<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
RURAL CELLULAR CORPORATION
(Exact Name Of Company As Specified In Its Charter)
<TABLE>
<S> <C>
MINNESOTA 41-1693295
(State Of Incorporation) (I.R.S. Employer Identification
No.)
</TABLE>
3905 DAKOTA STREET S.W.
P.O. BOX 2000
ALEXANDRIA, MN 56308-2000
(320) 762-2000
(Address, Including Zip Code, And Telephone Number, Including Area Code, Of
Company's Principal Executive Offices)
RICHARD P. EKSTRAND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RURAL CELLULAR CORPORATION
3905 DAKOTA STREET S.W.
P.O. BOX 2000
ALEXANDRIA, MN 56308-2000
(320) 762-2000
(Name, Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Agent For Service)
--------------------------
Copies of all communications, including all communications sent to the Agent for
Service, should be sent to:
DEANNE M. GRECO
MOSS & BARNETT, P.A.
4800 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MN 55402-4129
(612) 347-0287
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
IF THE ONLY 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, PLEASE CHECK THE FOLLOWING BOX: / /
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING: / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(d)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER NOTE/ AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED SHARE (1) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
9 5/8% Senior Subordinated Notes Due
2008..................................... $125,000,000 $1,000 $125,000,000 $36,875
11 3/8% Senior Exchangeable Preferred
Stock.................................... 125,000 Shares $1,000 $125,000,000 36,875
Total...................................... $250,000,000 $73,750
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. Fee
calculated pursuant to Rule 457(f)(2) based on the private placement
purchase price of the 9 5/8% Notes and the 11 3/8% Senior Exchangeable
Preferred Stock to be exchanged for the securities being registered. (Note:
The 9 5/8% Notes were placed at their par value of $1,000 and the shares of
11 3/8% Senior Exchangeable Preferred Stock were placed at their liquidation
preference of $1,000 per share.)
(2) Calculated pursuant to rule 457(f).
--------------------------
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY 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.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE , 1998
PRELIMINARY PROSPECTUS
[LOGO]
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE 9 5/8% SERIES B SENIOR SUBORDINATED NOTES FOR ANY AND ALL
OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008 AND TO EXCHANGE 11 3/8%
SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK FOR ANY AND ALL OUTSTANDING 11 3/8%
SENIOR EXCHANGEABLE PREFERRED STOCK
------------------
Offer to Exchange (i) 9 5/8% Series B Senior Subordinated Notes Due 2008,
which have been registered under the Securities Act of 1933, as amended, for any
and all of its outstanding 9 5/8% Series A Senior Subordinated Notes Due 2008
and (ii) 11 3/8% Series B Senior Exchangeable Preferred Stock, which has been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 11 3/8% Series A Senior Exchangeable Preferred Stock. The Exchange
Offer will expire at 5:00 p.m., New York City Time, on [ ,1998] unless
extended.
Rural Cellular Corporation ("RCC" or the "Company") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letters of transmittal (each a "Letter of Transmittal" and,
collectively, the "Letters of Transmittal" and, together with this Prospectus,
the "Exchange Offer"), (i) to exchange its 9 5/8% Series B Senior Subordinated
Notes Due 2008 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 9 5/8% Series A Senior Subordinated Notes
Due 2008 (the "Old Notes" and, together with the New Notes, the "Senior
Subordinated Notes"), of which, as of the date of this Prospectus, there was
outstanding $125,000,000 principal amount at maturity and (ii) to exchange
shares of its 11 3/8% Series B Senior Exchangeable Preferred Stock (the "New
Exchangeable Preferred Stock"), which have been registered under the Securities
Act, pursuant to a Registration Statement of which this Prospectus is a part,
for an equal number of shares of its outstanding 11 3/8% Series A Senior
Exchangeable Preferred Stock (the "Old Exchangeable Preferred Stock" and,
together with the New Exchangeable Preferred Stock, the "Exchangeable Preferred
Stock"). The Old Notes and the Old Exchangeable Preferred Stock were originally
sold on May 14, 1998 (the "Issue Date") to TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC, and BancBoston Securities Inc. (the "Initial
Purchasers") in a private transaction exempt from registration under the
Securities Act.
The Company will accept for exchange any and all Old Notes and shares of Old
Exchangeable Preferred Stock that are validly tendered and not withdrawn on or
prior to 5:00 p.m., New York City Time, on the date the Exchange Offer expires
(the "Expiration Date"), which will be [ ,1998] (30 days following the
commencement of the Exchange Offer), unless the Exchange Offer is extended.
Tenders of Old Notes and shares of Old Exchangeable Preferred Stock may be
withdrawn at any time prior to 5:00 p.m., New York City Time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes or minimum number of shares of Old Exchangeable Preferred Stock being
tendered for exchange. See "The Exchange Offer."
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Notes Indenture (as defined herein), which governs both the Old Notes and the
New Notes. The form and terms of the New Notes and the New Exchangeable
Preferred Stock (together, the "New Securities") are substantially identical to
the form and terms of the Old Notes and the Old Exchangeable Preferred Stock
(together, the "Old Securities" and, collectively with the New Securities, the
"Securities"), respectively, except that the offer of the New Securities will
have been registered under the Securities Act and, therefore, the New Securities
will not bear legends restricting the transfer thereof.
The net proceeds from the sale of the Old Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock Offering") were used to repay a portion of
Indebtedness (as defined herein) under the Existing Credit Facility (as defined
herein). The net proceeds from the sale of the Old Notes (the "Notes Offering"
and, together with the Exchangeable Preferred Stock Offering, the "Offerings"),
together with the New Credit Facility (as defined herein), will be used to
finance the acquisitions of substantially all of the assets of Atlantic Cellular
Company, L.P. and one of its subsidiaries ("Atlantic") and all of the
outstanding capital stock of Western Maine Cellular, Inc. ("WMC"), refinance the
remaining indebtedness under the Existing Credit Facility and pay related fees
and expenses. The acquisitions of Atlantic and WMC are referred to,
respectively, as the "Atlantic Acquisition" and the "WMC Acquisition" and
together as the "Pending Acquisitions."
<PAGE>
If the Atlantic Acquisition does not close on or before September 11, 1998,
the Company must offer to repurchase the Senior Subordinated Notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The Exchangeable Preferred Stock is
not subject to repurchase under such circumstances.
Interest on the Senior Subordinated Notes will accrue from May 14, 1998 and
be payable semi-annually on May 15 and November 15 of each year, commencing on
November 15, 1998. The Senior Subordinated Notes will mature on May 15, 2008,
and are redeemable, in whole or in part, at the option of the Company, at any
time on or after May 15, 2003, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time prior to May 15, 2001, the Company, at its option, may redeem up to 25%
of the aggregate principal amount of Senior Subordinated Notes (including
Additional Notes, as defined herein) issued under the Notes Indenture, with the
net cash proceeds of a Qualifying Event (as defined herein), at a price equal to
109.625% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption; PROVIDED, HOWEVER, that at least
$90 million in aggregate principal amount of Senior Subordinated Notes remains
outstanding immediately after such redemption. Within 30 days after the
occurrence of a Change of Control (as defined herein), the Company will be
required to make an offer to purchase all outstanding Senior Subordinated Notes
at a price equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase. See "Description of Senior
Subordinated Notes."
The Senior Subordinated Notes will be unsecured senior subordinated
obligations of the Company and will be subordinated in right of payment to all
present and future Senior Indebtedness (as defined herein) of the Company and
effectively subordinated to all obligations of the Company's subsidiaries
(including the guarantees by such subsidiaries of the Credit Facility, as
defined herein). The Senior Subordinated Notes will rank PARI PASSU in right of
payment with the Exchange Debentures, if the Exchange Debentures are issued in
exchange for the Exchangeable Preferred Stock, and the Senior Subordinated Notes
and the Exchange Debentures will rank PARI PASSU with or senior in right of
payment to all present and future Indebtedness of the Company that expressly
provides that such Indebtedness ranks PARI PASSU with or junior to the Senior
Subordinated Notes or the Exchange Debentures, as the case may be. As of March
31, 1998, on a pro forma basis after giving effect to the Pending Acquisitions,
the Offerings and the application of the net proceeds therefrom and the
replacement of the Existing Credit Facility with the New Credit Facility, the
aggregate principal amount of Senior Indebtedness of the Company outstanding
would have been approximately $163.8 million, all of which would have
represented borrowings under the New Credit Facility (with an additional $136.2
million of unused availability thereunder). The Company has not issued, and
currently does not have any firm arrangement to issue, any significant
Indebtedness that would be subordinate to the Senior Subordinated Notes and the
Exchange Debentures.
Dividends on the Exchangeable Preferred Stock will be cumulative and accrue
from May 14, 1998, and will be payable quarterly on February 15, May 15, August
15 and November 15 of each year, commencing on August 15, 1998, at a rate per
annum of 11 3/8% of the liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
May 15, 2003, either in cash or in additional shares of Exchangeable Preferred
Stock having an aggregate liquidation preference equal to the amount of such
dividends. Thereafter, all dividends will be payable only in cash. The
Exchangeable Preferred Stock will be senior to all classes of junior preferred
stock and common stock of the Company with respect to dividend rights and rights
upon liquidation, winding-up and dissolution of the Company.
The Exchangeable Preferred Stock is redeemable, in whole or in part, at the
option of the Company, at any time on or after May 15, 2003, at the redemption
prices set forth herein, plus, without duplication, accumulated and unpaid
dividends, if any, to the date of redemption. In addition, at any time prior to
May 15, 2001, the Company, at its option, may redeem up to 25% of the aggregate
liquidation preference of all the shares of the Exchangeable Preferred Stock
(including Additional Shares and Dividend Shares, each as defined herein) issued
under the Certificate of Designation (as defined herein), with the net cash
proceeds of a Qualifying Event, at a price equal to 111.375% of the aggregate
liquidation preference thereof, plus, without duplication, accumulated and
unpaid dividends, if any, to the date of redemption; PROVIDED, HOWEVER, that at
least $75 million in aggregate liquidation
2
<PAGE>
preference of Exchangeable Preferred Stock remains outstanding immediately after
such redemption. The Company is required, subject to the existence of funds
legally available therefor, to redeem all of the Exchangeable Preferred Stock
outstanding on May 15, 2010, at a price equal to 100% of the aggregate
liquidation preference thereof, plus, without duplication, accumulated and
unpaid dividends, if any, to the date of redemption. Within 30 days after the
occurrence of a Change of Control, the Company will be required to make an offer
to purchase all outstanding Exchangeable Preferred Stock at a price equal to
101% of the aggregate liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends, if any, to the date of purchase. See
"Description of Exchangeable Preferred Stock and Exchange Debentures."
Subject to certain conditions, the Exchangeable Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, on any
dividend payment date, for the Company's Exchange Debentures. Interest on the
Exchange Debentures will be payable at a rate of 11 3/8% per annum and will
accrue from the date of issuance thereof. Interest on the Exchange Debentures
will be payable semi-annually on May 15 and November 15 of each year in cash or,
at the option of the Company, on or prior to May 15, 2003, in additional
Exchange Debentures, commencing on the first such date after the exchange of the
Exchangeable Preferred Stock for the Exchange Debentures. The Exchange
Debentures mature on May 15, 2010, and are redeemable, in whole or in part, at
the option of the Company, at any time on or after May 15, 2003 at the
redemption prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time prior to May 15, 2001, the
Company may, at its option, redeem up to an aggregate of 25% of the aggregate
principal amount of Exchange Debentures then outstanding with the net cash
proceeds of a Qualifying Event at a price equal to 111.375% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption; PROVIDED, HOWEVER, that at least $75 million in aggregate
principal amount of Exchange Debentures remains outstanding immediately after
such redemption; and PROVIDED FURTHER, HOWEVER, that the aggregate liquidation
preference of any shares of Exchangeable Preferred Stock previously redeemed out
of the net cash proceeds of a Qualifying Event shall be counted as aggregate
principal amount of Exchange Debentures issued and redeemed for purposes of the
foregoing 25% calculation. Within 30 days after the occurrence of a Change of
Control, the Company will be required to make an offer to purchase all
outstanding Exchange Debentures at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.
The Exchangeable Preferred Stock is subject to the restrictions on alien
ownership and the requirement of prior Federal Communications Commission (the
"FCC") approval of transfers of control contained in Section 310 of the
Communications Act of 1934, as amended (the "Communications Act"). See
"Description of Capital Stock -- Limitation on Foreign Ownership and Transfers
of Control."
The New Securities are being offered hereunder in order to satisfy certain
obligations of the Company under the Notes Exchange and Registration Rights
Agreement and the Preferred Stock Exchange and Registration Rights Agreement,
both dated May 14, 1998 (collectively, the "Registration Rights Agreements"),
among the Company and the Initial Purchasers. Based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission"), as set forth
in no-action letters issued to third parties, the Company believes that the New
Securities issued pursuant to the Exchange Offer may be offered for resale,
resold or otherwise transferred by holders thereof (other than any holder that
is an "affiliate" of the Company as defined under Rule 405 of the Securities
Act), PROVIDED that such New Securities are acquired in the ordinary course of
such holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such New Securities and have no arrangement with
any person to participate in the distribution of such New Securities. However,
the staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. By tendering the Old Securities in exchange for
the New Securities, each holder, other than a broker-dealer, will represent to
the Company that (i) it is not an affiliate of the Company (as defined under
Rule 405 of the Securities Act), (ii) any New Securities to be received by it
were acquired in its ordinary business and (iii) it is not engaged in, and does
not intend to engage in, a distribution of such New Securities and has no
arrangement or understanding to participate in a distribution of the New
Securities. Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The Letters of
Transmittal state that by so
3
<PAGE>
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Securities received in
exchange for Old Securities, where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 90 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. In addition, until [ ,1998] (90 days after the date of
this Prospectus), all dealers effecting transactions in the New Notes or shares
of New Exchangeable Preferred Stock may be required to deliver a prospectus. See
"Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old
Securities or the New Securities. If such a market were to develop, the New
Notes and the New Exchangeable Preferred Stock could trade at prices that may be
higher or lower than their principal amount or liquidation preference,
respectively. The Company does not intend to apply for listing or quotation of
the New Notes or New Exchangeable Preferred Stock on any securities exchange or
stock market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or New Exchangeable Preferred Stock or that an
active public market for the New Notes or New Exchangeable Preferred Stock will
develop. See "Risk Factors -- Risks Associated with Securities"; "Risk Factors
- -- Absence of Public Market; Possible Volatility of Price of Securities."
The Initial Purchasers have agreed that one or more of them will act as
market-makers for the New Securities. However, the Initial Purchasers are not
obligated to so act and they may discontinue any such market-making at any time
without notice. The Company will not receive any proceeds from the Exchange
Offer. The Company will pay all the expenses incident to the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD SECURITIES WHO TENDER THEIR OLD SECURITIES IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 24 OF THIS PROSPECTUS.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES LAWS. ALL STATEMENTS REGARDING THE COMPANY AND ITS EXPECTED
FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL,"
"SHOULD," "SEEKS," "PRO FORMA," "ANTICIPATES," "INTENDS" OR THE NEGATIVE OF ANY
THEREOF, OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY
DISCUSSIONS OF STRATEGY OR INTENTIONS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN
GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. A NUMBER OF
FACTORS COULD CAUSE ACTUAL RESULTS, PERFORMANCE, ACHIEVEMENTS OF THE COMPANY OR
INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPETITIVE ENVIRONMENT IN THE
WIRELESS AND TELECOMMUNICATIONS INDUSTRIES; CHANGES IN ECONOMIC CONDITIONS IN
GENERAL AND IN THE COMPANY'S BUSINESS; DEMOGRAPHIC CHANGES; CHANGES IN
PREVAILING INTEREST RATES AND THE AVAILABILITY OF AND TERMS OF FINANCING TO FUND
THE ANTICIPATED GROWTH OF THE COMPANY'S BUSINESS; THE ABILITY TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL; THE SIGNIFICANT INDEBTEDNESS OF THE COMPANY; CHANGES
IN THE COMPANY'S ACQUISITION AND CAPITAL EXPENDITURE PLANS; AND OTHER FACTORS
REFERENCED HEREIN INCLUDING, WITHOUT LIMITATION, UNDER "RISK FACTORS," AND IN
THE COMPANY'S FILINGS WITH THE COMMISSION. IN ADDITION, SUCH FORWARD-LOOKING
STATEMENTS ARE NECESSARILY DEPENDENT UPON ASSUMPTIONS, ESTIMATES AND DATA THAT
MAY BE INCORRECT OR IMPRECISE AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS. ACCORDINGLY, ANY FORWARD-LOOKING STATEMENTS INCLUDED HEREIN
DO NOT PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT
BE REALIZED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE FOREGOING CAUTIONARY STATEMENTS. GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION TO
UPDATE ANY SUCH FACTORS OR TO ANNOUNCE PUBLICLY THE RESULTS OF ANY REVISIONS TO
ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS
OR DEVELOPMENTS.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO, AND OTHER FINANCIAL DATA, APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" OR
"RURAL CELLULAR," WHEN USED IN THIS PROSPECTUS, REFERS TO RURAL CELLULAR
CORPORATION, A MINNESOTA CORPORATION, AND ITS SUBSIDIARIES, INCLUDING WIRELESS
ALLIANCE, LLC ("WIRELESS ALLIANCE"), THE COMPANY'S 51%-OWNED JOINT VENTURE WITH
A WHOLLY-OWNED SUBSIDIARY OF AERIAL COMMUNICATIONS, INC. ("AERIAL
COMMUNICATIONS"), WHICH WILL BE AN UNRESTRICTED SUBSIDIARY (AS DEFINED HEREIN)
FOR PURPOSES OF THE DOCUMENTS GOVERNING THE SECURITIES. UNLESS THE CONTEXT
OTHERWISE REQUIRES, WHEN USED HEREIN WITH RESPECT TO A LICENSED AREA, "PERSONS,"
"POPULATION" AND "POPS" ARE INTERCHANGEABLE AND REFER TO THE AGGREGATE NUMBER OF
PERSONS LOCATED IN SUCH LICENSED AREA. INFORMATION ON PERSONS, POPULATION AND
POPS WAS OBTAINED FROM THE 1990 CENSUS, UPDATED FOR JULY 1, 1997 ESTIMATES, OF
THE U.S. CENSUS BUREAU. THE TERM "UPPER MIDWEST," AS IT RELATES TO THE LOCATION
OF THE COMPANY'S CLUSTERS, REFERS TO (I) THE COMPANY'S BLOCK B FREQUENCY LICENSE
("WIRELINE CELLULAR LICENSE") RURAL SERVICE AREAS ("RSAS") IN NORTHERN MINNESOTA
AND (II) PARTITIONED COUNTIES OF THE MINNEAPOLIS METROPOLITAN TRADING AREA
("MTA") SERVED BY WIRELESS ALLIANCE IN MINNESOTA, WISCONSIN, NORTH DAKOTA AND
SOUTH DAKOTA. THE TERM "NEW ENGLAND," AS IT RELATES TO THE LOCATION OF THE
COMPANY'S CLUSTERS, REFERS TO THE COMPANY'S WIRELINE CELLULAR LICENSE RSAS AND
METROPOLITAN STATISTICAL AREA ("MSA") LOCATED IN MAINE AND OPERATED THROUGH
MRCC, INC., A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY ("MRCC"), AND, AFTER THE
CLOSING OF THE PENDING ACQUISITIONS, THE FIVE BLOCK A FREQUENCY LICENSE
("NON-WIRELINE CELLULAR LICENSE") RSAS AND ONE NON-WIRELINE CELLULAR LICENSE MSA
LOCATED IN VERMONT, MASSACHUSETTS, NEW HAMPSHIRE, AND NEW YORK BEING ACQUIRED IN
THE ATLANTIC ACQUISITION AND ONE WIRELINE CELLULAR LICENSE RSA IN MAINE BEING
ACQUIRED IN THE WMC ACQUISITION. SEE "THE PENDING ACQUISITIONS."
THE COMPANY
GENERAL
The Company provides wireless communications services through its ownership,
operation and management of cellular, paging and Personal Communications
Services ("PCS") systems (collectively, "Wireless Systems"). These Wireless
Systems are concentrated in the Upper Midwest and New England regions of the
United States with a focus on RSAs and small MSAs, which the Company believes
are subject to less competition due to lower population density and provide
greater opportunity for customer growth due to lower penetration relative to
major markets. The Company's existing Wireless Systems are comprised of
geographic areas with approximately 1.86 million total POPs, including 636,000
cellular POPs in Minnesota; 512,000 cellular POPs in Maine; and 708,000 managed
POPs in Minnesota, North Dakota, South Dakota and Wisconsin served by Wireless
Alliance. The Company believes that clustering its wireless operations allows it
to achieve operating and cost efficiencies as well as substantial marketing
benefits. The Company's markets generally are characterized by a concentration
of small businesses, vacation destinations, and, given the distance between
population centers, substantial travel time, particularly on interstate
highways, which support strong wireless usage and result in significant roamer
revenues. As of March 31, 1998, the Company's existing Wireless Systems provided
service to approximately 114,000 customers, which included approximately 18,000
customers of Wireless Alliance and 9,000 paging customers. The Pending
Acquisitions, which will expand the Company's existing cluster in New England,
will bring the Company's total POPs to approximately 3.05 million and increase
the number of the Company's wireless customers as of March 31, 1998, to
approximately 187,000, on a pro forma basis. The Company intends to seek
additional opportunities to expand its existing clusters and, where appropriate,
pursue the acquisition of new clusters with similar demographics and operating
characteristics. The Company is currently engaged in preliminary discussions
concerning possible strategic alliances and acquisitions of additional Wireless
Systems, but there can be no assurance that the Company will pursue or be
successful in these endeavors.
For the year ended December 31, 1997, the Company reported revenues and
EBITDA (as defined herein) of $53.9 million and $14.3 million, respectively
(including 100% of Wireless Alliance's revenues of $7.3 million and negative
EBITDA of $5.6 million). After giving effect to the Atlantic Acquisition, the
MRCC Acquisitions (as defined herein), and the Offerings and the application of
the net proceeds therefrom, as if they had occurred on January 1, 1997, pro
forma adjusted revenues and Adjusted EBITDA (which adjustments exclude the
impact of
6
<PAGE>
Wireless Alliance because it is an Unrestricted Subsidiary under the documents
governing the Securities) would have been $93.5 million and $38.1 million,
respectively, for the year ended December 31, 1997. The resulting pro forma
ratios, as of December 31, 1997, of total Indebtedness to Adjusted EBITDA and
total Indebtedness and preferred stock to Adjusted EBITDA would have been 7.2
times and 10.4 times, respectively.
For the three months ended March 31, 1998, the Company reported revenues and
EBITDA of $14.8 million and $3.7 million, respectively (including 100% of
Wireless Alliance's revenues of $2.7 million and negative EBITDA of $1.1
million). After giving effect to the Atlantic Acquisition and the Offerings and
the application of the net proceeds therefrom, as if they had occurred on
January 1, 1998, pro forma adjusted revenues and Adjusted EBITDA (which
adjustments exclude the impact of Wireless Alliance because it is an
Unrestricted Subsidiary under the documents governing the Securities) would have
been $23.9 million and $10.7 million, respectively, for the three months ended
March 31, 1998. The resulting pro forma ratios, as of March 31, 1998, of total
Indebtedness to Adjusted EBITDA and total Indebtedness and preferred stock to
Adjusted EBITDA would have been 26.7 times and 38.1 times, respectively.
The Company currently provides cellular services in its Upper Midwest
cluster under the names CELLULAR 2000-Registered Trademark- and CELLULAR
2000-Registered Trademark- Northland and PCS services under the name
Unicel-Registered Trademark-. The Company's cellular services are also marketed
under the name Unicel-Registered Trademark- in the current New England cluster.
The cellular services to be acquired in the Atlantic Acquisition are currently
marketed under the name CELLULARONE-Registered Trademark-. The long distance
services to be acquired in the Atlantic Acquisition are currently marketed under
the name LONG DISTANCE BY CELLULARONE. The Company also provides paging services
in its existing markets under the service marks KEYPAGE-Registered Trademark-,
KEYPAGE-Registered Trademark- Plus and UNICEL Paging Services as a complement to
its wireless telephone services.
In 1996, the Company extended its wireless communications footprint in its
Upper Midwest cluster through the formation of Wireless Alliance with Aerial
Communications. Wireless Alliance expects its PCS network, which utilizes the
Global System for Mobile Communications ("GSM") technology platform, to be fully
operational in late 1998. Wireless Alliance recently began to market its PCS
services in Fargo, North Dakota; Moorhead, Minnesota; Duluth, Minnesota;
Hibbing, Minnesota; Virginia, Minnesota; and Superior, Wisconsin. Prior to the
launch of its PCS network, Wireless Alliance initiated a cellular resale
program, which has focused on establishing relationships with wireless agents
and resale customers in its PCS service area. The Company intends to integrate
its cellular and PCS networks to provide seamless wireless communications
services to its customers. The Company believes that the introduction of
dual-mode phones will allow for use of a single telephone number in both PCS and
cellular networks, thus creating seamless integrated wireless communications
services throughout its entire coverage area. The dual-mode phone handset is
expected to be available in mid-1998.
7
<PAGE>
WIRELESS MARKETS AND SYSTEMS
The following chart summarizes the Company's existing Wireless Systems and
the systems covered by the Pending Acquisitions:
<TABLE>
<CAPTION>
CLUSTER SERVICE AREAS OWNERSHIP TOTAL POPS DATE OF ACQUISITION
- -------------------------------------------------------------------- --------------- ----------- -------------------
<S> <C> <C> <C>
UPPER MIDWEST CLUSTER
CELLULAR (1)
Minnesota RSA 1................................................... 100% 50,000 4/1/91
Minnesota RSA 2................................................... 100% 64,000 4/1/91
Minnesota RSA 3................................................... 100% 59,000 4/1/91
Minnesota RSA 5................................................... 100% 206,000 4/1/91
Minnesota RSA 6................................................... 100% 257,000 4/1/91
-----------
Total Upper Midwest Cellular POPs............................. 636,000
-----------
PCS (2)
DULUTH, MINNESOTA/SUPERIOR, WISCONSIN:
Cook, Lake, St. Louis and Carlton (portion) Counties in
Minnesota and Douglas County in Wisconsin..................... 51% 270,000 4/10/97
FARGO, NORTH DAKOTA/MOORHEAD, MINNESOTA:
Cass and Trail Counties in North Dakota and Clay County in
Minnesota..................................................... 51% 175,000 4/10/97
GRAND FORKS, NORTH DAKOTA:
Grand Forks County in North Dakota and Polk County in
Minnesota..................................................... 51% 102,000 4/10/97
SIOUX FALLS, SOUTH DAKOTA:
Minnehaha and Lincoln Counties in South Dakota.................. 51% 161,000 1/19/98
-----------
Total Upper Midwest PCS POPs.................................. 708,000
-----------
TOTAL UPPER MIDWEST POPS:........................................... 1,344,000
-----------
NEW ENGLAND CLUSTER
CELLULAR (1)
MRCC:
Maine, Bangor MSA............................................... 100% 143,000 5/1/97
Maine RSA 2..................................................... 100% 148,000 5/1/97
Maine RSA 3..................................................... 100% 221,000 5/1/97
-----------
Total MRCC POPs............................................... 512,000
-----------
ATLANTIC:
Massachusetts RSA 1............................................. 100% 71,000 Pending
New Hampshire RSA 1............................................. 100% 223,000 Pending
New York RSA 2.................................................. 100% 226,000 Pending
Vermont, Burlington MSA......................................... 100% 148,000 Pending
Vermont RSA 1................................................... 100% 210,000 Pending
Vermont RSA 2................................................... 100% 232,000 Pending
-----------
Total Atlantic POPs........................................... 1,110,000
-----------
WMC:
Maine RSA 1..................................................... 100% 83,000 Pending
-----------
TOTAL NEW ENGLAND POPS:............................................. 1,705,000
-----------
TOTAL POPS:................................................... 3,049,000
-----------
-----------
</TABLE>
Source: 1990 census, updated for July 1, 1997 estimates, of the U.S. Census
Bureau
- ------------------------
(1) The Company's Minnesota and Maine (including WMC) cellular licenses are
Wireline Cellular Licenses and the Atlantic cellular licenses are
Non-Wireline Cellular Licenses.
(2) The PCS licenses are for partitioned areas of the Minneapolis MTA owned and
served by Wireless Alliance.
8
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become the leading full service provider of
wireless communications services in its market clusters, while maximizing
revenues and cash flows, by offering innovative products and services, extensive
coverage and superior customer service at competitive prices. The key elements
of the Company's strategy are to:
EXPAND MARKET PRESENCE THROUGH STRATEGIC ACQUISITIONS AND ALLIANCES. The
Company has focused and expects to continue to focus on acquiring controlling
ownership interests in rural Wireless Systems serving RSAs and small MSAs
contiguous or proximate to its current markets. The Company's strategy of
clustering its Wireless Systems enables it to achieve operating and cost
efficiencies, as well as joint advertising and marketing benefits. Clustering
also allows the Company to offer its customers an expanded home service
territory, which enables customers to avoid certain roaming charges which would
otherwise be payable to other carriers. The Company believes that the Pending
Acquisitions will provide the opportunity to increase geographic coverage
substantially and provide significant marketing and other operational synergies.
The Company also intends to continue to pursue strategic alliances or
acquisitions that will enable it to extend its geographic coverage and enhance
its product and service offerings and, as appropriate, expand into new
geographic areas with similar demographics and operating characteristics. The
Company is currently engaged in preliminary discussions concerning possible
strategic alliances and acquisitions of additional Wireless Systems, but there
can be no assurance that the Company will pursue or be successful in these
endeavors.
FOCUS ON INNOVATIVE MARKETING STRATEGIES AND PRODUCT OFFERINGS. The Company
has implemented a number of creative marketing programs aimed at stimulating
customer airtime. These programs offer customers greater value by bundling long
distance, voice mail and personal toll-free numbers and other services at
varying competitive price points. For example, customers in the Upper Midwest
cluster can select a package that eliminates all long distance charges
throughout North Dakota, South Dakota, northwest Wisconsin and Minnesota.
Additionally, customers can select the Company's nationwide calling option,
which charges a flat fee for all long distance charges when calling from the
Company's service areas. The Company provides voice mail service, which it
believes stimulates cellular usage in the form of returned calls, to
approximately 30% of its customers in the Upper Midwest cluster. The Company
also offers an equipment option called PHONE SERVICE that allows customers to
rent cellular telephones for a nominal monthly charge with extended warranty and
insurance coverage. The Company believes that PHONE SERVICE facilitates
upgrading telephone equipment as individual needs change and reduces customers'
concerns about equipment obsolescence. The Company believes that its innovative
marketing strategies and product offerings have enhanced penetration and
customer retention, and the Company intends to continue to utilize these and
other marketing strategies in an effort to increase penetration throughout its
entire service area.
CONTINUE TO DECENTRALIZE MANAGEMENT OF SERVICE AREAS. The Company has
maintained a decentralized approach to managing its clusters to maintain a
strong local presence and deliver superior products and customer service. Each
of the Company's clusters is divided into separately managed regional business
units. The Company's decentralized management strategy allows each regional
business unit to tailor the Company's marketing and product offerings to meet
the specific needs of each regional market. Additionally, the decentralized
management approach enables the Company to maintain close customer contact and
to consistently monitor customer needs.
FOCUS ON CUSTOMER RETENTION AND SUPERIOR CUSTOMER SERVICE. The Company's
average monthly customer retention rate was 98.4% for the year ended December
31, 1997, and 98.5% for the three months ended March 31, 1998, as compared to
the industry average monthly customer retention rate of 97.9%, as calculated
using data from the Cellular Telephone Industry Association ("CTIA") semi-annual
data survey dated December 1997. In each of its markets, the Company has
implemented separate sophisticated local monitoring and control systems and
maintains separate customer service departments consisting of highly trained
personnel who are aware of the needs of the customers in those markets. The
Company's customer service personnel can be accessed toll-free, 24 hours a day,
365 days a year and are capable of handling both routine and complex technical
questions. The Company believes that easy access to its customer service
professionals is critical to maintaining a high level of customer satisfaction
and loyalty.
9
<PAGE>
CONTINUE TO DEVELOP AND MAINTAIN SUPERIOR DISTRIBUTION CAPABILITIES. The
Company's distribution network is comprised of both direct and indirect sales
channels. The Company's strategy of utilizing territory managers has enabled it
to develop strong distribution channels that are tailored to the specific
characteristics of each local market. All direct and indirect sales channels are
under the oversight of territory managers who have extensive experience and
relationships with, and who reside in, the local markets. The Company believes
that the close proximity of the distribution channel members to each market
facilitates the cultivation of local market knowledge that allows direct sales
representatives and independent agents to focus on the needs of the markets in
which they operate. This improves their ability to establish relationships with
new customers and better understand the needs of existing and potential
customers. In addition, all individuals who have customer contact in the Upper
Midwest cluster are required to complete a certification process annually in
order to continue to sell the Company's products and services or maintain
contact with customers. The Company is currently in the process of implementing
this certification process in its New England cluster. As a result, the Company
believes that its ability to increase penetration and maintain high customer
retention rates is significantly enhanced.
MAINTAIN SUPERIOR NETWORK INFRASTRUCTURE. The Company's goal is to continue
to develop and maintain a superior wireless network infrastructure capable of
providing extensive geographic coverage and enhanced capacity. The Company has
124 cell sites in Minnesota and Maine as of March 31, 1998, and plans to add 12
new cell sites in Minnesota and Maine during the remainder of 1998. As a result,
customers benefit from a high level of both regional and local hand-held
coverage, minimal call blocking and dropped calls, seamless call delivery and
hand-off, and the availability of digital voice services. Most of the Company's
cell sites are currently back-hauled through its microwave network to its
digital mobile telephone switching offices ("MTSO"), enabling the Company to
minimize transport expense and enhance network reliability. All of the Company's
networks in Maine have been upgraded to Time Division Multiple Access ("TDMA")
digital technology, and TDMA service for the Minnesota network is expected to be
available by the end of 1998.
Atlantic's cellular network consists of 85 cell sites and 45 microwave links
as of March 31, 1998, and is connected to a MTSO located in Colchester, Vermont.
This network currently utilizes analog cellular technology with the ability to
expand capacity through the deployment of Narrowband Analog Mobile Phone System
("N-AMPS") technology. N-AMPS is an enhanced technology that provides a
three-fold increase in capacity over conventional analog technology, as well as
many of the service features offered by digital cellular and PCS
technology. Although none of Atlantic's competitors are currently providing
digital cellular or PCS services in its markets, the Company intends to review
Atlantic's network infrastructure for potential digital upgrades to further
enhance the quality of the network.
MAINTAIN DISCIPLINED FINANCIAL MANAGEMENT. As the Company continues to
grow, management intends to focus on reducing leverage and increasing cash flow.
To accomplish this, management plans to actively manage customer acquisition
costs, maximize average revenue per customer ("ARPU") and penetration, and
maintain strong customer retention rates.
PENDING ACQUISITIONS
In February 1998, the Company entered into a definitive agreement to acquire
the Vermont, New Hampshire, New York and Massachusetts Non-Wireline Cellular
Licenses, operations and related assets of Atlantic, one of the leading
independent providers of wireless services in the New England region. The
Company is acquiring substantially all of Atlantic's assets for a purchase price
of approximately $256 million in cash plus the assumption of certain
liabilities.
Under the definitive Atlantic acquisition agreement, the Company will
acquire a contiguous, multi-state service area of approximately 21,000 square
miles, encompassing approximately 1.11 million POPs and 71,000 customers. The
cellular properties to be acquired from Atlantic include: (i) the entire state
of Vermont (RSA 1, RSA 2 and the Burlington MSA); (ii) western New Hampshire
(RSA 1); (iii) the northeastern corner of New York (RSA 2); and (iv)
northwestern Massachusetts (RSA 1). In addition, the Company will also acquire
Atlantic's long-distance business.
10
<PAGE>
In February 1998, the Company entered into a definitive agreement to
purchase the outstanding stock of WMC, a wholly-owned subsidiary of Utilities,
Inc., for approximately $7.5 million in cash. WMC provides cellular service to
western Maine RSA 1 through a Wireline Cellular License, and the combination of
WMC's service area with the Company's existing Wireline Cellular License
operations in Maine and the multi-state Non-Wireline Cellular License system of
Atlantic to the west and south will create a continuous geographic footprint.
WMC's 3,700 square-mile service area of western Maine encompasses approximately
83,000 POPs and the operation served more than 2,400 customers as of March 31,
1998. The Atlantic and WMC Acquisitions will increase the Company's total POPs
to approximately 3.05 million and wireless customers to approximately 187,000 as
of March 31, 1998, on a pro forma basis.
Subject to regulatory approval, the Pending Acquisitions are expected to
close in the summer of 1998.
The Company has received a commitment from an affiliate of TD Securities
(USA) Inc. to replace its Existing Credit Facility with a new $450 million
credit facility (the "New Credit Facility"), which will be sufficient to close
the Pending Acquisitions, repay certain existing indebtedness, and pay related
fees and expenses. Concurrent with the closing of the Atlantic Acquisition, the
Company intends to reduce the size of the New Credit Facility to $300 million,
which, together with the proceeds of the Notes Offering, will be used to finance
the Pending Acquisitions and pay related fees and expenses. The net proceeds
from the Exchangeable Preferred Stock Offering were used to repay a portion of
the outstanding balance under the Existing Credit Facility. See "Use of
Proceeds" and "Description of Other Indebtedness."
If the Atlantic Acquisition does not close on or before September 11, 1998,
the Company will offer to purchase the Senior Subordinated Notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (the "Proceeds Purchase Offer").
Pending the application of the proceeds from the Notes Offering, the Company
may, subject to certain conditions, use such proceeds to temporarily repay
indebtedness outstanding under the Existing Credit Facility, plus accrued and
unpaid interest, if any, with the balance of the proceeds to be held by the
Company in a segregated account. If the Atlantic Acquisition is not consummated,
however, the Company will be required to redraw its Existing Credit Facility in
an amount equal to (i) the extent proceeds of the Notes Offering have been used
to repay the Existing Credit Facility and (ii) the amount of any accrued and
unpaid interest thereon, which, together with the funds held in the segregated
account, will be used to fund the Proceeds Purchase Offer. See "Description of
Senior Subordinated Notes -- Limitation on Use of Proceeds; Proceeds Purchase
Offer."
RISK FACTORS
See "Risk Factors" for a discussion of factors that should be considered by
prospective investors in evaluating an investment in the Securities.
------------------------
The principal executive offices of the Company are located at 3905 Dakota
Street SW, Alexandria, Minnesota 56308 (telephone: (320) 762-2000).
11
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Rights Agreements.... The Old Securities were sold by the Company on the Issue
Date to the Initial Purchasers, which placed such Old
Securities with qualified institutional buyers as
defined under the Securities Act. In connection
therewith, the Company executed and delivered for the
benefit of the holders of the Old Securities the
Registration Rights Agreements obligating the Company to
file with the Commission within 90 days after the Issue
Date, a registration statement under the Securities Act
relating to (i) an exchange offer for the Old Notes (the
"Notes Exchange Offer") and (ii) an exchange offer for
shares of Old Exchangeable Preferred Stock (the
"Preferred Stock Exchange Offer" and, together with the
Notes Exchange Offer, the "Exchange Offer") and to use
its best efforts to cause such registration statement to
become effective within 120 days after the Issue Date.
The Exchange Offer................ New Notes are being offered in exchange for an equal
principal amount at maturity of Old Notes. As of the
date hereof, there was outstanding $125,000,000
principal amount at maturity of Old Notes. New
Exchangeable Preferred Stock is being offered in
exchange for an equal number of shares of old
Exchangeable Preferred Stock. Because the New Notes and
New Exchangeable Preferred Stock will be recorded in the
Company's accounting records at the same carrying value
as the Old Notes and Old Exchangeable Preferred Stock,
respectively, no gain or loss will be recognized by the
Company upon the consummation of the Exchange Offer. See
"The Exchange Offer -- Accounting Treatment." Holders of
the Old Notes or Old Exchangeable Preferred Stock do not
have appraisal or dissenter's rights in connection with
the Exchange Offer under the Minnesota Business
Corporation Act (the "MBCA"), the governing law of the
state of incorporation of the Company.
Based on interpretations by the staff of the Commission,
as set forth in no-action letters issued to third
parties, the Company believes that the New Securities
issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by holders
thereof (other than any holder who is an "affiliate" of
the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities
Act; PROVIDED, HOWEVER, that such New Securities are
acquired in the ordinary course of the holders' business
and such holders are not engaged in, and do not intend
to engage in, a distribution of such New Securities and
have no arrangement with any person to participate in a
distribution of such New Securities. The staff of the
Commission has not considered the Exchange Offer in the
context of a no-action letter and there can be no
assurance that the staff of the Commission would make a
similar determination with respect to the Exchange
Offer. Each broker-dealer that receives New Securities
for its own account in exchange for Old Securities,
where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of
such New Securities. See "Plan of Distribution." To
comply
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the New
Notes or New Exchangeable Preferred Stock prior to
offering or selling such New Notes or New Exchangeable
Preferred Stock. The Company has agreed, pursuant to the
Registration Rights Agreements and subject to certain
specified limitations therein, to register or qualify
the New Notes and New Exchangeable Preferred Stock for
offer or sale under the securities or "blue sky" laws of
such jurisdictions as may be necessary to permit the
holders of New Securities to trade such New Securities
without any restrictions or limitations under the
securities laws of the several states of the United
States. If a holder of Old Securities does not exchange
such Old Securities for New Securities pursuant to the
Exchange Offer, such Old Securities will continue to be
subject to the restrictions on transfer contained in the
legend thereon. In general, the Old Securities may not
be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors --
Consequences of Failure to Exchange."
Expiration Date................... 5:00 p.m. New York City Time, on [ ],1998 (30
days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended, in which case the
term "Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer -- Conditions." Except for the
requirements of applicable Federal and state securities
laws, there are no Federal or state regulatory
requirements or approvals to be complied with or
obtained by the Company in connection with the Exchange
Offer. NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS
REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE
(OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
Procedures for Tendering Old
Notes........................... Each holder of Old Notes wishing to accept the Notes
Exchange Offer must complete, sign and date the
appropriate Letter of Transmittal (the "Notes Letter of
Transmittal"), or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Notes Letter of
Transmittal, or such facsimile, together with the Old
Notes to be exchanged and any other required
documentation to the Notes Exchange Agent (as defined
herein) at the address set forth herein and therein. See
"The Exchange Offer -- Procedures for Tendering."
Procedures for Tendering Old
Exchangeable Preferred Stock.... Each holder of Old Exchangeable Preferred Stock wishing
to accept the Preferred Stock Exchange Offer must
complete, sign and date the appropriate Letter of
Transmittal (the "Preferred Stock Letter of
Transmittal"), or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Preferred Stock Letter of
Transmittal, or such facsimile, together with the Old
Exchangeable Preferred Stock to be exchanged
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
and any other required documentation to the Preferred
Stock Exchange Agent (as defined herein) at the address
set forth herein and therein. See "The Exchange Offer --
Procedures for Tendering."
Withdrawal Rights................. Tenders of Old Securities may be withdrawn at any time
prior to 5:00 p.m., New York City Time, on the
Expiration Date. To withdraw a tender of Old Securities,
a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent (as defined
herein) at its address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City Time, on the
Expiration Date.
Acceptance of Old Securities and
Delivery of New Securities...... Subject to certain conditions, the Company will accept
for exchange any and all Old Securities which are
properly tendered in the Exchange Offer prior to 5:00
p.m. New York City Time, on the Expiration Date. The New
Securities issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See
"The Exchange Offer."
Exchange Agents................... Norwest Bank Minnesota, N.A. is serving as exchange
agent (the "Notes Exchange Agent") in connection with
the Notes Exchange Offer. Norwest Bank Minnesota, N.A.
is serving as exchange agent (the "Preferred Stock
Exchange Agent") in connection with the Preferred Stock
Exchange Offer. Each of the Notes Exchange Agent and the
Preferred Stock Exchange Agent are also referred to
herein as the "Exchange Agent."
Use of Proceeds................... There will be no proceeds to the Company from the
Exchange Offer. The net proceeds to the Company from the
original sale of the Securities were approximately
$240.9 million (net of estimated fees and expenses). See
"Use of Proceeds."
</TABLE>
SUMMARY OF TERMS OF NEW NOTES AND NEW EXCHANGEABLE PREFERRED STOCK
The Exchange Offer relates to the exchange of Old Notes for an equal
principal amount at maturity of New Notes and Old Exchangeable Preferred Stock
for an equal number of shares of New Exchangeable Preferred Stock. The New Notes
will be obligations of the Company evidencing the same indebtedness as the Old
Notes and will be entitled to the benefits of the same Notes Indenture, which
governs both the Old Notes and the New Notes. The form and terms of the New
Notes and the New Exchangeable Preferred Stock are substantially identical to
the form and terms of the Old Notes and the Old Exchangeable Preferred Stock,
respectively, except that the offer of the New Securities will have been
registered under the Securities Act and, therefore, the New Securities will not
bear legends restricting the transfer thereof.
<TABLE>
<S> <C>
SENIOR SUBORDINATED NOTES:
Notes Offered..................... $125,000,000 aggregate principal amount of 9 5/8% Senior
Subordinated Notes due 2008. Up to an additional
$50,000,000 in aggregate principal amount of Senior
Subordinated Notes ("Additional Notes") may be issued
under the Notes Indenture, subject to the ability to
incur indebtedness pursuant to the first paragraph of
the "Limitation on Consolidated Indebtedness" covenant,
in amounts which are in each case no less than $25
million.
Maturity.......................... May 15, 2008.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Interest Payment Dates............ May 15 and November 15 of each year, commencing November
15, 1998. Interest on the Senior Subordinated Notes will
accrue from May 14, 1998.
Optional Redemption............... The Senior Subordinated Notes will be redeemable, in
whole or in part, at the option of the Company, at any
time on or after May 15, 2003 at the redemption prices
set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time
prior to May 15, 2001, the Company may redeem up to 25%
of the aggregate principal amount of Senior Subordinated
Notes (including Additional Notes) issued under the
Notes Indenture with the net cash proceeds of a
Qualifying Event at a price equal to 109.625% of the
aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption;
PROVIDED, HOWEVER, that at least $90 million in
aggregate principal amount of Senior Subordinated Notes
remains outstanding immediately after such redemption.
See "Description of Senior Subordinated Notes --
Optional Redemption."
Limitations on Use of Proceeds;
Proceeds Purchase Offer......... All net proceeds received by the Company from the Notes
Offering will be applied to the purchase of the assets
in the Atlantic Acquisition or, pending the consummation
of the Atlantic Acquisition, to temporarily repay
indebtedness under the Existing Credit Facility;
PROVIDED that the repayment of the Existing Credit
Facility out of such proceeds will be permitted only if
the lenders thereunder unconditionally consent to allow
an amount equal to the amount so repaid, and any accrued
and unpaid interest thereon, to be reborrowed for the
sole purpose of funding a repurchase of the Senior
Subordinated Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase, in
the event that the Atlantic Acquisition does not close
on or before September 11, 1998.
Ranking........................... The Senior Subordinated Notes will be unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all present and
future Senior Indebtedness of the Company and
effectively subordinated to all obligations of the
Company's subsidiaries (including the guarantees by such
subsidiaries of the Credit Facility). The Senior
Subordinated Notes will rank PARI PASSU in right of
payment with the Exchange Debentures, if and when
issued, and the Senior Subordinated Notes and the
Exchange Debentures will rank PARI PASSU with or senior
in right of payment to all present and future
Indebtedness of the Company that expressly provides that
such Indebtedness ranks PARI PASSU with or junior in
right of payment to the Senior Subordinated Notes or the
Exchange Debentures, as the case may be. As of March 31,
1998, on a pro forma basis after giving effect to the
Pending Acquisitions, the Offerings and the application
of the net proceeds therefrom and the replacement of the
Existing Credit Facility with the New Credit Facility,
the aggregate principal amount of Senior Indebtedness of
the Company outstanding would have been approximately
$163.8 million, all of which would have represented
borrowings under the New Credit Facility (with an
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
additional $136.2 million of unused availability
thereunder). The Notes Indenture will allow the Company
to incur additional Senior Indebtedness. See
"Description of Senior Subordinated Notes -- Certain
Covenants."
Certain Covenants................. The Notes Indenture imposes certain limitations on the
ability of the Company and its Restricted Subsidiaries
(as defined herein) to, among other things, incur
Indebtedness, make Restricted Payments (as defined
herein), effect certain Asset Sales (as defined herein),
enter into certain transactions with Affiliates and
Related Persons (as defined herein), incur liens, merge
or consolidate with any other person or transfer all or
substantially all of their properties and assets. See
"Description of Senior Subordinated Notes -- Certain
Covenants."
Change of Control................. Within 30 days after the occurrence of a Change of
Control, the Company will be required to make an offer
to purchase all outstanding Senior Subordinated Notes at
a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if
any, to the date of purchase.
Events of Default................. Events of Default under the Notes Indenture include
failure to pay principal of or interest on the Senior
Subordinated Notes, failure to make payments on certain
other Indebtedness, breach of certain covenants, certain
events of bankruptcy and insolvency and other customary
events. See "Description of Senior Subordinated Notes --
Events of Default and Remedies."
EXCHANGEABLE PREFERRED STOCK:
Preferred Stock Offered........... 125,000 shares of 11 3/8% Senior Exchangeable Preferred
Stock. An additional 25,000 shares of Exchangeable
Preferred Stock ("Additional Shares"), in addition to
Dividend Shares, may be issued under the Certificate of
Designation, PROVIDED that not less than all of such
Additional Shares are issued.
Liquidation Preference............ $1,000 per share, plus accumulated and unpaid dividends
from May 14, 1998.
Ranking........................... The Exchangeable Preferred Stock will be senior to all
classes of junior preferred stock and common stock of
the Company with respect to dividend rights and rights
on liquidation, winding-up and dissolution of the
Company.
Mandatory Redemption.............. In whole on May 15, 2010 (subject to certain conditions
under Minnesota law), at a price equal to 100% of the
liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends, if any,
to the date of redemption.
Optional Redemption............... The Exchangeable Preferred Stock will be redeemable in
whole or in part, at the option of the Company at any
time on or after May 15, 2003, at the redemption prices
set forth herein, plus, without duplication, accumulated
and unpaid dividends, if any, to the date of redemption.
In addition, at any time prior to May 15, 2001, the
Company, at its option, may redeem up to 25% of the
aggregate liquidation preference of all the shares of
Exchangeable Preferred Stock (including Additional
Shares and Dividend Shares) issued
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
under the Certificate of Designation with the net cash
proceeds of a Qualifying Event, at a price equal to
111.375% of the aggregate liquidation preference
thereof, plus, without duplication, accumulated and
unpaid dividends, if any, to the date of redemption;
PROVIDED, HOWEVER, that at least $75 million in
aggregate liquidation preference of Exchangeable
Preferred Stock remains outstanding immediately after
such redemption. See "Description of Exchangeable
Preferred Stock and Exchange Debentures -- Exchangeable
Preferred Stock -- Optional Redemption."
Change of Control................. Within 30 days after the occurrence of a Change of
Control, the Company will be required to make an offer
to purchase all outstanding shares of Exchangeable
Preferred Stock at a price equal to 101% of the
aggregate liquidation preference thereof plus, without
duplication, accumulated and unpaid dividends, if any,
to the date of purchase.
Dividends......................... 11 3/8% per annum, payable quarterly on February 15, May
15, August 15, and November 15, commencing on August 15,
1998. Dividends on all shares of Exchangeable Preferred
Stock will be cumulative and accrue from May 14, 1998
and may be paid, at the Company's option, on any
dividend payment date occurring on or before May 15,
2003, either in cash or by the issuance of additional
shares of Exchangeable Preferred Stock ("Dividend
Shares") having an aggregate liquidation preference
equal to the amount of such dividends. Thereafter all
dividends will be payable in cash only.
Voting Rights..................... The Exchangeable Preferred Stock will be non-voting,
except as otherwise required by law and as provided in
the Certificate of Designation. The Certificate of
Designation provides that upon (i) the accumulation of
accrued and unpaid dividends, if any, on the outstanding
Exchangeable Preferred Stock in an amount equal to six
full quarterly dividends (whether or not consecutive);
(ii) the failure of the Company to satisfy any mandatory
redemption or repurchase obligation with respect to the
Exchangeable Preferred Stock; (iii) the failure of the
Company to make a Change of Control Offer (as defined
herein) on the terms and in accordance with the
provisions contained in the Certificate of Designation;
(iv) the failure of the Company to comply with any of
the other covenants or agreements set forth in the
Certificate of Designation and the continuance of such
failure for 30 consecutive days or more; or (v) the
failure of the Company or any Restricted Subsidiary to
make payments on certain Indebtedness, the holders of a
majority of the outstanding shares of Exchangeable
Preferred Stock, voting as a class, together with the
holders of any Parity Stock (as defined herein) having
similar voting rights, will be entitled to elect the
lesser of two directors and that number of directors
constituting 25% of the members of the Board of
Directors. If applicable, the voting rights will
continue until such time as, in the case of a dividend
default, all dividends in arrears on the Exchangeable
Preferred Stock are paid in full (and in the case of
dividends payable after May 15, 2003, paid in cash) and,
in all other cases, any failure giving rise to such
voting rights is remedied or waived by the holders of at
least a majority of the shares of
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Exchangeable Preferred Stock then outstanding, at which
time the terms of any directors elected pursuant to such
voting rights will terminate.
The Certificate of Designation provides that the Company
will not authorize any class of Senior Stock (as defined
herein) or any class of Parity Stock without the
affirmative vote or consent of holders of at least (i)
66 2/3% of the shares of Exchangeable Preferred Stock
then outstanding with respect to Senior Stock and (ii) a
majority of the shares of Exchangeable Preferred Stock
then outstanding with respect to Parity Stock; PROVIDED,
that any shares of Exchangeable Preferred Stock
authorized for issuance under the Certificate of
Designation may be issued by the Company without the
approval of the holders of the Exchangeable Preferred
Stock.
Exchange Option................... The Exchangeable Preferred Stock may be exchanged,
subject to certain conditions in the Notes Indenture, on
any dividend payment date, in whole but not in part, at
the option of the Company, for the Exchange Debentures
in an aggregate principal amount equal to the aggregate
liquidation preference of the shares of Exchangeable
Preferred Stock exchanged, plus, without duplication,
accumulated and unpaid dividends, if any, to the date of
exchange (the "Exchange Date").
EXCHANGE DEBENTURES:
Debentures Which May Be Issued.... 11 3/8% Senior Subordinated Exchange Debentures due
2010, issuable in exchange for the Exchangeable
Preferred Stock, in an aggregate principal amount equal
to the liquidation preference of the shares of
Exchangeable Preferred Stock being exchanged, plus,
without duplication, accumulated and unpaid dividends,
if any, to the Exchange Date.
Maturity.......................... May 15, 2010.
Interest Payment Dates............ May 15 and November 15 of each year, commencing with the
first of such dates to occur after the date of issuance
thereof. Interest on the Exchange Debentures will accrue
from the date of issuance thereof and may be paid, at
the Company's option, on any interest payment date
occurring on or before May 15, 2003, either in cash or
by the issuance of additional Exchange Debentures.
Optional Redemption............... The Exchange Debentures will be redeemable, in whole or
in part, at the option of the Company at any time on or
after May 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time prior to
May 15, 2001, the Company may redeem up to 25% of the
aggregate principal amount of Exchange Debentures issued
under the Exchange Indenture with the net cash proceeds
of a Qualifying Event at a price equal to 111.375% of
the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption;
PROVIDED, HOWEVER, that at least $75 million in
aggregate principal amount of the Exchange Debentures
remains outstanding immediately after such redemption;
and PROVIDED FURTHER, HOWEVER, that the aggregate
liquidation preference of any shares of Exchangeable
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Preferred Stock previously redeemed out of the net cash
proceeds of a Qualifying Event shall be counted as
aggregate principal amount of Exchange Debentures issued
and redeemed for purposes of the foregoing 25%
calculation. See "Description of Exchangeable Preferred
Stock and Exchange Debentures -- Exchange Debentures --
Optional Redemption."
Ranking........................... The Exchange Debentures will be unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all present and
future Senior Indebtedness of the Company and
effectively subordinated to all obligations of the
Company's subsidiaries (including the guarantees by such
subsidiaries of the Credit Facility). The Exchange
Debentures will rank PARI PASSU in right of payment with
the Senior Subordinated Notes, and the Exchange
Debentures and the Senior Subordinated Notes will rank
PARI PASSU with or senior in right of payment to all
present and future Indebtedness of the Company that
expressly provides that such Indebtedness ranks PARI
PASSU with or junior to the Exchange Debentures or the
Senior Subordinated Notes, as the case may be. The
Exchange Indenture (as defined herein) will allow the
Company to incur additional Senior Indebtedness. See
"Description of Exchangeable Preferred Stock and
Exchange Debentures -- Exchange Debentures -- Certain
Covenants."
Certain Covenants................. The Exchange Debentures, if issued, will impose certain
limitations on the ability of the Company and its
Restricted Subsidiaries to, among other things, incur
Indebtedness, effect certain Asset Sales, enter into
certain transactions with Affiliates and Related
Persons, incur liens, merge or consolidate with any
other person or transfer all or substantially all of
their properties and assets. See "Description of
Exchangeable Preferred Stock and Exchange Debentures --
Exchange Debentures -- Certain Covenants."
Change of Control................. Within 30 days after the occurrence of a Change of
Control, the Company will be required to make an offer
to purchase all outstanding Exchange Debentures at a
price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if
any, to the date of repurchase.
Events of Default................. Events of Default under the Exchange Indenture include
failure to pay principal of or interest on the Exchange
Debentures, failure to make payments on certain other
indebtedness, breach of certain covenants, certain
events of bankruptcy and insolvency and other customary
events. See "Description of Exchangeable Preferred Stock
and Exchange Debentures -- Exchange Debentures -- Events
of Default and Remedies."
Registration Requirements......... The Exchange Debentures may not be issued unless such
issuance is registered under the Securities Act or is
exempt from registration. See "Description of
Exchangeable Preferred Stock and Exchange Debentures --
Exchangeable Preferred Stock -- Exchange."
</TABLE>
19
<PAGE>
COMPARISON WITH OLD NOTES AND OLD EXCHANGEABLE PREFERRED STOCK
<TABLE>
<S> <C>
Freely Transferable............... Generally, the New Securities will be freely
transferable under the Securities Act by holders who are
not affiliates of the Company. The New Notes and New
Exchangeable Preferred Stock otherwise will be
substantially identical in all material respects to the
Old Notes and Old Exchangeable Preferred Stock,
respectively. See "The Exchange Offer -- Terms of the
Exchange Offer."
Registration Rights............... The holders of Old Securities currently are entitled to
certain registration rights pursuant to the Registration
Rights Agreements. However, upon consummation of the
Exchange Offer, subject to certain exceptions, holders
of Old Securities who do not exchange their Old
Securities for New Securities in the Exchange Offer will
no longer be entitled to registration rights and will
not be able to offer or sell their Old Securities,
unless such Old Securities are subsequently registered
under the Securities Act (which, subject to certain
limited exceptions, the Company will have no obligation
to do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors --
Consequence of Failure to Exchange."
</TABLE>
20
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
HISTORICAL THREE
------------------------------------------------ MONTHS
YEAR ENDED ENDED MARCH
YEAR ENDED DECEMBER 31, THREE MONTHS DECEMBER 31, 31,
------------------------------- ENDED MARCH 31, ------------------------ -----------
1995 1996 1997 1998 1997 (1) 1997 (2) 1998 (3)
--------- --------- --------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
THE COMPANY
STATEMENT OF OPERATIONS DATA:
Revenues:
Service...................... $ 14,289 $ 23,120 $ 43,408 $ 12,719 $ 47,745 $ 76,044 $ 12,719
Roamer....................... 4,562 6,414 9,475 1,758 9,823 21,007 1,758
Equipment.................... 1,476 927 1,020 320 1,153 3,735 320
--------- --------- --------- --------------- ----------- ----------- -----------
Total revenues............. 20,327 30,461 53,903 14,797 58,721 100,786 14,797
--------- --------- --------- --------------- ----------- ----------- -----------
Operating expenses:
Network costs................ 4,974 6,731 11,578 3,628 12,312 18,214 3,628
Costs of equipment sales..... 1,914 1,375 2,807 884 3,354 6,990 884
Selling, general and
administrative............. 7,700 13,576 25,225 6,590 27,424 43,056 6,590
Depreciation and
amortization............... 3,249 5,539 12,458 4,219 13,864 23,568 4,219
--------- --------- --------- --------------- ----------- ----------- -----------
Total operating expenses... 17,837 27,221 52,068 15,321 56,954 91,828 15,321
--------- --------- --------- --------------- ----------- ----------- -----------
Operating income (loss)........ 2,490 3,240 1,835 (524) 1,767 8,958 (524)
--------- --------- --------- --------------- ----------- ----------- -----------
Other income (expense):
Interest expense............. (1,365) (281) (6,065) (2,410) (138) (24,940) (270)
Interest and dividend
income..................... 277 335 232 279 232 232 279
Equity in earnings (losses)
of unconsolidated
subsidiaries............... (37) 52 (350) (149) (350) (350) (149)
Minority interest............ -- 331 3,082 738 3,082 3,082 738
--------- --------- --------- --------------- ----------- ----------- -----------
Other income (expense),
net...................... (1,125) 437 (3,101) (1,542) 2,826 (21,976) 598
--------- --------- --------- --------------- ----------- ----------- -----------
Income (loss) before income
taxes...................... 1,365 3,677 (1,266) (2,066) 4,593 (13,018) 74
Income tax provision......... 575 200 -- -- -- -- --
--------- --------- --------- --------------- ----------- ----------- -----------
Net income (loss)............ $ 790 $ 3,477 $ (1,266) $ (2,066) $ 4,593 $ (13,018) $ 74
--------- --------- --------- --------------- ----------- ----------- -----------
--------- --------- --------- --------------- ----------- ----------- -----------
Ratio of earnings to fixed
charges (5).................... 2.00 14.09 0.77 0.16 0.20 0.26 0.06
BALANCE SHEET DATA:
Working capital (deficit)...... $ 514 $ (144) $ 514 $ (705) $ (144)
Property and equipment, net.... 77,920 83,237 77,920 108,248 83,237
Total assets................... 181,588 186,410 181,588 453,302 186,410
Total debt..................... 128,000 135,000 7,375 274,344 14,375
Total liabilities.............. 141,642 149,074 21,017 293,798 28,449
Exchangeable preferred stock... -- -- 120,625 120,625 120,625
Total shareholders' equity..... 33,730 31,858 33,730 32,663 31,858
OTHER FINANCIAL DATA:
EBITDA (6)..................... $ 5,739 $ 8,779 $ 14,293 $ 3,695 $ 15,631 $ 32,526 $ 3,695
Adjusted EBITDA (6)............ 5,739 9,450 19,860 4,773 21,198 38,093 6,339
Adjusted EBITDA margin (6)..... 28.2% 31.3% 42.7% 39.6% 41.3% 40.8% 52.6%
Capital expenditures........... $ 10,011 $ 23,653 $ 34,474 $ 8,970 $ 35,196 $ 37,942 $ 8,970
Adjusted capital expenditures
(7).......................... 10,011 23,289 25,673 5,833 26,445 29,191 5,833
Total indebtedness/Adjusted
EBITDA....................... 0.3x 7.2x 2.3x
Total indebtedness and
preferred stock/Adjusted
EBITDA....................... 6.0x 10.4x 21.3x
<CAPTION>
1998 (4)
-----------
<S> <C>
THE COMPANY
STATEMENT OF OPERATIONS DATA:
Revenues:
Service...................... $ 20,378
Roamer....................... 5,066
Equipment.................... 1,126
-----------
Total revenues............. 26,570
-----------
Operating expenses:
Network costs................ 5,198
Costs of equipment sales..... 1,703
Selling, general and
administrative............. 10,189
Depreciation and
amortization............... 6,760
-----------
Total operating expenses... 23,850
-----------
Operating income (loss)........ 2,720
-----------
Other income (expense):
Interest expense............. (6,448)
Interest and dividend
income..................... 279
Equity in earnings (losses)
of unconsolidated
subsidiaries............... (149)
Minority interest............ 738
-----------
Other income (expense),
net...................... (5,580)
-----------
Income (loss) before income
taxes...................... (2,860)
Income tax provision......... --
-----------
Net income (loss)............ $ (2,860)
-----------
-----------
Ratio of earnings to fixed
charges (5).................... 0.30
BALANCE SHEET DATA:
Working capital (deficit)...... $ (293)
Property and equipment, net.... 112,926
Total assets................... 457,020
Total debt..................... 281,344
Total liabilities.............. 300,079
Exchangeable preferred stock... 120,625
Total shareholders' equity..... 30,838
OTHER FINANCIAL DATA:
EBITDA (6)..................... $ 9,480
Adjusted EBITDA (6)............ 10,557
Adjusted EBITDA margin (6)..... 44.3%
Capital expenditures........... $ 9,605
Adjusted capital expenditures
(7).......................... 6,468
Total indebtedness/Adjusted
EBITDA....................... 26.7x
Total indebtedness and
preferred stock/Adjusted
EBITDA....................... 38.1x
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
HISTORICAL THREE
------------------------------------------------ MONTHS
YEAR ENDED ENDED MARCH
YEAR ENDED DECEMBER 31, THREE MONTHS DECEMBER 31, 31,
------------------------------- ENDED MARCH 31, ------------------------ -----------
1995 1996 1997 1998 1997 (1) 1997 (2) 1998 (3)
--------- --------- --------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (8):
Customers at period end (9).... 26,764 45,094 84,600 86,850 84,600 152,764 86,850
Penetration (10)............... 4.5% 7.5% 7.6% 7.6% 7.6% 6.8% 7.6%
Average monthly retention rate
(11)......................... 99.0% 98.7% 98.4% 98.5% 98.4% 98.4% 98.5%
Average monthly revenue per
cellular customer (12)....... $ 69 $ 66 $ 55 $ 46 $ 55 $ 54 $ 46
Acquisition cost per cellular
customer (13)................ 395 307 403 444 403 383 444
Roamer revenue as a percentage
of total revenue (14)........ 24.2% 21.9% 20.8% 15.0% 19.6% 23.4% 15.0%
Cell sites..................... 64 72 121 124 121 203 124
ATLANTIC
PRO FORMA OPERATING DATA (15):
Customers at period end........ 39,715 55,009 68,164 70,492
Penetration (10)............... 3.6% 4.9% 6.0% 6.3%
Average monthly retention rate
(11)......................... 98.4% 98.1% 98.4% 98.4%
Average monthly revenue per
cellular customer (12)....... $ 63 $ 58 $ 53 $ 53
Acquisition cost per cellular
customer (13)................ 376 355 361 343
Roamer revenue as a percentage
of total revenue (14)........ 32.3% 29.2% 28.3% 30.2%
Cell sites..................... 61 71 82 85
<CAPTION>
1998 (4)
-----------
<S> <C>
OPERATING DATA (8):
Customers at period end (9).... 157,342
Penetration (10)............... 6.9%
Average monthly retention rate
(11)......................... 98.4%
Average monthly revenue per
cellular customer (12)....... $ 49
Acquisition cost per cellular
customer (13)................ 396
Roamer revenue as a percentage
of total revenue (14)........ 22.3%
Cell sites..................... 209
ATLANTIC
PRO FORMA OPERATING DATA (15):
Customers at period end........
Penetration (10)...............
Average monthly retention rate
(11).........................
Average monthly revenue per
cellular customer (12).......
Acquisition cost per cellular
customer (13)................
Roamer revenue as a percentage
of total revenue (14)........
Cell sites.....................
