and 49 C.F.R. Part 24,
referenced by 7 C.F.R. Part 21, to the extent the Uniform Act is applicable
to such acquisition.
(M) FLOOD INSURANCE. The Borrower shall not, without the prior
written approval of the Administrator, use any portion of the Loan to
finance, in whole or in part, the acquisition, construction, repair or
improvement of any building or any machinery, equipment, fixtures or
furnishings contained or to be contained therein in any area identified by
the Director of the Federal Emergency Management Agency (the "Director of
FEMA") pursuant to the Flood Disaster Protection Act of 1973, as amended
(the "Flood Insurance Act") as an area having special flood hazards unless
and until the Borrower has submitted evidence satisfactory to the
Administrator, or the Administrator has otherwise determined: (i) the
Director of FEMA has made flood insurance available, pursuant to the Flood
Insurance Act, in the area in which the acquisition, construction, repair
or improvement is proposed to occur; and (ii) the Borrower has obtained
flood insurance coverage with respect to such building, machinery,
equipment, fixtures or furnishings as may then be required pursuant to the
Flood Insurance Act.
(N) NONDUPLICATION OF FACILITIES. If the Borrower provides
telephone service in any state in which there is no state regulatory body
with authority to regulate telephone service and to require certificates of
convenience and necessity to the Borrower, the Borrower shall not use any
portion of the Loan for the construction of telephone facilities to furnish
or improve service to persons located in such state receiving the telephone
service from any other telephone company at the time the Borrower proposes
to furnish or improve service to such persons, except that the Borrower may
provide or improve service to persons receiving service through facilities
acquired or to be acquired by the Borrower, and except to the extent the
Administrator, on the basis of evidence submitted to him by the Borrower,
shall have determined that service by the Borrower to such persons will not
result in duplication of lines, facilities or systems providing reasonably
adequate service.
11
<PAGE>
T.L.C.A. - REA Loans - 7/91
(O) DELETION OF PROVISIONS RELATING TO THE LEVEL OF GENERAL
FUNDS. If the Loan Contract contains provisions in section 2.8, or
elsewhere, relating to the level of the Borrower's general funds, such
provisions are deleted.
(P) DELETION OF PROVISIONS RELATING TO CONSTRUCTION SCHEDULES.
If the Loan Contract contains provisions in section 2.9, or elsewhere,
relating to the Borrower's construction schedules, such provisions are
deleted.
13. RECEIPT OF CERTAIN CRIMINAL SECTIONS OF U.S. CODE.
The Borrower and each of the officers signing this Agreement
respectively acknowledge that they are familiar with the provisions of
sections 201, 286, 287, 641, 666, 1001, 1361 and 1366 of Title 18, United
States Code, Crimes and Criminal Procedure.
14. DURATION OF AGREEMENT.
Except where otherwise required by the context, all provisions of
the Loan Contract, as amended by this Agreement and any subsequent
amendment, shall continue in full force and effect until all amounts owing
by the Borrower to the Government on account of the Loan shall have been
paid and upon such payment the Loan Contract, as so amended, shall be
deemed to have been fully performed.
12
<PAGE>
T.L.C.A. - REA Loans - 7/91
(Cooperatives, etc.)
15. SPECIAL PROVISIONS RELATING TO THE BORROWER.
The following special provisions, in addition to all other
provisions of this Exhibit I, shall apply to the Borrower:
(A) COUNTERSIGNATURE. Subject to the provisions of subparagraph
(B) below and section 5.2(c) of the Loan Contract (or subsection (c) of
such other section of the Loan Contract as is headed "Remedies upon
Default"), moneys in any Special Construction Account may be withdrawn only
upon checks, drafts or orders signed on behalf of the Borrower and
countersigned by an executive officer thereof.
(B) SUPERVISOR: APPOINTMENT AND POWERS. If the construction of
the Project or any section or sections thereof, shall not proceed in
accordance with the terms of the Loan Contract, as amended by this
Agreement or any subsequent amendment to the Loan Contract, or if default
shall be made in the payment of any installment of or on account of
interest on or principal of any Note when and as the same shall be required
to be made and such default shall continue for thirty (30) days, the
Administrator may appoint a supervisor (hereinafter called the
"Supervisor") for the System, or such section or sections thereof as the
Administrator shall designate, as the representative of the Government and
notify the Borrower of such appointment and the duration thereof. The
Supervisor shall take such steps as he deems necessary to assure
construction or operation of the Project in accordance with the terms
hereof, or such portion or portions thereof as may be designated by the
Administrator, or to assure performance of any other obligations of the
Borrower pursuant to the provisions of the Loan Contract, as amended by
this Agreement and any subsequent amendment, or of the Notes, and shall
have power to operate the System and other property of the Borrower
necessary to the operation of the System, and do all things reasonably
incident to the exercise of the powers herein granted, including, without
limitation, directing the conservation of any funds of the Borrower, the
collection of all debts due it, the payment of all expenses of the Borrower
from any of its funds, the termination of the employment of such employees
of the Borrower as he shall determine upon and the employment of such
persons, on such terms and conditions as he may designate, as he shall
deem necessary to assist him in carrying out his functions. The salaries,
fees, disbursements and the expenses of the Supervisor and of any employee
appointed by him shall be paid by the Borrower; provided, however, that the
salaries, fees, disbursements and expenses of any Supervisor who shall be
an employee of the Government, and of any assistants who shall be employees
of the Government, shall not be payable by the Borrower unless and to the
extent that the Administrator, upon written notification to the Borrower,
13
<PAGE>
T.L.C.A. - REA Loans - 7/91
(Cooperatives, etc.)
shall so require. So long as the appointment of the Supervisor shall be in
effect, all checks, drafts and orders drawn on any bank, institution or
other depository account maintained by the Borrower shall be countersigned
by the Supervisor, except that, if the proper officers or employees of the
Borrower shall refuse to sign any such check, draft or order, the Supervisor
shall have full power and authority to sign such check, draft or order for
the Borrower without the requirement of any other signature thereon, if such
check, draft or order is required to carry out the obligations of the
Borrower hereunder. The Borrower hereby constitutes the Administrator its
agent for the purpose of notifying any bank, institution or other depository
in which any account of the Borrower shall be maintained of the appointment
of a Supervisor and of the provisions hereunder with respect thereto, and
agrees that such notice shall include a direction to any such bank,
institution or other depository with respect to the signing or
countersigning of the checks, drafts or orders drawn on any such account as
in this section provided. The Borrower shall comply with all reasonable
instructions of the Supervisor incident to carrying out the obligations of
the Borrower hereunder or the performance of the functions of the
Supervisor.
14
<PAGE>
EXHIBIT 4.33
6-5452
Form - Restated Mortgage - Telephone
100% REA Loan - No Prior Bank Loan 1/85
REA PROJECT DESIGNATION:
SOUTH DAKOTA 515-S8 IRENE
RESTATED MORTGAGE, SECURITY AGREEMENT, AND FINANCING STATEMENT
made by and between
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
P. O. Box 66
Irene, South Dakota 57037
Taxpayer Identification #460234208
as mortgagor and debtor,
and
UNITED STATES OF AMERICA
Rural Electrification Administration
Washington, D. C. 20250-1500
as mortgagee and secured party.
THIS INSTRUMENT GRANTS A SECURITY INTEREST IN A TRANSMITTING UTILITY
THE MORTGAGED PROPERTY AND COLLATERAL ARE DESCRIBED ON PAGES 5 - 7
THIS INSTRUMENT CONTAINS AN AFTER-ACQUIRED PROPERTY CLAUSE
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
RESTATED MORTGAGE, SECURITY AGREEMENT AND FINANCING
STATEMENT, dated as of , 19 , made
by and between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
___________________________________________________________
(hereinafter called the "Mortgagor"), a corporation existing
under the laws of the State of South Dakota, as mortgagor
and debtor, and UNITED STATES OF AMERICA (hereinafter
sometimes called the "Mortgagee" and sometimes called the
"Government"), acting through the Administrator of the Rural
Electrification Administration (hereinafter called "REA"),
as mortgagee and secured party.
WHEREAS, the Mortgagor has heretofore borrowed funds from the
Government, acting through the Administrator of REA, pursuant to a certain
Telephone Loan Contract identified in the fifth recital hereof (hereinafter
called the "Instruments Recital") by and between the Mortgagor and the
Government (said Telephone Loan Contract, as it may have heretofore been,
and as it may hereafter be, amended or supplemented, being hereinafter
called the "Consolidated Loan Contract"); and
WHEREAS, the Mortgagor, for value received, has heretofore duly
authorized and executed, and has delivered to the Mortgagee, or has assumed
the payment of, certain mortgage notes all payable to the order of the
Mortgagee, in installments, of which the mortgage notes (hereinafter
collectively called the "Outstanding Notes") identified in the Instruments
Recital are now outstanding and held by the Mortgagee, all of which
Outstanding Notes evidence loans made or guaranteed by the Government to
the Mortgagor or to a third party or parties to finance telephone
exchanges, lines and related facilities; and
WHEREAS, the Outstanding Notes are secured by the security
instruments (hereinafter collectively called the "Underlying Mortgage")
identified in the Instruments Recital made by the Mortgagor to the
Mortgagee; and
WHEREAS, the Mortgagor has determined to borrow additional funds
from the Government pursuant to the Rural Electrification Act of 1936, as
amended (7 U.S.C. 901 ET SEQ., hereinafter called the "Act"), and pursuant
to the Consolidated Loan Contract, and has accordingly duly authorized and
executed, and has delivered to the Mortgagee, its mortgage note (identified
in the Instruments Recital as and hereinafter called the "Current Note") to
be secured by the Underlying Mortgage, as amended, supplemented,
consolidated and restated hereby; and
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
WHEREAS, the instruments referred to in the preceding recitals,
the Maximum Debt Limit referred to in Article I, Section 1 hereof, the
subdivision or subdivisions of Article II hereof made applicable by this
recital, and certain data referred to in Article II, Section 15 hereof, are
as follows:
INSTRUMENTS RECITAL
1. The instruments referred to in the preceding recitals are as follows:
"Telephone Loan Contract" dated as of September 5, 1952
"Outstanding Notes": Twenty----------------- ( 20 ) certain mortgage
notes in an aggregate principal amount of $13,337,000--------, all of
which will mature on or before May 23, 2018.
"Underlying Mortgage"
<TABLE>
<CAPTION>
INSTRUMENT DATED AS OF TRUSTEE, IF ANY
<S> <C> <C> <C>
Mortgage September 30, 1952
Supplemental Mortgage October 10, 1958
Supplemental Mortgage March 9, 1961
Supplemental Mortgage September 21, 1964
Supplemental Mortgage August 10, 1967
Supplemental Mortgage February 24, 1969
Supplemental Mortgage June 25, 1973
Supplemental Mortgage May 23, 1983
</TABLE>
"Current Note"
<TABLE>
<CAPTION>
DATE PRINCIPAL AMOUNT INTEREST RATE FINAL PAYMENT DATE
<S> <C> <C> <C> <C>
Of even date $4,140,000 5.0% Thirty-five (35) years
herewith from the date herewith
</TABLE>
-2-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
2. "Maximum Debt Limit" for purposes of Article I, Section 1 hereof,
shall be fifty million dollars ($50,000,000).
3. The following subdivision(s) of Article II hereof is(are) hereby made
applicable: Section 10a & 18.
4. The percentage referred to in Section 15(a)(1) and Section 15(b) of
Article II hereof is hereby established as ten per centum ( 10%). The
date referred to in Section 15(a)(3) of Article II hereof is hereby
established as December 31, 1963.
WHEREAS, the Underlying Mortgage provides that the Mortgagor
shall, upon the request in writing of the holder or holders of not less
than a majority in principal amount of the notes secured by the Underlying
Mortgage at the time outstanding, duly authorize, execute, and deliver and
record and file all such supplemental mortgages and conveyances as may
reasonably be requested by such holder or holders to effectuate the
intention of the Underlying Mortgage and to provide for the conveying,
mortgaging and pledging of the property of the Mortgagor intended to be
conveyed, mortgaged or pledged by the Underlying Mortgage to secure the
payment of the principal of and interest on notes executed and delivered
thereunder and pursuant thereto, or otherwise secured thereby, and the
Mortgagee, as the holder of all such notes, has in writing requested the
execution and delivery of such a supplemental mortgage pursuant to such
provisions; and
WHEREAS, it is intended by the Mortgagor, at the request and with
the consent of the Mortgagee, as the holder of all of the Outstanding
Notes, to amend and supplement the Underlying Mortgage in the respects
hereinafter set forth; and
WHEREAS, the changes in the Underlying Mortgage which the
Mortgagor and the Mortgagee, as the holder of all of the Outstanding Notes,
desire now to effect make advisable the consolidating and restating of each
of the instruments constituting the Underlying Mortgage in its entirety;
and
WHEREAS, all acts, things, and conditions prescribed by law and
by the articles of incorporation and bylaws of the Mortgagor have been duly
performed and complied with to authorize the execution and delivery of this
-3-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
Restated Mortgage, Security Agreement and Financing Statement, and to make
this Restated Mortgage, Security Agreement and Financing Statement an
amendment and supplement to, and a consolidation and restatement of, the
Underlying Mortgage; and
WHEREAS, the Mortgagee is authorized to enter into this Restated
Mortgage, Security Agreement and Financing Statement; and
WHEREAS, it is contemplated that the Outstanding Notes and the
Current Note shall be secured by this Restated Mortgage, Security Agreement
and Financing Statement, and also that any additional notes and refunding,
renewal and substitute notes (hereinafter collectively called the
"Additional Notes") which may from time to time be executed by the
Mortgagor and delivered to the Mortgagee as hereinafter provided, shall be
secured by this Restated Mortgage, Security Agreement and Financing
Statement (the Outstanding Notes, the Current Note and any Additional Notes
being hereinafter collectively called the "notes"); and
WHEREAS, the Mortgagor now owns a telephone system and other
facilities identified in the Property Schedule contained in the Granting
Clause hereof (hereinafter called the "Existing Facilities"); and
WHEREAS, to the extent that any of the property described or
referred to herein and in the Underlying Mortgage is governed by the
provisions of the Uniform Commercial Code of any state (hereinafter called
the "Uniform Commercial Code"), the parties hereto desire that the
Underlying Mortgage and this Restated Mortgage, Security Agreement and
Financing Statement, collectively, be regarded as a "security agreement"
under the Uniform Commercial Code and that this Restated Mortgage, Security
Agreement and Financing Statement be regarded as a "financing statement"
under the Uniform Commercial Code for said security agreement.
NOW, THEREFORE, this Restated Mortgage, Security Agreement and
Financing Statement
WITNESSETH
That each of the instruments constituting the Underlying Mortgage
is hereby amended, supplemented, consolidated and restated to read in its
entirety from and after the date of execution of this Restated Mortgage,
Security Agreement and Financing Statement (the Underlying Mortgage, as
amended, supplemented, consolidated and restated by this Restated Mortgage,
-4-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
Security Agreement and Financing Statement, being herein called "this
Mortgage") as follows:
GRANTING CLAUSE
In order to secure the payment of the principal of and interest
on the notes, according to their tenor and effect, and further to secure
the due performance of the covenants, agreements and provisions contained
in this Mortgage and the Consolidated Loan Agreement and to declare the
terms and conditions upon which the notes are to be secured, the Mortgagor,
in consideration of the premises, has executed and delivered this Mortgage,
and has granted, bargained, sold, conveyed, warranted, assigned,
transferred, mortgaged, pledged, and set over, and by these presents does
hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage,
pledge and set over, unto the Mortgagee, and assigns, all and singular the
following-described property (hereinafter sometimes called the "Mortgaged
Property"):
I
All right, title and interest of the Mortgagor in and to the
Existing Facilities and buildings, plants, works, improvements, structures,
estates, grants, franchises, easements, rights, privileges and properties
real, personal and mixed, tangible or intangible, of every kind or
description, now owned by the Mortgagor or which may hereafter be owned,
constructed or acquired by the Mortgagor, wherever located, and in and to
all extensions and improvements thereof and additions thereto, including
all buildings, plants, works, structures, improvements, fixtures,
apparatus, materials, supplies, machinery, tools, implements, poles, posts,
crossarms, conduits, ducts, lines, whether underground or overhead or
otherwise, wires, cables, exchanges, switches, desks, testboards, frames,
racks, motors, generators, batteries and other items of central office
equipment, subscriber station equipment, including house wiring and
protectors, instruments, connections and appliances, office furniture and
equipment, work equipment and any and all other property of every kind,
nature and description, used, useful or acquired for use by the Mortgagor
in connection therewith and including, without limitation, the property
described in the following property schedule:
-5-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
PROPERTY SCHEDULE
(a) The Existing Facilities are located in the following
Counties:
Clay, Lincoln, Turner, Union and Yankton
in the State of South Dakota
(b) The property referred to in the last line of paragraph I of
the Granting Clause includes the following described real estate:
CLAY COUNTY
1. A tract of land described as Lots Eleven (11) and Twelve (12), of
Block Eight (8) of the original town of Irene, in Clay County in
a deed dated July 10, 1967 by Floyd H. and Stella Lee, his wife,
grantor to the mortgagor, as grantee and recorded on July 11,
1967 in the office of the Register of Deeds of Clay County in the
State of South Dakota in deed book 48, page 327.
2. A tract of land described as Lot "C" of Lot Two (2), in the
Northeast one-quarter (NE1/4) of Section Six (6), Township
Ninety-five (95), North of Range Fifty-three (53) West of the 5th
P.M. of Clay County, South Dakota in a deed dated September 16,
1974, by Leslie R. and Eleanor G. Jorgensen, his wife, as grantor
to the Mortgagor, as grantee and recorded on September 18, 1974,
in the office of the Register of Deeds of Clay County in the
State of South Dakota, indeed book 54, page 298.
3. A tract of land described as Lot Fourteen (14), of Block Seven
(7), being a part of Outlot "C" of the town of Wakonda, County of
Clay, South Dakota in a deed dated August 25, 1953, by Frank
Fisher, a single person, as grantor to the Mortgagor, as grantee
and recorded on October 20, 1953, in the office of the Register
of Deeds of Clay County in the State of South Dakota in deed book
43, page 295.
LINCOLN COUNTY
1. A tract of land described as Lot D-C in the Northwest quarter
(NW1/4) of Section Thirty-three (33), Township Ninety-six (96),
Range Fifty (50), West of 5th P.M., Lincoln County, South Dakota,
-6-
<PAGE>
in a deed dated August 25, 1964, by the American Lutheran Church,
as grantor to the Mortgagor, as grantee, and recorded on
October 13, 1964, in the office of the Register of Deeds of
Lincoln County, in the State of South Dakota in deed book 72,
page 47.
2. A tract of land described as Lot Fifteen (15) in Block Eleven
(11), of the original plot of the city of Lennox, South Dakota,
in a deed dated July 26, 1956, by Tony S. Salem, as grantor to
the Mortgagor, as grantee and recorded on July 30, 1956, in the
office of the Register of Deeds of Lincoln County, in the State
of South Dakota in deed book 64, page 243.
3. A tract of land described as Lot Sixteen (16) and the West
ninety-two (92) feet of Lots Seventeen (17) and Eighteen (18),
all in Block Eight (8) of the original town of Worthing, Lincoln
County, South Dakota in a deed book dated August 3, 1973, by
Selma Iverson, a widow, as grantor to the Mortgagor, as grantee
and recorded on August 22, 1973, in the office of the Register of
Deeds of Lincoln County, in the State of South Dakota in deed
book 79, page 460.
4. A tract of land described as Lots One (1) and Two (2), of Block
Five (5) being a part of Tracts 1A and 1B in Industrial Tract
No. 1, city of Lennox, Lincoln County, South Dakota, in a deed
dated March 24, 1982, by the Lennox Area Development Corporation,
a corporation, as grantor to the Mortgagor, as grantee, and
recorded March 25, 1982 in the office of the Register of Deeds of
Lincoln County, in the State of South Dakota in deed book 88,
page 202.
TURNER COUNTY
1. A tract of land described as the West half (W1/2) of Lots
Thirteen (13) and Fourteen (14), of Block One (1) of original
(Plot of) the town of Chancellor, South Dakota, being a part of
the Northeast one-quarter (NE1/4) of Section Twenty-eight (28),
Township 99, Range 52, Turner County South Dakota in a deed dated
August 15, 1956, by C. T. DeNeui, as grantor to the Mortgagor, as
grantee and recorded on August 16, 1956, in the office of
Register of Deeds of Turner County in the State of South Dakota
in deed book 79, page 235.
2. A tract of land described as Lots Twenty-five (25), Twenty-six
(26), and Twenty-seven (27), Block (7), original town of Davis,
being a part of the West One-half (W1/2), Southeast One-quarter
(SE1/4), of Section Thirty-three (33), Township 98, Range 52,
Turner County, South Dakota in a deed dated March 23, 1953, by
Dakota State Telephone Company (a corporation), as grantor to the
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Mortgagor, as grantee and recorded on September 1, 1953, in the
office of the Register of Deeds of Turner County in the State of
South Dakota in deed book 78, pages 57, 58, 59 and 60.
3. A tract of land described as Outlot "A" of the Southeast One-
quarter (SE1/4) of the Southeast One-quarter (SE1/4), of Section
Twenty-three (23), Township Ninety-seven (97), North, Range
Fifty-five (55), West of the 5th P.M., Turner County, South
Dakota in a deed dated July 9, 1954, by John Anderson, a widower,
as grantor to the Mortgagor, as grantee and recorded July 12,
1954 in the office of the Register of Deeds in Turner County in
the State of South Dakota in deed book 77, page 469.
4. A tract of land described as the North Eighty (80') feet of Lots
Eight (8) and Nine (9), Block Twenty-three (23), of the original
town, city of Hurley, South Dakota, being a part of the Northeast
One-quarter (NE1/4) of Section Twenty-seven (27), Township 98,
Range 53, Turner County, South Dakota in a deed dated November
14, 1968 by Berchel Anderson and Marie P. Anderson, his wife, as
grantors to the Mortgagor, as grantee and recorded November 15,
1968 in the office of the Register of Deeds, Turner County in the
State of South Dakota in deed book 84, page 40.
5. A tract of land described as Lot Ten (10), of Block Twenty-three
(23), of the original Plot of the town of Hurley, South Dakota,
being a part of the Northeast One-quarter (NE1/4) of Section
Twenty-seven (27), Township 98, Range 53, Turner County, South
Dakota in a deed dated January 3, 1961, by Lawrence W. and
Marjorie L. Weier, his wife, as grantors to the Mortgagor, as
grantee and recorded January 4, 1961 in the office of the
Register of Deeds, Turner County in the State of South Dakota in
deed book 80, page 421.
6. A tract of land described as the North Thirty-six (36') feet of
Lots Nineteen (19) and Twenty (20), Block Six (6), original town
of Irene, being a part of the Southwest One-quarter (SW1/4) of
Section Thirty-one (31), Township 96, Range 53, Turner County,
South Dakota, in a deed dated June 17, 1954, by Stanley Anderson
and Rose Anderson, his wife, as grantors to the Mortgagor, as
grantee and recorded June 19, 1954, in the office of the Register
of Deeds, Turner County in the State of South Dakota in deed
book 77, page 454.
7. A tract of land described as Lots Ten (10), Eleven (11), Twelve
(12) and Thirteen (13), all in Block One (1) of the town of
Monroe (formerly the town of Warrington) in the Northeast One-
quarter (NE1/4) of Section Fifteen (15), Township 100, Range 54,
West of the 5th P.M., County of Turner, South Dakota in a deed
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dated August 4, 1953 by Turner County as grantor to the
Mortgagor, as grantee and recorded August 10, 1953 in the office
of the Register of Deeds, Turner County in the State of South
Dakota in deed book 78, page 54.
TURNER COUNTY
8. A tract of land described as Lot Fifteen (15), Block Four (4), of
the original (Plot) of the town, now the city of Parker, South
Dakota, being a part of the Northeast One-quarter (NE1/4) of
Section Seventeen (17), Township 99, Range 53, Turner County in
the State of South Dakota in a deed dated June 13, 1956, by
Bernard S. Koloyjian, Lenore D. Koloyjian, Beatrice Sutherland
and Marian K. Gabriel as grantors to the Mortgagor, as grantee
and recorded July 25, 1956, in the office of the Register of
Deeds, Turner County in the State of South Dakota in deed
book 78, page 141.
UNION COUNTY
1. A tract of land described as commencing at a point One hundred
fifty-seven (157') feet North of the Southwest corner of the
Northwest One-quarter (NW1/4) of Section Eighteen (18),
Township 94 North, Range 50, West of the 5th P.M., in Union
County, South Dakota, thence North Sixty-six (66') feet, thence
East Fifteen (15) rods, then South Sixty-six (66') feet, thence
West Fifteen (15) rods to place of beginning in Union County,
South Dakota, according to the Government Survey thereof. Said
real estate is also described as the North Sixty-six (66') feet
of the South Two-hundred twenty-three (223') feet of West Fifteen
(15) rods of the Northeast One-quarter (NE1/4) of Section
Eighteen (18), Township 94 North, Range 50 West of the 5th P.M.,
Union County, South Dakota in a deed dated January 7, 1971, by
the Alsen Community Telephone Company, (a corporation), as
grantor to the Mortgagor, as grantee, and recorded on March 4,
1971, in both offices of the Register of Deeds Union and Clay
counties in the State of South Dakota in the Union County deed
book 61, page 58, and the Clay County deed book 51, pages 61-65.
YANKTON COUNTY
1. A tract of land described as the East Forty-feet (40') of the
South Thirty-feet (30') of Lot 1, Block 10, town of Gayville,
South Dakota, situated on the Southeast One-quarter (SE1/4) of
the Northwest One-quarter (NW1/4) of Section Twelve (12),
Township 98, Range 54, Yankton County South Dakota in a deed
dated October 31, 1973, by Northwestern Bell Telephone Company (a
Corporation), as grantor to the Mortgagor, as grantee and
recorded November 12, 1973 in the office of the Register of
Deeds, Yankton County in the State of South Dakota in deed
book 259, page 140.
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2. A tract of land described as Outlot "A" of the Northeast One-
quarter (NE1/4) of Section Twenty-seven (27), Township Ninety-six
(96) North, Range Fifty-five (55), West of the 5th P.M. in
Yankton County, South Dakota, in a deed dated July 3, 1954, by
Joseph J. and Barbara M. Healy, his wife, as grantors to the
Mortgagor, as grantee and recorded July 7, 1954 in the office of
the Register of Deeds, Yankton County in the State of South
Dakota in deed book 205, page 193.
3. A tract of land described as Lots Seventeen (17) and eighteen
(18) in Block Eight (8) of Volin Addition, town of Volin, Yankton
County, South Dakota in deeds dated July 24, 1954 and August 2,
1954 and August 24, 1954, by Otto R. Olson and Clara Olson, his
wife, Glen Ellingston (also known as Ellingson), Grace DeBoer,
formerly Grace Ellingston (also known as Ellingson), Norris
Ellingston (also known as Ellingson) (also known as Knute Norris
Ellingson), Grace Ellingston Hove (also known as Grace Ellingson
Hove), Oscar C. Burke (also known as O.C. Burke) and Ruth Sachau,
as grantors to the Mortgagor, as grantee and all deeds recorded
August 30, 1954 in the office of the Register of Deeds, Yankton
County in the State of South Dakota in deed book and page as
follows:
<TABLE>
<CAPTION>
GRANTOR DEED BOOK PAGE
<S> <C> <C> <C>
Otto R. and Clara Olson 199 89
Glen Ellingston 199 90
Grace DeBoer 199 92
Norris Ellingston 199 93
Grace Ellingston Hove 199 91
Oscar C. Burke 199 88
Ruth Sachau 206 141
</TABLE>
TOGETHER WITH all plants, works, structures, erections, reservoirs,
dams, buildings, fixtures and improvements now or hereafter located on
any of the properties conveyed by any and all of the aforesaid deeds
mentioned above, and all tenements, hereditaments and appurtenances
now or hereafter thereunto belonging or in any wise appertaining.
The description of each of the properties conveyed by and through the
provisions of the aforesaid deeds is by reference made a part hereof
as though fully set forth at length herein.
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II
All right, title and interest of the Mortgagor in, to and under
any and all grants, privileges, rights of way and easements now owned, held,
leased, enjoyed or exercised, or which may hereafter be owned, held,
leased, acquired, enjoyed or exercised, by the Mortgagor for the purposes
of, or in connection with, the construction or operation by or on behalf of
the Mortgagor of telephone properties, facilities, systems or businesses,
whether underground or overhead or otherwise, wherever located;
III
All right, title and interest of the Mortgagor in, to and under
any and all licenses, franchises, ordinances, privileges and permits
heretofore granted, issued or executed, or which may hereafter be granted,
issued or executed, to it or to its assignors by the United States of
America, or by any state, or by any county, township, municipality, village
or other political subdivision thereof, or by any agency, board, commission
or department of any of the foregoing, authorizing the construction,
acquisition, or operation of telephone properties, facilities, systems or
businesses, insofar as the same may by law be assigned, granted, bargained,
sold, conveyed, transferred, mortgaged, or pledged;
IV
All right, title and interest of the Mortgagor in, to and under
any and all contracts heretofore or hereafter executed by and between the
Mortgagor and any person, firm, or corporation relating to the Mortgaged
Property together with any and all other accounts, contract rights and
general intangibles (as such terms are defined in the applicable Uniform
Commercial Code) heretofore or hereafter acquired by the Mortgagor;
V
Also, all right, title and interest of the Mortgagor in and to
all other property, real or personal, tangible or intangible, of every
kind, nature and description, and wheresoever situated, now owned or
hereafter acquired by the Mortgagor, it being the intention hereof that all
such property now owned but not specifically described herein or acquired
or held by the Mortgagor after the date hereof shall be as fully embraced
within and subjected to the lien hereof as if the same were now owned by
the Mortgagor and were specifically described herein to the extent only,
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however, that the subjection of such property to the lien hereof shall not
be contrary to law;
Together with all rents, income, revenues, profits and benefits
at any time derived, received or had from any and all of the above-described
property of the Mortgagor.
Provided, however, that except as hereinafter provided in
Section 12(b) of Article II hereof, no automobiles, trucks, trailers,
tractors or other vehicles (including without limitation aircraft or ships,
if any) owned or used by the Mortgagor shall be included in the Mortgaged
Property.
TO HAVE AND TO HOLD all and singular the Mortgaged Property unto
the Mortgagee and its assigns forever, to secure equally and ratably the
payment of the principal of and interest on the notes, according to their
tenor and effect, without preference, priority or distinction as to
interest or principal (except as otherwise specifically provided herein) or
as to lien or otherwise of any note over any other note by reason of the
priority in time of the execution, delivery or maturity thereof or of the
assignment or negotiation thereof, or otherwise, and to secure the due
performance of the covenants, agreements and provisions herein and in the
Consolidated Loan Agreement contained, and for the uses and purposes and
upon the terms, conditions, provisos and agreements hereinafter expressed
and declared.
ARTICLE I
ADDITIONAL NOTES
SECTION 1. The Mortgagor, when authorized by resolution or
resolutions of its board of directors, may from time to time execute and
deliver to the Government one or more Additional Notes to evidence
(1) loans made by the Government to the Mortgagor pursuant to the Act;
(2) indebtedness of the Mortgagor incurred by the assumption by the
Mortgagor of the indebtedness of a third party or parties to the Government
created by a loan or loans theretofore made by the Government to such third
party or parties pursuant to the Act; or (3) obligations of the Mortgagor
to the Government on account of a guarantee or guarantees made by the
Government pursuant to the Act of the repayment of a loan or loans made by
a legally organized lending agency or agencies to the Mortgagor. The
Mortgagor, when authorized by resolution or resolutions of its board of
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directors, may also from time to time execute and deliver one or more
Additional Notes to refund any note or notes at the time outstanding and
secured hereby, or in renewal of, or in substitution for, any such
outstanding note or notes. Additional Notes shall contain such provisions
and shall be executed and delivered upon such terms and conditions as the
board of directors of the Mortgagor in the resolution or resolutions
authorizing the execution and delivery thereof and the Government shall
prescribe; provided, however, that the outstanding principal balances owing
on the notes shall not at any one time exceed the amount identified in the
Instruments Recital as the Maximum Debt Limit, and no note shall mature
more than fifty (50) years after the date hereof. Additional Notes,
including refunding, renewal and substitute notes, when and as executed and
delivered, shall be secured by this Mortgage, equally and ratably with all
other notes at the time outstanding, without preference, priority, or
distinction of any of the notes over any other of the notes by reason of
the priority of the time of the execution, delivery or maturity thereof or
of the assignment or negotiation thereof. As used in this Mortgage, the
term "directors" includes trustees.
SECTION 2. The Mortgagor, when authorized by resolution or
resolutions of its board of directors, may from time to time execute,
acknowledge, deliver, record and file mortgages supplemental to this
Mortgage which thereafter shall form a part hereof, for the purpose of
formally confirming this Mortgage as security for the notes. Nothing
herein contained shall require the execution and delivery by the Mortgagor
of a supplemental mortgage in connection with the issuance hereunder or the
securing hereby of notes except as hereinafter provided in Section 12 of
Article II hereof.
ARTICLE II
PARTICULAR COVENANTS OF THE MORTGAGOR
The Mortgagor covenants with the Mortgagee and the holders of
notes secured hereby (hereinafter sometimes collectively called the
"noteholders") and each of them as follows:
SECTION 1. The Mortgagor is duly authorized under its articles
of incorporation and by-laws and the laws of the State of its incorporation
and all other applicable provisions of law to execute and deliver the
Outstanding Notes, the Current Note and this Mortgage and to execute and
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deliver Additional Notes; all corporate action on its part for the
execution and delivery of the Outstanding Notes, the Current Note and this
Mortgage has been duly and effectively taken; and the Outstanding Notes,
the Current Note and this Mortgage are the valid and enforceable
obligations of the Mortgagor in accordance with their respective terms.
SECTION 2. The Mortgagor warrants that it has good right and
lawful authority to mortgage the property described in the Granting Clause
of this Mortgage for the purposes herein expressed, and that the said
property is free and clear of any deed of trust, mortgage, lien, charge or
encumbrance thereon or affecting the title thereto, except (i) the lien of
this Mortgage and taxes or assessments not yet due; (ii) deposits or
pledges to secure payment of workmen's compensation, unemployment
insurance, old age pensions or other social security; and (iii) deposits or
pledges to secure performance of bids, tenders, contracts (other than
contracts for the payment of borrowed money), leases, public or statutory
obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business.
The Mortgagor will, so long as any of the notes shall be
outstanding, maintain and preserve the lien of this Mortgage superior to
all other liens affecting the Mortgaged Property, and will forever warrant
and defend the title to the property described as being mortgaged hereby to
the Mortgagee against any and all claims and demands whatsoever. The
Mortgagor will promptly pay or discharge any and all obligations for or on
account of which any such lien or charge might exist or could be created
and any and all lawful taxes, rates, levies, assessments, liens, claims or
other charges imposed upon or accruing upon any of the Mortgagor's property
(whether taxed to the Mortgagor or to any noteholder), or the franchises,
earnings or business of the Mortgagor, as and when the same shall become
due and payable; and whenever called upon so to do the Mortgagor will
furnish to the Mortgagee or to any noteholder adequate proof of such
payment or discharge.
SECTION 3. The Mortgagor will duly and punctually pay the
principal of and interest on the notes at the dates and places and in the
manner provided therein, according to the true intent and meaning thereof,
and all other sums becoming due hereunder.
SECTION 4. (a) The Mortgagor will at all times, so long as any
of the notes shall be outstanding, take or cause to be taken all such
action as from time to time may be necessary to preserve its corporate
existence and to preserve and renew all franchises, rights of way,
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easements, permits and licenses now or hereafter to it granted or upon it
conferred, and will comply with all valid laws, ordinances, regulations and
requirements applicable to it or its property. The Mortgagor will not,
without the approval in writing of the holder or holders of not less than a
majority in principal amount of the notes at the time outstanding
(hereinafter called the "majority noteholders"), take or suffer to be taken
any steps to reorganize, or to consolidate with or merge into any other
corporation, or to sell, lease or transfer (or make any agreement therefor)
the Mortgaged Property, or any part thereof.
(b) If this subsection is made applicable by the
Instruments Recital, then nothing herein contained shall prevent any such
reorganization, consolidation or merger provided that the lien and security
of this Mortgage and the rights or powers of the Mortgagee and the
noteholders hereunder shall not thereby be impaired or adversely affected,
and provided that upon such reorganization, consolidation or merger, the
due and punctual payment of the principal of and interest on the notes
according to their tenor and the due and punctual performance of all
covenants and conditions of this Mortgage shall be assumed by the
corporation formed by such reorganization, consolidation or merger, and the
lien of this Mortgage shall remain a superior lien upon the property owned
by the Mortgagor at the time of such reorganization, consolidation or
merger and upon any improvements or additions to such property, either
prior to or subsequent to such reorganization, consolidation or merger.
(c) The Mortgagor may, however, without obtaining the
approval of the holder or holders of any of the notes at the time
outstanding, at any time or from time to time so long as the Mortgagor is
not in default hereunder, sell or otherwise dispose of, free from the lien
hereof, any of its property which is neither necessary to nor useful for
the operation of the Mortgagor's business, or which has become obsolete,
worn out or damaged or otherwise unsuitable for the purposes of the
Mortgagor; provided, however, that the Mortgagor shall: (1) to the extent
necessary, replace the same by, or substitute therefor, other property of
the same kind and nature, which shall be subject to the lien hereof, free
and clear of all prior liens, and apply any proceeds derived from such sale
or other disposition of such property and not needed for the replacement
thereof to the payment of the indebtedness evidenced by the notes; or
(2) immediately upon the receipt of the proceeds of any sale or other
disposition of said property, apply the entire amount of such proceeds to
the payment of the indebtedness evidenced by the notes; or (3) deposit all
or such part of the proceeds derived from the sale or other disposition of
said property as the majority noteholders shall specify in such restricted
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bank accounts as such holder or holders shall designate, and shall use the
same only for such additions to or improvements of the Mortgaged Property
and on such terms and conditions as such holder or holders shall specify.
SECTION 5. The Mortgagor will at all times maintain and preserve
the Mortgaged Property in good repair, working order and condition, and
will from time to time make all needful and proper repairs, renewals, and
replacements, and useful and proper alterations, additions, betterments and
improvements, and will, subject to contingencies beyond its reasonable
control, at all times keep its plant and properties in continuous operation
and use all reasonable diligence to furnish the subscribers served by it
through the Mortgaged Property with adequate telephone service.
SECTION 6. Except as specifically authorized in writing in
advance by the majority noteholders, the Mortgagor will purchase all
materials, equipment, supplies and replacements to be incorporated in or
used in connection with the Mortgaged Property outright, and not subject to
any conditional sales agreement, chattel mortgage, bailment lease, or other
agreement reserving to the seller any right, title or lien.
SECTION 7. (a) The Mortgagor will take out, as the
respective risks are incurred, and maintain the following classes and
amounts of insurance: (1) fidelity bonds covering each officer and
employee of the Mortgagor in not less than the following amounts, based on
the estimated annual gross revenues (including gross toll collected) of the
Mortgaged Property:
<TABLE>
<CAPTION>
ANNUAL GROSS REVENUE AMOUNT OF COVERAGE
<S> <C> <C> <C> <C>
Less than $ 200,000 $ 10,000
$200,001 to 400,000 20,000
400,001 to 600,000 40,000
From 600,001 to 800,000 60,000
800,001 to 1,000,000 80,000
over 1,000,000 100,000
</TABLE>
and each collection agent of the Mortgagor shall be included in such
fidelity bonds for not less than $2,500, or 10 percent of the highest
amount collected annually by any one collection agent, whichever is
greater; (2) workmen's compensation insurance covering all employees of the
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Mortgagor, in such amounts as may be required by law, or if the Mortgagor
or any of its employees are not subject to the workmen's compensation laws
of the State or States in which the Mortgagor conducts its operations, then
its workmen's compensation policy shall provide voluntary compensation
coverage to the same extent as though the Mortgagor and such employees were
subject to such laws; and including occupational disease liability
coverage, and "additional medical" coverage of not less than $10,000 in
States where full medical coverage is not required by law; (3) public
liability and property damage liability insurance, covering ownership
liability, and all operations of the Mortgagor, with limits for bodily
injury or death of not less than $100,000 for one person and $300,000 for
each accident, and with limits for property damage of not less than $50,000
for each accident and $100,000 aggregate for the policy period;
(4) liability insurance on all motor vehicles, trailers, semitrailers, and
aircraft used in the conduct of the Mortgagor's business, whether owned,
non-owned or hired by the Mortgagor, with bodily injury limits of not less
than $100,000 for one person and $300,000 for each accident, and with
property damage limits of $25,000 for each accident; in connection with
aircraft liability, also passenger bodily injury limits of $100,000 per
person and $300,000 for each accident; (5) comprehensive, or separate fire,
theft and windstorm insurance covering loss of or damage to all owned motor
vehicles, trailers, and aircraft of the Mortgagor, having a unit value in
excess of $1,000, in an amount not less than the actual cash value of the
property insured; and (6) fire and extended coverage insurance, designating
the Government as mortgagee in the policy, on each building, each building
and its contents, and materials, supplies, poles and crossarms, owned by
the Mortgagor, having a value at any one location in excess of $5,000, or
in excess of one percent of the total plant value, whichever is larger, and
in an amount not less than 80 percent of the current cost to replace the
property new, less actual depreciation.
The Mortgagor will also, from time to time, increase or
supplement the classes and amounts of insurance specified above to the
extent required to conform to the accepted practice of the telephone
industry for companies of the size and character of the Mortgagor. The
Mortgagor will, upon request of the majority noteholders, submit to the
noteholder or noteholders designated in such request a schedule of its
insurance in effect on the date specified in such request. If the
Mortgagor shall at any time fail or refuse to take out or maintain
insurance or to make changes in respect thereof upon appropriate request by
such noteholder or noteholders, such noteholder or noteholders may take out
such insurance on behalf and in the name of the Mortgagor, and the
Mortgagor will pay the cost thereof.
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(b) In the event of damage to or the destruction or
loss of any portion of the Mortgaged Property which shall be covered by
insurance, unless the majority noteholders shall otherwise agree, the
Mortgagor shall replace or restore such damaged, destroyed or lost portion
so that the Mortgaged Property shall be in substantially the same condition
as it was in prior to such damage, destruction or loss, and shall apply the
proceeds of the insurance for that purpose. The Mortgagor shall replace
the loss or shall commence such restoration promptly after such damage,
destruction or loss shall have occurred and shall complete such replacement
or restoration as expeditiously as practicable, and shall pay or cause to
be paid out of the proceeds of such insurance all costs and expenses in
connection therewith so that such replacement or restoration shall be so
completed that the portion of the Mortgaged Property so replaced or
restored shall be free and clear of all mechanics' liens and other claims.
(c) Sums recovered under any fidelity bond by the
Mortgagor for a loss of funds advanced under the notes or recovered by a
Mortgagee for any loss under such bond shall, unless otherwise directed by
the Mortgagee, be applied to the prepayment of the notes, PRO RATA
according to the unpaid principal amounts thereof or to construct or
acquire facilities approved by the Mortgagee, which will become part of the
Mortgaged Property.
(d) The foregoing insurance coverage shall be obtained
by means of bond and policy forms approved by regulatory authorities,
including standard REA endorsements and riders used by the insurance
industry to provide coverage for REA borrowers.
SECTION 8. In the event of the failure of the Mortgagor in any
respect to comply with the covenants and conditions herein contained with
respect to the procuring of insurance, the payment of taxes, assessments
and other charges, the keeping of the Mortgaged Property in repair and free
of liens and other claims or to comply with any other covenant contained in
this Mortgage, any noteholder or noteholders shall have the right (without
prejudice to any other rights arising by reason of such default) to advance
or expend moneys for the purpose of procuring such insurance, or for the
payment of insurance premiums, taxes, assessments or other charges, or to
save the Mortgaged Property from sale or forfeiture for any unpaid tax or
assessment, or otherwise, or to redeem the same from any tax or other sale,
or to purchase any tax title thereon, or to remove or purchase any
mechanics' liens or other encumbrance thereon, or to make repairs thereon
or to comply with any other covenant herein contained or to prosecute or
defend any suit in relation to the Mortgaged Property or in any manner to
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protect the Mortgaged Property and the title thereto, and all sums so
advanced for any of the aforesaid purposes within interest thereon at the
highest legal rate but not in excess of twelve per centum (12%) per annum
shall be deemed a charge upon the Mortgaged Property in the same manner as
the notes at the time outstanding are secured and shall be forthwith paid
to the noteholder or noteholders making such advance or advances upon
demand. It shall not be obligatory for any noteholder in making any such
advances or expenditures to inquire into the validity of any such tax
title, or of any of such taxes or assessments or sales therefor, or of any
such mechanics' liens or other encumbrance.
SECTION 9. The Mortgagor will not, without the approval in
writing of the majority noteholders: (a) enter into any contract or
contracts for the operation or maintenance of all or any part of its
property, for the use by others of any of the Mortgaged Property, or for
toll traffic, operator assistance, extended scope or switching services to
be furnished by or for connecting or other companies; provided, however,
that such approval shall not be required for any toll traffic or operator
assistance contract which in form and substance conforms with contracts in
general use in the telephone industry; or (b) deposit any of its funds,
regardless of the source thereof, in any bank which is not insured by the
Federal Deposit Insurance Corporation, or the successor thereof.
SECTION 10. (a) If this subsection is made applicable by the
Instruments Recital, the Mortgagor will not pay its directors or trustees,
as such, any salaries for their services, except such as shall have been
approved by the majority noteholders, provided that nothing herein
contained shall preclude any director or trustee from serving the Mortgagor
in any other capacity and receiving compensation therefor.
(b) Salaries, wages and other compensation paid by the
Mortgagor for services, and directors' or trustees' fees, shall be
reasonable and in conformity with the usual practice of corporations of the
size and nature of the Mortgagor. Except as specifically authorized in
writing in advance by the majority noteholders, the Mortgagor will make no
advance payments or loans, or in any manner extend its credit, either
directly or indirectly, with or without interest, to any of its directors,
trustees, officers, employees, stockholders, members or affiliated
companies. As used in this section, the term "affiliated companies" shall
have the meaning prescribed for this term by the Federal Communications
Commission in its prevailing uniform system of accounts for Class A
telephone companies.
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SECTION 11. The Mortgagor will at all times keep, and safely
preserve, proper books, records and accounts in which full and true entries
will be made of all of the dealings, business and affairs of the Mortgagor,
in accordance with methods of accounting prescribed by the state regulatory
body having jurisdiction over the Mortgagor, or in the absence of such
regulatory body or such prescription, by the Federal Communications
Commission. The Mortgagor will prepare and furnish each noteholder not
later than the thirtieth day of January, April, July and October in each
year, or at less frequent intervals when specified by the majority
noteholders, financial and statistical reports on its condition and
operations. Such reports shall be in such form and include such
information as may be specified by the majority noteholders, including
without limitation an analysis of the Mortgagor's revenues, expenses, and
subscriber accounts. The Mortgagor will cause to be prepared and furnished
to each noteholder at least once during each 12-month period during the
term hereof, a full and complete report of its financial condition as of a
date (hereinafter called the Fiscal Date) not more than 90 days prior to
the date such report is furnished to the noteholders hereunder, and of its
operations for the twelve-month period ended on the fiscal date, in form
and substance satisfactory to the majority noteholders, audited and
certified by independent certified public accountants satisfactory to said
noteholders and accompanied by a report of such audit in form and substance
satisfactory to said noteholders. The majority noteholders, through its or
their representatives, shall at all times during reasonable business hours
have access to, and the right to inspect and make copies of, any or all
books, records and accounts, and any or all invoices, contracts, leases,
payrolls, cancelled checks, statements and other documents and papers of
every kind belonging to or in the possession of the Mortgagor or in anywise
pertaining to its property or business.
SECTION 12. (a) The Mortgagor will from time to time upon
written demand of the majority noteholders make, execute, acknowledge and
deliver or cause to be made, executed, acknowledged and delivered all such
further and supplemental indentures of mortgage, deeds of trust, mortgages,
financing statements, continuation statements, security agreements,
instruments and conveyances as may reasonably be requested by the majority
noteholders and take or cause to be taken all such further action as may
reasonably be requested by the majority noteholders to effectuate the
intention of these presents and to provide for the securing and payment of
the principal of and interest on the notes according to the terms thereof
and for the purpose of fully conveying, transferring and confirming unto
the Mortgagee the property hereby conveyed, mortgaged and pledged, or
intended so to be, whether now owned by the Mortgagor or hereafter acquired
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by it and to reflect the assignment of the rights or interests of the
Mortgagee or of any noteholder hereunder or under any note. The Mortgagor
will cause this Mortgage and any and all supplemental indentures of
mortgage, mortgages and deeds of trust and every security agreement,
financing statement, continuation statement and every additional instrument
which shall be executed pursuant to the foregoing provisions forthwith upon
execution to be recorded and filed and rerecorded and refiled as
conveyances and mortgages and deeds of trust of and security interests in
real and personal property in such manner and in such places as may be
required by law or reasonably requested by the majority noteholders in
order fully to preserve the security for the notes and to perfect and
maintain the superior lien of this Mortgage and all supplemental indentures
of mortgage, mortgages and deeds of trust and the rights and remedies of
the Mortgagee and the noteholders.
(b) In the event that the Mortgagor has had or suffers
a deficit in net income, as determined in accordance with methods of
accounting prescribed in Section 11 of Article II hereof, for any of the
five fiscal years immediately preceding the date hereof or for any fiscal
year while any of the notes are outstanding, the Mortgagor will at any time
or times upon written demand of the majority noteholders make, execute,
acknowledge and deliver or cause to be made, executed, acknowledged and
delivered all such further and supplemental indentures of mortgage,
mortgages, security agreements, financing statements, instruments and
conveyances, and take or cause to be taken all such further action, as may
reasonably be requested by the majority noteholders in order to include in
this Mortgage, as Mortgaged Property, and to subject to all the terms and
conditions of this Mortgage, all right, title and interest of the Mortgagor
in and to, all and singular, the automobiles, trucks, trailers, tractors,
aircraft, ships and other vehicles then owned by the Mortgagor, or which
may thereafter be owned or acquired by the Mortgagor. From and after the
time of such written demand of the majority noteholders such vehicles shall
be deemed to be part of the Mortgaged Property for all purposes hereof.
SECTION 13. Any noteholder may, at any time or times in
succession without notice to or the consent of the Mortgagor or any other
noteholder and upon such terms as such noteholder may prescribe, grant to
any person, firm or corporation who shall have become obligated to pay all
or any part of the principal of or interest on any note held by or
indebtedness owed to such noteholder or who may be affected by the lien
hereby created, an extension of the time for the payment of such principal
or interest, and after any such extension the Mortgagor will remain liable
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for the payment of such note or indebtedness to the same extent as though
it had at the time of such extension consented thereto in writing.
SECTION 14. The Mortgagor, subject to applicable laws and rules,
and regulations and orders of regulatory bodies, will charge for telephone
service furnished by its rates which shall yield revenues at least
sufficient to enable the Mortgagor to pay and discharge all taxes and
expenses when due, and also to make any payment in respect of principal of
and interest on the notes when and as the same shall become due. The
Mortgagor will, not less than ninety (90) days prior to the effective date
of any proposed change in its rate, give to the holder or holders of the
notes at the time outstanding written notice of such proposed change and a
copy of a schedule showing the then existing rates and the proposed changes
therein.
SECTION 15. (a) Except as specifically authorized in writing in
advance by the majority noteholders, the Mortgagor will not declare or pay
any dividends on its capital stock, membership certificates or equity
capital certificates (other than in shares of such capital stock or in such
certificates), or make any other distribution to its stockholders, members
or subscribers, or purchase, redeem or retire any of its capital stock,
membership certificates or equity capital certificates, or make any
investment in affiliated companies, unless after such action the
Mortgagor's current assets will equal or exceed its current liabilities
(exclusive of current liabilities incurred for additions to plant), and the
Mortgagor's adjusted net worth will be at least forty per centum (40%) of
its adjusted assets, or the sum of the following (whichever is the smaller
amount):
(1) the percentage of its adjusted assets specified in the
Instruments Recital, plus
(2) thirty per centum (30%) of its adjusted net worth, if
any, in excess of the amount represented by the
percentage of adjusted assets set out in the
immediately preceding subparagraph (1), plus
(3) thirty per centum (30%) of the amount of any reduction
of its adjusted net worth after the date specified in
the Instruments Recital, resulting from the declaration
or payment of dividends or distributions, the purchase,
redemption or retirement of its capital stock,
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membership certificates or equity capital certificates
or investments in affiliated companies.
(b) During such time or times as the Mortgagor's
adjusted net worth is less than the percentage of its adjusted assets
specified in the Instruments Recital:
(1) the Mortgagor will make no increase, without prior written
approval of the majority noteholders, in salaries, wages, fees
and other compensation paid to officers, directors, trustees,
executives, or supervisors of the Mortgagor, or to other
employees having either a substantial ownership interest in the
Mortgagor, or a close family relationship with officers,
directors, trustees, executives, supervisors, or holders of
substantial ownership interests in the Mortgagor; and
(2) the Mortgagor will promptly furnish the majority noteholders with
certified copies of the minutes of all meetings of its
stockholders, members, directors or trustees; and
(3) if the operation of the Mortgaged Property for the preceding
calendar year resulted in a decrease in the Mortgagor's earned
surplus accounts, the Mortgagor will, upon request in writing of
the majority noteholders, take all required action to increase
its charges for telephone service or to execute a plan for
reducing expenses, such increase in charges and such plan to be
submitted to all the noteholders and to be acceptable to and
approved in writing by the majority noteholders.
(c) During such time or times as the Mortgagor's
adjusted net worth is less than twenty per centum (20%) of its adjusted
assets:
(1) the Mortgagor will promptly furnish the noteholders with a
detailed report on ownership or transfers of its capital stock,
membership certificates or equity capital certificates whenever
requested in writing by the majority noteholders, or whenever one
per centum (1%) or more of its outstanding ownership interests
has been transferred since the last preceding report to such
noteholders on ownership interests or transfers; and
(2) whenever any change in ownership interests in the Mortgagor
occurs which in the sole opinion of the majority noteholders
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might adversely affect its or their security, the Mortgagor will,
upon request in writing of the majority noteholders:
(a) increase its adjusted net worth, within one year of
such written request, to the level requested by the
majority noteholders, up to twenty per centum (20%) of
its adjusted assets; and
(b) take no action which would result in reducing its
adjusted net worth thereafter below the sum of (i) the
amount representing the level of net worth requested by
the majority noteholders pursuant to subparagraph (c)
(2) (a) above, plus (ii) thirty per centum (30%) of its
adjusted net worth, if any, in excess of the level of
net worth referred to in the immediately preceding
subclause (i), plus (iii) thirty per centum (30%) of
the amount of any reduction of its adjusted net worth
after the date of such request by the majority
noteholders, resulting from the declaration or payment
of dividends or distributions, the purchase, redemption
or retirement of its capital stock, membership
certificates or equity capital certificates, or
investments in affiliated companies.
(d) As used in this Section 15, the following terms
shall have these meanings:
(1) The term "adjusted net worth" means the sum of the Mortgagor's
"Stock," "Other Capital Surplus" and "Earned Surplus" accounts,
less "adjustments."
(2) The term "adjusted assets" means the sum of the Mortgagor's
accounts classified as "Investments," "Current Assets," "Other
Assets," and "Prepaid Accounts and Deferred Charges," plus an
amount equal to the amount of loan funds still to be advanced
under the Consolidated Loan Agreement, if such amount has not
been recorded as "Subscriptions to Funded Debt," less the sum of
the "Depreciation Resreve," and "Amortization Reserve" accounts
and "adjustments."
(3) The term "adjustments" used in the foregoing definitions means
the sum of the following: "Investments in Affiliated Companies,"
"Advances to Affiliated Companies," "Telephone Plant Acquisition
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Adjustment" debit amounts in excess of "Amortization Reserve,"
"Telephone Plant Adjustment" debit balances, "Company Securities
Owned," unpaid "Subscriptions to Capital Stock," and "Discount on
Capital Stock."
(4) Titles of accounts or groups of accounts and other terms
describing accounting transactions, used in the foregoing
definitions or in this section 15, shall have the meanings
prescribed for them by the Federal Communications Commission in
its prevailing uniform system of accounts for Class A telephone
companies. These terms shall also apply to accounts or groups of
accounts, of the Mortgagor, regardless of the account title or
the system of accounts used, if such accounts have substantially
the same meaning as terms referred to in such uniform system of
accounts.
SECTION 16. In the event that the Mortgaged Property, or any
part thereof, shall be taken under the power of eminent domain, all
proceeds and avails therefrom, except to the extent that all noteholders
shall consent to other use and application thereof by the Mortgagor, shall
forthwith be applied by the Mortgagor: first, to the ratable payment of
any indebtedness by this Mortgage secured other than principal of or
interest on the notes; second, to the ratable payment of interest which
shall have accrued on the notes and be unpaid; third, to the ratable
payment of or on account of the unpaid principal of the notes; and fourth,
the balance shall be paid to whosoever shall be entitled thereto.
SECTION 17. The Mortgagor will well and truly observe and
perform all of the covenants, agreements, terms and conditions contained in
the Consolidated Loan Agreement, on its part to be observed or performed.
SECTION 18. If this section is made applicable by the
Instruments Recital, then: (a) The Mortgagor will not at any time employ,
or enter into any contract for the employment of, any manager of its
telephone properties, unless such employment or such contract shall first
have been approved by the majority noteholders. (b) If, during such
periods as the Mortgagor shall be in default in the making of a payment or
payments of principal of or interest on one or more of the notes, the
majority noteholders shall give notice to the Mortgagor that in their
opinion its telephone properties are not being efficiently operated, and
shall request the termination of the employment of any such manager, or
shall request the termination of any operating contract in respect of any
such telephone properties, the Mortgagor will terminate such employment or
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operating contract within thirty (30) days after the date of such notice.
(c) All contracts in respect of the employment of any such manager or for
the operation of such telephone properties shall contain provisions to
permit compliance with the foregoing covenants.
SECTION 19. At all times when any note is held by the
Government, or in the event the Government shall assign a note without
having insured the payment of such note, this Mortgage shall secure payment
of such note for the benefit of the Government or such uninsured holder
thereof, as the case may be. Whenever any note may be sold to an insured
purchaser, it shall continue to be considered a "note" as defined herein,
but as to any such insured note, the Government, and not such insured
purchaser, shall be considered to be, and shall have the rights of, the
noteholder for purposes of this Mortgage. Notice of the rights of the
Government under the preceding sentence shall be set forth in all such
insured notes. As to any note which may evidence the obligations of the
Mortgagor to the Government on account of a guarantee or guarantees made by
the Government pursuant to the Act of the repayment of a loan or loans made
by a legally organized lending agency or agencies to the Mortgagor, the
Government, and not such legally organized lending agency or agencies,
shall be considered to be, and shall have the rights of, the noteholder for
purposes of this Mortgage.
ARTICLE III
REMEDIES OF THE MORTGAGEE AND NOTEHOLDERS
SECTION 1. If one or more of the following events (hereinafter
called "events of default") shall happen, that is to say:
(a) default shall be made in the payment of any installment of
or on account of interest on or principal of any note or notes when
and as the same shall be required to be made and such default shall
continue for thirty (30) days;
(b) default shall be made in the due observance or performance
of any other of the representations, warranties, covenants, conditions
or agreements on the part of the Mortgagor in any of the notes or in
this Mortgage or in the Consolidated Loan Agreement contained; and
such default shall continue for a period of thirty (30) days after
written notice specifying such default and requiring the same to be
remedied shall have been given to the Mortgagor by any noteholder;
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(c) the Mortgagor shall file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, or shall make an assignment for
the benefit of its creditors, or shall consent to the appointment of a
receiver of itself or of its property, or shall institute proceedings
for its reorganization or proceedings instituted by others for its
reorganization shall not be dismissed within thirty (30) days after
the institution thereof;
(d) a receiver or liquidator of the Mortgagor or of any
substantial portion of its property shall be appointed and the order
appointing such receiver or liquidator shall not be vacated within
thirty (30) days after the entry thereof;
(e) the Mortgagor shall forfeit or otherwise be deprived of its
corporate charter or franchises, permits or licenses required to carry
on any material portion of its business;
(f) a final judgment shall be entered against the Mortgagor and
shall remain unsatisfied or without a stay in respect thereof for a
period of thirty (30) days; or
then in each and every such case any noteholder may, by notice in writing
to the Mortgagor and delivery of a copy thereof to the other noteholders,
declare all unpaid principal of and accrued interest on any or all notes
held by such noteholder to be due and payable immediately; and upon any
such declaration all such unpaid principal and accrued interest so declared
to be due and payable shall become and be due and payable, immediately,
anything contained herein or in any note or notes to be the contrary
notwithstanding; provided, however, that if at any time after the unpaid
principal of and accrued interest on any of the notes shall have been so
declared to be due and payable, all payments in respect of principal and
interest which shall have become due and payable by the terms of such note
or notes shall be paid to the respective noteholders, and all other
defaults hereunder and under the notes shall have been made good or secured
to the satisfaction of all of the noteholders, then and in every such case,
the noteholder or noteholders who shall have declared the principal of and
interest on notes held by such noteholder or noteholders to be due and
payable may, by written notice to the Mortgagor and delivery of a copy
thereof to the other noteholders, annul such declaration or declarations
and waive such default or defaults and the consequences thereof, but no
such waiver shall extend to or affect any subsequent default or impair any
right consequent thereon.
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SECTION 2. If one or more of the events of default shall happen,
the majority noteholders, for itself or themselves, and as the agent or
agents of the other noteholders, personally or by attorney, in its or their
discretion, may, insofar as not prohibited by law:
(a) take immediate possession of the Mortgaged Property, collect
and receive all credits, outstanding accounts and bills receivable of
the Mortgagor and all rents, income, revenues and profits pertaining
to or arising from the Mortgaged Property, or any part thereof, and
issue binding receipts therefor; and manage, control and operate the
Mortgaged Property as fully as the Mortgagor might do if in possession
thereof, including, without limitation, the making of all repairs or
replacements deemed necessary or advisable;
(b) proceed to protect and enforce the rights of the Mortgagee
and the rights of the noteholder or noteholders under this Mortgage by
suits or actions in equity or at law in any court or courts of
competent jurisdiction, whether for specific performance of any
covenant or any agreement contained herein or in aid of the execution
of any power herein granted or for the foreclosure hereof or hereunder
or for the sale of the Mortgaged Property, or any part thereof, or to
collect the debts hereby secured or for the enforcement of such other
or additional appropriate legal or equitable remedies as may be deemed
most effectual to protect and enforce the rights and remedies herein
granted or conferred, and in the event of the institution of any such
action or suit the noteholder or noteholders instituting such action
or suit shall have the right to have appointed a receiver of the
Mortgaged Property and of all rents, income, revenues and profits
pertaining thereto or arising therefrom derived, received or had from
the time of the commencement of such suit or action, and such receiver
shall have all the usual powers and duties of receivers, in like and
similar cases, to the fullest extent permitted by law, and if
application shall be made for the appointment of a receiver the
Mortgagor hereby expressly consents that the court to which such
application shall be made may make said appointment; and
(c) sell or cause to be sold all and singular the Mortgaged
Property or any part thereof, and all right, title, interest, claim
and demand of the Mortgagor therein or thereto, at public auction at
such place in any county in which the property to be sold, or any part
thereof is located, at such time and upon such terms as may be
specified in a notice of sale, which shall state the time when and the
place were the sale is to be held, shall contain a brief general
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description of the property to be sold, and shall be given by mailing
a copy thereof to the Mortgagor at least fifteen (15) days prior to
the date fixed for such sale and by publishing the same once in each
week for two successive calendar weeks prior to the date of such sale
in a newspaper of general circulation published in said county, or if
no such newspaper is published in such county, in a newspaper of
general circulation in such county, the first such publication to be
not less than fifteen (15) days nor more than thirty (30) days prior
to the date fixed for such sale. Any sale to be made under this
subparagraph (c) of this section 2 may be adjourned from time to time
by announcement at the time and place appointed for such sale or for
such adjourned sale or sales, and without further notice or
publication the sale may be had at the time and place to which the
same shall be adjourned, provided, however, that in the event another
or different notice of sale or another or different manner of
conducting the same shall be required by law the notice of sale shall
be given or the sale shall be conducted, as the case may be, in
accordance with the applicable provisions of law.
SECTION 3. If, within thirty (30) days after the majority
noteholders shall have had knowledge of the happening of an event or events
of default, such noteholder or noteholders shall not have proceeded to
exercise the rights or to enforce the remedies herein or by law conferred
upon or reserved to the Mortgagee or to the noteholders, then, and only
then, any noteholder, for itself and as the agent of the other noteholders,
may proceed forthwith to exercise such rights and to enforce such remedies.
Nothing herein contained shall, however, affect or impair the right, which
is absolute and unconditional, of any holder of any note which may be
secured hereby to enforce the payment of the principal of or interest on
such note on the date or dates any such interest or principal shall become
due and payable in accordance with the terms of such note.
SECTION 4. At any sale hereunder any noteholder or noteholders
shall have the right to bid for and purchase the Mortgaged Property, or
such part thereof as shall be offered for sale, and any noteholder or
noteholders may apply in settlement of the purchase price of the property
so purchased the portion of the net proceeds of such sale which would be
applicable to the payment on account of the principal of and interest on
the note or notes held by such noteholder or noteholders, and such amount
so applied shall be credited as a payment on account of principal of and
interest on the note or notes held by such noteholder or noteholders.
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SECTION 5. Any proceeds or funds arising from the exercise of
any rights or the enforcement of any remedies herein provided after the
payment or provision for the payment of any and all costs and expenses in
connection with the exercise of such rights or the enforcement of such
remedies shall be applied first, to the payment of indebtedness hereby
secured other than the principal of or interest on the notes; second, to
the ratable payment of interest which shall have accrued on the notes and
which shall be unpaid; third, to the ratable payment of or on account of
the unpaid principal of the notes; and the balance, if any, shall be paid
to whosoever shall be entitled thereto.
SECTION 6. The Mortgagor covenants that it will give immediate
written notice to the Mortgagee and to all of the noteholders of the
occurrence of an event of default.
SECTION 7. Every right or remedy herein conferred upon or
reserved to the Mortgagee or to the noteholders shall be cumulative and
shall be in addition to every other right and remedy given hereunder or now
or hereafter existing at law, or in equity, or by statute. The pursuit of
any right or remedy shall not be construed as an election.
SECTION 8. The Mortgagor, for itself and all who may claim
through or under it, covenants that it will not at any time insist upon or
plead, or in any manner whatever claim, or take the benefit or advantage
of, any appraisement, valuation, stay, extension or redemption laws nor or
hereafter in force in any locality where any of the Mortgaged Property may
be situated, in order to prevent, delay or hinder the enforcement or
foreclosure of this Mortgage, or the absolute sale of the Mortgaged
Property, or any part thereof, or the final and absolute putting into
possession thereof, immediately after such sale, of the purchaser or
purchasers thereat, and the Mortgagor, for itself and all who may claim
through or under it, hereby waives the benefit of all such laws unless such
waiver shall be forbidden by law.
ARTICLE IV
POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE
SECTION 1. Until some one or more of the events of default shall
have happened, the Mortgagor shall be suffered and permitted to retain
actual possession of the Mortgaged Property, and to manage, operate and use
the same and any part thereof, with the rights and franchises appertaining
thereto, and to collect, receive, take, use and enjoy the rents, revenues,
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issues, earnings, income, products and profits thereof or therefrom,
subject to the provisions of this Mortgage.