</TABLE>
- ------------------------------
(1) Includes the historical operations of the Company and gives effect to the
following as if they occurred as of January 1, 1997: (i) the MRCC
Acquisitions, (ii) the Exchangeable Preferred Stock Offering, and (iii) the
temporary repayment of $120.6 million of the Existing Credit Facility.
(2) Includes the historical operations of the Company and gives effect to the
following as if they occurred as of January 1, 1997: (i) the MRCC
Acquisitions, (ii) the Exchangeable Preferred Stock Offering, (iii) the
Notes Offering, (iv) the borrowings under the New Credit Facility, (v) the
repayment in full and termination of the Existing Credit Facility, and (vi)
the Atlantic Acquisition.
(3) Includes the historical operations of the Company and gives effect to the
following as if they had occurred as of January 1, 1998: (i) the
Exchangeable Preferred Stock Offering and (ii) the temporary repayment of
$120.6 million of the Existing Credit Facility.
(4) Includes the historical operations of the Company and gives effect to the
following as if they had occurred as of January 1, 1998: (i) the
Exchangeable Preferred Stock Offering, (ii) the Notes Offering, (iii) the
borrowings under the New Credit Facility, (iv) the repayment in full and
termination of the Existing Credit Facility, and (v) the Atlantic
Acquisition.
(5) For purposes of computing the ratio of earnings to fixed charges and pro
forma earnings to fixed charges, "earnings" are defined as earnings before
extraordinary items and accounting changes, interest expense, amortization
of deferred financing costs, taxes and the portion of rent expense
representing interest. Fixed charges consist of interest expense,
amortization of deferred financing costs and the portion of rent expense
representing interest. On a pro forma basis, the Company would include
preferred stock dividend requirements in computing its ratio of earnings to
fixed charges and preferred stock dividends.
(6) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that should be
regarded as an alternative for other performance measures and should not be
considered in isolation. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and does not
reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA should not be considered as having
greater significance than or as an alternative to net income or operating
income as an indicator of operating performance or to cash flows as a
measure of liquidity. Moreover, "EBITDA," as used herein, may differ from
"Operating Cash Flow," as used in calculating the covenants set forth in
the documents governing the Securities. See "Description of Senior
Subordinated Notes -- Certain Definitions," "Description of Exchangeable
Preferred Stock and Exchange Debentures -- Exchangeable Preferred Stock --
Certain Definitions" and "Description of Exchangeable Preferred Stock and
Exchange Debentures -- Exchange Debentures -- Certain Definitions."
Adjusted EBITDA represents EBITDA excluding Wireless Alliance's EBITDA.
Wireless Alliance is an Unrestricted Subsidiary under the documents
governing the Securities. Adjusted EBITDA margin represents Adjusted EBITDA
divided by revenues of
22
<PAGE>
the Company (excluding Wireless Alliance revenues). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Adjusted capital expenditures represents capital expenditures excluding
Wireless Alliance capital expenditures.
(8) Represents the Company's Minnesota cellular operations for 1995 through
1998 and MRCC's operations in 1997 and 1998, except as otherwise noted.
(9) In addition to the 86,850 cellular customers in Minnesota and Maine as of
March 31, 1998, the Company also served 9,487 paging and 17,999 Wireless
Alliance customers at such date.
(10) Represents the ratio of cellular customers at the end of the period to
total POPs.
(11) Determined for each period by dividing total cellular customers
discontinuing service during such period by the average cellular customers
for such period (customers at the beginning of the period plus customers
at the end of the period, divided by two), dividing that result by the
number of months in the period, and subtracting such result from one.
(12) Determined for each period by dividing the sum of access, airtime,
roaming, long distance, features, connection, disconnection, and other
revenues for such period by average cellular customers for such period
(customers at the beginning of the period plus customers at the end of the
period, divided by two), and dividing that result by the number of months
in such period.
(13) Determined for each period by dividing selling and marketing expenses,
cost of equipment sales, and depreciation of rental telephone equipment by
the gross cellular customers added during such period.
(14) Determined for each period by dividing roamer revenues for such period by
total revenues excluding equipment sales and, in the case of the Company,
Wireless Alliance revenues.
(15) In the Atlantic Acquisition, the Company is acquiring substantially all
the assets of Atlantic Cellular Company, L.P. and its subsidiary, Atlantic
Cellular/New Hampshire RSA Number One Limited Partnership. The Company is
not acquiring the operations of certain other subsidiaries in the Atlantic
Acquisition. See note (b) of Notes to Unaudited Pro Forma Condensed
Consolidated Financial Data appearing elsewhere in this Prospectus. All
Atlantic Pro Forma Operating Data set forth in the table exclude the
operations that are not being acquired by the Company.
23
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD CAREFULLY CONSIDER THE
FOLLOWING MATTERS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE SECURITIES. INFORMATION CONTAINED
IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS." SEE "FORWARD-LOOKING
STATEMENTS" FOR A DISCUSSION OF CERTAIN QUALIFICATIONS REGARDING SUCH
STATEMENTS.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes or Old Exchangeable Preferred Stock who do not exchange
their Old Notes or Old Exchangeable Preferred Stock for New Notes or New
Exchangeable Preferred Stock pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes and Old Exchangeable
Preferred Stock as set forth in the legend thereon as a consequence of the
issuance of the Old Notes and Old Exchangeable Preferred Stock pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Notes and Old Exchangeable Preferred Stock may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes or Old Exchangeable Preferred Stock under the
Securities Act. Based on interpretations by the staff of the Commission, as set
forth in no-action letters to third parties, the Company believes that the New
Notes and New Exchangeable Preferred Stock issued pursuant to the Exchange Offer
in exchange for Old Notes and Old Exchangeable Preferred Stock may be offered
for resale, resold or otherwise transferred by the holders thereof (other than
any such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes or New Exchangeable Preferred Stock is acquired in the ordinary course of
such holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such New Notes or New Exchangeable Preferred Stock.
The staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. Each broker-dealer that receives New Notes or New Exchangeable Preferred
Stock for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes or
New Exchangeable Preferred Stock. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes or New
Exchangeable Preferred Stock received in exchange for Old Notes or Old
Exchangeable Preferred Stock where such Old Notes or Old Exchangeable Preferred
Stock was acquired by such broker-dealer as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 90
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes and New Exchangeable Preferred Stock
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdictions or an exemption for registration or qualification is
available and is complied with. To the extent that Old Notes or Old Exchangeable
Preferred Stock is tendered and accepted in the Exchange Offer, the trading
market for the untendered and the tendered but unaccepted Old Notes or Old
Exchangeable Preferred Stock could be adversely affected.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT; COVENANTS AND RESTRICTIONS;
CAPITAL REQUIREMENTS
The Company has significant indebtedness and is highly leveraged. As of
March 31, 1998, after giving pro forma effect to the Pending Acquisitions and
the related financings (including the Offerings), the Company would have had
outstanding total Indebtedness of approximately $288.8 million, including $163.8
million under the New Credit Facility. In addition, the Company would have had
outstanding Exchangeable Preferred Stock with an aggregate liquidation
preference of $125 million and shareholders' equity of approximately $30.8
million. See "Capitalization."
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The significant indebtedness expected to be incurred as a result of the
Pending Acquisitions will have several important consequences to the holders of
the Securities, including, without limitation: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or other purposes may be impaired; (ii) the Company's
level of indebtedness could limit its flexibility to expand, fund capital
expenditures and react to changes in the wireless communications industry and
general economic conditions; and (iii) the ability of the Company to satisfy its
obligations pursuant to such indebtedness will be dependent upon factors
affecting the business and operations of the Company, some of which are not in
the control of the Company.
The ability of the Company to service or retire at maturity its indebtedness
(including the Senior Subordinated Notes and, if issued, the Exchange
Debentures) and to pay cash dividends on and redeem at maturity the Exchangeable
Preferred Stock will depend on the future operating performance and financial
results of the Company, which are subject, in part, to factors beyond the
control of the Company, such as prevailing economic conditions, financial
performance and other factors. There can be no assurance that the Company's
business will generate cash flow at the levels necessary, together with
available additional financings, if any, to allow the Company to meet its
anticipated requirements for working capital, capital expenditures and debt
service. A substantial portion of the Company's assets consist of intangible
assets, principally licenses granted by the FCC, the value of which will depend
upon a variety of factors (including the success of the Company's cellular
business and of Wireless Alliance and the wireless telecommunications industry
in general). In addition, transfers of interests in such licenses are subject to
FCC approval. As a result, there can be no assurance that the Company's assets
could be sold quickly enough, or for sufficient amounts, to enable the Company
to meet its obligations, including its obligations with respect to any of the
Securities.
The instruments governing certain indebtedness of the Company impose
significant operating and financial restrictions on the Company. Such
restrictions will affect, and in many respects significantly limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends, repay indebtedness prior to stated maturities, sell assets, make
investments, engage in transactions with shareholders and affiliates, issue
capital stock, create liens or engage in mergers or acquisitions. In addition,
the Credit Facility requires the Company to maintain certain financial ratios.
These restrictions could also limit the ability of the Company to effect future
financings, make needed capital expenditures, withstand a future downturn in the
Company's business or the economy in general, or otherwise conduct necessary
corporate activities. A failure by the Company to comply with these restrictions
could lead to a default under the terms of such indebtedness and the Senior
Subordinated Notes (and, if issued, the Exchange Debentures), notwithstanding
the ability of the Company to meet its debt service obligations. In the event of
a default, the holders of such indebtedness could elect to declare all such
indebtedness to be due and payable together with accrued and unpaid interest, if
any. In such event, a significant portion of the Company's indebtedness
(including the Senior Subordinated Notes and, if issued, the Exchange
Debentures) may become immediately due and payable, and there can be no
assurance that the Company and its subsidiaries would be able to make such
payments or borrow sufficient funds from alternative sources to make any such
payment. Even if additional financing could be obtained, there can be no
assurance that it would be on terms acceptable to the Company. In addition, the
Company's indebtedness under the Credit Facility is secured by a pledge of
certain assets of the Company. The pledge of such collateral to existing lenders
could impair the Company's ability to obtain favorable additional financing. See
"Description of Other Indebtedness."
The Company has required, and will likely continue to require, substantial
capital in connection with the further development and expansion of its Wireless
Systems. The Company may require additional financing for future acquisitions
and for buildout requirements related to the Wireless Alliance PCS licenses.
Sources of additional capital may include cash flow from operations, public and
private equity, and debt financings by the Company, including vendor financing.
The extent of additional financing required will depend on the success of the
Company's operations. There can be no assurance that additional financing will
be available to the Company or, if available, that it can be obtained on terms
acceptable to the Company and within the limitations contained in the documents
governing the Securities, the Credit Facility, and the Company's other
indebtedness, or that may be contained in any future financing arrangements. See
"Risk Factors -- Risks Associated with Securities -- Subordination; Priority of
Secured Indebtedness; Ranking of Preferred Stock" and "Description of Other
Indebtedness."
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RISKS ASSOCIATED WITH ACQUISITIONS AND ABILITY TO MANAGE GROWTH
The Company is subject to risks that acquired Wireless Systems will not
perform as expected and that the returns from such Wireless Systems will not
support indebtedness incurred or securities issued (including, without
limitation, the Securities) to acquire, or the capital expenditures needed to
develop, the Wireless Systems. In addition, expansion of the Company's
operations may strain the Company's management, financial and other resources.
The Company's ability to manage future growth will depend upon its ability to
monitor operations, control costs, maintain effective quality controls and
significantly expand the Company's internal management, technical and accounting
systems, all of which will result in higher operating expenses. There can be no
assurance that the Company will be able to successfully integrate the Wireless
Systems acquired or that any such acquired business will not experience high
employee or customer turnover rates after the acquisition. Moreover, with
respect to the Atlantic Acquisition, unlike most acquisition transactions, which
provide for recovery against the seller in the event that representations or
warranties are discovered after closing to be untrue, the representations and
warranties by Atlantic in the Atlantic Acquisition expire as of the closing
date.
COMPETITION
The wireless communications industry is highly competitive. Many of the
Company's competitors and potential competitors have substantially greater
financial, personnel, technical, marketing and other resources than those of the
Company, as well as other competitive advantages. Current policies of the FCC
authorize only two cellular licensees to operate in each license area.
Accordingly, in each of its markets the Company competes with one other cellular
licensee. Competition for customers is based principally upon services and
features offered, technical quality of wireless systems, strength of
distribution channels, customer service, system coverage, capacity and price.
The Company also competes, although to a lesser extent, with dispatch and
conventional mobile telephone companies, resellers of wireless services, paging
companies and landline telephone service providers. There can be no assurance
that the Company will be able to continue to compete successfully or that new
technologies and products that are more commercially effective than the
Company's will not be developed. Some competitors may market other services such
as cable television access or landline local exchange or long distance services
with their wireless offerings. There has been an industry trend of declining
average revenue per customer, as competition between service providers has led
to reductions in rates for airtime and subscriptions and other charges. See
"Business -- Competition" for more detailed information on the competitive
environment in which the Company operates.
The Company expects to face increased competition in the future in its
cellular markets from other cellular licensees and entities providing other
technologies and services, including digital mobile communication systems using
Enhanced Specialized Mobile Radio ("ESMR") licenses and broadband PCS licenses.
The Company's PCS operations will face competition from incumbent cellular
providers, ESMR licensees and other broadband PCS licensees. The Company's
operations may also face competition from other technologies developed in the
future including, but not limited to, fixed wireless and satellite systems.
Moreover, there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become inferior or
obsolete at some time in the future. See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGES
The wireless communications industry is subject to rapid and significant
changes in technology, including advancements protected by intellectual property
laws. In particular, the wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of digital
upgrades in existing analog wireless systems, evolving industry standards, the
availability of new radio frequency spectrum allocations in which to develop
wireless services, ongoing improvements in the capacity and quality of digital
technology, shorter development cycles for new products and enhancements, and
changes in end-user requirements and preferences. The effect of technological
changes on the business of the Company cannot be predicted, and there can be no
assurance that technological developments will not have a material adverse
effect on the business of the Company.
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RELIANCE ON USE OF THIRD-PARTY SERVICE MARKS
The Company uses various service marks in its business, some of which it
owns and some of which are licensed from third parties. If any licenses with
third parties are not renewed upon expiration, or if the Company fails to meet
the applicable operating or service quality standards or otherwise loses the
rights to use any licensed service marks, the Company's ability both to attract
new customers and to retain existing customers could be impaired. See "Business
- -- Service Marks."
POTENTIAL FOR ADVERSE REGULATORY CHANGE AND NEED FOR REGULATORY APPROVALS
The licensing, construction, operation, acquisition and sale of cellular and
PCS systems, as well as the number of wireless licensees permitted in each
market, are regulated by the FCC. Changes in the regulation of wireless
activities and other wireless carriers, the licensing of additional connecting
carriers in the Company's service areas or the loss by the Company of any
license or licensed area could have a material adverse effect on the Company's
operations. The FCC continues to license additional spectra on which wireless
communications can be offered. In addition, all cellular and PCS licenses in the
United States are subject to renewal upon expiration of their initial ten-year
term. The Company's license for the Bangor, Maine MSA has been renewed for a
ten-year term, which expires in 2008. The Company's cellular licenses for RSAs
will expire beginning in 1999. Wireless Alliance's PCS licenses will expire in
2005. The licenses to be acquired in the Pending Acquisitions will expire at
varying dates beginning in 2000. The Company will apply for renewal of its
respective licenses, and while the Company believes that each of these licenses
will be renewed based upon FCC rules establishing a presumption in favor of
licensees that have complied with their regulatory obligations during the
initial license period, there can be no assurance that the Company's licenses
will be renewed. See "Business -- Regulation."
The Company must obtain a number of other approvals, licenses and permits in
the operation of its business, including determinations of no hazard to air
navigation from the Federal Aviation Administration (the "FAA") in connection
with the construction of cellular and PCS towers. Additionally, the wireless
communications industry is subject to certain state and local government
regulation. Operating costs are also affected by other governmental actions that
are beyond the Company's control. There is no assurance that the various
federal, state and local agencies responsible for granting required licenses,
approvals and permits will do so or that, once granted, will not revoke or fail
to renew them. The absence of such licenses, approvals and permits would
adversely affect the Company's existing operations and could delay commencement
of or prohibit business operations proposed by the Company.
In addition, the Communications Act and FCC regulations restrict ownership
of capital stock of the Company by non-U.S. citizens. See "Description of
Capital Stock -- Limitation on Foreign Ownership and Transfers of Control."
The wireless communications industry is subject to continually evolving
regulation. As new regulations are promulgated, the Company may be required to
modify its business plans or operations in order to comply with any such
regulations. There can be no assurance that the Company will be able to do so in
a cost effective manner, if at all.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT; NUMBER PORTABILITY
Telecommunications carriers are required to comply with the Communications
Assistance for Law Enforcement Act ("CALEA"), which requires carriers to modify
and design their equipment, facilities and services to support lawful electronic
surveillance. To date, however, no technical standard for upgrades has been
determined. Carriers must complete changes required by CALEA by October 25,
1998. The Federal Bureau of Investigation ("FBI") and the FCC already have
adopted rules relating to the implementation of CALEA, and the FCC has a
proceeding underway to adopt additional implementing rules. Several carriers and
industry organizations have urged the FBI to delay the implementation date and
also have sought relief from the FCC, due to, among other things, the
unavailability of compliant equipment. To date, however, the deadline for
compliance has not been extended. There can be no assurance that the compliance
deadline will be extended or, if extended, that such
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extension will provide the Company with adequate time to comply with CALEA. If
the Company is not able to comply with CALEA prior to the deadline, the Company
could be fined up to $10,000 per day. See "Business -- Regulation."
Cellular and broadband PCS service providers are required to implement
number portability during 1998 and 1999. Number portability would enable
customers to change broadband Commercial Mobile Radio Service ("CMRS") providers
and services without changing their telephone number. Based upon financial and
technological considerations and the current level of competition in the
marketplace, several parties have requested that the FCC forbear from requiring
broadband CMRS carriers to implement service provider number portability until
PCS carriers have completed their five-year buildout requirements. There can be
no assurance that the FCC will extend the implementation deadline or that, if
extended, the extension would provide the Company with adequate time to comply
with its number portability obligation. The failure to comply with this
obligation could result in fines or revocation of the Company's licenses. See
"Business -- Regulation."
RADIO FREQUENCY EMISSION CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones may be linked to cancer and may interfere with
pacemakers and other medical devices. Concerns over RF emissions may have the
effect of discouraging the use of wireless telephones, which could have a
material adverse effect on the Company's business. By order effective in
September 1997, the FCC updated the guidelines and methods used for evaluating
RF emissions from radio equipment, including cellular and PCS telephones and
transmitting facilities. To date, the Company believes that these guidelines
have not had a material impact on its operations. However, the FCC's new rules
impose more restrictive standards on RF emissions from lower power devices such
as portable cellular and PCS telephones. Although there is no assurance of
continuing compliance with evolving standards, the Company believes that all
cellular and PCS telephones currently provided by the Company to its customers,
as well as the Company's transmitting facilities, comply with the proposed new
standards. See "Business -- Regulation."
YEAR 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit fields to designate a year. When the century date
occurs, date sensitive systems may recognize the year 2000 as 1900 or not at
all. This inability to recognize or properly treat the Year 2000 may cause
systems to process critical financial and operational information incorrectly.
The Company continues to assess the impact of the Year 2000 issue on its
computer systems and estimates that approximately $600,000 will be incurred in
1998 and 1999 to address this issue, although there is no assurance that the
costs it incurs will be limited to such amounts. If Year 2000 modifications are
not properly completed either by the Company or any of the entities with whom
the Company conducts business, the Company could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters -- Year 2000."
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key management and
operating personnel, the loss of any of whom could have a material adverse
effect on the Company. The Company believes that its ability to manage its
planned growth successfully will depend in large part on its continued ability
to attract and retain highly skilled and qualified personnel. See "Management."
EQUIPMENT FAILURE; NATURAL DISASTER
Although the Company carries "business interruption" insurance, major
equipment failure or a natural disaster affecting the Company's switches,
microwave links or certain cell sites could have a material adverse effect on
the Company. Although the Company has not incurred any material adverse effect
from equipment failures or natural disasters to date, there is no assurance that
the Company will not experience such events in the future.
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FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
Company's incurrence of indebtedness and other obligations in connection with
the Pending Acquisitions, including the issuance of the Senior Subordinated
Notes. If a court were to find in a lawsuit by an unpaid creditor or
representative of creditors of the Company that the Company did not receive fair
consideration or reasonably equivalent value for incurring such indebtedness or
obligation and, at the time of such incurrence, the Company: (i) was insolvent;
(ii) was rendered insolvent by reason of such incurrence; (iii) was engaged in a
business or transaction for which the assets remaining in the Company
constituted unreasonably small capital; or (iv) intended to incur or believed it
would incur obligations beyond its ability to pay such obligations as they
mature, such court, subject to applicable statutes of limitation, could
determine to invalidate, in whole or in part, such indebtedness and obligations
as fraudulent conveyances or subordinate such indebtedness and obligations to
existing or future creditors of the Company.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, the Company
would be considered insolvent at a particular time if the sum of its debts was
then greater than all of its property at a fair valuation or if the present fair
saleable value of its assets was then less than the amount that would be
required to pay its probable liabilities on its existing debts as they became
absolute and matured. On the basis of its historical financial information, its
recent operating history as discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other factors, the
Company's management believes that, after giving effect to indebtedness incurred
in connection with the Offerings and the Pending Acquisitions, the Company will
not be rendered insolvent, will have sufficient capital for the business in
which it will be engaged and will be able to pay its debts as they mature;
however, management has not obtained any independent opinion regarding such
issues. In addition, there can be no assurance as to what standard a court would
apply in making such determinations.
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant customer growth during the fourth calendar
quarter. Accordingly, during that period the Company experiences greater losses
on equipment sales and increases in sales and marketing expenses. In addition,
the Company's financial performance during the first quarter has been negatively
affected by reduced minutes of use and roamer revenues. The Company has
historically experienced its highest usage and revenue per customer during the
summer months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Other Matters -- Seasonality."
RISKS ASSOCIATED WITH SECURITIES
SUBORDINATION; PRIORITY OF SECURED INDEBTEDNESS; RANKING OF PREFERRED
STOCK. The Senior Subordinated Notes (and, if issued, the Exchange Debentures)
will be unsecured and subordinated in right of payment to all existing and
future Senior Indebtedness of the Company, including all indebtedness under the
Credit Facility. The Exchangeable Preferred Stock will rank junior in right of
payment upon liquidation to all existing and future indebtedness of the Company
and senior in right of payment to the common stock of the Company. By reason of
such subordination, in the event of the insolvency, liquidation or other
reorganization of the Company, the Senior Indebtedness must be paid in full
before repayment of the principal of, premium, if any, or interest on the Senior
Subordinated Notes (and, if issued, the Exchange Debentures) and the Senior
Indebtedness and the Senior Subordinated Notes must be paid in full before
redemption of the Exchangeable Preferred Stock. As of March 31, 1998, after
giving pro forma effect to the Pending Acquisitions and the related financings
(including the Offerings), the aggregate amount of Senior Indebtedness would
have been $163.8 million and the unused balance under the Credit Facility would
have been $136.2 million. The obligations of the Company on the Senior
Subordinated Notes and the Exchangeable Preferred Stock (or, if issued, the
Exchange Debentures) will be effectively subordinated in right of payment to all
obligations of the Company's subsidiaries (including the guarantees by such
subsidiaries of the Credit Facility). As of March 31, 1998, the only material
indebtedness of such subsidiaries (excluding the guarantees by such subsidiaries
of the Credit Facility) was $12.0 million of intercompany Indebtedness owing to
the Company which was incurred by
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Wireless Alliance. The documents governing the Securities will permit the
Company to incur additional Senior Indebtedness and will permit the subsidiaries
to incur a limited amount of indebtedness if certain conditions are met. See
"Description of Senior Subordinated Notes -- Certain Covenants," "Description of
Exchangeable Preferred Stock and Exchange Debentures -- Exchangeable Preferred
Stock -- Certain Covenants" and "Description of Exchangeable Preferred Stock and
Exchange Debentures -- Exchange Debentures -- Certain Covenants." In addition,
the Company has pledged the stock of certain of its subsidiaries to secure the
borrowings under the Credit Facility, and the Company and certain of its
subsidiaries have granted liens on substantially all of their assets as security
for the obligations under the Credit Facility. If the Company becomes insolvent
or is liquidated, or if payment under the Credit Facility is accelerated, the
lenders under the Credit Facility would be entitled to exercise the remedies
available to a secured lender under applicable law and pursuant to instruments
governing such indebtedness. Accordingly, such lenders will have a prior claim
on the Company's assets. In any such event, because the Senior Subordinated
Notes (and, if issued, the Exchange Debentures) will not be secured by any of
the Company's assets, it is possible that there would be no assets remaining
from which claims of the holders of such Senior Subordinated Notes (and, if
issued, the Exchange Debentures) could be satisfied, or, if any such assets
remained, such assets might be insufficient to satisfy such claims in full.
In the event of a default in the payment of principal or interest on any
Senior Indebtedness of the Company, the Company will not be permitted to make
any payment with respect to the principal of, or premium, if any, or interest on
the Senior Subordinated Notes (or, if issued, the Exchange Debentures) unless
and until such default has been cured or waived. In the event of any other
default permitting the acceleration of Designated Senior Indebtedness (as
defined herein) or indebtedness under the Credit Facility where notice of such
default has been given to the Company, the Company may not make any payment with
respect to the principal of or premium, if any, or interest on the Senior
Subordinated Notes (or, if issued, the Exchange Debentures) unless and until
such default has been cured or waived; PROVIDED, HOWEVER, that such other
default will not prevent the making of payments on the Senior Subordinated Notes
(or, if issued, the Exchange Debentures) for more than 179 consecutive days
after notice of such default has been given to the Company. Upon any payment or
distribution of assets of the Company upon a total or partial liquidation,
dissolution, reorganization or similar proceeding, the holders of Senior
Indebtedness will be entitled to receive payment in full before the holders of
the Senior Subordinated Notes (and, if issued, the Exchange Debentures) are
entitled to receive any payment. See "Description of Senior Subordinated Notes
- -- Subordination."
LIMITATION ON ABILITY TO PAY CASH DIVIDENDS. The ability of the Company to
pay cash dividends and to redeem the Exchangeable Preferred Stock when required
is substantially restricted under various covenants contained in documents
governing the Senior Subordinated Notes and the Credit Facility. In addition,
under Minnesota law, the Company is permitted to pay dividends on its capital
stock, including the Exchangeable Preferred Stock, only if the board of
directors of the Company determines that the Company will be able to pay its
debts in the ordinary course of business after paying such dividends. The
Company cannot predict what the value of its assets or the amount of its
liabilities will be in the future and, accordingly, there can be no assurance
that the Company will be able to pay cash dividends, redeem the Exchangeable
Preferred Stock or exchange the Exchangeable Preferred Stock for the Exchange
Debentures.
LIMITATION ON REMEDIES APPLICABLE TO EXCHANGEABLE PREFERRED STOCK. The
Certificate of Designation provides that in certain circumstances, including the
accumulation of accrued and unpaid dividends on the outstanding Exchangeable
Preferred Stock in an amount equal to six quarterly dividends (whether or not
consecutive) and the failure of the Company to satisfy any obligation with
respect to the Exchangeable Preferred Stock, the sole remedy of the holders of
the Exchangeable Preferred Stock will be the election of directors to the
Company's board of directors. See "Description of Exchangeable Preferred Stock
and Exchange Debentures -- Exchangeable Preferred Stock -- Voting Rights."
REPURCHASE OF SECURITIES UPON A CHANGE OF CONTROL. The Company must offer
to purchase (separately) the Securities within 30 days after the occurrence of a
Change of Control at a purchase price equal to (i) 101% of the aggregate
principal amount of all outstanding Senior Subordinated Notes (and, if issued,
the Exchange Debentures) plus accrued and unpaid interest, if any, to the date
of repurchase and (ii) 101% of the aggregate liquidation
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preference of all outstanding shares of Exchangeable Preferred Stock, plus,
without duplication, accumulated and unpaid dividends, if any, to the date of
repurchase. See "Description of the Senior Subordinated Notes -- Change of
Control," "Description of Exchangeable Preferred Stock and Exchange Debentures
- -- Exchangeable Preferred Stock -- Change of Control" and "Description of
Exchangeable Preferred Stock and Exchange Debentures -- Exchange Debentures --
Change of Control."
The Credit Facility prohibits the Company from prepaying or redeeming the
Securities and the Notes Indenture limits the ability of the Company to redeem
the Exchangeable Preferred Stock, including prepayments pursuant to a Change of
Control offer, as described above. Prior to commencing such an offer to
purchase, the Company would be required to (i) repay in full all indebtedness of
the Company that would prohibit the Company from prepaying or redeeming the
Securities, including indebtedness under the Credit Facility, or (ii) obtain any
requisite consent to permit the repurchase. In addition, under Minnesota law,
the Company is permitted to repurchase outstanding shares of its capital stock,
including the Exchangeable Preferred Stock, only if the board of directors of
the Company determines that the Company will be able to pay its debts in the
ordinary course of business after repurchasing such shares of capital stock. If
the Company is unable to repay such indebtedness or is unable to obtain the
necessary consents, then the Company will be unable to offer to purchase the
Senior Subordinated Notes or to redeem the Exchangeable Preferred Stock (or, if
the Exchange Debentures are issued, offer to purchase the Exchange Debentures),
and such failure will constitute an Event of Default under the Notes Indenture
and a Voting Rights Triggering Event under the Certificate of Designation (or,
if the Exchange Debentures are issued, an event of default under the Exchange
Indenture). There can be no assurance that the Company will have sufficient
funds available at the time any Change of Control offer, as described above, is
required to repurchase the Senior Subordinated Notes and, as applicable,
repurchase the Exchangeable Preferred Stock or repurchase the Exchange
Debentures, as described above.
The events that constitute a Change of Control may also be events of default
under the Credit Facility or other indebtedness of the Company. Such events may
permit the lenders under such indebtedness to accelerate the indebtedness and,
if the indebtedness is not paid, to enforce security interests in the assets of
the Company, thereby limiting the Company's ability to raise cash to repurchase
the Senior Subordinated Notes or Exchangeable Preferred Stock (or, if issued,
the Exchange Debentures) and reducing the practical benefit of the offer to
purchase provisions to the holders of the Senior Subordinated Notes and the
Exchangeable Preferred Stock (or, if issued, the Exchange Debentures). See
"Description of Other Indebtedness."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. Dividends on the
Exchangeable Preferred Stock that are paid to Non-U.S. Holders may be subject to
a 30% withholding tax. Unless a Non-U.S. Holder provides the Company with
appropriate documentation indicating its exemption from the withholding tax, in
the event any distribution is made with respect to the Exchangeable Preferred
Stock in the form of additional shares of Exchangeable Preferred Stock, such
Non-U.S. Holder will be required to pay the Company the amount of any such
withholding tax and, in the event such payment is not timely made, the Company
will withhold a number of shares of Exchangeable Preferred Stock sufficient to
reimburse it for the withholding tax obligation. For purposes of this
Prospectus, a Non-U.S. Holder is any holder that is not a "U.S. Holder" as
defined under "Certain United States Federal Income Tax Considerations." See
"Certain United States Federal Income Tax Considerations."
ABSENCE OF A PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE OF SECURITIES. The
Company does not intend to apply for listing of the Securities on any securities
exchange or for inclusion of the Securities in any automated quotation system.
Although the Company has been advised by the Initial Purchasers that they
currently intend to make a market in the Securities, they are not obligated to
do so and any such market-making activities may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Securities. If a market for any of the
Securities were to develop, the Securities could trade at prices that may be
higher or lower than their initial offering prices, depending upon many factors,
including prevailing interest rates, the Company's operating results and the
markets for similar securities. Historically, the market for non-investment
grade securities has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Securities. There can be
no assurance that if a market for the Securities were to develop, such a market
would not be subject to similar disruptions.
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THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Securities pursuant to a Purchase
Agreement dated as of May 7, 1998, between the Company and the Initial
Purchasers, the Initial Purchasers and their assignees became entitled to the
benefits of the Registration Rights Agreements.
Under the Registration Rights Agreements, the Company is obligated to (i)
file the Registration Statement of which this Prospectus is a part (the
"Exchange Offer Registration Statement") for a registered exchange offer with
respect to an issue of New Notes and New Exchangeable Preferred Stock with terms
substantially identical in all material respects to the Old Notes and Old
Exchangeable Preferred Stock, respectively (except that such New Notes and New
Exchangeable Preferred Stock will not contain terms with respect to transfer
restrictions), within 90 days after the Issue Date and (ii) use its best efforts
to cause the Registration Statement to be declared effective within 120 days
after the Issue Date. For each Old Note surrendered pursuant to the Notes
Exchange Offer, the holder of such Old Note will receive a New Note having a
principal amount at maturity equal to that of the surrendered Old Note. For each
share of Old Exchangeable Preferred Stock surrendered pursuant to the Preferred
Stock Exchange Offer, the holder of such share of Old Exchangeable Preferred
Stock will receive a share of New Exchangeable Preferred Stock having a
liquidation preference equal to that of the surrendered share of Old
Exchangeable Preferred Stock. The Exchange Offer being made hereby if commenced
and consummated within such applicable time periods will satisfy those
requirements under the Registration Rights Agreements.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal (which together constitute the Exchange
Offer), the Company will accept for exchange all Old Securities validly tendered
and not withdrawn prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. The Company will issue New Notes in exchange for an equal principal amount
at maturity of outstanding Old Notes accepted in the Exchange Offer and will
issue New Exchangeable Preferred Stock in exchange for an equal number of shares
of outstanding Old Exchangeable Preferred Stock accepted in the Exchange Offer.
As of the date of this Prospectus, there was outstanding $125,000,000 aggregate
principal amount at maturity of Old Notes and 125,000 shares of Old Exchangeable
Preferred Stock.
This Prospectus, together with the Letters of Transmittal, is being sent to
all registered holders as of , 1998. The Company's obligation to
accept Old Securities for exchange pursuant to the Exchange Offer is subject to
certain condition as set forth herein under "-- Conditions."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Notes Exchange Agent. The Notes Exchange Agent will act as agent for the
tendering holders of Old Notes for the purposes of receiving the New Notes from
the Company and delivering New Notes to such holders. The Company shall be
deemed to have accepted validly tendered Old Exchangeable Preferred Stock when,
as and if the Company has given oral or written notice thereof to the Preferred
Stock Exchange Agent. The Preferred Stock Exchange Agent will act as agent for
the tendering holders of Old Exchangeable Preferred Stock for the purposes of
receiving the New Exchangeable Preferred Stock from the Company and delivering
New Exchangeable Preferred Stock to such holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Securities. In
such event, holders of Old Securities seeking liquidity in their investment
would have to rely on exemptions to registration requirements under the federal
and state securities laws. See "Risk Factors -- Consequences of Failure to
Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1998 (30 days following
the commencement of the Exchange Offer), unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. In order to
extend the Expiration Date, the Company will notify each Exchange Agent of any
extension by oral or written notice and will mail to the record holders of Old
Securities an announcement thereof, each prior to 9:00 a.m., New York City Time,
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on the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time.
Notwithstanding any extension of the Exchange Offer, if for any reason the
Exchange Offer is not consummated before December 10, 1998, the Company will, at
its own expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of the Old Securities (a "Shelf Registration
Statement"), (b) use its best efforts to cause a Shelf Registration Statement to
be declared effective under the Securities Act and (c) keep the Shelf
Registration Statement effective until the earlier of 24 months following the
Issue Date and such time as all of the Old Securities have been sold thereunder,
or otherwise can be sold pursuant to Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Securities. A holder selling such Old Securities pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreements which are applicable to such a
holder (including certain indemnification obligations).
The Company reserves the right (i) to delay accepting any Old Securities, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Securities not previously accepted if any of the conditions set forth herein
under "-- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Securities. Any such delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral or written notice thereof.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the Old Securities of
such amendment and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to holders of the Old Securities, if the Exchange Offer
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Holders of Old Securities do not have any appraisal or dissenters' rights in
connection with the Exchange Offer under the MBCA, the governing law of the
state of incorporation of the Company.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Notes Letter of Transmittal or Preferred Stock Letter of Transmittal, as the
case may be, or a facsimile thereof, have the signatures thereon guaranteed if
required by such Letter of Transmittal and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with any other required documents, to
the Notes Exchange Agent or Preferred Stock Exchange Agent, as the case may be,
prior to 5:00 p.m. New York City Time, on the Expiration Date. In addition,
either (i) certificates for such tendered Old Securities must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities,
if such procedure is available, into the Exchange Agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received
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<PAGE>
by the Exchange Agent prior to the Expiration Date or (iii) the holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE
SENT TO THE COMPANY. To be tendered effectively, the Old Securities, the Letter
of Transmittal and all other required documents must be received by the
appropriate Exchange Agent prior to 5:00 p.m., New York City Time, on the
Expiration Date. Delivery of all documents must be made to the appropriate
Exchange Agent at the addresses set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth therein and in the Letter of Transmittal.
Only a holder of Old Securities may tender such Old Securities in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Notes or Old Exchangeable Preferred Stock is registered
on the books of the Company or any other person who has obtained a properly
completed bond or stock power from the registered holder.
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender shall contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Securities, either
make appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed bond or stock power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") unless the Old Securities tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Securities listed therein, such Old Securities must be
endorsed or accompanied by bond powers or stock powers, as the case may be, and
a proxy which authorizes such person to tender the Old Securities on behalf of
the registered holder, in each case as the name of the registered holder or
holders appears on the Old Securities.
If the Letter of Transmittal of any Old Securities, bond powers or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as the validity, form, eligibility (including time of receipt)
and withdrawal of the tendered Old Securities will be determined by the Company
in its sole discretion, which determination will be final and binding. The
Company reserves the absolute right to reject any and all Old Securities not
properly tendered or any Old Securities which, if accepted by the Company,
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Securities. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letters of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as the Company shall determine. None of the Company, the
Notes Exchange Agent, the Preferred Stock Exchange Agent or any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Old Securities, nor shall any of
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<PAGE>
them incur any liability for failure to give such notification. Tenders of Old
Securities will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Securities received by an Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned without cost to such holder by such
Exchange Agent to the tendering holders of such Old Securities, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Notes Indenture and the Certificate of Designation, to
(i) purchase or make offers for any Old Securities that remain outstanding
subsequent to the Expiration Date or, as set forth under "-- Conditions," to
terminate the Exchange Offer in accordance with the terms of the Registration
Rights Agreements and (ii) to the extent permitted by applicable law, purchase
Old Securities in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchase or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company that (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act),
(ii) any New Securities to be received by it were acquired in the ordinary
course of its business and (iii) at the time of commencement of the Exchange
Offer, it was not engaged in, and did not intend to engage in, a distribution of
such New Securities and had no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of the
New Securities. If a holder of Old Securities is an affiliate of the Company,
and is engaged in or intends to engage in a distribution of the New Securities
or has any arrangement or understanding with respect to the distribution of the
New Securities to be acquired pursuant to the Exchange Offer, such holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery requirement of the
Securities Act in connection with any secondary resale transaction. Each broker
or dealer that receives New Securities for its own account in exchange for old
Securities, where such Old Securities were acquired by such broker or dealer as
a result of market-making activities, or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. See "Plan of Distribution."
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Securities
properly tendered and will issue the New Securities promptly after acceptance of
the Old Securities. See "-- Conditions" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Notes Exchange Agent, and shall be deemed to have accepted
validly tendered Old Exchangeable Preferred Stock for exchange when, as and if
the Company has given oral or written notice thereof to the Preferred Stock
Exchange Agent.
For each Old Note tendered for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note, and for each share of Old Exchangeable Preferred Stock
tendered for exchange, the holder of such share will receive a share of New
Exchangeable Preferred Stock having a liquidation preference equal to that of
the surrendered share of Old Exchangeable Preferred Stock.
If (i) by August 12, 1998 (90 days after the Issue Date), the Exchange Offer
Registration Statement has not been filed with the Commission, (ii) by September
11, 1998 (120 days after the Issue Date), neither the Exchange Offer
Registration Statement nor, if applicable, the Shelf Registration Statement has
been declared effective, (iii) the Expiration Date has not occurred within 45
days after the Exchange Offer Registration Statement has been declared
effective, or (iv) after either the Exchange Offer Registration Statement or the
Shelf Registration Statement has been declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Old Securities or New Securities in
accordance with and during the periods specified in the Registration Rights
Agreements (each such event referred to in clauses (i) through (iv) a
"Registration Default"), additional interest or dividends, as the case may be,
will accrue or accumulate on the applicable Senior Subordinated Notes and
Exchangeable Preferred Stock at the rate of 0.50% per annum from and including
the date on which any such Registration Default shall occur to but excluding the
date on which all Registration Defaults have been cured. Such interest or
dividends, as the case may be, will be payable in cash (or in kind to the extent
permitted under the Certificate of Designation) and will be in addition to
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any other interest or dividends payable from time to time with respect to the
Senior Subordinated Notes and the Exchangeable Preferred Stock. Such dividend or
interest rate shall be increased by an additional 0.50% per annum for each
additional 90-day period that a Registration Default continues, to a maximum of
2.0% per annum.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the appropriate Exchange Agent of certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into such
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Securities are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Securities are
submitted for a greater principal amount or larger number of shares, as the case
may be, than the holder desires to exchange, such unaccepted or nonexchanged Old
Securities will be returned without expense to the tendering holder thereof (or,
in the case of Old Securities tendered by book-entry transfer procedures
described below, such nonexchanged Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Notes Exchange Agent and the Preferred Stock Exchange Agent will make a
request to establish an account with respect to the Old Notes and the Old
Exchangeable Preferred Stock, respectively, at the Book-Entry Transfer Facility
for purposes of the Exchange Offer within two business days after the date of
this Prospectus. Any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Old
Securities by causing the Book-Entry Transfer Facility to transfer such Old
Securities into the appropriate Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Old Securities may be
effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted to
and received by the appropriate Exchange Agent at one of the addresses set forth
below under "-- Exchange Agents" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Securities desires to tender such Old
Securities, and the Old Securities are not immediately available, or time will
not permit such holder's Old Securities or other required documents to reach the
appropriate Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of such Old Securities and the
amount of Old Securities tendered, stating that the tender is being made thereby
and guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, in proper form to
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the appropriate Exchange Agent and (iii) the
certificate for all physically tendered Old Securities, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the appropriate
Exchange Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m.
New York City Time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the appropriate Exchange Agent at one of the addresses set forth
below under "-- Exchange Agents." Any such notice of withdrawal must
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<PAGE>
specify the name of the person having tendered the Old Securities to be
withdrawn, identify the Old Securities to be withdrawn (including the principal
amount of such Old Notes and the number of shares of such Old Exchangeable
Preferred Stock) and (where certificates for Old Securities have been
transmitted) specify the name in which such Old Securities are registered, if
different from that of the withdrawing holder. If certificates for the Old
Securities have been delivered or otherwise identified to an Exchange Agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Securities
have been tendered pursuant to the procedures of book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old
Securities and otherwise comply with the procedures of such facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Securities so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Securities which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to such holder (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old
Securities will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Securities) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Securities may be retendered by following one of the procedures
described under the "-- Procedures for Tendering" above at any time on or prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Securities in exchange for,
any Old Securities and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Securities, if because of any changes
in law, or applicable interpretations thereof by the Commission, the Company
determines that it is not permitted to effect the Exchange Offer. In addition,
the Company has no obligation to, and will not knowingly, accept tenders of Old
Securities from affiliates of the Company (within the meaning of Rule 405 under
the Securities Act) or from any other holder or holders who are not eligible to
participate in the Exchange Offer under applicable law or interpretations
thereof by the Commission, or if the New Securities to be received by such
holder or holders of Old Securities in the Exchange Offer, upon receipt, will
not be tradable by such holder without restriction under the Securities Act and
the Exchange Act and without material restriction under the "blue sky" or
securities laws of substantially all of the states.
EXCHANGE AGENTS
Norwest Bank Minnesota, N.A. has been appointed as Notes Exchange Agent in
connection with the Notes Exchange Offer. Questions and requests for assistance
in connection with the Notes Exchange Offer and requests for additional copies
of this Prospectus or of the Notes Letter of Transmittal should be directed to
the Notes Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED IN PERSON:
MAIL: Northstar East Bldg.
Norwest Bank Minnesota, 608 2nd Ave. S.
National Association 12th Floor
Corporate Trust Operations Corporate Trust Services
P.O. Box 1517 Minneapolis, MN 55479-0113
Minneapolis, MN 55480-1517
BY OVERNIGHT COURIER OR BY BY FACSIMILE (FOR ELIGIBLE
HAND: INSTITUTIONS ONLY):
Norwest Bank Minnesota, (612) 667-4927
National Association CONFIRM RECEIPT OF NOTICE OF
Corporate Trust Operations GUARANTEED DELIVERY BY TELEPHONE:
Norwest Center (612) 667-9764
Sixth and Marquette
Minneapolis, MN 55479-0113
</TABLE>
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Norwest Bank Minnesota, N.A. has been appointed as Preferred Stock Exchange
Agent in connection with the Preferred Stock Exchange Offer. Questions and
requests for assistance in connection with the Preferred Stock Exchange Offer
and requests for additional copies of this Prospectus or of the Preferred Stock
Letter of Transmittal should be directed to the Preferred Stock Exchange Agent
addressed as follows:
BY REGISTERED OR CERTIFIED MAIL;
BY OVERNIGHT COURIER; OR BY HAND:
Norwest Bank Minnesota, N.A.
161 N. Concord Exchange
South St. Paul MN 55075
Attention: Reorganization Department
BY FACSIMILE: (612) 450-4078
Attention: Reorganization Department
Telephone: (612) 450-4064
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tender pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
each Exchange Agent reasonable and customary fees for its services and will
reimburse such Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents to
the beneficial owners of the Old Securities, and in handling or forwarding
tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of each Exchange Agent, the
Trustee (as defined herein), the Transfer Agent (as defined herein) and
accounting, legal printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Securities pursuant to the Exchange Offer. If, however, certificates
representing New Securities or Old Securities for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Securities tendered, or if tendered Old Securities are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than exchange of Old Securities
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes and New Exchangeable Preferred Stock will be recorded in the
Company's accounting records at the same carrying values as the Old Notes and
Old Exchangeable Preferred Stock, respectively, as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized upon the consummation of the Exchange
Offer. The expense of the Exchange Offer will be amortized by the Company over
the term of the New Notes and New Exchangeable Preferred Stock in accordance
with generally accepted accounting principles.
THE PENDING ACQUISITIONS
ATLANTIC ACQUISITION
In February 1998, the Company entered into a definitive agreement (the
"Atlantic Agreement") to acquire the Vermont, New Hampshire, New York and
Massachusetts Non-Wireline Cellular Licenses, operations and related assets of
Atlantic, one of the leading independent providers of wireless communications
services in the New
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England region. The Company is acquiring Atlantic's assets for a purchase price
of approximately $256 million in cash (the "Base Price"), plus the assumption of
certain liabilities.
Pursuant to the Atlantic Agreement, the Company will acquire a contiguous,
multi-state service area of approximately 21,000 square miles, encompassing
approximately 1.11 million POPs and 71,000 customers. The cellular properties to
be acquired from Atlantic include: the entire state of Vermont (RSA 1, RSA 2 and
the Burlington MSA); western New Hampshire (RSA 1); the northeastern corner of
New York (RSA 2); and northwestern Massachusetts (RSA 1). In addition, the
Company will acquire Atlantic's long-distance business. The assets being
acquired by the Company from Atlantic constitute substantially all of the assets
of Atlantic, and in connection therewith, the Company will assume Atlantic's
current liabilities and all contract obligations of Atlantic entered into in the
ordinary course of business. The Company will not assume the bank debt or
long-term liabilities of Atlantic.
In the event that Atlantic's operating cash flow or number of customers is
less than a specified threshold for the period or as of the date specified in
the Atlantic Agreement, the Company has the option to adjust the Base Price or,
alternatively, terminate the Atlantic Agreement. In addition, in the event that,
prior to closing, Atlantic breaches any representations or warranties set forth
in the Atlantic Agreement that would in the aggregate reasonably be expected to
have a Material Adverse Effect (as defined in the Atlantic Agreement), then the
Company has the right to terminate the Atlantic Agreement. Such representations
and warranties, however, will not survive the closing of the Atlantic
Acquisition.
Closing of the Atlantic Acquisition is expected to occur in the summer of
1998 following the latest of (a) FCC consent to the assignment of the cellular
licenses, (b) the expiration or early termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act and (c) the date on which all
other conditions to closing set forth in the Atlantic Agreement have been
satisfied. The Atlantic Agreement may be terminated by either party if closing
has not occurred (for example, due to failure or delay in obtaining FCC or other
regulatory approval) on or before December 31, 1998.
WMC ACQUISITION
In February 1998, the Company entered into a definitive agreement (the "WMC
Agreement") to purchase all of the outstanding stock of WMC for approximately
$7.5 million in cash. WMC provides cellular service to western Maine RSA 1
through a Wireline Cellular License, and the addition of WMC's service area to
the Company's existing Wireline Cellular License operations in Maine and the
multi-state Non-Wireline Cellular License system of Atlantic to the west and
south will create a continuous geographic footprint. WMC's 3,700 square-mile
service area of western Maine encompasses 83,000 POPs, and as of March 31, 1998,
WMC served more than 2,400 customers.
Pursuant to the WMC Agreement, the $7.5 million purchase price for the
outstanding stock of WMC is subject to certain adjustments. Any such adjustment
will be paid to the Company from a $600,000 escrow established pursuant to the
WMC Agreement. The escrowed funds will also be available to satisfy breaches of
seller's representations and warranties in the WMC Agreement, subject to a $1.5
million limit on the seller's liability.
Closing is expected to occur in the summer of 1998 following the latest of
(a) the first day of the month which is at least ten days after the receipt of
the last required consent (e.g., FCC or state regulator approval and the like)
or (b) the date on which all other conditions to closing set forth in the WMC
Agreement have been satisfied. The WMC Agreement may be terminated by either
party if closing has not occurred on or before December 31, 1998.
39
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New Notes
or the New Exchangeable Preferred Stock offered hereby. In consideration for
issuing the New Notes and New Exchangeable Preferred Stock as contemplated in
this Prospectus, the Company will receive in exchange Old Notes and Old
Exchangeable Preferred Stock in the like principal or liquidation preference
amount, the term and form of which are identical in all material respects to the
New Notes and New Exchangeable Preferred Stock. The Old Notes and Old
Exchangeable Preferred Stock surrendered in exchange for New Notes or the New
Exchangeable Preferred Stock will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the New Notes and New Exchangeable Preferred
Stock will not result in any increase in the indebtedness of the Company.
The net proceeds from the sale of the Old Notes and Old Exchangeable
Preferred Stock were approximately $240.9 million (net of estimated fees and
expenses of approximately $9.1 million). The Company used the net proceeds from
the Exchangeable Preferred Stock Offering to repay indebtedness under the
Existing Credit Facility. The Company will use the net proceeds from the Notes
Offering, together with the New Credit Facility, to finance the Pending
Acquisitions, refinance the remaining indebtedness under the Existing Credit
Facility, and pay related fees and expenses. If the Atlantic Acquisition does
not close on or before September 11, 1998, the Company will be required to make
an offer to repurchase the Senior Subordinated Notes at a price of 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. Pending the consummation of the Atlantic Acquisition,
all net proceeds from the sale of the Notes Offering are being held by the
Company in a segregated account, except that such proceeds may be used to repay
indebtedness under the Existing Credit Facility; provided, that the repayment
out of such proceeds will be permitted only if the lenders thereunder
unconditionally consent to allow an amount equal to the amount repaid from the
net proceeds of the Notes Offering, plus an amount equal to the accrued and
unpaid interest, if any, on the Senior Subordinated Notes, to be reborrowed for
the sole purpose of funding a repurchase of the Senior Subordinated Notes
pursuant to a Proceeds Purchase Offer.
SOURCES AND USES OF FUNDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
SOURCES:
New Credit Facility............................................................... $ 163,844(1)
Senior Subordinated Notes......................................................... 125,000
Exchangeable Preferred Stock...................................................... 125,000
----------
Total sources................................................................... $ 413,844
----------
----------
USES:
Atlantic Purchase Price........................................................... $ 256,000
WMC Purchase Price................................................................ 7,500
Estimated fees and expenses of the Pending Acquisitions and the Offerings......... 15,344(2)
Repayment of Existing Credit Facility in full..................................... 135,000(3)
----------
Total uses...................................................................... $ 413,844
----------
----------
</TABLE>
- ------------------------
(1) Includes $7.5 million to finance the WMC Acquisition. The WMC Acquisition is
not included in the Unaudited Pro Forma Condensed Consolidated Financial
Data included in this Prospectus as it does not meet the significant
subsidiary criteria for that presentation. As a result, the amount of
indebtedness included in the sources and uses table does not reconcile to
the Unaudited Pro Forma Condensed Consolidated Financial Data.
(2) Represents estimates of $9.1 million for underwriting and other expenses
related to the Offerings, $3.4 million for fees related to the New Credit
Facility, and $2.8 million for fees related to the Pending Acquisitions.
(3) If the Atlantic Acquisition does not close, the Existing Credit Facility
will remain in place.
40
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 on (i) an actual basis, (ii) a pro forma as adjusted basis after giving
effect to the Exchangeable Preferred Stock Offering and (iii) a pro forma as
adjusted basis after giving effect to the Offerings, the Pending Acquisitions,
the New Credit Facility and the repayment in full and termination of the
Existing Credit Facility. This table should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
and the "Unaudited Pro Forma Condensed Consolidated Financial Data" and notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
PRO FORMA AS PRO FORMA AS
ACTUAL ADJUSTED (1) ADJUSTED (2)
----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash............................................... $ 3,305 $ 3,305 $ 3,305
----------- ------------- -------------
----------- ------------- -------------
Existing Credit Facility (3)....................... $ 135,000 $ 14,375 $ --
New Credit Facility................................ -- -- 163,844
Senior Subordinated Notes.......................... -- -- 125,000
----------- ------------- -------------
Total debt..................................... 135,000 14,375 288,844(4)
----------- ------------- -------------
Minority Interest.................................. 5,478 5,478 5,478
----------- ------------- -------------
Exchangeable Preferred Stock....................... -- 120,625 120,625
----------- ------------- -------------
Shareholders' Equity:
Class A Common Stock............................. 76 76 76
Class B Common Stock............................. 13 13 13
Additional paid-in capital....................... 34,639 34,639 34,639
Accumulated deficit.............................. (2,870) (2,870) (3,890)
----------- ------------- -------------
Total shareholders' equity..................... 31,858 31,858 30,838
----------- ------------- -------------
Total capitalization......................... $ 172,336 $ 172,336 $ 445,785
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
- ------------------------
(1) Includes the historical capitalization of the Company and gives effect to
the following: (i) the Exchangeable Preferred Stock Offering and (ii) the
temporary repayment of $120.6 million of the Existing Credit Facility.
(2) Includes the historical capitalization of the Company and gives effect to
the following: (i) the Exchangeable Preferred Stock Offering and (ii) the
Notes Offering, the borrowings under the New Credit Facility, the repayment
in full and termination of the Existing Credit Facility and the Pending
Acquisitions.
(3) If the Atlantic Acquisition does not close, the Existing Credit Facility
will remain in place.
(4) Includes $7.5 million to finance the WMC Acquisition. The WMC Acquisition is
not included in the Unaudited Pro Forma Condensed Consolidated Financial
Data included in this Prospectus as it does not meet the significant
subsidiary criteria for that presentation. As a result, the amount of
indebtedness included in the "Capitalization" table does not reconcile to
the Unaudited Pro Forma Condensed Consolidated Financial Data.
41
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the historical
consolidated financial statements of the Company. The consolidated financial
statements for each of the five years ended December 31 have been derived from
the Company's consolidated financial statements, which have been audited by
Arthur Andersen LLP. The financial data for the three months ended March 31,
1997 and 1998, are derived from unaudited consolidated financial statements. In
the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for the periods presented. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the entire year. The MRCC Acquisitions, which
were consummated by the Company effective May 1, 1997, materially affect the
comparability of data from one period to another. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and accompanying notes included elsewhere in this
Prospectus. No cash dividends or distributions were declared or paid during the
periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service.......................... $ 4,690 $ 9,784 $ 14,289 $ 23,120 $ 43,408 $ 6,908 $ 12,719
Roamer........................... 3,146 3,897 4,562 6,414 9,475 1,317 1,758
Equipment........................ 271 2,008 1,476 927 1,020 97 320
--------- --------- --------- --------- --------- --------- ----------
Total revenues................. 8,107 15,689 20,327 30,461 53,903 8,322 14,797
--------- --------- --------- --------- --------- --------- ----------
Operating expenses:
Network costs.................... 2,586 3,293 4,974 6,731 11,578 2,000 3,628
Costs of equipment sales......... 372 2,214 1,914 1,375 2,807 287 884
Selling, general and
administrative................. 4,949 6,570 7,700 13,576 25,225 4,427 6,590
Depreciation and amortization.... 1,687 2,426 3,249 5,539 12,458 1,963 4,219
--------- --------- --------- --------- --------- --------- ----------
Total operating expenses....... 9,594 14,503 17,837 27,221 52,068 8,677 15,321
--------- --------- --------- --------- --------- --------- ----------
Operating income (loss)............ (1,487) 1,186 2,490 3,240 1,835 (355) (524)
--------- --------- --------- --------- --------- --------- ----------
Other income (expense):
Interest expense................. (622) (1,195) (1,365) (281) (6,065) (215) (2,410)
Interest and dividend income..... 68 170 277 335 232 62 279
Equity in earnings (losses) of
unconsolidated subsidiaries.... (175) (37) (37) 52 (350) 19 (149)
Minority interest................ -- -- -- 331 3,082 449 738
--------- --------- --------- --------- --------- --------- ----------
Other income (expense), net.... (729) (1,062) (1,125) 437 (3,101) 315 (1,542)
--------- --------- --------- --------- --------- --------- ----------
Income (loss) before income
taxes............................ (2,216) 124 1,365 3,677 (1,266) (40) (2,066)
Income tax provision (benefit)..... 4 (486) 575 200 -- -- --
--------- --------- --------- --------- --------- --------- ----------
Net income (loss).................. $ (2,220) $ 610 $ 790 $ 3,477 $ (1,266) $ (40) $ (2,066)
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Ratio of earnings to fixed charges
(1).............................. 1.10 2.00 14.09 0.77 0.81 0.16
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....... $ (1,230) $ 80 $ (4,415) $ (11,215) $ 514 $ (144)
Property and equipment, net..... 11,014 16,479 23,517 41,935 77,920 83,237
Total assets.................... 14,074 22,439 30,138 60,507 181,588 186,410
Total long-term debt, less
current maturities............ 10,400 13,725 16,397 44 128,000 135,000
Total liabilities............... 13,314 17,772 24,681 19,388 141,642 149,074
Total shareholders' equity...... 760 4,668 5,458 34,996 33,730 31,858
OTHER FINANCIAL DATA:
EBITDA (2)...................... $ 200 $ 3,612 $ 5,739 $ 8,779 $ 14,293 $ 1,608 $ 3,695
Adjusted EBITDA (2)............. 200 3,612 5,739 9,450 19,860 2,469 4,773
Adjusted EBITDA margin (2)...... 2.5% 23.0% 28.2% 31.3% 42.7% 32.9% 39.6%
Capital expenditures............ $ 2,750 $ 6,933 $ 10,011 $ 23,653 $ 34,474 $ 3,607 $ 8,970
Adjusted capital expenditures
(3)........................... 2,750 6,933 10,011 23,289 25,673 3,093 5,833
OTHER OPERATING DATA (4):
Customers at period end (5)..... 9,352 17,402 26,764 45,094 84,600 47,730 86,850
Penetration (6)................. 1.6% 2.9% 4.5% 7.5% 7.6% 8.0% 7.6%
Average monthly retention rate
(7)........................... 99.0% 99.2% 99.0% 98.7% 98.4% 98.8% 98.5%
Average monthly revenue per
cellular customer (8)......... $ 98 $ 84 $ 69 $ 66 $ 55 $ 52 $ 46
Acquisition cost per cellular
customer (9).................. 586 448 395 307 403 389 444
Roamer revenue as a percentage
of total revenue (10)......... 40.1% 28.5% 24.2% 21.9% 20.8% 17.8% 15.0%
Cell sites...................... 36 55 64 72 121 74 124
</TABLE>
43
<PAGE>
ATLANTIC
The following selected financial data were derived solely from unaudited
information obtained by the Company from Atlantic for the three months ended
March 31, 1997 and 1998, and from the historical Consolidated Statements of
Operations. The historical Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1997 have been audited by KPMG Peat
Marwick, independent auditors. The following selected financial data reflect the
reclassification of revenues and expenses to conform to the Company's historical
consolidated financial statement presentation and exclude the operations of
subsidiaries of Atlantic Cellular Company, L.P. not being acquired by the
Company in the Atlantic Acquisition, all of which information, reclassifications
and exclusions were provided to the Company by Atlantic. The data should be read
in conjunction with the Unaudited Pro Forma Condensed Consolidated Financial
Data, Atlantic's Consolidated Financial Statements and accompanying notes, and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service....................... $ 16,945 $ 23,356 $ 28,299 $ 6,450 $ 7,659
Roamer........................ 8,095 9,643 11,184 2,293 3,308
Equipment..................... 1,274 1,507 2,582 500 806
--------- --------- --------- --------- ---------
Total revenues.............. 26,314 34,506 42,065 9,243 11,773
--------- --------- --------- --------- ---------
Operating expenses:
Network costs................. 3,552 3,892 5,902 1,289 1,570
Costs of equipment sales...... 3,485 3,835 3,636 964 819
Selling, general and
administrative.............. 12,978 16,482 18,210 4,099 4,122
Depreciation and
amortization................ 7,970 8,917 9,367 2,457 2,457
--------- --------- --------- --------- ---------
Total operating expenses.... 27,985 33,126 37,115 8,809 8,968
--------- --------- --------- --------- ---------
Operating income (loss)......... $ (1,671) $ 1,380 $ 4,950 $ 434 $ 2,805
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
EBITDA (2)(11)................ $ 6,299 $ 10,297 $ 14,317 $ 2,891 $ 5,262
OTHER OPERATING DATA:
Customers at period-end....... 39,715 55,009 68,164 58,129 70,492
Penetration (6)............... 3.6% 4.9% 6.0% 5.1% 6.2%
Average monthly retention rate
(7)......................... 98.4% 98.1% 98.4% 98.4% 98.3%
Average monthly revenue per
customer (8)................ $ 63 $ 58 $ 53 $ 52 $ 53
Acquisition cost per customer
(9)......................... 376 355 361 397 344
Roamer revenue as a percentage
of total revenue (10)....... 32.3% 29.2% 28.3% 26.2% 30.2%
Cell sites.................... 61 71 82 77 85
</TABLE>
- ------------------------
(1) For purposes of computing the ratio of earnings to fixed charges,
"earnings" are defined as earnings before extraordinary items and
accounting changes, interest expense, amortization of deferred financing
costs, taxes and the portion of rent expense representing interest. Fixed
charges consist of interest expense, amortization of deferred financing
costs and the portion of rent expense representing interest. The deficiency
of earnings to fixed charges was $1.0 million for the year ended December
31, 1993.
(2) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that
44
<PAGE>
should be regarded as an alternative for other performance measures and
should not be considered in isolation. EBITDA is not a measurement of
financial performance under generally accepted accounting principles and
does not reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA should not be considered as having
greater significance than or as an alternative to net income or operating
income as an indicator of operating performance or to cash flows as a
measure of liquidity. Moreover, "EBITDA," as used herein, may differ from
"Operating Cash Flow," as used in calculating the covenants set forth in
the documents governing the Securities. See "Description of Senior
Subordinated Notes -- Certain Definitions," "Description of Exchangeable
Preferred Stock and Exchange Debentures -- Exchangeable Preferred Stock --
Certain Definitions" and "Description of Exchangeable Preferred Stock and
Exchange Debentures -- Exchange Debentures -- Certain Definitions."
Adjusted EBITDA represents EBITDA excluding Wireless Alliance's EBITDA.
Wireless Alliance will be an Unrestricted Subsidiary under the documents
governing the Securities. Adjusted EBITDA margin represents Adjusted EBITDA
divided by revenues of the Company (excluding Wireless Alliance revenues).
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) Adjusted capital expenditures represents capital expenditures excluding
Wireless Alliance capital expenditures.
(4) Represents the Company's Minnesota cellular operations for 1993 through
1998 and MRCC's operations in 1997 and 1998, except as otherwise noted.
(5) In addition to the 86,850 cellular customers in Minnesota and Maine as of
December 31, 1997, the Company also served 9,487 paging and 17,999 Wireless
Alliance customers at such date.
(6) Represents the ratio of cellular customers at the end of the period to
total POPs.
(7) Determined for each period by dividing total cellular customers
discontinuing service during such period by the average cellular customers
for such period (customers at the beginning of the period plus customers at
the end of the period, divided by two), dividing that result by the number
of months in the period, and subtracting such result from one.
(8) Determined for each period by dividing the sum of access, airtime, roaming,
long distance, features, connection, disconnection, and other revenues for
such period by average cellular customers for such period (customers at the
beginning of the period plus customers at the end of the period, divided by
two), and dividing that result by the number of months in such period.
(9) Determined for each period by dividing selling and marketing expenses, cost
of equipment sales, and depreciation of rental telephone equipment by the
gross cellular customers added during such period.
(10) Determined for each period by dividing roamer revenue for such period by
total revenues excluding equipment sales and, in the case of Company,
Wireless Alliance revenues.
(11) Includes an allocation of corporate overhead of $2.6 million in 1995, $3.0
million in 1996, $4.1 million in 1997, $728,000 for the three months ended
March 31, 1997 and $899,000 for the three months ended March 31, 1998.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1997 and the three months ended March
31, 1998 include the historical operations of the Company and give effect to the
following as if they occurred as of January 1, 1997: (i) the Unity Cellular
System, Inc. and Northern Maine Cellular Partnership acquisitions ("MRCC
Acquisitions"), (ii) the Exchangeable Preferred Stock Offering, and (iii) the
Notes Offering, the borrowings under the New Credit Facility, the repayment in
full and termination of the Existing Credit Facility, and the Atlantic
Acquisition. The following unaudited pro forma condensed consolidated balance
sheet as of March 31, 1998 includes the historical accounts of the Company and
gives effect to the following as if they occurred as of March 31, 1998: (i) the
Exchangeable Preferred Stock Offering and (ii) the Notes Offering, the
borrowings under the New Credit Facility, the repayment in full and termination
of the Existing Credit Facility, and the Atlantic Acquisition. The unaudited pro
forma condensed consolidated financial information gives effect to the MRCC
Acquisitions and the Atlantic Acquisition using the purchase method of
accounting and to the assumptions in the accompanying notes.
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1998 and statements of operations for the year ended December 31, 1997 and the
three months ended March 31, 1998 have been prepared by the Company based in
part on information provided by (i) Powertel, Inc. (formerly Intercel, Inc.) for
the period prior to the consummation of the MRCC Acquisitions on May 1, 1997 and
(ii) Atlantic. The related pro forma adjustments have been prepared by the
Company's management based on its assumptions and the best available information
provided by Powertel, Inc. and Atlantic.
The unaudited pro forma condensed consolidated financial data have been
prepared by the Company's management. The unaudited pro forma condensed
consolidated financial statements are not designed to represent and do not
represent what the Company's financial position or results of operations
actually would have been had the aforementioned transactions been completed as
of the date or the beginning of the period indicated, or to project the
Company's results of operations at any future date or for any future period.
The unaudited pro forma condensed consolidated financial data should be read
in conjunction with the consolidated financial statements and notes thereto
contained elsewhere in this Prospectus of Rural Cellular Corporation and
Subsidiaries, Atlantic Cellular Company, L.P. and Subsidiaries and Unity
Cellular System, Inc. and Subsidiary.
The WMC Acquisition is not included in the following unaudited pro forma
condensed consolidated financial data because the WMC Acquisition does not meet
the significant subsidiary criteria for presentation. As a result, the following
unaudited pro forma condensed consolidated financial data do not reconcile to
the sources and uses table or the pro forma capitalization of the Company as of
March 31, 1998. See "Use of Proceeds" and "Capitalization."
46
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
EXCHANGEABLE
MRCC PREFERRED
COMPANY ACQUISITIONS COMPANY STOCK PRO FORMA
HISTORICAL HISTORICAL (a) COMBINED OFFERING COMBINED
---------- -------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service......................................... $43,408 $ 4,337 $47,745 $ -- $ 47,745
Roamer.......................................... 9,475 348 9,823 -- 9,823
Equipment and other............................. 1,020 133 1,153 -- 1,153
---------- ------- -------- ------------ ---------
Total revenues................................ 53,903 4,818 58,721 -- 58,721
---------- ------- -------- ------------ ---------
OPERATING EXPENSES:
Network costs................................... 11,578 734 12,312 -- 12,312
Cost of equipment sales......................... 2,807 547 3,354 -- 3,354
Selling, general and administrative............. 25,225 2,199 27,424 -- 27,424
Depreciation and amortization................... 12,458 1,406(f) 13,864 -- 13,864
---------- ------- -------- ------------ ---------
Total operating expenses...................... 52,068 4,886 56,954 -- 56,954
---------- ------- -------- ------------ ---------
OPERATING INCOME (LOSS)........................... 1,835 (68) 1,767 -- 1,767
---------- ------- -------- ------------ ---------
OTHER INCOME (EXPENSE):
Interest expense................................ (6,065) (2,527)(h) (8,592) 8,454(i) (138)
Interest and dividend income.................... 232 -- 232 -- 232
Equity in earnings (losses) of unconsolidated
affiliates.................................... (350) -- (350) -- (350)
Minority interest............................... 3,082 -- 3,082 -- 3,082
Other........................................... -- -- -- -- --
---------- ------- -------- ------------ ---------
Other income (expense), net................... (3,101) (2,527) (5,628) 8,454 2,826
---------- ------- -------- ------------ ---------
NET INCOME (LOSS) (See Note k).................... (1,266) $(2,595) $(3,861) 8,454 4,593
------- --------
------- --------
PREFERRED STOCK DIVIDEND
REQUIREMENTS AND ACCRETION...................... -- (14,584)(i) (14,584)
---------- ------------ ---------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS............................. $(1,266) $ (6,130) $ (9,991)
---------- ------------ ---------
---------- ------------ ---------
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS.......................... $ (0.14) $ (0.69) $ (1.12)
---------- ------------ ---------
---------- ------------ ---------
NUMBER OF SHARES USED TO
COMPUTE PER SHARE DATA.......................... 8,853 8,853 8,853
---------- ------------ ---------
---------- ------------ ---------
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE NOTES
OFFERING, NEW
ATLANTIC (b) CREDIT
------------------------------------ FACILITY AND
PRO FORMA ATLANTIC PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ACQUISITION AS ADJUSTED
---------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service......................................... $45,087 $ 13,734(c) $28,299 $ -- $ 76,044
3,054(d)
Roamer.......................................... -- (11,102)(c) 11,184 -- 21,007
(82)(d)
Equipment and other............................. -- (2,632)(c) 2,582 -- 3,735
50(d)
---------- ----------- --------- ------------- -----------
Total revenues................................ 45,087 3,022 42,065 -- 100,786
---------- ----------- --------- ------------- -----------
OPERATING EXPENSES:
Network costs................................... 25,604 (19,273)(c) 5,902 -- 18,214
(429)(d)
Cost of equipment sales......................... -- 3,855(c) 3,636 -- 6,990
(219)(d)
Selling, general and administrative............. 4,079 15,418(c) 18,210 (2,578)(e) 43,056
(1,287)(d)
Depreciation and amortization................... 9,885 (518)(d) 9,367 337(g) 23,568
---------- ----------- --------- ------------- -----------
Total operating expenses...................... 39,568 (2,453) 37,115 (2,241) 91,828
---------- ----------- --------- ------------- -----------
OPERATING INCOME (LOSS)........................... 5,519 569 4,950 2,241 8,958
---------- ----------- --------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................ (4,170) 328(c) (4,498) (20,304)(j) (24,940)
Interest and dividend income.................... 201 201(d) -- -- 232
Equity in earnings (losses) of unconsolidated
affiliates.................................... 8 8(c) -- -- (350)
Minority interest............................... 152 152(d) -- -- 3,082
Other........................................... 28,669 (328)(c) -- -- --
28,997(d)
---------- ----------- --------- ------------- -----------
Other income (expense), net................... 24,860 29,358 (4,498) (20,304) (21,976)
---------- ----------- --------- ------------- -----------
NET INCOME (LOSS) (See Note k).................... $30,379 $ 29,927 $ 452 $(18,063) (13,018)
---------- ----------- --------- -------------
---------- ----------- --------- -------------
PREFERRED STOCK DIVIDEND
REQUIREMENTS AND ACCRETION...................... (14,584)
-----------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS............................. $(27,602)
-----------
-----------
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS.......................... $ (3.12)
-----------
-----------
NUMBER OF SHARES USED TO
COMPUTE PER SHARE DATA.......................... 8,853
-----------
-----------
</TABLE>
47
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
EXCHANGEABLE
COMPANY PREFERRED STOCK PRO FORMA
HISTORICAL OFFERING COMBINED
----------- --------------- -----------
<S> <C> <C> <C>
REVENUES:
Service.................................................................... $ 12,719 $ -- $ 12,719
Roamer..................................................................... 1,758 -- 1,758
Equipment and other........................................................ 320 -- 320
----------- ------- -----------
Total revenues........................................................... 14,797 -- 14,797
----------- ------- -----------
OPERATING EXPENSES:
Network costs.............................................................. 3,628 -- 3,628
Cost of equipment sales.................................................... 884 -- 884
Selling, general and administrative........................................ 6,590 -- 6,590
Depreciation and amortization.............................................. 4,219 -- 4,219
----------- ------- -----------
Total operating expenses................................................. 15,321 -- 15,321
----------- ------- -----------
OPERATING INCOME (LOSS)...................................................... (524) -- (524)
----------- ------- -----------
OTHER INCOME (EXPENSE):
Interest expense........................................................... (2,410) 2,140(i) (270)
Interest and dividend income............................................... 279 -- 279
Equity in earnings (losses) of unconsolidated affiliates................... (149) -- (149)
Minority interest.......................................................... 738 -- 738
Other...................................................................... -- -- --
----------- ------- -----------
Other income (expense), net.............................................. (1,542) 2,140 598
----------- ------- -----------
NET INCOME (LOSS) (See Note k)............................................... (2,066) 2,140 74
PREFERRED STOCK DIVIDEND
REQUIREMENTS AND ACCRETION................................................. -- (3,646)(i) (3,646)
----------- ------- -----------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS........................................................ $ (2,066) $ (1,506) $ (3,572)
----------- ------- -----------
----------- ------- -----------
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS..................................................... $ (.23) $ (.17) $ (.40)
----------- ------- -----------
----------- ------- -----------
NUMBER OF SHARES USED TO
COMPUTE PER SHARE DATA..................................................... 8,868 8,868 8,868
----------- ------- -----------
----------- ------- -----------
<CAPTION>
ATLANTIC (b)
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C>
REVENUES:
Service.................................................................... $ 11,773 $ 4,114(c) $ 7,659
Roamer..................................................................... -- (3,308)(c) 3,308
Equipment and other........................................................ -- (806)(c) 806
----------- ------------- -----------
Total revenues........................................................... 11,773 -- 11,773
----------- ------------- -----------
OPERATING EXPENSES:
Network costs.............................................................. 5,614 (4,044)(c) 1,570
Cost of equipment sales.................................................... -- 819(c) 819
Selling, general and administrative........................................ 897 3,225(c) 4,122
Depreciation and amortization.............................................. 2,482 (25)(d) 2,457
----------- ------------- -----------
Total operating expenses................................................. 8,993 (25) 8,968
----------- ------------- -----------
OPERATING INCOME (LOSS)...................................................... 2,780 (25) 2,805
----------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest expense........................................................... (718) 82(c) (800)
Interest and dividend income............................................... 48 48(d) --
Equity in earnings (losses) of unconsolidated affiliates................... -- -- (c) --
Minority interest.......................................................... 18 18(d) --
Other...................................................................... 182 (82)(c) --
264(d)
----------- ------------- -----------
Other income (expense), net.............................................. (470) 330 (800)
----------- ------------- -----------
NET INCOME (LOSS) (See Note k)............................................... $ 2,310 $ 305 $ 2,005
----------- ------------- -----------
----------- ------------- -----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS AND ACCRETION.................................................
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS........................................................
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS.....................................................
NUMBER OF SHARES USED TO
COMPUTE PER SHARE DATA.....................................................
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE NOTES
OFFERING, NEW
CREDIT
FACILITY AND
ATLANTIC PRO FORMA AS
ACQUISITION ADJUSTED
------------- -------------
REVENUES:
Service.................................................................... $ -- $ 20,378
Roamer..................................................................... -- 5,066
Equipment and other........................................................ -- 1,126
------------- -------------
Total revenues........................................................... -- 26,570
------------- -------------
OPERATING EXPENSES:
Network costs.............................................................. -- 5,198
Cost of equipment sales.................................................... -- 1,703
Selling, general and administrative........................................ (523)(e) 10,189
Depreciation and amortization.............................................. 84(g) 6,760
------------- -------------
Total operating expenses................................................. (439) 23,850
------------- -------------
OPERATING INCOME (LOSS)...................................................... 439 2,720
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense........................................................... (5,378)(j) (6,448)
Interest and dividend income............................................... -- 279
Equity in earnings (losses) of unconsolidated affiliates................... -- (149)
Minority interest.......................................................... -- 738
Other...................................................................... -- --
------------- -------------
Other income (expense), net.............................................. (5,378) (5,580)
------------- -------------
NET INCOME (LOSS) (See Note k)............................................... $ (4,939) (2,860)
-------------
-------------
PREFERRED STOCK DIVIDEND
REQUIREMENTS AND ACCRETION................................................. (3,646)
-------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS........................................................ $ (6,506)
-------------
-------------
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS..................................................... $ (.73)
-------------
-------------
NUMBER OF SHARES USED TO
COMPUTE PER SHARE DATA..................................................... 8,868
-------------
-------------
</TABLE>
48
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
EXCHANGEABLE
COMPANY PREFERRED PRO FORMA
HISTORICAL STOCK OFFERING COMBINED
----------- -------------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash....................................................................... $ 3,305 $ -- $ 3,305
Accounts receivable, net................................................... 8,504 -- 8,504
Inventories................................................................ 1,504 -- 1,504
Other current assets....................................................... 617 -- 617
----------- -------------- -----------
Total current assets..................................................... 13,930 -- 13,930
----------- -------------- -----------
PROPERTY AND EQUIPMENT, net.................................................. 83,237 -- 83,237
----------- -------------- -----------
INVESTMENTS AND OTHER ASSETS:
Licenses and other intangible assets, net.................................. 80,797 -- 80,797
Investments in unconsolidated affiliates................................... 938 -- 938
Restricted investments..................................................... 1,013 -- 1,013
Other assets, net.......................................................... 6,495 -- 6,495
----------- -------------- -----------
Total investments and other assets....................................... 89,243 -- 89,243
----------- -------------- -----------
Total assets............................................................. $ 186,410 $ -- $ 186,410
----------- -------------- -----------
----------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 8,082 $ -- $ 8,082
Advance billings and customer deposits..................................... 2,589 -- 2,589
Accrued interest........................................................... 1,702 -- 1,702
Other accrued expenses..................................................... 1,701 -- 1,701
----------- -------------- -----------
Total current liabilities................................................ 14,074 -- 14,074
LONG-TERM DEBT............................................................... 135,000 120,625(p) 14,375
----------- -------------- -----------
Total liabilities........................................................ 149,074 120,625 28,449
----------- -------------- -----------
MINORITY INTEREST............................................................ 5,478 -- 5,478
----------- -------------- -----------
EXCHANGEABLE PREFERRED STOCK................................................. -- (120,625)(p) 120,625
----------- -------------- -----------
SHAREHOLDERS' EQUITY......................................................... 31,858 -- 31,858
----------- -------------- -----------
Total liabilities and shareholders' equity............................... $ 186,410 $ -- $ 186,410
----------- -------------- -----------
----------- -------------- -----------
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE NOTES
OFFERING, NEW
ATLANTIC (b) CREDIT
----------------------------- FACILITY AND
PRO FORMA ATLANTIC
HISTORICAL ADJUSTMENTS PRO FORMA ACQUISITION
-- ------------ ----------- -------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................$1,010 $ (993) d) $ 17 $ (17)(l)
-- (m)
Accounts receivable, net...................................................3,624 -- 3,624 --
Inventories................................................................476 476 --
Other current assets.......................................................333 3,721(c) 412 --
(3,642)(d)
-- ------------ ----------- -------------
Total current assets.....................................................5,443 (914) 4,529 (17)
-- ------------ ----------- -------------
PROPERTY AND EQUIPMENT, net..................................................134,554 (104,865)(c) 29,689 --
-- ------------ ----------- -------------
INVESTMENTS AND OTHER ASSETS:
Licenses and other intangible assets, net..................................-- 104,865(c) 94,868 134,392(n)
(9,997)(d)
Investments in unconsolidated affiliates...................................300 (300)(d) -- --
Restricted investments.....................................................-- -- -- --
Other assets, net..........................................................1,556 -- 1,556 7,149(o)
(1,556)(l)
-- ------------ ----------- -------------
Total investments and other assets.......................................1,856 94,568 96,424 139,985
-- ------------ ----------- -------------
Total assets.............................................................$141,853 $ (11,211) $ 130,642 $ 139,968
-- ------------ ----------- -------------
-- ------------ ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...........................................................$21 $ (2,380)(c) $ 2,380 $ --
21(d)
Advance billings and customer deposits.....................................-- (536)(c) 536 --
Accrued interest...........................................................130 -- 130 130(l)
Other accrued expenses.....................................................1,274 (751) ) 1,789 44(l)
236(d)
-- ------------ ----------- -------------
Total current liabilities................................................1,425 (3,410) 4,835 174
LONG-TERM DEBT...............................................................38,011 -- 38,011 (228,958)(q)
-- ------------ ----------- -------------
Total liabilities........................................................39,436 (3,410) 42,846 (228,784)
-- ------------ ----------- -------------
MINORITY INTEREST............................................................7,519 7,519(d) -- --
-- ------------ ----------- -------------
EXCHANGEABLE PREFERRED STOCK.................................................-- -- -- --
-- ------------ ----------- -------------
SHAREHOLDERS' EQUITY.........................................................94,898 7,102(d) 87,796 88,816(r)
-- ------------ ----------- -------------
Total liabilities and shareholders' equity...............................$141,853 $ 11,211 $ 130,642 $ (139,968)
-- ------------ ----------- -------------
-- ------------ ----------- -------------
<CAPTION>
PRO FORMA AS
ADJUSTED
------------
ASSETS
CURRENT ASSETS:
Cash....................................................................... $ 3,305
Accounts receivable, net................................................... 12,128
Inventories................................................................ 1,980
Other current assets....................................................... 1,029
------------
Total current assets..................................................... 18,442
------------
PROPERTY AND EQUIPMENT, net.................................................. 112,926
------------
INVESTMENTS AND OTHER ASSETS:
Licenses and other intangible assets, net.................................. 310,057
Investments in unconsolidated affiliates................................... 938
Restricted investments..................................................... 1,013
Other assets, net.......................................................... 13,644
------------
Total investments and other assets....................................... 325,652
------------
Total assets............................................................. $ 457,020
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 10,462
Advance billings and customer deposits..................................... 3,125
Accrued interest........................................................... 1,702
Other accrued expenses..................................................... 3,446
------------
Total current liabilities................................................ 18,735
LONG-TERM DEBT............................................................... 281,344
------------
Total liabilities........................................................ 300,079
------------
MINORITY INTEREST............................................................ 5,478
------------
EXCHANGEABLE PREFERRED STOCK................................................. 120,625
------------
SHAREHOLDERS' EQUITY......................................................... 30,838
------------
Total liabilities and shareholders' equity............................... $ 457,020
------------
------------
</TABLE>
49
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions described
in the previous pages on the Company's unaudited pro forma condensed
consolidated financial data as of March 31, 1998 and for the year ended December
31, 1997 and the three months ended March 31, 1998, the following adjustments
have been made:
(a) Represents the results of operations of the MRCC Acquisitions for
the period prior to the MRCC Acquisitions from January 1, 1997 through April
30, 1997 and excludes assets and liabilities not acquired by the Company and
the related income and expenses, as provided for in the related purchase
agreements.
(b) The historical data is derived from the consolidated financial
statements of Atlantic Cellular Company, L.P. ("ACC") and Subsidiaries. In
the Atlantic Acquisition, the Company is acquiring substantially all the
assets of ACC and its subsidiary, Atlantic Cellular/New Hampshire RSA Number
One Limited Partnership ("ACNH"). The Company is not acquiring the
operations of ACC's other subsidiaries, ACC Cellular Holdings, L.P., ACC
Wireless, L.P. (including its investment in Michiana Partnership, L.P.),
Mountain Cellular, L.P., and ACC Wireless Holdings, L.P. (collectively, the
"Excluded Operations"). Pro forma adjustments represent the exclusion of the
assets and liabilities and related income and expenses of the Excluded
Operations and reflect the reclassifications as described in note (c) below.
(c) Represents reclassifications of certain assets, liabilities,
revenues and expenses to conform to the Company's historical consolidated
financial statement presentation.
(d) Reflects the exclusion of assets and liabilities and the related
income and expenses of the Excluded Operations.
(e) Reflects the elimination of corporate overhead expenses charged to
Atlantic that would not have been incurred by the Company which have been
offset by expenses expected to be incurred by the Company.
(f) Represents amortization of intangible assets over a composite life
of 33 years.
(g) Reflects (i) the elimination of historical amortization expense on
Atlantic intangible assets which were amortized over 25 years and (ii) the
resulting intangible assets from the Atlantic Acquisition which are being
amortized over an estimated 40 years for licenses and goodwill and 10 years
for subscriber lists.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------ -------------------
<S> <C> <C>
Elimination of historical Atlantic amortization...... $ (4,841) $ (1,210)
Amortization of intangible assets from Atlantic
Acquisition........................................ 5,178 1,294
------- -------
$ 337 $ 84
------- -------
------- -------
</TABLE>
(h) Represents (i) the incremental interest expense resulting from
borrowings under the Existing Credit Facility, (ii) the elimination of
historical interest expense under a loan agreement with St. Paul Bank for
Cooperatives, and (iii) the amortization of deferred financing costs over
eight years.
<TABLE>
<S> <C>
Interest expense related to borrowings under the Existing Credit
Facility.......................................................... $ 2,625
Elimination of historical interest expense.......................... (143)
Amortization of deferred financing costs............................ 45
---------
$ 2,527
---------
---------
</TABLE>
(i) Reflects (i) the issuance of $125,000 in liquidation preference of
Exchangeable Preferred Stock at an effective annual dividend rate of 11 3/8%
compounded quarterly, (ii) the accretion related to issuance fees and
50
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
represents the amount required to accrete the Exchangeable Preferred Stock
to its redemption value at the mandatory redemption date, and (iii) the
elimination of historical interest expense under the Existing Credit
Facility at a rate of 7.5%.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------ -------------------
<S> <C> <C>
Issuance of Exchangeable Preferred Stock............. $ 14,219 $ 3,555
Accretion of issuance fees........................... 365 91
------- -------
14,584 3,646
Elimination of historical interest expense........... (8,454) (2,140)
------- -------
$ 6,130 $ 1,506
------- -------
------- -------
</TABLE>
(j) Represents incremental interest expense related to:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------ -------------------
<S> <C> <C>
Issuance of Senior Subordinated Notes at 9 5/8%...... $ 12,031 $ 3,008
Borrowings under the New Credit Facility at 8%....... 11,948 2,987
Elimination of Atlantic historical interest expense.. (4,498) (587)
Elimination of historical interest expense under the
Existing Credit Facility........................... (138) (270)
Amortization of deferred financing costs over 8.5
years.............................................. 961 240
------- ------
$ 20,304 $ 5,378
------- ------
------- ------
</TABLE>
If the interest rate on the variable rate New Credit Facility were to change
by 1/8 of one percent, interest expense would change by approximately $187
for the year ended December 31, 1997 and $49 for the three months ended
March 31, 1998.
(k) The pro forma condensed consolidated statements of operations for
the year ended December 31, 1997 and the three months ended March 31, 1998
do not include a tax benefit related to the pro forma losses. Such losses
would be carried forward and their realization would be dependent upon
future taxable income.
(l) Reflects the exclusion of those assets and liabilities of ACC and
ACNH not being acquired by the Company in the Atlantic Acquisition and the
related income and expense, as provided for in the Atlantic Agreement.
(m) Represents the net adjustment to cash as a result of the following:
<TABLE>
<S> <C>
Issuance of Senior Subordinated Notes............................ $ 125,000
Borrowings under the New Credit Facility......................... 156,344
Completion of Atlantic Acquisition............................... (256,000)
Repayment of the Existing Credit Facility........................ (14,375)
Payment of deferred financing costs.............................. (8,169)
Payment of direct acquisition costs.............................. (2,800)
---------
$ --
---------
---------
</TABLE>
51
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
(n) The allocation of the total acquisition costs for Atlantic of $258.8
million (including related fees and expenses of $2.8 million) assumes that
the fair value of Atlantic's assets and liabilities equal their net book
value (which is management's best judgment at this time). Accordingly, the
net purchase consideration has been reflected as licenses and other
intangible assets as a result of the Atlantic Acquisition. The precise
allocation of the purchase price to the acquired assets and liabilities is
expected to be finalized by December 31, 1998.
(o) Represents the net adjustment to deferred financing costs as a
result of:
<TABLE>
<S> <C>
Issuance of Senior Subordinated Notes............................... $ 4,794
Borrowings under the New Credit Facility............................ 3,375
Write-off as a result of the early extinguishment of the Existing
Credit Facility................................................... (1,020)
---------
$ 7,149
---------
---------
</TABLE>
<TABLE>
<S> <C>
(p) Proceeds of the Exchangeable Preferred Stock, net of issuance
fees of $4,375.................................................. $ 120,625
---------
---------
</TABLE>
(q) Represents the net effect on long-term debt resulting from:
<TABLE>
<S> <C>
Issuance of Senior Subordinated Notes............................ $(125,000)
Borrowings under the New Credit Facility......................... (156,344)
Repayment of the Existing Credit Facility........................ 14,375
Elimination of Atlantic debt not assumed......................... 38,011
---------
$(228,958)
---------
---------
</TABLE>
(r) Represents the net adjustment to shareholders' equity as a result
of:
<TABLE>
<S> <C>
Elimination of partner capital in connection with the Atlantic
Acquisition...................................................... $ 87,796
Write-off of deferred financing costs associated with the early
extinguishment of the Existing Credit Facility................... 1,020
---------
$ 88,816
---------
---------
</TABLE>
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S AND ATLANTIC'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS A RESULT OF THE MRCC ACQUISITIONS AND
THE PENDING ACQUISITIONS, THE COMPANY'S OPERATING RESULTS FOR THE PERIODS
DISCUSSED MAY NOT BE INDICATIVE OF FUTURE PERFORMANCE.
THE COMPANY
GENERAL
The Company's revenues consist of charges to customers for cellular and
paging services, roamer revenues and equipment sales. Service revenues include
monthly access charges, charges for airtime used in excess of the time included
in the service package purchased, long distance charges derived from calls
placed by the Company's customers as well as cellular and paging equipment lease
revenues. Additional charges include activation and charges for such features as
voice mail, call waiting and call forwarding.
Roamer revenues consist of airtime, long distance and service fees charged
for providing service to customers of other cellular systems that place or
receive a call within the Company's cellular service area. The per minute rate
paid by a roamer, or the intercarrier exchange rate, is determined by an
agreement between the Company and the roamer's cellular carrier. The Company has
reciprocal agreements with cellular licensees in other cellular service areas
that allow the Company to provide service to its customers calling from or
receiving calls in these territories at favorable rates. The Company believes
that roamer revenues will continue to increase as a result of an increase in
both the number of roaming customers and roamer minutes of use as the cellular
industry matures. The Company believes these increases will more than offset an
expected decline in intercarrier exchange rates.
Equipment sales consist of cellular and paging equipment and accessory sales
to customers. Within certain markets, the Company rents equipment to customers
as an alternative to selling such cellular equipment. This program has reduced
equipment sales as a percentage of total revenues; however, the Company believes
its equipment rental policy enhances customer retention and market penetration,
reduces acquisition cost, and increases revenue per customer.
EBITDA increased 62.8% to $14.3 million in 1997 as compared to $8.8 million
in 1996. In 1997, the Company's cellular operations in Minnesota and Maine
generated $19.9 million in EBITDA, which was partially offset by Wireless
Alliance's negative EBITDA of $5.6 million due to the significant costs
associated with its initial customer growth. Industry analysts consider EBITDA a
meaningful measure of an entity's ability to meet long-term financial
obligations and growth in EBITDA a meaningful reflection of future
profitability, especially in a capital-intensive industry such as wireless
telecommunications.
EBITDA increased 129.9% to $3.7 million in the three months ended March 31,
1998 as compared to $1.6 million for the comparable period in 1997. In 1998, the
Company's cellular operations in Minnesota and Maine generated $4.8 million in
EBITDA, which was partially offset by Wireless Alliance's negative EBITDA of
$1.1 million due to the significant costs associated with its initial customer
growth. The Company expects that Wireless Alliance will continue to have
negative EBITDA in the remaining quarters of 1998.
WIRELESS ALLIANCE
In 1996, the Company and Aerial Communications formed a joint venture named
Wireless Alliance. See "Business -- General" and "Business -- Network Operations
- -- Wireless Alliance." Wireless Alliance is 51% owned by the Company and 49%
owned by Aerial Communications. The Company is responsible for managing Wireless
Alliance. As of March 31, 1998, the Company had invested $10.0 million in cash
in Wireless Alliance while Aerial Communications had contributed PCS licenses
valued at $9.6 million. In addition, as of March 31, 1998, the Company had
loaned Wireless Alliance $12.0 million, which is evidenced by a note receivable
and is eliminated in the Company's consolidated financial statements. Wireless
Alliance, which is treated as an
53
<PAGE>
Unrestricted Subsidiary under the documents governing the Securities, is
included in the Company's consolidated financial statements.
MRCC ACQUISITIONS
Effective May 1, 1997, the Company consummated the acquisition of the Maine
wireless telephone operations and related assets of Unity Cellular Systems, Inc.
("Unity") and related cellular and microwave licenses from InterCel, Inc. The
Company operates its Maine operations through a wholly-owned subsidiary, MRCC.
The acquired licenses cover the Bangor, Maine MSA and Maine RSA 3 (which
includes Augusta, the state capitol). In addition, the Company acquired Unity's
51% interest in Northern Maine Cellular Partnership, which holds a cellular
license for Maine RSA 2. The Company also acquired the remaining 49% interest in
Northern Maine Cellular Partnership from an unrelated third party. Headquartered
in Bangor, Maine, MRCC serves more than 33,000 wireless customers within a
20,500 square-mile service area that encompasses approximately 512,000 POPs.
HISTORICAL RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Service................................. 70.3% 75.9% 80.5% 83.0% 86.0%
Roamer.................................. 22.4 21.1 17.6 15.8 11.9
Equipment............................... 7.3 3.0 1.9 1.2 2.1
----- ----- ----- ----- -----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating expenses:
Network costs........................... 24.5 22.1 21.5 24.0 24.5
Cost of equipment sales................. 9.4 4.5 5.2 3.5 6.0
Selling, general, and administrative.... 37.9 44.6 46.8 53.2 44.5
Depreciation and amortization........... 16.0 18.2 23.1 23.6 28.5
----- ----- ----- ----- -----
Total operating expenses.............. 87.8 89.4 96.6 104.3 103.5
----- ----- ----- ----- -----
Operating income (loss)................... 12.2 10.6 3.4 (4.3) (3.5)
----- ----- ----- ----- -----
Other income (expense):
Interest expense........................ (6.7) (0.9) (11.3) (2.6) (16.3)
Interest and dividend income............ 1.4 1.1 0.4 0.8 1.9
Equity in earnings (losses) of
unconsolidated subsidiaries........... (0.2) 0.2 (0.6) 0.2 (1.0)
Minority interest....................... -- 1.1 5.7 5.4 5.0
----- ----- ----- ----- -----
Other income (expense), net........... (5.5) 1.5 (5.8) 3.8 (10.4)
----- ----- ----- ----- -----
Income (loss) before income taxes......... 6.7 12.1 (2.4) (0.5) (13.9)
Income tax provision...................... 2.8 0.7 -- -- --
----- ----- ----- ----- -----
Net income (loss)......................... 3.9% 11.4% (2.4)% 10.5% (13.9)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
EBITDA (1)................................ 28.2% 28.8% 26.5% 19.3% 25.0%
Adjusted EBITDA (1)....................... 28.2% 31.3% 42.7% 32.6% 39.6%
</TABLE>
- ------------------------
(1) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that should be
regarded as an alternative for other performance measures and should not be
considered in isolation.
54
<PAGE>
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and does not reflect all expenses of doing
business (e.g., interest expense, depreciation). Accordingly, EBITDA should
not be considered as having greater significance than or as an alternative
to net income or operating income as an indicator of operating performance
or to cash flows as a measure of liquidity. Moreover, "EBITDA," as used
herein, may differ from "Operating Cash Flow," as used in calculating the
covenants set forth in the documents governing the Securities. See
"Description of Senior Subordinated Notes -- Certain Definitions,"
"Description of Exchangeable Preferred Stock and Exchange Debentures --
Exchangeable Preferred Stock -- Certain Definitions" and "Description of
Exchangeable Preferred Stock and Exchange Debentures -- Exchange Debentures
-- Certain Definitions." Adjusted EBITDA represents EBITDA excluding
Wireless Alliance's EBITDA. Wireless Alliance is an Unrestricted Subsidiary
under the documents governing the Securities. Adjusted EBITDA margin
represents Adjusted EBITDA divided by revenues of the Company (excluding
Wireless Alliance revenues).
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES
Service revenues for the three months ended March 31, 1998 increased 84.1%
to $12.7 million from $6.9 million for the comparable period in 1997. This
growth was primarily due to the increase in the number of customers, primarily
as a result of the MRCC Acquisitions, partially offset by a decrease of 11.9% in
the average revenue per customer. The rate at which new customers were added to
existing markets decreased to 2.9% in 1998 from 10.5% in 1997. There were no
markets acquired during the first quarter of 1998 or 1997. During the three
months ended March 31, 1998, Wireless Alliance generated service revenues of
$2.7 million.
Roamer revenues for the three months ended March 31, 1998 increased 33.5% to
$1.8 million from $1.3 million for the comparable period in 1997. Roamer
revenues have increased due to the activation of additional cell sites and
acquisitions of new service areas. As a result of the inclusion of MRCC during
the first quarter of 1998, roamer revenues as a percentage of cellular revenues
(excluding equipment sales and the impact of Wireless Alliance) declined to
15.0% from 17.8% when compared to 1997. Wireless Alliance had no roamer revenues
in either 1998 or 1997 because it was exclusively engaged in reselling cellular
services. The Company expects Wireless Alliance to generate roamer revenues in
the third and fourth quarters of 1998.
OPERATING EXPENSES
Network costs include switching and transport expenses and the expenses
associated with the maintenance and operation of the Company's wireless network
facilities, as well as charges from other service providers for resold minutes
and services. Network costs for the three months ended March 31, 1998, increased
81.4% to $3.6 million from $2.0 million for the comparable period in 1997, and
increased as a percentage of total revenues to 24.5% in 1998 from 24.0% in 1997.
The increase in network costs resulted primarily from expenses incurred by
Wireless Alliance and MRCC, which more than offset network cost reductions in
the Company's Minnesota operations. Contributing to the reduction of network
costs in the Minnesota service area was the completed installation of the
Company's MTSO in the third quarter of 1997, thereby reducing the Company's
network costs for switching services provided by Switch 2000, LLC, an
unconsolidated affiliate. Network costs for Wireless Alliance increased to $2.1
million for the three months ended March 31, 1998 from $647,000 in 1997. The
increase is attributed to additional network costs associated with increased
customers.
Selling, general, and administrative ("SG&A") expenses include salaries,
benefits, and operating expenses such as marketing, commissions, customer
support, accounting, administration, and billing. SG&A expenses for the three
months ended March 31, 1998 increased 48.9% to $6.6 million from $4.4 million
for the comparable period in 1997. The increase in SG&A over the prior year
resulted primarily from additional costs related to MRCC and a $682,000 increase
in costs of Wireless Alliance. As a percentage of total revenue, SG&A decreased
to 44.5% in 1998 from 53.2% in 1997 reflecting economies gained through the
acquisition of MRCC and Wireless Alliance.
Depreciation and amortization expense for three months ended March 31, 1998
increased 115.0% to $4.2 million from $2.0 million for the comparable period in
1997. The increase reflects the Company's continued
55
<PAGE>
construction and acquisition efforts and its investments in network facilities,
including the Company's newly installed MTSO, and rental equipment.
For the three months ended March 31, 1998, the average acquisition cost per
cellular customer, excluding Wireless Alliance customers, was $444 as compared
to $389 in 1997. The increase resulted primarily from higher acquisition costs
in MRCC and increased depreciation on the Company's rental telephones.
OTHER INCOME (EXPENSE)
Interest expense for the three months ended March 31, 1998 increased to $2.4
million from $215,000 for the comparable period in 1997. The increase in
interest expense was a result of higher average borrowings under the Existing
Credit Facility to finance the MRCC Acquisitions, the construction of 15 cell
sites during the second and third quarter of 1997 and for the Company's cellular
network and other growth initiatives. Other income also includes the minority
interest in losses of Wireless Alliance.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Service revenues for 1997 increased 87.8% to $43.4 million from $23.1
million in 1996. This growth was primarily due to the increase in the number of
customers partially offset by a decrease of 16.7% in the average revenue per
customer. Customer growth in existing markets accounted for approximately 25% of
the increase in customers while newly acquired or developing markets accounted
for the other 75%. Newly acquired or developing markets include customers gained
through the MRCC Acquisitions and the formation of Wireless Alliance. In 1997,
Wireless Alliance generated service revenues of $7.3 million.
Roamer revenues for 1997 increased 47.7% to $9.5 million from $6.4 million
in 1996. Roamer revenues have increased due to the activation of additional cell
sites and acquisitions of new service areas. Roamer revenues as a percentage of
total revenues (excluding equipment sales and the impact of Wireless Alliance)
declined modestly from 21.9% to 20.8% when compared to 1996. Wireless Alliance
had no roamer revenues in either 1996 or 1997 because it was exclusively engaged
in reselling cellular services. The Company expects Wireless Alliance to have
roamer revenues in 1998.
OPERATING EXPENSES
Network costs for 1997, which increased 72.0% to $11.6 million from $6.7
million in 1996, improved as a percentage of total revenues from 22.1% in 1996
to 21.5% in 1997. The increase in network costs resulted primarily from expenses
incurred by Wireless Alliance and MRCC, which more than offset network cost
reductions in the Company's Minnesota cellular operations. Contributing to the
reduction of network costs in the Minnesota service area was the substantial
completion in late 1996 of the digital microwave network, which reduced the
Company's reliance on third-party assistance in connecting cell site
communication to the MTSO. In addition, the Company completed installation of
its own MTSO in the third quarter of 1997, thereby reducing the Company's
network costs for switching services provided by Switch 2000, Inc., an
unconsolidated affiliate. Network costs for Wireless Alliance increased to $6.0
million in 1997 from $220,000 in 1996. The increase is attributable to
additional network costs associated with increased customers.
SG&A expenses for 1997 increased 85.8% to $25.2 million from $13.6 million
in 1996. The increase in SG&A over the prior year results primarily from
additional costs from MRCC and a $6.2 million increase in costs of Wireless
Alliance.
Depreciation and amortization expense for 1997 increased 124.9% to $12.5
million from $5.5 million in 1996. The increase reflects the Company's continued
construction and acquisition efforts and its investments in network facilities,
including the Company's newly installed MTSO, and rental equipment. Contributing
to the increase was the depreciation relating to the construction of 15
additional cell sites and the acquisition of 35 cell sites in Maine.
56
<PAGE>
In addition, the Company shortened the depreciation life from three years to two
years for new rental telephones placed in service during 1997.
In 1997, the average acquisition cost per cellular customer, excluding
Wireless Alliance customers, was $403 as compared to $307 in 1996. The increase
resulted primarily from higher acquisition costs for MRCC and increased
depreciation on the Company's rental telephones in 1997.
OTHER INCOME (EXPENSE)
Interest expense for 1997 increased to $6.1 million from $281,000 in 1996.
The increase in interest expense was a result of higher average borrowings under
the Existing Credit Facility to finance the MRCC Acquisitions, the construction
of 15 cell sites for the Company's cellular network and other growth
initiatives. Other income also includes an increase in 1997 in the minority
interest in losses of Wireless Alliance.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES
Service revenues for 1996 increased 61.8% to $23.1 million from $14.3
million in 1995, resulting primarily from a 68.5% increase in the number of
cellular customers, partially offset by a decrease of 4.3% in the corresponding
average revenue per cellular customer. The Company achieved this growth through
the implementation of customer sales and service strategies and by adherence to
network service quality standards.
Roamer revenues for 1996 increased 40.6% to $6.4 million from $4.6 million
in 1995. This increase was primarily due to a 138.8% increase in the number of
roamer minutes, partially offset by a reduction in intercarrier exchange rates.
OPERATING EXPENSES
Network costs for 1996 increased 35.3% to $6.7 million from $5.0 million in
1995 and declined as a percentage of total revenues to 22.1% from 24.5%. The
increased expenses reflect expenses from new cell sites that were added during
1995 and 1996 and increased network usage.
SG&A expenses for 1996 increased 76.3% to $13.6 million from $7.7 million
and, expressed as a percentage of total revenues, increased to 44.6% from 37.9%
in 1995. The increases were due primarily to increased commissions paid as a
result of the Company's marketing and promotional strategies, additional
employees and incremental wage and benefit increases.
Depreciation and amortization expenses for 1996 increased 70.5% to $5.5
million from $3.2 million in 1995. The increase was primarily due to continued
expenditures for network facilities and new rental telephones placed into
service during 1996.
OTHER INCOME (EXPENSE)
Interest expense for 1996 decreased 79.4% to $281,000 from $1.4 million in
1995 as a result of the repayment of indebtedness with proceeds from the
Company's initial public offering in February 1996. Other income also includes
the minority interest in losses of Wireless Alliance during 1996.
INCOME TAX PROVISION
The Company's effective tax rate in 1996 was lower than the statutory rate
because of the utilization of net operating loss carryforwards. The provision
for income taxes for the year ended December 31, 1996 resulted from federal and
state alternative minimum tax.
57
<PAGE>
ATLANTIC OPERATIONS
The following discussion and analysis is based upon information obtained
from Atlantic and reflects the Company's current understanding of Atlantic,
which the Company has not yet acquired.
GENERAL
Atlantic's RSAs and MSA cover a contiguous geographic area with
approximately 1.11 million POPs. Total cellular customers increased 21.3% to
70,492 as of March 31, 1998 from 58,129 as of March 31, 1997. Total cellular
customers increased 23.9% to 68,164 as of December 31, 1997 as compared to
55,009 as of December 31, 1996. Average monthly revenue per customer increased
to $53 for the three months ended March 31, 1998 from $52 in the comparable
period of 1997 due to increased usage as a result of extreme weather conditions.
Offsetting the impact of increased cellular customers for the year ended
December 31, 1997 was a decrease in the average monthly revenue per customer
from approximately $58 in 1996 to approximately $53 in 1997. The decrease in
average monthly revenue per customer reflects an industry wide trend of adding
lower use customers, who use cellular service for personal convenience, security
or as an alternative communications resource for their traditional landline
telephone service.
EBITDA increased 82.0% to $5.3 million for the three months ended March 31,
1998 as compared to $2.9 million in the comparable period of 1997 and includes
an allocation of corporate overhead of $899,000 for the three months ended March
31, 1998 and $728,000 for the comparable period of 1997. EBITDA increased 39.0%
to $14.3 million in 1997 as compared to $10.3 million in 1996 and includes an
allocation of corporate overhead of $4.1 million in 1997 and $3.0 million in
1996.
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Service................................. 64.4% 67.7% 67.3% 69.8% 65.1%
Roamer.................................. 30.8 27.9 26.6 24.8 28.1
Equipment and other..................... 4.8 4.4 6.1 5.4 6.8
----- ----- ----- ----- -----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating expenses:
Network costs........................... 13.5 11.3 14.0 13.9 13.3
Costs of equipment sales................ 13.2 11.1 8.6 10.4 7.0
Selling, general, and administrative.... 49.3 47.8 43.3 44.3 35.0
Depreciation and amortization........... 30.3 25.8 22.3 26.7 20.9
----- ----- ----- ----- -----
Total operating expenses.............. 106.3 96.0 88.2 95.3 76.2
----- ----- ----- ----- -----
Operating income (loss)................... (6.3)% 4.0% 11.8% 4.7% 23.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
EBITDA (1)................................ 23.9% 29.8% 34.0% 31.3% 44.7%
</TABLE>
- ------------------------
(1) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that should be
regarded as an alternative for other performance measures and should not be
considered in isolation. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and does not
reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA
58
<PAGE>
should not be considered as having greater significance than or as an
alternative to net income or operating income as an indicator of operating
performance or to cash flows as a measure of liquidity. Moreover, "EBITDA,"
as used herein, may differ from "Operating Cash Flow," as used in
calculating the covenants set forth in the documents governing the
Securities. See "Description of Senior Subordinated Notes -- Certain
Definitions," "Description of Exchangeable Preferred Stock and Exchange
Debentures -- Exchangeable Preferred Stock -- Certain Definitions" and
"Description of Exchangeable Preferred Stock and Exchange Debentures --
Exchange Debentures -- Certain Definitions."
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES
Service revenues for the three months ended March 31, 1998 increased 18.7%
to $7.7 million from $6.5 million for the comparable period in 1997. The
increase in service revenues resulted from a 21.3% increase in the number of
cellular customers to 70,492 in 1998 from 58,129 in 1997, combined with an
increase of 1.9% in the average revenue per customer.
Roamer revenues for the three months ended March 31, 1998 increased 44.3% to
$3.3 million from $2.3 million for the comparable period in 1997. Roamer
revenues increased as a result of the activation of additional cell sites and a
46.6% increase in roaming minutes from 2.0 million in 1997 to 3.0 million in
1998.
Equipment and other revenues for the three months ended March 31, 1998
increased 61.2% to $806,000 from $500,000 in 1997, reflecting a $284,000
increase in long distance service revenues.
OPERATING EXPENSES
Network costs include switching and transport expenses and the expenses
associated with the maintenance and operation of Atlantic cellular network
facilities and long distance service. Network costs for the three months ended
March 31, 1998, increased 21.8% to $1.6 million from $1.3 million in 1997. The
increased expenses reflect additional operating expenses from new cell sites
that were added during 1998, higher total variable costs resulting from
increased network usage and increased costs to support long distance services.
SG&A expenses for the three months ended March 31, 1998 remained unchanged
at $4.1 million when compared to the comparable period in 1997. As a percentage
of total revenues, SG&A decreased to 35.0% in 1998 from 44.3% in 1997. The
moderate change reflects decreased spending within the sales and marketing
division of Atlantic offset by an increase in corporate overhead.
Depreciation and amortization expense for the three months ended March 31,
1998 remained unchanged at $2.5 million as compared to the comparable period in
1997.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Service revenues for 1997 increased 21.2% to $28.3 million from $23.4
million in 1996. The increase in service revenues resulted from a 23.9% increase
in the number of cellular customers from 55,009 in 1996 to 68,164 in 1997 and
was partially offset by a decrease of 8.6% in the average revenue per customer.
Roamer revenues for 1997 increased 16.0% to $11.2 million from $9.6 million
in 1996. Roamer revenues increased as a result of the activation of additional
cell sites and a 22.9% increase in roaming minutes from 7.8 million in 1996 to
9.6 million in 1997.
Equipment and other revenues increased 71.3% from $1.5 million in 1996 to
$2.6 million in 1997, reflecting a $1.2 million increase in long distance
service revenues.
59
<PAGE>
OPERATING EXPENSES
Network costs for 1997 increased 51.6% to $5.9 million from $3.9 million in
1996. The increased expenses reflect additional operating expenses from new cell
sites that were added during 1997, higher total variable costs resulting from
increased network usage and increased costs to support long distance services.
SG&A expenses increased 10.5% from $16.5 million in 1996 to $18.2 million in
1997. However, as a percentage of total revenues, SG&A decreased from 47.8% in
1996 to 43.3% in 1997. The increase primarily reflects higher corporate overhead
charged to Atlantic by its affiliate, Atlantic Cellular Management Company, and
increased customer service costs.
Depreciation and amortization expense for 1997 increased 5.0% to $9.4
million as compared to $8.9 million in 1996. The increased depreciation resulted
from the construction of cell sites in 1996 and 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES
Service revenues for 1996 increased 37.8% to $23.4 million as compared to
$16.9 million in 1995. This increase primarily resulted from a 38.5% increase in
the number of cellular customers from 39,715 in 1995 to 55,009 in 1996, which
was partially offset by a decrease of 7.9% in the average revenue per customer.
Roamer revenues for 1996 increased 19.1% to $9.6 million from $8.1 million
in 1995. This increase was primarily due to the activation of additional cell
sites and a 30.8% increase in roamer minutes, partially offset by a reduction in
intercarrier exchange rates.
OPERATING EXPENSES
Network costs for 1996 increased 9.6% to $3.9 million from $3.6 million in
1995. However, network costs decreased as a percentage of revenues from 13.5% in
1995 to 11.3% in 1996, reflecting greater operating leverage. The increased
expenses reflect additional operating expenses from new cell sites that were
added during 1996 and higher total variable costs resulting from increased
network usage.
SG&A expenses increased 27.0% to $16.5 million from $13.0 million in 1995.
The increase over the prior year resulted primarily from higher costs associated
with the increase in customers during the year.
Depreciation and amortization expenses for 1996 increased 11.9% to $8.9
million from $8.0 million in 1995. The increase reflects Atlantic's continued
investment in network facilities.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary liquidity requirements have been for
working capital, capital expenditures, debt service and customer growth. These
requirements have been met through cash flow from operations and borrowings
under the Existing Credit Facility. As of March 31, 1998, the Company had $135
million outstanding under its $160 million Existing Credit Facility. The Company
used the $120.6 million net proceeds from the Exchangeable Preferred Stock
Offering to repay outstanding borrowings under the Existing Credit Facility. If
the Atlantic Acquisition is not consummated, the Existing Credit Facility will
remain in place and the unused portion thereof, all of which is expected to be
available, together with the net proceeds from the Exchangeable Preferred Stock
Offering, will be sufficient to satisfy the Company's liquidity requirements for
the foreseeable future, including financing the WMC Acquisition. Following the
closing of the Pending Acquisitions, the Company's primary liquidity
requirements are expected to be for working capital; debt service under the New
Credit Facility and the Senior Subordinated Notes; cash interest, if any, on the
Exchange Debentures, if issued; cash dividends, if any, on the Exchangeable
Preferred Stock, and funding customer growth.
Coincident with the signing of the purchase agreements for the Pending
Acquisitions, the Company received a commitment from an affiliate of TD
Securities (USA) Inc. to replace the $160 million Existing Credit Facility with
a $450 million New Credit Facility, which will be sufficient to close the
Pending Acquisitions, to refinance certain
60
<PAGE>
indebtedness, to pay related fees and expenses and provide additional liquidity.
Concurrent with the closing of the Atlantic Acquisition, the Company intends to
reduce the size of the New Credit Facility to $300 million.
The Company plans to use the proceeds from the Notes Offering and borrowings
under the New Credit Facility to finance the $263.5 million purchase prices of
the Pending Acquisitions, refinance the remaining indebtedness under the
Existing Credit Facility, and pay related fees and expenses. If the Atlantic
Acquisition does not close on or before September 11, 1998, the Company will
make an offer to repurchase the Senior Subordinated Notes at a price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to, but excluding, the date of repurchase. Pending the closing of the
Atlantic Acquisition, all net proceeds of the Notes Offering will be held by the
Company in a segregated account, except that such proceeds may be used to repay
indebtedness under the Existing Credit Facility, subject to certain conditions.
See "Use of Proceeds." The remaining funds required to fund the Pending
Acquisitions will be provided by borrowings under the New Credit Facility. The
Exchangeable Preferred Stock will not be subject to repurchase if the Atlantic
Acquisition does not close. See "Description of Other Indebtedness" for a
summary of the terms of the Credit Facility.
If the Pending Acquisitions are consummated, the Company expects capital
expenditures for the remainder of 1998 to be approximately $38.2 million
(including approximately $16.7 million for Wireless Alliance). Capital
expenditures for existing Wireless Systems (including Wireless Alliance) are
expected to be approximately $28.0 million during the remainder of 1998. Capital
expenditures and debt service are expected to be funded through internally
generated cash flows and, if necessary, borrowings under the New Credit
Facility. The Company believes that it will have adequate capital resources to
satisfy all its liquidity requirements for at least the next twelve months.
OTHER MATTERS
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's operations.
YEAR 2000
The Company has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit fields to
designate a year. When the century date occurs, date-sensitive systems may
recognize the year 2000 as 1900 or not at all. This inability to recognize or
properly treat the year 2000 may cause systems to process critical financial and
operational information incorrectly.
During 1997, the Company did not incur any cost to modify existing computer
systems and applications and estimates that approximately $600,000 will be
incurred in 1998 and 1999 to address this issue. The Company plans to devote the
necessary resources to resolve all significant Year 2000 issues in a timely
manner. If Year 2000 modifications are not properly completed either by the
Company or any of the entities with whom the Company conducts business, the
Company could be adversely affected. See "Risk Factors -- Year 2000."
SEASONALITY
The Company experiences seasonal fluctuations in revenues and operating
income (loss). The Company, and the wireless communications industry in general,
have historically experienced significant customer growth during the fourth
calendar quarter. Accordingly, during such periods the Company experiences
greater losses on equipment sales and increases in sales and marketing expenses.
In addition, the Company's financial performance during the first calendar
quarter has been negatively affected by reduced minutes of use and roamer
revenues. The Company's average monthly revenue per cellular customer has
historically increased during the second and third calendar quarters. This
increase reflects greater usage by the Company's cellular customers and roamers
who travel in the Company's cellular service area for weekend and vacation
recreation or work in seasonal industries, such as agriculture and construction.
Because the Company's cellular service area includes many seasonal recreational
areas, the Company expects that roamer revenues will continue to fluctuate
seasonally to a greater degree than service revenues.
61
<PAGE>
Certain unaudited quarterly results of the Company for 1997 and 1996 are set
forth below:
<TABLE>
<CAPTION>
1997 QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
(IN THOUSANDS, EXCEPT AVERAGE MONTHLY REVENUE PER
CUSTOMER)
<S> <C> <C> <C> <C>
Total revenues............................. $ 8,322 $ 13,326 $ 16,748 $ 15,507
Operating income (loss).................... (355) 511 1,782 (103)
EBITDA (1)................................. 1,608 3,438 5,429 3,818
Adjusted EBITDA (1)........................ 2,469 4,698 7,233 5,460
Average monthly revenue per customer....... 52 58 61 50
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT AVERAGE MONTHLY REVENUE PER
CUSTOMER)
<S> <C> <C> <C> <C>
Total revenues.............................. $ 5,682 $ 7,446 $ 9,046 $ 8,287
Operating income (loss)..................... (252) 896 2,354 242
EBITDA (1).................................. 718 2,206 3,854 2,001
Adjusted EBITDA (1)......................... 718 2,206 3,854 2,672
Average monthly revenue per customer........ 59 68 77 62
</TABLE>
- ------------------------
(1) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that should be
regarded as an alternative for other performance measures and should not be
considered in isolation. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and does not
reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA should not be considered as having
greater significance than or as an alternative to net income or operating
income as an indicator of operating performance or to cash flows as a
measure of liquidity. Moreover, "EBITDA," as used herein, may differ from
"Operating Cash Flow," as used in calculating the covenants set forth in the
documents governing the Securities. See "Description of Senior Subordinated
Notes -- Certain Definitions," "Description of Exchangeable Preferred Stock
and Exchange Debentures -- Exchangeable Preferred Stock -- Certain
Definitions" and "Description of Exchangeable Preferred Stock and Exchange
Debentures -- Exchange Debentures -- Certain Definitions." Adjusted EBITDA
represents EBITDA excluding Wireless Alliance's EBITDA. Wireless Alliance is
an Unrestricted Subsidiary under the documents governing the Securities.
Adjusted EBITDA margin represents Adjusted EBITDA divided by revenues of the
Company (excluding Wireless Alliance revenues).
FORWARD-LOOKING INFORMATION
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. See
"Forward-Looking Statements" for a discussion of certain qualifications
regarding such statements.
62
<PAGE>
BUSINESS
GENERAL
The Company provides wireless communications services through its ownership,
operation and management of Wireless Systems. These Wireless Systems are
concentrated in the Upper Midwest and New England regions of the United States
with a focus on RSAs and small MSAs, which the Company believes are subject to
less competition due to lower population density and provide greater opportunity
for customer growth due to lower penetration relative to major markets. The
Company's existing Wireless Systems are comprised of geographic areas with
approximately 1.86 million total POPs, including 636,000 cellular POPs in
Minnesota, 512,000 cellular POPs in Maine, and 708,000 managed POPs in
Minnesota, North Dakota, South Dakota and Wisconsin served by Wireless Alliance.
The Company believes that clustering its wireless operations allows it to
achieve operating and cost efficiencies as well as substantial marketing
benefits. The Company's markets generally are characterized by a concentration
of small businesses, vacation destinations, and, given the distance between
population centers, substantial travel time, particularly on interstate
highways, which support strong wireless usage and result in significant roamer
revenues. As of March 31, 1998, the Company's existing Wireless Systems provided
service to approximately 114,000 customers, which included approximately 18,000
customers of Wireless Alliance and 9,000 paging customers. The Pending
Acquisitions, which will expand the Company's existing cluster in New England,
will bring the Company's total POPs to approximately 3.05 million and increase
the number of the Company's wireless customers as of March 31, 1998 to
approximately 187,000, on a pro forma basis. The Company intends to seek
additional opportunities to further expand its existing clusters and, where
appropriate, pursue the acquisition of new clusters with similar demographics
and operating characteristics. The Company is currently engaged in preliminary
discussions concerning possible strategic alliances and acquisitions of
additional Wireless Systems, but there can be no assurance that the Company will
pursue or be successful in these endeavors.
For the year ended December 31, 1997, the Company reported revenue and
EBITDA of $53.9 million and $14.3 million, respectively (including 100% of
Wireless Alliance's revenues of $7.3 million and negative EBITDA of $5.6
million). After giving effect to the Atlantic Acquisition, the MRCC Acquisitions
and the Offerings and the application of the net proceeds therefrom, as if they
had occurred on January 1, 1997, pro forma adjusted revenues and Adjusted EBITDA
(which adjustments exclude the impact of Wireless Alliance because it is an
Unrestricted Subsidiary under the documents governing the Securities) would have
been $93.5 million and $38.1 million, respectively, for the year ended December
31, 1997. The resulting pro forma ratios, as of December 31, 1997, of total
Indebtedness to Adjusted EBITDA and total Indebtedness and preferred stock to
Adjusted EBITDA would have been 7.2 times and 10.4 times, respectively.
For the three months ended March 31, 1998, the Company reported revenue and
EBITDA of $14.8 million and $3.7 million, respectively (including 100% of
Wireless Alliance's revenues of $2.7 million and negative EBITDA of $1.1
million). After giving effect to the Atlantic Acquisition and the Offerings and
the application of the net proceeds therefrom, as if they had occurred on
January 1, 1998, pro forma adjusted revenues and Adjusted EBITDA (which
adjustments exclude the impact of Wireless Alliance because it is an
Unrestricted Subsidiary under the documents governing the Securities) would have
been $23.9 million and $10.7 million, respectively, for the three months ended
March 31, 1998. The resulting pro forma ratios, as of March 31, 1998, of total
Indebtedness to Adjusted EBITDA and total Indebtedness and preferred stock to
Adjusted EBITDA would have been 26.7 times and 38.1 times, respectively.
The Company was founded in 1990 and commenced operations effective April 1,
1991, following the merger into the Company of five partnerships, each holding a
cellular license for a specific RSA. In February 1996, the Company completed an
initial public offering of 2,869,863 shares of its Class A Common Stock and
received net proceeds of approximately $26.0 million. The Company has the
following wholly-owned subsidiaries in addition to its 51% interest in the
Wireless Alliance joint venture: RCC Licenses, Inc. (a Minnesota corporation);
RCC Paging, Inc. (a Minnesota corporation); RCC Network, Inc. (a Minnesota
corporation); RCC Atlantic Long Distance, Inc. (a Minnesota corporation); RCC
Atlantic, Inc. (a Minnesota corporation); and MRCC, Inc. (a Maine corporation).
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In 1996, the Company extended its wireless communications footprint in its
Upper Midwest cluster through the formation of Wireless Alliance with Aerial
Communications. Wireless Alliance expects its PCS network, which utilizes the
GSM technology platform, to be fully operational in late 1998. Wireless Alliance
recently began to market its PCS services in Fargo, North Dakota; Moorhead,
Minnesota; Duluth, Minnesota; Hibbing, Minnesota; Virginia, Minnesota; and
Superior, Wisconsin. Prior to the launch of its PCS network, Wireless Alliance
initiated a cellular resale program, which has focused on establishing
relationships with wireless agents and resale customers in its PCS service area.
The Company intends to integrate its cellular and PCS networks to provide
seamless wireless communications services to its customers. The Company believes
that the introduction of dual-mode phones will allow for use of a single
telephone number in both PCS and cellular networks, thus creating seamless
integrated wireless communications services throughout its entire coverage area.
The dual-mode phone handset is expected to be available in mid-1998.
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WIRELESS MARKETS AND SYSTEMS
The following chart summarizes the Company's existing Wireless Systems and
the systems covered by the Pending Acquisitions:
<TABLE>
<CAPTION>
DATE OF
CLUSTER SERVICE AREAS OWNERSHIP TOTAL POPS ACQUISITION
- ----------------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
UPPER MIDWEST CLUSTER
CELLULAR (1)
Minnesota RSA 1...................................................... 100% 50,000 4/1/91
Minnesota RSA 2...................................................... 100% 64,000 4/1/91
Minnesota RSA 3...................................................... 100% 59,000 4/1/91
Minnesota RSA 5...................................................... 100% 206,000 4/1/91
Minnesota RSA 6...................................................... 100% 257,000 4/1/91
-----------
Total Upper Midwest Cellular POPs.................................. 636,000
-----------
PCS (2)
DULUTH, MINNESOTA/SUPERIOR, WISCONSIN:
Cook, Lake, St. Louis and Carlton (portion) Counties in Minnesota
and Douglas County in Wisconsin.................................. 51% 270,000 4/10/97
FARGO, NORTH DAKOTA/MOORHEAD, MINNESOTA:
Cass and Trail Counties in North Dakota and Clay County in
Minnesota........................................................ 51% 175,000 4/10/97
GRAND FORKS, NORTH DAKOTA:
Grand Forks County in North Dakota and Polk County in Minnesota.... 51% 102,000 4/10/97
SIOUX FALLS, SOUTH DAKOTA:
Minnehaha and Lincoln Counties in South Dakota..................... 51% 161,000 1/19/98
-----------
Total Upper Midwest PCS POPs..................................... 708,000
-----------
TOTAL UPPER MIDWEST POPS:.............................................. 1,344,000
-----------
NEW ENGLAND CLUSTER
CELLULAR (1)
MRCC:
Maine, Bangor MSA.................................................. 100% 143,000 5/1/97
Maine RSA 2........................................................ 100% 148,000 5/1/97
Maine RSA 3........................................................ 100% 221,000 5/1/97
-----------
Total MRCC POPs.................................................. 512,000
-----------
ATLANTIC:
Massachusetts RSA 1................................................ 100% 71,000 Pending
New Hampshire RSA 1................................................ 100% 223,000 Pending
New York RSA 2..................................................... 100% 226,000 Pending
Vermont, Burlington MSA............................................ 100% 148,000 Pending
Vermont RSA 1...................................................... 100% 210,000 Pending
Vermont RSA 2...................................................... 100% 232,000 Pending
-----------
Total Atlantic POPs.............................................. 1,110,000
-----------
WMC:
Maine RSA 1........................................................ 100% 83,000 Pending
-----------
TOTAL NEW ENGLAND POPS:................................................ 1,705,000
-----------
TOTAL POPS:............................................................ 3,049,000
-----------
-----------
</TABLE>
Source: 1990 census, updated for July 1, 1997 estimate of the U.S. Census
Bureau
- ------------------------
(1) The Company's Minnesota and Maine (including WMC) cellular licenses are
Wireline Cellular Licenses and the Atlantic cellular licenses are
Non-Wireline Cellular Licenses.
(2) The PCS licenses are for partitioned areas of the Minneapolis MTA served by
Wireless Alliance.
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BUSINESS STRATEGY
The Company's objective is to become the leading full service provider of
wireless communications services in its market clusters, while maximizing
revenues and cash flows, by offering innovative products and services, extensive
coverage and superior customer service at affordable prices. The key elements of
the Company's strategy are to:
EXPAND MARKET PRESENCE THROUGH STRATEGIC ACQUISITIONS AND ALLIANCES. The
Company has focused and expects to continue to focus on acquiring controlling
ownership interests in rural Wireless Systems serving RSAs and small MSAs
contiguous or proximate to its current markets. The Company's strategy of
clustering its Wireless Systems enables it to achieve operating and cost
efficiencies, as well as joint advertising and marketing benefits. Clustering
also allows the Company to offer its customers an expanded home service
territory, which enables customers to avoid certain roaming charges which would
otherwise be paid to other carriers. The Company believes that the Pending
Acquisitions will provide the opportunity to increase geographic coverage
substantially and provide significant marketing and other operational synergies.
The Company also intends to continue to pursue strategic alliances or
acquisitions that will enable it to extend its geographic coverage and enhance
its product and service offerings and, as appropriate, expand into new
geographic areas with similar demographics and operating characteristics. The
Company is currently engaged in preliminary discussions concerning possible
strategic alliances and acquisitions of additional Wireless Systems, but there
can be no assurance that the Company will pursue or be successful in these
endeavors.
FOCUS ON INNOVATIVE MARKETING STRATEGIES AND PRODUCT OFFERINGS. The Company
has implemented a number of creative marketing programs aimed at stimulating
customer airtime. These programs offer customers greater value by bundling long
distance, voice mail and personal toll-free numbers and other services at
varying competitive price points. For example, customers in the Upper Midwest
cluster can select a package that eliminates all long distance charges
throughout North Dakota, South Dakota, northwest Wisconsin and Minnesota.
Additionally, customers can select the Company's nationwide calling option,
which charges a flat fee for all long distance charges when calling from the
Company's service areas. The Company provides its voice mail service, which it
believes stimulates cellular usage in the form of returned calls, to
approximately 30% of its customers in the Upper Midwest cluster. The Company
also offers an equipment option called PHONE SERVICE that allows customers to
rent cellular telephones for a nominal monthly charge with extended warranty and
insurance coverage. The Company believes that PHONE SERVICE facilitates
upgrading telephone equipment as individual needs change and reduces customers'
concerns about equipment obsolescence. The Company believes that its innovative
marketing strategies and product offerings have enhanced penetration and
customer retention, and the Company intends to continue to utilize these and
other marketing strategies in an effort to increase penetration throughout its
entire service area.
CONTINUE TO DECENTRALIZE MANAGEMENT OF SERVICE AREAS. The Company has
maintained a decentralized approach to managing its clusters to maintain a
strong local presence and deliver superior products and customer service. Each
of the Company's clusters is divided into separately managed regional business
units. The Company's decentralized management strategy allows each regional
business unit to tailor the Company's marketing and product offerings to meet
the specific needs of each regional market. Additionally, the decentralized
management approach enables the Company to maintain close customer contact and
to consistently monitor customer needs.
FOCUS ON CUSTOMER RETENTION AND SUPERIOR CUSTOMER SERVICE. The Company's
average monthly customer retention rate was 98.4% for the year ended December
31, 1997, and 98.5% for the three months ended March 31, 1998, as compared to
the industry average monthly customer retention rate of 97.9%, as calculated
using data from the CTIA semi-annual data survey dated December 1997. In each of
its markets, the Company has implemented separate sophisticated local monitoring
and control systems and maintains separate customer service departments
consisting of highly trained personnel who are aware of the needs of customers
in those markets. The Company's customer service personnel can be accessed
toll-free, 24 hours a day, 365 days a year and are capable of handling both
routine and complex technical questions. The Company believes that easy access
to its customer service professionals is critical to maintaining a high level of
customer satisfaction and loyalty.
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CONTINUE TO DEVELOP AND MAINTAIN SUPERIOR DISTRIBUTION CAPABILITIES. The
Company's distribution network is comprised of both direct and indirect sales
channels. The Company's strategy of utilizing territory managers has enabled it
to develop strong distribution channels that are tailored to the specific
characteristics of each local market. All direct and indirect sales channels are
under the oversight of territory managers who have extensive experience and
relationships with, and who reside in, the local markets. The Company believes
that the close proximity of the distribution channel members to each market
facilitates the cultivation of local market knowledge that allows direct sales
representatives and independent agents to focus on the needs of the markets in
which they operate. This improves their ability to establish relationships with
new customers and better understand the needs of existing and potential
customers. In addition, all individuals who have customer contact in the Upper
Midwest cluster are required to complete a certification process annually in
order to continue to sell the Company's products and services or maintain
contact with customers. The Company is currently in the process of implementing
this certification process in its New England cluster. As a result, the Company
believes that its ability to increase penetration and maintain high customer
retention rates is significantly enhanced.
MAINTAIN SUPERIOR NETWORK INFRASTRUCTURE. The Company's goal is to continue
to develop and maintain a superior wireless network infrastructure capable of
providing extensive geographic coverage and enhanced capacity. The Company has
124 cell sites in Minnesota and Maine as of March 31, 1998, and plans to add 12
new cell sites in Minnesota and Maine during the remainder of 1998. As a result,
customers benefit from a high level of both regional and local hand-held
coverage, minimal call blocking and dropped calls, seamless call delivery and
hand-off, and the availability of digital voice services. Most of the Company's
cell sites are currently back-hauled through its microwave network to its MTSO
enabling the Company to minimize transport expense and enhance network
reliability. All of the Company's networks in Maine have been upgraded to TDMA
digital technology and the TDMA service for the Minnesota network is expected to
be available by the end of 1998.
Atlantic's cellular network consists of 85 cell sites and 45 microwave links
as of March 31, 1998, and is connected to a MTSO located in Colchester, Vermont.
This network currently utilizes analog cellular technology with the ability to
expand capacity through the deployment of N-AMPS technology. N-AMPS is an
enhanced technology that provides a three-fold increase in capacity over
conventional analog technology, as well as many of the service features offered
by digital cellular and PCS technology. Although none of Atlantic's competitors
is currently providing digital cellular or PCS services in its markets, the
Company intends to review Atlantic's network infrastructure for potential
digital upgrades to further enhance the quality of the network.