SECTION 2. If the Mortgagor shall well and truly pay or cause to
be paid the whole amount of the principal of and interest on the notes at
the time and in the manner therein provided, according to the true intent
and meaning thereof, and shall also pay or cause to be paid all other sums
payable hereunder by the Mortgagor and shall well and truly keep and
perform according to the true intent and meaning of this Mortgage, all
covenants herein required to be kept and performed by it, then and in that
case, all property, rights and interests hereby conveyed or assigned or
pledged shall revert to the Mortgagor and the estate, right, title and
interest of the Mortgagee and the noteholders shall thereupon cease,
determine and become void and the Mortgagee and the noteholders, in such
case, on written demand of the Mortgagor but at the Mortgagor's cost and
expense, shall enter satisfaction of this Mortgage upon the record. In any
event, each noteholder, upon payment in full to him by the Mortgagor of all
principal of and interest on any note held by him and the payment and
discharge by the Mortgagor of all charges due to such noteholder hereunder,
shall execute and deliver to the Mortgagor such instrument of satisfaction,
discharge or release as shall be required by law in the circumstances.
ARTICLE V
MISCELLANEOUS
SECTION 1. It is hereby declared to be the intention of the
Mortgagor that all lines, or systems, embraced in the Mortgaged Property,
including, without limitation, all rights of way and easements granted or
given to the Mortgagor or obtained by it to use real property in connection
with the construction, operation or maintenance of such lines, or systems,
and all service and connecting lines, poles, posts, crossarms, wires,
cables, conduits, ducts, connections and fixtures forming part of, or used
in connection with, such lines, or systems, and all other property
physically attached to any of the foregoing-described property, shall be
deemed to be real property.
SECTION 2. To the extent that any property described or referred
to in this Mortgage is governed by the provisions of the Uniform Commercial
Code, this Mortgage is hereby deemed a "security agreement" under the
Uniform Commercial Code, and this Mortgage is also hereby declared to be
"financing statement" under the Uniform Commercial Code for said security
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agreement. The mailing address of the Mortgagor as debtor and the
Mortgagee as secured party are as set forth in Section 6 of this Article V.
SECTION 3. All acts and obligations of the Mortgagor hereunder
shall be subject to all applicable orders, rules and regulations, now or
hereafter in effect, of all regulatory bodies having jurisdiction in the
premises, to the end that no act or omission to act on the part of the
Mortgagor shall constitute a default hereunder insofar as such act or
omission shall have been required by reason of any order, rule or
regulation of any such regulatory body.
SECTION 4. All of the covenants, stipulations, promises,
undertakings and agreements herein contained by or on behalf of the
Mortgagor shall bind its successors and assigns, whether so specified or
not, and all titles, rights and remedies hereby granted to or conferred
upon the Mortgagee shall pass to and inure to the benefit of the successors
and assigns of the Mortgagee and shall be deemed to be granted or conferred
for the ratable benefit and security of all who shall from time to time be
the holders of notes executed and delivered as herein provided.
SECTION 5. The descriptive headings of the various articles of
this Mortgage were formulated and inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the
provisions hereof.
SECTION 6. All demands, notices, reports, approvals,
designations, or directions required or permitted to be given hereunder
shall be in writing and shall be deemed to be properly given if mailed by
registered mail addressed to the proper party or parties at the following
addresses:
As to the Mortgagor: Dakota Cooperative Telecommunications, Inc.
P. O. Box 66
Irene, South Dakota 57037
As to the Mortgagee: Rural Electrification Administration
Washington, D. C. 20250-1500
and as to any other person, firm, corporation or governmental body or
agency having an interest herein by reason of being the holder of any note
or otherwise, at the last address designated by such person, firm,
corporation, governmental body or agency to the Mortgagor and the
Mortgagee. The Mortgagor or the Mortgagee may from time to time designate
-32-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
to one another a new address to which demands, notices, reports, approvals,
designations or directions may be addressed and from and after any such
designation the address designated shall be deemed to be the address of
such party in lieu of the address hereinabove given. The Mortgagor will
promptly notify the Mortgagee in writing of any change in location of its
chief place of business or the office where its records concerning accounts
and contract rights are kept.
SECTION 7. The invalidity of any one or more phrases, clauses,
sentences, paragraphs or provisions shall not affect the remaining portions
of this Mortgage, nor shall any such invalidity as to any holder of notes
hereunder affect the rights hereunder of any other holder of notes.
SECTION 8. This Mortgage may be simultaneously executed in any
number of counterparts, and all said counterparts executed and delivered,
each as an original, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.,
P.O. Box 66, Irene, South Dakota 57037 as Mortgagor and debtor, has caused
this Mortgage to be signed in its name and its corporate seal to be
hereunto affixed and attested by its officers thereunto duly authorized,
and UNITED STATES OF AMERICA, as Mortgagee and secured party, has caused
this Mortgage to be duly executed in its behalf, all as of the day and year
first above written.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
(Seal) by /s/
Attest: /s/ President
Secretary
Executed by the Mortgagor
in the presence of:
/s/
/s/
Witnesses
-33-
<PAGE>
Form - Restated Mortgage - Telephone 1/85
100% REA Loan - No Prior Bank Loan
6-5452
UNITED STATES OF AMERICA
by /s/
Administrator
of
Rural Electrification Administration
-34-
<PAGE>
REA PROJECT DESIGNATION:
SOUTH DAKOTA 515-T8 IRENE
SUPPLEMENT TO RESTATED MORTGAGE, SECURITY AGREEMENT
AND FINANCING STATEMENT
made by and among
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
P. O. Box 66
Irene, South Dakota 57014
as mortgagor and debtor,
and
UNITED STATES OF AMERICA
Rural Electrification Administration
Washington, D. C. 20250-1500,
as mortgagee and secured party.
THIS INSTRUMENT GRANTS INTEREST IN A TRANSMITTING UTILITY
THE TYPES OF PROPERTY COVERED BY THIS INSTRUMENT ARE DESCRIBED ON PAGES 4-6
AFTER-ACQUIRED PROPERTY IS COVERED BY THIS INSTRUMENT
PROCEEDS AND PRODUCTS OF COLLATERAL ARE COVERED BY THIS INSTRUMENT
FUTURE ADVANCES AND FUTURE OBLIGATIONS ARE SECURED BY THIS INSTRUMENT
THE SIGNATURES OF THE PARTIES TO THIS INSTRUMENT ARE ON PAGES 14-15
THIS DOCUMENT WAS DRAFTED BY THE OFFICE OF THE GENERAL COUNSEL, UNITED
STATES DEPARTMENT OF AGRICULTURE, WASHINGTON, D. C., 20250-1400
TAXPAYERS IDENTIFICATION NO. 460234208
NO. 18
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
SUPPLEMENT TO RESTATED MORTGAGE, SECURITY
AGREEMENT AND FINANCING STATEMENT, dated as of
April 13, 1992, made by and between DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.----------------------------
---------------------------------------(hereinafter
called the "Mortgagor"), a corporation existing under
the laws of the State of South Dakota-----------------,
and UNITED STATES OF AMERICA (hereinafter called the
"Mortgagee") acting through the Administrator of the
Rural Electrification Administration (hereinafter
called "REA").
WHEREAS, the Mortgagor, for value received, has heretofore duly
authorized and executed, and has delivered to the Mortgagee, or has assumed
the payment of, certain mortgage notes all payable to the order of the
Mortgagee, in installments, of which certain mortgage notes (hereinafter
collectively called the "Outstanding Notes") identified in the fourth
recital hereof (hereinafter called the "Instruments Recital") are now
outstanding and held by the Mortgagee, all of which Outstanding Notes
evidence loans made by the Mortgagee either to the Mortgagor or to third
parties to finance telephone exchanges, lines and related facilities; and
WHEREAS, the Outstanding Notes are secured by the security
instrument or instruments (hereinafter called the "Mortgage"), made by and
between the Mortgagor and the Mortgagee, identified in the Instruments
Recital; and
WHEREAS, the Mortgagor has determined to borrow additional funds
from the Mortgagee, and has accordingly duly authorized, executed and
delivered to the Mortgagee its mortgage note or notes (identified in the
Instruments Recital and hereinafter called, as the case may be, the
"Current Note" or "Current Notes") to be secured by the Mortgage, as
amended and supplemented hereby, of the property hereinafter described; and
WHEREAS, the instruments referred to in the preceding recitals
are identified as follows:
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
INSTRUMENTS RECITAL
"Outstanding Notes":
Nineteen-------------------(19) certain mortgage notes in an aggregate
principal amount of $15,950,000---------------------, all of which will
finally mature on or before March 10, 2021.
"Mortgage":
<TABLE>
<CAPTION>
INSTRUMENT DATE
<S> <C>
Restated Mortgage, Security Agreement March 10, 1986
and Financing Statement
</TABLE>
"Current Note(s)": (Of even date herewith):
<TABLE>
<CAPTION>
INTEREST RATE FINAL
PRINCIPAL AMOUNT (PER ANNUM) PAYMENT DATE
<S> <C> <C>
$7,855,000 five percentum (5%) Twenty-two---(22)
years after the
date thereof
</TABLE>
WHEREAS, the Mortgagee is the owner and holder of the Outstanding
Notes and the Mortgage; and
WHEREAS, it was the intention of the Mortgagor at the time of the
execution of the Mortgage (or, if the Mortgage consists of more than one
instrument, at the time of execution of the earliest instrument thereof)
that the property of the Mortgagor of the classes described therein, as
-2-
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
being mortgaged or pledged thereby, or intended so to be, whether then
owned or thereafter acquired, would secure certain notes of the Mortgagor
executed and delivered prior to the execution and delivery of the Mortgage
(or, if the Mortgage consists of more than one instrument, prior to the
execution and delivery of the earliest instrument thereof), and certain
notes of the Mortgagor when and as executed and delivered under and
pursuant to the Mortgage, as from time to time amended or supplemented, and
it is intended by the Mortgagor to confirm hereby the Mortgage and the
property therein described as being mortgaged or pledged, or intended so to
be, as security for the Outstanding Notes, and other notes of the Mortgagor
when and as executed and delivered under and pursuant to the Mortgage, as
amended and supplemented hereby; and
WHEREAS, the Mortgage provides that the Mortgagor shall, upon the
request in writing of the holder or holders of not less than a majority in
principal amount of the notes secured by the Mortgage at the time
outstanding duly authorize, execute, deliver, record and file all such
supplemental mortgages and conveyances as may reasonably be requested by
such holder or holders to effectuate the intention of the Mortgage and to
provide for the conveying, mortgaging and pledging of the property of the
Mortgagor intended to be conveyed, mortgaged or pledged by the Mortgage to
secure the payment of the principal of and interest on notes executed and
delivered thereunder and pursuant thereto, or otherwise secured thereby,
and the holder of all such notes has in writing requested the execution and
delivery of this Supplement to Restated Mortgage, Security Agreement and
Financing Statement (hereinafter called "this Supplemental Mortgage")
pursuant to such provisions; and
WHEREAS, it s further intended by the Mortgagor, at the request
and with the consent of the Mortgagee, to amend the Mortgage in the
respects hereinafter set forth; and
WHEREAS, all acts, things, and conditions prescribed by law and
by the articles of incorporation and bylaws of the Mortgagor have been duly
performed and complied with to authorize the execution and delivery hereof
and to make the Mortgage, as amended and supplemented hereby, a valid and
binding mortgage to secure the Outstanding Notes and other notes of the
Mortgagor when and as executed and delivered under and pursuant to the
Mortgage, as amended and supplemented hereby; and
WHEREAS, the Mortgagee is authorized to enter into this
Supplemental Mortgage; and
-3-
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
WHEREAS, to the extent that any of the property described or
referred to herein and in the Mortgage is governed by the provisions of the
Uniform Commercial Code of any state (hereinafter called the "Uniform
Commercial Code"), the parties hereto desire that the Mortgage and this
Supplemental Mortgage, collectively, be regarded as a "security agreement"
under the Uniform Commercial Code and that this Supplemental Mortgage be
regarded as a "financing statement" under the Uniform Commercial Code for
said security agreement.
NOW, THEREFORE, in consideration of the premises and the sum of
$5 in hand paid by the Mortgagee to the Mortgagor, the receipt whereof by
the Mortgagor prior to the execution and delivery of this Supplemental
Mortgage is hereby acknowledged, this Supplemental Mortgage witnesseth as
follows:
1. The Mortgagor has executed and delivered this Supplemental
Mortgage and has granted, bargained, sold, conveyed, warranted, assigned,
transferred, mortgaged, pledged and set over, and by these presents does
hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage,
pledge and set over, unto the Mortgagee and its respective assigns, all and
singular the real and personal property described in the Mortgage as being
mortgaged thereby and all and singular the real and personal property of
the Mortgagor falling within the classes of property embraced in the
description of the "Mortgaged Property" set forth in the Mortgage,
including, without limitation, all and singular the real and personal
property of said description heretofore or hereafter acquired by or
constructed by or on behalf of the Mortgagor and wheresoever situate,
including, without limitation, the "Existing Facilities" identified, and
the real estate specifically described (by reference to deeds or
otherwise), in the Mortgage and mortgaged thereby (except such portions, if
any, thereof as have been released prior to the execution and delivery of
this Supplemental Mortgage), and, including, without limitation the
following described real property, located in the Counties of Clay,
Hutchinson, Lincoln, McCook, Minnehaha, Turner, Union and Yankton in the
State of South Dakota, to wit:
CLAY COUNTY
1. A tract of land described as Lots Eleven (11) and Twelve (12), of
Block Eight (8) of the original town of Irene, in Clay County in a
deed dated July 10, 1967 by Floyd H. and Stella Lee, his wife, grantor
to the mortgagor, as grantee and recorded on July 11, 1967 in the
-4-
<PAGE>
office of the Register of Deeds of Clay County in the State of South
Dakota in deed book 48, page 327.
2. A tract of land described as Lot "C" of Lot Two (2), in the Northeast
one-quarter (NE1/4) of Section Six (6), Township Ninety-five (95),
North of Range Fifty-three (53) West of the 5th P.M. of Clay County,
South Dakota in a deed dated September 16, 1974, by Leslie R. and
Eleanor G. Jorgensen, his wife, as grantor to the Mortgagor, as
grantee and recorded on September 18, 1974, in the office of the
Register of Deeds of Clay County in the State of South Dakota, indeed
book 54, page 298.
3. A tract of land described as Lot Fourteen (14), of Block Seven (7),
being a part of Outlot "C" of the town of Wakonda, County of Clay,
South Dakota in a deed dated August 25, 1953, by Frank Fisher, a
single person, as grantor to the Mortgagor, as grantee and recorded on
October 20, 1953, in the office of the Register of Deeds of Clay
County in the State of South Dakota in deed book 43, page 295.
LINCOLN COUNTY
1. A tract of land described as Lot D-C in the Northwest quarter (NW1/4)
of Section Thirty-three (33), Township Ninety-six (96), Range Fifty
(50), West of 5th P.M., Lincoln County, South Dakota, in a deed dated
August 25, 1964, by the American Lutheran Church, as grantor to the
Mortgagor, as grantee, and recorded on October 13, 1964, in the office
of the Register of Deeds of Lincoln County, in the State of South
Dakota in deed book 72, page 47.
2. A tract of land described as Lot Fifteen (15) in Block Eleven (11), of
the original plot of the city of Lennox, South Dakota, in a deed dated
July 26, 1956, by Tony S. Salem, as grantor to the Mortgagor, as
grantee and recorded on July 30, 1956, in the office of the Register
of Deeds of Lincoln County, in the State of South Dakota in deed
book 64, page 243.
3. A tract of land described as Lot Sixteen (16) and the West ninety-two
(92) feet of Lots Seventeen (17) and Eighteen (18), all in Block Eight
(8) of the original town of Worthing, Lincoln County, South Dakota in
a deed book dated August 3, 1973, by Selma Iverson, a widow, as
grantor to the Mortgagor, as grantee and recorded on August 22, 1973,
in the office of the Register of Deeds of Lincoln County, in the State
of South Dakota in deed book 79, page 460.
4. A tract of land described as Lots One (1) and Two (2), of Block Five
(5) being a part of Tracts 1A and 1B in Industrial Tract No. 1, city
of Lennox, Lincoln County, South Dakota, in a deed dated March 24,
1982, by the Lennox Area Development Corporation, a corporation, as
grantor to the Mortgagor, as grantee, and recorded March 25, 1982 in
-5-
<PAGE>
the office of the Register of Deeds of Lincoln County, in the State of
South Dakota in deed book 88, page 202.
TURNER COUNTY
1. A tract of land described as the West half (W1/2) of Lots Thirteen
(13) and Fourteen (14), of Block One (1) of original (Plot of) the
town of Chancellor, South Dakota, being a part of the Northeast one-
quarter (NE1/4) of Section Twenty-eight (28), Township 99, Range 52,
Turner County South Dakota in a deed dated August 15, 1956, by C. T.
DeNeui, as grantor to the Mortgagor, as grantee and recorded on
August 16, 1956, in the office of Register of Deeds of Turner County
in the State of South Dakota in deed book 79, page 235.
2. A tract of land described as Lots Twenty-five (25), Twenty-six (26),
and Twenty-seven (27), Block (7), original town of Davis, being a part
of the West One-half (W1/2), Southeast One-quarter (SE1/4), of Section
Thirty-three (33), Township 98, Range 52, Turner County, South Dakota
in a deed dated March 23, 1953, by Dakota State Telephone Company (a
corporation), as grantor to the Mortgagor, as grantee and recorded on
September 1, 1953, in the office of the Register of Deeds of Turner
County in the State of South Dakota in deed book 78, pages 57, 58, 59
and 60.
3. A tract of land described as Outlot "A" of the Southeast One-quarter
(SE1/4) of the Southeast One-quarter (SE1/4), of Section Twenty-three
(23), Township Ninety-seven (97), North, Range Fifty-five (55), West
of the 5th P.M., Turner County, South Dakota in a deed dated July 9,
1954, by John Anderson, a widower, as grantor to the Mortgagor, as
grantee and recorded July 12, 1954 in the office of the Register of
Deeds in Turner County in the State of South Dakota in deed book 77,
page 469.
4. A tract of land described as the North Eighty (80') feet of Lots Eight
(8) and Nine (9), Block Twenty-three (23), of the original town, city
of Hurley, South Dakota, being a part of the Northeast One-quarter
(NE1/4) of Section Twenty-seven (27), Township 98, Range 53, Turner
County, South Dakota in a deed dated November 14, 1968 by Berchel
Anderson and Marie P. Anderson, his wife, as grantors to the
Mortgagor, as grantee and recorded November 15, 1968 in the office of
the Register of Deeds, Turner County in the State of South Dakota in
deed book 84, page 40.
5. A tract of land described as Lot Ten (10), of Block Twenty-three (23),
of the original Plot of the town of Hurley, South Dakota, being a part
of the Northeast One-quarter (NE1/4) of Section Twenty-seven (27),
Township 98, Range 53, Turner County, South Dakota in a deed dated
January 3, 1961, by Lawrence W. and Marjorie L. Weier, his wife, as
grantors to the Mortgagor, as grantee and recorded January 4, 1961 in
-6-
<PAGE>
the office of the Register of Deeds, Turner County in the State of
South Dakota in deed book 80, page 421.
6. A tract of land described as Lots Ten (10), Eleven (11), Twelve (12)
and Thirteen (13), all in Block One (1) of the town of Monroe
(formerly the town of Warrington) in the Northeast One-quarter (NE1/4)
of Section Fifteen (15), Township 100, Range 54, West of the 5th P.M.,
County of Turner, South Dakota in a deed dated August 4, 1953 by
Turner County as grantor to the Mortgagor, as grantee and recorded
August 10, 1953 in the office of the Register of Deeds, Turner County
in the State of South Dakota in deed book 78, page 54.
7. A tract of land described as Lot Fifteen (15), Block Four (4), of the
original (Plot) of the town, now the city of Parker, South Dakota,
being a part of the Northeast One-quarter (NE1/4) of Section Seventeen
(17), Township 99, Range 53, Turner County in the State of South
Dakota in a deed dated June 13, 1956, by Bernard S. Koloyjian,
Lenore D. Koloyjian, Beatrice Sutherland and Marian K. Gabriel as
grantors to the Mortgagor, as grantee and recorded July 25, 1956, in
the office of the Register of Deeds, Turner County in the State of
South Dakota in deed book 78, page 141.
UNION COUNTY
1. A tract of land described as commencing at a point One hundred fifty-
seven (157') feet North of the Southwest corner of the Northwest One-
quarter (NW1/4) of Section Eighteen (18), Township 94 North, Range 50,
West of the 5th P.M., in Union County, South Dakota, thence North
Sixty-six (66') feet, thence East Fifteen (15) rods, then South Sixty-
six (66') feet, thence West Fifteen (15) rods to place of beginning in
Union County, South Dakota, according to the Government Survey
thereof. Said real estate is also described as the North Sixty-six
(66') feet of the South Two-hundred twenty-three (223') feet of West
Fifteen (15) rods of the Northwest One-quarter (NW1/4) of Section
Eighteen (18), Township 94 North, Range 50 West of the 5th P.M., Union
County, South Dakota in a deed dated January 7, 1971, by the Alsen
Community Telephone Company, (a corporation), as grantor to the
Mortgagor, as grantee, and recorded on March 4, 1971, in both offices
of the Register of Deeds Union and Clay counties in the State of South
Dakota in the Union County deed book 61, page 58, and the Clay County
deed book 51, pages 61-65.
YANKTON COUNTY
1. A tract of land described as the East Forty-feet (40') of the South
Thirty-feet (30') of Lot 1, Block 10, town of Gayville, South Dakota,
situated on the Southeast One-quarter (SE1/4) of the Northwest One-
quarter (NW1/4) of Section Twelve (12), Township 98, Range 54, Yankton
County South Dakota in a deed dated October 31, 1973, by Northwestern
-7-
<PAGE>
Bell Telephone Company (a Corporation), as grantor to the Mortgagor,
as grantee and recorded November 12, 1973 in the office of the
Register of Deeds, Yankton County in the State of South Dakota in deed
book 259, page 140.
2. A tract of land described as Outlot "A" of the Northeast One-quarter
(NE1/4) of Section Twenty-seven (27), Township Ninety-six (96) North,
Range Fifty-five (55), West of the 5th P.M. in Yankton County, South
Dakota, in a deed dated July 3, 1954, by Joseph J. and Barbara M.
Healy, his wife, as grantors to the Mortgagor, as grantee and recorded
July 7, 1954 in the office of the Register of Deeds, Yankton County in
the State of South Dakota in deed book 205, page 193.
3. A tract of land described as Lots Seventeen (17) and eighteen (18) in
Block Eight (8) of Volin Addition, town of Volin, Yankton County,
South Dakota in deeds dated July 24, 1954 and August 2, 1954 and
August 24, 1954, by Otto R. Olson and Clara Olson, his wife, Glen
Ellingston (also known as Ellingson), Grace DeBoer, formerly Grace
Ellingston (also known as Ellingson), Norris Ellingston (also known as
Ellingson) (also known as Knute Norris Ellingson), Grace Ellingston
Hove (also known as Grace Ellingson Hove), Oscar C. Burke (also known
as O.C. Burke) and Ruth Sachau, as grantors to the Mortgagor, as
grantee and all deeds recorded August 30, 1954 in the office of the
Register of Deeds, Yankton County in the State of South Dakota in deed
book and page as follows:
<TABLE>
<CAPTION>
GRANTOR DEED BOOK PAGE
------- --------- ----
<S> <C> <C> <C>
Otto R. and Clara Olson 199 89
Glen Ellingston 199 90
Grace DeBoer 199 92
Norris Ellingston 199 93
Grace Ellingston Hove 199 91
Oscar C. Burke 199 88
Ruth Sachau 206 141
</TABLE>
LINCOLN COUNTY
The East 323.4 feet of the North 478 feet of County Auditors Tract 1 in
Original Government Lot 1 in the Northeast Quarter of Section 12,
Township 100 North, Range 51 West of the 5th P.M., Lincoln County, South
Dakota, according to the recorded plat thereof, except the East 33 feet
thereof now dedicated as Sundowner Avenue. Grantor, Fred Assam; Grantee,
Dakota Cooperative Telecommunications, Inc. Recorded with the Register of
-8-
<PAGE>
Deeds of Lincoln County, South Dakota on September 6, 1990 at 10:30 AM, and
recorded in Book 96 of Deeds on page 777.
TURNER COUNTY
Lots Eleven and Twelve, of Block 23, Original Town of Hurley, being a part
of the Northeast Quarter of Section 27, Township 98, Range 53, West of the
5th P.M., Turner County, South Dakota. Grantor, Eugene E. Friman and
Phyllis Friman; Grantee, Dakota Cooperative Telecommunications, Inc.
Recorded with the Register of Deeds of Turner County, South Dakota on
October 30, 1991 at 2:30 PM, and recorded in book 101 at page 357.
TOGETHER WITH all plants, works, structures, erections, reservoirs, dams,
buildings, fixtures and improvements now or hereafter located on any of the
properties conveyed by any and all of the aforesaid deeds mentioned above,
and all tenements, hereditaments and appurtenances now or hereafter
thereunto belonging or in any wise appertaining.
The description of each of the properties conveyed by and through the
provisions of the aforesaid deeds is by reference made a part hereof as
though fully set forth at length herein.
AND ALSO including, without limitation:
All right, title and interest of the Mortgagor in and to all
extensions and improvements of the Existing Facilities as aforesaid and
additions thereto, and all buildings, plants, works, improvements,
structures, estates, grants, franchises, easements, rights, privileges and
properties real, personal and mixed, tangible or intangible, of every kind
or description, now owned or leased by the Mortgagor or which may hereafter
be owned or leased, constructed or acquired by the Mortgagor, wherever
located, and in and to all extensions and improvements thereof and
additions thereto, including all buildings, plants, works, structures,
improvements, fixtures, apparatus, materials, supplies, machinery, tools,
implements, poles, posts, crossarms, conduits, ducts, lines, whether
underground or overhead or otherwise, wires, cables, exchanges, switches,
including, without limitation, host switches and remote switches, desks,
testboards, frames, racks, motors, generators, batteries and other items of
central office equipment, paystations, protectors, instruments, connections
and appliances, office furniture and equipment, work equipment and any and
all other property of every kind, nature and description, used, useful or
acquired for use by the Mortgagor in connection therewith;
All right, title and interest of the Mortgagor in, to and under
any and all grants, privileges, rights of way and easements now owned,
held, leased, enjoyed or exercised, or which may hereafter be owned, held,
leased, acquired, enjoyed or exercised, by the Mortgagor for the purposes
of, or in connection with, the construction or operation by or on behalf of
-9-
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
the Mortgagor of telephone properties, facilities, systems or businesses,
whether underground or overhead or otherwise, wherever located;
All right, title and interest of the Mortgagor in, to and under
any and all licenses, franchises, ordinances, privileges and permits
heretofore granted, issued or executed, or which may hereafter be granted,
issued or executed, to it or to its assignors by the United States of
America, or by any state, or by any county, township, municipality, village
or other political subdivision thereof, or by any agency, board, commission
or department of any of the foregoing, authorizing the construction,
acquisition or operation of telephone properties, facilities, systems or
businesses, insofar as the same may by law be assigned, granted, bargained,
sold, conveyed, transferred, mortgaged, or pledged;
All right, title and interest of the Mortgagor in, to and under
any and all contracts heretofore or hereafter executed by and between the
Mortgagor and any person, firm, or corporation relating to the property
mortgaged and pledged by the Mortgage and this Supplemental Mortgage,
together with any and all other accounts, chattel paper, contract rights
and general intangibles (as such terms are defined in the applicable
Uniform Commercial Code), and all stock, bonds, notes, debentures,
commercial paper, subordinated capital certificates, securities,
obligations of or beneficial interests or investments in any corporation,
association, partnership, joint venture, trust, United States of America or
any agency or department thereof, or any other entity of any kind,
heretofore or hereafter acquired by the Mortgagor;
All right, title and interest of the Mortgagor in and to all
other property, real or personal, tangible or intangible, of every kind,
nature and description, and wheresoever situated, now owned or leased or
hereafter acquired by the Mortgagor, it being the intention hereof that all
such property now owned or leased but not specifically described herein or
acquired or held by the Mortgagor after the date hereof shall be as fully
embraced within and subjected to the lien hereof as if the same were now
owned by the Mortgagor and were specifically described herein to the extent
only, however, that the subjection of such property to the lien hereof
shall not be contrary to law;
Together with all rents, income, revenues, profits and benefits
at any time derived, received or had from any and all of the above-described
property of the Mortgagor.
-10-
<PAGE>
Tel. Supp. Mtge. (100% REA) - 1/92
(No Prior Bank Loan)-Restated
(TEL-MTG2)
Provided, however, that except as provided in section 12(b) of
article II of the Mortgage, as amended and supplemented hereby, no
automobiles, trucks, trailers, tractors or other vehicles (including
without limitation aircraft or ships, if any) owned or used by the
Mortgagor shall be included in the property mortgaged by the Mortgage and
this Supplemental Mortgage.
TO HAVE AND TO HOLD the same forever, for the uses and purposes and upon
the terms, conditions, provisos and agreements expressed and declared in
the Mortgage, as amended and supplemented hereby.
2. The Outstanding Notes are hereby confirmed as notes of the
Mortgagor entitled to the security of the Mortgage, as amended and
supplemented by this Supplemental Mortgage, and of the property by the
Mortgage and this Supplemental Mortgage mortgaged and pledged, or intended
so to be, equally and ratably with one another and with other notes of the
Mortgagor when and as executed and delivered under and pursuant to the
Mortgage, as amended and supplemented hereby, without preference, priority
or distinction of any one of the Outstanding Notes or such other notes over
any other thereof and irrespective of the date of the execution, delivery
or maturity thereof, or of the assignment or negotiation thereof.
3. The Current Note(s) are hereby included within the term
"notes", as defined in the Mortgage, as amended and supplemented hereby.
4. The fourth numbered paragraph of the Instruments Recital of
the Mortgage is amended by deleting the first sentence thereof.
5. The Instruments Recital of the Mortgage is amended by adding
thereto the following paragraph 5:
5. The Forecast Period referred to in Article II,
Section 20(a) of this Mortgage shall be the period commencing with the
date of the last document to add or amend this paragraph 5 and ending
December 31, 1994. Also in Article II, Section 20(a), the TIER the
Mortgagor is required to maintain after the end of the Forecast Period
shall be 1.12.
6. Article II, section 7 of the Mortgage is amended to read as
follows:
SECTION 7. (a) The Mortgagor will take out, as the
respective risks are incurred, and maintain the following classes and
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(TEL-MTG2)
amounts of insurance: (1) fidelity bonds covering each officer and
employee of the Mortgagor in not less than the following amounts,
based on the estimated annual gross revenues (including gross toll
collected) of the Mortgaged Property:
<TABLE>
<CAPTION>
AMOUNT OF
ANNUAL GROSS REVENUE COVERAGE
<S> <C> <C> <C> <C>
Less than $ 200,000 $ 50,000
From $200,001 to 400,000 100,000
400,001 to 600,000 250,000
600,001 to 800,000 300,000
800,001 to 1,000,000 400,000
over 1,000,000 500,000
</TABLE>
and each collection agent of the Mortgagor shall be included in such
fidelity bonds for not less than $2,500, or 10 percent of the highest
amount collected annually by any one collection agent, whichever is
greater; (2) workmen's compensation insurance covering all employees
of the Mortgagor, in such amounts as may be required by law, or if the
Mortgagor or any of its employees are not subject to the workmen's
compensation laws of the State or States in which the Mortgagor
conducts its operations, then its workmen's compensation policy shall
provide voluntary compensation coverage to the same extent as though
the Mortgagor and such employees were subject to such laws; and
including occupational disease liability coverage, employer's
liability insurance, and "additional medical" coverage of not less
than $10,000 in States where full medical coverage is not required by
law; (3) public liability and property damage liability insurance,
covering ownership liability, and all operations of the Mortgagor,
with limits for bodily injury or death of not less than $1,000,000
aggregate for the policy period; (4) liability insurance on all motor
vehicles, trailers, semitrailers, and aircraft used in the conduct of
the Mortgagor's business, whether owned, non-owned or hired by the
Mortgagor, with bodily injury limits of not less than $1,000,000 for
one person and $1,000,000 for each accident, and with property damage
limits of $1,000,000 for each accident; in connection with aircraft
liability, also passenger bodily injury limits of $1,000,000 per
person and $1,000,000 for each accident; (5) comprehensive, or
separate fire, theft and windstorm insurance covering loss of or
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(TEL-MTG2)
damage to all owned motor vehicles, trailers, and aircraft of the
Mortgagor, having a unit value in excess of $1,000, in an amount not
less than the actual cash value of the property insured; and (6) fire
and extended coverage insurance, designating the Government as
mortgagee in the policy, on each building, each building and its
contents, and materials, supplies, poles and crossarms, owned by the
Mortgagor, having a value at any one location in excess of $5,000, or
in excess of one percent of the total plant value, whichever is
larger, and in an amount not less than 80 percent of the current cost
to replace the property new, less actual depreciation.
The Mortgagor will also, from time to time, increase or
supplement the classes and amounts of insurance specified above to the
extent requested by the Administrator or required to conform to the
accepted practice of the telephone industry for companies of the size
and character of the Mortgagor. The Mortgagor will, upon request of
the majority noteholders, submit to the noteholder or noteholders
designated in such request a schedule of its insurance in effect on
the date specified in such request. If the Mortgagor shall at any
time fail or refuse to take out or maintain insurance or to make
changes in respect thereof upon appropriate request by such noteholder
or noteholders, such noteholder or noteholders may take out such
insurance on behalf and in the name of the Mortgagor, and the
Mortgagor will pay the cost thereof.
(b) In the event of damage to or the destruction or
loss of any portion of the Mortgaged Property which shall be covered
by insurance, unless the majority noteholders shall otherwise agree,
the Mortgagor shall replace or restore such damaged, destroyed or lost
portion so that the Mortgaged Property shall be in substantially the
same condition as it was in prior to such damage, destruction or loss,
and shall deposit the proceeds of the insurance in the Special
Construction Account required by the Consolidated Loan Agreement to be
applied for that purpose. The Mortgagor shall replace the loss or
shall commence such restoration promptly after such damage,
destruction or loss shall have occurred and shall complete such
replacement or restoration as expeditiously as practicable, and shall
pay or cause to be paid out of the proceeds of such insurance all
costs and expenses in connection therewith so that such replacement or
restoration shall be so completed that the portion of the Mortgaged
Property so replaced or restored shall be free and clear of all
mechanics' liens and other claims.
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(c) Sums recovered under any fidelity bond by the
Mortgagor for a loss of funds advanced under the notes or recovered
by the Mortgagee for any loss under such bond shall, unless otherwise
directed by the Mortgagee, be applied to the prepayment of the notes,
PRO RATA according to the unpaid principal amounts thereof (such
prepayments to be applied to such installments thereof as may be
designated by the respective noteholders at the time of such
prepayments) or to construct or acquire facilities approved by the
Mortgagee, which will become part of the Mortgaged Property.
(d) The foregoing insurance coverage shall be obtained
by means of bond and policy forms approved by regulatory authorities,
including standard REA endorsements and riders used by the insurance
industry to provide coverage for REA borrowers. Each policy or other
contract for such insurance shall contain an agreement by the insurer
that, notwithstanding any right or cancellation reserved to such
insurer, such policy or contract shall continue in force for at least
ten (10) days after written notice to the Mortgagee of cancellation.
7. Article II, section 9 of the Mortgage is amended to read as
follows:
SECTION 9. The Mortgagor will not, without the approval in
writing of the majority noteholders: (a) enter into any contract or
contracts for the operation or maintenance of all or any part of its
property, for the use by others of any of the Mortgaged Property, or
for toll traffic, operator assistance, extended scope or switching
services to be furnished by or for connecting or other companies;
provided, however, that such approval shall not be required for any
toll traffic or operator assistance contract which in form and
substance conforms with contracts in general use in the telephone
industry; or (b) deposit any of its funds, regardless of the source
thereof, in any bank, institution or other depository which is not
insured by the Federal Government.
8. Article II, section 10(b) of the Mortgage is amended to read
as follows:
(b) Salaries, wages and other compensation paid by the
Mortgagor for services, and directors' or trustees' fees, shall be
reasonable and in conformity with the usual practice or corporations
of the size and nature of the Mortgagor. Except as specifically
authorized in writing in advance by the majority noteholders, the
Mortgagor will make no advance payments or loans, or in any manner
-14-
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(TEL-MTG2)
extend its credit, either directly or indirectly, with or without
interest, to any of its directors, trustees, officers, employees,
stockholders, members or affiliated companies, provided, however, the
Mortgagor may make an investment for any purpose described in
section 607(c)(2) of the Rural Development Act of 1972 (including any
investment in, or extension of credit, guarantee or advance made to,
an affiliated company of the Mortgagor that is used by such company
for such purpose) to the extent that, immediately after such
investment, (1) the aggregate of such investments does not exceed one-
third of the net worth (defined in Exhibit One) of the Mortgagor and
(2) the Mortgagor's adjusted net worth is at least twenty percent of
its total assets (defined in Exhibit One). As used in this section,
the term "affiliated companies" shall have the meaning prescribed for
this term by the Federal Communications Commission in its prevailing
uniform system of accounts for Class A telephone companies.
9. Article II, section 11 of the Mortgage is amended to read as
follows:
SECTION 11. The Mortgagor will at all times keep, and
safely preserve, proper books, records and accounts in which full and
true entries will be made of all of the dealings business and affairs
of the Mortgagor, in accordance with the methods and principles of
accounting then prescribed by the state regulatory body having
jurisdiction over the Mortgagor, or in the absence of such regulatory
body or such prescription, by the Federal Communications Commission in
its uniform system of accounts for telecommunications companies, as
those methods and principles of accounting may be supplemented, from
time to time, by the Administrator. The Mortgagor will prepare and
furnish each noteholder not later than the thirtieth day of January in
each year, or at such more or less frequent intervals when specified
by the majority REA noteholders, financial and statistical reports on
its condition and operations. Such reports shall be in such form and
include such information as may be specified by the majority REA
noteholders, including without limitation an analysis of the
Mortgagor's revenues, expenses, and subscriber accounts. The
Mortgagor will cause to be prepared and furnished to each noteholder
at least once during each twelve (12)-month period during the term
hereof, full and complete reports of its financial condition and cash
flow as of a date (hereinafter called the Fiscal Date"), and a full
and complete report of its operations of the twelve (12)-month period
ended on the Fiscal Date, all in form and substance satisfactory to
the majority REA noteholders, and will cause such reports to be
-15-
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(No Prior Bank Loan)-Restated
(TEL-MTG2)
furnished to each noteholder within 120 days of the Fiscal Date, such
reports having been audited and certified by independent certified
public accountants satisfactory to said noteholders and accompanied by
such reports of such audit in form and substance satisfactory to said
noteholders. The majority REA noteholders, through its or their
representatives, shall at all times during reasonable business hours
have access to, and the right to inspect and make copies of, any or
all books, records and accounts, and any or all invoices, contracts,
leases, payrolls, canceled checks, statements and other documents and
papers of every kind belonging to or in possession of the Mortgagor
and in anywise pertaining to its property or business. The Mortgagor
shall enter into an audit agreement with an independent certified
public accountant in form and substance satisfactory to the majority
REA noteholders.
10. Article II, section 12(b) of the Mortgage is amended by
adding the words "or net margins" after the words "net income" in the first
sentence thereof.
11. Article II, section 15 of the Mortgage is amended to read as
follows:
SECTION 15. (a) Except as specifically authorized in
writing in advance by the majority noteholders, the Mortgagor will not
declare or pay any dividends on its capital stock, membership
certificates or equity capital certificates (other than in shares of
such capital stock or in such certificates), or make any other
distribution to its stockholders, members or subscribers, or purchase,
redeem or retire any of its capital stock, membership certificates or
equity capital certificates, or make any investment in affiliated
companies (except as allowed by subsection (d) below), unless after
such action the Mortgagor's current assets (determined in accordance
with Exhibit One hereto) will equal or exceed its current liabilities
(determined in accordance with Exhibit One hereto) (exclusive of
current liabilities incurred for additions to plant), and the
Mortgagor's adjusted net worth (determined in accordance with Exhibit
One hereto) will be at least forty per centum (40%) of its adjusted
assets (determined in accordance with Exhibit One hereto), or the sum
of the following (whichever is the smaller amount):
(1) ten percentum (10%) of its adjusted assets, plus
-16-
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(No Prior Bank Loan)-Restated
(TEL-MTG2)
(2) thirty per centum (30%) of its adjusted net worth, if any,
in excess of the amount represented by the percentage of
adjusted assets set out in the immediately preceding
subparagraph (1), plus
(3) thirty per centum (30%) of the amount of any reduction of
its adjusted net worth after the date specified in the
Instruments Recital, resulting from the declaration or
payment of dividends or distributions, the purchase,
redemption or retirement of its capital stock, membership
certificates or equity capital certificates or investments
in affiliated companies.
(b) During such time or times as the Mortgagor's adjusted
net worth is less than ten percentum (10%):
(1) the Mortgagor will make no increase, without prior written
approval of the majority noteholders, in salaries, wages,
fees and other compensation paid to officers, directors,
trustees, executives, or supervisors of the Mortgagor, or to
other employees having either a substantial ownership
interest in the Mortgagor, or a close family relationship
with officers, directors, trustees, executives, supervisors,
or holders of substantial ownership interests in the
Mortgagor; and
(2) the Mortgagor will promptly furnish the majority noteholders
with certified copies of the minutes of all meetings of its
stockholders, members, directors or trustees; and
(3) if the operation of the Mortgaged Property for the preceding
calendar year resulted in a decrease in the Mortgagor's
retained earnings (determined in accordance with Exhibit One
hereto), the Mortgagor shall upon the written direction of
the majority noteholders, take all required action to
promptly (1) increase its charges for telephone service or
(2) execute a plan for reducing expenses, such increase in
charges and such plan to be submitted to all the noteholders
and to be acceptable to and approved in writing by the
majority noteholders.
-17-
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(No Prior Bank Loan)-Restated
(TEL-MTG2)
(c) During such time or times as the Mortgagor's adjusted
net worth is less than twenty percentum (20%) of its adjusted assets
the Mortgagor will promptly furnish the noteholders with a detailed
report on ownership or transfers of its capital stock, membership
certificates or equity capital certificates whenever requested in
writing by the majority noteholders, or whenever one percentum (1%) or
more of its outstanding ownership interests has been transferred since
the last preceding report to such noteholders on ownership interests
or transfers.
(d) If the Mortgagor's net worth (defined in Exhibit One
hereto) is equal to at least 20 percent of its total assets (defined in
Exhibit One), then the term "investment in affiliated companies" used
in subsection (a) of this section 15 shall not include investments by
the Mortgagor for any purpose described in section 607(c)(2) of the
Rural Development Act of 1972 (including any investment in, or
extension of credit, guarantee, or advance made to an affiliated
company of the Mortgagor that is used by such company for such
purpose) to the extent that, immediately after such investment, the
aggregate of such investments does not exceed one-third of the net
worth of the borrower.
12. Article II of the Mortgage is hereby amended by adding at
the end thereof the following new sections:
SECTION 20. (a) The Mortgagor, subject to applicable
laws and rules and orders of regulatory bodies, shall design its rates
for telephone service and other services furnished by it with a view
to paying and discharging all taxes, maintenance expenses and
operating expenses of its telephone system, and also to making all
payments in respect of principal of and interest on the notes when and
as the same shall become due, to providing and maintaining reasonable
working capital for the Mortgagor and to maintaining an Average TIER
on all of its outstanding indebtedness to the Government and all other
lenders of not less than 1.00 during the Forecast Period described in
the Instruments Recital and the TIER specified in the Instruments
Recital after the Forecast Period.
(b) For purposes of this section 20, Average TIER
shall be determined as of January 1 of each year during which any
obligation secured by the Mortgage remains unsatisfied and shall mean
the average of the two highest TIER ratios achieved by the Mortgagor
-18-
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(TEL-MTG2)
during each of the three calendar years last preceding the various
dates of its determination.
(c) As used in this section 20, TIER means: The
Mortgagor's net income or net margins (determined in accordance with
Exhibit One hereto) plus interest expense (determined in accordance
with Exhibit One hereto) divided by interest expense.
SECTION 21. (a) Current assets, current liabilities, net
worth, adjusted net worth, adjusted assets, retained earnings, net
income or net margins, interest expense, and total assets, as used in
sections 10, 15 or 20 of Article II of this Mortgage, are determined
in accordance with Exhibit One of this Mortgage. Net plant and
secured debt, if referred to in this Mortgage, are also determined in
accordance with Exhibit One.
(b) Accounting terms used in this Mortgage shall
also apply to accounts or groups of accounts of the Mortgagor,
regardless of the account title or the system of accounts used, if
such accounts have substantially the same meaning as those prescribed
by the Federal Communications Commission in its prevailing uniform
system of accounts for telecommunications companies (47 CFR Part 32).
SECTION 22. Exhibit One, attached hereto, is made part of
the Mortgage.
13. To the extent that any of the property described or referred
to herein and in the Mortgage is governed by the provisions of the Uniform
Commercial Code, the Mortgage and this Supplemental Mortgage, collectively,
are hereby deemed a "security agreement" under the Uniform Commercial Code,
and this Supplemental Mortgage is also hereby declared to be a "financing
statement", under the Uniform Commercial Code for said security agreement.
The mailing address of the Mortgagor and debtor is as stated in the
testimonium clause hereof, and the mailing address of the Mortgagee and
secured party is Rural Electrification Administration, Washington, D.C.
20250-1500.
14. Exhibit One, attached hereto, is made part of the Mortgage
as Exhibit One thereto.
15. All of the terms, provisions and covenants of the Mortgage,
except as expressly modified hereby, shall be and remain in full force and
effect.
-19-
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(TEL-MTG2)
16. The invalidity of any one or more phrases, clauses,
sentences, paragraphs or provisions of this Supplemental Mortgage shall not
affect the validity of the remaining portions hereof.
17. This Supplemental Mortgage may be simultaneously executed in
any number of counterparts, and all of said counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.,
P. O. Box 66, Irene, South Dakota 57014-----------------------------------
- -------------------------------------------------------------------------,
as Mortgagor, has caused this Supplemental Mortgage to be signed in its
name and its corporate seal to be hereunto affixed and attested by its
officers thereunto duly authorized, and UNITED STATES OF AMERICA, as
Mortgagee, has caused this Supplemental Mortgage to be duly executed in its
behalf, all as of the day and year first above written.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
(Seal) by /s/ John A. Roth
Attest: /s/ John Schaefer President
Secretary
Executed by the Mortgagor
in the presence of:
/S/ PALMER LARSON
/S/ JAMES H. GRIFFIN
Witnesses
-20-
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(No Prior Bank Loan)-Restated
(TEL-MTG2)
UNITED STATES OF AMERICA
by /s/ Michael M. F. Liu as
Acting Administrator
of
Rural Electrification Administration
Executed by the Mortgagee in the
presence of:
/S/ EDNA MAE MYERS
/S/ LAURA M. HENSLEY
Witnesses
-21-
<PAGE>
STATE OF SOUTH DAKOTA )
) SS
COUNTY OF CLAY )
On this 13th day of April, 1992, before me, Thomas W. Hertz, a
notary public, personally appeared John A. Roth, known to me to be the
President of DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.------------------
- ------------------------------------, the Corporation that is described in
and that executed the within instrument, and acknowledged to me that such
corporation executed the same.
/S/ THOMAS W. HERTZ
Notary Public
(Notarial Seal)
My commission expires: 1-18-94
RECEIPT
Dakota Cooperative Telecommunications, Inc. does hereby acknowledge receipt
of a full, true and complete copy of the above and foregoing Supplement to
Restated Mortgage delivered to it by the Mortgagee therein named this 13th
day of April, 1992.
by /s/ John A. Roth
(Seal) President
Attest: /s/ John Schaefer
Secretary
DISTRICT OF COLUMBIA ) SS
On this 5th day of March, 1992, before me, a Notary Public in and
for the District of Columbia, appeared Michael M. F. Liu, to me personally
known, who, being by me duly sworn, did say that he is the Acting
Administrator of the Rural Electrification Administration of the United
States of America, and that said instrument was executed by him on behalf
of United States of America by authority vested in him as such officer; and
said Acting Administrator acknowledged said instrument to be the free act
and deed of United States of America, and that he delivered the same as
such.
-22-
<PAGE>
I hereby certify that said instrument was executed in my presence
and in the presence of the subscribing witnesses aforesaid.
/S/ SHEILA M. VALLOT
Notary Public
(Notarial Seal)
My commission expires:
-23-
<PAGE>
EX-ONE.A - 9/91
Exhibit One (Exhibit to Mortgage)
UNIFORM SYSTEM OF ACCOUNTS
ACCOUNT NUMBERS USED IN CERTAIN PROVISIONS
THIS EXHIBIT CONSISTS OF 4 PAGES
All references regarding account numbers are to 47 CFR Part 32 and
supplementary accounts required by REA.
ACCOUNT NUMBERS
ACCOUNT NAMES CLASS A CLASS B
ADJUSTED ASSETS - Article II, Sec. 15(a): the sum of the balances of the
following accounts of the Mortgagor:
Current Assets 1100s thru 1300s
Noncurrent Assets 1400s thru 1500s
Total Telecommunications Plant (Defined Below)
LESS: Accumulated Depreciation 3100 thru 3300s
LESS: Accumulated Amortization 3400 thru 3600s
Funded Debt (Still to be advanced
under Loan Contract) ( 4210.20 4210.20
( 4210.21 4210.21
( 4210.22 4210.22
( 4210.24 4210.24
( 4210.23 4210.23
LESS: Adjustments (Defined Below)
ADJUSTMENTS: the sum of the balances of the following accounts of the
Mortgagor:
Telecommunications Accounts Receivable 1180* 1180*
Accounts Receivable Allowance -
Telecommunications 1181* 1181*
Other Accounts Receivable 1190* 1190*
Accounts Receivable Allowance - Other 1191* 1191*
Notes Receivable 1200* 1200*
Notes Receivable Allowance 1201* 1201*
(* Include Only Those Portions of These
Accounts Shown in Subsidiary Record
Accounts Related to Affiliates)
Investments in Affiliated Companies 1401 1401
Telecommunications Plant Adjustment & Goodwill
(Debit Amounts in Excess of Accumulated
Amortization) 2005 & 2007, LESS 3600
-1-
<PAGE>
EX-ONE.A - 9/91
INTEREST EXPENSE - Article II, Sec 21 or any other section of the Mortgage
setting forth a TIER requirement for the Mortgagor: the sum of the
balances of the following accounts of the Mortgagor:
Interest and Related Items 7500** 7500
Interest on Funded Debt 7510
Interest Expense - Capital Leases 7520
Amortization of Debt Issuance Expense 7530
Other Interest Deductions 7540
LESS: Allowance for Funds Used
During construction 7340 7300.4
NET INCOME OR NET MARGINS - Article II Sec 21 or any other section of the
Mortgage setting forth a TIER requirement for the Mortgagor: the sum of
the balances of the following accounts of the Mortgagor:
Local Network Services Revenues )
Network Access Services Revenues )
Long Distance Network Services Revenues ) 5000 thru 5300s
Miscellaneous Revenues )
LESS: Uncollectible Revenues )
Other Operating Income and Expense ) 7100** 7100
Nonoperating Income and Expense ) 7300** 7300
Income Effect of Jurisdictional
Rate-making Difference - Net ) 7910 7910
Nonregulated Net Income ) 7990 7990
Other Nonregulated Revenues ) 7991 7991
LESS balances of the following accounts:
Plant Specific Operations Expense )
Plant Nonspecific Operations Expense ) 6100s thru 6700s
Customer Operations )
Corporate Operations )
Operating Taxes ) 7200** 7200
Nonoperating Taxes ) 7400** 7400
Interest and Related Items ) 7500** 7500
Extraordinary Items ) 7600** 7600
-2-
<PAGE>
EX-ONE.A - 9/91
NET WORTH - Article II, Sec. 10(b) and Sec. 15(d): the sum of the balances
of the following accounts of the Mortgagor:
Capital Stock 4510 4510
Additional Paid-In Capital 4520 4520
Treasury Stock 4530 4530
Other Capital 4540 4540
Retained Earnings 4550 4550
NOTE: FOR NONPROFIT ORGANIZATIONS (OWNERS' EQUITY
SHALL BE SHOWN IN SUBACCOUNTS OF 4540 AND 4550)
** Summary Accounts
RETAINED EARNINGS - Article II, Sec. 15(b)(3): the balance of the
following account of the Mortgagor:
Retained Earnings 4550 4550
NOTE: FOR NONPROFIT ORGANIZATIONS - RETAINED
EARNINGS (MARGINS) SHALL BE SHOWN IN
SUBACCOUNTS OF 4550
TOTAL ASSETS - Article II, Sec. 10(b) and 15(d): the sum of the balances
of the following accounts of the Mortgagor:
Current Assets 1100s thru 1300s
Noncurrent Assets 1400s thru 1500s
Total Telecommunications Plant 2001 thru 2007
LESS: Accumulated Depreciation 3100 thru 3300s
LESS: Accumulated Amortization 3400 thru 3600s
-3-
<PAGE>
EXHIBIT 4.34
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of 1/29, 1996, by and
between DAKOTA TELECOM, INC., a South Dakota corporation ("Borrower"), and
RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative association
("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; ind
WHEREAS, Lender is willing to make the Loan upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement,
unless the context otherwise requires, when used herein, the following
terms shall have the following meanings:
"ADJUSTMENT DATE" shall mean a date or dates, determined by the
Lender, after the date of the initial Advance to the Maturity Date.
"ADVANCE" shall mean an advance as defined in Section 2.02.
"BUSINESS DAY" shall mean any day that Lender is open for business.
"CASH MARGINS" for any year shall mean net income on a consolidated
basis plus depreciation, amortization and any other non-cash charges, less
any non-cash credits and principal on long-term debt payable in such year.
"CERTIFIED" shall mean that the information, statement, schedule,
report or other document required to be "Certified" shall contain a
representation of a duly authorized officer of Borrower that such
information, statement, schedule, report or other document is true and
correct and complete.
"CLOSING" shall mean the first date on which funds are advanced to
Borrower hereunder.
<PAGE>
"COLLATERAL" shall mean the Mortgaged Property, as such term is
defined in the Mortgage, and all proceeds, cash and non-cash, including
insurance proceeds, of the foregoing, whether in the possession of Borrower
or any other person.
"COMMITMENT" shall have the meaning set forth in Schedule 1 hereto.
"DEBT SERVICE COVERAGE RATIO" or "DSC" for any year shall mean (a)
total net income or margins plus depreciation and interest on long-term
debt for such year, divided by (b) principal and interest on long-term debt
payable in such year.
"EVENT OF DEFAULT" shall mean any of the events described in Section 8
hereof.
"FIXED RATE" shall mean the interest rate per annum provided for in
Section 2.03 of this Agreement.
"INDEBTEDNESS" shall include all items which would properly be
included in the liability section of a balance sheet or in a footnote to a
financial statement, in accordance with generally accepted accounting
principles, including, without limitation, contingent liabilities.
"LEASES" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate are in excess
of $100,000 other than such equipment leases which are in form and
substance substantially in conformity with lease agreements in general use
in Borrower's industry by companies of size and character similar to
Borrower.
"LIEN" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of
set-off, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease
transaction in the nature thereof and any secured transaction under the
Uniform Commercial Code of any jurisdiction.
"LOAN" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"MATURITY DATE" shall mean the maturity date defined in the Note.
"MINIMUM NET WORTH TEST" shall mean an equity to total asset ratio of
at least forty (40) percent. Equity shall be determined by subtracting
total liabilities from total assets.
"MORTGAGE" shall mean the mortgage and security agreement described in
Schedule 1.
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"NET WORTH" shall be calculated on a consolidated basis for the
Borrower and all its Subsidiaries taken as a whole and arrived at by
subtracting total liabilities from total assets.
"NOTE" shall mean the Note executed and delivered by Borrower at or
prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements and extensions thereof.
"OBLIGATIONS" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender
by Borrower under this Agreement, the Note, the Other Agreements, all
present and future obligations of Borrower to the Lender for the payment of
money under this Agreement, the Note, the Other Agreement, extending to
all principal amounts, interest, late charges and all other charges and
sums, as well as all costs and expenses payable by Borrower under this
Agreement, the Note, the Other Agreements, and any and all other present
and future monetary liabilities of Borrower to the Lender, whether direct
or indirect, contingent or noncontingent, matured or unmatured, accrued or
not accrued, related or unrelated to this Agreement, whether or not of the
same character or class as Borrower's obligations under this Agreement and
the Note, whether or not secured under any other document, instrument or
statutory or common law provision, as well as all renewals, refinancings,
consolidations, recastings and extensions of any of the foregoing.
"OTHER AGREEMENTS" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower, executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in
Subsection 5.02 hereof.
"PAYMENT DATE" shall mean the last day of each of the months referred
to in Schedule 1 hereto.
"PAYMENT NOTICE" shall mean the notice furnished to the Borrower at
least quarterly indicating the precise amount of principal and/or interest
due on the next ensuing Payment Date, such notice to be sent to the
Borrower at least ten (10) days before such Payment Date.
"PERSON" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and
departments thereof, and every other entity of every kind.
"SUBORDINATED CAPITAL CERTIFICATE" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the
Borrower in connection with the Loan.
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"SUBSIDIARY" at any time means any entity which is at the time
beneficially owned or controlled directly or indirectly by the Borrower, by
one or more such entities or by the Borrower and one or more such entities.
"TERMINATION DATE" shall mean that date which is one (1) year from the
date hereof.
"VARIABLE RATE" shall mean the variable rate established by the Lender
from time to time for loans similarly classified pursuant to lender's
policies and procedures then in effect.
2. LOAN
2.01 LOAN. The Lender agrees to make the Loan to Borrower subject to
all of the terms and conditions of this Agreement and the Other Agreements.
2.02 ADVANCES. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time
to time at the office of the Lender in Herndon, Virginia, or at such other
place as the Lender may designate, not to exceed the Commitment. The
Borrower shall give the Lender at least one Business Day prior written
notice of the date on which each Advance is to be made. On the Termination
Date the Lender may stop advancing funds and reduce the Commitment to the
aggregate amount theretofore advanced. The obligation of the Borrower to
repay the Advances shall be evidenced by the Note.
2.03 PAYMENT, AMORTIZATION AND INTEREST RATE.
(a) PAYMENT. The Borrower shall pay on each Payment Date quarterly
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid,
any balance of the principal amount and interest accrued thereon and all
other amounts due hereunder shall be due and payable on the Maturity Date.
Payment of principal hereunder shall commence after the first full quarter
following the initial Advance of funds as set forth in Schedule 1 and on
each subsequent Payment Date until the Maturity Date or such earlier date
as all amounts due hereunder and on account of the Note shall have been
paid in full. Payment of interest hereunder is due on each Payment Date in
which a principal balance is outstanding. Principal will be amortized in
accordance with the method stated in Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of
principal, one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect
on the Adjustment Date; or
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(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate
program to another, the interest rate then in effect for the
elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date
of such payment, and then to the reduction of principal balance
outstanding.
No provision of this Agreement or the Note shall require the payment, or
permit the collection, of interest in excess of the highest rate permitted
by applicable law.
(b) INTEREST RATE. Each Advance shall be initially made at the
Variable Rate. Interest shall be computed from the actual number of days
elapsed on the basis of a year of 365 days until the first Payment Date
following the initial Advance. Thereafter, interest shall continue to be
computed for the actual number of days elapsed on the basis of a year of
365 days unless a Fixed Rate is applicable to the Loan, in which case
interest shall be computed on the basis of a 30-day month and 360-day year.
(i) VARIABLE RATE. If Advances are made at the Variable Rate, it
shall apply until the Maturity Date, except as provided herein
below.
(ii) FIXED RATE. If the Borrower elects a Fixed Rate, such Fixed Rate
as is available and in effect for loans similarly classified
pursuant to Lender's policies and procedures there in effect at
the time of the election shall apply to such Advance until the
Adjustment Date. Upon notice given by the Borrower five Business
Days prior to such Adjustment Date, Borrower may elect to reset
the interest rate to such Fixed Rate as is available and in
effect at the time of such Adjustment Date. Such reset Fixed
Rate shall apply to that portion of the outstanding principal
balance of the Loan elected to have a Fixed Rate from the
Adjustment Date until a new Adjustment Date or the Maturity Date.
If Borrower does not elect to reset the Fixed Rate, the Variable
Rate shall apply to the outstanding principal balance of the Loan
that had been bearing interest at the Fixed Rate prior to such
Adjustment Date, from such Adjustment Date to the Maturity Date.
(iii) CONVERSION TO DIFFERENT INTEREST PROGRAM.
(A) VARIABLE RATE TO FIXED RATE. Subject to the conditions
set forth herein, the Borrower may convert from the
Variable Rate to the Fixed Rate for any portion or all
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of the principal amount of the Commitment then
outstanding at any time provided the Lender offers a
Fixed Rate at such time for similarly classified loans.
(B) FIXED RATE TO VARIABLE RATE. The Borrower may convert
from a Fixed Rate to the Variable Rate only on an
Adjustment Date.
2.04 PREPAYMENT. In the event the Borrower prepays all or part of the
Loan, the Borrower shall pay such prepayment fee as the Lender may
prescribe from time to time in its policies in connection with any
prepayment of the Loan. All prepayments shall be accompanied by payment of
accrued and unpaid interest on the amount of and to the date of the
prepayment. All prepayments shall be applied first to fees, second to the
payment of accrued and unpaid interest, and then to the unpaid balance of
the principal amount of the Loan. If the Loan bears interest at the
Variable Rate the Borrower may prepay the Loan or any portion thereof, as
the case may be, at any time subject to the terms hereof and said
prepayment fee shall be in an amount established by Lender on a cost basis
and shall not exceed fifty (50) basis points times the amount being
prepaid. If the Loan bears interest at the Fixed Rate, the Borrower may
prepay the Loan only on an Adjustment Date or such other date as may be
agreed upon by the parties hereto.
2.05 5% SUBORDINATED CAPITAL CERTIFICATE. The Borrower shall purchase
SCCs which in the aggregate shall not exceed the amount specified in
Schedule 1 hereto. Unless otherwise requested in writing by the Borrower
prior to the initial Advance and approved by the Lender, the Borrower
agrees to purchase SCCs either (1) with each Advance in the amount of five
percent (5%) of each such Advance, and each such SCC shall be paid for with
proceeds of such Advance, or (2) by making payments with Borrower's own
funds in twenty equal quarterly installments, commencing with the first
full quarter following the initial Advance. If the Borrower elects to pay
for SCCs other than from Loan funds, the amount of the Commitment will be
correspondingly reduced by said amount when the SCCs are fully paid. If
the Borrower obtains Advances hereunder other than for the purpose of
purchasing SCCs and fails to pay for the SCCs, then the Lender may make
Advances for the account of the Borrower to purchase the SCCs. The Lender
agrees to deliver the SCCs on or about the date on which the SCCs have been
paid for in full. The SCCs shall bear no interest and shall mature in
accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the
Obligations, Borrower has entered into the Mortgage pledging and granting
to the Lender a prior and continuing security interest in the Collateral
that may be secured by the Mortgage that shall continually exist until all
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Obligations have been paid in full. If reasonably required by the Lender
at any time, Borrower shall make notations, satisfactory to the Lender, on
its books and records disclosing the existence of the Lender's security
interest in the Collateral. Borrower agrees that, with respect to the
Collateral, which is subject to Article 9 of the Uniform Commercial Code,
the Lender shall have, but not be limited to, all the rights and remedies
of a secured party under the Uniform Commercial Code. The Lender shall
have no liability or duty, either before or after the occurrence of an
Event of Default hereunder, on account of loss of or damage to, or to
collect or enforce any of its rights against, the Collateral, or to
preserve any rights against account debtors or other parties with prior
interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower
represents and warrants to the Lender as of the date of this Agreement
that:
4.01 GOOD STANDING. Borrower is a corporation duly organized validly
existing and in good standing under the laws of the state of its
incorporation, has the power to own its property and to carry on its
business, is duly qualified to do business, and is in good standing in each
jurisdiction in which the transaction of its business makes such
qualification necessary.
4.02 AUTHORITY. Borrower has corporate power and authority to enter
into this Agreement and the Mortgage, to make the borrowing hereunder, to
execute and deliver all documents and instruments required hereunder and to
incur and perform the obligations provided for herein, in the Mortgage, and
in the Note, all of which have been duly authorized by all necessary and
proper corporate and other action, and no consent or approval of any
person, including, without limitation, stockholders and members of Borrower
and any public authority or regulatory body, which has not been obtained is
required as a condition to the validity or enforceability hereof or
thereof.
4.03 BINDING AGREEMENT. This Agreement has been duly and properly
executed by Borrower, constitutes the valid and legally binding obligation
of Borrower and is fully enforceable against Borrower in accordance with
its terms, subject only to laws affecting the rights of creditors
generally, the exercise of judicial discretion in accordance with general
principles of equity or because waivers of statutory or common law rights
or remedies may be limited.
4.04 NO CONFLICTING AGREEMENTS. The execution, delivery of and
performance by Borrower of this Agreement, the Mortgage and the Note, and
the transactions contemplated hereby or thereby, will not: (a) violate any
provision of law, any order, rule or regulation of any court or other
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agency of government, any award of any arbitrator, the charter or by-laws
of Borrower, or any indenture, contract, agreement, mortgage, deed of trust
or other instrument to which Borrower is a party or by which it or any of
its property is bound; or (b) be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under, any such
award, indenture, contract, agreement, mortgage, deed of trust or other
instrument, or result in the creation or imposition of any Lien (other than
contemplated hereby) upon any of the property or assets of Borrower.
4.05 LITIGATION. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which may result in any material
adverse change in the business, operations, prospects, properties or assets
or in the condition, financial or otherwise, of Borrower, and Borrower is
not, to its knowledge, in default with respect to any judgment, order,
writ, injunction, decree, rule or regulation of any court or federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would have a
material adverse effect on Borrower.
4.06 FINANCIAL CONDITION. The financial statements of Borrower as at
the date set forth in Schedule 1 hereto, heretofore delivered to the
Lender, are complete and correct, fairly present the financial condition of
Borrower and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. There are no
liabilities of Borrower, direct or indirect, fixed or contingent, as of the
date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the
Borrower from that set forth in said financial statements except changes
previously disclosed in writing to the Lender prior to the date hereof.
4.07 TAXES. Borrower has paid or caused to be paid all federal, state
and local taxes to the extent that such taxes have become due, unless the
Borrower is contesting in good faith any such tax. Borrower has filed or
caused to be filed all federal, state and local tax returns which are
required to be filed by Borrower.
4.08 TITLE TO PROPERTIES. Borrower has good and marketable title to
all of its real properties and owns all of its other properties and assets
free and clear of any liens.
4.09 LICENSES AND PERMITS. Borrower has duly obtained and now holds
all licenses, permits, certifications, approvals and the like necessary to
own and operate its property and business that are required by federal,
state and local laws of the jurisdictions in which Borrower conducts its
business and each remains valid and in full force and effect.
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4.10 SUBSIDIARIES. Borrower has no Subsidiaries other than
Subsidiaries heretofore disclosed to the Lender, or hereafter formed or
acquired with the prior written consent of the Lender.
4.11 CERTAIN INDEBTEDNESS. There is no Indebtedness of Borrower owing
to any employee, officer, stockholder or director of the board of Borrower
other than accrued salaries, commissions and the like and any Indebtedness
subordinated to the Obligations pursuant hereto.
4.12 LOCATION OF OFFICE. The chief place of business of the Borrower
and the office where its records concerning accounts and contract rights
are kept is identified in Schedule 1 hereto.
4.13 REQUIRED APPROVALS. No license, consent, permit or approval of
any governmental agency or authority is required to enable the Borrower to
enter into this Agreement or to perform any of its obligations provided for
herein except as disclosed on Schedule 1 hereto and except with respect to
regulatory approvals which may be required in connection with the Lender's
enforcement of certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries
providing benefits for employees of Borrower or such Subsidiary covered by
Title IV of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereto ("ERISA"), is in compliance with ERISA
in all material respects, and no material liability to the Pension Benefit
Guaranty Corporation ("PBGC") or to a multiemployer plan has been, or is
expected by Borrower or its Subsidiaries to be, incurred by Borrower or
such Subsidiary.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance
to Borrower hereunder unless, as of the date of Closing, each of the
following conditions precedent shall be satisfied as provided below:
5.01 LEGAL MATTERS. All legal matters incident to the consummation of
the transactions hereby contemplated shall be satisfactory to counsel for
the Lender and to such local counsel as counsel for the Lender may retain.