MAINTAIN DISCIPLINED FINANCIAL MANAGEMENT. As the Company continues to
grow, management intends to focus on reducing leverage and increasing cash flow.
To accomplish this, management plans to actively manage customer acquisition
costs, maximize ARPU and penetration, and maintain strong customer retention
rates.
THE WIRELESS COMMUNICATIONS INDUSTRY
OVERVIEW
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging services, and two-way radio
applications, such as cellular telephones, PCS and ESMR networks. Historically,
each application has been licensed and operated in a distinct radio frequency
block.
As of December 31, 1997, according to CTIA there were over 55.3 million
wireless (cellular, PCS and ESMR) customers in the United States, representing a
growth rate of 25.6% from December 31, 1996. The following chart illustrates the
annual growth in United States wireless (cellular, PCS and ESMR) customers
through December 31, 1997.
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<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
US WIRELESS CUSTOMERS
<S> <C>
Ending Customers (in
millions)
1984 0.1
1985 0.3
1986 0.7
1987 1.2
1988 2.1
1989 3.5
1990 5.3
1991 7.6
1992 11.0
1993 16.0
1994 24.1
1995 33.8
1996 44.0
1997 55.3
</TABLE>
- ------------------------
Source: CTIA
The following table sets forth certain domestic wireless industry statistics
(cellular, PCS and ESMR) derived from the data survey results published
semi-annually by CTIA. These statistics represent results for the industry as a
whole. Average monthly service revenue per customer represents service revenue
per customer, including roamer revenue. Average monthly revenue per customer
represents revenue per customer, excluding roamer revenue. In general, rural
markets, where the Company concentrates its wireless operations, were licensed
later by the FCC than urban markets and, consequently, have a shorter operating
and financial history.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total service revenues (in billions).................................. $ 5.7 $ 7.8 $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5
Ending customers (in millions)........................................ 7.6 11.0 16.0 24.1 33.8 44.0 55.3
Customer growth....................................................... 43.0% 46.0% 45.1% 50.8% 40.0% 30.4% 25.7%
Average monthly service revenue per customer.......................... $74.10 $70.13 $67.13 $59.08 $54.88 $50.61 $46.11
Average monthly revenue per customer.................................. $64.96 $61.40 $58.74 $51.48 $47.57 $44.66 $41.12
Ending penetration.................................................... 3.0% 4.4% 6.2% 9.3% 12.9% 16.3% 20.2%
</TABLE>
- ------------------------
Although cellular telephones have remained the technology of choice for
wireless communications, potential users of cellular systems may find their
communications needs satisfied by other current and developing technologies,
particularly broadband PCS. PCS operators providing digital communication
technology may compete with cellular service with regard to rates, enhanced
privacy, and additional features such as electronic mail and built-in paging.
One-way paging or beeper services that feature voice message and data display as
well as tones may be adequate for potential customers who do not need to speak
to the caller. In the future, cellular service may also compete more directly
with traditional landline telephone service providers.
CELLULAR
Since its introduction in 1983, cellular service has grown dramatically and
now dominates the wireless communications market. Cellular communication service
is a form of telecommunication capable of providing high quality, high capacity
voice and data communications to and from vehicle-mounted and hand-held radio
telephones. Cellular communication systems generally offer customers the
features offered by the most technologically
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<PAGE>
advanced landline telephone services. Two significant features of cellular
communication systems are frequency reuse, which enables the simultaneous use of
the same frequency in two adequately separated cells, and call handoff. A
cellular communication system's frequency reuse and call handoff features result
in highly efficient use of available frequencies and enable cellular
communication systems to process more simultaneous calls and service more users
over a greater area than conventional mobile communication systems.
Cellular communication technology is based upon the division of a given
market area into a number of smaller geographic areas or "cells." Each "cell"
has a "base station" or "cell site" that is equipped with a relatively low power
transmitter, a receiver and other equipment that communicates by radio signal
with cellular equipment located within range of the cell. Cells have a maximum
operating range of up to 25 miles, while the standard operating range is four to
ten miles. Cells are typically designed on a grid, although terrain factors,
including natural and man-made obstructions, signal coverage patterns and
capacity constraints may result in irregularly shaped "cells" and overlaps or
gaps in coverage.
Each cell site is connected by microwave link or telephone line to an MTSO,
which, in turn, is connected to the local landline telephone network. Because
cellular communications systems are fully interconnected with the landline
telephone network and long distance systems, customers can receive and originate
both local and long distance calls from the cellular equipment on a worldwide
basis. When a customer in a particular cell dials a number, the cellular
equipment sends the call by radio signal to the cell's transmitter-receiver,
which in turn transmits it to the MTSO. The MTSO then completes the call by
connecting it with the landline telephone network or another cellular unit.
Incoming calls are received by the MTSO from the landline telephone office
(unless the call is originated by another cellular telephone), which instructs
the appropriate cell to complete the communications link by radio signal between
the transmitter-receiver of a cell and the cellular equipment.
The MTSO and the base stations periodically monitor the signal strength of
calls in progress. The signal strength of the transmission between a customer
and the base station in any cell declines as the unit moves away from the base
station. When the signal strength of a call declines to a pre-determined level,
the MTSO automatically determines if the signal strength is greater in an
adjacent cell and, if so, hands off the call in a fraction of a second to the
base station of another cell. This handoff is virtually unnoticeable to the
user. If a wireless telephone user leaves the service area of the wireless
telephone system during a call, the call is generally continued and carried
through a technical interface established with an adjacent system through
intersystem networking arrangements where such arrangements have been
established. Such an intersystem network arrangement is referred to as
"roaming." If a roaming arrangement has not been established with an adjacent
system, the call will be disconnected.
FCC rules require that all cellular telephones be functionally compatible
with cellular telephone systems in all markets within the United States and with
all frequencies allocated for cellular use, allowing a cellular telephone to be
used wherever a customer is located, subject to appropriate arrangements for
service charges. The cellular system providing service to the roamer generally
receives 100% of the revenues from such service.
Cellular telephone systems operate under interconnection agreements with
various local exchange carriers ("LECs") and interexchange (long distance)
carriers. The interconnection agreements establish the manner in which the
cellular system integrates with other telecommunication systems. The cellular
operator and the local landline telephone company must cooperate in the
interconnection between the cellular and landline telephone systems to permit
cellular customers to call landline customers and vice versa. The technical and
financial details of such interconnection arrangements are subject to
negotiation, vary from system to system and, to the present time, generally have
not been subject to FCC regulation or oversight. However, the implementation of
the Telecommunications Act of 1996 (the "1996 Act") by the FCC is expected to
result in arrangements between cellular carriers and local exchange carriers of
interconnection services at rates more closely related to cost.
On August 1, 1996, the FCC adopted rules implementing the interconnection
policies imposed by the 1996 Act. Various aspects of the orders have been
overturned by the U.S. Court of Appeals for the Eighth Circuit ("Eighth
Circuit"), which decision is under review by the U.S. Supreme Court. However,
certain of the rules adopted in the FCC's orders remain in effect as to
interconnection of CMRS carriers to the local exchange. The
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Eighth Circuit's decision creates uncertainty regarding the pricing, terms and
conditions of interconnection. This uncertainty may make the negotiation of
interconnection agreements more difficult and may require renegotiation of
existing agreements. The Company is not able to predict how or when the Supreme
Court will act upon the appeals of the Eighth Circuit's decision, and there can
be no assurance that the Supreme Court's decision will not have an adverse
effect on the Company.
The rapid growth of the industry's cellular customer base has begun to
strain the call-processing capacity of many existing analog systems, especially
in densely populated urban areas. Each cellular network is designed to meet a
certain level of customer density and traffic demand. Once these traffic levels
are exceeded, the operator must take steps to increase the network capacity.
Capacity can be increased initially by using techniques such as sectorization
and cell splitting. Network operators and infrastructure manufacturers are
developing a number of additional solutions, which are expected to increase
network capacity and coverage.
Within certain limitations, increasing demand may be met by simply adding
available frequency capacity to cells as required or by using directional
antennae to divide a cell into multiple sectors or coverage areas, thereby
reducing the required distance between cells using the same frequency. Further,
an area within a cellular telephone system may be served by more than one cell
through procedures that utilize available channels in adjacent cells. When all
possible channels are in use, further growth can be accomplished through a
process called "cell splitting." Cell splitting entails dividing a single cell
into a number of smaller cells served by lower-power transmitters, thereby
increasing the reuse factor and the number of calls that can be handled in a
given area.
Network capacity can also be enhanced through the development of newer
technologies like N-AMPS analog technology (which triples call carrying capacity
over conventional analog technology) and TDMA or code division multiple access
("CDMA") digital technology (which significantly increases call carrying
capacity). In each case, these advanced technologies allow cellular carriers to
add customers without degrading service quality. Digital technology offers
advantages including improved voice quality, larger system capacity and perhaps
lower incremental costs for additional customers. The conversion from analog to
digital radio technology is expected to be an industry-wide process that will
take a number of years. Some cellular service providers currently utilize
digital radio technology in addition to analog technology.
PCS
PCS is a term commonly used in the United States to describe a portion of
radio spectrum (1850-1990 MHz). This portion of radio spectrum is used by PCS
licensees to provide wireless communications services. PCS competes directly
with existing cellular telephone, paging and specialized mobile radio services.
There are at least six potential broadband PCS providers in each PCS service
area. Licensing areas for broadband PCS are divided into 51 MTAs and 493 smaller
Basic Trading Areas ("BTAs") based on the geographic divisions in the 1992 Rand
McNally Commercial Atlas & Marketing Guide. Two licenses were awarded to
entities qualifying for participation in an "Entrepreneur's Block." The A, B,
and C Blocks, which are 30 MHz frequency blocks, permit licensees to offer a
broad range of two-way voice, data and related communications services employing
digital micro-cellular technology. Three 10 MHz frequency blocks, known as the
D, E, and F Blocks, were licensed in each BTA. It is anticipated that the 10 MHz
licensees will provide niche services or will be purchased by existing CMRS
providers, including cellular operators, for added spectrum. More PCS providers
are possible if the FCC approves a disaggregation of spectrum in any license in
a PCS service area, or if any C Block licensee elected to surrender, pursuant to
a special FCC program, 15 MHz of its 30 MHz license. Cellular carriers are
subject to a 45 MHz spectrum cap for their combined cellular and PCS spectrum in
areas where they offer both services.
PCS spectrum was auctioned by the FCC beginning with the A and B Blocks,
which were auctioned by the FCC in late 1994 and 1995. In late 1995 and 1996 the
C Block was auctioned (and certain BTAs were re-auctioned following the defaults
of participants) and the FCC completed simultaneous auctions of the D, E, and F
Blocks in 1997. The FCC is expected to reauction, in late 1998 or 1999, C Block
spectrum that was surrendered to the FCC either in 15 MHz blocks through a
disaggregation opportunity or as full 30 MHz licenses if so recovered by the
FCC.
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PCS systems also use digital technology. The FCC has not mandated a single
national digital standard for PCS (as it did with the analog Advanced Mobile
Phone System used in cellular systems) and, as a result, the following three
distinct technologies have evolved as standards and are being deployed
nationally in PCS systems:
1. GSM--Global System for Mobile is the digital standard that originated in
Europe and is being widely deployed by 1.9 GHz license holders such as
BellSouth Corporation, Powertel, Inc. and Aerial Communications, Inc.
2. TDMA--Time Divisional Multiple Access is the standard adopted and
certified by CTIA. It is the digital standard being deployed nationally
by AT&T Wireless, Inc. ("AT&T"). TDMA is the most widely supported and
enhanced digital standard utilized domestically today, with support from
all of the large infrastructure providers, such as Northern Telecom, Inc.
("Northern Telecom"), Lucent Technologies Inc. and Ericsson, Inc. TDMA
encodes three voice calls on a single 30 KHz channel effectively yielding
a spectral-efficient, three-fold increase in system capacity.
3. CDMA--Code Divisional Multiple Access is a spread-spectrum technology
that is predominantly being used by Sprint Corporation and Bell Atlantic
Corporation.
Digital technology increases system capacity while simultaneously providing
architecture that supports delivery of revenue enhancing features and services.
Digital PCS features include extended 60+ hours battery life on hand-held model
telephones, improved call security, intelligent system selection/zone billing,
alpha-numeric paging, internet based electronic mail receipt, presentation of
calling party identification, voice mail message waiting information and
enhanced data/facsimile transmission.
MARKETING OF PRODUCTS AND SERVICES
The Company offers a number of service plan options to its customers. Most
service plans have a fixed monthly access fee, which includes a specified number
of minutes. Usually, the higher the monthly access fee, the more minutes of use
that are included. Customers who subscribe to cellular service in connection
with a special promotion are typically required to enter into a one-year
commitment for service. The Company engages in ongoing analysis of its service
plans and equipment pricing to ensure competitiveness and maximize revenues.
As a result of the Wireless Alliance joint venture, the Company has
initiated new service plans for the combined and contiguous areas of Wireless
Alliance's PCS network and the Company's existing cellular network. These
service plans are sold under CELLULAR 2000-Registered Trademark- Northland and
offer a fixed and tiered monthly peak and off peak per minute charge with no
long distance or roaming charges for calls within the CELLULAR 2000-Registered
Trademark-Northland area.
The Company offers a regional personal toll-free number to its CELLULAR
2000-Registered Trademark- and Wireless Alliance customers. This encourages
customers to distribute their cellular numbers and keep their telephones turned
on to accept incoming calls. Additionally, customers can elect the Company's
nationwide calling option, which charges a flat fee for all long distance
charges when calling from the Company's Upper Midwest service area.
Due to its successful marketing efforts, many of the Company's customers are
voice mail service customers. There is no charge for leaving or retrieving
messages, and the Company believes that its voice mail feature stimulates
cellular usage. The Company also offers a product known as TALK BACK that
includes access to 911, voice mail, incoming calls and one preprogrammed
outgoing number. This product allows a customer to call for emergency assistance
or call the preprogrammed number while preventing unauthorized access to other
numbers. In addition, the Company offers customers the option to rent telephones
for a nominal monthly charge. This service reduces customers' concerns regarding
equipment obsolescence and enables the Company to compete with its competitors'
free telephone offers.
The Company has established preferred roaming contracts and developed system
integration with adjacent cellular carriers under the marketing name SIMPLIFIED
ROAMING. This approach permits the Company's customers to receive automatic call
delivery ("ACD"), call forwarding, toll-free access to voice mail, call hand-off
and reduced
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<PAGE>
roaming rates nationwide. ACD allows roamers to use all of their home features
including custom calling features, making their roaming experience more
convenient.
Since ACD was introduced, the use of airtime by roamers has increased
generally in the industry. As adjacent carriers increase their cellular customer
base and the industry as a whole expands its customer base, the number of
roamers will continue to increase. ACD allows the Company to capture roaming
traffic on major interstate highways and highly-traveled corridors within its
markets.
The Company markets paging services provided both through the Company-owned
system, covering northern Minnesota and eastern North Dakota, and as a reseller
of paging services covering most of Minnesota, Maine and areas within Iowa,
Wisconsin, and eastern North Dakota. The Company believes that paging services
increase cellular usage.
DISTRIBUTION AND SALES
The Company markets its wireless services through independent sales agents,
direct sales personnel and Company-owned stores, which are managed by district
and territory managers in both its Upper Midwest and New England clusters. The
Company believes that its territory manager strategy is a major contributor to
the Company's success. The Company experiences higher than industry average
retention levels and lower than industry average customer acquisition costs.
MRCC implemented this distribution strategy in the third quarter of 1997. As of
June 22, 1998, the Company had approximately 106 sales agents, 15 direct sales
personnel and 6 Company-owned stores.
The territory managers recruit, train, and support the independent sales
agents. The training and support provided to agents is extensive and continual.
Currently, all individuals who have customer contact in the Upper Midwest
cluster are required to complete a certification process annually in order to
continue to sell the Company's products and services or maintain any contact
with customers. The Company is currently in the process of implementing this
process in its New England cluster. The Company provides cellular, digital, and
paging equipment to the agents for sale or rent to customers and the agents
market the Company's services utilizing a cooperative advertising program. These
sales agents include retail electronic stores, farm implement dealers,
automobile dealers, automobile parts suppliers, college and university
bookstores, video and music stores, and local telephone companies. Most of the
agents sell the Company's service in conjunction with their principal business.
CUSTOMER SERVICE
Customer service is a significant element of the Company's operating
philosophy. The Company is committed to attracting and retaining customers by
providing consistently superior customer service. In Alexandria, Minnesota, and
Bangor, Maine, the Company has implemented sophisticated local monitoring and
control systems and maintains customer service departments consisting of highly
trained personnel who are aware of the needs of the customers in its local
markets. The Company's customer service personnel can be accessed 24 hours a
day, 365 days a year, and are capable of handling both routine and complex
technical questions. The Company believes that easy access to its customer
service professionals is essential to maintain a high level of customer
satisfaction and loyalty and that its strong emphasis on customer service
contributes to its high customer retention rate.
The customer service centers are also responsible for processing new service
orders and service changes for existing customers. The customer service centers
also maintain customer records and manage the Company's collection process.
During 1997, the customer service centers implemented a quality control process
that monitors call center performance and balances customer service center
resources to match call center load levels.
Territory managers work closely with customer service center personnel to
maintain high standards of service for their existing customers as well as to
attract new customers. Company service center representatives attempt to contact
every new customer within 30 days from the day the customer begins service to
confirm customer satisfaction and elicit feedback. Customers are also contacted
periodically to offer additional calling features such as voice mail, call
waiting, and call forwarding and to recommend the best service pricing plan for
the customer's usage
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levels. These contact programs enhance customer loyalty, maintain high
retention, and increase sales of additional features that increase customer
airtime usage and generate customer referrals.
ROAMING MARKETS
The Company believes that attractively priced regional roaming is important
to the development of customers for all cellular carriers. Accordingly, where
possible, the Company attempts to arrange reciprocal roaming rates that allow
customers to roam at competitive prices. The Company believes this increases
usage on all cellular systems, including the Company's systems. Roamer revenues
are a substantial source of incremental revenue for the Company due, in part, to
the fact that a number of the Company's cellular systems are located along major
travel and commuting corridors. While there is an industry trend to reduce
roaming rates, the Company is addressing this trend through its roaming
agreements, which are usually reciprocal in nature and are at or near home
rates. The Company believes that the closing of the Pending Acquisitions will
create significant opportunities to offer enhanced roamer services in the New
England cluster because of the multi-state and contiguous footprint that will
result. While on an industry-wide basis approximately 10.6% of total cellular
revenue nationally is from roaming traffic, the Company's percentage of roamer
revenue was approximately 17.6% of revenues for the year ended December 31,
1997, and 11.9% of revenues for the three months ended March 31, 1998.
SERVICE MARKS
The Company uses the registered service mark CELLULAR 2000-Registered
Trademark- (and the service mark CELLULAR 2000-Registered Trademark-NORTHLAND)
to provide the cellular services it offers in its Minnesota cellular markets and
for Wireless Alliance resale operations in Duluth, Minnesota and Fargo and Grand
Forks, North Dakota. The CELLULAR 2000-Registered Trademark- name and related
marks are owned by Cellular 2000, Inc. ("Cellular 2000"). The Company owns
41.67% of Cellular 2000. The Company and other users of the service mark, all of
which are cellular providers in Minnesota or South Dakota, are shareholders of
Cellular 2000. The only business of Cellular 2000 is the licensing of its
service mark to its shareholders.
Each Cellular 2000 shareholder has entered into a license agreement with
Cellular 2000 that allows the shareholder to use the CELLULAR 2000-Registered
Trademark- service mark for marketing within its cellular service area subject
to certain restrictions. The license agreements are relatively restrictive and
Cellular 2000 has exclusive rights to control the use of the name. Cellular 2000
and its shareholders have entered into a buy-sell agreement that provides, in
part, that if a Cellular 2000 shareholder no longer uses CELLULAR
2000-Registered Trademark- as the principal name under which it markets its
cellular service, it must offer its shares of stock in Cellular 2000 for sale to
Cellular 2000 and the other shareholders at the original cost. The Company does
not pay any license fees for the use of the CELLULAR 2000-Registered Trademark-
mark.
The Company uses the registered service mark UNICEL-Registered Trademark- to
market PCS services in its Upper Midwest cluster and to market cellular services
in the current New England cluster. This mark is owned by the Company.
Atlantic markets its cellular services under the service mark
CELLULARONE-Registered Trademark- and markets its long distance services under
the service mark LONG DISTANCE BY CELLULARONE. Upon completion of the Atlantic
Acquisition, the Company will use the service marks CELLULARONE-Registered
Trademark- and LONG DISTANCE BY CELLULARONE in that system. The Company's use of
the CELLULARONE-Registered Trademark- and LONG DISTANCE BY CELLULARONE service
marks will be governed by licenses between the Company and Cellular One Group,
the owner of the service marks.
The Company also provides paging services under the service marks
KEYPAGE-Registered Trademark-, KEYPAGE-Registered Trademark- PLUS and UNICEL
Paging Services as a complement to its wireless services. These marks are owned
by the Company.
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NETWORK OPERATIONS
CELLULAR
Construction of wireless systems is capital intensive, requiring a
substantial investment for land and facilities, improvements, buildings, towers,
cell site equipment, microwave equipment, engineering, designing and
installation. Until technological limitations on total capacity are reached,
additional wireless telephone system capacity can be added in increments that
closely match demand and at less than the proportionate cost of the initial
capacity.
The Company has constructed and maintains an integrated network of
contiguous cellular coverage throughout the Company's cellular service areas so
that a call can be handed off from one of the Company's cell sites to another as
a customer travels throughout cells. As a customer travels between cell sites,
the antenna works with the switch to automatically monitor the signal strength
of the call in progress. Call handoff is automatic and virtually unnoticeable to
customers.
The Company installed a digital Northern Telecom MTSO in the third quarter
of 1997. The MTSO used in the Company's Minnesota cellular network is owned by
the Company and is located in Alexandria, Minnesota. The Company has invested in
this digital MTSO so that it has the ability to increase capacity of wireless
telephone systems, as needed. Through the provision of the digital transmission
the Company expects to decrease its cost of providing services.
The MTSO used in MRCC's cellular network is a digital Northern Telecom MTSO
owned by MRCC and located in Bangor, Maine. In accordance with its strategy of
developing market clusters, the Company has selected wireless MTSOs that are
capable of serving multiple markets.
As of March 31, 1998, the Company's cellular network consisted of 124 cell
sites in Minnesota and Maine. The Company continues to develop its cellular
service area by building new cell sites in locations that increase capacity and
improve hand-held coverage. The Company added 15 cell sites during 1997 and
three sites during the three months ended March 31, 1998 and plans to add an
additional 12 new cell sites during the remainder of 1998. The additional cell
sites will further expand capacity and will allow customers to use lower-powered
or hand-held portable telephones throughout the Company's service areas and
network.
WIRELESS ALLIANCE
At March 31, 1998, Wireless Alliance had spent $12.6 million to acquire
land, facilities and equipment in preparation for deploying its PCS services.
Wireless Alliance has also leased land, facilities and equipment necessary for
PCS deployment. Wireless Alliance has begun construction of a GSM
technology-based PCS network in its PCS service areas, which is expected to be
fully operational in late 1998. Wireless Alliance will utilize the Aerial
Communications MTSO to switch PCS calls. Wireless Alliance utilizes the AirTouch
Communications, Inc. ("AirTouch") network to transport its resale of cellular
airtime within these markets.
PAGING
The Company's paging network, as of March 31, 1998, consisted of 46 paging
transmitters located throughout northern Minnesota and eastern North Dakota. The
paging transmitters are connected to and controlled by a paging terminal, that
is connected to the public telephone network. The paging transmitters use a
transmit-only radio frequency licensed for a given coverage contour around the
paging transmitter that allows messages to be broadcast to the paging customer.
The Company, through its wholly-owned subsidiary, RCC Paging, Inc., holds
licenses granted by the FCC for paging and radiotelephone service on the radio
common carrier frequency of 158.100 MHz. The Company's paging service
complements its cellular service offerings in Minnesota.
SUPPLIERS AND EQUIPMENT PARTNERS
The Company does not manufacture any customer or network equipment. The high
degree of compatibility among different manufacturers' models of handsets and
network facilities equipment allows the Company to design,
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supply and operate its systems without being dependent upon a single source of
such equipment. The Company currently purchases handsets primarily from
Motorola, Inc., Ericsson, Inc. and Nokia Telecommunications, Inc. The Company
currently purchases network equipment from Northern Telecom, Lucent Technologies
Inc., Harris, Inc., and Nokia Telecommunications, Inc.
COMPETITION
The wireless communications industry is highly competitive. Competition for
customers is based principally upon the services and features offered, the
technical quality of the wireless system, customer service, system coverage,
capacity and price. Such competition will increase as new technologies enter the
marketplace. See "Risk Factors -- Competition."
In the Upper Midwest cluster, the Company's current cellular competitors are
Western Wireless Corporation ("Western Wireless"), PriCellular Corp.
("PriCellular"), and AirTouch. These competitors offer their service under the
CELLULARONE-Registered Trademark- trade name and are members of the North
American Cellular Network-TM-, a consortium of CELLULARONE-Registered Trademark-
service providers located throughout the United States that reciprocally provide
reduced roaming rates and ACD. The Company believes that Western Wireless,
PriCellular and AirTouch compete against the Company primarily on the basis of
price and have become significantly more aggressive during the past two years.
AT&T is a significant shareholder of PriCellular and may provide significant
financial and related support for PriCellular's network development and
marketing efforts.
MRCC and Atlantic currently compete with several other wireless service
providers in the New England cluster, including United States Cellular
Corporation ("U.S. Cellular") in Maine and New Hampshire, Bell Atlantic/NYNEX
Corporation in Vermont, Frontier Communications, Inc. in New York, and Southern
New England Telecommunications Corporation in Massachusetts. The Company
believes it currently has a majority position for both market share and customer
acquisition share in its Maine markets. Additionally, combining the existing
Maine network with the Atlantic network to be acquired in the Atlantic
Acquisition will create a contiguous market cluster more extensive than that of
any of the current competitors in the New England cluster.
The Atlantic Wireless Systems are authorized by the FCC to operate with
Block A frequencies, and the Company's existing Maine systems as well as the WMC
systems are authorized to operate with Block B frequencies. In order to provide
the Company's cellular customers with service in all of the Company's markets in
the New England cluster, the Company plans to program the cellular telephones of
its customers to prefer the Block A frequencies where the Company operates Block
A cellular systems and to prefer Block B frequencies where the Company operates
Block B cellular systems.
The Company also competes to a lesser extent with dispatch and conventional
mobile telephone companies, Specialized Mobile Radio Service ("SMR") providers,
resellers, paging companies and landline telephone service providers. The FCC
requires all cellular and PCS licensees to provide service to "resellers." A
reseller provides wireless services to customers but does not hold a FCC license
or own facilities. Instead, the reseller buys blocks of wireless telephone
numbers and capacity from a licensed carrier and resells service through its own
distribution network to the public. Thus, a reseller is both a customer of a
wireless licensee's service and also a competitor of that licensee. Several
small resellers currently operate in competition with the Company's systems.
In the future, the Company expects to face increased competition for its
cellular and PCS services from entities providing other technologies and
services, including digital mobile communications systems on ESMR frequencies,
fixed wireless services, and satellite-based telecommunications systems, as well
as other cellular and PCS providers. Although some of these technologies are
currently operational, others are being developed or may be developed in the
future. The entrance of multiple competitors in the PCS markets is mandated by
the FCC.
Continuing technological advances in communications and FCC policies that
encourage the development of the spectrum-based technologies may result in new
technologies that compete with cellular and PCS systems. In addition, the
Federal Omnibus Budget Reconciliation Act of 1993 requires, among other things,
the allocation to commercial use of a portion of 200 MHz of the spectrum
currently reserved for government use. It is possible that some portion of
spectrum reallocated will be used to create new land-mobile services.
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The Company anticipates that market prices for wireless communications
services and equipment will continue to decline in the future based upon
increased competition and cost reductions. The Company's ability to compete
successfully is dependent, in part, on its ability to anticipate and respond to
various competitive factors affecting the industry. The Company's marketing and
sales organization includes a group that carefully monitors and analyzes
competitive products and service offerings, changes in consumer preferences,
changes in demographic trends and economic conditions and pricing strategies by
competitors that could adversely affect the Company's operations or present
strategic opportunities.
Several companies operate relatively small paging networks in portions of
the Company's service area. One competitor, American Paging, Inc. ("American
Paging"), covers a large area within Minnesota and eastern North Dakota. The
Company has entered into an agreement with American Paging to resell American
Paging's 900 MHz paging service in the Company's service area as an additional
paging option for the customers of the Company. This service is marketed under
the trade name KEYPAGE-Registered Trademark- PLUS and is sold in approximately
80% of the same areas in which the paging service of the Company, marketed under
the trade name KEYPAGE-Registered Trademark-, is provided. Both
KEYPAGE-Registered Trademark- and KEYPAGE-Registered Trademark- PLUS provide
numeric display and alphanumeric display services. Pricing and coverage areas
differentiate the services. Other 900 MHz regional paging systems have been
licensed within the Company's service area to other potential paging carriers.
The Company resells paging services in Maine using the UNICEL name.
Other potential competitors for customers of the Company are licensees of
narrowband PCS systems. Such systems may be designed to provide a customer with
a receiving device, which plays a recorded voice message for the customer, and
provide the customer with various response options. No such system is currently
operational in the Company's service areas, although the FCC has issued licenses
which allow for narrowband PCS systems in all areas of the United States.
TECHNOLOGIES
The wireless communications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements, and changes in consumer preferences and expectations. The Company
expects competition in the wireless communications industry to be intense and
dynamic as a result of the entrance of new competitors and the development of
new technologies, products, and services.
SMR and other private radio systems, such as those generally used by local
dispatch, fleet services, and other communications services that have the
technical capability to handle mobile telephone calls, including interconnection
to the landline telephone network, may provide competition in certain markets.
In addition, ESMR systems may compete with cellular service by providing high
quality digital communication technology, lower rates, enhanced privacy, and
additional features such as paging, particularly in metropolitan markets.
The Company believes that PCS networks will be initially focused primarily
in urban areas due to capital requirements and population coverage requirements.
Narrowband PCS services typically are advanced paging and messaging services.
Broadband PCS services will consist of wireless two-way telecommunications
services for voice, data, and other transmissions employing digital
micro-cellular technology. Many broadband PCS services are expected to compete
with existing cellular systems. The FCC has issued licenses for both narrowband
and broadband PCS services. Six broadband licenses were issued in each part of
the Company's cellular service area. Under recent FCC rulings, license holders
are allowed to disaggregate the spectrum covered by their license. Accordingly,
the Company may face competition from additional providers of PCS services.
Continuing technological advances in telecommunications and FCC policies
that encourage the development of new spectrum-based technologies make it
difficult to predict the extent of future competition. In addition, the Omnibus
Budget Reconciliation Act of 1993 requires, among other things, the allocation
to commercial use of a portion of 200 MHz of the spectrum currently reserved for
government use. It is possible that some portion of the spectrum that is
reallocated will be used to create new land-mobile services or to expand
existing land-mobile services.
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The Company believes that it is strategically positioned to compete with
other communications technologies that now exist, such as SMR and ESMR systems
and PCS, and with cellular and paging resellers. Cellular service and paging
will also compete more directly with traditional landline telephone service
providers and with cable operators that are expanding into the offering of
traditional communications services over their cable systems. The Company may
face competition from new technologies not yet readily available such as
satellite networks.
REGULATION
THE FOLLOWING SUMMARY OF REGULATORY DEVELOPMENTS AND LEGISLATION DOES NOT
PURPORT TO DESCRIBE ALL PRESENT AND PROPOSED FEDERAL, STATE, AND LOCAL
REGULATION AND LEGISLATION AFFECTING THE TELECOMMUNICATIONS INDUSTRY. OTHER
EXISTING FEDERAL AND STATE LEGISLATION AND REGULATIONS ARE CURRENTLY THE SUBJECT
OF JUDICIAL PROCEEDINGS, LEGISLATIVE HEARINGS AND ADMINISTRATIVE PROPOSALS WHICH
COULD CHANGE, IN VARYING DEGREES, THE MANNER IN WHICH THIS INDUSTRY OPERATES.
NEITHER THE OUTCOME OF THESE PROCEEDINGS NOR THEIR IMPACT UPON THE
TELECOMMUNICATIONS INDUSTRY OR THE COMPANY CAN BE PREDICTED AT THIS TIME.
OVERVIEW
The Company's 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 such as the Company, to
the extent those facilities are used to provide, originate or terminate
interstate or international communications. State regulatory commissions retain
jurisdiction over most of the same facilities and services to the extent they
are used to originate or terminate intrastate communications. In addition, many
of the regulations issued by these regulatory bodies may be subject to judicial
review, the result of which review the Company is unable to predict.
FEDERAL REGULATION
The Company must comply with the requirements of common carriage under the
Communications Act. Comprehensive amendments to the Communications Act were made
by the 1996 Act. The 1996 Act effected plenary changes in regulation at both the
Federal and state levels that affect virtually every segment of the
telecommunications industry. The stated purpose of the 1996 Act is to promote
competition in all areas of telecommunications and to reduce unnecessary
regulation to the greatest extent possible. While management believes it will
take years for the industry to feel the full impact of the 1996 Act, it is
already clear the legislation provides the Company with both opportunities and
challenges.
The 1996 Act greatly expands the FCC's interconnection requirements on the
incumbent local exchange carriers ("ILECs"). The 1996 Act requires the ILECs to:
(i) provide physical co-location; (ii) unbundle and provide access to components
of their local service networks to other providers of local service; and (iii)
establish "wholesale" rates for the services they offer at retail; and requires
all local exchange carriers ("LECs") to: (i) establish number portability; (ii)
establish dialing parity; and (iii) provide nondiscriminatory access to
telephone poles, ducts, conduits and rights-of-way. In addition, the 1996 Act
requires LECs to compensate telecommunications carriers for traffic originated
by the LECs and terminated on the other carriers' networks. The 1996 Act
requires all telecommunications carriers, including the Company, to provide
interconnection upon reasonable request.
LECs are required to negotiate in good faith with carriers requesting any or
all of the above arrangements. If a requesting carrier and the LEC cannot reach
an agreement within the prescribed time, either carrier may request binding
arbitration by the appropriate state commission. Where an agreement cannot been
reached, carriers remain subject to the interconnection obligations established
by the FCC and state telecommunications regulatory commissions.
The FCC is charged with establishing national guidelines to implement the
1996 Act. The FCC issued its interconnection orders on August 8, 1996 (the
"Interconnection Orders"), which established detailed rules regarding rates,
terms and conditions for interconnection between telecommunications carriers and
LECs and regarding the implementation of dialing parity. The Interconnection
Orders were appealed to the U.S. Court of
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Appeals for the Eighth Circuit. On July 18, 1997, the Court issued a decision
vacating many of the interconnection pricing rules and the "most favored nation"
rule as well as certain other interconnection rules. The Court affirmed certain
rules as they pertain to CMRS providers. The Eighth Circuit decision creates
uncertainty about the rules governing pricing, terms and conditions of
interconnection agreements and could make negotiation and enforcement of such
agreements more difficult and protracted and may require renegotiation of
existing agreements. Several parties have appealed the Eighth Circuit decision
to the United States Supreme Court. The Supreme Court granted petitions for
certiorari filed in several of those appeals. It is not possible at this time to
determine how or when the Supreme Court will act on these appeals.
Since certain of the 1996 Act's interconnection requirements apply to all
providers of telecommunications services, including the Company, it may provide
the Company with the ability to reduce its own access costs by interconnecting
directly with non-ILECs, but may also cause the Company to incur additional
administrative and regulatory expenses in replying to interconnection requests.
The FCC also regulates the construction, operation and acquisition of CMRS
systems in the United States. Cellular and PCS systems operate under licenses
granted by the FCC within a specified market area. Paging licenses currently are
granted for generally smaller areas, based upon the area served by a particular
facility. The FCC has adopted rules pursuant to which paging systems will be
licensed on a market-wide basis in the future. There is an application freeze in
place with respect to paging services pending the implementation of the market
area licensing scheme. The FCC's rules have been appealed to the United States
Court of Appeals for the District of Columbia Circuit. The current application
freeze and proposed transition to a market area based licensing scheme for
paging services may hinder the Company's ability to modify existing facilities
and secure authorization for additional facilities. The licenses are generally
transferable, subject to certain limitations prescribed by the FCC.
Near the conclusion of the initial term of a cellular, PCS, or paging
license, licensees must file applications for renewal of licenses to obtain
authority to operate for up to an additional ten-year term. Applications for
license renewal may be denied if the FCC determines that the grant of a license
would not serve the public interest, convenience, or necessity. The FCC also may
revoke a license prior to the end of its term in extraordinary circumstances. In
addition, at license renewal time, other parties may file competing applications
for the authorization. The FCC has adopted specific standards stating renewal
expectancy will be awarded to a CMRS licensee that (i) has provided substantial
service during its license term and (ii) has substantially complied with
applicable FCC rules and policies and the Communications Act. If the FCC awards
the CMRS licensee a renewal expectancy, its license renewal application is
granted and the competing applications are dismissed. The Company's Minnesota
cellular licenses expire on October 1, 2000. MRCC's Bangor, Maine, Maine 3 and
Maine 2 licenses expire January 22, 2008, October 1, 1999, and October 1, 2001,
respectively. The Company holds 13 FCC licenses for paging services. The FCC
approved applications for an additional six licenses in 1997. The Company's
paging licenses expire between July 1, 1998 and April 1, 1999. Wireless
Alliance's PCS licenses will expire on June 23, 2005.
Although the Company is unaware of any circumstances that would prevent the
approval of any future renewal application, no assurance can be given that the
FCC will renew any of the Company's licenses. Moreover, although revocation and
involuntary modification of licenses are extraordinary measures, the FCC has the
authority to restrict the operation of a licensed facility or revoke or modify
licenses. None of the Company's licenses has ever been revoked or involuntarily
modified.
The Communications Act and FCC rules require the FCC's prior approval of the
assignment or transfer of control of CMRS licenses. Any acquisition by the
Company of an interest in any CMRS authorization may also require the prior
approval of state or local regulatory authorities having jurisdiction over the
CMRS industry.
CMRS providers also must satisfy a variety of FCC requirements relating to
technical and reporting matters, including coordination of proposed frequency
usage with adjacent systems in order to avoid electrical interference between
adjacent systems. The FCC also requires licensees to secure FCC consent to
system modifications in certain instances.
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CMRS systems are subject to certain FAA regulations respecting the location,
marking, lighting, and construction of transmitter towers and antennas and may
be subject to regulation under the National Environmental Policy Act and the
environmental regulations of the FCC. Effective September 1997, the FCC updated
the guidelines and methods it uses for evaluating RF emissions from radio
equipment. While the FCC's new rules impose more restrictive standards on RF
emissions from low power devices such as the Company's wireless devices, the
Company believes that all wireless devices currently provided by the Company to
its customers comply with the new standards.
The 1996 Act mandates that telecommunications carriers, such as the Company,
pay into the federal Universal Service Fund ("USF"). The purpose of the USF is
to ensure that basic telephone services are available and affordable for all
citizens. The USF will promote access to communications services in high cost
areas and for low income persons, schools, libraries, and rural health care
providers. The Company also is required to contribute to state universal service
funds. The federal USF is administered jointly by the FCC, the fund
administrator, and state regulatory authorities, many of which are still in the
process of establishing their administrative rules. While the FCC has commenced
collecting contributions for the first and second quarters of 1998 and has
announced contribution factors applicable to contributions during the third
quarter of 1998, the financial effect of these regulations on the Company cannot
be determined at this time. However, as the Company is permitted to collect the
required contribution amounts from its customers, the Company expects that its
obligation to contribute to the USF will have a minimal financial impact on the
Company.
The Company also is required to contribute annually to the
Telecommunications Relay Service Fund and the North American Numbering Plan
Administration fund and to remit regulatory fees to the FCC with respect to its
operations. The Company does not expect that these contribution obligations will
have a material financial impact on the Company.
Cellular and broadband CMRS providers also must comply with the FCC's rules
regarding emergency 911 service. In 1997, the FCC released revised timetables
and provisions for emergency 911 service availability provided by cellular, PCS
and other mobile service providers, including "enhanced 911" ("E911") services
that provide the caller's telephone number, location and other useful
information. Phase I of implementation requires that by April 1998, the
metropolitan markets must be able to provide automatic number identification
(ANI) and cell site information for 911 calls to the 911 dispatch points, called
Public Safety Answering Points. This mandate is effective June 1, 1998 for rural
markets. Phase II provides that by October 1, 2001, covered carriers must have
the capability to identify the location of mobile units making 911 calls within
a radius of no more than 125 meters. The implementation by the Company of its
E911 obligations may have a financial impact on the Company. The Company is not
yet able to predict the extent of that impact.
Cellular and broadband PCS service providers are required to implement
number portability during 1998 and 1999. Number portability would enable
customers to change broadband CMRS providers and services without changing their
telephone number. Based upon financial and technological considerations and the
current level of competition in the marketplace, several parties have requested
that the FCC forbear from requiring broadband CMRS carriers to implement service
provider number portability until PCS carriers have completed their five-year
buildout requirements. To date, the FCC has not generally extended this
deadline. Although the failure to comply with this obligation could result in a
fine or revocation of the Company's licenses, the Company is not yet able to
predict whether it will be able to comply with the number portability
requirements prior to the existing deadline.
PCS licensees must comply with microwave relocation rules. For a period of
up to ten years after the grant of a PCS license (subject to extension), a PCS
licensee will be required to share spectrum with existing licensees that operate
certain fixed microwave systems which exist within the PCS licensee's markets.
To secure a sufficient amount of unencumbered spectrum to operate its PCS
systems efficiently, the Company may need to negotiate agreements to relocate
many of these existing licensees. In places where relocation is necessary to
permit operation of the Company's PCS system, any delay in the relocation of
such licensees may adversely affect the Company's ability to commence timely
commercial operation of its PCS systems. In an effort to balance the competing
interests of existing microwave users and newly authorized PCS licensees, the
FCC has adopted (i) a transition plan to relocate such microwave operators to
other spectrum blocks and (ii) a cost sharing plan so that if the relocation of
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an incumbent benefits more than one PCS licensee, the benefiting PCS licensees
will share the costs of the relocation. In the case of A and B Block PCS license
holders, this transition plan allows most microwave users to operate in the PCS
spectrum for a two-year voluntary negotiation period and an additional one-year
mandatory negotiation period. For public safety entities dedicating a majority
of their system communications for police, fire or emergency medical services
operations, the voluntary negotiation period is three years, with a two-year
mandatory negotiation period. Parties unable to reach agreement within these
time periods may refer the matter to the FCC for resolution, but the existing
microwave user is permitted to continue its operations until final FCC
resolution of the matter. The transition and cost sharing plans expire on April
4, 2005 for A and B Block licenses, at which time remaining incumbents in the
PCS spectrum will be responsible for their costs to relocate to alternate
spectrum locations. The FCC has shortened the voluntary negotiation period to
one year (for non-public safety entities) for all Blocks other than A and B. The
Company believes that it is in compliance with applicable spectrum relocation
requirements enacted by the FCC.
Telecommunications carriers also are required to comply with CALEA. CALEA
requires carriers to modify and design their equipment, facilities and services
to support lawful electronic surveillance. To date no technical standard for
upgrade has been determined. Carriers must complete changes required by CALEA by
October 25, 1998. The FBI and the FCC already have adopted rules relating to the
implementation of CALEA, and the FCC has a proceeding underway to adopt
additional implementing rules. Several carriers and industry organizations have
urged the FBI to delay the implementation date and also have sought relief from
the FCC, due to, among other things, the unavailability of compliant equipment.
To date, however, the deadline for compliance has not been extended. If the
Company is not able to comply with CALEA prior to the deadline, the Company
could be fined up to $10,000 per day.
Telecommunications carriers also must comply with the FCC's rules regarding
the use and protection of customer proprietary network information ("CPNI"). The
FCC's new rules regarding CPNI became effective May 24, 1998. These rules
substantially increase the regulation of the Company's use of CPNI. The Company
expects that its implementation of measures to comply with these new CPNI rules
will have a financial impact upon the Company, but it does not expect that
impact to be material.
LIMITATION ON FOREIGN OWNERSHIP
Ownership of the capital stock of the Company by non-U.S. citizens is
subject to limitations under the Communications Act and FCC regulations. See
"Description of Capital Stock -- Limitation on Foreign Ownership and Transfers
of Control."
STATE AND LOCAL REGULATION
The Company is also subject to certain regulation by state and local
government bodies. The extent of such regulation varies from state to state. The
Communications Act preempts state and local regulation of, the entry of, or the
rates charged by, any CMRS provider, subject to the ability of a state to
petition the FCC for authority to regulate rates due to local market conditions.
The States of Minnesota, Maine, Wisconsin, South Dakota and North Dakota do not
currently regulate the rates for any commercial mobile service, but could
petition the FCC for such authority in the future. The siting and construction
of CMRS transmitter towers, antennas and equipment shelters are often subject to
state or local zoning, land use, and other regulation. Such regulation may
include environmental and building permit approvals or other state or local
certification.
EMPLOYEES
As of June 22, 1998, the Company had 321 employees. The employees include
101 in sales and marketing, 91 in customer service, 56 in network and systems
operations, 49 in administration and 24 in finance and accounting. Thirty of the
Company's employees were part-time. In addition, the Company has approximately
106 independent sales agents. None of the Company's employees is represented by
a labor organization, and the Company's management believes it has excellent
relations with its employees. Wireless Alliance has no full-time or part-time
employees but operates utilizing the Company's employees.
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<PAGE>
COMMUNITIES
In 1997, the Company joined the Minnesota Keystone Program as a business
entity that returns 2% of its pre-tax earnings to the communities in which it
provides services. The Company's beneficiaries include its customers, employees,
agents, investors, suppliers, partners, and the communities to which it provides
services directly, including the wireless communications industry.
PROPERTIES
The Company owns its principal corporate headquarters located at 3905 Dakota
Street SW, Alexandria, Minnesota 56308. The headquarters is a two-story, 50,000
square-foot facility with land available for a 24,000 square-foot expansion. The
Company also owns a 5,500 square-foot storage facility in Maine.
As of March 31, 1998, the Company had 124 cellular cell sites in Maine and
Minnesota, of which 24 sites are subject to leases either for tower space or
land. The Company owns 100 sites. The Company anticipates that additional sites
will be acquired primarily by outright purchase.
As of March 31, 1998, the Company owned 46 operational paging transmitters
for its paging business.
As of March 31, 1998, Wireless Alliance had 33 PCS base stations
constructed. The Company owns the equipment within all of the base stations.
Wireless Alliance owns the land of one base station site and leases the land on
the other 32 base station sites.
LEGAL PROCEEDINGS
The Company is a party to routine filings and customary regulatory
proceedings with the FCC and state regulatory agencies from time to time. Also,
the Company is involved in legal proceedings from time to time relating to
claims arising out of its operations in the normal course of business. There are
no pending legal proceedings to which the Company is a party or of which any of
its property is subject which, if adversely decided, would have a material
effect on the Company.
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MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Richard P. Ekstrand.................. 48 President, Chief Executive Officer and Director
Scott G. Donlea...................... 38 Vice President of Sales and Marketing
Wesley E. Schultz.................... 41 Vice President of Finance and Chief Financial
Officer
George W. Wikstrom................... 60 Vice President and Director
Don C. Swenson....................... 56 Secretary and Director
Jeffrey S. Gilbert................... 48 Director
Marvin C. Nicolai.................... 56 Director
George M. Revering................... 56 Director
</TABLE>
RICHARD P. EKSTRAND has served as President, Chief Executive Officer and a
director of the Company since 1990. Since 1984, Mr. Ekstrand has also served as
Vice President and a director of Lowry Telephone Co., Inc., a local exchange
telephone company and a shareholder of the Company, of which Mr. Ekstrand is the
sole shareholder. Mr. Ekstrand currently serves as chair of the Board of
Governors of Switch 2000 LLC ("Switch 2000") and as a director of Cellular 2000.
Mr. Ekstrand is past president of the Minnesota Telephone Association ("MnTA")
and the Association of Minnesota Telephone Utilities. He currently serves as a
director of the Rural Cellular Association ("RCA") and is active in CTIA,
serving on its Board of Directors, Executive Committee, Small Operators
Committee and Foundation Committee.
SCOTT G. DONLEA has served as Vice President of Sales and Marketing since
August 1995. Mr. Donlea joined the Company in 1992 as Manager of Market
Operations. From 1990 to 1992, Mr. Donlea was regional manager for CommNet
Cellular, Inc., responsible for marketing and sales in Iowa and South Dakota.
From 1988 to 1990, Mr. Donlea served as branch manager for US WEST Cellular,
Inc., in Sioux Falls, South Dakota. Mr. Donlea currently serves as chairperson
of the RCA's business and marketing committee.
WESLEY E. SCHULTZ joined the Company in May 1996 as Vice President of
Finance and Chief Financial Officer. Prior to joining the Company, Mr. Schultz
had served as acting Chief Financial Officer of Spanlink Communications, Inc.
since February 1996, as Chief Financial Officer of Nicollet Process Engineering,
Inc. from March 1995 through October 1995, as Chief Financial Officer of Data
Systems & Management, Inc. from November 1994 through March 1995, and as Vice
President, Finance & Administration and Chief Financial Officer of Serving
Software, Inc. from December 1991 through October 1994. Mr. Schultz is a CPA and
served for three years as an auditor with Deloitte and Touche, LLP.
GEORGE W. WIKSTROM has been a director of the Company since 1990 and Vice
President since 1991. Mr. Wikstrom is a shareholder and has been Vice President
of Wikstrom Telephone Company, Incorporated, a local exchange telephone company
and a shareholder of the Company, for more than ten years. He also serves as
president and a director of Cellular 2000 and as a governor of Switch 2000. Mr.
Wikstrom has been the Commissioner of the Northwest Regional Development
Commission since 1979 and is serving as a director of the Association of
Minnesota Telephone Utilities and Minnesota Equal Access Network Services, Inc.
("MEANS").
DON C. SWENSON has been a director of the Company since 1990 and Secretary
of the Company since June 1995. Mr. Swenson has been with Arvig Communication
Systems, a local exchange telephone company and a shareholder of the Company,
since 1981, serving most recently as Director of Operations of that company. Mr.
Swenson also serves as a director of Arvig Enterprises, Inc. and Cellular 2000
and as a governor of Switch 2000. He is also on the Board of Directors of United
Community Bank, Perham, Minnesota.
JEFFREY S. GILBERT has been a director of the Company since June 1995. Since
September 1996, he has served as Assistant Manager of Paul Bunyan Rural
Telephone Cooperative ("Paul Bunyan") and General Manager of Northern
Communications, Inc., a wholly-owned subsidiary of Paul Bunyan. Both Paul Bunyan
and Northern Communications, Inc. are shareholders of the Company. He previously
served as General Manager of Deer River
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<PAGE>
Telephone Co., Inc., a local exchange telephone company and formerly a
subsidiary of Paul Bunyan and a shareholder of the Company, since January 1993
and as a manager and in other positions with that Company since 1982. He is also
a director of Cellular 2000 and the MnTA and a member of the Board of Governors
of Switch 2000 and Rural Vision LLC, a DBS Company.
MARVIN C. NICOLAI has been a director of the Company since June 1995. He
became General Manager of Consolidated Telephone Company ("Consolidated"), a
local exchange telephone company and a shareholder of the Company, and Northland
Communications Corporation ("Northland"), a wholly-owned subsidiary of
Consolidated, in January 1995. From 1988 to 1995, he was a manager of Northland.
Mr. Nicolai is also a director of Cellular 2000, MEANS and Independent
Information Services Corp., and is a member of the Board of Governors of
Independent Emergency Services LLC.
GEORGE M. REVERING has been a director of the Company since 1990. Mr.
Revering has been President and General Manager of Midwest Information Systems,
Inc. ("MISI") since 1976 and is General Manager of Midwest Telephone Company and
President of Peoples Telephone Company of Big Fork, both subsidiaries of MISI
and shareholders of the Company, and President of Osakis Telephone Company, a
subsidiary of MISI. Mr. Revering is also President and a director of Revering
Group, Inc., which provides cellular service in South Dakota, and of each of its
subsidiaries. He is a director of MEANS and President of Means Telecom, a
subsidiary of MEANS.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. Messrs. Gilbert (Chair), Nicolai and Revering currently
serve on the Audit Committee. The Audit Committee's duties include examination
of matters relating to the financial affairs of the Company, including reviewing
the Company's annual financial statements, the scope of the independent annual
audit, and the independent accountant's letter to management concerning the
effectiveness of the Company's internal financial and accounting controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Don C. Swenson (Chair), former director Robert K. Eddy, and George W.
Wikstrom served on the Compensation Committee in fiscal 1997. Messrs. Wikstrom
and Swenson serve as a Vice President and Secretary of the Company,
respectively. Mr. Swenson is Director of Operations for Arvig Communication
Systems, which together with certain affiliates holds more than 5% of the
Company's Class B Common Stock and has engaged in various transactions with the
Company, all of which are more fully described under "Certain Transactions." Mr.
Eddy serves as Chairman of the Partners Committee of Cellular Mobile Systems of
St. Cloud ("CMS"), which is party to a roaming agreement with the Company.
Payments made by the Company and CMS pursuant to that agreement are described
under "Certain Transactions." The Compensation Committee's duties include
consideration of and recommendations to the Company's Board of Directors with
respect to programs for executive compensation, employee benefit and incentive
plans, and other compensation matters and policies.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. Each nonemployee director of the Company is paid an annual
fee of $3,000. In addition, each non-employee director is paid $400 for each
Board meeting attended in person, $250 for each Board meeting attended via
telephone conference and each committee meeting attended in person, and $150 for
each committee meeting attended via telephone conference, and is reimbursed for
travel and other expenses incurred in attending meetings and serving as a
director. Total fees paid to all nonemployee directors as a group for services
rendered during 1997 were $59,300.
DIRECTORS' STOCK OPTION PLAN. Directors who are not otherwise employees of
the Company are eligible to be granted options under the Company's Stock Option
Plan for Nonemployee Directors (the "Directors Plan"). The Directors Plan
provides that all nonemployee directors serving as of the day following an
annual meeting will be granted options to purchase 5,250 shares of Class A
Common Stock on that date. Pursuant to the Directors Plan,
83
<PAGE>
nonemployee directors serving as of the day following the 1997 Annual Meeting
were granted options to purchase an aggregate of 31,500 shares of Class A Common
Stock at $8.75 per share.
SUMMARY COMPENSATION TABLE
The following table sets forth information with regard to compensation paid
to Richard P. Ekstrand, the Company's President and Chief Executive Officer, and
to each other executive officer whose total annual salary and bonus exceeded
$100,000 during fiscal 1997 (the "Named Executive Officers") for services
rendered during the last three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
-------------------- --------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION (1)
- ---------------------------------------------- -------------- --------- --------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard P. Ekstrand .......................... 1997 $ 176,000 $ 54,559 11,750 $ 4,207
President and Chief Executive Officer 1996 120,000 52,000 81,000 4,255
1995 104,673 30,000 69,000 2,700
Scott G. Donlea .............................. 1997 $ 113,000 $ 51,587 2,500 $ 4,116
Vice President -- Sales and Marketing 1996 84,100 35,000 64,600 3,170
1995 73,080 25,000 20,400 3,042
Wesley E. Schultz ............................ 1997 $ 126,000 $ 30,738 6,500 $ 2,908
Vice President Finance, Chief Financial 1996(2) 56,567 13,333 90,000 --
Officer
</TABLE>
- ------------------------
(1) For all years, all other compensation consists of Company contributions on
behalf of each Named Executive Officer to the Company's 401(k) plan.
(2) Mr. Schultz joined the Company as Vice President, Finance and Chief
Financial Officer on May 14, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
to the Named Executive Officers during the 1997 fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES RATES OF STOCK PRICE
UNDERLYING PERCENT OF TOTAL APPRECIATION FOR OPTION
OPTIONS OPTIONS GRANTED EXERCISE TERM
GRANTED TO EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (#) (1) FISCAL YEAR ($/SHARE) DATE 5%($) (2) 10%($) (2)
- ------------------------------------- ------------- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Ekstrand.................. 11,750(3) 4.1% $ 13.06 12/31/07 $ 96,507 244,568
Scott G. Donlea...................... 2,500(4) 0.9% 13.06 12/31/07 20,533 52,036
Wesley E. Schultz.................... 6,500(5) 2.3% 13.06 12/31/07 53,387 135,293
</TABLE>
- ------------------------
(1) The number indicated is the number of shares of Class A Common Stock that
can be acquired upon the exercise of options. The Company has not granted
any SARs.
(2) The assumed rates of 5% and 10% are hypothetical rates of stock price
appreciation selected by the Commission and are not intended to, and do not,
forecast or assume actual future stock prices. The Company believes that
future stock appreciation, if any, is unpredictable and is not aware of any
formula that will determine with any reasonable accuracy the present value
of stock options based on future factors which are unknowable and volatile.
No gain to optionees is possible without an appreciation in stock prices,
and any such increase will benefit all shareholders commensurably. There can
be no assurance that the amounts reflected in this table will be achieved.
84
<PAGE>
(3) Consists of an incentive stock option for 3,800 shares and a nonqualified
stock option for 7,950 shares. Each option has a term of ten years, but
provides for early termination upon termination of employment, is not
transferable, and becomes exercisable in two equal installments on December
31, 1997 and January 1, 1998.
(4) An incentive stock option, which has a term of ten years, but provides for
early termination upon termination of employment, is not transferable, and
becomes exercisable in two equal installments on December 31, 1997, and
January 1, 1998.
(5) Consists of an incentive stock option for 5,500 shares and a nonqualified
stock option for 1,000 shares. Each option has a term of ten years, but
provides for early termination upon termination of employment, is not
transferable, and becomes exercisable in two equal installments on December
31 1997, and January 1, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information relating to the number and value of
shares of Common Stock subject to options held by the Named Executive Officers
as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE REALIZED YEAR-END(#) (1) FISCAL YEAR-END($) (2)
NAME ON EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ----------------- ------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Richard P. Ekstrand............. -- -- 68,075/93,675 $204,663/$325,588
Scott G. Donlea................. -- -- 27,770/59,730 92,523/ 224,315
Wesley E. Schultz............... -- -- 25,250/71,250 86,625/ 267,750
</TABLE>
- ------------------------
(1) The Company has not granted any SARs.
(2) Value is calculated as the difference between the closing price of Class A
Common Stock on December 31, 1997 ($13 1/16) and the related option exercise
price multiplied by the number of shares underlying the option.
STOCK OPTION PLAN
The Company has adopted a 1995 Stock Compensation Plan (the "Plan"), under
which 1,400,000 shares of Class A Common Stock have been reserved for the grant
of options and other stock-based awards to employees of the Company. The Plan
provides for grants of both incentive stock options, intended to qualify as such
under Section 422 of the Internal Revenue Code of 1986 (the "Code"), and
nonstatutory stock options, stock appreciation rights, and other stock-based
awards. Except for the authority to grant incentive stock options, which expires
in 2005, the Plan has no expiration date but may be terminated by the Board of
Directors at any time, subject to the rights of the holders of options or other
awards previously granted under the Plan. The Board anticipates granting
additional options to management employees, including employees of companies
that the Company acquires, as part of its incentive program.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Ekstrand, Schultz
and Donlea.
Mr. Ekstrand's employment agreement terminates on December 31, 2000. Mr.
Ekstrand's base annual salary is set by the Company's Board of Directors at
least annually, subject to a minimum specified in the agreement. The Board of
Directors set Mr. Ekstrand's base annual salary for 1997 at $176,000 and for
1998 at $275,000.
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<PAGE>
Mr. Schultz' employment agreement terminates December 31, 2000. Mr. Schultz'
base annual salary is set by the Company's Board of Directors at least annually,
subject to a minimum specified in the agreement. The Board of Directors set Mr.
Schultz' base annual salary for 1997 at $126,000 and for 1998 at $185,000.
Mr. Donlea's employment agreement terminates on December 31, 2000. Mr.
Donlea's base annual salary is set by the Company's Board of Directors at least
annually, subject to a minimum specified in the agreement. The Board of
Directors set Mr. Donlea's base annual salary for 1997 at $113,000 and for 1998
at $140,000.
Pursuant to each of the aforementioned employment agreements, if any of the
agreements is terminated for other than "just cause" ( as defined in the
employment agreements), the Company is obligated to continue payment of salary
and certain other benefits for the greater of twelve months or the remainder of
the term. Each agreement prohibits the employee from engaging in any activity
competitive with the business of the Company or soliciting customers or
employees of the Company during the term of and for a specified period of time
following termination of the agreement. Under the terms of each of the
agreements, if the employee is involuntarily terminated for other than "just
cause" in connection with or within twelve months following a "change of
control" of the Company (as defined in the 1995 Stock Compensation Plan, as
amended), he will be entitled to receive compensation equal to 2.99 times his
"base amount" of compensation (as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended).
CERTAIN TRANSACTIONS
SWITCHING SERVICES
One of the switches used in the Company's cellular network is owned by
Switch 2000, of which the Company holds a 40.8% ownership interest. Richard P.
Ekstrand, President, Chief Executive Officer, and a director of the Company,
serves as Chair of the Board of Governors of Switch 2000. Under a user agreement
with Switch 2000, the Company is obligated to pay its portion of the costs of
cellular switching and related services. During 1995, 1996, and 1997, charges to
the Company from Switch 2000 for switching services and related equipment
totaled approximately $3.8 million, $4.8 million, and $3.2 million,
respectively. During 1997 the Company activated a new mobile telephone switching
office and has reduced its reliance on services provided by Switch 2000. During
1998, the Company anticipates paying Switch 2000 approximately $600,000 pursuant
to the terms of the user agreement.
The Company is also required to make capital contributions to Switch 2000.
In 1995 and 1996, these contributions totaled $368,964 and $220,156,
respectively. No contribution was made in 1997.
TRANSACTIONS WITH MANAGEMENT AND SECURITY HOLDERS
The Company has entered into various arrangements with shareholders or their
affiliates. Arrangements involving shareholders or their affiliates that
beneficially own more than 5% of any class of the Company's Common Stock and in
which total payments for all such arrangements exceeded $60,000 in fiscal 1997
are described below. Except as may be otherwise indicated below, the Company
anticipates that amounts earned or incurred in 1998 will be similar to the 1997
amounts.
LEASES, TRANSMISSION SERVICES, AND AGENCY AGREEMENTS. The Company has
arrangements with several of its shareholders for leasing cell sites and using
telephone lines for transmission between cell sites and the switch serving the
Company's cellular network. The Company formerly leased space for its retail
store in Brainerd, Minnesota, from a subsidiary of Consolidated Telephone
Company and currently leases office space in Detroit Lakes, Minnesota, from an
affiliate of Arvig Enterprises, Inc. In addition, several of the Company's
shareholders and their affiliates serve as agents for the sale of the Company's
cellular and paging services. During 1995, 1996, and 1997, the Company was
charged $338,176, $535,759, and $1,092,247, respectively, by Arvig Enterprises,
Inc. and its affiliates for all such services. Arvig Enterprises, Inc. is the
beneficial owner of more than 5% of the Company's outstanding Class B Common
Stock. Don C. Swenson, a director of the Company, serves as a director of Arvig
Enterprises, Inc. During 1995, 1996, and 1997, the Company was charged $99,051,
$266,646, and $554,706, respectively, by Consolidated Telephone Company and its
affiliates for all such services. Consolidated Telephone
86
<PAGE>
Company beneficially owns more than 5% of the Company's outstanding Class B
Common Stock. Marvin C. Nicolai, a director of the Company, is the General
Manager of Consolidated Telephone Company. During 1996 and 1997, the Company was
charged $76,015 and $90,168, respectively, by Paul Bunyan Rural Telephone
Cooperative ("Paul Bunyan") and its affiliates, which beneficially own more than
5% of the Company's outstanding Class B Common Stock, for all such services.
Jeffrey S. Gilbert, a director of the Company, is General Manager of Northern
Communications, Inc., a subsidiary of Paul Bunyan, and Assistant Manager of Paul
Bunyan. During 1995 and 1996, the Company was charged $22,852 and $207,313,
respectively, by affiliates of Telephone and Data Systems, Inc. ("TDS"), which
beneficially owns more than 5% of the Company's outstanding Common Stock, for
such services.
TOWER PURCHASE. In 1995 the Company purchased a transmission tower from a
subsidiary of Consolidated Telephone Company. The total purchase price was
$67,000, of which payments of $17,000 were made in each of 1995, 1996 and 1997.
The remainder of the purchase price was paid on January 1, 1998. The Company
paid interest on any outstanding balance of the purchase price at 5% per annum.
ROAMING ARRANGEMENTS. The Company has a roaming agreement with CMS, a
partnership for which Robert K. Eddy, one of the Company's directors, serves as
Chairman of the Partners' Committee. The Company also has roaming agreements
with U.S. Cellular, a subsidiary of TDS. Under the roaming agreements, the
Company pays for service provided to its customers in areas served by CMS or
U.S. Cellular and receives payment for service provided to customers of CMS or
U.S. Cellular in the Company's cellular service area. The rates of reimbursement
are negotiated by the parties to the agreements and reflect rates charged by all
carriers. Roaming charges are passed through to the customer. During 1995, 1996,
and 1997, charges to the Company's customers for services provided by CMS
totaled $81,934, $989,254, and $1,045,266, respectively, and charges for
services provided by U.S. Cellular totaled $713,057, $99,920, and $50,258,
respectively, and charges by the Company to customers of CMS totaled $417,623,
$658,403, and $1,201,552, respectively, and charges to customers of U.S.
Cellular totaled $45,970, $39,179, and $108,819, respectively.
RESALE OF PAGING SERVICE. The Company has entered into an agreement with
American Paging, a subsidiary of TDS, to resell certain paging service provided
by American Paging. Under the terms of this agreement, the Company was charged
$15,214, $78,272, and $94,658 during 1995, 1996, and 1997, respectively, for
wholesale access fees and paging equipment.
CELLULAR AND PAGING SERVICE AND EQUIPMENT. Several of the Company's
shareholders are customers of the Company for cellular and paging services and,
in connection therewith, also purchase or lease cellular telephones and pagers
from the Company. During 1995, 1996 and 1997, Arvig Enterprises, Inc. and its
affiliates, were billed $253,709, $82,114, and $1,643, respectively, and
Consolidated Telephone Company and its affiliates were billed $61,277, $15,200,
and $8,366, respectively, for such services and equipment. In 1996 and 1997 Paul
Bunyan and its affiliates were billed $16,508 and $11,193, respectively, for
such services and equipment.
87
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information provided to the Company
by the beneficial owners or contained in the Company's stock ownership records
regarding beneficial ownership of the Company's Common Stock as of June 12,
1998, (except as noted below) by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Class A or Class B
Common Stock; (ii) the Named Executive Officers; (iii) each director of the
Company; and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares listed. In accordance with the rules of the
Commission, a person is deemed to be the beneficial owner of shares that such
person has a right to acquire beneficial ownership of within 60 days of the date
of determination through the exercise of an option to purchase such shares
("currently exercisable option").
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------ -------------------------- PERCENTAGE OF
NUMBER PERCENTAGE NUMBER PERCENTAGE COMBINED
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS OF SHARES OF CLASS VOTING POWER
- ---------------------------------------------------- --------- ------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Franklin Resources, Inc. (1) ....................... 953,080 12.5% -- -- 4.7%
777 Mariners Island Boulevard
San Mateo, CA 94404
Baron Capital Group, Inc. (2) ...................... 892,000 11.7 -- -- 4.4
767 Fifth Avenue
24th Floor
New York, NY 10153
Telephone & Data Systems, Inc. (3) ................. 671,799 8.8 137,398 10.9% 10.1
30 North LaSalle Street
Chicago, IL 60602
T. Rowe Price (4) .................................. 511,400 6.7 -- -- 2.5
100 E. Pratt Street
Baltimore, MD 21202
Goldman Sachs & Co. (5) ............................ 495,800 6.5 -- -- 2.5
85 Broad Street
New York, New York 10004
Arvig Enterprises, Inc.(6) ......................... 358,893 4.7 121,664 9.7 7.8
160 2nd Ave. S.W.
Perham, MN 56573
Consolidated Telephone Company ..................... 201,107 2.6 86,189 6.8 5.3
1102 Madison Street
Brainerd, MN 56401
Melrose Telcom, Inc. ............................... 185,487 2.4 79,493 6.3 4.8
320 East Main Street
Melrose, MN 56352
Paul Bunyan Rural Telephone Cooperative (7) ........ 94,106 1.2 85,332 6.8 4.7
1831 Anne Street NW
Bemidji, MN 56601
West Central CelCom, Inc. .......................... -- * 79,857 6.3 3.9
209 Minnesota Avenue
Sebeka, MN 56477
Richard P. Ekstrand (8)............................. 173,226 2.3 32,708 2.6 2.5
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------ -------------------------- PERCENTAGE OF
NUMBER PERCENTAGE NUMBER PERCENTAGE COMBINED
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS OF SHARES OF CLASS VOTING POWER
- ---------------------------------------------------- --------- ------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Jeffrey S. Gilbert (9).............................. 30,885 * -- -- *
Marvin C. Nicolai (10).............................. 212,607 2.8% 86,189 6.8% 5.3%
George M. Revering (11)............................. 25,994 * 38,538 3.1 2.0
Don C. Swenson (12)................................. 374,257 4.9 121,664 9.7 7.9
George W. Wikstrom (13)............................. 93,535 1.2 34,944 2.8 2.2
Scott G. Donlea (14)................................ 29,024 * -- -- *
Wesley E. Schultz (15).............................. 46,083 * -- -- *
All directors and executive officers as a group
(8 persons) (16).................................. 985,611 12.6 314,043 24.9 20.0
</TABLE>
- ------------------------
* Denotes less than 1%.
(1) Based on Schedule 13G dated January 30, 1998, filed jointly by Franklin
Resources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr., principal
shareholders of Franklin Resources, Inc., and Franklin Advisers, Inc., a
subsidiary of Franklin Resources, Inc. Franklin Advisers, Inc. has sole
voting and dispositive power over such shares, which are held for the
benefit of investment advisory clients.
(2) Based on Schedule 13G dated May 11, 1998, filed jointly by The Baron
Capital Group, Inc. ("BCG"), BAMCO, Inc. ("BAMCO"), Baron Small Cap Fund
("BSCF"), and Ronald Baron ("Baron"), all of which share voting and
dispositive power over such shares. Baron owns a controlling interest in
BCG; BAMCO is a subsidiary of BCG, and BSCF is an investment advisory
client of BAMCO. BCG and Baron disclaim beneficial ownership of shares held
by their controlled entities to the extent such shares are held by persons
other than BCG and Baron. BAMCO disclaims beneficial ownership of shares
held by its clients to the extent such shares are not held by BAMCO or its
affiliates.
(3) Includes 100% of Rural Cellular Corporation Class A and B shares owned by
Arvig Cellular, Inc. (172,348 Class A and 70,243 Class B); Mid-State
Telephone Co. (74,746 Class A and 31,177 Class B); Minnesota Invco RSA #5
(339,705 Class A and 31,177 Class B); and Hancock Cellular Telephone
Company (85,000 Class A and 4,801 Class B). Telephone and Data Systems,
Inc. owns (i) 100% of TDS Telecommunications Corporation, which owns 100%
of Arvig Telcom, Inc., which in turn owns 100% of Arvig Cellular, Inc., and
100% of Mid-State Telephone Co. and (ii) approximately 80% of the issued
and outstanding shares of United States Cellular Corporation, which owns
100% of United States Cellular Investment Company, which owns 100% of
Minnesota Invco RSA #5, Inc., and 30% of Hancock Telephone Company.
(4) Based on Schedule 13G dated February 12, 1998. According to a statement
provided by T. Rowe Price Associates, Inc., "These securities are owned by
various individual and institutional investors which T. Rowe Price
Associates, Inc. (Price Associates) serves as investment advisor with power
to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Securities Exchange Act of
1934, Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities."
(5) Based on Schedule 13G dated February 14, 1998, filed jointly by Goldman
Sachs & Co. and The Goldman Sachs Group, LP, which have shared voting and
shared dispositive powers over such shares which are held for the benefit
of investment advisory clients.
(6) Includes 259,120 shares of Class A Common Stock and 96,930 shares of Class
B Common Stock owned by East Otter Tail Telephone Co. and 99,773 shares of
Class A Common Stock and 24,734 shares of Class B Common Stock owned by
Twin Valley-Ulen Telephone Company, both wholly-owned subsidiaries of Arvig
Enterprises, Inc.
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(7) Includes 19,285 shares of Class A Common Stock owned by a subsidiary of
Paul Bunyan Rural Telephone Cooperative.
(8) Includes 97,276 shares of Class A Common Stock and 32,708 shares of Class B
Common Stock owned by Lowry Telephone Co., Inc., of which Mr. Ekstrand is
the sole shareholder and Vice President, and 1,500 shares of Class A Common
Stock held by or on behalf of Mr. Ekstrand's children. Also includes 73,950
shares of Class A Common Stock that may be purchased upon exercise of
currently exercisable options.
(9) Includes 19,285 shares of Class A Common Stock owned by Northern
Communications, Inc., of which Mr. Gilbert is the General Manager. Mr.
Gilbert disclaims beneficial ownership of these shares. Also includes
10,500 shares of Class A Common Stock that may be purchased upon exercise
of currently exercisable options.
(10) Includes 201,107 shares of Class A Common Stock and 86,189 shares of Class
B Common Stock owned by Consolidated Telephone Company, of which Mr.
Nicolai is the General Manager. Mr. Nicolai disclaims beneficial ownership
of these shares. Also includes 10,500 shares of Class A Common Stock that
may be purchased upon exercise of currently exercisable options
(11) Includes 26,200 shares of Class B Common Stock owned by Midwest Telephone
Company, of which Mr. Revering is General Manager, and 14,394 shares of
Class A Common Stock and 12,338 shares of Class B Common Stock owned by
Peoples Telephone Company of Big Fork, of which Mr. Revering is President.
Mr. Revering disclaims beneficial ownership of these shares. Also includes
10,500 shares of Class A Common Stock that may be purchased upon exercise
of currently exercisable options.
(12) Includes 358,893 shares of Class A Common Stock and 121,664 shares of
Class B Common Stock owned by affiliates of Arvig Enterprises, Inc., of
which Mr. Swenson is a member of the Board of Directors. Mr. Swenson
disclaims beneficial ownership of these shares. Also includes 10,500
shares of Class A Common Stock that may be purchased upon exercise of
currently exercisable options.
(13) Includes 81,535 shares of Class A Common Stock and 34,944 shares of Class
B Common Stock owned by Wikstrom Telephone Company, Inc., of which Mr.
Wikstrom is a shareholder and Vice President. Mr. Wikstrom disclaims
beneficial ownership of these shares. Also includes 10,500 shares of Class
A Common Stock that may be purchased upon exercise of currently
exercisable options.
(14) Includes four shares of Class A Common Stock owned by or on behalf of Mr.
Donlea's wife and children and 29,020 shares of Class A Common Stock that
may be purchased upon exercise of currently exercisable options.
(15) Includes 45,500 shares of Class A Common Stock that may be purchased upon
exercise of currently exercisable options.
(16) See Notes 8 through 15 above.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary of certain indebtedness which the Company expects
to incur, as such indebtedness is reflected in its negotiations with its
prospective lenders, and certain existing indebtedness. This summary is
qualified in its entirety by reference to the various documents governing the
indebtedness.
NEW CREDIT FACILITY
The Company has received a commitment from an affiliate of TD Securities
(USA) Inc. to replace its Existing Credit Facility with the New Credit Facility,
which will be sufficient to close the Pending Acquisitions, repay certain
existing indebtedness and pay related fees and expenses. Concurrent with the
closing of the Atlantic Acquisition, the Company intends to reduce the size of
the New Credit Facility to $300 million, which, together with the proceeds of
the Notes Offering, will be used to finance the Pending Acquisitions and pay
related fees and expenses.
Proceeds of the New Credit Facility will be used (i) to finance the Pending
Acquisitions, (ii) to refinance the remaining outstanding amounts payable under
the Existing Credit Facility (described below), (iii) for additional
acquisitions in geographic areas where the Company owns cellular systems or in
contiguous areas and (iv) for capital expenditures and general corporate
purposes. As of the date of this Prospectus, the Company has no commitments or
understandings for any acquisitions other than the Pending Acquisitions
disclosed as disclosed herein.
The New Credit Facility will be subject to negotiation of definitive terms
and conditions. As of the date of this Prospectus, assuming the Atlantic
Acquisition closes, it is expected that the New Credit Facility will consist of
a $200 million Senior Secured 8 1/2 year Reducing Revolving Credit Facility (the
"Revolving Credit"), and a $100 million 8 1/2 year Senior Secured Amortizing
Term Loan (the "Term Loan"). If the New Credit Facility is in a combined
aggregate amount greater than $300 million, the Company would expect that the
Revolving Credit would be increased and a second senior secured amortizing term
loan would be in place.
The Company's obligations under the New Credit Facility will be secured by a
first security interest in all of the assets of the Company, excluding its
ownership interest in certain of its subsidiaries. Repayment will be
unconditionally guaranteed by the Company's wholly-owned subsidiaries, each of
whom will execute a security agreement in favor of the lender granting a first
security interest in all of its property and assets. The security interests
granted by the Company and its wholly owned subsidiaries will include all
property, whenever acquired, including inventory, accounts, equipment, contracts
and leases, general intangibles, licenses, furniture and fixtures, deposit
accounts, miscellaneous items and proceeds of any of the foregoing.
Interest will be payable on borrowings under the New Credit Facility at
rates based on, at the option of the Company, either (i) the 1, 2, 3, 6 or, if
made available by the Lender, 9 or 12 months London Interbank Offered Rate for
U.S. dollar deposits (LIBOR) or (ii) the Base Rate, which is the higher of the
prime rate of The Toronto-Dominion Bank or the Federal Funds Rate, plus 0.5%. In
each case, an additional margin of interest will be payable by the Company above
the Base Rate or LIBOR rate. The margin will be based on the ratio of the
Company's indebtedness (including the indebtedness of its subsidiaries) to its
annualized operating cash flow as of the end of the most recently completed
fiscal quarter. The margin above the Base Rate fluctuates from zero if the ratio
is equal to or less than 4 to 1, to 1.25% if the ratio is more than 8 to 1. The
margin above the LIBOR rate fluctuates from .75% if the ratio is equal to or
less than 4 to 1, to 2.25% if the ratio is more than 8 to 1.
Under certain terms and conditions, subject to the approval of a majority of
the lender interests in the facility, the amount available under the New Credit
Facility may be increased from $300 million to an amount not to exceed $425
million. The $125 million incremental facility will have a maturity no earlier
than 12 months after the maturity of the $300 million indebtedness under the New
Credit Facility, with principal repayments commencing not earlier than and in
amounts not larger than, the repayments under the $300 million indebtedness
under the New Credit Facility.
Subsequent to an event of default under the agreements governing the New
Credit Facility which continues beyond the applicable cure period, interest on
all outstanding amounts shall be payable at 2% over the highest applicable
margin otherwise applicable under the Base Rate option.
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It is anticipated that the closing on the New Credit Facility will occur
immediately prior to the closing of the Atlantic Acquisition. Interest only will
be payable for the first 2 1/2 years. Thereafter, the New Credit Facility
commitment will be reduced and outstanding borrowings shall be repaid in
installments increasing over its term. In the first year of principal payments,
the annual amount to be repaid is 7.5% of the total principal amount, gradually
increasing to an annual payment in the final year of 27.5%. Payment in full of
the Revolving Credit and Term Loan will be due 8 1/2 years following closing of
the loans.
In addition to the scheduled reductions of outstanding principal described
above, the Company will be required to reduce the amount of commitment available
to it under the New Credit Facility on each March 31, beginning on March 31,
2001, by an amount equal to 50% of its excess cash flow for the immediately
preceding year or portion thereof. In addition, the Company must pay certain
costs if it prepays LIBOR advances.
The New Credit Facility will contain covenants that, subject to certain
exceptions, restrict the Company's ability to (1) make capital expenditures; (2)
sell or dispose of its assets; (3) incur additional debt; (4) incur contingent
liabilities and liens; (5) merge or acquire other companies or be subject to a
change of control of more than 50% in ownership; (6) make loans or advances or
stock repurchases; (7) engage in transactions with affiliates; and (8) make
investments. In addition, the primary business activity of the Company must
remain within the wireless communications industry.
The New Credit Facility will also require that the Company satisfy certain
financial tests and maintain certain financial ratios. The Company will be
required to enter into certain interest rate swap agreements which will rank
PARI PASSU with the New Credit Facility.
Upon the occurrence of an event of default under the New Credit Facility,
the lenders may cease making loans, terminate the New Credit Facility and
declare all amounts outstanding to be immediately due and payable. The New
Credit Facility specifies a number of "events of default" including, among
others, the failure to make timely principal and interest payments, to perform
the covenants, or to maintain the required financial performance ratios.
EXISTING CREDIT FACILITY
As of the date of this Prospectus, the Company is party to a Loan Agreement
dated as of May 1, 1997 with a consortium of banks (the "Banks"), as amended by
a First Amendment to Loan Agreement dated August 4, 1997, a Second Amendment to
Loan Agreement dated as of December 30, 1997, a Third Amendment to Loan
Agreement dated as of April 17, 1998, and a Fourth Amendment to Loan Agreement
dated as of April 24, 1998 (collectively, the "Existing Credit Facility"). The
Existing Credit Facility comprises a revolving credit line in the principal
amount of $160 million. The Company used the $120.6 million net proceeds from
the Exchangeable Preferred Stock Offering to reduce the outstanding borrowings
under the Existing Credit Facility. It is anticipated that the proceeds of the
Notes Offering, together with the proceeds of the New Credit Facility described
above, will pay all remaining obligations under the Existing Credit Facility in
full. In the event the Atlantic Acquisition does not close, the Existing Credit
Facility will remain in place and the New Credit Facility will not be entered
into.
The Company's obligations under the Existing Credit Facility are secured by
a first security interest in all of the assets of the Company, excluding its
ownership interests in Cellular 2000 and Switch 2000. Repayment is
unconditionally guaranteed by certain of the Company's subsidiaries, each of
whom has executed a security agreement in favor of the Banks granting a first
perfected security interest in all of its property and assets. The security
interests granted by the Company and such subsidiaries pledge as collateral all
property, whenever acquired, including inventory, accounts, equipment, contracts
and leases, general intangibles, licenses, furniture and fixtures, deposit
accounts, miscellaneous items and proceeds of any of the foregoing.
Interest is payable quarterly on borrowings under the Existing Credit
Facility at rates based on, at the option of the Company, either (i) the 1, 2,
3, 6 or if made available by the Banks, 9 or 12 months LIBOR Rate or (ii) the
Base Rate, which is the higher of the prime rate of The Toronto-Dominion Bank or
the Federal Funds Rate plus 0.5%. In each case, an additional margin of interest
is payable by the Company above the Base Rate or LIBOR rate. The margin is based
on the ratio of the Company's total indebtedness (including indebtedness of its
subsidiaries) to the operating cash flow of the Company and its subsidiaries for
the twelve calendar month period ending as of the end
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of the most recently completed fiscal quarter. The margin above the Base Rate
fluctuates from zero if the ratio is less than 3 to 1, to .875% if the ratio is
more than 6. The margin above the LIBOR rate fluctuates from 1.00% if the ratio
is less than 3 to 1, to 1.875% if the ratio is greater than 6.
Subsequent to an event of default under the Existing Credit Facility which
continues beyond the applicable cure period, interest on outstanding amounts is
payable at the highest applicable margin plus 2%.
The Existing Credit Facility requires that the outstanding commitment be
reduced in quarterly installments beginning October 30, 1999. The installment
amounts payable each year increase over the term of the Loan Agreement, with a
reduction of 1.563% each quarter in the first year, increasing to a reduction of
10.416% each quarter in the final six months ending January 31, 2005, when
payment in full is due.
The Existing Credit Facility contains covenants that, subject to certain
exceptions, restrict the Company's ability to (1) make capital expenditures; (2)
sell or dispose of its assets; (3) incur additional debt; (4) incur contingent
liabilities and liens; (5) merge or acquire other companies or be subject to a
change of control of more than 25% in ownership; (6) make loans or advances or
stock repurchases; (7) engage in transactions with affiliates; and (8) make
investments. In addition the primary business activity of the Company must
remain within the wireless communications industry.
The Existing Credit Facility also requires that the Company satisfy certain
financial tests and maintain certain financial ratios. The Company is required
to enter into certain interest rate swap agreements which rank PARI PASSU with
the Existing Credit Facility. In addition to the scheduled reductions of
outstanding principal described above, the Company is required to reduce the
amount of commitment available to it under the Existing Credit Facility on each
March 31, beginning on March 31, 2000, by an amount equal to 50% of its excess
cash flow for the immediately preceding year or portion thereof. In addition,
the Company must pay certain costs if it prepays LIBOR advances.
Upon the occurrence of an event of default under the Existing Credit
Facility, the Banks may cease making loans, terminate the facility and declare
all amounts outstanding to be immediately due and payable. The Existing Credit
Facility specifies a number of "events of default" including, among others, the
failure to make timely principal and interest payments, to perform the
covenants, or to maintain the required financial performance ratios.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the existing capital stock of the
Company is based, in part, on the provisions of the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), and the Company's
Restated Bylaws (the "Bylaws") and is qualified in its entirety by reference to
the provisions of the Articles of Incorporation and Bylaws. The authorized
capital stock of the Company consists of 15,000,000 shares of Class A Common
Stock, par value $.0l per share (the "Class A Common Stock"), 5,000,000 shares
of Class B Common Stock, par value $.0l per share (the "Class B Common Stock"),
and 10,000,000 undesignated shares of capital stock, par value $.01 per share
(the "Undesignated Shares"). As of June 12, 1998, 7,634,104 shares of Class A
Common Stock, 1,260,668 shares of Class B Common Stock and 125,000 shares of
Exchangeable Preferred Stock were issued and outstanding.
COMMON STOCK
The Class A Common Stock and the Class B Common Stock (collectively, the
"Common Stock") are identical except as to voting rights. The Class A Common
Stock has one vote per share, and the Class B Common Stock has ten votes per
share. As of June 12, 1998 there were 83 holders of record of Class A Common
Stock and 32 holders of record of Class B Common Stock. The Class A Common Stock
is publicly held and is traded on the Nasdaq National Market under the symbol
"RCCC." The Class B Common Stock is privately held and is not traded on any
market. Directors and executive officers of the Company own in the aggregate
approximately 25% of the outstanding Class B Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management."
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Shares of Class B Common Stock are to be converted into Class A Common Stock
on a share-for-share basis: (i) at any time at the option of the holder, (ii)
immediately upon the transfer of shares of Class B Common Stock to any holder
other than an affiliate of the current holder, or (iii) at any time upon the
vote of the holders of at least two-thirds of the Class B Common Stock then
outstanding.
Holders of Common Stock have no cumulative voting rights or pre-emptive
rights. Subject to preferences that may be applicable to any then outstanding
shares of Exchangeable Preferred Stock or other shares of preferred stock (if
any), holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Company's Board of Directors out of funds legally
available therefor. Cash dividends, if any, must be paid equally to holders of
Class A Common Stock and Class B Common Stock. Dividends paid in shares of
Common Stock are to be in shares of Class A Common Stock to holders of Class A
Common Stock and in shares of Class B Common Stock to holders of Class B Common
Stock. In the event of a liquidation, dissolution or winding-up of the Company,
holders of Common Stock will be entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Exchangeable Preferred Stock or other shares of preferred stock
(if any).
UNDESIGNATED SHARES
The Articles of Incorporation authorize the Board of Directors to issue,
from time to time and without further shareholder action, one or more series of
capital stock from the Undesignated Shares, and to fix the relative rights and
preferences of such shares, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. The
issuance of Undesignated Shares may have the effect of delaying, deferring, or
preventing a change in control of the Company without further action by the
shareholders of the Company. Undesignated Shares issued with voting, conversion,
or redemption rights may adversely affect the voting power of the holders of the
Common Stock and could discourage any attempt to obtain control of the Company.
As of the date of this Prospectus, the Board of Directors has authorized the
issuance of 450,000 shares of Exchangeable Preferred Stock, including 125,000
shares of Old Exchangeable Preferred Stock, 125,000 shares of New Exchangeable
Preferred Stock to be issued in the Exchange Offer as well as the issuance of
Additional Shares and Dividend Shares, and currently has no plan or intention to
issue any additional series or class of capital stock. See "Description of
Exchangeable Preferred Stock and Exchange Debentures -- Exchangeable Preferred
Stock."
LIMITATION ON FOREIGN OWNERSHIP AND TRANSFERS OF CONTROL
The Communications Act and the FCC's implementing regulations prohibit the
holding of a common carrier license by a corporation of which more than 20% of
the capital stock is owned directly or beneficially by aliens or of which more
than 25% of the capital stock of its controlling company is owned directly or
beneficially by aliens. For this purpose, "capital stock" of the Company
includes all equity interests in the Company, including its Class A and Class B
Common Stock, preferred stock (including the Exchangeable Preferred Stock) and
Undesignated Shares. Absent FCC approval of foreign ownership exceeding these
limits, failure to comply with these requirements may result in an FCC order
requiring divestiture of alien ownership to bring the Company into compliance
with the Communications Act. In addition, fines or denial of renewal or
revocation of such license is possible. The Articles of Incorporation permit the
redemption of the Company's Common Stock from shareholders where necessary to
protect the Company's licenses.
The Communications Act and the FCC's regulations also require prior approval
of changes in control of entities holding common carrier licenses.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by Minnesota Business Corporation Act (the "MBCA"), the
Articles of Incorporation provide that no director of the Company will be liable
to the Company or its shareholders for monetary damages for breach of a
fiduciary duty as a director other than (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
approval of certain unlawful dividends or stock repurchases or redemptions, and
(iv) any transaction from
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which the director derived an improper personal benefit. In appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Minnesota law.
Section 302A.521 of the MBCA and the Articles of Incorporation provide that
the Company shall indemnify any director, officer, employee or agent of the
Company made or threatened to be made a party to a proceeding, by reason of the
former or present official capacity of the person, against judgments, penalties,
fines, settlements and reasonable expenses incurred by the person in connection
with the proceeding if certain statutory standards are met. "Proceeding" means a
threatened, pending or completed civil, criminal, administrative, arbitration or
investigative proceeding, including one by or in the right of the Company.
Section 302A.521 and the Articles of Incorporation contain detailed terms
regarding such right of indemnification and reference is made thereto for a
complete statement of such indemnification rights.
CERTAIN ANTITAKEOVER EFFECTS
In addition to the Undesignated Shares, certain provisions of the MBCA, the
Articles of Incorporation and Bylaws could have the effect of discouraging
certain attempts to acquire the Company, including a hostile takeover, or remove
incumbent management even if some or a majority of the Company's shareholders
were to deem such an attempt to be in their best interest, including an attempt
that might result in the payment of a premium over the market price for the
shares of Common Stock held by the Company's shareholders.
CLASSIFIED BOARD OF DIRECTORS, REMOVAL, VACANCIES
The Articles of Incorporation and Bylaws provide that the Board of Directors
of the Company is divided into three classes of directors serving staggered
three-year terms. The classification of directors has the effect of making it
more difficult for shareholders to change the composition of the Board of
Directors in a relatively short period of time. The Articles of Incorporation
and Bylaws further provide that directors may be removed only by the affirmative
vote of the holders of at least two-thirds of the voting power of all of the
outstanding shares of Common Stock entitled to vote for the election of
directors. In addition, vacancies, whether created by resignation, death,
removal or an increase in the number of directors, may be filled by a vote of a
majority of directors then in office, even though less than a quorum. The
foregoing provisions could prevent shareholders from removing incumbent
directors and filling the resulting vacancies with their own nominees.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER PROPOSALS AND NOMINATIONS OF
DIRECTORS
The Bylaws establish procedures with regard to the nomination, other than by
the Company's Board of Directors, of candidates for election as directors (the
"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of shareholders of the Company (the "Business Procedure"). The
Nomination Procedure requires that a shareholder give prior written notice, in
specified form, of a planned nomination to the Company's Board of Directors to
the Company's Secretary. Any person who is not so nominated will not be eligible
for election as a director under the Nomination Procedure. Under the Business
Procedure, a shareholder seeking to have any business conducted at an annual or
special meeting must give prior written notice, in specified form, to the
Secretary of the Company. If business is not properly brought before a meeting
in accordance with the Business Procedure, such business will not be transacted
at such meeting. Although the Bylaws do not give the Company's Board of
Directors any power to approve or disapprove shareholder nominations for the
election of directors or any other business desired by shareholders to be
conducted at an annual or any other meeting, the Nomination Procedure and the
Business Procedure (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed and (ii) may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempt to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its shareholders.
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SUPERMAJORITY VOTE
The Articles of Incorporation require the affirmative vote of at least
two-thirds of the voting power of all outstanding Common Stock entitled to vote
to authorize any merger, consolidation, exchange, sale or other disposition of
all or substantially all of the Company's assets or voluntary dissolution of the
Company. Such supermajority shareholder approval is not required if two-thirds
of the directors of the Company approve the transaction. Such actions require
only majority shareholder approval if the proposed action has been approved by
the affirmative vote of two-thirds of the directors of the Company.
AMENDMENTS
The approval of the holders of at least two-thirds of the voting power of
all outstanding shares of Common Stock entitled to vote for the election of
directors is required to amend certain provisions of the Articles of
Incorporation and Bylaws. Provisions requiring such approval include those
described above.
CERTAIN STATUTORY PROVISIONS
Section 302A.671 of the MBCA applies, with certain exceptions, to any
acquisition of voting stock of the Company resulting in the acquisition of
beneficial ownership of 20% or more of the voting stock then outstanding.
Section 302A.671 requires approval of any such acquisition by a majority of the
shareholders of the Company prior to its consummation. In general, shares
acquired in the absence of such approval are denied voting rights and are
redeemable at their then fair market value by the Company within 30 days after
the acquiring person has failed to give a timely information statement to the
Company or the date the shareholders have voted not to grant voting rights to
the acquiring person's shares.
Section 302A.673 of the MBCA generally prohibits any shareholder that
purchases 10% or more of the Company's voting shares (an "interested
shareholder") to enter into any business combination with the Company, or any
subsidiary of the Company, within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition.
DESCRIPTION OF SENIOR SUBORDINATED NOTES
The Old Notes have been, and the New Notes will be, issued under an
Indenture, dated as of May 14, 1998 (the "Notes Indenture"), by and between the
Company and Norwest Bank Minnesota, National Association, as Trustee (the "Notes
Trustee"). The Notes will be subject to and governed by the Trust Indenture Act.
The following summary of the material terms and provisions of the Senior
Subordinated Notes and the Notes Indenture does not purport to be complete and
is subject to and qualified in its entirety by reference to the Notes Indenture
(including the terms made part of the Notes Indenture by reference to the Trust
Indenture Act), copies of which are available for inspection at the Corporate
Trust Office of the Notes Trustee in Minneapolis, Minnesota and which may also
be obtained from the Company. Definitions relating to certain capitalized terms
used in this section of this Prospectus are set forth under "-- Certain
Definitions" and throughout this description. Capitalized terms that are used in
this section but not otherwise defined herein have the meanings assigned to them
in the Notes Indenture and such definitions are incorporated herein by
reference. Unless otherwise indicated, references in this section to covenants
are to covenants set forth in the Notes Indenture. As used in this section, the
"Company" refers to Rural Cellular Corporation, unless the context otherwise
requires.
GENERAL
The Senior Subordinated Notes will be unsecured obligations of the Company
and will be limited in aggregate principal amount to $175 million, of which $125
million were issued in the Notes Offering (the additional $50 million of
aggregate principal amount of Senior Subordinated Notes being referred to as
"Additional Notes"). The Company will be permitted to offer and sell Additional
Notes under the Notes Indenture after the Issue Date (subject to the
restrictions on Indebtedness contained in the Notes Indenture), provided that
the Company must
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offer and sell Additional Notes in tranches which are in each case no less than
$25 million in principal amount in the aggregate. The Senior Subordinated Notes
will be senior subordinated obligations of the Company, subordinated in right of
payment to Senior Indebtedness of the Company, including amounts outstanding
under the Existing Credit Facility prior to the consummation of the Atlantic
Acquisition and under the New Credit Facility after the consummation of the
Atlantic Acquisition, PARI PASSU in right of payment with all future senior
subordinated indebtedness of the Company and senior in right of payment to any
future subordinated indebtedness of the Company.
MATURITY, INTEREST AND PRINCIPAL
The Senior Subordinated Notes will mature on May 15, 2008. Interest on the
Senior Subordinated Notes will accrue at a rate of 9 5/8% per annum and will be
payable in cash semiannually on each May 15 and November 15, commencing on
November 15, 1998, to the Holders of record on the immediately preceding May 1
and Novem-
ber 1. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Senior Subordinated Notes will be payable both as to principal and
interest at the office or agency of the Company maintained for such purpose
within the City and State of New York. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Notes Trustee maintained for such purpose.
All moneys paid by the Company to a paying agent for the payment of
principal of (and premium, if any) and any interest on any Senior Subordinated
Notes which remain unclaimed for two years after such principal (or premium, if
any) or interest has become due and payable may be repaid to the Company and
thereafter the Holder of such Senior Subordinated Notes may look only to the
Company for payment thereof.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Senior Subordinated Notes will, to the extent set forth in the Notes Indenture,
be subordinated in right of payment to the prior payment in full of all Senior
Indebtedness. Upon any payment or distribution of assets of the Company to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Company, the holders of all
Senior Indebtedness will be entitled to receive payment in full of all amounts
due or to become due thereon before the Holders of the Senior Subordinated Notes
will be entitled to receive any Senior Subordinated Notes Payment.
In the event that any Senior Payment Default shall have occurred and be
continuing, or the maturity of any Senior Indebtedness shall have been
accelerated, then no Senior Subordinated Notes Payment shall be made unless and
until such Senior Payment Default shall have been cured or waived and any
acceleration of Senior Indebtedness shall have been rescinded or annulled. In
the event that any Senior Nonmonetary Default shall have occurred and be
continuing, then, upon the receipt by the Company and the Notes Trustee of
written notice of such Senior Nonmonetary Default from a Person designated as a
representative for the Designated Senior Indebtedness or, if there is no
outstanding Designated Senior Indebtedness, any holder of Senior Indebtedness,
no Senior Subordinated Notes Payment shall be made during the period (the
"Payment Blockage Period") commencing on the date of such receipt of such
written notice and ending on the earlier of (i) the date on which such Senior
Nonmonetary Default shall have been cured or waived or shall have ceased to
exist and any acceleration of Senior Indebtedness shall have been rescinded or
annulled or the Senior Indebtedness to which such Senior Nonmonetary Default
relates shall have been discharged or (ii) the 179th day after the date of such
receipt of such written notice. No more than one Payment Blockage Period may be
commenced with respect to the Senior Subordinated Notes during any 360-day
period and there shall be a period of at least 181 consecutive days in each
360-day period in which no Payment Blockage Period is in effect. For all
purposes of this paragraph, no Senior Nonmonetary Default that was known to the
holders of Senior Indebtedness to exist or be continuing on the date of
commencement of any Payment Blockage Period shall be, or be made, the basis for
the commencement of a subsequent Payment Blockage Period by a representative for
the Designated Senior Indebtedness unless such Senior Nonmonetary Default shall
have been cured for a period of not less than 90 consecutive days.
The subordination provisions described above will cease to be applicable to
the Senior Subordinated Notes upon any defeasance or covenant defeasance of the
Senior Subordinated Notes as described under "Defeasance."
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At March 31, 1998 on a pro forma basis after giving effect to the Pending
Acquisitions and the Offerings, Senior Indebtedness aggregated approximately
$163.8 million. The Company expects from time to time to Incur additional
Indebtedness constituting Senior Indebtedness. See "Capitalization." In
addition, all existing and future Indebtedness and other liabilities of the
Company's Subsidiaries will be effectively senior in right of payment to the
Senior Subordinated Notes. At March 31, 1998 on a pro forma basis after giving
effect to the Pending Acquisitions and the Offerings, the Company's Subsidiaries
had no material Indebtedness outstanding, other than Intercompany Indebtedness
and guarantees by such Subsidiaries of the Credit Facility.
OPTIONAL REDEMPTION
After May 15, 2003, the Senior Subordinated Notes may be redeemed at any
time at the option of the Company, in whole or from time to time in part, on not
less than 30 nor more than 60 days prior notice, at the following redemption
prices (expressed as percentages of principal amount thereof), together with
accrued and unpaid interest to but excluding the date fixed for redemption, if
redeemed during the 12-month period beginning on May 15 of each of the years
indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------- -----------------
<S> <C>
2003....................................................................... 104.813%
2004....................................................................... 103.208%
2005....................................................................... 101.604%
2006 and thereafter........................................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to May 15, 2001, the
Company may redeem up to 25% of the aggregate principal amount of Senior
Subordinated Notes (including Additional Notes) actually issued under the
Indenture from the net cash proceeds of a Qualifying Event at a price equal to
109.625% of the aggregate principal amount thereof, together with accrued and
unpaid interest to but excluding the date fixed for redemption; PROVIDED, that
at least $90 million in aggregate principal amount of Senior Subordinated Notes
remains outstanding immediately following such redemption. Any such redemption
must be made within 30 days after the related Qualifying Event.
Notice of any optional redemption of any Senior Subordinated Notes (or
portion thereof) will be given to Holders at their addresses appearing in the
Security Register, not less than 30 nor more than 60 days prior to the date
fixed for redemption. The notice of redemption shall state the redemption date,
the redemption price, if less than all the outstanding Senior Subordinated Notes
are to be redeemed, principal amounts of the particular Senior Subordinated
Notes to be redeemed, that on the redemption date the redemption price will
become due and payable upon each Senior Subordinated Note to be redeemed and the
place or places where such Senior Subordinated Notes are to be surrendered for
payment of the redemption price. If less than all of the Notes are to be
redeemed, the particular Notes to be redeemed will be selected not more than 60
days prior to the redemption date by the Notes Trustee by such method as the
Notes Trustee deems fair and appropriate.
NO SINKING FUND
No sinking fund is provided for the Senior Subordinated Notes.
LIMITATION ON USE OF PROCEEDS; PROCEEDS PURCHASE OFFER
All proceeds (net of underwriting discounts and commissions and other
transaction expenses as described in this Prospectus under the caption "Use of
Proceeds") received by the Company from the Notes Offering shall be applied to
the purchase of assets in the Atlantic Acquisition or, as set forth below, to
repay any remaining indebtedness under the Existing Credit Facility pending such
acquisition. Pending the consummation of the Atlantic Acquisition, all such
proceeds shall be held by the Company in a segregated account (held in cash or
Cash Equivalents), except to the extent such proceeds are used to repay
indebtedness under the Existing Credit Facility (which repayment out of such
proceeds shall be permitted under the Notes Indenture only if the banks
thereunder
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or under the New Credit Facility unconditionally consent to allow an amount
equal to the amount repaid from proceeds of the Notes Offering and any accrued
and unpaid interest thereon to be reborrowed for the sole purpose of funding a
repurchase of the Senior Subordinated Notes, and any accrued and unpaid interest
thereon, pursuant to a Proceeds Purchase Offer (as defined below)).
In the event that all of the net proceeds of the sale of the Senior
Subordinated Notes have not been so applied, directly or indirectly, to the
purchase of assets in the Atlantic Acquisition on or before September 11, 1998,
the Company will make an offer (a "Proceeds Purchase Offer") to all holders of
Senior Subordinated Notes to purchase, at a price equal to 101% of the aggregate
principal amount thereof plus accrued interest to but excluding the purchase
date, all Senior Subordinated Notes outstanding.
If applicable, within five Business Days following September 11, 1998, the
Company will mail a notice to each Holder setting forth the Proceeds Purchase
Offer and offering to repurchase Senior Subordinated Notes pursuant to the
procedures required by the Notes Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Subordinated Notes in the Proceeds Purchase Offer.
The Proceeds Purchase Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Proceeds Purchase Offer
Period"). No later than five Business Days after the termination of the Proceeds
Purchase Offer Period (the "Proceeds Purchase Date"), the Company will purchase
the principal amount of Senior Subordinated Notes required to be purchased
pursuant to this covenant (the "Proceeds Purchase Offer Amount") or, if less
than the Proceeds Purchase Offer Amount has been tendered, all Senior
Subordinated Notes or portions thereof tendered in response to the Proceeds
Purchase Offer. Payment for any Senior Subordinated Notes so purchased will be
made in the same manner as interest payments are made.
If the Proceeds Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Senior Subordinated Note is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who tender Senior Subordinated Notes
pursuant to the Proceeds Purchase Offer.
On or before the Proceeds Purchase Date, the Company will, to the extent
lawful, accept for payment all Senior Subordinated Notes or portions thereof
tendered, and will deliver to the Notes Trustee an Officers' Certificate stating
that such Senior Subordinated Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this covenant. The
Company, the Depositary or the Paying Agent, as the case may be, will promptly
(but in any case not later than five Business Days after the Proceeds Purchase
Date) mail or deliver to each tendering Holder an amount equal to the purchase
price of the Senior Subordinated Notes or portions thereof tendered by such
Holder, and the Company will promptly issue a new Senior Subordinated Note, and
the Notes Trustee, upon written request from the Company, will authenticate and
mail or deliver such new Senior Subordinated Note to such Holder, in a principal
amount equal to any unpurchased portion of the Senior Subordinated Note
surrendered. The Company will publicly announce the results of the Proceeds
Purchase Offer on the Proceeds Purchase Date.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of a Senior
Subordinated Note shall have the right to have such Senior Subordinated Note
repurchased by the Company on the terms and conditions set forth in the Notes
Indenture. The Company shall, within 30 days following the date of the
consummation of a transaction resulting in a Change of Control, mail an Offer to
Purchase all outstanding Senior Subordinated Notes at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest
to but excluding the date of purchase. The occurrence of a Change of Control
constitutes an event of default under the Credit Facility, entitling the lenders
thereunder to accelerate all obligations owing thereunder, which would result
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in a block on all payments under the Senior Subordinated Notes. There can be no
assurance that the Company will be able to make or satisfy the Offer to
Purchase.
"Change of Control" means (i) directly or indirectly a sale, transfer or
other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's Wholly
Owned Restricted Subsidiaries, as an entirety or substantially as an entirety in
one transaction or series of related transactions, in each case with the effect
that any Person or group of Persons owns more than 50% of the total Voting Power
entitled to vote in the election of directors, managers or trustees of the
transferee entity immediately after such transaction, (ii) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the "beneficial owner"
(as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether
or not applicable, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Power of the
Company or (iii) during any period of 24 consecutive months, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-l thereunder, in connection
with any Offer to Purchase.
CERTAIN COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The Notes Indenture prohibits the Company and its Restricted Subsidiaries
from Incurring any Indebtedness, except that the Company may Incur Indebtedness
if (x) there exists no Event of Default or an event which with notice or lapse
of time or both would become an Event of Default immediately prior and
subsequent thereto, and (y) after giving effect thereto, the Company's
Annualized Operating Cash Flow Ratio on a pro forma basis (calculated on the
assumption that such Indebtedness had been incurred on the first day of the
applicable Reference Period), would have been less than:
<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
- ----------------------------------------------------------------------------------- ---------
<S> <C>
9.0 to
Prior to January 1, 2000........................................................... 1.0
8.0 to
Thereafter......................................................................... 1.0
</TABLE>
Notwithstanding the foregoing, if there exists no Event of Default or an
event which with notice or lapse of time or both would become an Event of
Default immediately prior and subsequent thereto, the Company and its Restricted
Subsidiaries may Incur the following Indebtedness (other than the Indebtedness
evidenced by the Exchange Debentures) without regard to the foregoing
limitations:
(i) Indebtedness evidenced by the Senior Subordinated Notes on the
Issue Date;
(ii) the Incurrence by the Company of (x) prior to the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
Existing Credit Facility in an aggregate principal amount not to exceed $160
million at any time outstanding, reduced by repayments and permanent
reductions thereof due to application of Net Cash Proceeds pursuant to the
"Limitation on Asset Sales and Sales of Subsidiary Stock" covenant;
PROVIDED, HOWEVER, that if such Indebtedness is repaid with the net proceeds
of the sale of the Senior Subordinated Notes pursuant to the covenant
entitled "-- Limitation on Use of Proceeds; Proceeds Purchase Offer," no
Indebtedness in excess of $30 million in the aggregate at any time
outstanding may be Incurred thereunder except for Indebtedness whose
proceeds are applied by the Company for the sole purpose of
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<PAGE>
funding a repurchase of the Senior Subordinated Notes under the covenant
entitled "--Limitation on Use of Proceeds; Proceeds Purchase Offer" and (y)
on and after the date of the consummation of the Atlantic Acquisition,
Indebtedness Incurred under the New Credit Facility in an aggregate
principal amount not to exceed $300 million at any time outstanding, reduced
by repayments and permanent reductions thereof due to the application of Net
Cash Proceeds as set forth in the "-- Limitation on Asset Sales and Sales of
Subsidiary Stock" covenant;
(iii) Indebtedness of the Company or any Restricted Subsidiary of the
Company owing to the Company or any Restricted Subsidiary of the Company
("Intercompany Indebtedness"); PROVIDED that (A) in the case of any such
Indebtedness of the Company, such obligations will be unsecured and
subordinated in all respects to the Holders' rights pursuant to the Senior
Subordinated Notes to the same extent as the Senior Subordinated Notes are
subordinated to Senior Indebtedness and (B) if any event occurs that causes
a Restricted Subsidiary to no longer be a Restricted Subsidiary, then this
clause (iii) will no longer be applicable to such Indebtedness of that
Restricted Subsidiary;
(iv) Indebtedness of the Company or any Restricted Subsidiary of the
Company to renew, extend, refinance or refund any Indebtedness of the
Company or such Restricted Subsidiary outstanding or committed on the date
of renewal, extension, refinancing or refunding other than Indebtedness
Incurred pursuant to clause (ii) or (iii); PROVIDED, HOWEVER, that such
Indebtedness does not exceed the principal amount of outstanding or
committed Indebtedness so renewed, extended, refinanced or refunded plus
financing fees and other expenses associated therewith; and PROVIDED
FURTHER, HOWEVER, that (a) such renewing, extending, refinancing or
refunding Indebtedness will not have a final maturity and will not have any
other mandatory repayments or redemptions prior to or in amounts greater
than those of the Indebtedness being renewed, extended, refinanced or
refunded, (b) in the case of any refinancing or refunding of Indebtedness
that ranks PARI PASSU in right of payment to the Senior Subordinated Notes,
the refinancing or refunding Indebtedness ranks PARI PASSU or is
subordinated in right of payment to the Senior Subordinated Notes and, in
the case of any refinancing or refunding of Indebtedness subordinated to the
Senior Subordinated Notes, the refinancing or refunding Indebtedness ranks
subordinate in right of payment to the Senior Subordinated Notes to
substantially the same extent as the Indebtedness refinanced or refunded and
(c) no Restricted Subsidiary of the Company will be permitted to refinance
any Indebtedness of the Company;
(v) Indebtedness Incurred by the Company or any Restricted Subsidiary of
the Company under Interest Hedge Agreements to hedge interest on permitted
Indebtedness, PROVIDED, that the notional principal amount of any such
Interest Hedge Agreements does not exceed the principal amount of
Indebtedness to which such Interest Hedge Agreements relate;
(vi) Indebtedness of any Restricted Subsidiary of the Company which does
not exceed $30 million in the aggregate for all such Restricted Subsidiaries
at any time outstanding (excluding any Intercompany Indebtedness or Acquired
Indebtedness permitted to be Incurred under the Notes Indenture), PROVIDED,
that after giving effect thereto on a pro forma basis the Company's
Annualized Operating Cash Flow Ratio is less than 7.5 to 1.0 and the
Adjusted Annualized Operating Cash Flow Ratio of such Restricted Subsidiary
is less than 5.0 to 1.0;
(vii) any guarantee by any Restricted Subsidiary of any Indebtedness
Incurred under the Existing Credit Facility or New Credit Facility in
compliance with this covenant;
(viii) Acquired Indebtedness, PROVIDED that on a pro forma basis after
giving effect to the Incurrence of such Indebtedness, the Company shall be
able to Incur $1.00 of additional Indebtedness pursuant to the provisions
described under the first paragraph of this covenant "Limitation on
Consolidated Indebtedness";
(ix) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of business;
(x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any
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obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the Company (other than
guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition), in an amount not to exceed the
gross proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition; and
(xi) Indebtedness of the Company or any Restricted Subsidiary, other
than Indebtedness permitted pursuant to clauses (i) through (x) above, which
does not exceed $10 million at any time outstanding or committed.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Notes Indenture prohibits the Company from allowing any Restricted
Subsidiary of the Company to create or issue any Preferred Stock except:
(i) Preferred Stock outstanding on the Issue Date;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by any Person prior to that Person's having
become a direct or indirect Restricted Subsidiary of the Company; and
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance outstanding Preferred Stock of a Restricted
Subsidiary, provided that (a) the liquidation value of the refinancing
Preferred Stock does not exceed the liquidation value so refinanced plus
financing fees and other expenses associated with such refinancing and (b)
such refinancing Preferred Stock has no mandatory redemptions prior to (and
in no greater amounts than) the Preferred Stock being refinanced.
LIMITATION ON ASSET SALES AND SALES OF SUBSIDIARY STOCK
The Notes Indenture provides that after the Issue Date the Company will not,
and will not permit any of its Restricted Subsidiaries to, in one transaction or
a series of related transactions, convey, sell, transfer, assign or otherwise
dispose of, directly or indirectly, any of its property, business or assets,
including any sale or other transfer or issuance of any Capital Stock of any
Restricted Subsidiary of the Company, whether owned on the Issue Date or
thereafter acquired (an "Asset Sale") unless (a) such Asset Sale is for Fair
Market Value, (b) at least 80% of the value of the consideration for such Asset
Sale consists of (i) cash, (ii) the assumption by the transferee (and release of
the Company or Subsidiary, as the case may be) of Senior Indebtedness or
Indebtedness of the Company that ranks PARI PASSU in right of payment to the
Senior Subordinated Notes or Indebtedness of such Restricted Subsidiary, or
(iii) notes, obligations or other marketable securities (collectively
"Marketable Securities") that are immediately converted into cash and (c) the
Net Cash Proceeds therefrom are applied on or prior to the date that is 360 days
after the date of such Asset Sale (i) to the repayment of Indebtedness under the
Credit Facility (which payment permanently reduces the commitment thereunder) or
(ii) to the repurchase of the Senior Subordinated Notes pursuant to an offer to
purchase (an "Asset Sale Offer") described below or (iii) to an investment in a
Wireless Communications Business.
Notwithstanding the foregoing provisions of the prior paragraph:
(i) any Restricted Subsidiary of the Company may convey, sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(ii) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, (A) convey, sell, lease, transfer, assign or otherwise
dispose of assets in the ordinary course of business provided that the
consideration received reflects the Fair Market Value of such assets and (B)
exchange assets for either assets or
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equity interests in Wireless Communications Businesses, provided that (I)
the assets or equity interests received have a Fair Market Value
substantially equal to the assets exchanged, (II) the assets received by the
Company are controlled by the Company with respect to voting rights and
day-to-day operations, or the equity interests received by the Company
represent a controlling interest in the total Voting Power and day-to-day
operations of a Person that is the issuer of such equity interests, (III)
there exists no Event of Default or event which with notice or lapse of time
or both would become an Event of Default immediately prior and subsequent
thereto, and (IV) immediately after giving effect to such transaction, the
Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the provision of the Notes Indenture described in
the first paragraph under "-- Limitation on Consolidated Indebtedness";
(iii) the Company and its Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the covenants described in "Consolidation, Merger,
Conveyance, Transfer or Lease";
(iv) the Company and its Restricted Subsidiaries may (a) sell damaged,
worn out or other obsolete property in the ordinary course of business or
other property no longer necessary for the proper conduct of the business of
the Company or any of its Restricted Subsidiaries or (b) abandon such
property if it cannot, through reasonable efforts, be sold; and
(v) in addition to the Asset Sales permitted by the foregoing clauses
(i) through (iv), the Company and its Restricted Subsidiaries may consummate
Asset Sales (other than in the case of Capital Stock of any Restricted
Subsidiary of the Company) with respect to property, business or assets the
Fair Market Value of which does not exceed $5 million in the aggregate after
the Issue Date.
The Notes Indenture provides that an Asset Sale Offer may be deferred until
the accumulated Net Cash Proceeds not applied to the uses set forth in
subsections (c)(i) or (c)(iii) in the first paragraph of this Section
"Limitation on Asset Sales and Sales of Subsidiary Stock" exceed $5 million. An
Asset Sale Offer will remain open for a period of 20 Business Days following its
commencement and no longer, except to the extent that a longer period is
required by applicable law (the "Asset Sale Offer Period"). No later than five
Business Days after the termination of the Asset Sale Offer Period (the "Asset
Sale Purchase Date"), the Company will purchase the principal amount of Senior
Subordinated Notes required to be purchased pursuant to this covenant (the
"Asset Sale Offer Amount") at a purchase price equal to 100% of the principal
amount of the Senior Subordinated Notes plus accrued and unpaid interest to but
excluding the date of the purchase or, if less than the Asset Sale Offer Amount
has been tendered, all Senior Subordinated Notes tendered in response to the
Asset Sale Offer. Payment for any Senior Subordinated Notes so purchased will be
made in the same manner as interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Senior Subordinated Note is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who tender Senior Subordinated Notes
pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Senior Subordinated Notes or portions thereof
tendered pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer
Amount has been tendered, all Senior Subordinated Notes tendered, and will
deliver to the Notes Trustee an Officers' Certificate stating that such Senior
Subordinated Notes or portions thereof were accepted for payment by the Company
in accordance with the terms of this covenant. The Company, the Depositary or
the Paying Agent, as the case may be, will promptly (but in any case not later
than five days after the Asset Sale Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Senior
Subordinated Notes tendered by such Holder and accepted by the Company for
purchase, and the Company will promptly issue a new Senior Subordinated Note,
and the Notes Trustee, upon written request from the Company, will authenticate
and mail or deliver such new Senior Subordinated Note to such Holder, in a
principal amount equal to any unpurchased portion of the Senior Subordinated
Note surrendered. Any Senior Subordinated Note not so accepted will be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the Asset Sale Purchase
Date.
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LIMITATION ON RESTRICTED PAYMENTS
The Notes Indenture prohibits the Company or any Restricted Subsidiary from
making any Restricted Payment unless after giving effect thereto (a) no Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing; (b) the Company would be
permitted to Incur an additional $1.00 of Indebtedness pursuant to the provision
of the Notes Indenture described in the first paragraph under "-- Limitation on
Consolidated Indebtedness"; and (c) the total of all Restricted Payments made on
or after the Issue Date does not exceed the sum of (i) Cumulative Operating Cash
Flow less 1.75 times Cumulative Interest Expense, (ii) 100% of the aggregate
Qualified Capital Stock Proceeds of the Company after the Issue Date, and (iii)
100% of the cash proceeds received from an Unrestricted Subsidiary to the extent
of Investments (other than Permitted Investments) made in such Unrestricted
Subsidiary since the Issue Date.
The foregoing provision shall not be violated, so long as no Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing (other than in the case of
clause (ii)), by reason of (i) the payment of any dividend within 60 days after
declaration thereof if at the declaration date such payment would have complied
with the foregoing provision, (ii) any refinancing of any Indebtedness otherwise
permitted under the provision of the Notes Indenture described under clause (ii)
or (iv) of "-- Limitation on Consolidated Indebtedness," (iii) the issuance of
the Exchange Debentures in exchange for the Exchangeable Preferred Stock in
accordance with the terms of the Exchangeable Preferred Stock, PROVIDED, that
after giving effect thereto the Company's Annualized Operating Cash Flow Ratio
on a pro forma basis (calculated on the assumption that such Indebtedness had
been Incurred on the first day of the applicable Reference Period), would have
been less than 7.0 to 1.0, (iv) the purchase, redemption or other acquisition or
retirement for value of shares of Capital Stock of any Restricted Subsidiary
held by Persons other than the Company or any of its Restricted Subsidiaries,
(v) the redemption, defeasance, repurchase or other acquisition or retirement of
any Capital Stock of the Company or any Subordinated Indebtedness prior to its
scheduled maturity either in exchange for or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Qualified Capital Stock of the Company and (vi) Restricted Payments, in addition
to Restricted Payments permitted pursuant to clauses (i) through (v) of this
paragraph, not in excess of $10 million in the aggregate after the Issue Date.
The payments described in clauses (i), (iii), (v) (provided the proceeds of the
sale of the Qualified Capital Stock referred to in such clause constitute
Qualified Capital Stock Proceeds) and (vi) of this paragraph will count as
Restricted Payments for the calculation under the first paragraph of this
section "Limitation on Restricted Payments."
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The Notes Indenture provides that the Company shall not, and shall not
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual restriction or prohibition on the
ability of any Restricted Subsidiary to (a) pay dividends on, or make other
distributions in respect of, its Capital Stock, or any other ownership interest
or participation in, or measured by, its profits, to the Company or any
Restricted Subsidiary or pay any Indebtedness or other obligation owed to the
Company or any Restricted Subsidiary, (b) make any loans or advances to the
Company or any Restricted Subsidiary or (c) transfer any of its property or
assets to the Company or any Restricted Subsidiary. Notwithstanding the
foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer
to exist any such restriction or prohibition (i) pursuant to the Notes
Indenture, the Existing Credit Facility, any other agreement in effect on the
Issue Date or, if executed and delivered, the Exchange Indenture, PROVIDED that
any such restriction or prohibition in the Exchange Indenture is no more
restrictive than that contained in the Notes Indenture, (ii) pursuant to an
agreement relating to any Indebtedness of such Restricted Subsidiary which was
outstanding or committed prior to the date on which such Restricted Subsidiary
became a Restricted Subsidiary of the Company other than in anticipation of
becoming a Restricted Subsidiary; PROVIDED, that such restriction or prohibition
shall not apply to any property or assets of the Company or any Restricted
Subsidiary other than the property or assets of such Restricted Subsidiary and
its Subsidiaries, (iii) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of any agreement described in clauses (i) and (ii)
above, PROVIDED, HOWEVER, that the provisions contained in such renewal,
extension, refinancing or refunding agreement relating to such restriction or
prohibition are no more restrictive in any material respect than the provisions
contained in the agreement which is the subject thereof (it being
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understood that for purposes of this clause (iii) the New Credit Facility is
deemed to be a refinancing of the Existing Credit Facility), (iv) existing under
or by reason of applicable law, (v) customary provisions restricting subletting
or assignment of any lease governing any leasehold interest of any Restricted
Subsidiary, (vi) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the type referred to in
clause (c) of this covenant, (vii) restrictions of the type referred to in
clause (c) of this covenant contained in security agreements securing
Indebtedness of a Restricted Subsidiary to the extent that such Liens were
otherwise incurred in accordance with "-- Limitations on Liens" below and
restrict the transfer of property subject to such agreements, or (viii)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Notes Indenture provides that the Company will not, and will not permit
any Restricted Subsidiary of the Company to, enter into any transaction
involving aggregate consideration in excess of (a) $1 million, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with or to any Affiliate or Related Person of the
Company (other than a Restricted Subsidiary), unless a majority of the
disinterested members of the Board of Directors of the Company determines (which
determination will be evidenced by a Board Resolution) that (i) such transaction
is in the best interests of the Company or such Restricted Subsidiary and (ii)
such transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary than those which might be obtained in arm's-length
transactions with a third party at the time and (b) $5 million unless (in
addition to the provisions of the foregoing clause (a)) the Company receives a
written opinion from an investment banking firm of national reputation to the
effect that such transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view; PROVIDED, that in the case of
transactions entered into in the ordinary course of business involving the
provision of telecommunications services by Affiliates or Related Persons of the
Company (who are regularly engaged in the provision of telecommunications
services) to the Company or any of its Restricted Subsidiaries (x) if the
aggregate consideration involved is not in excess of $5 million, then clause (a)
above shall be applicable but the good faith judgment of an officer of the
Company shall be substituted for the requirement of a resolution of the Board of
Directors and (y) if the aggregate consideration involved exceeds $5 million,
clause (b) above shall not be applicable but clause (a) above shall be
applicable.
LIMITATIONS ON LIENS
The Notes Indenture provides that the Company will not, and will not permit
any Restricted Subsidiary of the Company to, Incur or suffer to exist any Lien
on or with respect to any property or assets now owned or hereafter acquired to
secure any Indebtedness that ranks in right of payment PARI PASSU with or
subordinate to the Senior Subordinated Notes without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Senior
Subordinated Notes (i) equally and ratably with such Indebtedness as to such
property for so long as such Indebtedness will be so secured or (ii) in the
event such Indebtedness is Indebtedness of the Company or a Restricted
Subsidiary which is subordinate in right of payment to the Senior Subordinated
Notes, prior to such Indebtedness as to such property for so long as such
Indebtedness will be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing in respect
of any Indebtedness that exists on the Issue Date; (ii) Liens in favor of the
Company or Liens in favor of a Wholly Owned Restricted Subsidiary of the Company
on the assets or Capital Stock of another Wholly Owned Restricted Subsidiary of
the Company; (iii) Liens to secure Indebtedness outstanding or committed for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the equipment or other property subject to such
Liens; PROVIDED, HOWEVER, that (a) the principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost, (b)
such Lien does not extend to or cover any property other than such item of
property or any improvements on such item and (c) the Incurrence of such
Indebtedness is otherwise permitted by the Notes Indenture; (iv) Liens on
property existing immediately prior to the time of acquisition thereof (and not
Incurred in anticipation of the financing of such acquisition); (v) Liens to
secure Indebtedness to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part,
Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii)
and (iv) so long as such Lien does not extend to any other
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property and the principal amount of Indebtedness so secured is not increased
except as otherwise permitted under the provision of the Notes Indenture
described under clause (ii) or (iv) of "-- Limitation on Consolidated
Indebtedness"; (vi) Liens on any Permitted Investment in Cooperative Bank Equity
in favor of any Cooperative Banks; or (vii) any other Liens in respect of any
Indebtedness, which Indebtedness does not exceed $500,000 in the aggregate.
LIMITATION ON CERTAIN DEBT
The Notes Indenture provides that the Company will not Incur any
Indebtedness that is subordinate in right of payment to any other Indebtedness
of the Company unless the Indebtedness so Incurred is either PARI PASSU or
subordinate in right of payment to the Senior Subordinated Notes.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Notes Indenture provides that the Company will not consolidate with or
merge into any Person or permit any other Person to consolidate with or merge
into the Company, or transfer, sell, convey or lease or otherwise dispose of all
or substantially all of its assets to, any Person unless (i) (a) the Company is
the surviving entity or (b) if the Company is not the surviving entity then the
successor or transferee assumes all the obligations of the Company under the
Senior Subordinated Notes and the Notes Indenture and the surviving entity shall
be a corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof, (ii) the Consolidated Net Worth
of the successor or transferee immediately after the transaction is not less
than 100% of the Company's Consolidated Net Worth immediately prior to the
transaction, (iii) immediately after giving effect to such transaction, the
Company (or its permitted successor or transferee) would be permitted to Incur
at least $1.00 of additional Indebtedness pursuant to the provision of the Notes
Indenture described in the first paragraph under "-- Limitation on Consolidated
Indebtedness," (iv) after giving effect to such transaction no Event of Default
or event which with notice or lapse of time would become an Event of Default has
occurred and is continuing and (v) an Officers' Certificate and an Opinion of
Counsel covering such conditions shall be delivered to the Notes Trustee.
REPORTS
The Notes Indenture provides that whether or not the Company is subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall deliver to the Notes Trustee and to each Holder, within 15 days
after it is or would have been required to file such with the Commission, annual
and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if the Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such would
be required in such reports to the Commission, and in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Notes Indenture: (i) failure
to pay the principal of or premium, if any, on the Senior Subordinated Notes at
Maturity; (ii) failure to pay any interest on the Senior Subordinated Notes for
a period of 30 days or more after it becomes due and payable; (iii) failure to
offer to purchase or purchase in a timely fashion Senior Subordinated Notes
required to be purchased by the Company pursuant to any of the provisions of the
Notes Indenture described under "-- Limitation on Use of Proceeds; Proceeds
Purchase Offer," "-- Change of Control" or "-- Covenants -- Limitation on Asset
Sales and Sales of Subsidiary Stock"; (iv) failure to perform or comply with the
provisions of the Notes Indenture described under "-- Consolidation, Merger,
Conveyance, Transfer or Lease"; (v) failure to perform any other covenant or
agreement of the Company under the Notes Indenture that continues for 30 days
after written notice to the Company by the Notes Trustee or Holders of at least
25% in aggregate principal amount of outstanding Senior Subordinated Notes; (vi)
default by the Company or any Restricted Subsidiary under the terms of any
instrument evidencing or securing Indebtedness having an
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outstanding principal amount in excess of $5 million in the aggregate, which
default results in the acceleration of the payment of such Indebtedness or
constitutes the failure to pay the principal of such Indebtedness at maturity;
(vii) the rendering of a final judgment or judgments against the Company or a
Restricted Subsidiary in an amount in excess of $5 million which remains
undischarged or unstayed for a period of 60 days after the date on which the
right of appeal has expired; and (viii) certain events of bankruptcy, insolvency
or reorganization affecting the Company or a Restricted Subsidiary.
If an Event of Default, other than an event described under (viii) above,
shall occur and be continuing, either the Notes Trustee or the Holders of at
least 25% in aggregate principal amount of the Senior Subordinated Notes by
notice as provided in the Notes Indenture may declare the principal amount of
the Senior Subordinated Notes to be due and payable immediately; PROVIDED,
HOWEVER, that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
outstanding Senior Subordinated Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal of the Senior Subordinated Notes, have been cured or
waived as provided in the Notes Indenture. If an Event of Default described
under (viii) above shall occur, the Senior Subordinated Notes will become
immediately due and payable without any declaration or other act on the part of
the Notes Trustee or any Holder.
No Holder of any Senior Subordinated Note will have any right to institute
any proceeding with respect to the Notes Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Notes Trustee written
notice of an Event of Default and unless the Holders of at least 25% in
aggregate principal amount of the outstanding Senior Subordinated Notes shall
have made written request to the Notes Trustee and the Notes Trustee shall not
have received from the Holders of a majority in aggregate principal amount of
the outstanding Senior Subordinated Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of a
Senior Subordinated Note for enforcement of payment of the principal of and
premium, if any, or interest on such Senior Subordinated Note on or after the
respective due dates expressed in such Senior Subordinated Note. The Holders of
a majority in aggregate principal amount of the Senior Subordinated Notes
outstanding may waive any existing Event of Default except an Event of Default
in the payment of interest or principal (including premium) on the Senior
Subordinated Notes.
MODIFICATION AND WAIVER
Modifications and amendments of the Notes Indenture may be made by the
Company and the Notes Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Senior Subordinated Notes;
PROVIDED, HOWEVER, that no such modification or amendment may, without the
consent of the Holder of each Senior Subordinated Note affected thereby, (i)
change the Stated Maturity of the principal of, or any installment of interest
on, any Senior Subordinated Note, (ii) reduce the principal amount of, or
premium, if any, or interest on any Senior Subordinated Note, (iii) change the
place or currency of payment of principal of, or premium, if any, or interest on
any Senior Subordinated Note, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any Senior Subordinated Note,
(v) reduce the percentage of aggregate principal amount of Senior Subordinated
Notes outstanding necessary to amend the Notes Indenture, (vi) reduce the
percentage of aggregate principal amount of Senior Subordinated Notes
outstanding necessary for waiver of compliance with certain provisions of the
Notes Indenture or for waiver of certain defaults, (vii) modify such provisions
with respect to modification and waiver, (viii) modify the subordination
provisions in a manner adverse to the Holders of the Senior Subordinated Notes
or (ix) following the mailing of an offer to purchase Senior Subordinated Notes,
modify the provisions of the Notes Indenture with respect to such offer to
purchase in a manner adverse to such Holder.
The Holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Notes may waive compliance by the Company with certain
restrictive provisions of the Notes Indenture. The Holders of a majority in
aggregate principal amount of the outstanding Senior Subordinated Notes may
waive any past default under the Notes Indenture, except a default in the
payment of principal, premium, if any, or interest and certain
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covenants and provisions of the Notes Indenture which cannot be amended without
the consent of the Holder of each outstanding Senior Subordinated Note affected.
DEFEASANCE
The Notes Indenture provides that the Company, at its option, (i) will be
discharged from any and all obligations in respect of outstanding Senior
Subordinated Notes (except for certain obligations to register the transfer or
exchange of Senior Subordinated Notes, to replace mutilated, lost, destroyed or
stolen Senior Subordinated Notes and to maintain paying agents and hold moneys
for payment in trust), and the provisions of the Notes Indenture described under
"-- Subordination" shall cease to be effective, or (ii) need not comply with
certain restrictive covenants and that such omission shall not be deemed to be
an Event of Default under the Notes Indenture and the Senior Subordinated Notes,
and the provisions of the Notes Indenture described under "-- Subordination"
shall cease to be effective, in either case (i) or (ii) upon irrevocable deposit
with the Notes Trustee, in trust, of money, and/or U.S. government obligations
which will provide money without the need for reinvestment, in an amount
sufficient in the opinion of a nationally recognized firm of independent public
accountants to pay the principal of, and premium, if any, and each installment
of interest, if any, on the outstanding Senior Subordinated Notes in accordance
with the terms of the Notes Indenture and the Senior Subordinated Notes. Such
trust may only be established if, among other things, (1) with respect to clause
(i), the Company shall have delivered to the Notes Trustee an Opinion of Counsel
to the effect that the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or there has been a change in law,
which provides that Holders of Senior Subordinated Notes will not recognize gain
or loss for federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; or, with respect to clause
(ii), the Company shall have delivered to the Notes Trustee an Opinion of
Counsel to the effect that the Holders of the Senior Subordinated Notes will not
recognize gain or loss for federal income tax purposes as a result or such
deposit and defeasance and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred; (2) no Event of Default
or event that, with the passing of time or the giving of notice, or both, shall
constitute an Event of Default shall have occurred and be continuing on the date
of such deposit; (3) no Event of Default described under clause (viii) under
"Events of Default and Remedies" above or event that, with the passing of time
or the giving of notice, or both, shall constitute an Event of Default under
such clause (viii) shall have occurred and be continuing at any time during the
period ending on the 121st day following such date of deposit; (4) such deposit
shall not cause the trust so created to be subject to the Investment Company Act
of 1940, as amended, or shall be qualified under such act or exempt from
regulation thereunder; and (5) certain other customary conditions precedent.
NOTICES
Notices to Holders of Senior Subordinated Notes will be sent by mail to the
addresses of such Holders as they may appear in the Security Register.
TITLE
The Company, the Notes Trustee and any agent of the Notes Trustee may treat
the Holder of any Senior Subordinated Note as the absolute owner thereof
(whether or not such Senior Subordinated Note may be overdue) for the purpose of
making payment and for all other purposes.
GOVERNING LAW
The Notes Indenture and the Senior Subordinated Notes are governed by and
construed in accordance with the laws of the State of New York.