5.02 DOCUMENTS. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory
to the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all
such corporate documents and proceedings of the
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Borrower authorizing the transactions herein
contemplated.
(c) A written opinion from Borrower's counsel addressing
such legal matters as the Lender or its counsel shall
reasonably require.
(d) The Borrower shall have (i) executed the Mortgage; (ii)
if any real property is owned by Borrower, recorded a
valid and binding Mortgage granting Lender a first lien
in all real property owned by Borrower; (iii) filed
financing statements in all jurisdictions necessary to
provide Lender a first priority, perfected security
interest in all Collateral which may be perfected by
the filing of financing statements; and (iv) delivered
such other documents as are necessary to create or
continue a perfected security interest in favor of the
Lender in the Collateral.
5.03 GOVERNMENT APPROVALS. The Borrower shall have furnished to the
Lender true and correct copies of all certificates, authorizations and
consents, including without limitation the consents referred to in Section
4.13 hereof, necessary for the execution, delivery or performance by the
Borrower of this Agreement, the Note and the Mortgage.
5.04 REPRESENTATIONS, WARRANTIES AND MATERIAL CHANGE. At Closing and
at the date of every subsequent Advance hereunder, all covenants,
representations and warranties set forth in this Agreement shall be true
and correct on and as of such time with the same effect as though such
covenants, representations and warranties had been made on and as of such
date; no Event of Default specified in Section 8 and no event which, with
the lapse of time or the notice and lapse of time specified in Section 8
would become such an Event of Default, shall have occurred and be
continuing or will have occurred after giving effect to the Advance on the
books of the Borrower; there shall have occurred no material adverse change
in the business or condition, financial or otherwise, of the Borrower; and
nothing shall have occurred which in the opinion of the Lender materially
and adversely affects the Borrower's ability to meet its obligations
hereunder.
5.05 MORTGAGE FILING. Within ten (10) days of acquiring any real
property, the Borrower shall cause the Mortgage to be duly recorded as a
first mortgage on all real property and the Mortgage or other appropriate
documentation shall have been duly filed, recorded or indexed as a security
interest in personal property wherever the Lender shall have reasonably
requested, all in accordance with applicable law, and the Borrower shall
have caused satisfactory evidence thereof to be furnished to the Lender.
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5.06 SPECIAL CONDITIONS. At Closing and at the time of every
subsequent Advance hereunder, the Lender and its counsel shall be fully
satisfied that the Borrower has complied and will continue to comply with
any special conditions identified in Schedule 1 hereto.
5.07 REQUISITIONS. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an
account as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of
the Obligations have been paid in full, Borrower will:
6.01 MEMBERSHIP. Remain or an affiliate thereof will remain, a member
in good standing of the Lender.
6.02 FINANCIAL STATEMENTS AND OTHER INFORMATION. Furnish to the
Lender: (a) financial statements as required by the Mortgage; (b) such
other information, reports or statements concerning the operations,
business affairs and/or financial condition of Borrower as the Lender may
reasonably request from time to time; and (c) promptly upon their becoming,
available information, in form and substance satisfactory to Lender, of any
and all changes or modification of licenses, permits, certifications,
approvals and the like necessary for Borrower to own or operate its
business or a substantial part of its business.
6.03 FINANCIAL RATIOS. Subject to applicable laws and rules and
orders of regulatory bodies, and to events which in the judgment of the
Lender are beyond the control of the Borrower, so operate and manage its
business as to achieve an annual DSC of not less than 1.25, beginning with
the year ended December 31, 1996.
6.04 ANNUAL CERTIFICATE. Within ninety (90) days after the close of
each calendar year, commencing with the year in which the initial Advance
hereunder shall have been made, deliver to the Lender a written statement
signed by the general manager stating that to the best of said person's
knowledge, the Borrower has fulfilled all of its Obligations under this
Agreement, the Note, and the Mortgage throughout such year or, if there has
been a default in the fulfillment of any such Obligations, specifying each
such default known to said person and the nature and status thereof.
6.05 USE OF PROCEEDS. Use Advances made hereunder and under the Note
only for the purpose identified in Schedule 1 hereto and for the payment of
the costs, expenses and fees incident to this Agreement and for no other
purpose whatsoever without the prior written consent of the Lender.
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6.06 SPECIAL AFFIRMATIVE COVENANTS. During the term hereof, Lender
and its counsel shall be fully satisfied that the Borrower has complied and
will continue to comply with any special affirmative covenants identified
in Schedule 1 hereto.
7. NEGATIVE COVENANTS.
7.01 NOTICE. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without giving written notice to
the Lender thirty days prior to the effective date of any change:
(a) CHANGE LOCATION OF CHIEF PLACE OF BUSINESS. Change
location of the Borrower's chief place of business.
(b) CHANGE OF NAME. Change the name of Borrower.
7.02 CONSENT. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without the prior written
consent of the Lender:
(a) CONTROL. Alter or permit alteration of control of the
Borrower. Control shall be as defined by regulations
for telephone companies issued by the Federal
Communications Commission ("FCC").
(b) SUBSIDIARIES. Form or acquire any Subsidiaries.
(c) ADDITIONAL INDEBTEDNESS. Borrow money on a secured
basis from any other lender or incur any additional
secured indebtedness; borrow money or incur any
unsecured indebtedness in excess of five percent of
total assets; or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that
time Borrower meets the Minimum Net Worth Test. If
Borrower meets the Minimum Net Worth Test, then
Borrower may incur additional indebtedness or enter
into Leases (or allow any of its Subsidiaries to enter
into Leases) without prior written approval of Lender
PROVIDED the Borrower meets the Minimum Net Worth Test
after incurring such additional indebtedness or
entering into such Leases; PROVIDED, FURTHER, HOWEVER,
Borrower must give at least thirty (30) days written
notice to Lender prior to incurring any additional
indebtedness or entering into such Leases.
7.03 DIVIDENDS AND OTHER CASH DISTRIBUTIONS. The Borrower will not,
in any one calendar year, without the prior approval in writing of the
Lender (i) declare or pay any dividends or make any other distribution to
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its stockholders with respect to its capital stock; (ii) purchase or
redeem or retire any of its capital stock; or (iii) pay any management fees
or if already paying a management fee, pay an increase in management fees
unless with respect to any of the foregoing (after giving effect to such
transaction) (a) Borrower meets the Minimum Net Worth Test and (b) the
payment of such dividend, the making of such distribution, or the purchase,
redemption or retirement of such stock, individually or in the aggregate,
does not exceed twenty-five percent (25%) of the prior fiscal year-end Cash
Margins in any one calendar year. In no event may the Borrower make such a
distribution or payment when there is unpaid any due installment of
principal and/or interest on the Note or if the Borrower is otherwise in
material default of any provision of this Agreement or would be in material
default hereunder as a result of such distribution or payment.
7.04 SPECIAL NEGATIVE COVENANTS. During the term hereof, Lender and
its Counsel shall be fully satisfied that the Borrower has complied and
will continue to comply with any special negative covenants identified in
Schedule 1 hereto.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) Any representation or warranty made herein, in any of the Other
Agreements or in any statement, report, certificate, opinion,
financial statement or other document furnished or to be
furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material respect.
(b) Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or any of the Other Agreements, when and as the same
shall become due, whether at the due date thereof, by demand, by
acceleration or otherwise.
(c) Failure of Borrower to observe or perform any warranty, covenant
or condition to be observed or performed by Borrower under this
Agreement or any of the Other Agreements.
(d) The Borrower shall forfeit or otherwise be deprived of its
corporate charter, franchises, permits, easements, consents or
licenses required to carry on any material portion of its
business.
(e) Default by the Borrower in the payment when due of any money owed
by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an
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amount in excess of 5% of total assets, whether or not such
borrowing is secured.
(f) A court shall enter a decree or order for relief with respect to
the Borrower or any Subsidiary or guarantor (if any) in an
involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official, or ordering the winding up or liquidation of
its affairs, and such decree or order shall remain unstayed and
in effect for a period of ninety (90) consecutive days or the
Borrower or any Subsidiary or guarantor (if any) shall commence a
voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or under any such
law, or consent to the appointment or taking of possession by a
receiver, liquidator, assignee, custodian or trustee, of a
substantial part of its property, or make any general assignment
for the benefit of creditors.
(g) Other than as provided in subsection (f) above, the dissolution
or liquidation of the Borrower or any Subsidiary or guarantor (if
any), or failure by the Borrower or any Subsidiary or guarantor
promptly to forestall or remove any execution, garnishment or
attachment of such consequence as will impair its ability to
continue its business or fulfill its obligations and such
execution, garnishment or attachment shall not be vacated within
thirty (30) days.
9. RIGHTS AND REMEDIES
9.01 RIGHTS AND REMEDIES OF THE LENDER. Upon the occurrence of an
Event of Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time Borrower
shall have the opportunity to cure said Event of Default except
with respect to Obligations pursuant to 8(b), 8(f) and 8(g) above
which shall require no notice or demand and shall have no period
to cure; and
(ii) compliance, if required, with the rules and regulations of the
FCC and any state public service or utilities commission having
jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies
available to the Lender under applicable law, all such rights and remedies
being cumulative and enforceable alternatively, successively or
concurrently:
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<PAGE>
(a) Declare all unpaid principal outstanding on the Note, all accrued
and unpaid interest thereon, and all other Obligations to be
immediately due and payable and the same shall thereupon become
immediately due and payable without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the
Obligations owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions,
and with the effect provided in the Mortgage, including but not
limited to a suit for specific performance, injunctive relief or
damages.
(d) Pursue any other rights and remedies available to the Lender at
law or in equity.
9.02 CUMULATIVE NATURE OF REMEDIES. Nothing herein shall limit the
right of the Lender, subject to notice and right to cure provisions
contained herein, to pursue all rights and remedies available to a creditor
following the occurrence of an Event of Default subject to compliance, if
required, with the rules and regulations of the FCC and any state public
service or utilities commission having jurisdiction. Each right, power and
remedy of the Lender in this Agreement and/or the Other Agreements shall be
cumulative and concurrent, and recourse to one or more rights or remedies
shall not constitute a waiver of any other right, power or remedy.
9.03 COSTS AND EXPENSES. Borrower agrees to pay and to be liable for
any and all expenses, including attorney's fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or
under the Other Agreements, together with interest thereon at the rate and
determined in the manner provided in the Mortgage. Subject to the Mortgage
and applicable law, the Lender may apply all Collateral and proceeds of all
Collateral to the Obligations in any manner which the Lender, in its sole
discretion, deems appropriate, and Borrower will continue to be liable for
any deficiency.
9.04 LATE PAYMENT CHARGES. If payment of any principal and/or
interest due under the terms of the Note is not received at the office of
the Lender in Herndon, Virginia, or as the Lender may otherwise designate
to the Borrower, within such time period as the Lender may prescribe from
time to time in its policies in connection with any late payment charges
(such unpaid amount of principal and/or interest being herein called the
"delinquent amount" and the period beginning after such due date until
payment of the delinquent amount being herein called the "late-payment
period"), the Borrower will pay to the Lender, in addition to all other
amounts due under the terms of the Note, the Mortgage, and this Agreement,
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<PAGE>
any late-payment charge as may be fixed by the Lender from time to time, on
the delinquent amount for the late-payment period.
9.05 LENDER'S SETOFF. The Lender shall have the right, in addition to
all other rights and remedies available to it, to setoff and to recover
against any or all of the Obligations due to Lender, any monies now and
hereafter owing to Borrower by the Lender. Borrower waives all rights of
setoff, deduction, recoupment and counterclaim.
10. MISCELLANEOUS
10.01 PERFORMANCE FOR BORROWER. Borrower agrees and hereby
authorizes that the Lender may, in its sole discretion, but the Lender
shall not be obligated to, advance funds on behalf of Borrower without
prior notice to Borrower, in order to insure Borrower's compliance with any
material covenant, warranty, representation or agreement of Borrower made
in or pursuant to this Agreement or any of the Other Agreements, to
preserve or protect any right or interest of the Lender in the Collateral
or under or pursuant to this Agreement or any of the Other Agreements,
including without limitation, the payment of any insurance premiums or
taxes and the satisfaction or discharge of any judgment or any Lien upon
the Collateral or other property or assets of Borrower; provided, however,
that the making of any such advance by the Lender shall not constitute a
waiver by the Lender of any Event of Default with respect to which such
advance is made nor relieve Borrower of any such Event or Default.
Borrower shall pay to the Lender upon demand all such advances made by the
Lender with interest thereon at the rate and determined in the manner
provided in the Note. All such advances shall be deemed to be included in
the Obligations and secured by the security interest granted the Lender
hereunder to the extent permitted by law.
10.02 EXPENSES AND FILING FEES. Whether or not any of the
transactions contemplated hereby shall be consummated, Borrower agrees to
pay to the Lender at Closing or thirty (30) days after the execution and
delivery hereof, whichever is earlier, all expenses of the Lender in
connection with the filing or recordation of all financing statements and
instruments as may be required by the Lender at the time of, or subsequent
to, the execution of this Agreement, including, without limitation, all
documentary stamps, recordation and transfer taxes and other costs and
taxes incident to recordation of any document or instrument in connection
herewith. Borrower agrees to save harmless and indemnify the Lender from
and against any liability resulting from the failure to pay any required
documentary stamps, recordation and transfer taxes, recording costs, or any
other expenses incurred by the Lender in connection with this Agreement.
The provisions of this Subsection 10.02 shall survive the execution and
delivery of this Agreement and the payment of all other Obligations.
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<PAGE>
10.03 WAIVERS BY BORROWER. Borrower hereby waives, to the extent the
same may be waived under applicable law: (a) in the event the Lender seeks
to repossess any or all of the Collateral by judicial proceedings, any
bond(s) or demand(s) for possession which otherwise may be necessary or
required; (b) presentment, demand for payment, protest and notice of
non-payment and all exemptions; and (c) substitution, impairment, exchange
or release of any collateral security for any of the Obligations. Borrower
agrees that the Lender may exercise any or all of its rights and/or
remedies hereunder and under the Other Agreements without resorting to and
without regard to security or sources of liability with respect to any of
the Obligations.
10.04 WAIVERS BY THE LENDER. Neither any failure nor any delay on
the part of the Lender in exercising any right, power or remedy hereunder
or under any of the Other Agreements shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
10.05 LENDER'S RECORDS. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations
shall be presumed conclusively to be correct and shall constitute an
account stated between the Lender and Borrower unless, within ten (10)
Business Days after such statement or reconciliation shall have been
mailed, postage prepaid, to Borrower, the Lender shall receive written
notice of specific objection thereto.
10.06 MODIFICATIONS. No modification or waiver of any provision of
this Agreement, the Note or any of the Other Agreements, and no consent to
any departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which
given. No notice to or demand upon Borrower in any case shall entitle
Borrower to any other or further notice or demand in the same, similar or
other circumstances.
10.07 NOTICES. All notices, requests and other communications
provided for herein including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement shall be given or made
in writing (including, without limitation, by telecopy) and delivered to
the intended recipient at the "Address for Notices" specified below; or, as
to any party, at such other address as shall be designated by such party in
a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as provided
for herein. The Address for Notices of the respective parties are as
follows:
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Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 22071-3025
Attention: Loan Officer
Fax: 703-709-6776
The Borrower:
The address set forth in
Schedule 1 hereto
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF VIRGINIA.
(b) BORROWER HEREBY SUBMIT(S) TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.09 HOLIDAY PAYMENTS. If any payment to be made by the Borrower
hereunder shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such
extension of time shall be included in computing any interest in respect of
such payment.
10.10 RESCISSION FEE. The Borrower may elect not to borrow all or
any portion of the Loan, in which event the Lender shall release the
Borrower from its obligations hereunder provided the Borrower complies with
such terms and conditions as the Lender may impose for such release
including, without limitation, payment of any rescission fee which shall
not exceed fifty basis points (50) times the amount of the Commitment being
rescinded.
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<PAGE>
10.11 SURVIVAL; SUCCESSORS AND ASSIGNS. All covenants, agreements,
representations and warranties made herein and in the Other Agreements
shall survive Closing and the execution and delivery to the Lender of the
Note, and shall continue in full force and effect until all of the
Obligations have been paid in full. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party. All covenants, agreements,
representations and warranties by or on behalf of Borrower which are
contained in this Agreement and the Other Agreements shall inure to the
benefit of the successors and assigns of the Lender.
10.12 USE OF TERMS. The use of any gender or the neuter herein shall
also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.13 SEVERABILITY. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any
reason be found or held invalid or unenforceable by any court or
governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement,
the Note, and the Other Agreements shall survive and be construed as if
such invalid or unenforceable term, provision or condition had not been
contained therein.
10.14 MERGER AND INTEGRATION. This Agreement and the attached
exhibits and matters incorporated by reference contain the entire agreement
of the parties hereto with respect to the matters covered and the
transactions contemplated hereby, and no other agreement, statement or
promise made by any party hereto, or by any employee, officer, agent or
attorney of any party hereto, which is not contained herein, shall be valid
or binding.
10.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same instrument.
10.16 HEADINGS. The headings and sub-headings contained in this
Agreement are intended to be used for convenience only and do not
constitute part of this Agreement.
10.17 ASSIGNMENT. The Lender may assign its rights and obligations
under this Agreement and the Other Agreements without the consent of the
Borrower; provided, however, that no such assignment shall result in terms
or conditions less favorable to Borrower. The Borrower may not assign any
of its rights of obligations under this Agreement or the Other Agreements
without the prior written consent of the Lender.
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<PAGE>
10.18 RIGHT TO INSPECT. The Borrower shall permit representatives of
the Lender at any time during normal business hours to inspect and make
abstracts from the books and records pertaining to the Collateral, and
permit representatives of the Lender to be present at Borrower's place of
business to receive copies of all communications and remittances relating
to the Collateral, all in such manner as the Lender may reasonably require.
10.19 CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in
Section 1388 of the Internal Revenue Code of 1986, as amended ("Code")
including any other comparable successor provision) and which are received
from Lender will be taken into account by Borrower at their stated dollar
amounts in the manner provided in Section 1385(a) of the Code in the
taxable year in which such written notices of allocation are received.
10.20 FURTHER ASSURANCES. The Borrower will, upon demand of the
Lender, make, execute, acknowledge and deliver all such further and
supplemental indentures of mortgage, deeds of trust, mortgages, financing
statements, continuation statements, security agreements and/or any other
instruments and conveyances as may be reasonable requested by the Lender to
effectuate the intention of this Agreement and to provide for the securing
and payment of the principal of and interest on the Note according to the
terms thereof.
10.21 LENDER'S APPROVAL. Wherever prior written approval of Lender
is required under the terms and conditions of this Agreement, Lender hereby
agrees to not unreasonably withhold said approval.
10.22 SCHEDULE 1. Schedule 1 attached hereto is an integral part of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to
be executed this Agreement under seal as of the date first above written.
DAKOTA TELECOM, INC.
By:/S/
Title:______________________________
(SEAL)
Attest:/S/
Secretary
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<PAGE>
RURAL TELEPHONE FINANCE
COOPERATIVE
By:/S/
SEAL)
Title: for Chief Executive Officer
Attest:/S/
Assistant Secretary-Treasurer
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SCHEDULE 1
1. The "Commitment" shall mean $1,585,547 (A-01) and $131,579 (A-02).
2. The Mortgage is the Mortgage and Security Agreement by and between
Borrower and Lender dated as of even date herewith.
3. The months relating to the Payment Date are March, June, September and
December.
4. The method of amortization referred to in Section 2.03 shall be based
upon the method indicated below.
level principal
X level debt service
5. The amount referred to in Section 2.05 is $79,277 (A-01) and $6,579
(A-02).
6. The date of Borrower's financial statement referred to in Section 4.06
is December 31, 1994.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is PO Box 66, East Highway 46,
Irene, South Dakota 57037.
8. The government authorities referred to in Section 4.13 are not
applicable.
9. The special conditions referred to in Section 5.06 are as follows:
A. Prior to the initial advance of funds hereunder Lender shall
receive in form and content satisfactory to Lender, the
following:
1. Any management, maintenance or service agreements
executed by Borrower as well as RUS's approval of such
agreement(s), if applicable.
2. The final Agreement to Purchase CATV Assets (including
exhibits) between Anderson Pacific Corporation
("Anderson") and Borrower and Asset Acquisition
Agreement (including exhibits) between Douglas
Communications North, L.P. ("Douglas") and Anderson.
3. Evidence of the grant by each local franchise authority
of a new CATV franchise or approval of the transfer of
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the franchise to Borrower and renewal of each franchise
for a period not less than five years from the current
expiration date of each local franchise.
4. If applicable, evidence of the FCC's section 214
authorization.
5. Evidence of an assignment by Anderson to Borrower of
its rights and obligations under the Asset Acquisition
Agreement entered into by and between Douglas and
Anderson.
6. Evidence that Borrower has common equity capital of at
least $506,599.
B. The cash proceeds of the loan shall be wired directly to Douglas,
except for the margin due and payable pursuant to Section 2 of
the Agreement to Purchase CATV Assets dated October 3, 1995 by
and between Borrower and Anderson, which shall be wired directly
to Anderson.
10. The purpose referred to in Section 6.05 is (i) to provide SCCs; (ii)
to finance 75% of the acquisition of CATV assets and exclusive
franchise rights from Douglas for 8 communities in South Dakota (A-01);
and (iii) to retire Borrowers existing mortgage note payable to
Merchant State Bank (A-02).
11. The special affirmative covenants referred to in Section 6.06 are not
applicable.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
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EXHIBIT 4.35
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of June 27, 1996, by and
between DAKOTA TELECOM, INC., a South Dakota corporation ("Borrower"), and
RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative association
("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, Borrower and Lender do hereby agree as follows:
I. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement,
unless the context otherwise requires, when used herein, the following
terms shall have the following meanings:
"ADJUSTMENT DATE" shall mean a date or dates, determined by the
Lender, after the date of the initial Advance to the Maturity Date.
"ADVANCE" shall mean an advance as defined in Section 2.02.
"BUSINESS DAY" shall mean any day that Lender is open for business.
"CASH MARGINS" for any year shall mean net income on a consolidated
basis plus depreciation, amortization and any other non-cash charges, less
any non-cash credits and principal on long-term debt payable in such year.
"CERTIFIED" shall mean that the information, statement, schedule,
report or other document required to be "Certified" shall contain a
R12
100% RTFC Long-Term Loan
Non-REA/RTB Borrower Mortgage
Rev. 10/17/95
SD 809-A-03 (mls)
1
<PAGE>
representation of a duly authorized officer of Borrower that such
information, statement, schedule, report or other document is true and
correct and complete.
"CLOSING" shall mean the first date on which funds are advanced to
Borrower hereunder.
"COLLATERAL" shall mean the Mortgaged Property, as such term is
defined in the Mortgage, and all proceeds, cash and non-cash, including
insurance proceeds, of the foregoing, whether in the possession of Borrower
or any other person.
"COMMITMENT" shall have the meaning set forth in Schedule 1 hereto.
"DEBT SERVICE COVERAGE RATIO" OR "DSC" for any year shall mean (a)
total net income or margins plus depreciation and interest on long-term
debt for such year, divided by (b) principal and interest on long-term debt
payable in such year.
"EVENT OF DEFAULT" shall mean any of the events described in Section 8
hereof.
"FIXED RATE" shall mean the interest rate per annum provided for in
Section 2.03 of this Agreement.
"INDEBTEDNESS" shall include all items which would properly be
included in the liability section of a balance sheet or in a footnote to a
financial statement, in accordance with generally accepted accounting
principles, including, without limitation, contingent liabilities.
"LEASES" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate are in excess
of $100,000 other than such equipment leases which are in form and
substance substantially in conformity with lease agreements in general use
in Borrower's industry by companies of size and character similar to
Borrower.
"LIEN" shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien, right of
set-off, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease
transaction in the nature thereof and any secured transaction under the
Uniform Commercial Code of any jurisdiction.
"LOAN" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"MATURITY DATE" shall mean the maturity date defined in the Note.
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<PAGE>
"MINIMUM NET WORTH TEST" shall mean an equity to total asset ratio of
at least forty (40) percent. Equity shall be determined by subtracting
total liabilities from total assets.
"MORTGAGE" shall mean the mortgage and security agreement described in
Schedule 1.
"NET WORTH" shall be calculated on a consolidated basis for the
Borrower and all its Subsidiaries taken as a whole and arrived at by
subtracting total liabilities from total assets.
"NOTE" shall mean the Note executed and delivered by Borrower at or
prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements and extensions thereof.
"OBLIGATIONS" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender
by Borrower under this Agreement, the Note, the Other Agreements, all
present and future obligations of Borrower to the Lender for the payment of
money under this Agreement, the Note, the Other Agreements, extending to
all principal amounts, interest, late charges and all other charges and
sums, as well as all costs and expenses payable by Borrower under this
Agreement, the Note, the Other Agreements, and any and all other present
and future monetary liabilities of Borrower to the Lender, whether direct
or indirect, contingent or noncontingent, matured or unmatured, accrued or
not accrued, related or unrelated to this Agreement, whether or not of the
same character or class as Borrower's obligations under this Agreement and
the Note, whether or not secured under any other document, instrument or
statutory or common law provision, as well as all renewals, refinancings,
consolidations, recastings and extensions of any of the foregoing.
"OTHER AGREEMENTS" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower, executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in
Subsection 5.02 hereof.
"PAYMENT DATE" shall mean the last day of each of the months referred
to in Schedule 1 hereto.
"PAYMENT NOTICE" shall mean the notice furnished to the Borrower at
least quarterly indicating the precise amount of principal and/or interest
due on the next ensuing Payment Date, such notice to be sent to the
Borrower at least ten (10) days before such Payment Date.
3
<PAGE>
"PERSON" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and
departments thereof, and every other entity of every kind.
"SUBORDINATED CAPITAL CERTIFICATE" OR "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the
Borrower in connection with the Loan.
"SUBSIDIARY" at any time means any entity which is at the time
beneficially owned or controlled directly or indirectly by the Borrower, by
one or more such entities or by the Borrower and one or more such entities.
"TERMINATION DATE" shall mean that date which is two (2) years from
the date hereof.
"VARIABLE RATE" shall mean the variable rate established by the Lender
from time to time for loans similarly classified pursuant to lender's
policies and procedures then in effect.
2. LOAN
2.01 LOAN. The Lender agrees to make the Loan to Borrower subject to
all of the terms and conditions of this Agreement and the Other Agreements.
2.02 ADVANCES. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time
to time at the office of the Lender in Herndon, Virginia, or at such other
place as the Lender may designate, not to exceed the Commitment. The
Borrower shall give the Lender at least one Business Day prior written
notice of the date on which each Advance is to be made. On the Termination
Date the Lender may stop advancing funds and reduce the Commitment to the
aggregate amount theretofore advanced. The obligation of the Borrower to
repay the Advances shall be evidenced by the Note.
2.03 PAYMENT, AMORTIZATION AND INTEREST RATE.
(a) PAYMENT. The Borrower shall pay on each Payment Date quarterly
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid,
any balance of the principal amount and interest accrued thereon and all
other amounts due hereunder shall be due and payable on the Maturity Date.
Payment of principal hereunder shall commence after the first full quarter
following the initial Advance of funds as set forth in Schedule 1 and on
each subsequent Payment Date until the Maturity Date or such earlier date
as all amounts due hereunder and on account of the Note shall have been
paid in full. Payment of interest hereunder is due on each Payment Date in
which a principal balance is outstanding. Principal will be amortized in
accordance with the method stated in Schedule 1 hereto.
4
<PAGE>
The Lender will use, for purposes of calculating the amortization of
principal, one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed
Rate in effect on the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the
Variable Rate in effect when amortization begins;
or
(iii) If the Borrower elects to convert from one interest
rate program to another, the interest rate then in effect
for the elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date
of such payment, and then to the reduction of principal balance
outstanding.
No provision of this Agreement or the Note shall require the payment, or
permit the collection, of interest in excess of the highest rate permitted
by applicable law.
(b) INTEREST RATE. Each Advance shall be initially made at the
Variable Rate. Interest shall be computed from the actual number of days
elapsed on the basis of a year of 365 days until the first Payment Date
following the initial Advance. Thereafter, interest shall continue to be
computed for the actual number of days elapsed on the basis of a year of
365 days unless a Fixed Rate is applicable to the Loan, in which case
interest shall be computed on the basis of a 30-day month and 360-day year.
(i) VARIABLE RATE. If Advances are made at the Variable Rate, it
shall apply until the Maturity Date, except as provided herein
below.
(ii) FIXED RATE. If the Borrower elects a Fixed Rate, such Fixed Rate
as is available and in effect for loans similarly classified pursuant
to Lender's policies and procedures there in effect at the time of the
election shall apply to such Advance until the Adjustment Date. Upon
notice given by the Borrower five Business Days prior to such
Adjustment Date, Borrower may elect to reset the interest rate to such
Fixed Rate as is available and in effect at the time of such
Adjustment Date. Such reset Fixed Rate shall apply to that portion of
the outstanding principal balance of the Loan elected to have a Fixed
Rate from the Adjustment Date until a new Adjustment Date or the
Maturity Date. If Borrower does not elect to reset the Fixed Rate,
the Variable Rate shall apply to the outstanding principal balance of
the Loan that had been bearing interest at the Fixed Rate prior to
such Adjustment Date, from such Adjustment Date to the Maturity Date.
5
<PAGE>
(iii) CONVERSION TO DIFFERENT INTEREST PROGRAM.
(A) VARIABLE RATE TO FIXED RATE. Subject to the conditions set
forth herein, the Borrower may convert from the Variable
Rate to the Fixed Rate for any portion or all of the
principal amount of the Commitment then outstanding at any
time provided the Lender offers a Fixed Rate at such time
for similarly classified loans.
(B) FIXED RATE TO VARIABLE RATE. The Borrower may
convert from a Fixed Rate to the Variable Rate
only on an Adjustment Date.
2.04 PREPAYMENT. In the event the Borrower prepays all or part of
the Loan, the Borrower shall pay such prepayment fee as the Lender may
prescribe from time to time in its policies in connection with any
prepayment of the Loan. All prepayments shall be accompanied by payment of
accrued and unpaid interest on the amount of and to the date of the
prepayment. All prepayments shall be applied first to fees, second to the
payment of accrued and unpaid interest, and then to the unpaid balance of
the principal amount of the Loan. If the Loan bears interest at the
Variable Rate the Borrower may prepay the Loan or any portion thereof, as
the case may be, at any time subject to the terms hereof and said
prepayment fee shall be in an amount established by Lender on a cost basis
and shall not exceed fifty (50) basis points times the amount being
prepaid. If the Loan bears interest at the Fixed Rate, the Borrower may
prepay the Loan only on an Adjustment Date or such other date as may be
agreed upon by the parties hereto.
2.05 5% SUBORDINATED CAPITAL CERTIFICATE. The Borrower shall
purchase SCCs which in the aggregate shall not exceed the amount specified
in Schedule 1 hereto. Unless otherwise requested in writing by the
Borrower prior to the initial Advance and approved by the Lender, the
Borrower agrees to purchase SCCs either (1) with each Advance in the amount
of five percent (5%) of each such Advance, and each such SCC shall be paid
for with proceeds of such Advance, or (2) by making payments with
Borrower's own funds in twenty equal quarterly installments, commencing
with the first full quarter following the initial Advance. If the Borrower
elects to pay for SCCs other than from Loan funds, the amount of the
Commitment will be correspondingly reduced by said amount when the SCCs are
fully paid. If the Borrower obtains Advances hereunder other than for the
purpose of purchasing SCCs and fails to pay for the SCCs, then the Lender
may make Advances for the account of the Borrower to purchase the SCCs.
The Lender agrees to deliver the SCCs on or about the date on which the
SCCs have been paid for in full. The SCCs shall bear no interest and shall
mature in accordance with the terms thereof.
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3. SECURITY
As security for the payment and performance of all of the
Obligations, Borrower has entered into the Mortgage pledging and granting
to the Lender a prior and continuing security interest in the Collateral
that may be secured by the Mortgage that shall continually exist until all
Obligations have been paid in full. If reasonably required by the Lender
at any time, Borrower shall make notations, satisfactory to the Lender, on
its books and records disclosing the existence of the Lender's security
interest in the Collateral. Borrower agrees that, with respect to the
Collateral, which is subject to Article 9 of the Uniform Commercial Code,
the Lender shall have, but not be limited to, all the rights and remedies
of a secured party under the Uniform Commercial Code. The Lender shall
have no liability or duty, either before or after the occurrence of an
Event of Default hereunder, on account of loss of or damage to, or to
collect or enforce any of its rights against, the Collateral, or to
preserve any rights against account debtors or other parties with prior
interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower
represents and warrants to the Lender as of the date of this Agreement
that:
4.01 GOOD STANDING. Borrower is a corporation duly organized validly
existing and in good standing under the laws of the state of its
incorporation, has the power to own its property and to carry on its
business, is duly qualified to do business, and is in good standing in each
jurisdiction in which the transaction of its business makes such
qualification necessary.
4.02 AUTHORITY. Borrower has corporate power and authority to enter
into this Agreement and the Mortgage, to make the borrowing hereunder, to
execute and deliver all documents and instruments required hereunder and to
incur and perform the obligations provided for herein, in the Mortgage, and
in the Note, all of which have been duly authorized by all necessary and
proper corporate and other action, and no consent or approval of any
person, including, without limitation, stockholders and members of Borrower
and any public authority or regulatory body, which has not been obtained is
required as a condition to the validity or enforceability hereof or
thereof.
4.03 BINDING AGREEMENT. This Agreement has been duly and properly
executed by Borrower, constitutes the valid and legally binding obligation
of Borrower and is fully enforceable against Borrower in accordance with
its terms, subject only to laws affecting the rights of creditors
generally, the exercise of judicial discretion in accordance with general
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principles of equity or because waivers of statutory or common law rights
or remedies may be limited.
4.04 NO CONFLICTING AGREEMENTS. The execution, delivery of and
performance by Borrower of this Agreement, the Mortgage and the Note, and
the transactions contemplated hereby or thereby, will not: (a) violate any
provision of law, any order, rule or regulation of any court or other
agency of government, any award of any arbitrator, the charter or by-laws
of Borrower, or any indenture, contract, agreement, mortgage, deed of trust
or other instrument to which Borrower is a party or by which it or any of
its property is bound; or (b) be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under, any such
award, indenture, contract, agreement, mortgage, deed of trust or other
instrument, or result in the creation or imposition of any Lien (other than
contemplated hereby) upon any of the property or assets of Borrower.
4.05 LITIGATION. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which may result in any material
adverse change in the business, operations, prospects, properties or assets
or in the condition, financial or otherwise, of Borrower, and Borrower is
not, to its knowledge, in default with respect to any judgment, order,
writ, injunction, decree, rule or regulation of any court or federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would have a
material adverse effect on Borrower.
4.06 FINANCIAL CONDITION. The financial statements of Borrower as at
the date set forth in Schedule 1 hereto, heretofore delivered to the
Lender, are complete and correct, fairly present the financial condition of
Borrower and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. There are no
liabilities of Borrower, direct or indirect, fixed or contingent, as of the
date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the
Borrower from that set forth in said financial statements except changes
previously disclosed in writing to the Lender prior to the date hereof.
4.07 TAXES. Borrower has paid or caused to be paid all federal,
state and local taxes to the extent that such taxes have become due, unless
the Borrower is contesting in good faith any such tax. Borrower has filed
or caused to be filed all federal, state and local tax returns which are
required to be filed by Borrower.
4.08 TITLE TO PROPERTIES. Borrower has good and marketable title to
all of its real properties and owns all of its other properties and assets
free and clear of any liens.
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4.09 LICENSES AND PERMITS. Borrower has duly obtained and now holds
all licenses, permits, certifications, approvals and the like necessary to
own and operate its property and business that are required by federal,
state and local laws of the jurisdictions in which Borrower conducts its
business and each remains valid and in full force and effect.
4.10 SUBSIDIARIES. Borrower has no Subsidiaries other than
Subsidiaries heretofore disclosed to the Lender, or hereafter formed or
acquired with the prior written consent of the Lender.
4.11 CERTAIN INDEBTEDNESS. There is no Indebtedness of Borrower
owing to any employee, officer, stockholder or director of the board of
Borrower other than accrued salaries, commissions and the like and any
Indebtedness subordinated to the Obligations pursuant hereto.
4.12 LOCATION OF OFFICE. The chief place of business of the Borrower
and the office where its records concerning accounts and contract rights
are kept is identified in Schedule 1 hereto.
4.13 REQUIRED APPROVALS. No license, consent, permit or approval of
any governmental agency or authority is required to enable the Borrower to
enter into this Agreement or to perform any of its obligations provided for
herein except as disclosed on Schedule 1 hereto and except with respect to
regulatory approvals which may be required in connection with the Lender's
enforcement of certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries
providing benefits for employees of Borrower or such Subsidiary covered by
Title IV of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereto ("ERISA"), is in compliance with ERISA
in all material respects, and no material liability to the Pension Benefit
Guaranty Corporation ("PBGC") or to a multiemployer plan has been, or is
expected by Borrower or its Subsidiaries to be, incurred by Borrower or
such Subsidiary.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance
to Borrower hereunder unless, as of the date of Closing, each of the
following conditions precedent shall be satisfied as provided below:
5.01 LEGAL MATTERS. All legal matters incident to the consummation
of the transactions hereby contemplated shall be satisfactory to counsel
for the Lender and to such local counsel as counsel for the Lender may
retain.
5.02 DOCUMENTS. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory
to the Lender and its counsel:
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(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
corporate documents and proceedings of the Borrower
authorizing the transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing such
legal matters as the Lender or its counsel shall reasonably
require.
(d) The Borrower shall have (i) executed the Mortgage; (ii) if
any real property is owned by Borrower, recorded a valid and
binding Mortgage granting Lender a first lien in all real
property owned by Borrower; (iii) filed financing statements
in all jurisdictions necessary to provide Lender a first
priority, perfected security interest in all Collateral
which may be perfected by the filing of financing
statements; and (iv) delivered such other documents as are
necessary to create or continue a perfected security
interest in favor of the Lender in the Collateral.
5.03 GOVERNMENT APPROVALS. The Borrower shall have furnished to the
Lender true and correct copies of all certificates, authorizations and
consents, including without limitation the consents referred to in Section
4.13 hereof, necessary for the execution, delivery or performance by the
Borrower of this Agreement, the Note and the Mortgage.
5.04 REPRESENTATIONS, WARRANTIES AND MATERIAL CHANGE. At Closing and
at the date of every subsequent Advance hereunder, all covenants,
representations and warranties set forth in this Agreement shall be true
and correct on and as of such time with the same effect as though such
covenants, representations and warranties had been made on and as of such
date; no Event of Default specified in Section 8 and no event which, with
the lapse of time or the notice and lapse of time specified in Section 8
would become such an Event of Default, shall have occurred and be
continuing or will have occurred after giving effect to the Advance on the
books of the Borrower; there shall have occurred no material adverse change
in the business or condition, financial or otherwise, of the Borrower; and
nothing shall have occurred which in the opinion of the Lender materially
and adversely affects the Borrower's ability to meet its obligations
hereunder.
5.05 MORTGAGE FILING. Within ten (10) days of acquiring any real
property, the Borrower shall cause the Mortgage to be duly recorded as a
first mortgage on all real property and the Mortgage or other appropriate
documentation shall have been duly filed, recorded or indexed as a security
interest in personal property wherever the Lender shall have reasonably
requested, all in accordance with applicable law, and the Borrower shall
have caused satisfactory evidence thereof to be furnished to the Lender.
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5.06 SPECIAL CONDITIONS. At Closing and at the time of every
subsequent Advance hereunder, the Lender and its counsel shall be fully
satisfied that the Borrower has complied and will continue to comply with
any special conditions identified in Schedule 1 hereto.
5.07 REQUISITIONS. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an
account as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of
the Obligations have been paid in full, Borrower will:
6.01 MEMBERSHIP. Remain or an affiliate thereof will remain, a
member in good standing of the Lender.
6.02 FINANCIAL STATEMENTS AND OTHER INFORMATION. Furnish to the
Lender: (a) financial statements as required by the Mortgage; (b) such
other information, reports or statements concerning the operations,
business affairs and/or financial condition of Borrower as the Lender may
reasonably request from time to time; and (c) promptly upon their becoming
available information, in form and substance satisfactory to Lender, of any
and all changes or modification of licenses, permits, certifications,
approvals and the like necessary for Borrower to own or operate its
business or a substantial part of its business.
6.03 FINANCIAL RATIOS. Subject to applicable laws and rules and
orders of regulatory bodies, and to events which in the judgment of the
Lender are beyond the control of the Borrower, so operate and manage its
business as to achieve an annual DSC of not less than 1.25, beginning with
the year ended December 31, 1996.
6.04 ANNUAL CERTIFICATE. Within ninety (90) days after the close of
each calendar year, commencing with the year in which the initial Advance
hereunder shall have been made, deliver to the Lender a written statement
signed by the general manager stating that to the best of said person's
knowledge, the Borrower has fulfilled all of its Obligations under this
Agreement, the Note, and the Mortgage throughout such year or, if there has
been a default in the fulfillment of any such Obligations, specifying each
such default known to said person and the nature and status thereof.
6.05 USE OF PROCEEDS. Use Advances made hereunder and under the Note
only for the purpose identified in Schedule 1 hereto and for the payment of
the costs, expenses and fees incident to this Agreement and for no other
purpose whatsoever without the prior written consent of the Lender.
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6.06 SPECIAL AFFIRMATIVE COVENANTS. During the term hereof, Lender
and its counsel shall be fully satisfied that the Borrower has complied and
will continue to comply with any special affirmative covenants identified
in Schedule 1 hereto.
7. NEGATIVE COVENANTS.
7.01 NOTICE. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without giving written notice to
the Lender thirty days prior to the effective date of any change:
(a) CHANGE LOCATION OF CHIEF PLACE OF BUSINESS. Change location
of the Borrower's chief place of business.
(b) CHANGE OF NAME. Change the name of Borrower.
7.02 CONSENT. Borrower covenants and agrees with the Lender that
Borrower will not, directly or indirectly, without the prior written
consent of the Lender:
(a) CONTROL. Alter or permit alteration of control of the
Borrower. Control shall be as defined by regulations for
telephone companies issued by the Federal Communications
Commission ("FCC").
(b) SUBSIDIARIES. Form or acquire any Subsidiaries.
(c) ADDITIONAL INDEBTEDNESS. Borrow money on a secured basis
from any other lender or incur any additional secured
indebtedness; borrow money or incur any unsecured
indebtedness in excess of five percent of total assets; or
enter into or allow any of its Subsidiaries to enter into
any Leases, unless at that time Borrower meets the Minimum
Net Worth Test. If Borrower meets the Minimum Net Worth
Test, then Borrower may incur additional indebtedness or
enter into Leases (or allow any of its Subsidiaries to enter
into Leases) without prior written approval of Lender
PROVIDED the Borrower meets the Minimum Net Worth Test after
incurring such additional indebtedness or entering into such
Leases; PROVIDED, FURTHER, HOWEVER, Borrower must give at
least thirty (30) days written notice to Lender prior to
incurring any additional indebtedness or entering into such
Leases.
7.03 DIVIDENDS AND OTHER CASH DISTRIBUTIONS. The Borrower will not,
in any one calendar year, without the prior approval in writing of the
Lender (i) declare or pay any dividends or make any other distribution to
its stockholders with respect to its capital stock; (ii) purchase or redeem
or retire any of its capital stock; or (iii) pay any management fees or if
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already paying a management fee, pay an increase in management fees unless
with respect to any of the foregoing (after giving effect to such
transaction) (a) Borrower meets the Minimum Net Worth Test and (b) the
payment of such dividend, the making of such distribution, or the purchase,
redemption or retirement of such stock, individually or in the aggregate,
does not exceed twenty-five percent (25%) of the prior fiscal year-end Cash
Margins in any one calendar year. In no event may the Borrower make such a
distribution or payment when there is unpaid any due installment of
principal and/or interest on the Note or if the Borrower is otherwise in
material default of any provision of this Agreement or would be in material
default hereunder as a result of such distribution or payment.
7.04 SPECIAL NEGATIVE COVENANTS. During the term hereof, Lender and
its Counsel shall be fully satisfied that the Borrower has complied and
will continue to comply with any special negative covenants identified in
Schedule 1 hereto.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) Any representation or warranty made herein, in any of the Other
Agreements or in any statement, report, certificate, opinion,
financial statement or other document furnished or to be
furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material respect.
(b) Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or any of the Other Agreements, when and as the same
shall become due, whether at the due date thereof, by demand, by
acceleration or otherwise.
(c) Failure of Borrower to observe or perform any warranty, covenant
or condition to be observed or performed by Borrower under this
Agreement or any of the Other Agreements.
(d) The Borrower shall forfeit or otherwise be deprived of its
corporate charter, franchises, permits, easements, consents or
licenses required to carry on any material portion of its
business.
(e) Default by the Borrower in the payment when due of any money owed
by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an
amount in excess of 5% of total assets, whether or not such
borrowing is secured.
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(f) A court shall enter a decree or order for relief with respect to
the Borrower or any Subsidiary or guarantor (if any) in an
involuntary case under any applicable bankruptcy, insolvency, or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official, or ordering the winding up or liquidation of
its affairs, and such decree or order shall remain unstayed and
in effect for a period of ninety (90) consecutive days or the
Borrower or any Subsidiary or guarantor (if any) shall commence a
voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or under any such
law, or consent to the appointment or taking of possession by a
receiver, liquidator, assignee, custodian or trustee, of a
substantial part of its property, or make any general assignment
for the benefit of creditors.
(g) Other than as provided in subsection (f) above, the dissolution
or liquidation of the Borrower or any Subsidiary or guarantor (if
any), or failure by the Borrower or any Subsidiary or guarantor
promptly to forestall or remove any execution, garnishment or
attachment of such consequence as will impair its ability to
continue its business or fulfill its obligations and such
execution, garnishment or attachment shall not be vacated within
thirty (30) days.
9. RIGHTS AND REMEDIES
9.01 RIGHTS AND REMEDIES OF THE LENDER. Upon the occurrence of an
Event of Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time
Borrower shall have the opportunity to cure said Event
of Default except with respect to Obligations pursuant
to 8(b), 8(f) and 8(g) above which shall require no
notice or demand and shall have no period to cure; and
(ii) compliance, if required, with the rules and regulations
of the FCC and any state public service or utilities
commission having jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies
available to the Lender under applicable law, all such rights and remedies
being cumulative and enforceable alternatively, successively or
concurrently:
(a) Declare all unpaid principal outstanding on the Note, all accrued
and unpaid interest thereon, and all other Obligations to be
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immediately due and payable and the same shall thereupon become
immediately due and payable without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the
Obligations owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions,
and with the effect provided in the Mortgage, including but not
limited to a suit for specific performance, injunctive relief or
damages.
(d) Pursue any other rights and remedies available to the Lender at
law or in equity.
9.02 CUMULATIVE NATURE OF REMEDIES. Nothing herein shall limit the
right of the Lender, subject to notice and right to cure provisions
contained herein, to pursue all rights and remedies available to a creditor
following the occurrence of an Event of Default subject to compliance, if
required, with the rules and regulations of the FCC and any state public
service or utilities commission having jurisdiction. Each right, power and
remedy of the Lender in this Agreement and/or the Other Agreements shall be
cumulative and concurrent, and recourse to one or more rights or remedies
shall not constitute a waiver of any other right, power or remedy.
9.03 COSTS AND EXPENSES. Borrower agrees to pay and to be liable for
any and all expenses, including attorney's fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or
under the Other Agreements, together with interest thereon at the rate and
determined in the manner provided in the Mortgage. Subject to the Mortgage
and applicable law, the Lender may apply all Collateral and proceeds of all
Collateral to the Obligations in any manner which the Lender, in its sole
discretion, deems appropriate, and Borrower will continue to be liable for
any deficiency.
9.04 LATE PAYMENT CHARGES. If payment of any principal and/or
interest due under the terms of the Note is not received at the office of
the Lender in Herndon, Virginia, or as the Lender may otherwise designate
to the Borrower, within such time period as the Lender may prescribe from
time to time in its policies in connection with any late payment charges
(such unpaid amount of principal and/or interest being herein called the
"delinquent amount" and the period beginning after such due date until
payment of the delinquent amount being herein called the "late-payment
period"), the Borrower will pay to the Lender, in addition to all other
amounts due under the terms of the Note, the Mortgage, and this Agreement,
any late-payment charge as may be fixed by the Lender from time to time, on
the delinquent amount for the late-payment period.
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9.05 LENDER'S SETOFF. The Lender shall have the right, in addition
to all other rights and remedies available to it, to setoff and to recover
against any or all of the Obligations due to Lender, any monies now and
hereafter owing to Borrower by the Lender. Borrower waives all rights of
setoff, deduction, recoupment and counterclaim.
10. MISCELLANEOUS
10.01 PERFORMANCE FOR BORROWER. Borrower agrees and hereby
authorizes that the Lender may, in its sole discretion, but the Lender
shall not be obligated to, advance funds on behalf of Borrower without
prior notice to Borrower, in order to insure Borrower's compliance with any
material covenant, warranty, representation or agreement of Borrower made
in or pursuant to this Agreement or any of the Other Agreements, to
preserve or protect any right or interest of the Lender in the Collateral
or under or pursuant to this Agreement or any of the Other Agreements,
including without limitation, the payment of any insurance premiums or
taxes and the satisfaction or discharge of any judgment or any Lien upon
the Collateral or other property or assets of Borrower; provided, however,
that the making of any such advance by the Lender shall not constitute a
waiver by the Lender of any Event of Default with respect to which such
advance is made nor relieve Borrower of any such Event or Default.
Borrower shall pay to the Lender upon demand all such advances made by the
Lender with interest thereon at the rate and determined in the manner
provided in the Note. All such advances shall be deemed to be included in
the Obligations and secured by the security interest granted the Lender
hereunder to the extent permitted by law.
10.02 EXPENSES AND FILING FEES. Whether or not any of the
transactions contemplated hereby shall be consummated, Borrower agrees to
pay to the Lender at Closing or thirty (30) days after the execution and
delivery hereof, whichever is earlier, all expenses of the Lender in
connection with the filing or recordation of all financing statements and
instruments as may be required by the Lender at the time of, or subsequent
to, the execution of this Agreement, including, without limitation, all
documentary stamps, recordation and transfer taxes and other costs and
taxes incident to recordation of any document or instrument in connection
herewith. Borrower agrees to save harmless and indemnify the Lender from
and against any liability resulting from the failure to pay any required
documentary stamps, recordation and transfer taxes, recording costs, or any
other expenses incurred by the Lender in connection with this Agreement.
The provisions of this Subsection 10.02 shall survive the execution and
delivery of this Agreement and the payment of all other Obligations.
10.03 WAIVERS BY BORROWER. Borrower hereby waives, to the extent the
same may be waived under applicable law: (a) in the event the Lender seeks
to repossess any or all of the Collateral by judicial proceedings, any
bond(s) or demand(s) for possession which otherwise may be necessary or
required; (b) presentment, demand for payment, protest and notice of
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non-payment and all exemptions; and (c) substitution, impairment, exchange
or release of any collateral security for any of the Obligations. Borrower
agrees that the Lender may exercise any or all of its rights and/or
remedies hereunder and under the Other Agreements without resorting to and
without regard to security or sources of liability with respect to any of
the Obligations.
10.04 WAIVERS BY THE LENDER. Neither any failure nor any delay on
the part of the Lender in exercising any right, power or remedy hereunder
or under any of the Other Agreements shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
10.05 LENDER'S RECORDS. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations
shall be presumed conclusively to be correct and shall constitute an
account stated between the Lender and Borrower unless, within ten (10)
Business Days after such statement or reconciliation shall have been
mailed, postage prepaid, to Borrower, the Lender shall receive written
notice of specific objection thereto.
10.06 MODIFICATIONS. No modification or waiver of any provision of
this Agreement, the Note or any of the Other Agreements, and no consent to
any departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which
given. No notice to or demand upon Borrower in any case shall entitle
Borrower to any other or further notice or demand in the same, similar or
other circumstances.
10.07 NOTICES. All notices, requests and other communications
provided for herein including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement shall be given or made
in writing (including, without limitation, by telecopy) and delivered to
the intended recipient at the "Address for Notices" specified below; or, as
to any party, at such other address as shall be designated by such party in
a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as provided
for herein. The Address for Notices of the respective parties are as
follows:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 22071-3025
Attention: Loan Officer
Fax: 703-709-6776
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The Borrower:
The address set forth in
Schedule 1 hereto
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE COMMONWEALTH OF VIRGINIA.
(b) BORROWER HEREBY SUBMIT(S) TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.09 HOLIDAY PAYMENTS. If any payment to be made by the Borrower
hereunder shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such
extension of time shall be included in computing any interest in respect of
such payment.
10.10 RESCISSION FEE. The Borrower may elect not to borrow all or
any portion of the Loan, in which event the Lender shall release the
Borrower from its obligations hereunder provided the Borrower complies with
such terms and conditions as the Lender may impose for such release
including, without limitation, payment of any rescission fee which shall
not exceed fifty basis points (50) times the amount of the Commitment being
rescinded.
10.11 SURVIVAL; SUCCESSORS AND ASSIGNS. All covenants, agreements,
representations and warranties made herein and in the Other Agreements
shall survive Closing and the execution and delivery to the Lender of the
Note, and shall continue in full force and effect until all of the
Obligations have been paid in full. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party. All covenants, agreements,
representations and warranties by or on behalf of Borrower which are
contained in this Agreement and the Other Agreements shall inure to the
benefit of the successors and assigns of the Lender.
18
<PAGE>
10.12 USE OF TERMS. The use of any gender or the neuter herein shall
also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.13 SEVERABILITY. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any
reason be found or held invalid or unenforceable by any court or
governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement,
the Note, and the Other Agreements shall survive and be construed as if
such invalid or unenforceable term, provision or condition had not been
contained therein.
10.14 MERGER AND INTEGRATION. This Agreement and the attached
exhibits and matters incorporated by reference contain the entire agreement
of the parties hereto with respect to the matters covered and the
transactions contemplated hereby, and no other agreement, statement or
promise made by any party hereto, or by any employee, officer, agent or
attorney of any party hereto, which is not contained herein, shall be valid
or binding.
10.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all
such counter-parts shall together constitute one and the same instrument.
10.16 HEADINGS. The headings and sub-headings contained in this
Agreement are intended to be used for convenience only and do not
constitute part of this Agreement.
10.17 ASSIGNMENT. The Lender may assign its rights and obligations
under this Agreement and the Other Agreements without the consent of the
Borrower; provided, however, that no such assignment shall result in terms
or conditions less favorable to Borrower. The Borrower may not assign any
of its rights of obligations under this Agreement or the Other Agreements
without the prior written consent of the Lender.
10.18 RIGHT TO INSPECT. The Borrower shall permit representatives of
the Lender at any time during normal business hours to inspect and make
abstracts from the books and records pertaining to the Collateral, and
permit representatives of the Lender to be present at Borrower's place of
business to receive copies of all communications and remittances relating
to the Collateral, all in such manner as the Lender may reasonably require.
10.19 CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in
Section 1388 of the Internal Revenue Code of 1986, as amended ("Code")
19
<PAGE>
including any other comparable successor provision) and which are received
from Lender will be taken into account by Borrower at their stated dollar
amounts in the manner provided in Section 1385(a) of the Code in the
taxable year in which such written notices of allocation are received.
10.20 FURTHER ASSURANCES. The Borrower will, upon demand of the
Lender, make, execute, acknowledge and deliver all such further and
supplemental indentures of mortgage, deeds of trust, mortgages, financing
statements, continuation statements, security agreements and/or any other
instruments and conveyances as may be reasonably requested by the Lender to
effectuate the intention of this Agreement and to provide for the securing
and payment of the principal of and interest on the Note according to the
terms thereof.
10.21 LENDER'S APPROVAL. Wherever prior written approval of Lender
is required under the terms and conditions of this Agreement, Lender hereby
agrees to not unreasonably withhold said approval.
10.22 SCHEDULE 1. Schedule 1 attached hereto is an integral part of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to
be executed this Agreement under seal as of the date first above written.
DAKOTA TELECOM, INC.
By:/S/
Title:_________________________________
(SEAL)
Attest:/S/
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By:/S/
(SEAL)
Title: Assistant Secretary-Treasurer
Attest:/S/
Assistant Secretary-Treasurer
20
<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $1,768,421 (A-03).
2. The Mortgage is the Mortgage and Security Agreement by and between
Borrower and Lender dated as of January 29, 1996.
3. The months relating to the Payment Date are March, June, September and
December.
4. The method of amortization referred to in Section 2.03 shall be based
upon the method indicated below.
level principal
X level debt service (no principal deferral)
5. The amount referred to in Section 2.05 is $88,421 (A-03).
6. The date of Borrower's financial statement referred to in Section 4.06
is December 31, 1995 (unaudited).
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is PO Box 127, East Highway 46,
Irene, South Dakota 57037.
8. The government authorities referred to in Section 4.13 are not
applicable.
9. The special conditions referred to in Section 5.06 are as follows:
A. Prior to the initial advance of funds hereunder Lender shall
receive in form and content satisfactory to Lender, the
following:
1. The final Agreement to Purchase CATV Assets (including
exhibits) between Anderson Pacific Corporation ("Anderson")
and Borrower dated May 31, 1996.
2. Evidence of the grant by each local franchise authority of
the transfer of all of the applicable franchises to
Borrower.
3. Evidence of an assignment by Anderson to Borrower of its
rights and obligations under the Asset Acquisition Agreement
dated September 28, 1995 (as amended) by and between Douglas
Communications North Limited Partnership ("Douglas") and
Anderson.
21
<PAGE>
4. All franchise agreements, including those related to
Borrower's purchase of Douglas' Minnesota and Iowa CATV
systems.
B. The cash proceeds of the loan shall be wired directly to Douglas,
except for the margin due and payable pursuant to Section 2 of
the Agreement to Purchase CATV Assets dated May 31, 1996 by and
between Borrower and Anderson, which shall be wired directly to
Anderson.
10. The purpose referred to in Section 6.05 is (i) to purchase SCCs; and
(ii) to finance the acquisition of CATV assets from Douglas for 9
communities containing approximately 1,800 subscribers in P.L. Iowa &
Minnesota (A-03).
11. The special affirmative covenants referred to in Section 6.06 are:
Within five (5) business days of Closing, Lender shall receive
evidence, in form and content satisfactory to Lender, that all liens
against any and all real or personal property conveyed by Douglas
and/or Anderson pursuant to the subject asset purchase have been
released and filed with the appropriate state and/or local
authorities.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
22
<PAGE>
EXHIBIT 5
February 18, 1997
Dakota Cooperative Telecommunications, Inc.
(To become Dakota Telecommunications Group, Inc.)
Post Office Box 66
29705 453rd Avenue
Irene, South Dakota 57037-0066
Dakota Telecommunications Group (Delaware), Inc.
Post Office Box 66
29705 453rd Avenue
Irene, South Dakota 57037-0066
Re: REGISTRATION STATEMENT ON FORM S-4
1,250,000 SHARES OF COMMON STOCK
Gentlemen:
We are counsel to Dakota Cooperative Telecommunications,
Inc. (to become Dakota Telecommunications Group, Inc.) ("DTG") and
Dakota Telecommunications Group (Delaware), Inc. ("DTG Delaware")
in connection with the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of up to 1,250,000 shares of
DTG or DTG Delaware common stock, no par value (the "Common Stock"),
pursuant to a registration statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission") on or about February 18, 1997.
We are familiar with the proceedings taken by DTG and DTG
Delaware in connection with the authorization of up to 1,250,000 shares
of Common Stock. We have examined such documents, records and matters
of law as we have deemed necessary for purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that, the Common
Stock will be, when duly registered under the Securities Act and issued and
delivered as described in the Registration Statement, legally issued, fully
paid and non-assessable.
<PAGE>
Dakota Cooperative Telecommunications, Inc.
February 18, 1997
Page 2
_________________________________
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to our firm in the Registration
Statement.
This opinion is rendered for the purposes of Item 21 of Form S-4
and Item 601 of Regulation S-B, may be relied upon only by you and the
Commission, and may not be used, quoted or referred to or filed for any
other purpose without our prior written permission.
WARNER NORCROSS & JUDD LLP
By: /S/ TRACY T. LARSEN
Tracy T. Larsen, Partner
<PAGE>
EXHIBIT 8
[Client Logo] OLSEN THIELEN & CO., LTD.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
==============================================================
February 10, 1997
Board of Directors
Dakota Cooperative Telecommunications, Inc.
East Highway 46, P.O. Box 66
Irene, SD 57037-0066
Dear Board of Directors:
In connection with the Registration Statement on Form S-4, filed by Dakota
Cooperative Telecommunications, Inc., with the Securities and Exchange
Commission, relating to the conversion of Dakota Cooperative
Telecommunications, Inc. to a business corporation and subsequent merger
into a Delaware corporation, it is our opinion that:
FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of the federal income tax consequences resulting
from the conversion of Dakota Cooperative Telecommunications, Inc. (the
"Cooperative"), from a tax exempt telephone cooperative described under
section 501(c)(12) of the Internal Revenue code, to a South Dakota business
corporation followed by a reincorporation in the state of Delaware. The
Cooperative has not requested a private letter ruling from the Internal
Revenue Service, as to the federal income tax consequences of the
conversion and reincorporation. Therefore, the federal tax consequences
expressed are the opinions of Olsen Thielen & Co., Ltd., the accounting
firm, and there can be no assurance that the transaction will constitute a
tax free exchange. Following is our opinion:
( i) The conversion of the Cooperative from a South Dakota Cooperative
to Dakota Telecommunications Group, Inc. ("DTG") a South Dakota
Business Corporation, by amending their Articles of
Incorporation, will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code:
Associated World-wide with Jeffreys Henry International [Check Mark]HI
233 Little Canada Road, St. Paul, Minnesota 55117-1376 612 483 4521
FAX 612 483 2467
6640 Shady Oak Road, Eden Prairie, Minnesota 55344-7709 612 941-9242
<PAGE>
(a) No gain or loss will be recognized by the Cooperative upon
the conversion; and
(b) The Cooperative's basis in its assets, holding period for
its assets, annual accounting period and accounting methods
will not be affected by the conversion.
(ii) The exchange of newly issued common stock of DTG for existing
common stock will constitute a reorganization within the meaning
of Section 368(a)(1)(E) of the Internal Revenue Code:
(a) No gain or loss will be recognized by DTG upon the exchange;
(b) No gain or loss will be recognized by the shareholders of
DTG upon the exchange , except to the extent of cash
received in lieu of fractional shares;
(c) The basis of the newly issued DTG Common Stock received by
the shareholders will be the same as the basis of the common
stock surrendered in the exchange; and
(d) The holding period of the newly issued DTG Common stock
received by the shareholders will include the holding period
of the shares of common stock surrendered in the exchange.
(iii) The exchange of newly issued common stock of DTG for existing
preferred stock will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code:
(a) No gain or loss will be recognized to DTG upon the exchange;
(b) No gain or loss will be recognized by the shareholders of
DTG upon the exchange , except to the extent of cash
received in lieu of fractional shares;
(c) The basis of the newly issued DTG Common Stock received by
the shareholders will be the same as the basis of the
preferred stock surrendered in the exchange; and
(e) The holding period of the newly issued DTG Common Stock
received by the shareholders will include the holding period
of the shares of preferred stock surrendered in the
exchange.
(iv) The exchange of newly issued common stock of DTG for patronage
capital credits will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code:
<PAGE>
(a) No gain or loss will be recognized to DTG upon the exchange;
(b) No gain or loss will be recognized by the shareholders of
DTG upon the exchange , except to the extent of cash
received in lieu of fractional shares;
(c) The basis of the newly issued DTG Common Stock received by
the shareholders will be the same as the basis of their
patronage capital credits surrendered in the exchange; and
(d) The holding period of the newly issued DTG Common Stock
received by the shareholders will include the holding period
of their patronage capital credits surrendered in the
exchange.
(v) The merger of DTG with and into Dakota Telecommunications Group
(Delaware), Inc., ("DTG Delaware") will constitute a
reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code, and both corporations will each be a
"party to a reorganization" within the meaning of Section 368(b)
of the Code:
(a) No gain or loss will be recognized to DTG Delaware upon
receipt of the assets of DTG in exchange for the DTG
Delaware Common Stock and the assumption by DTG Delaware of
the liabilities of DTG;
(b) The basis of the assets of DTG in the hands of DTG Delaware
will be the same as the basis of those assets in the hands
of DTG immediately prior to the merger;
(c) The holding period of the assets of DTG Delaware will
include the holding period of those assets in the hands of
DTG immediately prior to the merger;
(d) No gain or loss will be recognized by the shareholders of
DTG upon the exchange of their rights to receive shares of
DTG Common Stock for shares of DTG Delaware Common Stock,
except to the extent of any cash received in lieu of
fractional shares;
(e) The basis of DTG Delaware Common Stock to be received by
shareholders of DTG will be the same as the basis of the
rights to receive shares of DTG Common Stock surrendered in
the merger; and
<PAGE>
(f) The holding period of the DTG Delaware Common Stock received
by shareholders of DTG will include the holding period of
the rights to receive shares of DTG Common Stock surrendered
in the merger.
EACH SHAREHOLDER OF THE COOPERATIVE SHOULD CONSULT A PROFESSIONAL TAX
ADVISER ON THE TAX CONSEQUENCES OF THE ABOVE TRANSACTIONS TO SUCH
SHAREHOLDER. THE TAX AND OTHER MATTERS DESCRIBED IN THIS PROSPECTUS AND
PROXY STATEMENT DO NOT CONSTITUTE LEGAL OR TAX ADVICE.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the headings
"Federal Income Tax Consequences" in the Prospectus comprising a part of
the Registration Statment.
Yours truly,
/s/ Steve Sarracco
Stephen N. Sarracco, CPA
Vice President & Director
SNS/lks
<PAGE>
EXHIBIT 10.3
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of January 1, 1997 (the
"Agreement"), by and between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a
South Dakota cooperative association (the "Corporation"), and THOMAS W.
HERTZ ("Employee").
Employee currently serves as the General Manger/Chief Executive
Officer of the Corporation, and upon conversion to a business corporation
will serve as President/Chief Executive Officer of the Corporation. To
provide Employee certain financial and job security as an inducement to
securing the continued services and employment of Employee, the Board of
Directors of the Corporation believes the interests of the Corporation are
best served by entering into this Agreement with Employee.
ACCORDINGLY, the parties agree as follows:
SECTION 1. EMPLOYMENT AND DUTIES. The Corporation hereby employs
Employee, and Employee hereby accepts employment, on the terms and subject
to the conditions set forth in this Agreement. Employee shall be employed
as an executive officer of the Corporation. If by reason of a
consolidation, merger, combination or other reorganization of the
Corporation the business of the Corporation is continued under another
corporate entity, Employee shall be employed in substantially the same
capacity with that other entity with the same authority and responsibility
as he enjoyed at the time of the transaction. During the period of his
employment by the Corporation, Employee shall devote substantially his
entire business time and energy to the business and affairs of the
Corporation and shall use his reasonable best efforts to perform his duties
as an executive officer of the Corporation.
SECTION 2. EFFECTIVE DATE AND TERM OF EMPLOYMENT. The term of
Employee's employment under this Agreement shall begin on January 1, 1997
(the "Effective Date") and continue until the Expiration Date, unless
terminated earlier pursuant to Section 4 of this Agreement. The initial
Expiration Date shall be the third anniversary of the Effective Date,
provided, however, that:
(a) On each anniversary of the Effective Date, the Expiration
Date shall automatically be extended one (1) year, to restore the
unexpired term to three (3) years, unless either the Corporation or
the Employee shall notify the other in writing, not less than 30 days
before such anniversary date, that it or he does not choose to further
extend the term of Employment under this Agreement. Once such notice
is given, Employee's Employment under this Agreement shall continue
<PAGE>
until the Expiration Date (subject to Section 4), but there shall be
no further extensions of the Expiration Date, except under
Subparagraph 2(b) below or by written agreement of the parties.