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THE NOTES TRUSTEE
The Notes Indenture provides that, subject to the duty of the Notes Trustee
during an Event of Default to act with the required standard of care, the Notes
Trustee will be under no obligation to exercise any of its rights or powers
under the Notes Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Notes Trustee reasonable security
or indemnity. Subject to certain provisions, including those requiring security
or indemnification of the Notes Trustee, the Holders of a majority in principal
amount of the Senior Subordinated Notes will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Notes Trustee, or exercising any trust or power conferred on the Notes Trustee.
The Company will be required to furnish to the Notes Trustee annually a
statement as to the performance by the Company of its obligations under the
Notes Indenture and as to any default in such performance. The Notes Trustee
will also serve as the Debentures Trustee under the Exchange Indenture.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in the case of both of the preceding clause (i) and
clause (ii), other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition. Acquired Indebtedness will be deemed to be Incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Adjusted Annualized Operating Cash Flow Ratio" of any Person means the
Annualized Operating Cash Flow Ratio of such Person as adjusted to treat all
Preferred Stock of such Person as Redeemable Stock.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Operating Cash Flow" of any Person means the Operating Cash Flow
of such Person for the Reference Period multiplied by two.
"Annualized Operating Cash Flow Ratio" of any Person on any date (the
"Transaction Date") means, with respect to any Person and its Restricted
Subsidiaries, the ratio of (i) Consolidated Indebtedness of such Person and its
Restricted Subsidiaries on the Transaction Date (after giving pro forma effect
to the Incurrence of any Indebtedness on such Transaction Date) divided by (ii)
the aggregate amount of Annualized Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all dispositions of
businesses made by such Person and its Restricted Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
dispositions had occurred at the beginning of such Reference Period); PROVIDED,
that for purposes of such computation, in calculating Annualized Operating Cash
Flow and Consolidated Indebtedness: (a) the transaction giving rise to the need
to calculate the Annualized Operating Cash Flow Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period; (b)
the Incurrence of any Indebtedness during the Reference Period or subsequent
thereto and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to retire Indebtedness) will be assumed to
have occurred (on a pro forma basis) on the first day of such Reference Period;
(c) Consolidated Interest Expense attributable to any Indebtedness (whether
existing or being incurred) bearing a floating interest rate shall be computed
as if the rate in effect on the Transaction Date had been the applicable rate
for the entire Reference Period; (d) all members of the consolidated group of
such Person on the Transaction Date that were acquired during the Reference
Period shall be deemed to be members of the consolidated group of such Person
for the entire Reference Period; and (e) the Indebtedness and
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Annualized Operating Cash Flow of any Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be determined in accordance with the actual
percentage of the Person's common equity interest in such Restricted Subsidiary
on the date of determination of the Annualized Operating Cash Flow Ratio (thus,
for example, in the case of a Restricted Subsidiary in which such Person owns a
51% common equity interest, 51% of such Subsidiary's Indebtedness and of such
Subsidiary's Annualized Operating Cash Flow would be included in the calculation
of such Person's aggregate Indebtedness and Annualized Operating Cash Flow,
respectively). When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its
Restricted Subsidiaries in the foregoing definition shall be deemed to refer to
the Company and its Restricted Subsidiaries.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Notes Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or the State
of Minnesota are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means that portion of any obligation of a Person
as lessee under a lease which is required to be capitalized on the balance sheet
of such lessee in accordance with generally accepted accounting principles.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, including
voting and non-voting) of equity of such Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (iii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) and (ii) above.
"Commission" means the United States Securities and Exchange Commission.
"Consolidated Income Tax Expense" of any Person means for any period the
provision for income taxes of such Person and its Restricted Subsidiaries for
such period.
"Consolidated Indebtedness" of any Person means at any date the Indebtedness
of such Person and its Restricted Subsidiaries at such date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Restricted Subsidiaries for such period, including without
limitation or duplication (or, to the extent not so included, with the addition
of), (i) the portion of any rental obligation in respect of any Capital Lease
Obligation allocable to interest expense in accordance with generally accepted
accounting principles; (ii) the amortization of Indebtedness discounts; (iii)
any payments or fees with respect to letters of credit, bankers' acceptances or
similar facilities; (iv) fees with respect to Interest Hedge Agreements; (v) the
portion of any rental obligations in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such were treated as
a Capital Lease Obligation); and (vi) Preferred Stock dividends accrued or
payable other than dividends on Qualified Capital Stock of such Person.
"Consolidated Net Income" of any Person means for any period the net income
(or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (to the
extent included and without
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duplication) (i) the net income (or loss) of any Person acquired by such Person
or a Restricted Subsidiary of such Person after the Issue Date in a pooling of
interests transaction for any period prior to the date of such transaction, (ii)
the net income (or loss) of any Person that is not a Restricted Subsidiary of
such Person except to the extent of the amount of dividends or other
distributions actually paid to such Person by such other Person during such
period, (iii) gains or losses from sales of assets other than sales of assets
acquired and held for resale in the ordinary course of business, (iv) for
purposes of the "Limitation on Restricted Payments" covenant, the net income, if
positive, of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
such net income is not at that time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to such Restricted Subsidiary, and (v)
all extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles; PROVIDED that, with respect to the
Company, adjustments following the Issue Date to the accounting books and
records of the Company in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of the Company by another Person and its Subsidiaries
shall not be given effect; PROVIDED FURTHER, that such computation shall exclude
(i) any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries and (ii)
Unrestricted Subsidiaries.
"Cooperative Banks" means lenders under the Credit Facility which are
cooperative banks.
"Cooperative Bank Equity" means non-voting equity interests in Cooperative
Banks.
"Credit Facility" means the Existing Credit Facility or the New Credit
Facility.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the Issue
Date, through and including the end of the last fiscal quarter preceding the
date of any proposed Restricted Payment.
"Cumulative Operating Cash Flow" means Operating Cash Flow of the Company
and its Restricted Subsidiaries for the period beginning on the first day of the
fiscal quarter immediately following the Issue Date, through and including the
end of the last fiscal quarter preceding the date of any proposed Restricted
Payment.
"Depositary" means a clearing agency registered under the Exchange Act that
is designated to act as Depositary for the Senior Subordinated Notes until a
successor Depositary shall have become such pursuant to the applicable
provisions of the Notes Indenture, and thereafter "Depositary" shall mean such
successor Depositary. The Depositary initially is DTC.
"Designated Senior Indebtedness" means the Indebtedness under the Credit
Facility.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Facility" means the Loan Agreement, dated as of May 1,
1997, among the Company, The Toronto-Dominion Bank, Bank Boston, N.A., St. Paul
Bank for Cooperatives, CoBank, Fleet National Bank, First National Bank of
Maryland, Societe Generale, New York Branch and Merita Bank Ltd., New York
Branch, as amended by a First Amendment to Loan Agreement dated as of August 4,
1997, a Second Amendment to Loan Agreement dated as of December 30, 1997, a
Third Amendment to Loan Agreement dated as of April 17, 1998 and a Fourth
Amendment to Loan Agreement dated as of April 24, 1998, and as such agreement
may be further amended, supplemented, restated or otherwise modified from time
to time.
"Fair Market Value" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets have a Fair Market Value in excess of
$20,000 but not in excess of $5 million, by any officer of the Company
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and evidenced by an Officers' Certificate, dated within 30 days of the relevant
transaction, or (ii) if such Person or assets have a Fair Market Value in excess
of $5 million, by a majority of the Board of Directors of the Company and
evidenced by a Board Resolution, dated within 30 days of the relevant
transaction, based on an appraisal of an independent appraiser of national
reputation.
"Holder" means a Person in whose name a Senior Subordinated Note is
registered in the Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination, (vii) every obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) all obligations under
Interest Hedge Agreements, (ix) every obligation of the type referred to in
clauses (i) through (viii) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise or which is secured by a Lien on any asset of such Person; and (x) the
liquidation value of Preferred Stock of a Subsidiary of such Person issued and
outstanding and held by other than such Person (or one of its Wholly Owned
Restricted Subsidiaries); PROVIDED, that for all purposes of the Notes
Indenture, (A) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with generally accepted
accounting principles, (B) money borrowed at the time of the Incurrence of any
Indebtedness in order to pre-fund the payment of interest on such Indebtedness
shall be deemed not to be "Indebtedness" and (C) Indebtedness shall not include
any liability for federal, state, local or other taxes. For purposes of the
Notes Indenture, the amount of any Indebtedness shall be the amount determined
in respect thereof as of the end of the then most recently ended fiscal quarter
of such Person, based on the assumption that such Indebtedness had terminated at
the end of such fiscal quarter, and in making such determination, if any
agreement relating to such obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person or in any event until
the counterparty thereunder defaults in its corresponding payment, then in each
such case, the amount of such obligations shall be the net amount so determined,
plus any premium due upon default by such Person.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Investment" by any Person in any other Person means (without duplication):
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make any
such acquisition; (b) the making by such Person of any deposit
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with, or advance, loan or other extension of credit to, such other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other Person) or any commitment to make any such advance, loan or
extension; (c) the entering into by such Person of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
other Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of the Company
of any Person to be an Unrestricted Subsidiary. For purposes of the covenant
described in "-- Limitation on Restricted Payments," (i) "Investment" shall
include and be valued at the Fair Market Value of such Person's PRO RATA
interest in the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the lesser of (A) the Fair Market Value of such Person's PRO RATA interest in
the net assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (B) the Fair Market Value
of the amount of such Person's Investments (other than Permitted Investments)
made in (net of cash distributions received from) such Unrestricted Subsidiary
since the Issue Date, and (ii) the amount of any Investment shall be the Fair
Market Value of such Investment at the time any such Investment is made.
"Issue Date" means the time and date of the first issuance of the Senior
Subordinated Notes under the Notes Indenture.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than an easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Maturity" means, when used with respect to any Senior Subordinated Note,
the date on which the principal of such Senior Subordinated Note becomes due and
payable, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents
received by the Company and its Restricted Subsidiaries in respect of an Asset
Sale (including upon the conversion to cash and Cash Equivalents of (a) any note
or installment receivable at any time or (b) any other property as and when any
cash and Cash Equivalents are received in respect of any property received in an
Asset Sale but only to the extent such cash and Cash Equivalents are received
within one year after such Asset Sale), less the sum of (i) all reasonable
out-of-pocket fees, commissions and other expenses incurred in connection with
such Asset Sale, including the amount (estimated in good faith by the Board of
Directors of the Company) of income, franchise, sales and other applicable taxes
required to be paid by the Company or any Restricted Subsidiary of the Company
in connection with such Asset Sale and (ii) the aggregate amount of cash so
received which is used to retire any existing Senior Indebtedness or
Indebtedness of the Company that ranks PARI PASSU in right of payment with the
Senior Subordinated Notes or existing Indebtedness of such Restricted
Subsidiaries, as the case may be, which is required to be repaid in connection
with such Asset Sale or is secured by a Lien on the property or assets of the
Company or any of its Restricted Subsidiaries, as the case may be.
"New Credit Facility" means the amendment and restatement or the refinancing
or replacement of the Existing Credit Facility with the same, a deletion of, or
additional lenders, including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing that increase the
aggregate amount of borrowings outstanding or the aggregate commitments of the
lenders thereunder.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
to each Holder at his address appearing in the Security Register on the date of
the Offer offering to purchase up to the principal amount of Senior Subordinated
Notes specified in such Offer at the purchase price specified in such Offer.
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which, subject
to any contrary requirements of applicable law, shall be not less than 30 days
nor more than 60 days after the
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date of such Offer to Purchase and a settlement date (the "Purchase Date") for
purchase of Senior Subordinated Notes within five Business Days after the
Expiration Date. The Offer shall also state the section of the Notes Indenture
pursuant to which the Offer to Purchase is being made, the Expiration Date and
the Purchase Date, the aggregate principal amount of the outstanding Senior
Subordinated Notes offered to be purchased by the Company, the purchase price to
be paid by the Company and the place or places where Senior Subordinated Notes
are to be surrendered for tender pursuant to the Offer to Purchase.
"Officers' Certificate" means a certificate signed by two officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the Notes
Trustee.
"Operating Cash Flow" for any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions for
income taxes for such period for such Person and its Subsidiaries, (ii)
depreciation, amortization and other non-cash charges of such Person and its
Subsidiaries and (iii) Consolidated Interest Expense of such Person for such
period, determined, in each case, on a consolidated basis for such Person and
its Subsidiaries in accordance with generally accepted accounting principles,
less (c) the sum, without duplication (and only to the extent such amounts are
included in such Consolidated Net Income), of (i) all extraordinary gains of
such Person and its Subsidiaries during such period and (ii) the amount of all
cash payments made during such period by such Person and its Subsidiaries to the
extent such payments relate to non-cash charges that were added back in
determining Operating Cash Flow for such period or for any prior period; and in
the case of a Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary, the determination of the percentage of the Operating Cash Flow of
such Restricted Subsidiary that is to be included in the calculation of the
Company's Annualized Operating Cash Flow Ratio shall be made on a pro forma
basis on the assumption that the percentage of the Company's common equity
interest in such Restricted Subsidiary throughout the applicable Reference
Period was equivalent to its common equity interest on the date of the
determination. When the foregoing definition is used in connection with the
Company, references to a Person and its Subsidiaries in the foregoing definition
shall be deemed to refer to the Company and its Restricted Subsidiaries.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Notes Trustee,
delivered to the Notes Trustee.
"Permitted Investments" means: (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than payments
described in clause (iv) of the second paragraph under "Limitation on Restricted
Payments"); (iii) Investments in a Person substantially all of whose assets are
of a type generally used in a Wireless Communications Business (an "Acquired
Person") if, as a result of such Investments, (A) the Acquired Person
immediately thereupon becomes a Restricted Subsidiary or (B) the Acquired Person
immediately thereupon either (1) is merged or consolidated with or into the
Company or any Restricted Subsidiary or (2) transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or any of
its Restricted Subsidiaries; (iv) Investments in accounts and notes receivable
acquired in the ordinary course of business; (v) any securities received in
connection with an Asset Sale and any investment with the Net Cash Proceeds from
any Asset Sale in Capital Stock of a Person, all or substantially all of whose
assets are of a type used in a Wireless Communications Business, that complies
with the "Limitation on Asset Sales and Sales of Subsidiary Stock" covenant;
(vi) advances and prepayments for asset purchases in the ordinary course of
business in a Wireless Communications Business of the Company or a Restricted
Subsidiary; (vii) customary loans or advances made in the ordinary course of
business to officers, directors or employees of the Company or any of its
Restricted Subsidiaries for travel, entertainment, and moving and other
relocation expenses; (viii) the purchase of Cooperative Bank Equity in
Cooperative Banks to the extent required by the charter documents of such
Cooperative Banks in connection with the Incurrence of any Indebtedness which is
provided by such Cooperative Banks under the Credit Facility, provided that such
Incurrence is permitted under the terms of the Notes Indenture; and (ix)
Investments in Wireless Alliance not exceeding $25 million in the aggregate made
after the Issue Date; PROVIDED, that the matters referenced in clauses (iii) and
(ix) above shall not be Permitted Investments if made at any time that an Event
of Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing.
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"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares of
Capital Stock of such Person that have preferential rights to any other Capital
Stock of such Person with respect to dividends or redemptions or upon
liquidation.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement filed with
the Commission in accordance with the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any and all
shares of Capital Stock other than Redeemable Stock issued by such Person after
the date of the Notes Indenture.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a) in
the case of any sale of Qualified Capital Stock, the aggregate net cash proceeds
received by such Person, after payment of expenses, commissions and the like
Incurred by such Person in connection therewith, and net of Indebtedness that
such Person Incurred, guaranteed or otherwise became liable for in connection
with the issuance or acquisition of such Capital Stock; and (b) in the case of
any exchange, exercise, conversion or surrender of any Redeemable Stock or
Indebtedness of such Person issued (other than to any Subsidiary) for cash after
the Issue Date for or into shares of Qualified Capital Stock of such Person, the
liquidation value of the Redeemable Stock or the net book value of such
Indebtedness as adjusted on the books of such Person to the date of such
exchange, exercise, conversion or surrender, plus any additional amount paid by
the securityholders to such Person upon such exchange, exercise, conversion or
surrender and less any and all payments made to the securityholders, and all
other expenses, commissions and the like Incurred by such Person or any
Subsidiary in connection therewith.
"Qualifying Event" means a Public Equity Offering or one or more Strategic
Equity Investments which in either case results in aggregate net proceeds of not
less than $50 million.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the final
Stated Maturity of the Senior Subordinated Notes or is redeemable at the option
of the holder thereof at any time prior to the final Stated Maturity of the
Senior Subordinated Notes; PROVIDED that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of a "change of control" occurring prior to the final Stated
Maturity of the Senior Subordinated Notes shall not constitute Redeemable Stock
if the "change of control" provisions applicable to such Capital Stock are no
more favorable to the holders of such Capital Stock than the provisions
contained in the "--Change of Control" covenant and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of the Senior
Subordinated Notes as required pursuant to such "Change of Control" covenant.
"Reference Period" with regard to any Person means the last two full fiscal
quarters of such Person immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Senior Subordinated
Notes or the Notes Indenture.
"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Power of such Person.
"Restricted Payment" means, with respect to any Person, (i) any declaration
or payment of a dividend or other distribution on any shares of Capital Stock of
such Person or any Subsidiary of such Person (other than a dividend payable
solely in shares of its Capital Stock or options, warrants or other rights to
acquire its Capital Stock and other than any declaration or payment of a
dividend or other distribution by a Restricted Subsidiary to the Company or
another Restricted Subsidiary), (ii) any payment on account of the purchase,
redemption, retirement or acquisition (including by way of issuing any
Indebtedness or Redeemable Stock in exchange for Qualified Capital Stock) of (A)
any shares of Capital Stock of such Person or any Subsidiary of such Person held
by other than such Person or any of its Restricted Subsidiaries or (B) any
option, warrant or other right to acquire shares of Capital Stock of such Person
or any Subsidiary of such Person or any of its Restricted Subsidiaries, in each
case other than pursuant to the
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cashless exercise of options, (iii) any Investment (other than a Permitted
Investment) made by such Person and (iv) any redemption, defeasance, repurchase
or other acquisition or retirement for value prior to any scheduled maturity,
repayment or sinking fund payment, of any Subordinated Indebtedness of such
Person; PROVIDED, that the term "Restricted Payment" does not include the
payment of a dividend or other distribution by any Restricted Subsidiary on
shares of its Capital Stock that is paid pro rata to all holders of such Capital
Stock.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning set forth in the Notes Indenture.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or improvement by the
Company or any Restricted Subsidiary of assets in the Wireless Communications
Business, (iii) all other Indebtedness of the Company referred to in the
definition of Indebtedness other than clauses (iv), (vi) and (ix) thereof (and
clause (viii) thereof to the extent applicable to Indebtedness Incurred under
clauses (iv) and (vi) thereof), whether Incurred on or prior to the Issue Date,
other than the Senior Subordinated Notes, and (iv) amendments, renewals,
extensions, modifications, refinancings and refundings of any such Indebtedness;
PROVIDED, HOWEVER, the following shall not constitute Senior Indebtedness: (A)
any Indebtedness owed to a Person when such Person is a Restricted Subsidiary of
the Company, (B) any Indebtedness which by the terms of the instrument creating
or evidencing the same is not superior in right of payment to the Senior
Subordinated Notes, (C) any Indebtedness Incurred in violation of the Notes
Indenture (but, as to any such Indebtedness, no such violation shall be deemed
to exist for purposes of this clause (c) if the holder(s) of such Indebtedness
or their representative and the Notes Trustee shall have received an Officers'
Certificate of the Company to the effect that the Incurrence of such
Indebtedness does not (or in the case of revolving credit Indebtedness, that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate the Notes Indenture) or
(D) any Indebtedness which is subordinated in right of payment to any other
Indebtedness of the Company.
"Senior Nonmonetary Default" means the occurrence or existence and
continuance of any event of default, or of any event which, after notice or
lapse of time (or both), would become an event of default, under the terms of
any instrument pursuant to which any Senior Indebtedness is outstanding,
permitting (after notice or lapse of time or both) one or more holders of such
Senior Indebtedness (or an administrative agent on behalf of the holders
thereof) to declare such Senior Indebtedness due and payable prior to the date
on which it would otherwise become due and payable, other than a Senior Payment
Default.
"Senior Payment Default" means any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness when due, whether at
the stated maturity of any such payment or by declaration of acceleration, call
for redemption or otherwise.
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"Senior Subordinated Notes Payment" means any payment or distribution of any
kind or character, whether in cash, property or securities, on account of
principal of (or premium, if any) or interest on or other obligations in respect
of the Senior Subordinated Notes or other Indebtedness of the Company that is
PARI PASSU or subordinate in right of payment to the Senior Subordinated Notes
or on account of any purchase or other acquisition of Senior Subordinated Notes
or such other Indebtedness by the Company or any Subsidiary of the Company.
"Stated Maturity," when used with respect to any Senior Subordinated Note or
any installment of interest thereon, means the date specified in such Senior
Subordinated Note as the date on which the principal of such Senior Subordinated
Note or such installment of interest is due and payable.
"Strategic Equity Investment" means an investment in Qualified Stock made by
a Strategic Investor in an aggregate amount of not less than $50 million.
"Strategic Investor" means a Person (other than an Affiliate of the Company
or a Person who by virtue of such Investment becomes such an Affiliate) engaged
in one or more Telecommunications Businesses with an equity market
capitalization at the time such Person makes a Strategic Equity Investment in
the Company in excess of $1 billion.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment to the Senior Subordinated Notes.
"Subsidiary" means, as applied to any Person, (a) any corporation of which
more than fifty percent (50%) of the outstanding Capital Stock (other than
directors' qualifying shares) having ordinary Voting Power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such Voting
Power by reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (b) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased wireline or wireless transmission facilities, (ii) creating,
developing, constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products, or (iii) evaluating, owning, operating, participating in or
pursuing any other business that is primarily related to those identified in
clause (i) or (ii) above (in the case of this clause (iii), however, in a manner
consistent with the Company's manner of business on the Issue Date), and shall,
in any event, include all businesses in which the Company or any of its
Subsidiaries is engaged on the Issue Date or has entered into agreements to
engage in or to acquire a company to engage in or contemplate engaging in, as
expressly set forth in this Prospectus; PROVIDED that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Company's Board of Directors.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
any Person may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, such Person or any Restricted Subsidiary; PROVIDED,
that either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such Person's PRO
RATA interest in the Fair Market Value of the net assets of such Subsidiary at
the time of such designation would be permitted as an Investment under the
provision of the Notes Indenture described under "-- Limitation on Restricted
Payments." The Board of Directors of any Person may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of such Person; PROVIDED, that
immediately after giving effect to such designation (x) such Person would be
permitted to Incur $1.00 of additional Indebtedness pursuant to the provision of
the Notes Indenture described in the first paragraph under "-- Limitation on
Consolidated Indebtedness" and (y) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default has occurred
and is
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continuing. Any such designation by the Board of Directors shall be evidenced by
a Board Resolution submitted to the Notes Trustee. Wireless Alliance shall be
deemed an Unrestricted Subsidiary as of the Issue Date and shall thereafter
remain an Unrestricted Subsidiary unless and until designated by the Board of
Directors as a Restricted Subsidiary in accordance with the terms of the Notes
Indenture.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily have voting power for
the election of directors of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means any business substantially related
to the ownership, development, operation or acquisition of wireless
communications services permitted under the Federal Communications Commission's
("FCC") Commercial Mobile Radio Services rules (and the related provisions of
the FCC's Public Mobile Services and Personal Communications Services rules),
and other related telecommunications business services.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
Senior Subordinated Notes will be issued only in fully registered form,
without interest coupons, in denominations of $1,000 and integral multiples
thereof. Senior Subordinated Notes will not be issued in bearer form. New Senior
Subordinated Notes will be issued only in accordance of the Exchange Offer.
If the Senior Subordinated Notes are to be redeemed in part, the Company
will not be required to (i) issue, register the transfer of or exchange any
Senior Subordinated Note during a period beginning at the opening of business 15
days before the day of mailing of notice of redemption of any such Senior
Subordinated Note that may be selected for redemption and ending at the close of
business on the day of such mailing or (ii) register the transfer of or exchange
any Senior Subordinated Note so selected for redemption, in whole or in part,
except the unredeemed portion of any such Senior Subordinated Note being
redeemed in part.
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DESCRIPTION OF EXCHANGEABLE PREFERRED STOCK
AND EXCHANGE DEBENTURES
EXCHANGEABLE PREFERRED STOCK
The following summary of the material provisions of the Exchangeable
Preferred Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the provisions of the Certificate of Designation
relating thereto, a copy of which may be obtained from the Company. Definitions
relating to certain capitalized terms that are used in this section of this
Prospectus are set forth under "-- Certain Definitions" and throughout this
description. Capitalized terms that are used in this section but not otherwise
defined herein have the meanings assigned to them in the Certificate of
Designation and such definitions are incorporated herein by reference. Unless
otherwise indicated, references in this section to convenants are to convenants
set forth in the Certificate of Designation. As used in this section, the
"Company" refers to Rural Cellular Corporation, unless the context otherwise
requires.
GENERAL
The Company is authorized to issue 450,000 shares of Exchangeable Preferred
Stock, par value $.01 per share, with a liquidation preference of $1,000 per
share pursuant to the Certification of Designation. Such shares include 125,000
shares of Old Exchangeable Preferred Stock, 125,000 shares of New Exchangeable
Preferred Stock, an additional 25,000 shares (the "Additional Shares") reserved
for possible future issuance, and additional shares of Exchangeable Preferred
Stock that may be used to pay dividends on the Exchangeable Preferred Stock if
the Company elects to pay dividends in additional shares of such stock (the
"Dividend Shares") (all such Exchangeable Preferred Stock, including Additional
Shares and Dividend Shares, as the context requires, being referred to herein as
the "Exchangeable Preferred Stock"). To the extent the Company issues any
Additional Shares, such issuance shall include all such Additional Shares.
Subject to certain conditions, the Exchangeable Preferred Stock will be
exchangeable for the Exchange Debentures at the option of the Company on any
dividend payment date. The New Exchangeable Preferred Stock to be issued by the
Company in the Exchange Offer, when issued by the Company in accordance with the
terms of the Exchange Offer, will be fully paid and non-assessable and the
holders thereof will not have any subscription or preemptive rights in
connection therewith. Norwest Bank Minnesota, National Association, is the
Exchange Agent and transfer agent and registrar (the "Transfer Agent") for the
Exchangeable Preferred Stock.
RANKING
The Exchangeable Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding-up and dissolution of the Company, rank: (i)
senior to all classes of common stock and to each other class of Capital Stock
established after May 14, 1998 by the Board of Directors of the Company the
terms of which expressly provide that it ranks junior to the Exchangeable
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of common stock of the Company, as "Junior Stock"); (ii) subject to certain
conditions, described below, on a parity with each other class of Capital Stock
established after May 14, 1998 by the Board of Directors of the Company the
terms of which expressly provide that such class or series will rank on a parity
with the Exchangeable Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Parity Stock"); and (iii) subject to certain conditions, described below,
junior to each class of Capital Stock established after May 14, 1998 by the
Board of Directors of the Company the terms of which do not expressly provide
that such class or series of Capital Stock will rank junior to, or on a parity
with, the Exchangeable Preferred Stock as to dividend rights and rights upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Stock").
The Company may not authorize or issue any new class of Senior Stock or
Parity Stock without the affirmative vote or consent (voting or consenting as
one class) of the holders of at least (i) 66 2/3% of the shares of Exchangeable
Preferred Stock then outstanding with respect to Senior Stock and (ii) a
majority of the shares of Exchangeable
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Preferred Stock then outstanding with respect to Parity Stock; PROVIDED, that
any shares of Exchangeable Preferred Stock may be issued by the Company without
the approval of the holders of the Exchangeable Preferred Stock; PROVIDED
FURTHER, that, without the approval of holders of the Exchangeable Preferred
Stock, the Company may issue shares of Senior Stock in exchange for, or the
proceeds of which are used to redeem or purchase, all (but not less than all)
shares of the Exchangeable Preferred Stock then outstanding in accordance with
the Certificate of Designation.
DIVIDENDS
Holders of the outstanding shares of Exchangeable Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor, dividends on the Exchangeable
Preferred Stock, which shall accrue at a rate per annum equal to 11 3/8%. If at
any time dividends on the Exchangeable Preferred Stock are in arrears and unpaid
for six or more quarterly dividend periods (whether or not consecutive), holders
of Exchangeable Preferred Stock will be entitled to certain voting rights. All
dividends will be cumulative, whether or not earned or declared, from May 14,
1998, and will be payable quarterly in arrears on February 15, May 15, August
15, and November 15, of each year, commencing on August 15, 1998, to holders of
record on the February 1, May 1, August 1 or November 1 immediately preceding
the relevant dividend payment date. On or before May 15, 2003 the Company may,
at its option, pay dividends in cash or in Dividend Shares having an aggregate
liquidation preference equal to the amount of such dividends. After May 15,
2003, dividends may be paid only in cash. If any dividend (or portion thereof)
payable on any dividend payment date on or before May 15, 2003, is not declared
or paid in full in cash or in Dividend Shares as described above on such
dividend payment date, the amount of the accumulated and unpaid dividends will
bear interest at the dividend rate on the Exchangeable Preferred Stock,
compounding quarterly from such dividend payment date until paid in full. If any
dividend (or portion thereof) payable on any dividend payment date after May 15,
2003, is not declared or paid in full in cash on such dividend payment date, the
amount of the accumulated and unpaid dividend will bear interest at the dividend
rate on the Exchangeable Preferred Stock, compounding quarterly from such
dividend payment date until paid in full. The Credit Facility, the Notes
Indenture and Minnesota corporate law limit the Company's ability under certain
circumstances to pay cash dividends on its capital stock, and future agreements
may contain similar or more restrictive limitations. See "Description of Other
Indebtedness" and "Description of Senior Subordinated Notes."
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Stock for any period unless full cumulative dividends
shall have been or contemporaneously are declared and paid (or are deemed
declared and paid) in full or declared and, if payable in cash, a sum in cash
sufficient for such payment set apart for such payment on the Exchangeable
Preferred Stock. If full dividends are not so paid, the Exchangeable Preferred
Stock will share dividends PRO RATA with the Parity Stock. No dividends may be
paid or set apart for such payment on Junior Stock (except dividends on Junior
Stock payable in additional shares of Junior Stock) and no Junior Stock or
Parity Stock may be repurchased, redeemed or otherwise retired nor may funds be
set apart for payment with respect thereto, if full cumulative dividends have
not been paid in full (or deemed paid) on the Exchangeable Preferred Stock.
Dividends on account of arrears for any past dividend period and dividends in
connection with any optional redemption may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of record of
the Exchangeable Preferred Stock on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors of the Company.
OPTIONAL REDEMPTION
After May 15, 2003, the Exchangeable Preferred Stock may be redeemed
(subject to contractual and other restrictions with respect thereto and to
certain conditions under Minnesota corporate law) at any time at the option of
the Company, in whole or from time to time in part, on not less than 30 nor more
than 60 days prior notice, at the redemption prices (expressed as percentages of
the then effective liquidation preference thereof) set forth below, plus,
without duplication, all accumulated and unpaid dividends, if any, to but
excluding the redemption date (including an amount in cash equal to a prorated
dividend for the period from the dividend payment date
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immediately prior to the redemption date to but excluding the redemption date),
if redeemed during the 12-month period beginning on May 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------- -----------------
<S> <C>
2003....................................................................... 105.688%
2004....................................................................... 104.266%
2005....................................................................... 102.844%
2006....................................................................... 101.422%
2007 and thereafter........................................................ 100.000%
</TABLE>
In addition, at any time prior to May 15, 2001, the Company may redeem
shares of Exchangeable Preferred Stock having an aggregate liquidation
preference of up to 25% of the aggregate liquidation preference of all shares of
Exchangeable Preferred Stock (including Additional Shares and Dividend Shares
but excluding any New Exchangeable Preferred Stock to the extent the Old
Exchangeable Preferred Stock in exchange for which it was issued is included in
the amount of all such shares of Exchangeable Preferred Stock issued) issued,
from the net cash proceeds of a Qualifying Event at a price equal to 111.375% of
the aggregate liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends, if any, to but excluding the date fixed for
redemption (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption date),
subject to the right of holders of record on the relevant record date to receive
dividends due on a dividend payment date; PROVIDED, that at least $75 million in
aggregate liquidation preference of the Exchangeable Preferred Stock remains
outstanding immediately following such redemption. Any such redemption must be
made within 30 days after the related Qualifying Event.
Notice of any optional redemption of any Exchangeable Preferred Stock (or
portion thereof) will be given to Holders at their addresses as given to the
Transfer Agent, not less than 30 nor more than 60 days prior to the date fixed
for redemption. The notice of redemption shall state the redemption date, the
redemption price, if less than all the outstanding shares of Exchangeable
Preferred Stock are to be redeemed, the liquidation preference of, and accrued
and unpaid dividends on, the particular Exchangeable Preferred Stock to be
redeemed, that on the redemption date the redemption price will become due and
payable upon each share of Exchangeable Preferred Stock to be redeemed and the
place or places where such Exchangeable Preferred Stock is to be surrendered for
payment of the redemption price.
No optional redemption may be authorized or made unless on or prior to such
redemption full unpaid cumulative dividends shall have been paid or a sum set
apart for such payment on the Exchangeable Preferred Stock.
The Credit Facility, the Notes Indenture and Minnesota corporate law limit
the Company's ability to redeem the Exchangeable Preferred Stock, and future
agreements may contain similar or more restrictive limitations.
MANDATORY REDEMPTION
The Exchangeable Preferred Stock will also be subject to mandatory
redemption (subject to certain conditions under Minnesota corporate law) in
whole on May 15, 2010 (the "Mandatory Redemption Date"), at a redemption price
equal to 100% of the aggregate liquidation preference thereof, plus, without
duplication, all accumulated and unpaid dividends, if any, to but excluding the
date fixed for redemption (including an amount in cash equal to a prorated
dividend for the period from the dividend payment date immediately prior to the
redemption date). The Credit Facility, the Notes Indenture and Minnesota
corporate law limit the Company's ability to redeem the Exchangeable Preferred
Stock, and future agreements of the Company may contain similar or more
restrictive limitations.
PROCEDURE FOR REDEMPTION
Notice of any redemption of any shares of Exchangeable Preferred Stock will
be given to the Holders at their registered address not less than 30 nor more
than 60 days prior to the date fixed for redemption. The notice of
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redemption shall state the redemption date, the redemption price, if less than
all of the outstanding shares of Exchangeable Preferred Stock are to be
redeemed, the liquidation preference of, and accrued and unpaid dividends on,
the shares of Exchangeable Preferred Stock to be redeemed, that on the
redemption date the redemption price will become due and payable upon each share
of Exchangeable Preferred Stock to be redeemed and the place or places where
such shares are to be surrendered for payment of the redemption price. If less
than all of the Exchangeable Preferred Stock is to be redeemed, the particular
shares to be redeemed will be determined PRO RATA, except that the Company may
redeem such shares held by a Holder of fewer than 100 shares without regard to
such PRO RATA redemption requirement.
On and after the redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accumulate on shares
of Exchangeable Preferred Stock called for redemption and all rights of Holders
of such shares will terminate except for the right to receive the redemption
price, without interest; PROVIDED, HOWEVER, that if a notice of redemption has
been given and the funds necessary for redemption (including an amount in
respect of all dividends that will accrue to the redemption date) will have been
segregated and irrevocably set apart by the Company, in trust for the benefit of
the Holders of the shares called for redemption, then dividends will cease to
accumulate on the redemption date on the shares to be redeemed and, at the close
of business on the day on which such funds are segregated and set apart, the
Holders of the shares to be redeemed shall cease to be stockholders of the
Company and shall be entitled only to receive the redemption price for such
shares. New certificates of Exchangeable Preferred Stock having an aggregate
liquidation preference equal to the unredeemed portion of Exchangeable Preferred
Stock will be issued in the name of the Holder thereof upon cancellation of the
original shares of Exchangeable Preferred Stock. Shares of Exchangeable
Preferred Stock issued and reacquired by the Company will, upon compliance with
the applicable requirements of Minnesota law, have the status of authorized but
unissued Undesignated Shares of the Company and may, with any and all other
authorized but unissued Undesignated Shares of the Company, be designated or
redesignated, and issued or reissued, as the case may be, as part of any series
of capital stock of the Company, except that any issuance or reissuance of
shares of Exchangeable Preferred Stock must be in compliance with the
Certificate of Designation.
EXCHANGE
The Company may, at its option, on any scheduled dividend payment date,
exchange, in whole but not in part, the Exchangeable Preferred Stock for the
Exchange Debentures; PROVIDED that (i) on the date of such exchange there are no
accumulated and unpaid dividends on the Exchangeable Preferred Stock (including
the dividend payable on such date) or other contractual impediments to such
exchange; (ii) there shall be legally available funds sufficient therefor
(including, without limitation, funds sufficient under Minnesota law to repay
Indebtedness when due); (iii) either (A) a registration statement relating to
the Exchange Debentures shall have been declared effective under the Securities
Act prior to or on the Exchange Date and shall continue to be in effect on the
date of such exchange or (B) the Company shall have obtained a written Opinion
of Counsel that an exemption from the registration requirements of the
Securities Act is available for such exchange and that upon receipt of such
Exchange Debentures pursuant to such exchange made in accordance with such
exemption, each Holder of an Exchange Debenture that is not an Affiliate of the
Company will not be subject to any restrictions imposed by the Securities Act
upon the resale of such Exchange Debenture, and such exemption is relied upon by
the Company for such exchange; (iv) if required by applicable law, the Exchange
Indenture and the Debentures Trustee thereunder shall have been qualified under
the Trust Indenture Act of 1939, as amended, and (v) immediately prior and
subsequent to such exchange, no Event of Default (as defined in the Exchange
Indenture) or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing; and no material breach or
default would exist under the Credit Facility or the Notes Indenture, and (vi)
the Company shall have delivered to the Debentures Trustee a written Opinion of
Counsel, dated the date of exchange, regarding the satisfaction of all the
conditions to be satisfied prior to such exchange including, without limitation,
those conditions set forth in clauses (i), (ii), (iii) and (iv) and the due
authorization, execution, delivery and enforceability of both the Exchange
Debentures and the Exchange Indenture. Currently, the exchange of the
Exchangeable Preferred Stock into Exchange Debentures is restricted by covenants
contained in the Credit Facility and the Notes Indenture, and future agreements
may contain similar or more restrictive limitations. There can be no assurance
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that the conditions in such covenants for the exchange of Exchangeable Preferred
Stock for Exchange Debentures will be satisfied or that the exchange will occur
or that future Indebtedness of the Company would not also restrict an exchange.
See "Description of Senior Subordinated Notes" and "Description of Other
Indebtedness."
Notice of any exchange of any shares of Exchangeable Preferred Stock will be
given to each Holder at its registered address not less than 30 nor more than 60
days prior to the date fixed for such exchange (the "Exchange Date"). On the
Exchange Date, if the conditions set forth in clauses (i) through (vi) above are
satisfied and the exchange is permitted under the Company's then outstanding
Indebtedness, the Company shall issue Exchange Debentures in exchange for the
Exchangeable Preferred Stock as provided in the next paragraph. In the event
that (i) the issuance of the Exchange Debentures is not permitted on the
Exchange Date or (ii) any of the conditions set forth in clauses (i) through
(vi) of the preceding paragraph is not satisfied on the Exchange Date, the
Company shall use its best efforts to satisfy such conditions and effect such
exchange as soon as practicable.
The Company will comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
Upon any exchange of Exchangeable Preferred Stock for Exchange Debentures on
the Exchange Date pursuant to the preceding paragraph, Holders of outstanding
shares of Exchangeable Preferred Stock will be entitled to receive, subject to
the second succeeding sentence, $1.00 of principal amount of Exchange Debentures
for each $1.00 of the then effective liquidation preference of Exchangeable
Preferred Stock held by them. The Exchange Debentures will be issued in
registered form, without coupons. Exchange Debentures issued in exchange for
Exchangeable Preferred Stock will be issued in principal amounts of $1,000 and
integral multiples thereof, and the Company will pay cash in lieu of issuing an
Exchange Debenture in any other principal amount. On and after the Exchange
Date, dividends will cease to accumulate on the outstanding shares of
Exchangeable Preferred Stock, and all rights of the holders of Exchangeable
Preferred Stock (except the right to receive the Exchange Debentures, an amount
in cash, to the extent applicable, equal to the accumulated and unpaid dividends
to the Exchange Date and cash in lieu of any Exchange Debenture that is in a
principal amount less than $1,000) will terminate. The person entitled to
receive Exchange Debentures issuable upon such exchange will be treated for all
purposes as the registered holder of such Exchange Debentures.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, Holders of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution to
stockholders, the then effective liquidation preference per share of
Exchangeable Preferred Stock ($1,000 per share), plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends thereon to but
excluding the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the last dividend
payment date to the date fixed for liquidation, dissolution or winding-up),
before any distribution is made on any Junior Stock, including, without
limitation, common stock of the Company. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the Exchangeable Preferred Stock and all other Parity Stock are not
paid in full, the Holders of the Exchangeable Preferred Stock and the Parity
Stock will share equally and ratably in any distribution of assets of the
Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the Holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with one or more
entities shall be deemed to be a liquidation, dissolution or winding-up of the
Company.
NO SINKING FUND
The Certificate of Designation for the Exchangeable Preferred Stock will not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Exchangeable Preferred Stock.
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VOTING RIGHTS
The holders of Exchangeable Preferred Stock, except as otherwise required
under Minnesota law or as set forth below, shall not be entitled or permitted to
vote on any matter required or permitted to be voted upon by the stockholders of
the Company.
The Certificate of Designation provides that if (i) at any time, dividends
on the Exchangeable Preferred Stock are in arrears and unpaid for six or more
quarterly dividend periods (whether or not consecutive); (ii) the Company fails
to redeem the Exchangeable Preferred Stock on May 15, 2010, or fails to
otherwise discharge any redemption or repurchase obligation with respect to the
Exchangeable Preferred Stock; (iii) the Company fails to make a Change of
Control Offer if such offer is required by the provisions set forth under the
"Change of Control" covenant below or fails to purchase shares of Exchangeable
Preferred Stock from Holders who elect to have such shares purchased pursuant to
the Change of Control Offer; (iv) a breach or violation of any other provisions
described under the caption "-- Certain Covenants" occurs and the breach or
violation continues for a period of 30 days or more after the Company receives
notice thereof specifying the default from the Holders of at least 25% of the
shares of Exchangeable Preferred Stock then outstanding; or (v) default by the
Company or any Restricted Subsidiary under the terms of any instrument
evidencing or securing Indebtedness having an outstanding principal amount in
excess of $5 million in the aggregate, which default results in the acceleration
of the payment of such Indebtedness or constitutes the failure to pay the
principal of such Indebtedness at maturity, then the Holders of a majority of
the then outstanding shares of Exchangeable Preferred Stock, voting as a class
(together with the holders of any Parity Stock having similar voting rights),
shall be entitled to elect the lesser of (a) two directors of the Board of
Directors of the Company and (b) 25% of the members of the Board of Directors of
the Company. If applicable, the voting rights will continue until such time as,
in the case of a dividend default, all dividends in arrears on the Exchangeable
Preferred Stock are paid in full (and in the case of dividends payable after May
15, 2003, paid in cash) and, in all other cases, any failure, breach or default
giving rise to such voting rights is remedied or waived by the holders of at
least a majority of the shares of Exchangeable Preferred Stock then outstanding,
at which time the term of any directors elected pursuant to the provisions of
this paragraph shall terminate. Each such event described in clauses (i) through
(v) above is referred to herein as a "Voting Rights Triggering Event." If the
voting rights provided herein is applicable, then they shall represent each
Holder's exclusive remedy at law or in equity.
The Certificate of Designation also provides that the Company will not
authorize or issue any new class of Senior Stock or Parity Stock except as
described above under "-- Ranking."
Under Minnesota law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the articles of incorporation, whether or not
entitled to vote thereon by the terms of the articles of incorporation, if the
amendment would: (i) increase or decrease the aggregate number of authorized
shares of preferred stock; (ii) effect an exchange, reclassification, or
cancellation of all or part of the shares of preferred stock; (iii) effect an
exchange, or create a right of exchange, of all or any part of the shares of
another class or series for the shares of preferred stock; (iv) change the
rights or preferences of the preferred stock; (v) change the shares of preferred
stock into the same or a different number of shares, either with or without par
value, of another class or series of stock; (vi) create a new class or series of
shares having rights and preferences prior and superior to the shares of
preferred stock, or increase the rights and preferences or the number of
authorized shares of a class or series having rights and preferences prior or
superior to the shares of preferred stock; (vii) divide the shares of preferred
stock into series and determine the designation of each series and the
variations in the relative rights and preferences between the shares of each
series, or authorize the board of directors to do so; (viii) limit or deny any
existing preemptive rights of the shares of preferred stock; or (ix) cancel or
otherwise affect distributions on the shares of preferred stock that have
accrued but have not been declared.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchangeable
Preferred Stock shall have the right to have such Exchangeable Preferred Stock
repurchased by the Company on the terms and conditions set forth in the
Certificate of Designation. The Company shall, within 30 days following the date
of the consummation
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of a transaction resulting in a Change of Control, mail an Offer to Purchase all
outstanding shares of Exchangeable Preferred Stock at a purchase price equal to
101% of the aggregate liquidation preference thereof plus, without duplication,
accumulated and unpaid dividends, if any, to but excluding the date of purchase
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the date of purchase). The
occurrence of a Change of Control constitutes an event of default under the
Credit Facility, entitling the lenders thereunder to accelerate all obligations
owing thereunder. Moreover, the Senior Subordinated Note holders have the right
to require the Company to repurchase all the Senior Subordinated Notes upon the
occurrence of a Change of Control, which would have to be satisfied prior to the
satisfaction of the Offer to Purchase the Exchangeable Preferred Stock. In
addition, Minnesota corporate law imposes certain conditions on the ability of
the Company to purchase shares of Exchangeable Preferred Stock. There can be no
assurance that the Company would be able to make or satisfy such Offer to
Purchase.
"Change of Control" means (i) directly or indirectly, a sale, transfer or
other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's Wholly
Owned Restricted Subsidiaries, as an entirety or substantially as an entirety in
one transaction or series of related transactions, in each case with the effect
that any Person or group of Persons owns more than 50% of the total Voting Power
entitled to vote in the election of directors, managers or trustees of the
transferee entity immediately after such transaction, (ii) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the "beneficial owner"
(as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether
or not applicable, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Power of the
Company, or (iii) during any period of 24 consecutive months, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-l thereunder, in connection
with any Offer to Purchase.
CERTAIN COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The Certificate of Designation prohibits the Company and its Restricted
Subsidiaries from Incurring any Indebtedness, except that the Company may Incur
Indebtedness if (x) there exists no Voting Rights Triggering Event or event
which with notice or lapse of time or both would become a Voting Rights
Triggering Event immediately prior and subsequent thereto and (y) after giving
effect thereto, the Company's Annualized Operating Cash Flow Ratio on a pro
forma basis (calculated on the assumption that such Indebtedness had been
incurred on the first day of the applicable Reference Period), would have been
less than:
<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
- ------------------------------------------------------------------------------ ----------
<S> <C>
Prior to January 1, 2000...................................................... 9.0 to 1.0
Thereafter.................................................................... 8.0 to 1.0
</TABLE>
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Notwithstanding the foregoing, if there exists no Voting Rights Triggering
Event or event which with notice or lapse of time or both would become a Voting
Rights Triggering Event immediately prior and subsequent thereto, the Company
and its Restricted Subsidiaries may Incur the following Indebtedness without
regard to the foregoing limitations:
(i) Indebtedness evidenced by the Senior Subordinated Notes on the
Issue Date;
(ii) the Incurrence by the Company of (x) prior to the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
Existing Credit Facility in an aggregate principal amount not to exceed $160
million at any time outstanding, reduced by repayments and permanent
reductions thereof due to application of Net Cash Proceeds (as defined in
the Notes Indenture) pursuant to the "Limitation on Asset Sales and Sales of
Subsidiary Stock" covenant set forth in the Notes Indenture; PROVIDED,
HOWEVER, that if such Indebtedness is repaid with the net proceeds of the
sale of the Senior Subordinated Notes pursuant to the covenant entitled "--
Limitation on Use of Proceeds; Proceeds Purchase Offer" set forth in the
Notes Indenture, no Indebtedness in excess of $30 million in the aggregate
at any time outstanding may be Incurred thereunder except for Indebtedness
whose proceeds are applied by the Company for the sole purpose of funding a
repurchase of the Senior Subordinated Notes under the covenant entitled "--
Limitation on Use of Proceeds; Proceeds Purchase Offer" set forth in the
Notes Indenture and (y) on and after the date of the consummation of the
Atlantic Acquisition, Indebtedness Incurred under the New Credit Facility in
an aggregate principal amount not to exceed $300 million at any time
outstanding, reduced by such repayments and permanent reductions thereof due
to application of Net Cash Proceeds (as defined in the Notes Indenture) as
set forth in the "-- Limitation on Asset Sales and Sales of Subsidiary
Stock" covenant set forth in the Notes Indenture;
(iii) Indebtedness of the Company or any Restricted Subsidiary of the
Company owing to the Company or any Restricted Subsidiary of the Company
("Intercompany Indebtedness"); PROVIDED that (A) in the case of any such
Indebtedness of the Company, such obligations will be unsecured and
subordinated in all respects to the rights of the holders of the Exchange
Debentures, if and when issued, to the same extent as the Exchange
Debentures will be subordinated to Senior Indebtedness and (B) if any event
occurs that causes a Restricted Subsidiary to no longer be a Restricted
Subsidiary, then this clause (iii) will no longer be applicable to such
Indebtedness of that Restricted Subsidiary;
(iv) Indebtedness of the Company or any Restricted Subsidiary of the
Company to renew, extend, refinance or refund any Indebtedness of the
Company or any Restricted Subsidiary outstanding or committed on the date of
renewal, extension, refinancing or refunding other than Indebtedness
Incurred pursuant to clause (ii) or (iii); PROVIDED, HOWEVER, that such
Indebtedness does not exceed the principal amount of outstanding or
committed Indebtedness so renewed, extended, refinanced or refunded plus
financing fees and other expenses associated therewith; and PROVIDED
FURTHER, HOWEVER, that (a) such renewing, extending, refinancing or
refunding Indebtedness will not have a final maturity and will not have any
other mandatory repayments or redemptions prior to those of the Indebtedness
being renewed, extended, refinanced or refunded; (b) in the case of any
refinancing or refunding of Indebtedness that would rank PARI PASSU in right
of payment to the Exchange Debentures (if and when issued), the refinancing
or refunding Indebtedness would rank PARI PASSU or subordinate in right of
payment to the Exchange Debentures (if and when issued), and, in the case of
any refinancing or refunding of Indebtedness that would rank subordinate to
the Exchange Debentures (if and when issued), the refinancing or refunding
Indebtedness ranks subordinate in right of payment to the Exchange
Debentures (if and when issued) to substantially the same extent as the
Indebtedness refinanced or refunded; and (c) no Restricted Subsidiary of the
Company will be permitted to refinance any Indebtedness of the Company;
(v) Indebtedness Incurred by the Company or any Restricted Subsidiary of
the Company under Interest Hedge Agreements to hedge interest on permitted
Indebtedness; PROVIDED, that the notional principal amount of any such
Interest Hedge Agreements does not exceed the principal amount of
Indebtedness to which such Interest Hedge Agreements relate;
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(vi) Indebtedness of any Restricted Subsidiary of the Company which does
not exceed $30 million in the aggregate for all such Restricted Subsidiaries
at any time outstanding (excluding any Intercompany Indebtedness or Acquired
Indebtedness permitted to be Incurred under the Certificate of Designation),
PROVIDED that after giving effect thereto on a pro forma basis the Company's
Annualized Operating Cash Flow Ratio is less than 7.5 to 1.0 and the
Adjusted Annualized Operating Cash Flow Ratio of such Subsidiary is less
than 5.0 to 1.0.
(vii) any guarantee by any Restricted Subsidiary of any Indebtedness
Incurred under the Existing Credit Facility or New Credit Facility in
compliance with this covenant;
(viii) Acquired Indebtedness, PROVIDED that on a pro forma basis after
giving effect to the Incurrence of such Indebtedness, the Company shall be
able to Incur $1.00 of additional Indebtedness pursuant to the provisions
described under the first paragraph of this covenant "Limitation on
Consolidated Indebtedness";
(ix) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of business;
(x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the Company (other than
guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition), in an amount not to exceed the
gross proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition; and
(xi) Indebtedness of the Company or any Restricted Subsidiary, other
than Indebtedness permitted pursuant to clauses (i) through (x) above, which
does not exceed $10 million at any time outstanding or committed.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Certificate of Designation prohibits the Company from allowing any
Restricted Subsidiary of the Company to create or issue any Preferred Stock
except:
(i) Preferred Stock outstanding on the Issue Date;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by any Person prior to that Person's having
become a direct or indirect Restricted Subsidiary of the Company; and
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance certain outstanding Preferred Stock of a
Restricted Subsidiary, PROVIDED that (a) the liquidation value of the
refinancing Preferred Stock does not exceed the liquidation value so
refinanced plus financing fees and other expenses associated with such
refinancing and (b) such refinancing Preferred Stock has no mandatory
redemptions prior to (and in no greater amounts than) the Preferred Stock
being refinanced.
LIMITATION ON RESTRICTED PAYMENTS
The Certificate of Designation prohibits the Company or any Restricted
Subsidiary from making any Restricted Payment unless after giving effect thereto
(a) no Voting Rights Triggering Event or event which, with notice or lapse of
time or both, would become a Voting Rights Triggering Event has occurred and is
continuing; (b) the Company would be permitted to Incur an additional $1.00 of
Indebtedness pursuant to the provision of the Certificate of Designation
described in the first paragraph under "-- Limitation on Consolidated
Indebtedness"; (c) the total of all Restricted Payments made on or after the
Issue Date does not exceed the sum of (i) Cumulative
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Operating Cash Flow less 1.75 times Cumulative Interest Expense, (ii) 100% of
the aggregate Qualified Capital Stock Proceeds of the Company after the Issue
Date and (iii) 100% of the cash proceeds received from an Unrestricted
Subsidiary to the extent of Investments (other than Permitted Investments) made
in such Unrestricted Subsidiary since the Issue Date; and (d) all accumulated
and unpaid dividends on the Exchangeable Preferred Stock shall have been paid in
full as provided in the Certificate of Designation.
The foregoing provision shall not be violated, so long as no Voting Rights
Triggering Event or event which with notice or lapse of time or both would
become a Voting Rights Triggering Event has occurred and is continuing or shall
occur as a consequence of the actions or payments set forth below, by reason of
(i) the payment of any dividend within 60 days after declaration thereof if at
the declaration date such payment would have complied with the foregoing
provision, (ii) the purchase, acquisition, redemption or other acquisition or
retirement for value of shares of Capital Stock of any Restricted Subsidiary
held by Persons other than the Company or any of its Restricted Subsidiaries,
(iii) the redemption, defeasance, repurchase or other acquisition or retirement
of any Junior Stock of the Company or its Restricted Subsidiaries either in
exchange for or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of Qualified Junior Stock and
(iv) Restricted Payments, in addition to Restricted Payments permitted pursuant
to clauses (i) through (iii) of this paragraph, not in excess of $10 million in
the aggregate after the Issue Date. The payments described in clauses (i), (iii)
(provided the proceeds of the sale of the Qualified Junior Stock constitute
Qualified Capital Stock Proceeds) and (iv) of this paragraph will count as
Restricted Payments for the calculation under the first paragraph of this
section "Limitation on Restricted Payments."
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The Certificate of Designation provides that the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual restriction or prohibition on the
ability of any Restricted Subsidiary to (a) pay dividends on, or make other
distributions in respect of, its Capital Stock, or any other ownership interest
or participation in, or measured by, its profits, to the Company or any
Restricted Subsidiary or pay any Indebtedness or other obligation owed to the
Company or any Restricted Subsidiary, (b) make any loans or advances to the
Company or any Restricted Subsidiary, or (c) transfer any of its property or
assets to the Company or any Restricted Subsidiary. Notwithstanding the
foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer
to exist any such restriction or prohibition (i) pursuant to the Certificate of
Designation, the Notes Indenture, the Existing Credit Facility or any other
agreement in effect on the Issue Date, (ii) pursuant to an agreement relating to
any Indebtedness of such Restricted Subsidiary which was outstanding or
committed prior to the date on which such Restricted Subsidiary was acquired by
the Company other than in anticipation of becoming a Restricted Subsidiary;
PROVIDED that such restriction or prohibition shall not apply to any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets of such Restricted Subsidiary and its Subsidiaries, (iii) pursuant to an
agreement effecting a renewal, extension, refinancing or refunding of any
agreement described in clauses (i) and (ii) above, PROVIDED, HOWEVER, that the
provisions contained in such renewal, extension, refinancing or refunding
agreement relating to such restriction or prohibition are no more restrictive in
any material respect than the provisions contained in the agreement the subject
thereof (it being understood that for purposes of this clause (iii) the New
Credit Facility is deemed to be a refinancing of the Existing Credit Facility),
(iv) existing under or by reason of applicable law, (v) customary provisions
restricting subletting or assignment of any lease governing any leasehold
interest of any Restricted Subsidiary, (vi) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the type referred to in clause (c) of this covenant, (vii) restrictions of the
type referred to in clause (c) of this covenant contained in security agreements
securing Indebtedness of a Restricted Subsidiary to the extent that such Liens
were otherwise incurred in accordance with "-- Limitations on Liens" below and
restrict the transfer of property subject to such agreements, or (viii)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
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LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Certificate of Designation provides that the Company will not, and will
not permit any Restricted Subsidiary of the Company to, enter into any
transaction involving aggregate consideration in excess of (a) $1 million,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with or to any Affiliate or Related Person of
the Company (other than a Restricted Subsidiary), unless a majority of the
disinterested members of the Board of Directors of the Company determines (which
determination will be evidenced by a Board Resolution) that (i) such transaction
is in the best interests of the Company or such Restricted Subsidiary and (ii)
such transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary than those which might be obtained in arm's-length
transactions with a third party at the time and (b) $5 million unless (in
addition to the provisions of the foregoing clause (a)) the Company receives a
written opinion from an investment banking firm of national reputation to the
effect that such transaction is fair to the Company or such Restricted
Subsidiary, from a financial point of view; PROVIDED, that in the case of
transactions entered into in the ordinary course of business principally
involving the provision of telecommunications services by Affiliates or Related
Persons of the Company (who are regularly engaged in the provision of
telecommunications services) to the Company or any of its Restricted
Subsidiaries (x) if the aggregate consideration involved is not in excess of $5
million, then clause (a) above will be applicable but the good faith judgment of
an officer of the Company will be substituted for the requirement of a
resolution of the Board of Directors and (y) if the aggregate consideration
involved exceeds $5 million, clause (b) above will not be applicable but clause
(a) above will be applicable.
LIMITATIONS ON LIENS
The Certificate of Designation provides that the Company will not, and will
not permit any Restricted Subsidiary of the Company to, Incur or suffer to exist
any Lien on or with respect to any property or assets now owned or hereafter
acquired to secure any Indebtedness that ranks in right of payment PARI PASSU
with or subordinate to the Exchange Debentures, if and when issued, without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Exchange Debentures, if and when issued, (i) equally and ratably
with such Indebtedness as to such property for so long as such Indebtedness will
be so secured or (ii) in the event such Indebtedness is Indebtedness of the
Company or a Restricted Subsidiary which is subordinate in right of payment to
the Exchange Debentures, if and when issued, prior to such Indebtedness as to
such property for so long as such Indebtedness will be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing in respect
of any Indebtedness that exists on the Issue Date; (ii) Liens in favor of the
Company or Liens in favor of a Wholly Owned Restricted Subsidiary of the Company
on the assets or Capital Stock of another Wholly Owned Restricted Subsidiary of
the Company; (iii) Liens to secure Indebtedness outstanding or committed for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the equipment or other property subject to such
Liens; PROVIDED, HOWEVER, that (a) the principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost, (b)
such Lien does not extend to or cover any property other than such item of
property or any improvements on such item and (c) the Incurrence of such
Indebtedness is otherwise permitted by the Certificate of Designation; (iv)
Liens on property existing immediately prior to the time of acquisition thereof
(and not Incurred in anticipation of the financing of such acquisition); (v)
Liens to secure Indebtedness to extend, renew, refinance or refund (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, Indebtedness secured by any Lien referred to in the foregoing clauses (i),
(iii) and (iv) so long as such Lien does not extend to any other property and
the principal amount of Indebtedness so secured is not increased except as
otherwise permitted under the provision of the Certificate of Designation
described under clause (ii) or (iv) of "-- Limitation on Consolidated
Indebtedness"; (vi) Liens on any Permitted Investment in Cooperative Bank Equity
in favor of any Cooperative Banks; or (vii) any other Liens in respect of any
Indebtedness which Indebtedness does not exceed $500,000 in the aggregate.
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LIMITATION ON CERTAIN DEBT
The Certificate of Designation provides that the Company will not Incur any
Indebtedness that is subordinate in right of payment to any other Indebtedness
of the Company unless the Indebtedness so Incurred is either PARI PASSU or
subordinate in right of payment to the Exchange Debentures (if and when issued).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Certificate of Designation provides that the Company will not
consolidate with or merge into any Person or permit any other Person to
consolidate with or merge into the Company, or transfer, sell, convey or lease
or otherwise dispose of all or substantially all of its assets to, any Person
unless (i) (a) the Company is the surviving entity or (b) if the Company is not
the surviving entity, then the successor or transferee will be a corporation
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and the Exchangeable Preferred Stock shall be converted
into or exchanged for and shall become shares of such successor or transferee
company, having in respect of such successor or transferee company substantially
the same powers, preferences and relative participating, optional or other
special rights and the qualifications, limitations or restrictions thereon that
the Exchangeable Preferred Stock had immediately prior to such transaction, (ii)
the Consolidated Net Worth of the successor or transferee immediately after the
transaction is not less than 100% of the Company's Consolidated Net Worth
immediately prior to the transaction, (iii) immediately after giving effect to
such transaction, the Company (or its permitted successor or transferee) would
be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
provision of the Certificate of Designation described in the first paragraph
under "-- Limitation on Consolidated Indebtedness," (iv) after giving effect to
such transaction no Voting Rights Triggering Event or event which with notice or
lapse of time would become a Voting Rights Triggering Event has occurred and is
continuing, and (v) an Officers' Certificate and an Opinion of Counsel covering
such conditions shall be delivered to the Transfer Agent.
REPORTS
The Certificate of Designation provides that whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall deliver to the Transfer Agent and to each Holder, within
15 days after it is or would have been required to file such with the
Commission, annual and quarterly financial statements substantially equivalent
to financial statements that would have been included in reports filed with the
Commission, if the Company were subject to the requirements of Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only, a
report thereon by the Company's certified independent public accountants as such
would be required in such reports to the Commission, and, in each case, together
with a management's discussion and analysis of financial condition and results
of operations which would be so required.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in the case of both of the preceding clause (i) and
clause (ii), other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition. Acquired Indebtedness will be deemed to be Incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Adjusted Annualized Operating Cash Flow Ratio" of any Person means the
Annualized Operating Cash Flow Ratio of such Person as adjusted to treat all
Preferred Stock of such Person as Redeemable Stock.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly,
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whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Annualized Operating Cash Flow" of any Person means the Operating Cash Flow
of such Person for the Reference Period multiplied by two.
"Annualized Operating Cash Flow Ratio" of any Person on any date (the
"Transaction Date") means, with respect to any Person and its Restricted
Subsidiaries, the ratio of (i) Consolidated Indebtedness of such Person and its
Restricted Subsidiaries on the Transaction Date (after giving pro forma effect
to the Incurrence of any Indebtedness on such Transaction Date) divided by (ii)
the aggregate amount of Annualized Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all dispositions of
businesses made by such Person and its Restricted Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
dispositions had occurred at the beginning of such Reference Period); PROVIDED,
that for purposes of such computation, in calculating Annualized Operating Cash
Flow and Consolidated Indebtedness: (a) the transaction giving rise to the need
to calculate the Annualized Operating Cash Flow Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period; (b)
the incurrence of any Indebtedness during the Reference Period or subsequent
thereto and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to retire Indebtedness) will be assumed to
have occurred (on a pro forma basis) on the first day of such Reference Period;
(c) Consolidated Interest Expense attributable to any Indebtedness (whether
existing or being incurred) bearing a floating interest rate shall be computed
as if the rate in effect on the Transaction Date had been the applicable rate
for the entire period; (d) all members of the consolidated group of such Person
on the Transaction Date that were acquired during the Reference Period shall be
deemed to be members of the consolidated group of such Person for the entire
Reference Period and (e) the Indebtedness and Annualized Operating Cash Flow of
any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall
be determined in accordance with the actual percentage of the Person's common
equity interest in such Restricted Subsidiary on the date of determination of
the Annualized Operating Cash Flow Ratio (thus, for example, in the case of a
Restricted Subsidiary in which such Person owns a 51% common equity interest,
51% of such Subsidiary's Indebtedness and of such Subsidiary's Annualized
Operating Cash Flow would be included in the calculation of such Person's
aggregate Indebtedness and Annualized Operating Cash Flow, respectively. When
the foregoing definition is used in connection with the Company and its
Restricted Subsidiaries, references to a Person and its Restricted Subsidiaries
in the foregoing definition shall be deemed to refer to the Company and its
Restricted Subsidiaries.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Transfer Agent.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or the State
of Minnesota are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means that portion of any obligation of a Person
as lessee under a lease which is required to be capitalized on the balance sheet
of such lessee in accordance with generally accepted accounting principles.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of equity of such Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within one year after the date of
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acquisition, and (iii) investments in money market funds substantially all of
whose assets comprise securities of the types described in clauses (i) and (ii)
above.
"Commission" means the Securities and Exchange Commission.
"Consolidated Income Tax Expense" of any Person means for any period the
provision for income taxes of such Person and its Restricted Subsidiaries for
such period.
"Consolidated Indebtedness" of any Person means at any date the Indebtedness
of such Person and its Restricted Subsidiaries at such date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Restricted Subsidiaries for such period, including without
limitation or duplication (or, to the extent not so included, with the addition
of), (i) the portion of any rental obligation in respect of any Capital Lease
Obligation allocable to interest expense in accordance with generally accepted
accounting principles; (ii) the amortization of Indebtedness discounts; (iii)
any payments or fees with respect to letters of credit, bankers' acceptances or
similar facilities; (iv) fees with respect to Interest Hedge Agreements; (v) the
portion of any rental obligations in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such were treated as
a Capital Lease Obligation); and (vi) Preferred Stock dividends accrued or
payable other than dividends on Qualified Capital Stock of the Company.
"Consolidated Net Income" of any Person means for any period the net income
(or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (to the
extent included and without duplication) (i) the net income (or loss) of any
Person acquired by such Person or a Restricted Subsidiary of such Person after
the Issue Date in a pooling of interests transaction for any period prior to the
date of such transaction; (ii) the net income (or loss) of any Person that is
not a Restricted Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to such Person by such other
Person during such period; (iii) gains or losses from sales of assets other than
sales of assets acquired and held for resale in the ordinary course of business;
(iv) for the purposes of the "Limitation on Restricted Payments" covenant, the
net income, if positive, of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not at that time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to such Restricted
Subsidiary and (v) all extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles; PROVIDED, that with respect to the
Company, adjustments following the Issue Date to the accounting books and
records of the Company in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of the Company by another Person and its Subsidiaries
shall not be given effect; PROVIDED FURTHER, that such computation shall exclude
(i) any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries and (ii)
Unrestricted Subsidiaries.
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"Cooperative Banks" means lenders under the Credit Facility which are
cooperative banks.
"Cooperative Bank Equity" means non-voting equity interests in Cooperative
Banks.
"Credit Facility" means the Existing Credit Facility or the New Credit
Facility.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the Issue
Date through and including the end of the last fiscal quarter preceding the date
of any proposed Restricted Payment.
"Cumulative Operating Cash Flow" means Operating Cash Flow of the Company
and its Restricted Subsidiaries for the period beginning on the first day of the
fiscal quarter immediately following the Issue Date, through and including the
end of the last fiscal quarter preceding the date of any proposed Restricted
Payment.
"Depositary" means a clearing agency registered under the Exchange Act that
is designated to act as Depositary for the Exchangeable Preferred Stock until a
successor Depositary shall have become such pursuant to the applicable
provisions of the Certificate of Designation, and thereafter "Depositary" shall
mean such successor Depositary. The Depositary initially is DTC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Facility" means the Loan Agreement, dated as of May 1,
1997, among the Company, The Toronto-Dominion Bank, Bank Boston, N.A., St. Paul
Bank for Cooperatives, CoBank, Fleet National Bank, First National Bank of
Maryland, Societe Generale, New York Branch and Merita Bank Ltd., New York
Branch, as amended by a First Amendment to Loan Agreement dated as of August 4,
1997, a Second Amendment to Loan Agreement dated as of December 30, 1997, a
Third Amendment to Loan Agreement dated as of April 17, 1998 and a Fourth
Amendment to Loan Agreement dated as of April 24, 1998, and as such agreement
may be further amended, supplemented, restated or otherwise modified from time
to time.
"Fair Market Value" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets have a Fair Market Value in excess of
$20,000 but not in excess of $5 million, by any officer of the Company and
evidenced by an Officers' Certificate dated within 30 days of the relevant
transaction, or (ii) if such Person or assets have a Fair Market Value in excess
of $5 million, by a majority of the Board of Directors of the Company and
evidenced by a Board Resolution, dated within 30 days of the relevant
transaction, based on an appraisal of an independent appraiser of national
reputation.
"Holder" means a Person in whose name a share of Exchangeable Preferred
Stock is registered.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase
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price of Redeemable Stock of such Person at the time of determination, (vii)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a party,
(viii) all obligations under Interest Rate Agreements, (ix) every obligation of
the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, or which is secured by a lien on any asset of such
Person; and (x) the liquidation value of Preferred Stock of a Subsidiary of such
Person issued and outstanding and held by other than such Person (or one of its
Wholly Owned Restricted Subsidiaries); PROVIDED, that for all purposes of the
Certificate of Designation, (A) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with
generally accepted accounting principles, (B) money borrowed at the time of the
Incurrence of any Indebtedness in order to pre-fund the payment of interest on
such Indebtedness shall be deemed not to be "Indebtedness" and (C) Indebtedness
shall not include any liability for federal, state, local or other taxes. For
purposes of the Certificate of Designation, the amount of any Indebtedness shall
be the amount determined in respect thereof as of the end of the then most
recently ended fiscal quarter of such Person, based on the assumption that such
Indebtedness had terminated at the end of such fiscal quarter, and in making
such determination, if any agreement relating to such obligation provides for
the netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such Person
or in any event until the counterparty thereunder defaults in its corresponding
payment, then in each such case, the amount of such obligations shall be the net
amount so determined, plus any premium due upon default by such Person.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Investment" by any Person in any other Person means (without duplication):
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
Capital Stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make any
such acquisition; (b) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the purchase
of property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) or any
commitment to make any such advance, loan or extension; (c) the entering into by
such Person of any guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of such other Person; (d) the making of any
capital contribution by such Person to such other Person; and (e) the
designation by the Board of Directors of the Company of any Person to be an
Unrestricted Subsidiary. For purposes of the covenant described in "--
Limitation on Restricted Payments," (i) "Investment" shall include and be valued
at the Fair Market Value of such Person's PRO RATA interest in the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary and shall exclude the lesser of (A) Fair
Market Value of such Person's pro rata interest in the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary and (B) the Fair Market Value of the amount
of such Person's Investments (other than Permitted Investments) made in (net of
cash distributions received from) such Unrestricted Subsidiary since the Issue
Date, and (ii) the amount of any Investment shall be the Fair Market Value of
such Investment at the time any such Investment is made.
"Issue Date" means the time and date of the first issuance of the
Exchangeable Preferred Stock.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than an easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
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limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"New Credit Facility" means the amendment and restatement or the refinancing
or replacement of the Existing Credit Facility with the same, a deletion of, or
additional lenders, including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing that increase the
aggregate amount of borrowings outstanding or the aggregate commitments of the
lenders thereunder.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
to each Holder at its registered address on the date of the Offer offering to
purchase Exchangeable Preferred Stock having a liquidation preference up to the
amount specified in such Offer at the purchase price specified in such Offer.
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which, subject
to any contrary requirements of applicable law, shall be not less than 30 days
nor more than 60 days after the date of such Offer to Purchase and a settlement
date (the "Purchase Date") for purchase of Exchangeable Preferred Stock within
five Business Days after the Expiration Date. The Offer shall also state the
section of the Certificate of Designation pursuant to which the Offer to
Purchase is being made, the Expiration Date and the Purchase Date, the aggregate
liquidation preference of the outstanding Exchangeable Preferred Stock offered
to be purchased by the Company, the purchase price to be paid by the Company and
the place or places where shares of Exchangeable Preferred Stock are to be
surrendered for tender pursuant to the Offer to Purchase.
"Officers' Certificate" means a certificate signed by two officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Transfer Agent.
"Operating Cash Flow" for any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions for
income taxes for such period for such Person and its Subsidiaries, (ii)
depreciation, amortization and other non-cash charges of such Person and its
Subsidiaries and (iii) Consolidated Interest Expense of such Person for such
period, determined, in each case, on a consolidated basis for such Person and
its Subsidiaries in accordance with generally accepted accounting principles,
less (c) the sum, without duplication (and only to the extent such amounts are
included in such Consolidated Net Income), of (i) all extraordinary gains of
such Person and its Subsidiaries during such period and (ii) the amount of all
cash payments made during such period by such Person and its Subsidiaries to the
extent such payments relate to non-cash charges that were added back in
determining Operating Cash Flow for such period or for any prior period; and in
the case of a Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary, the determination of the percentage of the Operating Cash Flow of
such Restricted Subsidiary that is to be included in the calculation of the
Company's Annualized Operating Cash Flow Ratio shall be made on a pro forma
basis on the assumption that the percentage of the Company's common equity
interest in such Restricted Subsidiary throughout the applicable Reference
Period was equivalent to its common equity interest on the date of the
determination. When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its
Subsidiaries in the foregoing definition shall be deemed to refer to the Company
and its Restricted Subsidiaries.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Transfer Agent,
delivered to the Transfer Agent.
"Permitted Investments" means: (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than payments
described in clause (ii) of the second paragraph under "Limitation on Restricted
Payments"), (iii) Investments in a Person substantially all of whose assets are
of a type generally used in a Wireless Communications Business (an "Acquired
Person") if, as a result of such Investments, (A) the Acquired Person
immediately thereupon becomes a Restricted Subsidiary or (B) the Acquired Person
immediately thereupon either (1) is merged or consolidated with or into the
Company or any Restricted Subsidiary or (2) transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or any of
its Restricted Subsidiaries;
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(iv) Investments in accounts and notes receivable acquired in the ordinary
course of business; (v) any securities received in connection with an Asset Sale
and any investment with the Net Cash Proceeds from any Asset Sale in Capital
Stock of a Person, all or substantially all of whose assets are of a type used
in a Wireless Communications Business, that complies with the "Limitation on
Asset Sales and Sales of Subsidiary Stock" covenant; (vi) advances and
prepayments for asset purchases in the ordinary course of business in a Wireless
Communications Business of the Company or a Restricted Subsidiary; (vii)
customary loans or advances made in the ordinary course of business to officers,
directors or employees of the Company or any of its Restricted Subsidiaries for
travel, entertainment, and moving and other relocation expenses; (viii) the
purchase of Cooperative Bank Equity in Cooperative Banks to the extent required
by the charter documents of such Cooperative Banks in connection with the
Incurrence of any Indebtedness which is provided by such Cooperative Banks under
the Credit Facility, provided that such Incurrence is permitted under the terms
of the Certificate of Designation; and (ix) Investments in Wireless Alliance not
exceeding $25 million in the aggregate made after the Issue Date; PROVIDED, that
the matters referenced in clauses (iii) and (ix) above shall not be Permitted
Investments if made at any time that a Voting Rights Triggering Event or event
which with notice or lapse of time or both would become a Voting Rights
Triggering Event has occurred and is continuing.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, and any and all shares
of Capital Stock of such Person that have preferential rights to any other
Capital Stock of such Person with respect to dividends or redemptions or upon
liquidation.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement filed with
the Commission in accordance with the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any and all
shares of Capital Stock other than Redeemable Stock issued by such Person after
the date of the Certificate of Designation.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a) in
the case of any sale of Qualified Capital Stock, the aggregate net cash proceeds
received by such Person, after payment of expenses, commissions and the like,
Incurred by such Person in connection therewith, and net of Indebtedness that
such Person Incurred, guaranteed, or otherwise became liable for in connection
with the issuance or acquisition of such Capital Stock; and (b) in the case of
any exchange, exercise, conversion or surrender of any Redeemable Stock or
Indebtedness of such Person issued (other than to any Subsidiary) for cash after
the Issue Date for or into shares of Qualified Capital Stock of such Person, the
aggregate net cash proceeds received from the issuance of such Qualified Capital
Stock, plus the aggregate net cash proceeds, if any, received by such Person
upon such exchange, exercise, conversion or surrender, and less any and all
payments made to the securityholders, and all other expenses, commissions and
the like Incurred by such Person or any Subsidiary in connection therewith.
"Qualified Junior Stock" means Junior Stock that does not constitute
Redeemable Stock.
"Qualifying Event" means a Public Equity Offering or one or more Strategic
Equity Investments which in either case results in aggregate net proceeds of not
less than $50 million.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the Mandatory
Redemption Date or is redeemable at the option of the holder thereof at any time
prior to the Mandatory Redemption Date, provided that any Capital Stock that
would not constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such Capital
Stock upon the occurrence of a "change of control" occurring prior to the
Mandatory Redemption Date shall not constitute Redeemable Stock if the "change
of control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in the "Change
of Control" covenant and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provision
prior to the Company's repurchase of the Exchangeable Preferred Stock as
required pursuant to the "Change of Control" covenant.
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"Reference Period" with regard to any Person means the last two full fiscal
quarters of such Person immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Senior Subordinated
Notes or the Certificate of Designation.
"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Power of such Person.
"Restricted Payment" means, with respect to any Person, (i) any declaration
or payment of a dividend or other distribution on any shares of the Junior Stock
of such Person or any Subsidiary of such Person (other than a dividend payable
solely in shares of its Junior Stock or options, warrants or other rights to
acquire its Junior Stock and other than any declaration or payment of a dividend
or other distribution by a Restricted Subsidiary to the Company or another
Restricted Subsidiary), (ii) any payment on account of the purchase, redemption,
retirement or acquisition of (A) any shares of Junior Stock of such Person or
any Subsidiary of such Person held by other than such Person or any of its
Restricted Subsidiaries or (B) any option, warrant or other right to acquire
shares of Junior Stock of such Person or any Subsidiary of such Person or any of
its Restricted Subsidiaries, in each case other than pursuant to the cashless
exercise of options, (iii) any Investment (other than a Permitted Investment)
made by such Person; PROVIDED, that the term "Restricted Payment" does not
include the payment of a dividend or other distribution by any Restricted
Subsidiary on shares of its Capital Stock that is paid PRO RATA to all holders
of such Capital Stock.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or improvement by the
Company or any Restricted Subsidiary of assets in the Wireless Communications
Business, (iii) all other Indebtedness of the Company referred to in the
definition of Indebtedness other than clauses (iv), (vi) and (ix) thereof (and
clause (viii) thereof to the extent applicable to Indebtedness Incurred under
clauses (iv) and (vi) thereof), whether Incurred on or prior to the Issue Date,
other than the Senior Subordinated Notes, and (iv) amendments, renewals,
extensions, modifications, refinancings and refundings of any such Indebtedness;
PROVIDED, HOWEVER, the following shall not constitute Senior Indebtedness: (A)
any Indebtedness owed to a Person when such Person is a Restricted Subsidiary of
the Company, (B) any Indebtedness which by the terms of the instrument creating
or evidencing the same is not superior in right of payment to the Exchange
Debentures, if and when issued, (C) any Indebtedness Incurred in violation of
the Certificate of Designation (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (c) if the
holder(s) of such Indebtedness or their representative shall have received an
Officers' Certificate of the Company to the effect that the Incurrence of such
Indebtedness does not (or in the case of revolving credit Indebtedness, that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate the Certificate of
Designation or (D) any Indebtedness which is subordinated in right of payment to
any other Indebtedness of the Company.
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"Strategic Equity Investment" means an investment in Qualified Junior Stock
made by a Strategic Investor in an aggregate amount of not less than $50
million.
"Strategic Investor" means a Person (other than an Affiliate of the Company
or a Person who by virtue of such Investment becomes such an Affiliate) engaged
in one or more Telecommunications Businesses with an equity market
capitalization at the time such Person makes a Strategic Equity Investment in
the Company in excess of $1.0 billion.
"Subordinated Indebtedness" mean Indebtedness of the Company that is
subordinated in right of payment to the Exchange Debentures, if and when issued.
"Subsidiary" means, as applied to any Person, (a) any corporation of which
more than fifty percent (50%) of the outstanding Capital Stock (other than
directors' qualifying shares) having ordinary Voting Power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such Voting
Power by reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (b) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased wireline or wireless transmission facilities, (ii) creating,
developing, constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products, or (iii) evaluating, owning, operating, participating in or
pursuing any other business that is primarily related to those identified in
clause (i) or (ii) above (in the case of this clause (iii), however, in a manner
consistent with the Company's manner of business on the Issue Date), and shall,
in any event, include all businesses in which the Company or any of its
Subsidiaries is engaged on the Issue Date or has entered into agreements to
engage in or to acquire a company to engage in or contemplate engaging in, as
expressly set forth in this Prospectus; PROVIDED that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Company's Board of Directors.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
any Person may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, such Person or any Restricted Subsidiary; PROVIDED
THAT either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such Person's PRO
RATA interest in the Fair Market Value of the net assets of such Subsidiary at
the time of such designation would be permitted as an Investment under the
provision of the Certificate of Designation described under "-- Limitation on
Restricted Payments." The Board of Directors of any Person may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of such Person; PROVIDED
that immediately after giving effect to such designation (x) such Person would
be permitted to Incur $1.00 of additional Indebtedness pursuant to the provision
of the Certificate of Designation described in the first paragraph under "--
Limitation on Consolidated Indebtedness" and (y) no Voting Rights Triggering
Event or event which with notice or lapse of time or both would become a Voting
Rights Triggering Event has occurred and is continuing. Any such designation by
the Board of Directors shall be evidenced by a Board Resolution submitted to the
Transfer Agent. Wireless Alliance shall be deemed an Unrestricted Subsidiary as
of the Issue Date and shall thereafter remain an Unrestricted Subsidiary unless
and until designated by the Board of Directors as a Restricted Subsidiary in
accordance with the terms of the Certificate of Designation.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily have voting power for
the election of directors of such Person.
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"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means any business substantially related
to the ownership, development, operation or acquisition of mobile wireless
communications services permitted under the Federal Communications Commission's
("FCC") Commercial Mobile Radio Service rules (and the related provisions of the
FCC's Public Mobile Services and Personal Communications Services rules), and
other related telecommunications business services.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
Exchangeable Preferred Stock will be issued only in fully registered form in
denominations of $1,000 and integral multiples thereof. Exchangeable Preferred
Stock will not be issued in bearer form. New Exchangeable Preferred Stock will
be issued only in accordance with the terms of the Exchange Offer.
If the Exchangeable Preferred Stock is to be redeemed in part, the Company
will not be required to (i) issue, register the transfer of or exchange any
Exchangeable Preferred Stock during a period beginning at the opening of
business 15 days before the day of mailing of notice of redemption of any such
Exchangeable Preferred Stock that may be selected for redemption and ending at
the close of business on the day of such mailing or (ii) register the transfer
of or exchange any Exchangeable Preferred Stock so selected for redemption, in
whole or in part, except the unredeemed portion of any such Exchangeable
Preferred Stock being redeemed in part.
EXCHANGE DEBENTURES
The Exchange Debentures will be issued under an Indenture, to be dated as of
the Exchange Date (the "Exchange Indenture"), by and between the Company and
Norwest Bank Minnesota, National Association, as Trustee (the "Debentures
Trustee"). If the Exchange Debentures are issued, the Exchange Debentures will
be subject to and governed by the Trust Indenture Act. The following summary of
the material terms and provisions of the Exchange Debentures and the Exchange
Indenture does not purport to be complete and is subject to and qualified in its
entirety by reference to the Exchange Indenture (including the terms made part
of the Exchange Indenture by reference to the Trust Indenture Act), copies of
which are available for inspection at the Corporate Trust Office of the
Debentures Trustee in Minneapolis, Minnesota and which may also be obtained from
the Company. Definitions relating to certain capitalized terms used in this
section of this Prospectus are set forth under "-- Certain Definitions" and
throughout this description. Capitalized terms that are used in this section but
not otherwise defined herein have the meanings assigned to them in the Exchange
Indenture and such definitions are incorporated herein by reference. Unless
otherwise indicated, references in this section to covenants are to covenants
set forth in the Exchange Indenture. As used in this section, the "Company"
refers to Rural Cellular Corporation, unless the context otherwise requires.
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GENERAL
The Exchange Debentures will be unsecured obligations of the Company and
will be limited in aggregate principal amount to the liquidation preference of
the Exchangeable Preferred Stock exchanged for Exchange Debentures on the
Exchange Date plus any additional Exchange Debentures thereafter issued in lieu
of cash interest as described herein. The Exchange Debentures will be senior
subordinated obligations of the Company, subordinated in right of payment to
Senior Indebtedness of the Company, including amounts outstanding under the
Existing Credit Facility prior to the consummation of the Atlantic Acquisition
and under the New Credit Facility after the consummation of the Atlantic
Acquisition, PARI PASSU in right of payment with all future senior subordinated
indebtedness of the Company and senior in right of payment to any future
subordinated indebtedness of the Company.
MATURITY, INTEREST AND PRINCIPAL
The Exchange Debentures will mature on May 15, 2010. Interest on the
Exchange Debentures will accrue at a rate of 11 3/8% per annum and will be
payable in cash (or, on or prior to May 15, 2003, in additional Exchange
Debentures having an aggregate principal amount equal to the amount of such
interest, at the option of the Company) semiannually on each May 15 and November
15, commencing on the first such date following the Exchange Date to the Holders
of record on the immediately preceding May 1 and November 1. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Exchange
Debentures will be payable both as to principal and interest at the office or
agency of the Company maintained for such purpose within the City and State of
New York. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Debentures Trustee maintained for
such purpose.
All moneys paid by the Company to a paying agent for the payment of
principal of (and premium, if any) and any interest on any Exchange Debentures
which remain unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable may be repaid to the Company and
thereafter the Holder of such Exchange Debentures may look only to the Company
for payment thereof.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Exchange Debentures will, to the extent set forth in the Exchange Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness. Upon any payment or distribution of assets of the Company to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Company, the holders of all
Senior Indebtedness will be entitled to receive payment in full of all amounts
due or to become due thereon before the Holders of the Exchange Debentures will
be entitled to receive any Exchange Debentures Payment.
In the event that any Senior Payment Default shall have occurred and be
continuing, or the maturity of any Senior Indebtedness shall have been
accelerated, then no Exchange Debentures Payment shall be made unless and until
such Senior Payment Default shall have been cured or waived and any acceleration
of Senior Indebtedness shall have been rescinded or annulled. In the event that
any Senior Nonmonetary Default shall have occurred and be continuing, then, upon
the receipt by the Company and the Debentures Trustee of written notice of such
Senior Nonmonetary Default from a Person designated as a representative for the
Designated Senior Indebtedness or, if there is no outstanding Designated Senior
Indebtedness, any holder of Senior Indebtedness, no Exchange Debentures Payment
shall be made during the period (the "Payment Blockage Period") commencing on
the date of such receipt of such written notice and ending on the earlier of (i)
the date on which such Senior Nonmonetary Default shall have been cured or
waived or shall have ceased to exist and any acceleration of Senior Indebtedness
shall have been rescinded or annulled or the Senior Indebtedness to which such
Senior Nonmonetary Default relates shall have been discharged or (ii) the 179th
day after the date of such receipt of such written notice. No more than one
Payment Blockage Period may be commenced with respect to the Exchange Debentures
during any 360-day period and there shall be a period of at least 181
consecutive days in each 360-day period in which no Payment Blockage Period is
in effect. For all purposes of this paragraph, no Senior Nonmonetary Default
that was known to the holders of Senior Indebtedness to exist or be continuing
on the date of commencement of any Payment Blockage Period
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shall be, or be made, the basis for the commencement of a subsequent Payment
Blockage Period by a representative for the Designated Senior Indebtedness
unless such Senior Nonmonetary Default shall have been cured for a period of not
less than 90 consecutive days.
The subordination provisions described above will cease to be applicable to
the Exchange Debentures upon any defeasance or covenant defeasance of the
Exchange Debentures as described under "Defeasance."
At March 31, 1998 on a pro forma basis after giving effect to the Pending
Acquisitions and the Offerings, Senior Indebtedness aggregated approximately
$163.8 million. The Company expects from time to time to Incur additional
Indebtedness constituting Senior Indebtedness. See "Capitalization." In
addition, all existing and future indebtedness and other liabilities of the
Company's Subsidiaries will be effectively senior in right of payment to the
Exchange Debentures. At March 31, 1998 on a pro forma basis after giving effect
to the Pending Acquisitions and the Offerings, the Company's Subsidiaries had no
material Indebtedness, other than Intercompany Indebtedness and guarantees by
such Subsidiaries of the Credit Facility.
OPTIONAL REDEMPTION
After May 15, 2003, the Exchange Debentures may be redeemed at any time at
the option of the Company, in whole or from time to time in part, on not less
than 30 nor more than 60 days prior notice, at the following redemption prices
(expressed as percentages of principal amount thereof), together with accrued
and unpaid interest to but excluding the date fixed for redemption, if redeemed
during the 12-month period beginning on May 15 of each of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------- -----------------
<S> <C>
2003....................................................................... 105.688%
2004....................................................................... 104.266%
2005....................................................................... 102.844%
2006....................................................................... 101.422%
2007 and thereafter........................................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to May 15, 2001, the
Company may redeem up to 25% of the aggregate principal amount of Exchange
Debentures actually issued under the Indenture from the net cash proceeds of a
Qualifying Event at a price equal to 111.375% of the aggregate principal amount
thereof, together with accrued and unpaid interest to but excluding the date
fixed for redemption; PROVIDED, that at least $75 million in aggregate principal
amount of Exchange Debentures remains outstanding immediately following such
redemption; and PROVIDED FURTHER, HOWEVER, that the aggregate liquidation
preference of any shares of Exchangeable Preferred Stock previously redeemed out
of the net cash proceeds of a Qualifying Event shall be counted as aggregate
principal amount of Exchange Debentures issued and redeemed for purposes of the
foregoing 25% calculation. Any such redemption must be made within 30 days after
the related Qualifying Event.
Notice of any optional redemption of any Exchange Debentures (or portion
thereof) will be given to Holders at their addresses appearing in the Security
Register, not less than 30 nor more than 60 days prior to the date fixed for
redemption. The notice of redemption shall state the redemption date, the
redemption price, if less than all the outstanding Exchange Debentures are to be
redeemed, principal amounts of the particular Exchange Debentures to be
redeemed, that on the redemption date the redemption price will become due and
payable upon each Exchange Debenture to be redeemed and the place or places
where such Exchange Debentures are to be surrendered for payment of the
redemption price. If less than all of the Exchange Debentures are to be
redeemed, the particular Exchange Debentures to be redeemed will be selected not
more than 60 days prior to the redemption date by the Debentures Trustee by such
method as the Debentures Trustee deems fair and appropriate.
NO SINKING FUND
No sinking fund is provided for the Exchange Debentures.
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CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of an Exchange
Debenture shall have the right to have such Exchange Debenture repurchased by
the Company on the terms and conditions set forth in the Exchange Indenture. The
Company shall, within 30 days following the date of the consummation of a
transaction resulting in a Change of Control, mail an Offer to Purchase all
outstanding Exchange Debentures at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest to but
excluding the date of purchase. The occurrence of a Change of Control
constitutes an event of default under the Credit Facility, entitling the lenders
thereunder to accelerate all obligations owing thereunder, which would result in
a block on all payments under the Exchange Debentures. There can be no assurance
that the Company will be able to make or satisfy the Offer to Purchase.
"Change of Control" means (i) directly or indirectly a sale, transfer or
other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's Wholly
Owned Restricted Subsidiaries, as an entirety or substantially as an entirety in
one transaction or series of related transactions, in each case with the effect
that any Person or group of Persons owns more than 50% of the total Voting Power
entitled to vote in the election of directors, managers or trustees of the
transferee entity immediately after such transaction, (ii) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the "beneficial owner"
(as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether
or not applicable, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Power of the
Company or (iii) during any period of 24 consecutive months, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-l thereunder, in connection
with any Offer to Purchase.
CERTAIN COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The Exchange Indenture will prohibit the Company and its Restricted
Subsidiaries from Incurring any Indebtedness, except that the Company may Incur
Indebtedness if (x) there exists no Event of Default or an event which with
notice or lapse of time or both would become an Event of Default immediately
prior and subsequent thereto, and (y) after giving effect thereto, the Company's
Annualized Operating Cash Flow Ratio on a pro forma basis (calculated on the
assumption that such Indebtedness had been incurred on the first day of the
applicable Reference Period), would have been less than:
<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
- ----------------------------------------------------------------------------------- ---------
<S> <C>
9.0 to
Prior to January 1, 2000........................................................... 1.0
8.0 to
Thereafter......................................................................... 1.0
</TABLE>
Notwithstanding the foregoing, if there exists no Event of Default or an
event which with notice or lapse of time or both would become an Event of
Default immediately prior and subsequent thereto, the Company and its Restricted
Subsidiaries may Incur the following Indebtedness without regard to the
foregoing limitations:
(i) Indebtedness evidenced by the Exchange Debentures on the Exchange
Date, and Exchange Debentures issued after the Exchange Date in lieu of cash
interest as described herein;
(ii) the Incurrence by the Company of (x) prior to the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
Existing Credit Facility in an aggregate principal amount not to
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exceed $160 million at any time outstanding, reduced by repayments and
permanent reductions thereof due to application of Net Cash Proceeds
pursuant to the "Limitation on Asset Sales and Sales of Subsidiary Stock"
covenant; PROVIDED, HOWEVER, that if such Indebtedness is repaid with the
net proceeds of the sale of the Senior Subordinated Notes pursuant to the
covenant entitled "-- Limitation on Use of Proceeds; Proceeds Purchase
Offer" set forth in the Notes Indenture, no Indebtedness in excess of $30
million in the aggregate at any time outstanding may be Incurred thereunder
except for Indebtedness whose proceeds are applied by the Company for the
sole purpose of funding a repurchase of the Senior Subordinated Notes under
the covenant entitled "-- Limitation on Use of Proceeds; Proceeds Purchase
Offer" set forth in the Notes Indenture and (y) on and after the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
New Credit Facility in an aggregate principal amount not to exceed $300
million at any time outstanding, reduced by repayments and permanent
reductions thereof due to the application of Net Cash Proceeds set forth in
the "-- Limitation on Asset Sales and Sales of Subsidiary Stock" covenant;
(iii) Indebtedness of the Company or any Restricted Subsidiary of the
Company owing to the Company or any Restricted Subsidiary of the Company
("Intercompany Indebtedness"); PROVIDED, that (A) in the case of any such
Indebtedness of the Company, such obligations will be unsecured and
subordinated in all respects to the Holders' rights pursuant to the Exchange
Debentures to the same extent as the Exchange Debentures are subordinated to
Senior Indebtedness and (B) if any event occurs that causes a Restricted
Subsidiary to no longer be a Restricted Subsidiary, then this clause (iii)
will no longer be applicable to such Indebtedness of that Restricted
Subsidiary;
(iv) Indebtedness of the Company or any Restricted Subsidiary of the
Company to renew, extend, refinance or refund any Indebtedness of the
Company or such Restricted Subsidiary outstanding or committed on the date
of renewal, extension, refinancing or refunding other than Indebtedness
Incurred pursuant to clause (ii) or (iii); PROVIDED, HOWEVER, that such
Indebtedness does not exceed the principal amount of outstanding or
committed Indebtedness so renewed, extended, refinanced or refunded plus
financing fees and other expenses associated therewith; and PROVIDED
FURTHER, HOWEVER, that (a) such renewing, extending, refinancing or
refunding Indebtedness will not have a final maturity and shall not have any
other mandatory repayments or redemptions prior to or in amounts greater
than those of the Indebtedness being renewed, extended, refinanced or
refunded, (b) in the case of any refinancing or refunding of Indebtedness
that ranks PARI PASSU in right of payment to the Exchange Debentures, the
refinancing or refunding Indebtedness ranks PARI PASSU or is subordinated in
right of payment to the Exchange Debentures and, in the case of any
refinancing or refunding of Indebtedness subordinated to the Exchange
Debentures, the refinancing or refunding Indebtedness ranks subordinate in
right of payment to the Exchange Debentures to substantially the same extent
as the Indebtedness refinanced or refunded and (c) no Restricted Subsidiary
of the Company will be permitted to refinance any Indebtedness of the
Company;
(v) Indebtedness Incurred by the Company or any Restricted Subsidiary,
of the Company under Interest Hedge Agreements to hedge interest on
permitted Indebtedness, PROVIDED, that the notional principal amount of any
such Interest Hedge Agreements does not exceed the principal amount of
Indebtedness to which such Interest Hedge Agreements relate;
(vi) Indebtedness of any Restricted Subsidiary of the Company which does
not exceed $30 million in the aggregate for all such Restricted Subsidiaries
at any time outstanding (excluding any Intercompany Indebtedness or Acquired
Indebtedness permitted to be Incurred under the Exchange Indenture),
PROVIDED, that after giving effect thereto on a pro forma basis the
Company's Annualized Operating Cash Flow Ratio is less than 7.5 to 1.0 and
the Adjusted Annualized Operating Cash Flow Ratio of such Restricted
Subsidiary is less than 5.0 to 1.0;
(vii) any guarantee by any Restricted Subsidiary of any Indebtedness
Incurred under the Existing Credit Facility or New Credit Facility in
compliance with this covenant;
(viii) Acquired Indebtedness; PROVIDED that on a pro forma basis after
giving effect to the Incurrence of such Indebtedness, the Company shall be
able to Incur $1.00 of additional Indebtedness pursuant to the provisions
described under the first paragraph of this covenant "Limitation on
Consolidated Indebtedness";
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(ix) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of business;
(x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the Company (other than
guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition), in an amount not to exceed the
gross proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition; and
(xi) Indebtedness of the Company or any Restricted Subsidiary, other
than Indebtedness permitted pursuant to clauses (i) through (x) above, which
does not exceed $10 million at any time outstanding or committed.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Exchange Indenture will prohibit the Company from allowing any
Restricted Subsidiary of the Company to create or issue any Preferred Stock
except:
(i) Preferred Stock outstanding on the Exchange Date;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by any Person prior to that Person's having
become a direct or indirect Restricted Subsidiary of the Company; and
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance outstanding Preferred Stock of a Restricted
Subsidiary, provided that (a) the liquidation value of the refinancing
Preferred Stock does not exceed the liquidation value so refinanced plus
financing fees and other expenses associated with such refinancing and (b)
such refinancing Preferred Stock has no mandatory redemptions prior to (and
in no greater amounts than) the Preferred Stock being refinanced.
LIMITATION ON ASSET SALES AND SALES OF SUBSIDIARY STOCK
The Exchange Indenture will provide that after the Exchange Date the Company
will not, and will not permit any of its Restricted Subsidiaries to, in one
transaction or a series of related transactions, convey, sell, transfer, assign
or otherwise dispose of, directly or indirectly, any of its property, business
or assets, including any sale or other transfer or issuance of any Capital Stock
of any Restricted Subsidiary of the Company, whether owned on the Exchange Date
or thereafter acquired (an "Asset Sale") unless (a) such Asset Sale is for Fair
Market Value, (b) at least 80% of the value of the consideration for such Asset
Sale consists of (i) cash, (ii) the assumption by the transferee (and release of
the Company or Subsidiary, as the case may be) of Senior Indebtedness or
Indebtedness of the Company that ranks PARI PASSU in right of payment to the
Exchange Debentures or Indebtedness of such Restricted Subsidiary, or (iii)
notes, obligations or other marketable securities (collectively "Marketable
Securities") that are immediately converted into cash and (c) the Net Cash
Proceeds therefrom are applied on or prior to the date that is 360 days after
the date of such Asset Sale (i) to the repayment of Indebtedness under the
Credit Facility (which payment permanently reduces the commitment thereunder) or
(ii) to the repurchase of the Exchange Debentures pursuant to an offer to
purchase (an "Asset Sale Offer") described below or (iii) to an investment in a
Wireless Communications Business.
Notwithstanding the foregoing provisions of the prior paragraph:
(i) any Restricted Subsidiary of the Company may convey, sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(ii) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, (A) convey, sell, lease, transfer, assign or otherwise
dispose of assets in the ordinary course of business provided that the
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<PAGE>
consideration received reflects the Fair Market Value of such assets and (B)
exchange assets for either assets or equity interests in Wireless
Communications Businesses, provided that (I) the assets or equity interests
received have a Fair Market Value substantially equal to the assets
exchanged, (II) the assets received by the Company are controlled by the
Company with respect to voting rights and day-to-day operations, or the
equity interests received by the Company represent a controlling interest in
the total Voting Power and day-to-day operations of a Person that is the
issuer of such equity interests, (III) there exists no Event of Default or
event which with notice or lapse of time or both would become an Event of
Default immediately prior and subsequent thereto, and (IV) immediately after
giving effect to such transaction, the Company would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the provision of the
Exchange Indenture described in the first paragraph under "-- Limitation on
Consolidated Indebtedness";
(iii) the Company and its Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the covenants described in "Consolidation, Merger,
Conveyance, Transfer or Lease";
(iv) the Company and its Restricted Subsidiaries may (a) sell damaged,
worn out or other obsolete property in the ordinary course of business or
other property no longer necessary for the proper conduct of the business of
the Company or any of its Restricted Subsidiaries or (b) abandon such
property if it cannot, through reasonable efforts, be sold; and
(v) in addition to the Asset Sales permitted by the foregoing clauses
(i) through (iv), the Company and its Restricted Subsidiaries may consummate
Asset Sales (other than in the case of Capital Stock of any Restricted
Subsidiary of the Company) with respect to property, business or assets the
Fair Market Value of which does not exceed $5 million in the aggregate after
the Exchange Date.
The Exchange Indenture will provide that an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds not applied to the uses set forth in
subsections (c)(i) or (c)(iii) in the first paragraph of this Section
"Limitation on Asset Sales and Sales of Subsidiary Stock" exceed $5 million. An
Asset Sale Offer will remain open for a period of 20 Business Days following its
commencement and no longer, except to the extent that a longer period is
required by applicable law (the "Asset Sale Offer Period"). No later than five
Business Days after the termination of the Asset Sale Offer Period (the "Asset
Sale Purchase Date"), the Company will purchase the principal amount of Exchange
Debentures required to be purchased pursuant to this covenant (the "Asset Sale
Offer Amount") at a purchase price equal to 100% of the principal amount of the
Exchange Debentures plus accrued and unpaid interest to but excluding the date
of the purchase or, if less than the Asset Sale Offer Amount has been tendered,
all Exchange Debentures tendered in response to the Asset Sale Offer. Payment
for any Exchange Debentures so purchased will be made in the same manner as
interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name an Exchange Debenture is registered at
the close of business on such record date, and no additional interest will be
payable to Holders who tender Exchange Debentures pursuant to the Asset Sale
Offer.
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Exchange Debentures or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount
has been tendered, all Exchange Debentures tendered, and will deliver to the
Debentures Trustee an Officers' Certificate stating that such Exchange
Debentures or portions thereof were accepted for payment by the Company in
accordance with the terms of this covenant. The Company, the Depositary or the
Paying Agent, as the case may be, will promptly (but in any case not later than
five days after the Asset Sale Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Exchange Debentures tendered
by such Holder and accepted by the Company for purchase, and the Company will
promptly issue a new Exchange Debenture, and the Debentures Trustee, upon
written request from the Company, will authenticate and mail or deliver such new
Exchange Debenture to such Holder, in a principal amount equal to any
unpurchased portion of the Exchange Debenture surrendered. Any Exchange
Debenture not so accepted will be promptly mailed or delivered by the Company to
the Holder thereof. The Company will publicly announce the results of the Asset
Sale Offer on the Asset Sale Purchase Date.
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LIMITATION ON RESTRICTED PAYMENTS
The Exchange Indenture will prohibit the Company or any Restricted
Subsidiary from making any Restricted Payment unless after giving effect thereto
(a) no Event of Default or event which with notice or lapse of time or both
would become an Event of Default has occurred and is continuing; (b) the Company
would be permitted to Incur an additional $1.00 of Indebtedness pursuant to the
provision of the Exchange Indenture described in the first paragraph under "--
Limitation on Consolidated Indebtedness"; and (c) the total of all Restricted
Payments made on or after the Issue Date does not exceed the sum of (i)
Cumulative Operating Cash Flow less 1.75 times Cumulative Interest Expense, (ii)
100% of the aggregate Qualified Capital Stock Proceeds of the Company after the
Issue Date, and (iii) 100% of the cash proceeds received from an Unrestricted
Subsidiary to the extent of Investments (other than Permitted Investments) made
in such Unrestricted Subsidiary since the Issue Date.
The foregoing provision shall not be violated, so long as no Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing (other than in the case of
clause (ii)), by reason of (i) the payment of any dividend within 60 days after
declaration thereof if at the declaration date such payment would have complied
with the foregoing provision, (ii) any refinancing of any Indebtedness otherwise
permitted under the provision of the Exchange Indenture described under clause
(ii) or (iv) of "-- Limitation on Consolidated Indebtedness," (iii) the
purchase, redemption or other acquisition or retirement for value of shares of
Capital Stock of any Restricted Subsidiary held by Persons other than the
Company or any of its Restricted Subsidiaries, (iv) the redemption, defeasance,
repurchase or other acquisition or retirement of any Capital Stock of the
Company or any Subordinated Indebtedness prior to its scheduled maturity either
in exchange for or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of Qualified Capital Stock of
the Company and (v) Restricted Payments, in addition to Restricted Payments
permitted pursuant to clauses (i) through (iv) above, not in excess of $10
million in the aggregate after the Issue Date. The payments described in clauses
(i), (iv) (provided the proceeds of the sale of the Qualified Capital Stock
referred to in such clause constitute Qualified Capital Stock Proceeds) and (vi)
of this paragraph will count as Restricted Payments for the calculation under
the first paragraph of this section "Limitation on Restricted Payments."
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The Exchange Indenture will provide that the Company shall not, and shall
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual restriction or prohibition on the
ability of any Restricted Subsidiary to (a) pay dividends on, or make other
distributions in respect of, its Capital Stock, or any other ownership interest
or participation in, or measured by, its profits, to the Company or any
Restricted Subsidiary or pay any Indebtedness or other obligation owed to the
Company or any Restricted Subsidiary, (b) make any loans or advances to the
Company or any Restricted Subsidiary or (c) transfer any of its property or
assets to the Company or any Restricted Subsidiary. Notwithstanding the
foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer
to exist any such restriction or prohibition (i) pursuant to the Exchange
Indenture, the Credit Facility or any other agreement in effect on the Exchange
Date, (ii) pursuant to an agreement relating to any Indebtedness of such
Restricted Subsidiary which was outstanding or committed prior to the date on
which such Restricted Subsidiary became a Restricted Subsidiary of the Company
other than in anticipation of becoming a Restricted Subsidiary; PROVIDED, that
such restriction or prohibition shall not apply to any property or assets of the
Company or any Restricted Subsidiary other than the property or assets of such
Restricted Subsidiary and its Subsidiaries, (iii) pursuant to an agreement
effecting a renewal, extension, refinancing or refunding of any agreement
described in clauses (i) and (ii) above, PROVIDED, HOWEVER, that the provisions
contained in such renewal, extension, refinancing or refunding agreement
relating to such restriction or prohibition are no more restrictive in any
material respect than the provisions contained in the agreement which is the
subject thereof (it being understood that for purposes of this clause (iii) the
New Credit Facility is deemed to be a refinancing of the Existing Credit
Facility), (iv) existing under or by reason of applicable law, (v) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any Restricted Subsidiary, (vi) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the type referred to in clause (c) of this covenant, (vii)
restrictions of the type referred to in clause (c) of this covenant contained in
security agreements securing Indebtedness of a Restricted Subsidiary to the
extent that such Liens
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were otherwise incurred in accordance with "-- Limitations on Liens" below and
restrict the transfer of property subject to such agreements, or (viii)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Exchange Indenture will provide that the Company will not, and will not
permit any Restricted Subsidiary of the Company to, enter into any transaction
involving aggregate consideration in excess of (a) $1 million, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with or to any Affiliate or Related Person of the
Company (other than a Restricted Subsidiary), unless a majority of the
disinterested members of the Board of Directors of the Company determines (which
determination will be evidenced by a Board Resolution) that (i) such transaction
is in the best interests of the Company or such Restricted Subsidiary and (ii)
such transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary than those which might be obtained in arm's-length
transactions with a third party at the time and (b) $5 million unless (in
addition to the provisions of the foregoing clause (a)) the Company receives a
written opinion from an investment banking firm of national reputation to the
effect that such transaction is fair to the Company or such Restricted
Subsidiary, from a financial point of view; PROVIDED, that in the case of
transactions entered into in the ordinary course of business involving the
provision of telecommunications services by Affiliates or Related Persons of the
Company (who are regularly engaged in the provision of telecommunications
services) to the Company or any of its Restricted Subsidiaries (x) if the
aggregate consideration involved is not in excess of $5 million, then clause (a)
above shall be applicable but the good faith judgment of an officer of the
Company shall be substituted for the requirement of a resolution of the Board of
Directors and (y) if the aggregate consideration involved exceeds $5 million,
clause (b) above shall not be applicable but clause (a) above shall be
applicable.
LIMITATIONS ON LIENS
The Exchange Indenture will provide that the Company will not, and will not
permit any Restricted Subsidiary of the Company to, Incur or suffer to exist any
Lien on or with respect to any property or assets now owned or hereafter
acquired to secure any Indebtedness that ranks in right of payment PARI PASSU
with or subordinate to the Exchange Debentures without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Exchange
Debentures (i) equally and ratably with such Indebtedness as to such property
for so long as such Indebtedness will be so secured or (ii) in the event such
Indebtedness is Indebtedness of the Company or a Restricted Subsidiary which is
subordinate in right of payment to the Exchange Debentures, prior to such
Indebtedness as to such property for so long as such Indebtedness will be so
secured.
The foregoing restrictions shall not apply to: (i) Liens existing in respect
of any Indebtedness that exists on the Exchange Date; (ii) Liens in favor of the
Company or Liens in favor of a Wholly Owned Restricted Subsidiary of the Company
on the assets or Capital Stock of another Wholly Owned Restricted Subsidiary of
the Company; (iii) Liens to secure Indebtedness outstanding or committed for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the equipment or other property subject to such
Liens; PROVIDED, HOWEVER, that (a) the principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost, (b)
such Lien does not extend to or cover any property other than such item of
property or any improvements on such item and (c) the Incurrence of such
Indebtedness is otherwise permitted by the Exchange Indenture; (iv) Liens on
property existing immediately prior to the time of acquisition thereof (and not
Incurred in anticipation of the financing of such acquisition); (v) Liens to
secure Indebtedness to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part,
Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii)
and (iv) so long as such Lien does not extend to any other property and the
principal amount of Indebtedness so secured is not increased except as otherwise
permitted under the provision of the Exchange Indenture described under clause
(ii) or (iv) of "-- Limitation on Consolidated Indebtedness"; (vi) Liens on any
Permitted Investment in Cooperative Bank Equity in favor of any Cooperative
Banks; or (vii) any other Liens in respect of any Indebtedness, which
Indebtedness does not exceed $500,000 in the aggregate.
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LIMITATION ON CERTAIN DEBT
The Exchange Indenture will provide that the Company will not Incur any
Indebtedness that is subordinate in right of payment to any other Indebtedness
of the Company unless the Indebtedness so Incurred is either PARI PASSU or
subordinate in right of payment to the Exchange Debentures.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Exchange Indenture will provide that the Company will not consolidate
with or merge into any Person or permit any other Person to consolidate with or
merge into the Company, or transfer, sell, convey or lease or otherwise dispose
of all or substantially all of its assets to, any Person unless (i) (a) the
Company is the surviving entity or (b) if the Company is not the surviving
entity then the successor or transferee assumes all the obligations of the
Company under the Exchange Debentures and the Exchange Indenture and the
surviving entity shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof, (ii) the
Consolidated Net Worth of the successor or transferee immediately after the
transaction is not less than 100% of the Company's Consolidated Net Worth
immediately prior to the transaction, (iii) immediately after giving effect to
such transaction, the Company (or its permitted successor or transferee) would
be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
provision of the Exchange Indenture described in the first paragraph under "--
Limitation on Consolidated Indebtedness," (iv) after giving effect to such
transaction no Event of Default or event which with notice or lapse of time
would become an Event of Default has occurred and is continuing and (v) an
Officers' Certificate and an Opinion of Counsel covering such conditions shall
be delivered to the Debentures Trustee.
REPORTS
The Exchange Indenture will provide that whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall deliver to the Debentures Trustee and to each Holder,
within 15 days after it is or would have been required to file such with the
Commission, annual and quarterly financial statements substantially equivalent
to financial statements that would have been included in reports filed with the
Commission, if the Company were subject to the requirements of Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only, a
report thereon by the Company's certified independent public accountants as such
would be required in such reports to the Commission, and, in each case, together
with a management's discussion and analysis of financial condition and results
of operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Exchange Indenture: (i)
failure to pay the principal of or premium, if any, on the Exchange Debentures
at Maturity; (ii) failure to pay any interest on the Exchange Debentures for a
period of 30 days or more after it becomes due and payable; (iii) failure to
purchase in a timely fashion Exchange Debentures required to be purchased by the
Company pursuant to either of the provisions of the Exchange Indenture described
under "-- Change of Control" or "-- Covenants -- Limitation on Asset Sales and
Sales of Subsidiary Stock"; (iv) failure to perform or comply with the
provisions of the Exchange Indenture described under "-- Consolidation, Merger,
Conveyance, Transfer or Lease"; (v) failure to perform any other covenant or
agreement of the Company under the Exchange Indenture that continues for 30 days
after written notice to the Company by the Debentures Trustee or Holders of at
least 25% in aggregate principal amount of outstanding Exchange Debentures; (vi)
default by the Company or any Restricted Subsidiary under the terms of any
instrument evidencing or securing Indebtedness having an outstanding principal
amount in excess of $5 million in the aggregate, which default results in the
acceleration of the payment of such Indebtedness or constitutes the failure to
pay the principal of such Indebtedness at maturity; (vii) the rendering of a
final judgment or judgments against the Company or a Restricted Subsidiary in an
amount in excess of $5 million which remains undischarged or unstayed for a
period of 60 days after the date on which the right of appeal has expired; and
(viii) certain events of bankruptcy, insolvency or reorganization affecting the
Company or a Restricted Subsidiary.
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If an Event of Default, other than an event described under (viii) above,
shall occur and be continuing, either the Debentures Trustee or the Holders of
at least 25% in aggregate principal amount of the Exchange Debentures by notice
as provided in the Exchange Indenture may declare the principal amount of the
Exchange Debentures to be due and payable immediately; PROVIDED, HOWEVER, that
after such acceleration, but before a judgment or decree based on acceleration,
the Holders of a majority in aggregate principal amount of outstanding Exchange
Debentures may, under certain circumstances, rescind and annul such acceleration
if all Events of Default, other than the nonpayment of accelerated principal of
the Exchange Debentures, have been cured or waived as provided in the Exchange
Indenture. If an Event of Default described under (viii) above shall occur, the
Exchange Debentures will become immediately due and payable without any
declaration or other act on the part of the Debentures Trustee or any Holder.
No Holder of any Exchange Debenture will have any right to institute any
proceeding with respect to the Exchange Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Debentures Trustee written
notice of an Event of Default and unless the Holders of at least 25% in
aggregate principal amount of the outstanding Exchange Debentures shall have
made written request to the Debentures Trustee and the Debentures Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Exchange Debentures a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of an
Exchange Debenture for enforcement of payment of the principal of and premium,
if any, or interest on such Exchange Debenture on or after the respective due
dates expressed in such Exchange Debenture. The Holders of a majority in
aggregate principal amount of the Exchange Debentures outstanding may waive any
existing Event of Default except an Event of Default in the payment of interest
or principal (including premium) on the Exchange Debentures.
MODIFICATION AND WAIVER
Modifications and amendments of the Exchange Indenture may be made by the
Company and the Debentures Trustee with the consent of the Holders of a majority
in aggregate principal amount of the outstanding Exchange Debentures; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each Exchange Debenture affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Exchange
Debenture, (ii) reduce the principal amount of, or premium, if any, or interest
on any Exchange Debenture, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on any Exchange Debenture, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Exchange Debenture, (v) reduce the percentage of aggregate
principal amount of Exchange Debentures outstanding necessary to amend the
Exchange Indenture, (vi) reduce the percentage of aggregate principal amount of
Exchange Debentures outstanding necessary for waiver of compliance with certain
provisions of the Exchange Indenture or for waiver of certain defaults, (vii)
modify such provisions with respect to modification and waiver, (viii) modify
the subordination provisions in a manner adverse to the Holders of the Exchange
Debentures or (ix) following the mailing of an offer to purchase Exchange
Debentures, modify the provisions of the Exchange Indenture with respect to such
offer to purchase in a manner adverse to such Holder.
The Holders of a majority in aggregate principal amount of the outstanding
Exchange Debentures may waive compliance by the Company with certain restrictive
provisions of the Exchange Indenture. The Holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures may waive any past
default under the Exchange Indenture, except a default in the payment of
principal, premium, if any, or interest and certain covenants and provisions of
the Exchange Indenture which cannot be amended without the consent of the Holder
of each outstanding Exchange Debenture affected.
DEFEASANCE
The Exchange Indenture will provide that the Company, at its option, (i)
will be discharged from any and all obligations in respect of outstanding
Exchange Debentures (except for certain obligations to register the transfer or
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exchange of Exchange Debentures, to replace mutilated, lost, destroyed or stolen
Exchange Debentures and to maintain paying agents and hold moneys for payment in
trust), and the provisions of the Exchange Indenture described under "--
Subordination" shall cease to be effective, or (ii) need not comply with certain
restrictive covenants and that such omission shall not be deemed to be an Event
of Default under the Exchange Indenture and the Exchange Debentures, and the
provisions of the Exchange Indenture described under "-- Subordination" shall
cease to be effective, in either case (i) or (ii) upon irrevocable deposit with
the Debentures Trustee, in trust, of money, and/or U.S. government obligations
which will provide money without the need for reinvestment, in an amount
sufficient in the opinion of a nationally recognized firm of independent public
accountants to pay the principal of, and premium, if any, and each installment
of interest, if any, on the outstanding Exchange Debentures in accordance with
the terms of the Exchange Indenture and the Exchange Debentures. Such trust may
only be established if, among other things, (1) with respect to clause (i), the
Company shall have delivered to the Debentures Trustee an Opinion of Counsel to
the effect that the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or there has been a change in law, which
provides that Holders of Exchange Debentures will not recognize gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or, with respect to clause (ii), the
Company shall have delivered to the Debentures Trustee an Opinion of Counsel to
the effect that the Holders of the Exchange Debentures will not recognize gain
or loss for federal income tax purposes as a result or such deposit and
defeasance and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; (2) no Event of Default or event
that, with the passing of time or the giving of notice, or both, shall
constitute an Event of Default shall have occurred and be continuing on the date
of such deposit; (3) no Event of Default described under clause (viii) under
"Events of Default and Remedies" above or event that, with the passing of time
or the giving of notice, or both, shall constitute an Event of Default under
such clause (viii) shall have occurred and be continuing at any time during the
period ending on the 121st day following such date of deposit; (4) such deposit
shall not cause the trust so created to be subject to the Investment Company Act
of 1940, as amended, or shall be qualified under such act or exempt from
regulation thereunder; and (5) certain other customary conditions precedent.
NOTICES
Notices to Holders of Exchange Debentures will be sent by mail to the
addresses of such Holders as they may appear in the Security Register.
TITLE
The Company, the Debentures Trustee and any agent of the Debentures Trustee
may treat each Holder of an Exchange Debenture as the absolute owner thereof
(whether or not such Exchange Debenture may be overdue) for the purpose of
making payment and for all other purposes.
GOVERNING LAW
The Exchange Indenture and the Exchange Debentures will be governed by and
construed in accordance with the laws of the State of New York.
THE DEBENTURES TRUSTEE
The Exchange Indenture will provide that, subject to the duty of the
Debentures Trustee during an Event of Default to act with the required standard
of care, the Debentures Trustee will be under no obligation to exercise any of
its rights or powers under the Exchange Indenture at the request or direction of
any of the Holders, unless such Holders shall have offered to the Debentures
Trustee reasonable security or indemnity. Subject to certain provisions,
including those requiring security or indemnification of the Debentures Trustee,
the Holders of a majority in
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principal amount of the Exchange Debentures will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Debentures Trustee, or exercising any trust or power conferred on the
Debentures Trustee.
The Company will be required to furnish to the Debentures Trustee annually a
statement as to the performance by the Company of its obligations under the
Exchange Indenture and as to any default in such performance. The Debentures
Trustee will also serve as the Notes Trustee under the Notes Indenture.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in the case of both of the preceding clause (i) and
clause (ii), other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition. Acquired Indebtedness will be deemed to be Incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Adjusted Annualized Operating Cash Flow Ratio" of any Person means the
Annualized Operating Cash Flow Ratio of such Person as adjusted to treat all
Preferred Stock of such Person as Redeemable Stock.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Operating Cash Flow" of any Person means the Operating Cash Flow
of such Person for the Reference Period multiplied by two.
"Annualized Operating Cash Flow Ratio" of any Person on any date (the
"Transaction Date") means, with respect to any Person and its Restricted
Subsidiaries, the ratio of (i) Consolidated Indebtedness of such Person and its
Restricted Subsidiaries on the Transaction Date (after giving pro forma effect
to the Incurrence of any Indebtedness on such Transaction Date) divided by (ii)
the aggregate amount of Annualized Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all dispositions of
businesses made by such Person and its Restricted Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
dispositions had occurred at the beginning of such Reference Period); PROVIDED,
that for purposes of such computation, in calculating Annualized Operating Cash
Flow and Consolidated Indebtedness: (a) the transaction giving rise to the need
to calculate the Annualized Operating Cash Flow Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period; (b)
the Incurrence of any Indebtedness during the Reference Period or subsequent
thereto and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to retire Indebtedness) will be assumed to
have occurred (on a pro forma basis) on the first day of such Reference Period;
(c) Consolidated Interest Expense attributable to any Indebtedness (whether
existing or being incurred) bearing a floating interest rate shall be computed
as if the rate in effect on the Transaction Date had been the applicable rate
for the entire Reference Period; (d) all members of the consolidated group of
such Person on the Transaction Date that were acquired during the Reference
Period shall be deemed to be members of the consolidated group of such Person
for the entire Reference Period; and (e) the Indebtedness and Annualized
Operating Cash Flow of any Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary shall be determined in accordance with the actual
percentage of the Person's common equity interest in such Restricted Subsidiary
on the date of determination of the Annualized Operating Cash Flow Ratio (thus,
for example, in the case of a Restricted Subsidiary in which such Person owns a
51% common equity interest, 51% of such Subsidiary's Indebtedness and of such
Subsidiary's Annualized Operating Cash Flow would be included in the calculation
of such Person's aggregate Indebtedness and Annualized Operating Cash Flow,
respectively). When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person
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and its Restricted Subsidiaries in the foregoing definition shall be deemed to
refer to the Company and its Restricted Subsidiaries.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Debentures Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or the State
of Minnesota are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means that portion of any obligation of a Person
as lessee under a lease which is required to be capitalized on the balance sheet
of such lessee in accordance with generally accepted accounting principles.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, including
voting and non-voting) of equity of such Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (iii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) and (ii) above.
"Commission" means the United States Securities and Exchange Commission.
"Consolidated Income Tax Expense" of any Person means for any period the
provision for income taxes of such Person and its Restricted Subsidiaries for
such period.
"Consolidated Indebtedness" of any Person means at any date the Indebtedness
of such Person and its Restricted Subsidiaries at such date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Restricted Subsidiaries for such period, including without
limitation or duplication (or, to the extent not so included, with the addition
of), (i) the portion of any rental obligation in respect of any Capital Lease
Obligation allocable to interest expense in accordance with generally accepted
accounting principles; (ii) the amortization of Indebtedness discounts; (iii)
any payments or fees with respect to letters of credit, bankers' acceptances or
similar facilities; (iv) fees with respect to Interest Hedge Agreements; (v) the
portion of any rental obligations in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such were treated as
a Capital Lease Obligation); and (vi) Preferred Stock dividends accrued or
payable other than dividends on Qualified Capital Stock of such Person.
"Consolidated Net Income" of any Person means for any period the net income
(or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (to the
extent included and without duplication) (i) the net income (or loss) of any
Person acquired by such Person or a Restricted Subsidiary of such Person after
the Issue Date in a pooling of interests transaction for any period prior to the
date of such transaction, (ii) the net income (or loss) of any Person that is
not a Restricted Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to such Person by such other
Person during such period,
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(iii) gains or losses from sales of assets other than sales of assets acquired
and held for resale in the ordinary course of business, (iv) for purposes of the
"Limitation on Restricted Payments" covenant, the net income, if positive, of
any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at that time permitted by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to such Restricted Subsidiary, and (v) all
extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles; PROVIDED that, with respect to the
Company, adjustments following the Issue Date to the accounting books and
records of the Company in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of the Company by another Person and its Subsidiaries
shall not be given effect; PROVIDED FURTHER that, such computation shall exclude
(i) any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries and (ii)
Unrestricted Subsidiaries.
"Cooperative Banks" means lenders under the Credit Facility which are
cooperative banks.
"Cooperative Bank Equity" means non-voting equity interests in Cooperative
Banks.
"Credit Facility" means the Existing Credit Facility or the New Credit
Facility.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the Issue
Date, through and including the end of the last fiscal quarter preceding the
date of any proposed Restricted Payment.
"Cumulative Operating Cash Flow" means Operating Cash Flow of the Company
and its Restricted Subsidiaries for the period beginning on the first day of the
fiscal quarter immediately following the Issue Date, through and including the
end of the last fiscal quarter preceding the date of any proposed Restricted
Payment.
"Depositary" means a clearing agency registered under the Exchange Act that
is designated to act as Depositary for the Exchange Debentures until a successor
Depositary shall have become such pursuant to the applicable provisions of the
Exchange Indenture, and thereafter "Depositary" shall mean such successor
Depositary. The Depositary initially is DTC.
"Designated Senior Indebtedness" means the Indebtedness under the Credit
Facility.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means the time and date the Exchange Debentures are first
issued under the Exchange Indenture in exchange for the Exchangeable Preferred
Stock.
"Exchange Debentures Payment" means any payment or distribution of any kind
or character, whether in cash, property or securities, on account of principal
of (or premium, if any) or interest on or other obligations in respect of the
Exchange Debentures or other Indebtedness of the Company that is PARI PASSU or
subordinate in right of payment to the Exchange Debentures or on account of any
purchase or other acquisition of Exchange Debentures or such other Indebtedness
by the Company or any Subsidiary of the Company.
"Existing Credit Facility" means the Loan Agreement, dated as of May 1,
1997, among the Company, The Toronto-Dominion Bank, BankBoston, N.A., St. Paul
Bank for Cooperatives, CoBank, Fleet National Bank, First National Bank of
Maryland, Societe Generale, New York Branch and Merita Bank Ltd New York Branch,
as amended by a First Amendment to Loan Agreement dated as of August 4, 1997, a
Second Amendment to Loan Agreement dated as of December 30, 1997, a Third
Amendment to Loan Agreement dated as of April 17, 1998 and
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a Fourth Amendment to Loan Agreement dated as of April 24, 1998, and as such
agreement may be further amended, supplemented, restated or otherwise modified
from time to time.
"Fair Market Value" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets have a Fair Market Value in excess of
$20,000 but not in excess of $5 million, by any officer of the Company and
evidenced by an Officers' Certificate, dated within 30 days of the relevant
transaction, or (ii) if such Person or assets have a Fair Market Value in excess
of $5 million, by a majority of the Board of Directors of the Company and
evidenced by a Board Resolution, dated within 30 days of the relevant
transaction, based on an appraisal of an independent appraiser of national
reputation.
"Holder" means a Person in whose name an Exchange Debenture is registered in
the Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination, (vii) every obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) all obligations under
Interest Hedge Agreements, (ix) every obligation of the type referred to in
clauses (i) through (viii) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise or which is secured by a lien on any asset of such Person and (x) the
liquidation value of Preferred Stock of a Subsidiary of such Person issued and
outstanding and held by other than such Person (or one of its Wholly Owned
Restricted Subsidiaries); PROVIDED, that for all purposes of the Exchange
Indenture, (A) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with generally accepted
accounting principles, (B) money borrowed at the time of the Incurrence of any
Indebtedness in order to pre-fund the payment of interest on such Indebtedness
shall be deemed not to be "Indebtedness" and (C) Indebtedness shall not include
any liability for federal, state, local or other taxes. For purposes of the
Exchange Indenture, the amount of any Indebtedness shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such Indebtedness
had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such obligation provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such Person
or in any event until the counterparty thereunder defaults in its corresponding
payment, then in each such case, the amount of such obligations shall be the net
amount so determined, plus any premium due upon default by such Person.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
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arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Investment" by any Person in any other Person means (without duplication):
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make any
such acquisition; (b) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the purchase
of property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) or any
commitment to make any such advance, loan or extension; (c) the entering into by
such Person of any guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of such other Person; (d) the making of any
capital contribution by such Person to such other Person; and (e) the
designation by the Board of Directors of the Company of any Person to be an
Unrestricted Subsidiary. For purposes of the covenant described in "--
Limitation on Restricted Payments," (i) "Investment" shall include and be valued
at the Fair Market Value of such Person's PRO RATA interest in the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary and shall exclude the lesser of (A) the
Fair Market Value of such Person's PRO RATA interest in the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary and (B) the Fair Market Value of the amount
of such Person's Investments (other than Permitted Investments) made in (net of
cash distributions received from) such Unrestricted Subsidiary since the Issue
Date, and (ii) the amount of any Investment shall be the Fair Market Value of
such Investment at the time any such Investment is made.
"Issue Date" means the time and date of the first issuance of the
Exchangeable Preferred Stock.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than an easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Maturity" means, when used with respect to any Exchange Debenture, the date
on which the principal of such Exchange Debenture becomes due and payable,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
"Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents
received by the Company and its Restricted Subsidiaries in respect of an Asset
Sale (including upon the conversion to cash and Cash Equivalents of (a) any note
or installment receivable at any time, or (b) any other property as and when any
cash and Cash Equivalents are received in respect of any property received in an
Asset Sale but only to the extent such cash and Cash Equivalents are received
within one year after such Asset Sale), less the sum of (i) all reasonable
out-of-pocket fees, commissions and other expenses incurred in connection with
such Asset Sale, including the amount (estimated in good faith by the Board of
Directors of the Company) of income, franchise, sales and other applicable taxes
required to be paid by the Company or any Restricted Subsidiary of the Company
in connection with such Asset Sale and (ii) the aggregate amount of cash so
received which is used to retire any existing Senior Indebtedness or
Indebtedness of the Company that ranks PARI PARSU in right of payment with the
Exchange Debentures or any existing Indebtedness of such Restricted
Subsidiaries, as the case may be, which is required to be repaid in connection
with such Asset Sale or is secured by a Lien on the property or assets of the
Company or any of its Restricted Subsidiaries, as the case may be.
"New Credit Facility" means the amendment and restatement or the refinancing
or replacement of the Existing Credit Facility with the same, a deletion of, or
additional lenders, including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or
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other modifications of the foregoing that increase the aggregate amount of
borrowings outstanding or the aggregate commitments of the lenders thereunder.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
to each Holder at his address appearing in the Security Register on the date of
the Offer offering to purchase up to the principal amount of Exchange Debentures
specified in such Offer at the purchase price specified in such Offer. Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which, subject to any contrary
requirements of applicable law, shall be not less than 30 days nor more than 60
days after the date of such Offer to Purchase and a settlement date (the
"Purchase Date") for purchase of Exchange Debentures within five Business Days
after the Expiration Date. The Offer shall also state the section of the
Exchange Indenture pursuant to which the Offer to Purchase is being made, the
Expiration Date and the Purchase Date, the aggregate principal amount of the
outstanding Exchange Debentures offered to be purchased by the Company, the
purchase price to be paid by the Company and the place or places where Exchange
Debentures are to be surrendered for tender pursuant to the Offer to Purchase.
"Officers' Certificate" means a certificate signed by two officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Debentures Trustee.
"Operating Cash Flow" for any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions for
income taxes for such period for such Person and its Subsidiaries, (ii)
depreciation, amortization and other non-cash charges of such Person and its
Subsidiaries and (iii) Consolidated Interest Expense of such Person for such
period, determined, in each case, on a consolidated basis for such Person and
its Subsidiaries in accordance with generally accepted accounting principles,
less (c) the sum, without duplication (and only to the extent such amounts are
included in such Consolidated Net Income), of (i) all extraordinary gains of
such Person and its Subsidiaries during such period and (ii) the amount of all
cash payments made during such period by such Person and its Restricted
Subsidiaries to the extent such payments relate to non-cash charges that were
added back in determining Operating Cash Flow for such period or for any prior
period; and in the case of a Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary, the determination of the percentage of the Operating Cash
Flow of such Restricted Subsidiary that is to be included in the calculation of
the Company's Annualized Operating Cash Flow Ratio shall be made on a pro forma
basis on the assumption that the percentage of the Company's common equity
interest in such Restricted Subsidiary throughout the applicable Reference
Period was equivalent to its common equity interest on the date of the
determination. When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its
Subsidiaries in the foregoing definition shall be deemed to refer to the Company
and its Restricted Subsidiaries.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Debentures
Trustee, delivered to the Debentures Trustee.