(b) If a Change in Control (as defined in Section 6 of this
Agreement) occurs before the initial or any extended Expiration Date,
the Expiration Date shall be automatically extended until the end of
the thirty-sixth (36th) month following that in which the Change of
Control occurs, if the Employee is still employed on the date of the
Change in Control or if the Corporation, in contemplation of a Change
in Control, has terminated the Employee's Employment or taken actions
constituting "Good Reason" (under Section 4(d)).
SECTION 3. COMPENSATION. In consideration for his services, Employee
shall be paid a monthly salary, annual bonuses and other fringe benefits
during his Employment under this Agreement, as determined from time to time
by the Board of Directors, but in at least the following minimum amounts.
(a) Employee's salary shall be at least $135,000 per year, less
normal withholding. The Board of Directors shall consider Employee
for a salary increase annually, but shall not be required to increase
Employee's salary.
(b) Employee shall be entitled to an Annual Bonus in the amount
provided in Appendix A to this Agreement, less normal withholding.
(c) Employee shall be entitled to the normal fringe benefits
provided to the Corporation's salaried employees, and shall be
entitled at a minimum to comprehensive employee and dependent health
coverage and to short- and long-term disability coverage.
(d) Employee shall be entitled to 25 days' vacation leave with
pay continuation each year.
(e) Employee shall be entitled to reimbursement for all
reasonable business and travel expenses (including transportation,
lodging, meals, entertainment and other incidental expenses) related
to his activities for the benefit of the Corporation, including but
not limited to professional licensing and professional and business
organization or association fees and dues, expenses incurred in
attending professional association and business functions and
meetings, and seminar or other educational activities. Mileage shall
be paid at the Internal Revenue Service (IRS) rate for all business
miles driven; no mileage shall be paid, however, for normal home to
office commuting.
-2-
<PAGE>
SECTION 4. TERMINATION.
(a) DEATH. If Employee, while in the employ of the Corporation,
dies before the Expiration Date, the Corporation shall continue to pay
compensation at the rate then in effect pursuant to Section 3 above
until the end of the third month following the date of death, after
which no further compensation will be paid except for any vested
benefits accrued under Appendix A or under the terms of any fringe
benefit programs.
(b) DISABILITY. If Employee is unable to substantially perform
the duties described in Section 1 above for a period of nine (9)
successive months by reason of illness or other similar incapacity or
disability, Employee's Employment under this Agreement may be
terminated as of the end of any calendar month following the 9-month
period (i) by the Corporation based upon a determination that Employee
is disabled and by notice in writing to that effect to Employee, or
(ii) by Employee by his resignation in writing to the Corporation.
Any determination as to whether Employee is disabled shall be made by
a licensed physician selected by agreement of the Corporation and
Employee or, if they cannot agree upon a physician, then by a majority
of a panel of three (3) licensed physicians, one selected by the
Corporation, one selected by Employee, and the third selected by the
first two. If Employee's Employment under this Agreement is
terminated pursuant to this Subsection 4(b), the Corporation shall
continue to pay compensation at the rate then in effect pursuant to
Section 3 above until the end of the month following the date of
termination, after which no further compensation will be paid except
for any vested benefits accrued under Appendix A or under the terms of
any fringe benefit programs.
(c) TERMINATION FOR CAUSE. The Corporation shall have the right
to terminate Employee's employment for "Cause." For purposes of this
Agreement, "Cause" shall be limited to (i) the willful and continued
failure by Employee to substantially perform the duties described in
Section 1 above (other than any failure resulting from an illness or
other similar incapacity or disability), after a demand for
substantial performance is delivered to Employee on behalf of the
Board of Directors of the Corporation that specifically identifies the
manner in which it is alleged that Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in
misconduct that is materially injurious to the Corporation, monetarily
or otherwise. For purposes of this subsection, no act or failure to
act on Employee's part shall be considered "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that his action or omission was in the best
interests of the Corporation. Notwithstanding the foregoing, Employee
shall not be deemed to have been terminated for Cause unless and until
-3-
<PAGE>
there has been delivered to him a copy of a notice of termination on
behalf of the Board of Directors of the Corporation after reasonable
notice to him and an opportunity for him, together with counsel, to be
heard before the board, finding that in the reasonable opinion of at
least two-thirds (2/3) of the entire Board of Directors, Employee was
guilty of conduct set forth above in clauses (i) or (ii) of the second
sentence of this Subsection 4(c) and describing the board's findings
in detail. If the Employee's Employment is terminated under this
Subsection 4(c), no further compensation will be paid, except for
salary accrued through the date of termination and any vested benefits
accrued under the terms of any fringe benefit program.
(d) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee shall
have the right to terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with Employee's
present positions, responsibilities and status with the
Corporation or a change in Employee's reporting responsibilities,
titles or offices as presently in effect, or any removal of
Employee from or any failure to reelect Employee to any of those
positions, except in connection with the termination of
Employee's employment by the Corporation due to the death of
Employee, the disability of Employee as determined under
Subsection 4(b) above, or Cause as determined under
Subsection 4(c) above, or by Employee other than for Good Reason;
(ii) any material breach by the Corporation of this
Agreement or any other agreement between the Employee and the
Corporation;
(iii) the relocation of the Corporation's principal
executive offices to a location outside a 60-mile radius from
Irene, South Dakota, or the Corporation's requiring Employee to
be based anywhere other than the Corporation's principal
executive offices except for required travel on the Corporation's
business to an extent substantially consistent with Employee's
present business travel obligations; or
(iv) the failure of the Corporation to obtain the agreement
of any successor to assume and perform this Agreement as
contemplated in Section 9 below.
Provided, however, that Employee shall not be entitled to
terminate his Employment for Good Reason under this Section 4(d)
unless the Employee has first given the Corporation written notice of
the occurrence constituting "Good Reason" and the Corporation has
-4-
<PAGE>
failed to remedy such occurrence within a reasonable time not to
exceed ten (10) days. If Employee terminates his Employment under
this Agreement for Good Reason, Employee will be entitled to Severance
Pay as provided under Section 5.
(e) TERMINATION BY NOTICE. The Corporation and Employee shall
each have the right to terminate their employment relationship for
reasons other than those provided in this Section 4 by giving thirty
(30) days' written notice to the other party specifying the date of
termination; provided, however, that if the Corporation terminates
Employee's employment other than as allowed under Subsection 4(a), (b)
or (c) above, the Corporation will pay Employee Severance Pay as
provided in Section 5 below.
Termination of Employee's employment shall not affect Employee's
rights under Sections 7 and 8 of this Agreement.
SECTION 5. SEVERANCE PAY. If Employee's Employment under this
Agreement is terminated by the Corporation before the Expiration Date other
than as provided under Subsection 4(a), (b) or (c) above, or if Employee's
Employment under this Agreement is terminated by Employee before the
Expiration Date for "Good Reason" under Subsection 4(d) above, the Employee
shall be entitled to receive Severance Pay for the "Compensation Period,"
defined as the period beginning on the employment termination date and
ending on the Expiration Date. "Severance Pay" means the following:
(a) monthly severance payments that shall continue for the term
of the Compensation Period. The amount of each monthly payment shall
be equal to:
(i) one-twelfth (1/12th) of Employee's annual salary for
the last full month immediately preceding his termination plus;
(ii) one-twelfth (1/12) of Employee's Annual Bonus for the
year immediately preceding that in which the termination occurs,
adjusted upward at each year end during the Compensation Period
if the actual Annual Bonus would be greater than such monthly
payments in lieu of bonus.
If the termination of Employment entitling Employee to Severance
Pay occurs after a Change in Control (as defined in Section 6), or if
the Corporation fails to timely pay any Severance Pay, then instead of
monthly payments under (i) and (ii) above, the Corporation shall
immediately pay Employee the sum of all of such monthly payments for
the entire Compensation Period, in one lump sum).
(b) reasonable outplacement services selected by Employee;
-5-
<PAGE>
(c) during the Compensation Period, the Corporation shall
maintain in full force and effect for the continued benefit of
Employee each employee welfare benefit plan (as such term is defined
in the Employment Retirement Income Security Act of 1974, as amended)
in which Employee was entitled to participate immediately before the
date of termination. If Employee's participation in any plan is
barred or otherwise prevented, the Corporation shall provide Employee
with benefits substantially similar to and not less favorable than the
benefits that Employee would otherwise be entitled to receive under
the plan; and
(d) any restricted stock previously granted to Employee shall be
immediately fully vested, and the Corporation shall enable Employee to
immediately exercise in full all stock options, stock appreciation
rights, or similar rights or options, notwithstanding the fact that
the options might not be exercisable in full at that time under their
terms, or under the terms of any plan, agreement or similar
arrangement under which they were granted.
Employee shall not be required to mitigate the amount of any
payments of severance benefits provided in this Section 5 by seeking
other employment or otherwise, nor shall the amount of any payment
provided in this Section 5 be reduced by any compensation earned by
Employee as a result of his employment with another employer after
termination, or otherwise. If Employee dies after a termination of
employment entitling Employee to Severance Pay, Severance Pay will
continue, but will be paid to Employee's estate.
SECTION 6. CHANGE IN CONTROL. For purposes of this Agreement, the
following definitions shall apply:
(a) "Change in Control" shall mean (i) the failure of the
Continuing Directors at any time to constitute at least a majority of
the members of the Corporation's Board of Directors; (ii) the
acquisition by any Person (as defined in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Act")) other than an
Excluded Holder of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of twenty percent (20%) or more of
the outstanding Common Stock or the combined voting power of the
Corporation's outstanding securities entitled to vote generally in the
election of directors; (iii) the approval by the shareholders of the
Corporation of a reorganization, merger or consolidation, unless with
or into a Permitted Successor; or (iv) the approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or the sale or disposition of all or
substantially all of the assets of the Corporation other than to a
Permitted Successor.
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<PAGE>
(b) "Continuing Directors" mean the individuals constituting the
Corporation's Board of Directors as of the date of this Agreement and
any subsequent directors whose election or nomination for election by
the Corporation's shareholders was approved by a vote of two-thirds
(2/3) of the individuals who are then Continuing Directors, but
specifically excluding any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as the term is used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Corporation's Board of Directors.
(c) "Excluded Holder" means the Corporation, a Subsidiary or any
employee benefit plan (i.e., any plan or program established by the
Corporation or a Subsidiary for the compensation or benefit of
employees of the Corporation or any of its Subsidiaries) of the
Corporation or a Subsidiary or any trust holding Common Stock or other
securities pursuant to the terms of an employee benefit plan.
(d) "Permitted Successor" means a corporation which, immediately
following the consummation of a transaction specified in clauses (iii)
and (iv) of the definition of "Change in Control" above, satisfies
each of the following criteria: (A) sixty percent (60%) or more of
the outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation entitled
to vote generally in the election of directors (in each case
determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Corporation's outstanding Common Stock and outstanding securities
entitled to vote generally in the election of directors (respectively)
immediately prior to the applicable transaction, (B) no Person other
than an Excluded Holder beneficially owns, directly or indirectly,
twenty percent (20%) or more of the outstanding common stock of the
corporation or the combined voting power of the outstanding securities
of the corporation entitled to vote generally in the election of
directors (for these purposes the term Excluded Holder shall include
the corporation, any Subsidiary of the corporation and any employee
benefit plan of the corporation or any such Subsidiary or any trust
holding common stock or other securities of the corporation pursuant
to the terms of any such employee benefit plan), and (C) at least a
majority of the Board of Directors is comprised of Continuing
Directors.
(e) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization or other entity or governmental body.
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<PAGE>
(f) "Subsidiary" means any corporation or other entity of which
fifty percent (50%) or more of the outstanding voting stock or voting
ownership interest is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries of the Corporation.
SECTION 7. EXCISE TAX - AFTER TAX REIMBURSEMENT. Notwithstanding any
other provision of this Agreement, if Employee is required to pay any
excise tax under <Section> 4999 of the Internal Revenue Code, or any successor
provision, by reason of his receipt of any payments or benefits from the
Corporation or any Subsidiary (including, but not limited to, any payments
under this Agreement, any payments made to Employee as a director, officer
or employee or former director, officer or employee of the Corporation or
any subsidiary, and any amounts attributable to the grant, exercise or
vesting of stock options granted by the Corporation), then the Corporation
will make an additional payment or payments to Employee sufficient to
reimburse Employee, after all federal, state and local income or excise
taxes, for the amount of excise tax under <Section> 4999, and any interest or
penalties incurred with regard to such excise tax. Such payment will be
made to Employee using the principles and procedures in Appendix B to this
Agreement. Employee shall be entitled to the payments provided by this
Subsection 7 notwithstanding any other provision of this Agreement, and
whether the events giving rise to Employee's right to payment under this
Subsection occur before or after the Expiration Date, or before or after
any termination of Employee's employment.
SECTION 8. LEGAL FEES AND EXPENSES. The Corporation shall reimburse
Employee for all reasonable legal fees and expenses incurred by Employee,
regardless of Employee's choice of counsel, in seeking to enforce any right
or benefit provided by this Agreement, provided that the Employee prevails
in his contentions. If Employee prevails in some contentions but not
others, or prevails in part or not completely, reimbursement shall be in
proportion to the degree of success. Upon the request of Employee, the
Corporation shall establish an irrevocable letter of credit drawn on a bank
reasonably acceptable to Employee for the contemporaneous payment of fees
and expenses as provided in this Section 8. This payment shall be made to
Employee or, at Employee's option, directly to his counsel. If, however,
Employee is ultimately found entitled to reimbursement in less than the
amount paid contemporaneously, Employee shall immediately repay the balance
to the Corporation. The Corporation's obligations under this paragraph
shall continue regardless of whether such fees and expenses are incurred
before or after the Expiration Date, or before or after any termination of
Employee's employment.
SECTION 9. SUCCESSORS; BINDING AGREEMENT.
(a) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Corporation,
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<PAGE>
by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required
to perform it if no succession had taken place. Failure of the
Corporation to obtain the agreement before the effectiveness of any
succession shall be a breach of this Agreement and shall entitle
Employee to compensation from the Corporation in the same amount and
on the same terms as Employee would be entitled under this Agreement
if Employee terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
succession becomes effective shall be deemed the date of termination.
As used in this Agreement, "The Corporation" shall mean the
Corporation and any successor to the Corporation's business and/or
assets as described above which executes and delivers the agreement
provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amount would still be
payable to him under this Agreement if he had continued to live, all
of those amounts, unless otherwise provided in this Agreement, shall
be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there is no designee, to his estate.
SECTION 10. RESTRICTIONS ON COMPETITION. Employee will not, while
employed under this Agreement or while receiving Severance Pay and before a
Change in Control, compete with the Corporation or become employed by or
render services or advice to any competitor of the Corporation, defined as
any person or entity selling any product or offering any service sold or
offered by the Corporation in any market area where the Corporation is
providing such goods or services or planning to do so (or any person or
entity seeking Employee's services in contemplation of doing so). This
restriction, however, shall not prohibit Employee, after any termination of
his Employment with the Corporation, from rendering professional legal or
accounting services as part of an independent law or accounting practice,
nor shall this provision apply after the date that Employee notifies the
Corporation in writing that he waives any right to further Severance Pay
under Section 5.
SECTION 11. NOTICE. Notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to Employee at his
last address on file with the Corporation, or to the Corporation at its
principal executive offices to the attention of the Board of Directors of
the Corporation, or to any other address that either party furnishes to the
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<PAGE>
other in writing in accordance with this section, except that notice of
change of address shall be effective only upon receipt.
SECTION 12. MISCELLANEOUS. This Agreement supersedes all prior
employment agreements between Employee and the Corporation, which shall be
of no further effect except that this Agreement does not affect the
Corporation's obligation to pay any accrued compensation, bonus or benefit.
No provisions of this Agreement may be modified, waived or discharged
unless the waiver, modification or discharge is agreed to in writing signed
by Employee and any officer specifically designated by the Board of
Directors of the Corporation. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by that other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
time or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the specific subject
matter of this Agreement have been made by either party that are not set
forth expressly in this Agreement. The headings of the sections and
subsections of this Agreement have been inserted for convenience of
reference only and shall not restrict or modify any of the terms or
provisions of this Agreement. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect. If any provision of this Agreement is unenforceable as written
under applicable law, it is the intent of the parties that such provision
shall be modified by narrowing it sufficiently to allow its enforcement.
All provisions of this Agreement shall be enforced to the full extent
permitted by law. This Agreement may be signed in identical counterparts,
each of which shall be deemed to be an original, and the counterparts shall
together constitute one document. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota, as
applicable to contracts made and to be performed in that State.
The parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _________________________________________
Its ____________________________________
_____________________________________________
Thomas W. Hertz, Employee
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<PAGE>
APPENDIX A
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
THOMAS W. HERTZ
ANNUAL BONUS CALCULATION
Employee's Annual Bonus under Section 3(b) of the Agreement shall be
computed as set forth below.
1. AMOUNT. The amount of the Annual Bonus shall be fifteen percent
(15%) of any increase in the Corporation's Adjusted Earnings (as defined
below) each year over the prior year's Adjusted Earnings, beginning with
the year 1997 (compared to 1996) and continuing each year thereafter.
2. PAYMENT. The Annual Bonus shall be paid each year in monthly
installments (payable by the 20th day of the following month) computed at
fifteen percent (15%) of any increase in each month's Adjusted Earnings
compared to Adjusted Earnings for the same month in the prior year.
Provided, however, that the final amount of the Annual Bonus shall be
computed based on the Corporation's audited financial statements for the
year, compared to the audited financial statements for the prior year. If
the Annual Bonus computed based on the audited financial statements is
greater than the sum of the monthly payments for the year, the Corporation
will pay the Employee the difference within seventy (70) days after year-
end. If the Annual Bonus computed based on the audited financial
statements is less than the sum of the monthly payments for the year, the
Employee will repay the difference to the Corporation within seventy (70)
days after year-end. The Corporation agrees to continue to cause
preparation of monthly unaudited and annual audited statements and to
compute Adjusted Earnings on a timely basis, to allow computation and
payment of the Annual Bonus. The Annual Bonus may not be reduced by a
change in the Company's fiscal year without Employee's written consent.
3. ADJUSTED EARNINGS. The Corporation's Adjusted Earnings for a
year shall be the Corporation's Net Income before provision for income
taxes, adjusted as follows:
(a) add back all non-cash expenses, including but not
limited to depreciation and/or amortization expense;
(b) add back any Annual Bonus payable under this Agreement, and
any Annual Bonus payable under the agreement between the Corporation
and CRAIG A. ANDERSON;
(c) eliminate the effect of any "extraordinary item," as defined
by Generally Accepted Accounting Principles.
<PAGE>
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION COVERED BY SECTION 5 OF AGREEMENT. If
Employee's employment is terminated under circumstances entitling
Employee to Severance Pay under Section 5 of the Agreement, Employee
will not receive any further monthly payments under paragraph 2 above
after the month of termination, but will be entitled to payments under
Subsection 5(a) of the Agreement.
(b) TERMINATION FOR CAUSE. If Employee's Employment is
terminated for Cause under Subsection 4(c) of the Agreement, Employee
shall not be entitled to any further payments of Annual Bonus, except
any unpaid installment from any year prior to that in which the
termination of Employment occurs.
(c) TERMINATION DUE TO DEATH, DISABILITY, RESIGNATION. If
Employee's employment terminates due to Employee's death, disability or
resignation (other than for Good Reason), Employee shall not receive
further monthly payments under paragraph 2, but shall be entitled to a
prorated Annual Bonus for the year in which the Employment terminates.
The prorated bonus will be computed at year end as the Annual Bonus
the Employee would have received had the Employment terminated after
the end of the year, multiplied by a fraction, the numerator of which
is the number of months in the year through the month in which the
Employment terminates, and the denominator of which is 12.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ JAMES H. JIBBEN
Its PRESIDENT
/S/ THOMAS W. HERTZ
Thomas W. Hertz, Employee
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<PAGE>
APPENDIX B
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
THOMAS W. HERTZ
CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION
(a) If any payment or distribution by the Corporation or its
affiliated companies to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Appendix B (a "Payment")) would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code, or any
successor Code provision, or any interest or penalties are incurred by
Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment,
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Appendix B, all determinations
required to be made under this Appendix B, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the public accounting firm that is retained by The Corporation as
of the date immediately prior to the change in control (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Corporation and Employee within fifteen (15) business days of the receipt
of notice from Employee that there has been a Payment, or such earlier time
as is requested by the Corporation (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the change in control, Employee
shall appoint another nationally recognized public accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up
Payment, as determined pursuant to this Appendix B, shall be paid by the
Corporation to Employee within five (5) days of the receipt of the
Determination. If the Accounting Firm determines that no Excise Taxes are
payable by Employee, it shall furnish Employee with a written opinion that
failure to report the Excise Tax on Employee's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon
the Corporation and Employee. As a result of the uncertainty in the
<PAGE>
application of Section 4999 of the Code at the time of the Determination,
it is possible that Gross-Up Payments which will not have been made by the
Corporation should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Corporation exhausts its remedies pursuant to subparagraph (c) below and
Employee thereafter is required to make payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of Employee.
(c) Employee shall notify the Corporation in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Corporation of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
Employee is informed in writing of such claim and shall apprise the
Corporation of the nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which Employee gives
such notice to the Corporation (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Corporation notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(1) give the Corporation any information reasonably requested by
the Corporation relating to such claim,
(2) take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Corporation,
(3) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(4) permit The Corporation to participate in any proceeding
relating to such claim; provided, however, that the Corporation shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax basis, for
any Excise Tax or income or employment tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation
on the foregoing provisions of this Appendix B, the Corporation shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
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<PAGE>
direct Employee to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Corporation shall determine; provided further, that if the
Corporation directs Employee to pay such claim and sue for a refund,
the Corporation shall advance the amount of such payment to Employee
on an interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Corporation's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by Employee of an amount advanced by the
Corporation pursuant to this Appendix B, Employee becomes entitled to
receive, and receives, any refund with respect to such claim, Employee
shall (subject to the Corporation's complying with its contractual
obligations to Employee) promptly pay to the Corporation the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Employee of an amount
advanced by the Corporation pursuant to Appendix B, a determination is made
that Employee shall not be entitled to any refund with respect to such
claim and the Corporation does not notify Employee in writing of its intent
to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _____________________________________
Its _________________________________
________________________________________
Thomas W. Hertz, Employee
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<PAGE>
EXHIBIT 10.4
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of January 1, 1997 (the
"Agreement"), by and between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a
South Dakota cooperative association (the "Corporation"), and CRAIG A.
ANDERSON ("Employee").
Employee currently serves as the Executive Vice-President-
Marketing and Chief Financial Officer of the Corporation. To provide
Employee certain financial and job security as an inducement to securing
the continued services and employment of Employee, the Board of Directors
of the Corporation believes the interests of the Corporation are best
served by entering into this Agreement with Employee.
ACCORDINGLY, the parties agree as follows:
SECTION 1. EMPLOYMENT AND DUTIES. The Corporation hereby employs
Employee, and Employee hereby accepts employment, on the terms and subject
to the conditions set forth in this Agreement. Employee shall be employed
as an executive officer of the Corporation. If by reason of a
consolidation, merger, combination or other reorganization of the
Corporation the business of the Corporation is continued under another
corporate entity, Employee shall be employed in substantially the same
capacity with that other entity with the same authority and responsibility
as he enjoyed at the time of the transaction. During the period of his
employment by the Corporation, Employee shall devote substantially his
entire business time and energy to the business and affairs of the
Corporation and shall use his reasonable best efforts to perform his duties
as an executive officer of the Corporation.
SECTION 2. EFFECTIVE DATE AND TERM OF EMPLOYMENT. The term of
Employee's employment under this Agreement shall begin on January 1, 1997
(the "Effective Date") and continue until the Expiration Date, unless
terminated earlier pursuant to Section 4 of this Agreement. The initial
Expiration Date shall be the third anniversary of the Effective Date,
provided, however, that:
(a) On each anniversary of the Effective Date, the Expiration
Date shall automatically be extended one (1) year, to restore the
unexpired term to three (3) years, unless either the Corporation or
the Employee shall notify the other in writing, not less than 30 days
before such anniversary date, that it or he does not choose to further
extend the term of Employment under this Agreement. Once such notice
is given, Employee's Employment under this Agreement shall continue
until the Expiration Date (subject to Section 4), but there shall be
no further extensions of the Expiration Date, except under
Subparagraph 2(b) below or by written agreement of the parties.
<PAGE>
(b) If a Change in Control (as defined in Section 6 of this
Agreement) occurs before the initial or any extended Expiration Date,
the Expiration Date shall be automatically extended until the end of
the thirty-sixth (36th) month following that in which the Change of
Control occurs, if the Employee is still employed on the date of the
Change in Control or if the Corporation, in contemplation of a Change
in Control, has terminated the Employee's Employment or taken actions
constituting "Good Reason" (under Section 4(d)).
SECTION 3. COMPENSATION. In consideration for his services, Employee
shall be paid a monthly salary, annual bonuses and other fringe benefits
during his Employment under this Agreement, as determined from time to time
by the Board of Directors, but in at least the following minimum amounts.
(a) Employee's salary shall be at least $100,000 per year, less
normal withholding. The Board of Directors shall consider Employee
for a salary increase annually, but shall not be required to increase
Employee's salary.
(b) Employee shall be entitled to an Annual Bonus in the amount
provided in Appendix A to this Agreement, less normal withholding.
(c) Employee shall be entitled to the normal fringe benefits
provided to the Corporation's salaried employees, and shall be
entitled at a minimum to comprehensive employee and dependent health
coverage and to short- and long-term disability coverage.
(d) Employee shall be entitled to 25 days' vacation leave with
pay continuation each year.
(e) Employee shall be entitled to reimbursement for all
reasonable business and travel expenses (including transportation,
lodging, meals, entertainment and other incidental expenses) related
to his activities for the benefit of the Corporation, including but
not limited to professional licensing and professional and business
organization or association fees and dues, expenses incurred in
attending professional association and business functions and
meetings, and seminar or other educational activities. Mileage shall
be paid at the Internal Revenue Service (IRS) rate for all business
miles driven; no mileage shall be paid, however, for normal home to
office commuting.
SECTION 4. TERMINATION.
(a) DEATH. If Employee, while in the employ of the Corporation,
dies before the Expiration Date, the Corporation shall continue to pay
compensation at the rate then in effect pursuant to Section 3 above
until the end of the third month following the date of death, after
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<PAGE>
which no further compensation will be paid except for any vested
benefits accrued under Appendix A or under the terms of any fringe
benefit programs.
(b) DISABILITY. If Employee is unable to substantially perform
the duties described in Section 1 above for a period of nine (9)
successive months by reason of illness or other similar incapacity or
disability, Employee's Employment under this Agreement may be
terminated as of the end of any calendar month following the 9-month
period (i) by the Corporation based upon a determination that Employee
is disabled and by notice in writing to that effect to Employee, or
(ii) by Employee by his resignation in writing to the Corporation.
Any determination as to whether Employee is disabled shall be made by
a licensed physician selected by agreement of the Corporation and
Employee or, if they cannot agree upon a physician, then by a majority
of a panel of three (3) licensed physicians, one selected by the
Corporation, one selected by Employee, and the third selected by the
first two. If Employee's Employment under this Agreement is
terminated pursuant to this Subsection 4(b), the Corporation shall
continue to pay compensation at the rate then in effect pursuant to
Section 3 above until the end of the month following the date of
termination, after which no further compensation will be paid except
for any vested benefits accrued under Appendix A or under the terms of
any fringe benefit programs.
(c) TERMINATION FOR CAUSE. The Corporation shall have the right
to terminate Employee's employment for "Cause." For purposes of this
Agreement, "Cause" shall be limited to (i) the willful and continued
failure by Employee to substantially perform the duties described in
Section 1 above (other than any failure resulting from an illness or
other similar incapacity or disability), after a demand for
substantial performance is delivered to Employee on behalf of the
Board of Directors of the Corporation that specifically identifies the
manner in which it is alleged that Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in
misconduct that is materially injurious to the Corporation, monetarily
or otherwise. For purposes of this subsection, no act or failure to
act on Employee's part shall be considered "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that his action or omission was in the best
interests of the Corporation. Notwithstanding the foregoing, Employee
shall not be deemed to have been terminated for Cause unless and until
there has been delivered to him a copy of a notice of termination on
behalf of the Board of Directors of the Corporation after reasonable
notice to him and an opportunity for him, together with counsel, to be
heard before the board, finding that in the reasonable opinion of at
least two-thirds (2/3) of the entire Board of Directors, Employee was
guilty of conduct set forth above in clauses (i) or (ii) of the second
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<PAGE>
sentence of this Subsection 4(c) and describing the board's findings
in detail. If the Employee's Employment is terminated under this
Subsection 4(c), no further compensation will be paid, except for
salary accrued through the date of termination and any vested benefits
accrued under the terms of any fringe benefit program.
(d) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee shall
have the right to terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with Employee's
present positions, responsibilities and status with the
Corporation or a change in Employee's reporting responsibilities,
titles or offices as presently in effect, or any removal of
Employee from or any failure to reelect Employee to any of those
positions, except in connection with the termination of
Employee's employment by the Corporation due to the death of
Employee, the disability of Employee as determined under
Subsection 4(b) above, or Cause as determined under
Subsection 4(c) above, or by Employee other than for Good Reason;
(ii) any material breach by the Corporation of this
Agreement or any other agreement between the Employee and the
Corporation;
(iii) the relocation of the Corporation's principal
executive offices to a location outside a 60-mile radius from
Irene, South Dakota, or the Corporation's requiring Employee to
be based anywhere other than the Corporation's principal
executive offices except for required travel on the Corporation's
business to an extent substantially consistent with Employee's
present business travel obligations; or
(iv) the failure of the Corporation to obtain the agreement
of any successor to assume and perform this Agreement as
contemplated in Section 9 below.
Provided, however, that Employee shall not be entitled to
terminate his Employment for Good Reason under this Section 4(d)
unless the Employee has first given the Corporation written notice of
the occurrence constituting "Good Reason" and the Corporation has
failed to remedy such occurrence within a reasonable time not to
exceed ten (10) days. If Employee terminates his Employment under
this Agreement for Good Reason, Employee will be entitled to Severance
Pay as provided under Section 5.
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(e) TERMINATION BY NOTICE. The Corporation and Employee shall
each have the right to terminate their employment relationship for
reasons other than those provided in this Section 4 by giving thirty
(30) days' written notice to the other party specifying the date of
termination; provided, however, that if the Corporation terminates
Employee's employment other than as allowed under Subsection 4(a), (b)
or (c) above, the Corporation will pay Employee Severance Pay as
provided in Section 5 below.
Termination of Employee's employment shall not affect Employee's
rights under Sections 7 and 8 of this Agreement.
SECTION 5. SEVERANCE PAY. If Employee's Employment under this
Agreement is terminated by the Corporation before the Expiration Date other
than as provided under Subsection 4(a), (b) or (c) above, or if Employee's
Employment under this Agreement is terminated by Employee before the
Expiration Date for "Good Reason" under Subsection 4(d) above, the Employee
shall be entitled to receive Severance Pay for the "Compensation Period,"
defined as the period beginning on the employment termination date and
ending on the Expiration Date. "Severance Pay" means the following:
(a) monthly severance payments that shall continue for the term
of the Compensation Period. The amount of each monthly payment shall
be equal to:
(i) one-twelfth (1/12th) of Employee's annual salary for
the last full month immediately preceding his termination plus;
(ii) one-twelfth (1/12) of Employee's Annual Bonus for the
year immediately preceding that in which the termination occurs,
adjusted upward at each year end during the Compensation Period
if the actual Annual Bonus would be greater than such monthly
payments in lieu of bonus.
If the termination of Employment entitling Employee to Severance
Pay occurs after a Change in Control (as defined in Section 6), or if
the Corporation fails to timely pay any Severance Pay, then instead of
monthly payments under (i) and (ii) above, the Corporation shall
immediately pay Employee the sum of all of such monthly payments for
the entire Compensation Period, in one lump sum).
(b) reasonable outplacement services selected by Employee;
(c) during the Compensation Period, the Corporation shall
maintain in full force and effect for the continued benefit of
Employee each employee welfare benefit plan (as such term is defined
in the Employment Retirement Income Security Act of 1974, as amended)
in which Employee was entitled to participate immediately before the
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date of termination. If Employee's participation in any plan is
barred or otherwise prevented, the Corporation shall provide Employee
with benefits substantially similar to and not less favorable than the
benefits that Employee would otherwise be entitled to receive under
the plan; and
(d) any restricted stock previously granted to Employee shall be
immediately fully vested, and the Corporation shall enable Employee to
immediately exercise in full all stock options, stock appreciation
rights, or similar rights or options, notwithstanding the fact that
the options might not be exercisable in full at that time under their
terms, or under the terms of any plan, agreement or similar
arrangement under which they were granted.
Employee shall not be required to mitigate the amount of any
payments of severance benefits provided in this Section 5 by seeking
other employment or otherwise, nor shall the amount of any payment
provided in this Section 5 be reduced by any compensation earned by
Employee as a result of his employment with another employer after
termination, or otherwise. If Employee dies after a termination of
employment entitling Employee to Severance Pay, Severance Pay will
continue, but will be paid to Employee's estate.
SECTION 6. CHANGE IN CONTROL. For purposes of this Agreement, the
following definitions shall apply:
(a) "Change in Control" shall mean (i) the failure of the
Continuing Directors at any time to constitute at least a majority of
the members of the Corporation's Board of Directors; (ii) the
acquisition by any Person (as defined in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Act")) other than an
Excluded Holder of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of twenty percent (20%) or more of
the outstanding Common Stock or the combined voting power of the
Corporation's outstanding securities entitled to vote generally in the
election of directors; (iii) the approval by the shareholders of the
Corporation of a reorganization, merger or consolidation, unless with
or into a Permitted Successor; or (iv) the approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or the sale or disposition of all or
substantially all of the assets of the Corporation other than to a
Permitted Successor.
(b) "Continuing Directors" mean the individuals constituting the
Corporation's Board of Directors as of the date of this Agreement and
any subsequent directors whose election or nomination for election by
the Corporation's shareholders was approved by a vote of two-thirds
(2/3) of the individuals who are then Continuing Directors, but
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specifically excluding any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as the term is used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Corporation's Board of Directors.
(c) "Excluded Holder" means the Corporation, a Subsidiary or any
employee benefit plan (i.e., any plan or program established by the
Corporation or a Subsidiary for the compensation or benefit of
employees of the Corporation or any of its Subsidiaries) of the
Corporation or a Subsidiary or any trust holding Common Stock or other
securities pursuant to the terms of an employee benefit plan.
(d) "Permitted Successor" means a corporation which, immediately
following the consummation of a transaction specified in clauses (iii)
and (iv) of the definition of "Change in Control" above, satisfies
each of the following criteria: (A) sixty percent (60%) or more of
the outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation entitled
to vote generally in the election of directors (in each case
determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Corporation's outstanding Common Stock and outstanding securities
entitled to vote generally in the election of directors (respectively)
immediately prior to the applicable transaction, (B) no Person other
than an Excluded Holder beneficially owns, directly or indirectly,
twenty percent (20%) or more of the outstanding common stock of the
corporation or the combined voting power of the outstanding securities
of the corporation entitled to vote generally in the election of
directors (for these purposes the term Excluded Holder shall include
the corporation, any Subsidiary of the corporation and any employee
benefit plan of the corporation or any such Subsidiary or any trust
holding common stock or other securities of the corporation pursuant
to the terms of any such employee benefit plan), and (C) at least a
majority of the Board of Directors is comprised of Continuing
Directors.
(e) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization or other entity or governmental body.
(f) "Subsidiary" means any corporation or other entity of which
fifty percent (50%) or more of the outstanding voting stock or voting
ownership interest is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries of the Corporation.
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SECTION 7. EXCISE TAX - AFTER TAX REIMBURSEMENT. Notwithstanding any
other provision of this Agreement, if Employee is required to pay any
excise tax under <Section> 4999 of the Internal Revenue Code, or any
successor provision, by reason of his receipt of any payments or benefits
from the Corporation or any Subsidiary (including, but not limited to, any
payments under this Agreement, any payments made to Employee as a director,
officer or employee or former director, officer or employee of the
Corporation or any subsidiary, and any amounts attributable to the grant,
exercise or vesting of stock options granted by the Corporation), then the
Corporation will make an additional payment or payments to Employee
sufficient to reimburse Employee, after all federal, state and local income
or excise taxes, for the amount of excise tax under <Section> 4999, and any
interest or penalties incurred with regard to such excise tax. Such
payment will be made to Employee using the principles and procedures in
Appendix B to this Agreement. Employee shall be entitled to the payments
provided by this Subsection 7 notwithstanding any other provision of this
Agreement, and whether the events giving rise to Employee's right to
payment under this Subsection occur before or after the Expiration Date, or
before or after any termination of Employee's employment.
SECTION 8. LEGAL FEES AND EXPENSES. The Corporation shall reimburse
Employee for all reasonable legal fees and expenses incurred by Employee,
regardless of Employee's choice of counsel, in seeking to enforce any right
or benefit provided by this Agreement, provided that the Employee prevails
in his contentions. If Employee prevails in some contentions but not
others, or prevails in part or not completely, reimbursement shall be in
proportion to the degree of success. Upon the request of Employee, the
Corporation shall establish an irrevocable letter of credit drawn on a bank
reasonably acceptable to Employee for the contemporaneous payment of fees
and expenses as provided in this Section 8. This payment shall be made to
Employee or, at Employee's option, directly to his counsel. If, however,
Employee is ultimately found entitled to reimbursement in less than the
amount paid contemporaneously, Employee shall immediately repay the balance
to the Corporation. The Corporation's obligations under this paragraph
shall continue regardless of whether such fees and expenses are incurred
before or after the Expiration Date, or before or after any termination of
Employee's employment.
SECTION 9. SUCCESSORS; BINDING AGREEMENT.
(a) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Corporation,
by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required
to perform it if no succession had taken place. Failure of the
Corporation to obtain the agreement before the effectiveness of any
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<PAGE>
succession shall be a breach of this Agreement and shall entitle
Employee to compensation from the Corporation in the same amount and
on the same terms as Employee would be entitled under this Agreement
if Employee terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
succession becomes effective shall be deemed the date of termination.
As used in this Agreement, "The Corporation" shall mean the
Corporation and any successor to the Corporation's business and/or
assets as described above which executes and delivers the agreement
provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amount would still be
payable to him under this Agreement if he had continued to live, all
of those amounts, unless otherwise provided in this Agreement, shall
be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there is no designee, to his estate.
SECTION 10. RESTRICTIONS ON COMPETITION. Employee will not, while
employed under this Agreement or while receiving Severance Pay and before a
Change in Control, compete with the Corporation or become employed by or
render services or advice to any competitor of the Corporation, defined as
any person or entity selling any product or offering any service sold or
offered by the Corporation in any market area where the Corporation is
providing such goods or services or planning to do so (or any person or
entity seeking Employee's services in contemplation of doing so). This
restriction, however, shall not prohibit Employee, after any termination of
his Employment with the Corporation, from rendering professional legal or
accounting services as part of an independent law or accounting practice,
nor shall this provision apply after the date that Employee notifies the
Corporation in writing that he waives any right to further Severance Pay
under Section 5.
SECTION 11. NOTICE. Notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to Employee at his
last address on file with the Corporation, or to the Corporation at its
principal executive offices to the attention of the Board of Directors of
the Corporation, or to any other address that either party furnishes to the
other in writing in accordance with this section, except that notice of
change of address shall be effective only upon receipt.
SECTION 12. MISCELLANEOUS. This Agreement supersedes all prior
employment agreements between Employee and the Corporation, which shall be
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of no further effect except that this Agreement does not affect the
Corporation's obligation to pay any accrued compensation, bonus or benefit.
No provisions of this Agreement may be modified, waived or discharged
unless the waiver, modification or discharge is agreed to in writing signed
by Employee and any officer specifically designated by the Board of
Directors of the Corporation. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by that other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
time or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the specific subject
matter of this Agreement have been made by either party that are not set
forth expressly in this Agreement. The headings of the sections and
subsections of this Agreement have been inserted for convenience of
reference only and shall not restrict or modify any of the terms or
provisions of this Agreement. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect. If any provision of this Agreement is enforceable as written
under applicable law, it is the intent of the parties that such provision
shall be modified by narrowing it sufficiently to allow its enforcement.
All provisions of this Agreement shall be enforced to the full extent
permitted by law. This Agreement may be signed in identical counterparts,
each of which shall be deemed to be an original, and the counterparts shall
together constitute one document. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota, as
applicable to contracts made and to be performed in that State.
The parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ JAMES H. JIBBEN
Its PRESIDENT
/S/ CRAIG A. ANDERSON
Craig A. Anderson, Employee
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APPENDIX A
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
CRAIG A. ANDERSON
ANNUAL BONUS CALCULATION
Employee's Annual Bonus under Section 3(b) of the Agreement shall be
computed as set forth below.
1. AMOUNT. The amount of the Annual Bonus shall be fifteen percent
(15%) of any increase in the Corporation's Adjusted Earnings (as defined
below) each year over the prior year's Adjusted Earnings, beginning with
the year 1997 (compared to 1996) and continuing each year thereafter.
2. PAYMENT. The Annual Bonus shall be paid each year in monthly
installments (payable by the 20th day of the following month) computed at
fifteen percent (15%) of any increase in each month's Adjusted Earnings
compared to Adjusted Earnings for the same month in the prior year.
Provided, however, that the final amount of the Annual Bonus shall be
computed based on the Corporation's audited financial statements for the
year, compared to the audited financial statements for the prior year. If
the Annual Bonus computed based on the audited financial statements is
greater than the sum of the monthly payments for the year, the Corporation
will pay the Employee the difference within seventy (70) days after year-
end. If the Annual Bonus computed based on the audited financial
statements is less than the sum of the monthly payments for the year, the
Employee will repay the difference to the Corporation within seventy (70)
days after year-end. The Corporation agrees to continue to cause
preparation of monthly unaudited and annual audited statements and to
compute Adjusted Earnings on a timely basis, to allow computation and
payment of the Annual Bonus. The Annual Bonus may not be reduced by a
change in the Company's fiscal year without Employee's written consent.
3. ADJUSTED EARNINGS. The Corporation's Adjusted Earnings for a
year shall be the Corporation's Net Income before provision for income
taxes, adjusted as follows:
(a) add back all non-cash expenses, including, but not
limited to, depreciation and/or amortization expense;
(b) add back any Annual Bonus payable under this Agreement, and
any Annual Bonus payable under the agreement between the Corporation
and THOMAS W. HERTZ;
(c) eliminate the effect of any "extraordinary item," as defined
by Generally Accepted Accounting Principles.
<PAGE>
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION COVERED BY SECTION 5 OF AGREEMENT. If
Employee's employment is terminated under circumstances entitling
Employee to Severance Pay under Section 5 of the Agreement, Employee
will not receive any further monthly payments under paragraph 2 above
after the month of termination, but will be entitled to payments under
Subsection 5(a) of the Agreement.
(b) TERMINATION FOR CAUSE. If Employee's Employment is
terminated for Cause under Subsection 4(c) of the Agreement, Employee
shall not be entitled to any further payments of Annual Bonus, except
any unpaid installment from any year prior to that in which the
termination of Employment occurs.
(c) TERMINATION DUE TO DEATH, DISABILITY, RESIGNATION. If
Employee's employment terminates due to Employee's death, disability
or resignation (other than for Good Reason), Employee shall not
receive further monthly payments under paragraph 2, but shall be
entitled to a prorated Annual Bonus for the year in which the
Employment terminates. The prorated bonus will be computed at year
end as the Annual Bonus the Employee would have received had the
Employment terminated after the end of the year, multiplied by a
fraction, the numerator of which is the number of months in the year
through the month in which the Employment terminates, and the
denominator of which is 12.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _____________________________________
Its _______________________________
________________________________________
Craig A. Anderson, Employee
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APPENDIX B
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
CRAIG A. ANDERSON
CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION
(a) If any payment or distribution by the Corporation or its
affiliated companies to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Appendix B (a "Payment")) would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code, or any
successor Code provision, or any interest or penalties are incurred by
Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment,
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Appendix B, all determinations
required to be made under this Appendix B, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the public accounting firm that is retained by The Corporation as
of the date immediately prior to the change in control (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Corporation and Employee within fifteen (15) business days of the receipt
of notice from Employee that there has been a Payment, or such earlier time
as is requested by the Corporation (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the change in control, Employee
shall appoint another nationally recognized public accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up
Payment, as determined pursuant to this Appendix B, shall be paid by the
Corporation to Employee within five (5) days of the receipt of the
Determination. If the Accounting Firm determines that no Excise Taxes are
payable by Employee, it shall furnish Employee with a written opinion that
failure to report the Excise Tax on Employee's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon
the Corporation and Employee. As a result of the uncertainty in the
<PAGE>
application of Section 4999 of the Code at the time of the Determination,
it is possible that Gross-Up Payments which will not have been made by the
Corporation should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Corporation exhausts its remedies pursuant to subparagraph (c) below and
Employee thereafter is required to make payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of Employee.
(c) Employee shall notify the Corporation in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Corporation of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
Employee is informed in writing of such claim and shall apprise the
Corporation of the nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which Employee gives
such notice to the Corporation (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Corporation notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(1) give the Corporation any information reasonably requested by
the Corporation relating to such claim,
(2) take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Corporation,
(3) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(4) permit The Corporation to participate in any proceeding
relating to such claim; provided, however, that the Corporation shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax basis, for
any Excise Tax or income or employment tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation
on the foregoing provisions of this Appendix B, the Corporation shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to pay the tax claimed and sue for a refund or contest
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<PAGE>
the claim in any permissible manner, and Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Corporation shall determine; provided further, that if the
Corporation directs Employee to pay such claim and sue for a refund,
the Corporation shall advance the amount of such payment to Employee
on an interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Corporation's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by Employee of an amount advanced by the
Corporation pursuant to this Appendix B, Employee becomes entitled to
receive, and receives, any refund with respect to such claim, Employee
shall (subject to the Corporation's complying with its contractual
obligations to Employee) promptly pay to the Corporation the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Employee of an amount
advanced by the Corporation pursuant to Appendix B, a determination is made
that Employee shall not be entitled to any refund with respect to such
claim and the Corporation does not notify Employee in writing of its intent
to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _____________________________________
Its _________________________________
________________________________________
Craig A. Anderson, Employee
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EXHIBIT 10.5
EARLY RETIREMENT & CONSULTING AGREEMENT
THIS AGREEMENT is made by and between Dakota Cooperative
Telecommunications, Inc. a South Dakota corporation having its principle
place of business at Irene, South Dakota, together with all of its
affiliates, and subsidiary enterprises (collectively, "DAKOTA"), and Robert
R. DeNeui, an individual person, residing at Hurley, South Dakota
("DENEUI"). Reference here to "Board of Directors" and "President" refers
to the Board of Directors and President of the Board of Directors of
DAKOTA.
WITNESSETH:
WHEREAS: DAKOTA provides telecommunications and other services in
South Dakota; and
WHEREAS: DENEUI has served DAKOTA in various capacities, most recently
as the General Manager, and in that position he has performed under a
General Manager's Contract dated May 24, 1993 ("GM Contract"); and
WHEREAS: Both DENEUI and DAKOTA mutually desire to terminate the GM
Contract; and
WHEREAS: DAKOTA recognizes the need to continue its activities in an
orderly manner while making allowances for personal needs and desires of
DENEUI; and
WHEREAS: Under current rules DENEUI will be eligible for retirement on
November 5, 1997, and for receiving retirement plan benefits;
NOW, THEREFORE; In consideration of the mutual promises of the parties
and the mutual benefits they will gain by the performance thereof, all in
accordance with the provisions hereinafter set forth,
IT IS AGREED:
1. DENEUI hereby resigns as General Manager of DAKOTA, effective
immediately.
2. DENEUI shall be classified as an employee through November 5,
1997, but will only provide off-premises technical consulting work for cost
study purposes. Such services will be provided only when and as requested
in writing by the Board of Directors of DAKOTA. During this time period
_______________________
PAGE 1 RRD
<PAGE>
DENEUI shall not have any real or apparent authority with regard to any
matters relating to DAKOTA nor shall DENEUI contact, either directly or
indirectly, any employee of DAKOTA without the prior written consent of the
Board of Directors. In consideration of the foregoing, DAKOTA shall pay to
DENEUI the sum of two hundred thousand and no/100 ($200,000.00) dollars,
which sum shall be divided into equal monthly payments, subject to all
appropriate tax and payroll deductions, and paid monthly from the date of
resignation as General Manager until November 5, 1997. DAKOTA shall make
payment for earned salary through October 16, 1995, but no payments shall
be made for accrued vacation or sick leave, nor will vacation or sick leave
accrue during the time period of October 6, 1995 through November 5, 1997.
Except for National Telephone Cooperative Association ("NTCA") provided
life insurance, no further payments or premiums shall be made or paid by
DAKOTA on any life insurance on DENEUI or for his benefit, or for the
benefit of his family, heirs or beneficiaries. In addition DAKOTA will
transfer ownership of the Jeep vehicle and the cellular phone equipment now
used by DENEUI to DENEUI.
3. Except as contemplated herein, DENEUI shall not engage in, be
employed in, or in any way be related to, directly or indirectly, or be
part of or consultant to any telephone CATV, cellular, PCS, or any other
telecommunications business or activity, whether public, private, or
governmental, within the State of South Dakota for a period of two years
following the date of this Agreement. DENEUI further agrees that he will
not communicate to any person, firm, corporation, or other entity any
information relating to customers, prices, trade or other secrets,
advertising, employee information, employment practices of DAKOTA, or any
confidential knowledge or information that DENEUI may have acquired with
respect to DAKOTA. All books, records, and accounts relating in any manner
to DAKOTA are the exclusive property of DAKOTA and shall be returned
immediately to DAKOTA. Except as specified above, all telecommunications
equipment, including cellular phones and mobile radios, and any other items
which are the property of DAKOTA, shall be returned immediately to DAKOTA.
4. Until November 5, 1997, all required retirement plan
contributions will continue to be paid by DAKOTA on behalf of DENEUI in
accordance with the terms, limitations and requirements of DAKOTA, Rural
Utilities Services of the United States Department of Agriculture ("RUS"),
and the National Telephone Cooperative Association ("NTCA"), and provided
further, that DENEUI may maintain, at DAKOTA's expense, participation in
DAKOTA's medical insurance and NTCA life insurance plans to the extent
allowed by DAKOTA's insurance carrier.
5. In the event of a sale, merger, consolidation or reorganization
involving DAKOTA this Agreement shall continue in force and become an
obligation of DAKOTA's successor or successors.
_______________________
PAGE 2 RRD
<PAGE>
6. If the Board of Directors determines that DENEUI fails to meet
the requirements of or breaches any part of this Agreement, it may take
whatever action it deems appropriate, including but not limited to
cancellation of this Agreement and any unpaid amounts due or accrued
hereunder.
7. DENEUI's rights and benefits under this Agreement are personal to
him, and no such rights or benefits shall be subject to involuntary
alienation, assignment or transfer, in whole or in part, except by
operation of law in the event of death or disability. It is expressly
agreed that the rights and benefits described in Paragraphs two (2) and
four (4) above may not be bequeathed by DENEUI, and that said rights and
benefits shall terminate in the event of his death.
8. DENEUI, as an experienced manager, understands and is aware of
the various federal and state laws, rules and regulations which do or may
have an impact on employee termination, resignations and retirement. To
the extent permitted by law, DENEUI hereby voluntarily and knowingly
waives, releases and discharges DAKOTA and its predecessors, successors,
subsidiaries and affiliates (collectively, "DAKOTA") as well as all of
their employees, officers, shareholders, directors, owners and agents from
all claims, liabilities, demands or causes of action known or unknown,
whether now existing or hereafter arising, fixed or contingent, which he
may have or claim to have against any of them relating to or arising out of
DENEUI's employment and/or separation from employment, except for claims
for breach of any provisions of this Agreement. DENEUI agrees not to
assert or litigate any such claims, except breach of this Agreement.
DENEUI specifically understands and agrees that the waiver, release and
discharge includes, but is not limited to: (a) all claims arising under
federal, state, or local laws prohibiting employment discrimination,
including Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, and the South Dakota Human Rights Act; (b) claims for
breach of contract; (c) claims for personal injury, harm or damages,
whether intentional or unintentional; (d) claims growing out of any legal
restrictions on the right to terminate employees, including any claim for
wrongful discharge; and (e) claims for benefits including without
limitation, those arising under the Employees Retirement Income Security
Act, for worker's compensation, for unemployment compensation, or for any
work-related disabilities.
9. DENEUI understands and agrees that he has the right to discuss
all aspects of this Agreement and in particular the waiver, release and
discharge by him specified in paragraph eight (8) above with his personal
attorney, and has been encouraged to do so by DAKOTA, and has done so to
the extent that he desires. Further DENEUI has up to twenty-one (21) days
to sign this Agreement after DENEUI receives it in order to consider all of
its terms fully. Notwithstanding this time period, DENEUI shall
immediately remove himself from the premise of DAKOTA. This Agreement
_______________________
PAGE 3 RRD
<PAGE>
shall be fully enforceable from the date of DENEUI's signature on it,
except for Paragraph 8(a), waiver of any age discrimination claims.
DENEUI's waiver of any age discrimination claims may be revoked by him in
writing to DAKOTA within seven (7) days after DENEUI signs this Agreement,
and his waiver of such claims, if any, shall not become effective or
enforceable until the revocation period has expired. Should DENEUI revoke
the waiver of such claims during said revocation period, this entire
agreement shall be deemed null and void.
10. DENEUI agrees to never institute a claim or charge of employment
discrimination with any agency, or sue DAKOTA, or those associated with
DAKOTA concerning any claim he may have related to his employment with
DAKOTA or the termination of that employment. If DENEUI violates this
release by suing DAKOTA, or those associated with DAKOTA, he agrees that he
will pay all costs and expenses of defending against the suit incurred by
DAKOTA or those associated with DAKOTA, including reasonable attorney fees.
11. This Agreement constitutes the entire understanding between
DAKOTA and DENEUI. DENEUI agrees there are no understandings, agreements,
representations, oral or written which are not fully expressed in this
Agreement. No provision of this Agreement may be modified, waiver or
discharged unless such waiver, modification or discharge is agreed to in
writing, signed by DENEUI and the duly authorized representative of DAKOTA.
DENEUI and DAKOTA are, however, aware that this Agreement may require the
approval of RUS and other lenders of DAKOTA, and that RUS and other lenders
may require modification to the terms of this Agreement. Notwithstanding
any changes so made to the benefits, consideration and promises herein,
DENEUI's immediate removal from the premises of DAKOTA shall occur.
12. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of South Dakota,
without regard to conflicts of laws.
13. DENEUI agrees that the terms of this Agreement and the
correspondence and communications giving rise to this Agreement shall
remain confidential and shall not be discussed with any DAKOTA officers,
agents or employees other than those involved in the negotiation,
preparation, and review of this Agreement other than his wife and his
attorney.
14. DENEUI represents and agrees that he has thoroughly and
completely read this Agreement in its entirety and fully and completely
understands its meaning and effect.
FURTHERMORE, it is hereby agreed that all representations and
agreements contained in the GM Contract are hereby waived in full by both
parties.
_______________________
PAGE 4 RRD
<PAGE>
Executed this 16th day of October, 1995 in multiple copies.
DAKOTA
By /S/ JAMES H. JIBBEN /S/ ROBERT R. DENEUI
President Robert R. DeNeui
_______________________
PAGE 5 RRD
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
<CAPTION>
NAME STATE OF INCORPORATION OR ORGANIZATION
<S> <C>
Dakota Telecom, Inc. South Dakota
Dakota Telecommunications Systems, South Dakota
Inc.
Dakota Wireless Systems, Inc. South Dakota
TCIC Communications, Inc. South Dakota
Iway, Inc. South Dakota
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Dakota Cooperative
Telecommunications, Inc. (to become Dakota Telecommunications Group, Inc.)
and Dakota Telecommunications Group (Delaware), Inc. on Form S-4 of our
report dated January 18, 1997, on the consolidated financial statements of
Dakota Cooperative Telecommunications, Inc. as of December 31, 1996 and
1995, and for each of the years ended December 31, 1996 and 1995, and our
report dated January 18, 1997, on the combined statements of operations and
accumulated deficit, and cash flows of TCIC Communications, Inc. and I-Way
Partners, Inc. for the eleven months ended November 30, 1996. We also
consent to the references to us under the headings "The Conversion," "The
Merger" and "Independent Public Accountants" in the Prospectus and
Ballot/Proxy Statement, which is part of this Registration Statement.
/s/ Olsen Thielen & Co., Ltd.
Olsen Thielen & Co., Ltd.
St. Paul, Minnesota
February 14, 1997
<PAGE>
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ T. W. HERTZ
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ EDWARD D. CHRISTENSEN, JR.
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ PALMER O. LARSON
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ JAMES H. JIBBEN
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ JOHN A. ROTH
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ ROSS L. BENSON
(signature)
________________________________________
(please type or print name)
________________________________________
(please type or print title)
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ JEFFREY J. GOEMAN
(signature)
JEFFREY J. GOEMAN
(please type or print name)
VICE PRESIDENT: DAKOTA
TELECOMMUNICATIONS
(please type or print title)<PAGE>
<PAGE>
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ DALE Q. BYE
(signature)
DALE Q. BYE
(please type or print name)
TREASURER
(please type or print title)
<PAGE>
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Dakota Cooperative Telecommunications, Inc.,
and its intended successor Dakota Telecommunications Group, Inc., and
Dakota Telecommunications Group (Delaware), Inc., a wholly-owned subsidiary
of Dakota Cooperative Telecommunications, Inc., does hereby appoint THOMAS
W. HERTZ and CRAIG A. ANDERSON, or either of them, his attorney or
attorneys, with full power of substitution, to execute in his name a
Registration Statement on Form S-4 with respect to the issuance of shares
of its Common Stock, without par value, Rights to purchase shares of Series
A Junior Participating Preferred Stock, Warrants to purchase shares of
Common Stock and Options to purchase shares of Common Stock in connection
with the conversion of Dakota Cooperative Telecommunications, Inc. into
Dakota Telecommunications Group, Inc., a South Dakota business corporation,
and the proposed merger of Dakota Telecommunications Group, Inc. with and
into Dakota Telecommunications Group (Delaware), Inc., and any and all
amendments to that Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorneys and each of them.
Dated: February 14, 1997 /S/ JOHN A. SCHAEFER
(signature)
JOHN A. SCHAEFER
(please type or print name)
SECRETARY
(please type or print title)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC. AND SUBSIDIARIES FOR
THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,370,444
<SECURITIES> 0
<RECEIVABLES> 1,937,195
<ALLOWANCES> 152,300
<INVENTORY> 694,097
<CURRENT-ASSETS> 6,540,903
<PP&E> 26,259,958
<DEPRECIATION> 11,818,854
<TOTAL-ASSETS> 23,504,875
<CURRENT-LIABILITIES> 1,594,782
<BONDS> 15,338,395
<COMMON> 26,185
0
1,272,000
<OTHER-SE> 5,214,031
<TOTAL-LIABILITY-AND-EQUITY> 23,504,875
<SALES> 0
<TOTAL-REVENUES> 7,808,842
<CGS> 0
<TOTAL-COSTS> 7,730,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 723,778
<INCOME-PRETAX> (335,946)
<INCOME-TAX> (175,712)
<INCOME-CONTINUING> (160,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,234)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
Dear Member:
It is with great pleasure that I invite you to attend a special
meeting of the Members of Dakota Cooperative Telecommunications, Inc. (the
"Cooperative") to be held at [LOCATION], [STREET ADDRESS], [CITY], South
Dakota, on ___________, 1997 at 10:00 a.m.
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt an amendment to the Cooperative's articles of
incorporation to convert the Cooperative into a South Dakota business
corporation (the "Conversion") which would be named Dakota
Telecommunications Group, Inc. ("DTG"). If the proposed Conversion is
adopted by the Members of the Cooperative and is consummated, (i) each
share of common stock of the Cooperative outstanding immediately prior to
the effective time of the Conversion would automatically become the right
to receive one share of DTG common stock, (ii) each share of preferred
stock of the Cooperative outstanding immediately prior to the effective
time of the Conversion would automatically become the right to receive
80.8216445 shares of DTG common stock and (iii) each dollar credited on the
books of the Cooperative to the capital account of each current and former
Member immediately prior to the effective time of the Conversion would be
retired in full and automatically become the right to receive 0.2 shares of
DTG common stock.
If the Conversion is approved by the Members, you will then be asked,
as shareholders of DTG, to consider and vote upon a proposal to approve an
Agreement and Plan of Merger (the "Plan of Merger") pursuant to which DTG
would be merged with and into Dakota Telecommunications Group (Delaware),
Inc., a Delaware corporation which is currently a wholly owned subsidiary
of the Cooperative (the "Merger"). If the Merger is approved and
consummated, each right to receive a whole share of DTG common stock
issuable in the Conversion would automatically become the right to receive
one share of DTG Delaware common stock.
Details of the proposed Conversion and the proposed Merger and other
important information appear in the enclosed Prospectus and Proxy/Ballot
Statement, which I urge you to read carefully. Your Board of Directors has
carefully reviewed the terms and conditions of the proposed Conversion and
the proposed Merger, believes that they are in the best interests of the
Members of the Cooperative and the shareholders of DTG and recommends that
the Conversion and the Merger be approved.
<PAGE>
As this is an extremely important step in the Cooperative's long
history, it is very important that your vote be counted at the special
meeting. I therefore urge you to complete the enclosed ballot/proxy card
promptly and then return it in the enclosed postage-paid envelope. You may
revoke your ballot/proxy at any time prior to its exercise, and you may
attend the special meeting and vote in person, even if you have previously
returned your ballot/proxy card.
On behalf of the entire Board of Directors and management of the
Cooperative, I want to thank you for your continuing support.
Sincerely yours,
James H. Jibben
President
<PAGE>
EXHIBIT 99.2
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
POST OFFICE BOX 66
29705 453RD AVENUE
IRENE, SOUTH DAKOTA 57037-0066
Dear Preferred Stock Holder or Capital Credit Holder:
It is with great pleasure that I invite you to attend a special
meeting of the shareholders of what will become Dakota Telecommunications
Group, Inc. ("DTG") to be held at [LOCATION], [STREET ADDRESS], [CITY],
South Dakota, on ___________, 1997 at 11:00 a.m. This special meeting will
commence immediately following a special meeting of the Members of Dakota
Cooperative Telecommunications, Inc. (the "Cooperative") at which the
Members will consider and vote upon proposal to convert the Cooperative
into a South Dakota business corporation, which would be DTG (the
"Conversion"). The meeting will only take place if the Cooperative's
Members adopt the Conversion.
If the proposed Conversion is adopted by the Members of the
Cooperative and is consummated, (i) each share of common stock of the
Cooperative outstanding immediately prior to the effective time of the
Conversion would automatically become the right to receive one share of DTG
common stock, (ii) each share of preferred stock of the Cooperative
outstanding immediately prior to the effective time of the Conversion would
automatically become the right to receive 80.8216445 shares of DTG common
stock and (iii) each dollar credited on the books of the Cooperative to the
capital account of each current and former Member immediately prior to the
effective time of the Conversion would be retired in full and automatically
become the right to receive 0.2 shares of DTG common stock.
If the Conversion is consummated, you and the other shareholders of
what will be DTG will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger (the "Plan of Merger") pursuant to
which DTG would be merged with and into Dakota Telecommunications Group
(Delaware), Inc., a Delaware corporation which is currently a wholly owned
subsidiary of the Cooperative (the "Merger"). If the Merger is approved and
consummated, each right to receive a whole share of DTG common stock
issuable in the Conversion would automatically become the right to receive
one share of DTG Delaware common stock.
Details of the proposed Conversion and the proposed Merger and other
important information appear in the enclosed Prospectus and Proxy/Ballot
Statement, which I urge you to read carefully. The Board of Directors of
the Cooperative, on behalf of DTG, has carefully reviewed the terms and
conditions of the proposed Merger, believes that it is in the best
<PAGE>
interests of the shareholders of DTG and recommends that the Merger be
approved.
It is very important that your vote be counted at the special meeting.
I therefore urge you to complete the enclosed proxy card promptly and then
return it in the enclosed postage-paid envelope. You may revoke your proxy
at any time prior to its exercise, and you may attend the special meeting
and vote in person, even if you have previously returned your proxy card.
On behalf of the Board of Directors and management of the Cooperative,
I want to thank you for your continuing support.
Sincerely yours,
James H. Jibben
President
<PAGE>
EXHIBIT 99.3
BALLOT
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
SPECIAL MEETING OF MEMBERS
_____________, 1997
The undersigned hereby votes in the following manner at the special
meeting of members of Dakota Cooperative Telecommunications, Inc. (the
"Cooperative") to be held on _____________, 1997, and at any adjournment
thereof:
1. FOR AGAINST ABSTAIN Adoption of an amendment to the
( ) ( ) ( ) articles of incorporation of Dakota
Cooperative Telecommunications, Inc.
(YOUR BOARD OF DIRECTORS to become a South Dakota business
RECOMMENDS A VOTE FOR corporation as described in the
THIS PROPOSAL) Prospectus and Ballot/Proxy
Statement dated _________________,
1997.
THIS BALLOT IS SOLICITED BY THE BOARD OF DIRECTORS OF DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. IF THIS BALLOT IS PROPERLY EXECUTED,
THE SHARE OF COOPERATIVE COMMON STOCK REPRESENTED BY THIS BALLOT WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARE REPRESENTED
HEREBY WILL NOT BE VOTED.
_______________________________________
PROXY
DAKOTA TELECOMMUNICATIONS GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS
_____________, 1997
The undersigned appoints James H. Jibben and Thomas W. Hertz, or
either of them, attorneys and proxies of the undersigned, each with full
power of substitution, to vote all shares issuable to the undersigned in
Dakota Telecommunications Group, Inc. at the special meeting of its
shareholders to be held on ___________, 1997, and at any adjournment
thereof:
<PAGE>
1. FOR AGAINST ABSTAIN Approval of an Agreement and Plan of
( ) ( ) ( ) Merger as described in the
Prospectus and Ballot/Proxy
(YOUR BOARD OF DIRECTORS Statement dated ___________, 1997.
RECOMMENDS A VOTE FOR
THIS PROPOSAL)
2. As said Proxies in their discretion may determine on all other
matters that may be presented at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. ON BEHALF OF DAKOTA TELECOMMUNICATIONS
GROUP, INC. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND
WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH
MAY COME BEFORE THE MEETING.
Please sign exactly as your name(s) appear(s) below. Joint owners should
each sign personally. Executors, administrators, trustees and persons
signing for corporations or partnerships should so indicate and include
title.
Dated: ________________________________, 1997
X____________________________________________
X____________________________________________
Signatures of Member(s)/shareholder(s)
PLEASE DATE AND SIGN THIS BALLOT/PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 99.4
PROXY
DAKOTA TELECOMMUNICATIONS GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS
_____________, 1997
The undersigned appoints James H. Jibben and Thomas W. Hertz, or
either of them, attorneys and proxies of the undersigned, each with full
power of substitution, to vote all shares issuable to the undersigned in
Dakota Telecommunications Group, Inc. at the special meeting of its
shareholders to be held on ___________, 1997, and at any adjournment
thereof:
1. FOR AGAINST ABSTAIN Approval of an Agreement and
( ) ( ) ( ) Plan of Merger as described in the
Prospectus and Ballot/Proxy
(YOUR BOARD OF DIRECTORS Statement dated ___________, 1997.
RECOMMENDS A VOTE FOR
THIS PROPOSAL)
2. As said Proxies in their discretion may determine on all other
matters that may be presented at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DAKOTA
COOPERATIVE TELECOMMUNICATIONS, INC. ON BEHALF OF DAKOTA TELECOMMUNICATIONS
GROUP, INC. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND
WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH
MAY COME BEFORE THE MEETING.
Please sign exactly as your name(s) appear(s) below. Joint owners should
each sign personally. Executors, administrators, trustees and persons
signing for corporations or partnerships should so indicate and include
title.
Dated: ___________________________, 1997
X_______________________________________
X_______________________________________
X_______________________________________
Signatures of Shareholders
<PAGE>
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