"Permitted Investments" means: (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than payments
described in clause (iv) of the second paragraph under "Limitation on Restricted
Payments"); (iii) Investments in a Person substantially all of whose assets are
of a type generally used in a Wireless Communications Business (an "Acquired
Person") if, as a result of such Investments, (A) the Acquired Person
immediately thereupon becomes a Restricted Subsidiary or (B) the Acquired Person
immediately thereupon either (1) is merged or consolidated with or into the
Company or any Restricted Subsidiary or (2) transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or any of
its Restricted Subsidiaries; (iv) Investments in accounts and notes receivable
acquired in the ordinary course of business; (v) any securities received in
connection with an Asset Sale and any investment with the Net Cash Proceeds from
any Asset Sale in Capital Stock of a Person, all or substantially all of whose
assets are of a type used in a Wireless Communications Business, that complies
with the "Limitation on Asset Sales and Sales of Subsidiary Stock" covenant;
(vi) advances and prepayments for asset purchases in the ordinary course of
business in a Wireless Communications Business of
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the Company or a Restricted Subsidiary; (vii) customary loans or advances made
in the ordinary course of business to officers, directors or employees of the
Company or any of its Restricted Subsidiaries for travel, entertainment, and
moving and other relocation expenses; (viii) the purchase of Cooperative Bank
Equity in Cooperative Banks to the extent required by the charter documents of
such Cooperative Banks in connection with the Incurrence of any Indebtedness
which is provided by such Cooperative Banks under the Credit Facility, provided
that such Incurrence is permitted under the terms of the Exchange Indenture; and
(ix) Investments in Wireless Alliance not exceeding $25 million in the aggregate
made after the Issue Date; PROVIDED, that the matters referenced in clauses
(iii) and (ix) above shall not be Permitted Investments if made at any time that
an Event of Default or event which with notice or lapse of time or both would
become an Event of Default has occurred and is continuing.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares of
Capital Stock of such Person that have preferential rights to any other Capital
Stock of such Person with respect to dividends or redemptions or upon
liquidation.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement filed with
the Commission in accordance with the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any and all
shares of Capital Stock other than Redeemable Stock issued by such Person after
the date of the Exchange Indenture.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a) in
the case of any sale of Qualified Capital Stock, the aggregate net cash proceeds
received by such Person, after payment of expenses, commissions and the like
Incurred by such Person in connection therewith, and net of Indebtedness that
such Person Incurred, guaranteed or otherwise became liable for in connection
with the issuance or acquisition of such Capital Stock; and (b) in the case of
any exchange, exercise, conversion or surrender of any Redeemable Stock or
Indebtedness of such Person issued (other than to any Subsidiary) for cash after
the Issue Date for or into shares of Qualified Capital Stock of such Person, the
liquidation value of the Redeemable Stock or the net book value of such
Indebtedness as adjusted on the books of such Person to the date of such
exchange, exercise, conversion or surrender, plus any additional amount paid by
the securityholders to such Person upon such exchange, exercise, conversion or
surrender and less any and all payments made to the securityholders, and all
other expenses, commissions and the like Incurred by such Person or any
Subsidiary in connection therewith.
"Qualifying Event" means a Public Equity Offering or one or more Strategic
Equity Investments which in either case results in aggregate net proceeds of not
less than $50 million.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the final
Stated Maturity of the Exchange Debentures or is redeemable at the option of the
holder thereof at any time prior to the final Stated Maturity of the Exchange
Debentures; PROVIDED that any Capital Stock that would not constitute Redeemable
Stock but for provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the occurrence of a
"change of control" occurring prior to the final Stated Maturity of the Exchange
Debentures shall not constitute Redeemable Stock if the "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in the "Change of Control"
covenant of the Exchange Indenture and such Capital Stock specifically provides
that such Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of the Exchange Debentures as
required pursuant to such "Change of Control" covenant.
"Reference Period" with regard to any Person means the last two full fiscal
quarters of such Person immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Exchange Debentures or
the Exchange Indenture.
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"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Power of such Person.
"Restricted Payment" means, with respect to any Person, (i) any declaration
or payment of a dividend or other distribution on any shares of Capital Stock of
such Person or any Subsidiary of such Person (other than a dividend payable
solely in shares of its Capital Stock or options, warrants or other rights to
acquire its Capital Stock and other than any declaration or payment of a
dividend or other distribution by a Restricted Subsidiary to the Company or
another Restricted Subsidiary), (ii) any payment on account of the purchase,
redemption, retirement or acquisition (including by way of issuing any
Indebtedness or Redeemable Stock in exchange for Qualified Capital Stock) of (A)
any shares of Capital Stock of such Person or any Subsidiary of such Person held
by other than such Person or any of its Restricted Subsidiaries or (B) any
option, warrant or other right to acquire shares of Capital Stock of such Person
or any Subsidiary of such Person or any of its Restricted Subsidiaries, in each
case other than pursuant to the cashless exercise of options, (iii) any
Investment (other than a Permitted Investment) made by such Person and (iv) any
redemption, defeasance, repurchase or other acquisition or retirement for value
prior to any scheduled maturity, repayment or sinking fund payment of any
Subordinated Indebtedness of such Person; PROVIDED, that the term "Restricted
Payment" does not include the payment of a dividend or other distribution by any
Restricted Subsidiary on shares of its Capital Stock that is paid pro rata to
all holders of such Capital Stock.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning set forth in the Exchange Indenture.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or improvement by the
Company or any Restricted Subsidiary of assets in the Wireless Communications
Business, (iii) all other Indebtedness of the Company referred to in the
definition of Indebtedness other than clauses (iv), (vi) and (ix) thereof (and
clause (viii) thereof to the extent applicable to Indebtedness Incurred under
clauses (iv) and (vi) thereof), whether Incurred on or prior to the Exchange
Date, other than the Senior Subordinated Notes, and (iv) amendments, renewals,
extensions, modifications, refinancings and refundings of any such Indebtedness;
PROVIDED, HOWEVER, the following shall not constitute Senior Indebtedness: (A)
any Indebtedness owed to a Person when such Person is a Restricted Subsidiary of
the Company, (B) any Indebtedness which by the terms of the instrument creating
or evidencing the same is not superior in right of payment to the Exchange
Debentures, (C) any Indebtedness Incurred in violation of the Exchange Indenture
(but, as to any such Indebtedness, no such violation shall be deemed to exist
for purposes of this clause (c) if the holder(s) of such Indebtedness or their
representative and the Debentures Trustee shall have received an Officers'
Certificate of the Company to the effect that the Incurrence of such
Indebtedness does not (or in the case of revolving credit Indebtedness, that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not)
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violate the Exchange Indenture) or (D) any Indebtedness which is subordinated in
right of payment to any other Indebtedness of the Company.
"Senior Nonmonetary Default" means the occurrence or existence and
continuance of any event of default, or of any event which after notice or lapse
of time or both would become an event of default, under the terms of any
instrument pursuant to which any Senior Indebtedness is outstanding, permitting
(after notice or lapse of time or both) one or more holders of such Senior
Indebtedness (or an administrative agent on behalf of the holders thereof) to
declare such Senior Indebtedness due and payable prior to the date on which it
would otherwise become due and payable, other than a Senior Payment Default.
"Senior Payment Default" means any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness when due, whether at
the stated maturity of any such payment or by declaration of acceleration, call
for redemption or otherwise.
"Stated Maturity," when used with respect to any Exchange Debenture or any
installment of interest thereon, means the date specified in such Exchange
Debenture as the date on which the principal of such Exchange Debenture or such
installment of interest is due and payable.
"Strategic Equity Investment" means an investment in Qualified Stock made by
a Strategic Investor in an aggregate amount of not less than $50 million.
"Strategic Investor" means a Person (other than an Affiliate of the Company
or a Person who by virtue of such Investment becomes such an Affiliate) engaged
in one or more Telecommunications Businesses with an equity market
capitalization at the time such Person makes a Strategic Equity Investment in
the Company in excess of $1.0 billion.
"Subordinated Indebtedness" mean Indebtedness of the Company that is
subordinated in right of payment to the Exchange Debentures.
"Subsidiary" means, as applied to any Person, (a) any corporation of which
more than fifty percent (50%) of the outstanding Capital Stock (other than
directors' qualifying shares) having ordinary Voting Power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such Voting
Power by reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (b) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased wireline or wireless transmission facilities, (ii) creating,
developing, constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products, or (iii) evaluating, owning, operating, participating in or
pursuing any other business that is primarily related to those identified in
clause (i) or (ii) above (in the case of this clause (iii), however, in a manner
consistent with the Company's manner of business on the Issue Date), and shall,
in any event, include all businesses in which the Company or any of its
Subsidiaries is engaged on the Issue Date or has entered into agreements to
engage in or to acquire a company to engage in or contemplate engaging in, as
expressly set forth in this Prospectus; PROVIDED that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Company's Board of Directors.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
any Person may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
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holds any Lien on any property of, such Person or any Restricted Subsidiary;
PROVIDED, that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such
Person's PRO RATA interest in the Fair Market Value of the net assets of such
Subsidiary at the time of such designation would be permitted as an Investment
under the provision of the Exchange Indenture described under "-- Limitation on
Restricted Payments." The Board of Directors of any Person may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of such Person; PROVIDED,
that immediately after giving effect to such designation (x) such Person would
be permitted to Incur $1.00 of additional Indebtedness pursuant to the provision
of the Exchange Indenture described in the first paragraph under "-- Limitation
on Consolidated Indebtedness" and (y) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default has occurred
and is continuing. Any such designation by the Board of Directors shall be
evidenced by a Board Resolution submitted to the Debentures Trustee. Wireless
Alliance shall be deemed an Unrestricted Subsidiary as of the Issue Date and
shall thereafter remain an Unrestricted Subsidiary unless and until designated
by the Board of Directors as a Restricted Subsidiary in accordance with the
terms of the Exchange Indenture.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily have voting power for
the election of directors of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means any business substantially related
to the ownership, development, operation or acquisition of wireless
communications services permitted under the Federal Communications Commission's
("FCC") Commercial Mobile Radio Services rules (and the related provisions of
the FCC's Public Mobile Services and Personal Communications Services rules),
and other related telecommunications business services.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
Exchange Debentures will be issued only in fully registered form in
denominations of $1,000 and integral multiples thereof. Exchange Debentures will
not be issued in bearer form.
If the Exchange Debentures are to be redeemed in part, the Company will not
be required to (i) issue, register the transfer of or exchange any Exchange
Debentures during a period beginning at the opening of business 15 days before
the day of mailing of notice of redemption of any such Exchange Debentures that
may be selected for redemption and ending at the close of business on the day of
such mailing or (ii) register the transfer of or exchange any Exchange
Debentures so selected for redemption, in whole or in part, except the
unredeemed portion of any such Exchange Debentures being redeemed in part.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The discussion set forth below summarizes certain material United States
federal income tax consequences that may be relevant to initial holders, that
is, persons who acquire the Securities pursuant to the Offerings, who are
"United States persons" (as defined below) and who hold the Securities as
capital assets ("Holders"). The discussion is intended only as a summary and
does not purport to be a complete analysis or listing of all potential tax
considerations that may be relevant to such Holders. The discussion does not
include special rules that may apply to certain Holders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
and persons holding Senior Subordinated Notes, Exchangeable Preferred Stock or
Exchange Debentures as part of a "straddle," "hedge" or "conversion
transaction," and, except as otherwise discussed below, investors who are not
"United States persons"), and does not address the tax consequences of the law
of any state, locality or foreign jurisdiction. The discussion is based upon
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed United States Treasury Regulations
promulgated thereunder, and current administrative rulings and court decisions.
All of the foregoing are subject to change (possibly with retroactive effect),
and any such change could affect the continuing validity of this discussion.
As used herein, "United States person" means a beneficial owner of Senior
Subordinated Notes, Exchangeable Preferred Stock or Exchange Debentures who or
that (i) is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or a political subdivision thereof, (iii) is an estate the income
of which is subject to United States federal income taxation regardless of its
source, (iv) is a trust if (A) a United States court is able to exercise primary
supervision over the administration of the trust and (B) one or more United
States fiduciaries have authority to control all substantial decisions of the
trust, (v) is a certain type of trust in existence on August 20, 1996 which was
treated as a United States person under the Code in effect immediately prior to
such date and which has made a valid election to be treated as a "United States
person" under the Code, or (vi) is otherwise subject to United States federal
income tax on a net income basis in respect of its worldwide taxable income. A
"United States Holder" is a Holder that is a "United States person." A
"Non-United States Holder" is a Holder that is not a United States Holder. The
Company does not intend to treat the Senior Subordinated Notes and the
Exchangeable Preferred Stock, which are being offered concurrently, as an
investment unit for United States federal income tax purposes.
SENIOR SUBORDINATED NOTES
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not result in any United States federal income tax consequences to the United
States Holders. When a United States Holder exchanges an Old Note for a New Note
pursuant to the Exchange Offer, the Holder will have the same adjusted tax basis
and holding period in the New Note as in the Old Note immediately before the
Exchange.
PAYMENTS OF INTEREST ON THE SENIOR SUBORDINATED NOTES
Interest on a Senior Subordinated Note will generally be taxable to a United
States Holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the United States Holder's method of accounting for
tax purposes. It is expected that the Senior Subordinated Notes will be issued
without original issue discount and the following discussion so assumes.
MARKET DISCOUNT
If a United States Holder purchases a Senior Subordinated Note for an amount
that is less than its principal amount, the amount of the difference will be
treated as "market discount" for United States federal income tax purposes,
unless such difference is less than a specified DE MINIMIS amount. Under the
market discount rules, a United States Holder will be required to treat any
partial principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a Senior Subordinated Note as ordinary income to the
extent of the market
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discount which has not previously been included in income and is treated as
having accrued on such Senior Subordinated Note at the time of such payment or
disposition. In addition, the United States Holder may be required to defer,
until the maturity of the Senior Subordinated Note or its earlier disposition in
a taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Senior
Subordinated Notes.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Senior Subordinated
Note, unless the United States Holder elects to accrue on a constant interest
method. A United States Holder may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be revoked without
the consent of the Internal Revenue Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Senior Subordinated Note for an
amount in excess of the principal amount will be considered to have purchased
the Senior Subordinated Note at a "premium." A United States Holder generally
may elect to amortize the premium over the remaining term of the Senior
Subordinated Note on a constant yield method. However, if the Senior
Subordinated Note is purchased at a time when the Senior Subordinated Note may
be optionally redeemed for an amount that is in excess of its principal amount,
special rules would apply that could result in a deferral of the amortization of
bond premium until later in the term of the Senior Subordinated Note. The amount
amortized in any year will be treated as a reduction of the United States
Holder's interest income from the Senior Subordinated Note. Bond premium on a
Senior Subordinated Note held by a United States Holder that does not make such
an election will decrease the gain or increase the loss otherwise recognized on
disposition of the Senior Subordinated Note. The election to amortize premium on
a constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing United States Holder on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
DISPOSITION OF SENIOR SUBORDINATED NOTES
Unless a nonrecognition provision applies, a United States Holder of Senior
Subordinated Notes will recognize gain or loss upon the sale, redemption
(including pursuant to an offer by the Company), retirement or other disposition
of Senior Subordinated Notes, and such gain or loss will generally be equal to
the difference between (i) the amount of cash and the fair market value of
property received and (ii) the United States Holder's adjusted tax basis
(increased by any accrued market discount previously included in income by the
United States Holder and reduced by any amortized bond premium previously
deducted from income by such United States Holder and any previous payments with
respect to the Senior Subordinated Notes) in such Senior Subordinated Notes.
Gain or loss recognized will be capital gain or loss, and will be long-term
capital gain or loss if the United States Holder has held such Senior
Subordinated Notes (or is treated as having held such Senior Subordinated Notes)
for longer than one year. Under current law, net capital gains recognized by
corporations are currently taxed at a maximum rate of 35% and the maximum rate
on net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) in the case of individuals is currently 20% for
Senior Subordinated Notes held for more than 18 months (28% if held more than 12
months, but not more than 18 months). Special rules (and generally lower maximum
rates) apply for individuals whose taxable income is below certain levels. Under
the Code, an individual United States Holder's net capital losses are currently
deductible only to the extent of $3,000 per year.
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NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on a Senior Subordinated Note owned by a
Non-United States Holder (the "Portfolio Interest Exception"), provided:
(i) that such Non-United States Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote within the meaning of
Section 871(h)(3) of the Code and the regulations thereunder;
(ii) such Non-United States Holder is not a controlled foreign
corporation that is related, directly or indirectly, to the Company
through stock ownership;
(iii) such Non-United States Holder is not a bank whose receipt of
interest on a Senior Subordinated Note is described in Section
881(c)(3)(A) of the Code, and
(iv) such Non-United States Holder satisfies the statement
requirement (described generally below) set forth in Section 871(h) and
Section 881(c) of the Code and the regulations thereunder;
(b) no United States federal withholding tax will be imposed generally
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange, redemption, retirement or other disposition of a
Senior Subordinated Note; and
(c) a Senior Subordinated Note beneficially owned by an individual who
at the time of death is a Non-United States Holder will not be subject to
United States federal estate tax as a result of such individual's death,
PROVIDED that such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of Section 871(h)(3) of the Code
and PROVIDED that the interest payments with respect to such Senior
Subordinated Note would not have been, if received at the time of such
individual's death, effectively connected with the conduct of a United
States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Senior Subordinated Note, or a financial institution holding the
Senior Subordinated Note on behalf of such owner, must provide, in accordance
with specified procedures, a paying agent of the Company with a statement to the
effect that the beneficial owner is not a United States person. Pursuant to
current temporary United States Treasury Regulations, these requirements will be
met if (1) the beneficial owner provides his name and address and certifies,
under penalties of perjury, that he is not a United States person (which
certification may be made on an IRS Form W-8 (or substitute form)) or (2) a
financial institution holding the Senior Subordinated Note on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes a paying agent with a copy thereof.
United States Treasury regulations recently issued by the IRS, which will be
effective for payments made after December 31, 1999 (subject to certain
transition rules), made modifications to the certification procedure applicable
to Non-United States Holders. In general, these regulations unify certain
certification procedures and forms and clarify and modify reliance standards. A
Non-United States Holder should consult its own tax adviser regarding the effect
of the new United States Treasury Regulations.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payment of interest on a
Senior Subordinated Note made to such Non-United States Holder will be subject
to a 30% withholding tax unless the beneficial owner of the Senior Subordinated
Note provides the Company or its paying agent, as the case may be, with a
properly executed (1) IRS Form 1001 (or substitute form) claiming an exemption
from or reduction of withholding under the benefit of a tax treaty or (2) IRS
Form 4224 (or substitute form) stating that interest paid on the Senior
Subordinated Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
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Under recently finalized United States Treasury Regulations, for payments made
after December 31, 1999, Non-United States Holders will generally be required to
provide an IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224 although
alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on a Senior Subordinated Note is effectively
connected with the conduct of such trade or business, the Non-United States
Holder, although exempt from United States federal withholding tax as described
above (provided the Non-United States Holder files the appropriate certification
with the Company or its U.S. agent), will generally be subject to United States
federal income tax on such interest on a net income basis in the same manner as
if it were a United States Holder. In addition, if such Non-United States Holder
is a foreign corporation, it may be subject to a branch profits tax equal to 30%
of its effectively connected earnings and profits for the taxable year, or such
lower rate as may be specified by an applicable income tax treaty, subject to
adjustments.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Senior Subordinated Note generally will not be subject to
United States federal income tax unless (i) such gain or income is effectively
connected with a trade or business in the United States of the Non-United States
Holder or (ii) in the case of a Non-United States Holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments on a
Senior Subordinated Note and to the proceeds of the sale of a Senior
Subordinated Note made to United States Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
Under current United States Treasury Regulations, no information reporting
or backup withholding will be required with respect to payments made by the
Company or any paying agent to Non-United States Holder if a statement described
in (a)(iv) under "-- Non-United States Holders" has been received or such
Non-United States Holder has otherwise established an exemption, PROVIDED that
neither the Company nor its agent has actual knowledge that the beneficial owner
is a United States person.
In addition, backup withholding and information reporting will not apply if
payments on a Senior Subordinated Note are paid or collected by a foreign office
of a custodian, nominee or other foreign agent on behalf of the beneficial owner
of such Senior Subordinated Note, or if a foreign office of a broker (as defined
in applicable United States Treasury Regulations) pays the proceeds of the sale
of a Senior Subordinated Note to the owner thereof. If, however, such nominee,
custodian, agent or broker is, for United States federal income tax purposes, a
United States person, a controlled foreign corporation or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, such payments will be subject to
information reporting (but not backup withholding), unless (1) such custodian,
nominee, agent or broker has documentary evidence in its records that the
beneficial owner is not a United States person and certain other conditions are
met or (2) the beneficial owner otherwise establishes an exemption. Temporary
United States Treasury Regulations provide that the United States Treasury is
considering whether backup withholding will apply with respect to payments of
principal, premium, if any, interest or the proceeds of a sale that are subject
to backup withholding under the current regulations.
Payments on a Senior Subordinated Note paid to the beneficial owner of a
Senior Subordinated Note by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of a Senior Subordinated Note, will be subject to both backup withholding
and information reporting unless the beneficial owner provides the statement
referred to in (a)(iv) above and the payor does not have actual knowledge that
the beneficial owner is a United States person or otherwise establishes an
exemption.
In October 1997, Treasury regulations were issued which alter the foregoing
rules in certain respects and which generally will apply to any payments in
respect of a Senior Subordinated Note or proceeds from the sale of a Senior
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Subordinated Note that are made after December 31, 1999. Among other things,
such regulations expand the number of foreign intermediaries that are
potentially subject to information reporting and address certain documentary
evidence requirements relating to exemption from the general backup withholding
requirements. Holders of the Senior Subordinated Notes should consult their tax
advisers concerning the possible application of such regulations to any payments
made on or with respect to the Senior Subordinated Notes.
Any amounts withheld under the backup withholding rules will be credited
toward such Holder's United States federal income tax liability, if any. To the
extent that the amounts withheld exceed the Holder's tax liability, the excess
may be refunded to the Holder provided the required information is furnished to
the IRS. In addition to providing the necessary information, the Holder must
file a United States tax return in order to obtain a refund of the excess
withholding.
EXCHANGEABLE PREFERRED STOCK
EXCHANGE OFFER
The exchange of Old Exchangeable Preferred Stock for New Exchangeable
Preferred Stock pursuant to the Exchange Offer will not result in any United
States federal income tax consequences to the United States Holders. When a
United States Holder exchanges shares of Old Exchangeable Preferred Stock for
New Exchangeable Preferred Stock pursuant to the Exchange Offer, the Holder will
have the same adjusted tax basis and holding period in the New Exchangeable
Preferred Stock as in the Old Exchangeable Preferred Stock immediately before
the exchange.
DISTRIBUTIONS ON THE EXCHANGEABLE PREFERRED STOCK
Distributions on the Exchangeable Preferred Stock paid in cash will be
taxable to a United States Holder as dividends, taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits (as
determined for United States federal income tax purposes). A distribution on the
Exchangeable Preferred Stock made in the form of Dividend Shares will be treated
as being made in an amount equal to the fair market value of the Dividend Shares
and will be treated as a dividend taxable as ordinary income, to the extent of
the Company's current and accumulated earnings and profits. The holding period
of any such Dividend Shares will commence on the date of their distribution. The
Company believes that it currently has no accumulated earnings and profits. It
is not anticipated that the Company will have any earnings and profits in the
near future.
To the extent that the amount of any distribution paid on the Exchangeable
Preferred Stock (including distributions made in the form of Dividend Shares)
exceeds the Company's current and accumulated earnings and profits allocable to
such distributions, such distribution will be treated as a return of capital,
thus reducing the United States Holder's adjusted tax basis in such Exchangeable
Preferred Stock. Any such excess distribution that is greater than the United
States Holder's adjusted basis in the Exchangeable Preferred Stock will be taxed
as capital gain from the sale or exchange of the Exchangeable Preferred Stock
and will be long-term capital gain if the United States Holder's holding period
for such Exchangeable Preferred Stock exceeds one year. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution on
the Exchangeable Preferred Stock paid out of the Company's accumulated or
current earnings and profits, unless the context indicates otherwise.
Constructive distributions (including those arising from a redemption
premium) are taxable to the United States Holder as dividends to the extent of
the Company's current or accumulated earnings and profits. If the size of the
constructive dividend is greater than the Company's current or accumulated
earnings and profits, the excess is treated as a tax-free recovery of basis in
the Exchangeable Preferred Stock until such United States Holder's basis is
equal to zero, and then as capital gain from the sale or exchange of the
Exchangeable Preferred Stock.
If the fair market value of any Dividend Shares at the time of distribution
is less than the redemption price of such Dividend Shares by more than a DE
MINIMIS amount, the resulting redemption premium will be required, pursuant to
section 305 of the Code, to be accrued by the United States Holder as a
constructive distribution of additional Dividend Shares as described below under
"Preferred Stock Discount."
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DIVIDENDS RECEIVED DEDUCTION
Dividends paid to a corporate United States Holder who owns less than 20% of
the Company (by vote or value) will be eligible for the 70% dividends-received
deduction under section 243 of the Code, subject to the limitations contained in
sections 246 and 246A of the Code. In general, the dividends-received deduction
is available only if the stock in respect of which the dividend is paid is held
for at least 46 days during the 90-day period that begins 45 days before the
stock becomes ex-dividend with respect to the dividend (91 days during the
180-day period that begins 90 days before the stock becomes ex-dividend with
respect to a dividend in the case of a dividend attributable to a period or
periods aggregating more than 366 days). Under section 246(c) of the Code, a
taxpayer's holding period for these purposes is reduced by periods during which
the taxpayer's risk of loss with respect to the stock is considered diminished
by reason of the existence of options, contracts to sell and similar
transactions. The dividends-received deduction will also not be available if the
taxpayer is under an obligation to make related payments with respect to
positions in substantially similar or related property. The dividends-received
deduction is limited to specified percentages of a corporate United States
Holder's taxable income and may be reduced or eliminated if the corporate United
States Holder has indebtedness "directly attributable" to its investment in the
stock. Prospective corporate purchasers of the Exchangeable Preferred Stock
should consult their own tax advisers to determine whether these limitations
might apply to them.
For purposes of computing its alternative minimum tax, dividends eligible
for the 70% dividends-received deduction are included in a corporate United
States Holder's "adjusted current earnings." If such adjusted current earnings
exceed the corporate United States Holder's alternative minimum taxable income
(determined without regard to the adjustments for adjusted current earnings or
the alternative tax net operating loss deduction), 75% of the excess is added to
the corporate United States Holder's alternative minimum taxable income.
EXTRAORDINARY DIVIDENDS
Under section 1059 of the Code, if a corporate United States Holder receives
an "extraordinary dividend" from the Company with respect to the Exchangeable
Preferred Stock which has not been held for more than two years on the dividend
announcement date, the basis of the Exchangeable Preferred Stock will be reduced
(but not below zero) by the non-taxed portion of the dividend. The reduction in
basis is treated as occurring at the beginning of the ex-dividend date of the
extraordinary dividend to which the reduction relates. If, because of the
limitation on reducing basis below zero, any amount of the non-taxed portion of
an extraordinary dividend is not applied to reduce basis, such amount will be
treated as gain from the sale or exchange of the Exchangeable Preferred Stock in
the year in which the extraordinary dividend is received. Generally, the
non-taxed portion of an extraordinary dividend is the amount excluded from
income under section 243 of the Code (relating to the dividends-received
deduction). An extraordinary dividend on the Exchangeable Preferred Stock
generally would include any dividend that (i) equals or exceeds five percent of
the United States Holder's adjusted tax basis in the Exchangeable Preferred
Stock, treating all dividends having ex-dividend dates within an 85-day period
as one dividend or (ii) exceeds 20% of the United States Holder's adjusted tax
basis in the Exchangeable Preferred Stock, treating all dividends having
ex-dividend dates within a 365-day period as one dividend. In determining
whether a dividend paid on the Exchangeable Preferred Stock is an extraordinary
dividend, a United States Holder may elect to use the fair market value of such
stock rather than its adjusted tax basis for purposes of determining the
applicable percentage limitation if the United States Holder is able to
establish to the satisfaction of the IRS the fair market value of the
Exchangeable Preferred Stock as of the day before the ex-dividend date. An
extraordinary dividend would also include any amount treated as a dividend in
the case of a redemption of the Exchangeable Preferred Stock that is either
non-pro rata as to all corporate United States Holders of Exchangeable Preferred
Stock or part of a partial liquidation, without regard to the period the United
States Holder held the stock. Corporate United States Holders should see
"Redemption and Exchange of Exchangeable Preferred Stock" for a discussion of
when a redemption of the Exchangeable Preferred Stock will constitute an
extraordinary dividend.
Certain "qualified preferred dividends," however, are not considered
extraordinary dividends. A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in arrears
as to dividends when acquired, PROVIDED,
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HOWEVER, that the actual rate of return (as determined under section 1059(e)(3)
of the Code) on such stock does not exceed 15%. If a qualified preferred
dividend announced within two years of the date of acquisition of the preferred
stock exceeds the five percent (or 20%) threshold for extraordinary dividend
status described above, (i) section 1059(a) will not apply (and no reduction in
basis will be required) if the United States Holder holds the stock for more
than five years and (ii) the aggregate reduction in basis under section 1059(a)
will not exceed the excess of the qualified preferred stock dividends paid on
such stock during the period held by the United States Holder over the qualified
preferred dividends that would have been paid during such period on the basis of
the stated rate of return, as determined under section 1059(e)(3) of the Code.
The length of time that a United States Holder is deemed to have held stock for
purposes of section 1059 of the Code is determined under principles similar to
those contained in section 246(c) of the Code discussed above.
The Company does not now have any current or accumulated earnings and
profits and is unable to predict whether or when it will have sufficient
earnings and profits for distributions with respect to the Exchangeable
Preferred Stock to be treated as dividends. Until such time, if any, as such
distributions are treated as dividends, corporate United States Holders of the
Exchangeable Preferred Stock will not be eligible for the dividends-received
deduction described above.
PREFERRED STOCK DISCOUNT
The Exchangeable Preferred Stock is subject to mandatory redemption on May
15, 2010 (the "Mandatory Redemption"). In addition, on or after May 15, 2003 and
subject to certain restrictions, the Exchangeable Preferred Stock is redeemable
at any time at the option of the Company at specified redemption prices (the
"Optional Redemption"). Pursuant to section 305(c) of the Code, United States
Holders of Exchangeable Preferred Stock generally may be required to treat a
portion of the difference between the issue price of the Exchangeable Preferred
Stock and its redemption price as constructive distributions of property
includable in income on a periodic basis. For purposes of determining whether
such constructive distribution treatment applies, the Mandatory Redemption and
the Optional Redemption are tested separately. Constructive distribution
treatment is required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the holders of such preferred stock on an
economic accrual basis. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price by more than a DE MINIMIS
amount. For this purpose, such excess (the "Preferred Stock Discount") will be
treated as zero if it is less than 1/4 of 1% of the Redemption Price multiplied
by the number of complete years from the date of issuance until the stock must
be redeemed. Preferred Stock Discount is taxable as a constructive distribution
to the United States Holder (treated as a dividend to the extent of the
Company's current and accumulated earnings and profits and otherwise subject to
the treatment described above for distributions) over the term of the
Exchangeable Preferred Stock using a constant interest rate method similar to
that employed for accruing original issue discount pursuant to the Code.
Preferred Stock Discount will arise due to the Optional Redemption feature
only if, based on all of the facts and circumstances as of the Issue Date, the
Exchangeable Preferred Stock redemption pursuant to the Optional Redemption is
more likely than not to occur. Even if redemption were more likely than not to
occur, however, constructive distribution treatment would not result if the
redemption premium were solely in the nature of a penalty for premature
redemption. For this purpose, a penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which neither
the issuer nor the holder has legal or practical control, such as changes in
prevailing dividend rates. The United States Treasury Regulations provide a safe
harbor pursuant to which constructive distribution treatment will not result
from an issuer call right if (i) the issuer and the holder are unrelated, (ii)
there are no arrangements that effectively require the issuer to redeem the
stock and (iii) exercise of the option to redeem would not reduce the yield of
the stock. Although the issue is not free from doubt, the Company believes that
the Exchangeable Preferred Stock should not be considered to have been issued
with Preferred Stock Discount by reason of the Optional Redemption feature.
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Any Dividend Shares distributed by the Company in lieu of cash dividend
payments on the Exchangeable Preferred Stock to United States Holders of the
Exchangeable Preferred Stock may bear Preferred Stock Discount depending upon
the issue price of such shares (i.e., the fair market value of the Dividend
Shares on the date of their issuance). A United States Holder's initial tax
basis in Dividend Shares will equal the fair market value of such Dividend
Shares on their date of distribution. Depending on the fair market value of the
Exchangeable Preferred Stock on that date, United States Holders may be required
to include additional Preferred Stock Discount in income based on the difference
between (x) the fair market value of such shares on the date of their issuance
and (y) the amount payable on redemption of such shares, unless the difference
is DE MINIMIS, as described above. If shares of Exchangeable Preferred Stock
(including Dividend Shares) bear Preferred Stock Discount, such shares generally
will have different tax characteristics from other shares of Exchangeable
Preferred Stock (including other Dividend Shares) and might trade separately,
which might adversely affect the liquidity of such shares.
REDEMPTION AND EXCHANGE OF EXCHANGEABLE PREFERRED STOCK
A redemption of shares of Exchangeable Preferred Stock for cash or in
exchange for Exchange Debentures would be a taxable event.
A redemption of shares of Exchangeable Preferred Stock for cash will
generally be treated as a sale or exchange if the United States Holder does not
own, actually or constructively within the meaning of section 318 of the Code,
any stock of the Company other than the Exchangeable Preferred Stock. Under
section 318 of the Code, a person generally will be treated as the owner of
stock of the Company owned by certain related parties or certain entities in
which the person owns an interest. If a United States Holder does own, actually
or constructively, other stock of the Company, a redemption of Exchangeable
Preferred Stock may be treated as a dividend to the extent of the Company's
current and accumulated earnings and profits. Dividend treatment would not
apply, however, if the redemption is "not essentially equivalent to a dividend"
with respect to the United States Holder under section 302(b)(1) of the Code. A
distribution to a United States Holder will be "not essentially equivalent to a
dividend" if it results in a "meaningful reduction" in the United States
Holder's stock interest in the Company. For this purpose, a redemption of
Exchangeable Preferred Stock that results in a reduction in the proportionate
interest in the Company (taking into account any actual ownership of Common
Stock of the Company and any stock constructively owned) of a United States
Holder whose relative stock interest in the Company is minimal should be
regarded as a meaningful reduction in the United States Holder's stock interest
in the Company.
If a redemption of the Exchangeable Preferred Stock for cash is not treated
as a distribution taxable as a dividend, the redemption would result in capital
gain or loss equal to the difference between the amount of cash received and the
United States Holder's adjusted tax basis in the Exchangeable Preferred Stock
redeemed, except to the extent that the redemption price includes dividends
which have been declared by the Board of Directors of the Company prior to the
redemption. Similarly, upon the sale of the Exchangeable Preferred Stock (other
than in a redemption or in exchange for the Exchange Debentures), the difference
between the sum of the amount of cash and the fair market value of other
property received and the United States Holder's adjusted basis in the
Exchangeable Preferred Stock would result in capital gain or loss. This gain or
loss would be long-term capital gain or loss if the United States Holder's
holding period for the Exchangeable Preferred Stock exceeds one year. Under
current law, net capital gains recognized by corporations are currently taxed at
a maximum rate of 35% and the maximum rate on net capital gains in the case of
individuals is currently 20% for property held for more than 18 months (28% if
held more than 12 months but not more than 18 months). A redemption of
Exchangeable Preferred Stock in exchange for Exchange Debentures will be subject
to the same general rules as a redemption for cash, except that any gain or loss
generally will be determined based upon the issue price of the Exchange
Debentures (as determined for purposes of computing the original issue discount
on such Exchange Debentures). See the discussion below under "Issue Price of
Exchange Debentures."
If a redemption of the Exchangeable Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures,
as the case may be, received by the United States Holder. It is possible,
however, that the fair market value of the Exchange Debentures (if different
from their issue price) may constitute the amount of the distribution. The
United States Holder's adjusted tax basis in the redeemed Exchangeable Preferred
Stock will be transferred to
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any remaining stock holdings in the Company, subject to reduction or possible
gain recognition under section 1059 of the Code in respect of the non-taxed
portion of such dividend. If the United States Holder does not retain any actual
stock ownership in the Company (i.e., such United States Holder is treated as
having received a dividend because such United States Holder constructively owns
stock in the Company, but such United States Holder does not actually own any
Company Stock), such United States Holder may lose the benefit of its basis in
the Exchangeable Preferred Stock. However, such basis may be transferred to the
person or entity whose ownership of stock is attributed to the United States
Holder.
EXCHANGE DEBENTURES
ISSUE PRICE OF EXCHANGE DEBENTURES
If the Exchange Debentures are traded on an established securities market
within the 60-day period ending thirty days after the Exchange Date, the issue
price of the Exchange Debentures will be their fair market value as of their
issue date. Subject to certain limitations described in the United States
Treasury regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, at a minimum, price quotations will be readily
available from dealers, brokers or traders. If the Exchangeable Preferred Stock,
but not the Exchange Debentures issued in exchange therefor, is traded on an
established securities market within the 60-day period ending thirty days after
the Exchange Date, then the issue price of each Exchange Debenture should be the
fair market value of the Exchangeable Preferred Stock exchanged therefor at the
time of the exchange. The Exchangeable Preferred Stock generally will be deemed
to be traded on an established securities market if, at a minimum, it appears on
a system of general circulation that provides a reasonable basis to determine
fair market value based either on recent price quotations or recent sales
transactions. In the event that neither the Exchangeable Preferred Stock nor the
Exchange Debentures are traded on an established securities market within the
applicable period, the issue price of the Exchange Debentures will be their
stated principal amount (i.e., their face value) unless either (i) the Exchange
Debentures do not bear "adequate stated interest" within the meaning of section
1274 of the Code, or (ii) the Exchange Debentures are issued in a so-called
"potentially abusive situation" as defined in the United States Treasury
Regulations under section 1274 of the Code (including a situation involving a
recent sales transaction), in which case the issue price of such Exchange
Debentures generally will be the fair market value of the Exchangeable Preferred
Stock surrendered in exchange therefor. It cannot be determined at the present
time whether the Exchangeable Preferred Stock or the Exchange Debentures will,
at the relevant time, be traded on an established securities market within the
meaning of the United States Treasury regulations or whether the Exchange
Debentures will bear "adequate stated interest."
INTEREST ON THE EXCHANGE DEBENTURES
Except as set forth below, interest on the Exchange Debentures will be
taxable to a United States Holder as ordinary interest income at the time such
amounts are accrued or received, in accordance with the United States Holder's
method of accounting for United States federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. The Exchange Debentures may be issued with
original issue discount ("OID") equal to the excess of their "stated redemption
price at maturity" over their "issue price" if such excess is greater than a DE
MINIMIS amount. United States Holders of Exchange Debentures will be subject to
special tax accounting rules, as described in greater detail below. United
States Holders of Exchange Debentures should be aware that they generally must
include OID in gross income for United States federal income tax purposes on an
annual basis under a constant yield accrual method. As a result, such United
States Holders will include OID in income in advance of the receipt of cash
attributable to that income. However, United States Holders of Exchange
Debentures generally will not be required to include separately in income cash
payments received on such Exchange Debentures, even if denominated as interest,
to the extent such payments do not constitute qualified stated interest (as
defined below). The Company will report to United States Holders of Exchange
Debentures on a timely basis the reportable amount of OID and interest income
based on its understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the sum of
its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest." For this purpose, "qualified stated
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interest" means stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate, during the entire term of the debt instrument that
appropriately takes into account the length of the intervals between payments.
If the Exchange Debentures are issued at a time when the Company has the right
to make interest payments with additional Exchange Debentures in lieu of cash,
none of the stated interest on such Exchange Debentures will be treated as
qualified stated interest. The "issue price" of an Exchange Debenture will be
determined as described above under "-- Issue Price of Exchange Debentures."
The amount of OID includible in income by the initial United States Holder
of an Exchange Debenture is the sum of the "daily portions" of OID with respect
to the Exchange Debenture for each day during the taxable year or portion of the
taxable year in which such United States Holder held such Exchange Debenture
("accrued OID"). The daily portion is determined by allocating to each day in
any "accrual period" a pro rata portion of the OID allocable to that accrual
period. The "accrual period" for an Exchange Debenture may be of any length and
may vary in length over the term of the Exchange Debenture, PROVIDED that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an amount equal to
the excess, if any, of (a) the product of the Exchange Debenture "adjusted issue
price" at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the closing of each accrual period
and properly adjusted for the length of the accrual period) over (b) the sum of
any qualified stated interest allocable to the accrual period. OID allocable to
a final accrual period is the difference between the amount payable at maturity
(other than a payment of qualified stated interest) and the adjusted issue price
at the beginning of the final accrual period. Special rules will apply for
calculating OID for an initial short accrual period. The "adjusted issue price"
of an Exchange Debenture at the beginning of any accrual period is equal to its
issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any amortizable bond premium,
as described below) and reduced by any payments made on such Exchange Debenture
(other than qualified stated interest) on or before the first day of the accrual
period. Under these rules, a United States Holder will have to include in income
increasingly greater amounts of OID in successive accrual periods.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE
TAX CONSEQUENCES OF OWNING EXCHANGE DEBENTURES.
ELECTION
A United States Holder of Exchange Debentures, subject to certain
limitations, may elect to include all interest and discount on the Exchange
Debentures in gross income under the constant yield method. For this purpose,
interest includes stated and unstated interest, and OID and DE MINIMIS OID, as
adjusted by any amortizable bond premium.
AMORTIZABLE BOND PREMIUM
If the Exchangeable Preferred Stock is exchanged for Exchange Debentures at
a time when the "issue price" of the Exchange Debentures exceeds the amount
payable at maturity of the Exchange Debentures, such excess will constitute
amortizable bond premium that the United States Holder may elect to amortize
under the constant yield method over the term of the Exchange Debentures. A
United States Holder who elects to amortize bond premium must reduce its tax
basis in the Exchange Debentures by the amount of the aggregate amortization
allowable for amortizable bond premium. Amortizable bond premium will be treated
under the Code as an offset to interest income on the related debt instrument
for federal income tax purposes.
SALE OR OTHER DISPOSITION OF EXCHANGE DEBENTURES
Generally, any sale, exchange, redemption (including pursuant to an offer by
the Company) or other disposition of Exchange Debentures by a United States
Holder would result in taxable gain or loss equal to the difference between the
sum of the amount of cash and the fair market value of other property received
(except to the extent that cash received is attributable to accrued but
previously untaxed interest, which portion of the consideration
170
<PAGE>
would be taxed as ordinary income) and the United States Holder's adjusted tax
basis in the Exchange Debentures. The adjusted tax basis of a United States
Holder who receives an Exchange Debenture in exchange for Exchangeable Preferred
Stock will generally be equal to the issue price of the Exchange Debenture,
increased by any OID previously included in the United States Holder's income
and reduced by any amortizable bond premium, if any, deducted over the term of
the Exchange Debentures and by payments on the Exchange Debentures. Any such
gain or loss generally would be long-term capital gain or loss if the United
States Holder's holding period for the Exchange Debentures exceeds one year.
Under current law, net capital gains recognizable by corporations are currently
taxed at a maximum rate of 35% and the maximum rate on net capital gains in the
case of individuals is currently 20% for property held for more than 18 months
(28% if held for more than 12 months but not more than 18 months). At the time
of sale, exchange, disposition, retirement or redemption, a United States Holder
of the Exchange Debenture must also include in income any previously accrued but
unrecognized OID.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
It is possible that the Exchange Debentures will be treated as "applicable
high yield discount obligations" ("AHYDOs") for United States federal income tax
purposes. The Exchange Debentures will constitute AHYDOs if they (i) have a term
of more than five years, (ii) have a yield to maturity equal to or greater than
the sum of the applicable federal rate ( "AFR") at the time of issuance of the
Exchange Debentures plus 500 basis points and (iii) have significant OID. The
AFR is an interest rate, announced monthly by the IRS, that is based on the
yield of debt obligations issued by the United States Treasury. A debt
instrument is treated as having "significant OID" if the aggregate amount that
would be includable in gross income with respect to such debt instrument for
periods before the close of any accrual period ending after the date five years
after the date of issue exceeds the sum of (i) the aggregate amount of interest
to be paid in cash under the debt instrument before the close of such accrual
period and (ii) the product of the initial issue price of such debt instrument
and its yield to maturity. For purposes of determining whether an Exchange
Debenture is an AHYDO, United States Holders are bound by the Company's
determination of the appropriate accrual period. Because the amount of OID, if
any, attributable to the Exchange Debentures will be determined at the time such
Exchange Debentures are issued and the AFR at that time is not predictable, it
is currently impossible to determine whether the Exchange Debentures will be
treated as AHYDOS.
If the Exchange Debentures are treated as AHYDOS, (i) a portion of the OID
that accrues on the Exchange Debentures may be treated as a dividend generally
eligible for the dividends received deduction in the case of corporate United
States Holders, (ii) the Company would not be entitled to deduct the
"disqualified portion" of the OID that accrues on the Exchange Debentures and
(iii) the Company would be allowed to deduct the remainder of the OID only when
it pays amounts attributable to such OID in cash. The "disqualified portion" of
the OID is equal to the lesser of (x) the amount of OID or (y) the portion of
the "total return" (i.e., the excess of all payments to be made with respect to
an Exchange Debenture over its issue price) with respect to the Exchange
Debentures in excess of the AFR plus 600 basis points per annum.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A United States Holder may be subject to backup withholding at the rate of
31% with respect to distributions (actual or constructive) on the Exchangeable
Preferred Stock, interest (including OID) on the Exchange Debentures or sales
proceeds of any of the foregoing, unless such United States Holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates its exempt status or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A United States Holder who does not provide the Company with
the United States Holder's correct taxpayer identification number may be subject
to penalties imposed by the IRS. Any amount paid as backup withholding would be
creditable against the United States Holder's federal income tax liability.
The Company will furnish annually to the IRS and to record United States
Holders of the Exchangeable Preferred Stock (other than with respect to certain
exempt holders) information relating to dividends paid during the calendar year.
In the case of Exchangeable Preferred Stock or Dividend Shares subject to
section 305 of the
171
<PAGE>
Code, such information may be based upon dividends accruing to the record United
States Holder of such Exchangeable Preferred Stock or Dividend Shares at the
time of issuance.
The Company will furnish annually to the IRS and to record United States
Holders of the Exchange Debentures (other than with respect to certain exempt
holders) information relating to the stated interest and the OID, if any,
accruing during the calendar year. Such information will be based on the amount
of OID that would have accrued to a United States Holder who acquired the
Exchange Debenture in exchange for its Exchangeable Preferred Stock.
Accordingly, other United States Holders will be required to determine for
themselves whether they are eligible to report a reduced amount of OID for
federal income tax purposes.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF SENIOR SUBORDINATED
NOTES, EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES IN LIGHT OF SUCH
HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF
SENIOR SUBORDINATED NOTES, EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES
SHOULD CONSULT SUCH HOLDER'S TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES TO
SUCH HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SENIOR
SUBORDINATED NOTES, EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS, OR SUBSEQUENT REVISIONS THEREOF.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes or shares of New Exchangeable
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes or shares of Exchangeable Preferred Stock. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resale of New Notes or shares of New Exchangeable
Preferred Stock received in exchange for Old Notes or shares of Old Exchangeable
Preferred Stock where such Old Notes or shares of Old Exchangeable Preferred
Stock were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until [ , 1998]
( days after the date of this Prospectus), all dealers effecting transactions in
the New Notes or shares of New Exchangeable Preferred Stock may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes or
shares of New Exchangeable Preferred Stock by broker-dealers. New Notes and
shares of New Exchangeable Preferred Stock received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or New Exchangeable Preferred
Stock or a combination of such methods of resale, at market prices prevailing at
the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes or shares of New Exchangeable Preferred Stock. Any broker-dealer
that resells New Notes or shares of New Exchangeable Preferred Stock that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes or shares of New
Exchangeable Preferred Stock may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit from any such resale of New Notes
or shares of New Exchangeable Preferred Stock and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letters of Transmittal state that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
172
<PAGE>
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in a Letter of
Transmittal. The Company has agreed to pay all expenses incident to the Exchange
Offer (including the reasonable fees and expenses, if any, of one counsel for
the Initial Purchasers of the Old Notes and the Old Exchangeable Preferred
Stock) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Senior Subordinated Notes and the Exchangeable
Preferred Stock (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby are
being passed upon for the Company by Moss & Barnett, A Professional Association,
Minneapolis, Minnesota, counsel to the Company.
EXPERTS
The audited consolidated financial statements of the Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997, included in this Prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The audited consolidated financial statements of Atlantic Cellular Company,
L.P. and Subsidiaries as of December 31, 1996 and 1997 and for each of the years
in the period ended December 31, 1997 included in this Prospectus and elsewhere
in the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their reports, with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing. Such financial statements have been
included in reliance upon the report of KPMG Peat Marwick LLP, which included an
explanatory paragraph stating that the Partnership entered into two separate
purchase and sale agreements in February 1998 which will result in the sale of
substantially all of the Partnership's assets.
The audited consolidated financial statements of Unity Cellular System, Inc.
and Subsidiaries as of and for the years ended December 31, 1995 and 1996
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-4 (including all amendments thereto, the
"Registration Statement") under the Securities Act, with respect to the New
Notes and New Exchangeable Preferred Stock offered in connection with the
Exchange Offer. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the New Notes
and New Exchangeable Preferred Stock offered in connection with the Exchange
Offer, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibits.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission. The Commission also
maintains a Web site that contains reports, proxy statements and other
information regarding registrants, including the Company, that file such
information electronically with the Commission. The address of the Commission's
website is HTTP://WWW.SEC.GOV.
173
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited)................ F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1998 (unaudited)........................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Schedule II -- Valuation and Qualifying Accounts........................................................... F-20
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-21
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited)................ F-22
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-23
Consolidated Statements of Partners' Capital for the years ended December 31, 1995, 1996 and 1997 and the
three months ended March 31, 1998 (unaudited)............................................................ F-24
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-25
Notes to Consolidated Financial Statements................................................................. F-26
UNITY CELLULAR SYSTEM, INC., AND SUBSIDIARY
Report of Independent Public Accountants................................................................... F-34
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-35
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996....................... F-36
Consolidated Statements of Changes in Stockholder's Equity for the years ended December 31, 1995 and
1996..................................................................................................... F-37
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996....................... F-38
Notes to Consolidated Financial Statements................................................................. F-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rural Cellular Corporation:
We have audited the accompanying consolidated balance sheets of Rural
Cellular Corporation (a Minnesota corporation) and subsidiaries as of December
31, 1996 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 financial statements referred to above present fairly,
in all material respects, the financial position of Rural Cellular Corporation
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 6, 1998 (except
for Note 12, as for which
the date is May 14, 1998)
F-2
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------- MARCH 31,
1996 1997 1998
------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 237,499 $ 1,994,628 $ 3,304,614
Accounts receivable, less allowance of $308,000, $1,146,000 and
$1,210,000..................................................... 6,240,137 9,621,032 8,504,416
Inventories...................................................... 1,309,862 1,774,222 1,503,733
Other current assets............................................. 341,964 765,939 617,009
------------- -------------- --------------
Total current assets........................................... 8,129,462 14,155,821 13,929,772
------------- -------------- --------------
PROPERTY AND EQUIPMENT, less accumulated depreciation of
$13,496,000, $23,874,000 and $27,441,000......................... 41,935,497 77,920,283 83,236,504
INVESTMENTS AND OTHER ASSETS:
Licenses and other intangible assets, less accumulated
amortization of $18,000, $1,490,000 and $2,041,000............. 6,710,419 81,348,237 80,797,233
Investments in unconsolidated affiliates......................... 1,442,569 1,094,531 937,741
Restricted investments........................................... 884,844 910,063 1,013,430
Other assets, less accumulated amortization of $35,000, $178,000
and $234,000................................................... 1,404,068 6,159,133 6,495,005
------------- -------------- --------------
Total investments and other assets............................. 10,441,900 89,511,964 89,243,409
------------- -------------- --------------
$ 60,506,859 $ 181,588,068 $ 186,409,685
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................. $ 8,447,920 $ -- $ --
Accounts payable................................................. 8,913,734 7,959,778 8,082,118
Advance billings and customer deposits........................... 1,399,965 2,541,015 2,589,276
Accrued interest................................................. 88,892 1,595,212 1,701,893
Other accrued expenses........................................... 493,527 1,546,347 1,701,013
------------- -------------- --------------
Total current liabilities...................................... 19,344,038 13,642,352 14,074,300
LONG-TERM DEBT..................................................... 43,886 128,000,000 135,000,000
------------- -------------- --------------
Total liabilities.............................................. 19,387,924 141,642,352 149,074,300
------------- -------------- --------------
MINORITY INTEREST.................................................. 6,122,583 6,215,480 5,477,636
------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value, 15,000,000 shares
authorized; 7,502,552, 7,592,628 and 7,612,504 shares issued
and outstanding................................................ 75,025 75,926 76,125
Class B common stock, $.01 par value, 5,000,000 shares
authorized; 1,350,744, 1,260,668 and 1,260,668 shares issued
and outstanding................................................ 13,508 12,607 12,607
Additional paid-in capital....................................... 34,445,849 34,445,849 34,639,014
Retained earnings (accumulated deficit).......................... 461,970 (804,146) (2,869,997)
------------- -------------- --------------
Total shareholders' equity..................................... 34,996,352 33,730,236 31,857,749
------------- -------------- --------------
$ 60,506,859 $ 181,588,068 $ 186,409,685
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
---------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service............................ $14,289,434 $23,119,691 $43,407,782 $6,908,242 $12,718,825
Roamer............................. 4,561,760 6,413,524 9,474,907 1,317,481 1,757,978
Equipment.......................... 1,475,716 927,128 1,020,014 96,714 320,373
---------- ---------- ---------- --------- ----------
Total revenues................... 20,326,910 30,460,343 53,902,703 8,322,437 14,797,176
---------- ---------- ---------- --------- ----------
OPERATING EXPENSES:
Network costs...................... 4,973,598 6,731,130 11,577,886 2,000,215 3,627,733
Cost of equipment sales............ 1,913,664 1,374,980 2,807,206 287,376 884,042
Selling, general and
administrative................... 7,699,964 13,575,347 25,224,683 4,426,573 6,589,884
Depreciation and amortization...... 3,249,313 5,539,067 12,458,286 1,962,781 4,219,140
---------- ---------- ---------- --------- ----------
Total operating expenses......... 17,836,539 27,220,524 52,068,061 8,676,945 15,320,799
---------- ---------- ---------- --------- ----------
OPERATING INCOME (LOSS).............. 2,490,371 3,239,819 1,834,642 (354,508) (523,623)
---------- ---------- ---------- --------- ----------
OTHER INCOME (EXPENSE):
Interest expense................... (1,365,852) (280,146) (6,064,468) (215,209) (2,410,159)
Interest and dividend income....... 277,352 334,850 231,809 62,347 278,538
Equity in earnings (losses) of
unconsolidated affiliates........ (37,021) 51,519 (350,539) 18,809 (148,451)
Minority interest.................. -- 330,892 3,082,440 448,554 737,844
---------- ---------- ---------- --------- ----------
Other income (expense), net...... (1,125,521) 437,115 (3,100,758) 314,501 (1,542,228)
---------- ---------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAX...... 1,364,850 3,676,934 (1,266,116) (40,007) (2,065,851)
INCOME TAX PROVISION................. 575,003 200,000 -- -- --
---------- ---------- ---------- --------- ----------
NET INCOME (LOSS).................... $ 789,847 $3,476,934 $(1,266,116) $ (40,007) $(2,065,851)
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE.......................... $ 0.13 $ 0.41 $ (0.14) $ (0.00) $ (0.23)
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING................. 5,983,420 8,508,908 8,853,296 8,853,296 8,868,313
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B RETAINED
COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS TOTAL
-------------------- -------------------- PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
--------- --------- --------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994................. 4,302,671 $ 43,027 1,680,762 $ 16,808 $ 8,412,634 $(3,804,811) $4,667,658
Net income............................... -- -- -- -- -- 789,847 789,847
--------- --------- --------- --------- ------------ ------------- ------------
BALANCE, December 31, 1995................. 4,302,671 43,027 1,680,762 16,808 8,412,634 (3,014,964) 5,457,505
Issuance of common stock, net of offering
expenses............................... 2,869,863 28,698 -- -- 26,033,215 -- 26,061,913
Conversion of Class B common stock to
Class A common stock................... 330,018 3,300 (330,018) (3,300) -- -- --
Net income............................... -- -- -- -- -- 3,476,934 3,476,934
--------- --------- --------- --------- ------------ ------------- ------------
BALANCE, December 31, 1996................. 7,502,552 75,025 1,350,744 13,508 34,445,849 461,970 34,996,352
Conversion of Class B common stock to
Class A common stock................... 90,076 901 (90,076) (901) -- -- --
Net loss................................. -- -- -- -- -- (1,266,116) (1,266,116)
--------- --------- --------- --------- ------------ ------------- ------------
BALANCE, December 31, 1997................. 7,592,628 75,926 1,260,668 12,607 34,445,849 (804,146) 33,730,236
Common stock options exercised and
employee stock purchase plan
purchases (unaudited).................. 19,876 199 -- -- 193,165 -- 193,364
Net loss (unaudited)..................... -- -- -- -- -- (2,065,851) (2,065,851)
--------- --------- --------- --------- ------------ ------------- ------------
BALANCE, March 31, 1998 (unaudited)........ 7,612,504 $ 76,125 1,260,668 $ 12,607 $ 34,639,014 $(2,869,997) $31,857,749
--------- --------- --------- --------- ------------ ------------- ------------
--------- --------- --------- --------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
------------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ----------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................. $ 789,847 $ 3,476,934 $ (1,266,116) $ (40,007) $(2,065,851)
Adjustments to reconcile to net
cash provided by operating
activities --
Depreciation and amortization.... 3,249,313 5,539,067 12,458,286 1,962,781 4,219,140
Deferred income taxes............ 500,000 -- -- -- --
Equity in earnings (losses) of
unconsolidated affiliates...... 37,021 (51,519) 350,539 (18,809) 156,790
Change in minority interest...... -- (330,892) (3,082,440) (448,554) (737,844)
Other............................ (186,332) (184,036) (41,662) (28,177) (105,075)
Change in other operating
elements:
Accounts receivable............ (640,326) (3,220,417) (1,008,231) 299,237 1,116,616
Inventories.................... 294,973 (681,846) (27,448) 405,843 270,488
Other current assets........... (7,283) (246,271) (262,193) 186,427 148,931
Accounts payable............... 3,059,394 4,871,828 (2,524,360) (5,303,173) 122,340
Advance billings and customer
deposits..................... 145,204 435,502 796,791 -- --
Other accrued expenses......... (300,600) 30,517 2,649,214 331,129 309,608
---------- ----------- ------------ ---------- ----------
Net cash provided by (used
in) operating activities... 6,941,211 9,638,867 8,042,380 (2,653,303) 3,435,143
---------- ----------- ------------ ---------- ----------
INVESTING ACTIVITIES:
Purchases of property and
equipment, net................... (9,312,820) (24,213,803) (34,927,880) (3,607,271) (8,969,735)
Contributions to unconsolidated
affiliates....................... (368,964) (225,156) (2,500) -- --
Purchases of restricted
investments...................... (101,178) -- -- -- --
Purchases of Unity and Northern
Maine............................ -- -- (85,705,736) -- --
Payments made for other assets..... -- -- (4,064,126) -- --
Other, net......................... (121,777) (996,713) 80,845 (477,892) (298,786)
---------- ----------- ------------ ---------- ----------
Net cash used in investing
activities................. (9,904,739) (25,435,672) (124,619,397) (4,085,163) (9,268,521)
---------- ----------- ------------ ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of common
stock, net of offering
expenses......................... (478,153) 26,540,066 -- -- 193,364
Proceeds from issuance of long-term
debt............................. 4,251,648 14,740,927 137,695,000 7,100,000 7,000,000
Repayments of long-term debt....... (920,952) (25,371,826) (18,161,371) (523,882) --
Payments of debt issuance costs.... -- -- (1,199,483) -- (50,000)
---------- ----------- ------------ ---------- ----------
Net cash provided by
financing activities....... 2,852,543 15,909,167 118,334,146 6,576,118 7,143,364
---------- ----------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH...... (110,985) 112,362 1,757,129 (162,348) 1,309,986
CASH, at beginning of period......... 236,122 125,137 237,499 237,499 1,994,628
---------- ----------- ------------ ---------- ----------
CASH, at end of period............... $ 125,137 $ 237,499 $ 1,994,628 $ 75,151 $3,304,614
---------- ----------- ------------ ---------- ----------
---------- ----------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
1. ORGANIZATION AND NATURE OF BUSINESS:
Rural Cellular Corporation and its subsidiaries ("the Company" or "RCC")
provide cellular communication service in the northern half of Minnesota and
portions of Maine and paging service in northern Minnesota and eastern North
Dakota ("Company Service Area"). The Company operates its cellular and paging
systems under licenses granted by the Federal Communications Commission ("the
FCC"). The Company's operations are subject to the applicable rules and
regulations of the FCC.
2. ACQUISITIONS:
WIRELESS ALLIANCE, LLC
In August 1996, the Company entered into an agreement with Wireless
Alliance, LLC ("Wireless Alliance"), a joint venture with APT Minneapolis, Inc.,
an affiliate of Aerial Communications, Inc., to construct and operate Personal
Communications Services ("PCS") networks in selected cellular communication
reselling markets in Minnesota, Wisconsin, North Dakota and South Dakota. In
addition, these markets include the Red River Valley and 80 miles of Interstate
Highway 29 in North Dakota. Wireless Alliance is owned 51% by the Company and
49% by APT Minneapolis, Inc.
UNITY CELLULAR SYSTEM, INC.
Effective May 1, 1997, the Company completed the acquisition of the Maine
wireless telephone operations and related assets of Unity Cellular System, Inc.
("Unity") and related cellular and microwave licenses from InterCel Licenses,
Inc., both wholly owned subsidiaries of InterCel, Inc. In addition, the Company
acquired Unity's 51% interest in Northern Maine Cellular Partnership ("Northern
Maine"). The Company operates its Maine operations through a wholly owned
subsidiary known as MRCC, Inc. Total consideration paid for the net assets
acquired was approximately $77 million in cash. The Company also acquired the
remaining 49% interest in Northern Maine from an unrelated third party for
approximately $7 million in cash. The acquisitions were funded with the proceeds
of borrowings under a revolving credit facility with a group of banks headed by
TD Securities (USA), Inc., formerly known as Toronto-Dominion Bank. The
acquisitions have been accounted for under the purchase method of accounting.
See Note 3 for the purchase price allocation of the acquired net assets.
The following unaudited pro forma information presents the consolidated
results of operations as if the acquisitions had occurred as of January 1, 1996.
This summary is not necessarily indicative of what the results of operations of
the Company and the acquired entities would have been if they were a single
entity during such periods, nor does it purport to represent results of
operations for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED
---------------------------- MARCH 31,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total revenues...................................................... $ 46,544,493 $ 58,720,638 $ 11,819,278
Operating income (loss)............................................. 4,061,485 1,767,256 (405,711)
Loss before cumulative effect of accounting change, net of tax...... (3,096,254) (3,860,945) (1,844,751)
Net loss............................................................ (4,349,435) (3,860,945) (1,844,751)
Basic net loss per share............................................ (.51) (.44) (.21)
</TABLE>
F-7
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RCC and its
wholly owned subsidiaries, MRCC, Inc., RCC Paging, Inc., RCC Wireless Company,
RCC Licenses, Inc., RCC Network, Inc. and its majority-owned subsidiary,
Wireless Alliance. All significant intercompany balances and transactions have
been eliminated. Investments in unconsolidated affiliates represent investments
in companies in which RCC has a 20% to 50% ownership interest, which are
accounted for under the equity method.
REVENUE RECOGNITION
The Company earns revenue by providing or reselling cellular and paging
services to customers of the Company and of other cellular carriers traveling
(roaming) in the Company's service area and from sales and rentals of cellular
and paging equipment and accessories. Service revenue consists of the base
monthly service fee and airtime revenue. Base monthly service fees are billed
one month in advance and are recognized in the month earned. Airtime revenue is
recognized when service is provided. Roamer revenue consists of the fee charged
to other cellular carriers' customers for roaming in the Company's service area
as well as related airtime revenue for use of RCC's cellular network. Roamer
revenue is recognized when the service is rendered. The Company recognizes other
service revenues from equipment installations, equipment leases and connection
fees when earned.
INCOME TAXES
The Company follows the liability method of accounting for income taxes, and
deferred income taxes are based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities based on enacted tax laws.
NET INCOME (LOSS) PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
changed the way companies calculate their earnings per share (EPS). SFAS 128
replaced primary EPS with basic EPS. Basic EPS is computed by dividing net
income (loss) by the weighted average number of shares outstanding during the
year. Diluted EPS is computed by including dilutive common stock equivalents
with the basic weighted average shares outstanding. The Company adopted SFAS 128
in 1997, at which time all prior year EPS was restated in accordance with SFAS
128.
INVENTORIES
Inventories consist of cellular telephone equipment, pagers and accessories
and are stated at the lower of cost, determined using the specific
identification method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions, improvements or
major renewals are capitalized, while expenditures, which do not enhance or
extend the asset's useful life, are charged to operating expenses as
F-8
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
incurred. Depreciation is computed using the straight-line method based on the
estimated useful life of the asset. The components of property and equipment and
the useful lives of the assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------ MARCH 31,
1996 1997 1998 USEFUL LIVES
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Property and equipment:
Land............................................ $ 1,233,007 $ 1,965,323 $ 2,041,745 N/A
Building and towers............................. 13,680,928 23,835,317 25,310,854 15-39 Years
Equipment....................................... 35,650,325 62,164,386 68,794,819 2-10 Years
Furniture and fixtures.......................... 3,626,247 6,603,957 6,928,668 3-10 Years
Assets under construction....................... 1,241,124 7,225,192 7,601,564 N/A
-------------- -------------- --------------
Property and equipment............................ 55,431,631 101,794,175 110,677,650
Less--Accumulated depreciation.................... (13,496,134) (23,873,892) (27,441,146)
-------------- -------------- --------------
Property and equipment, net....................... $ 41,935,497 $ 77,920,283 $ 83,236,504
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Company's network construction expenditures are recorded as assets under
construction until the system or assets are placed in service, at which time the
assets are transferred to the appropriate property and equipment category. As a
component of assets under construction, the Company capitalizes salaries of the
Company's construction employees during the construction period and the interest
expense for projects that extend beyond one year.
INVESTMENTS
Investments in unconsolidated affiliates are accounted for using the equity
method and represent the Company's ownership interests in Switch 2000, Inc. and
Cellular 2000, Inc. Switch 2000, Inc. provides cellular switching and
interconnection services to the Company. Cellular 2000, Inc. is an entity
organized to own the trade name and the related trademark for Cellular 2000.
Restricted investments represent the Company's investments in stock of the St.
Paul Bank for Cooperatives and are stated at cost, which approximates fair
value. The restricted investments were purchased pursuant to the terms of a loan
agreement and are restricted as to withdrawal.
LICENSES AND OTHER INTANGIBLE ASSETS
Licenses consist of the cost of acquiring paging licenses, the value
assigned to the Wireless Alliance PCS licenses, and the value assigned to
cellular licenses acquired through the acquisitions of Unity and Northern Maine.
Paging licenses are being amortized on a straight-line basis over 40 years,
while the Unity and Northern Maine licenses are being amortized on a composite,
straight-line basis over 33 years. The Wireless Alliance PCS license will be
amortized over 40 years when the PCS network becomes operational. Other
intangibles, resulting primarily from the acquisitions of Unity and Northern
Maine, include the value assigned to subscriber lists, noncompete agreements and
goodwill. Other intangibles are being amortized on a composite, straight-line
basis over 33 years.
F-9
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The components of licenses and other intangible assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Licenses:
Cellular............................................................ $ -- $ 31,891,000 $ 31,891,000
PCS................................................................. 6,453,475 9,628,812 9,628,812
Paging.............................................................. 275,000 275,000 275,000
Other intangible assets............................................. -- 41,043,881 41,043,881
------------ ------------- -------------
6,728,475 82,838,693 82,838,693
Less--Accumulated amortization...................................... (18,056) (1,490,456) (2,041,460)
------------ ------------- -------------
Licenses and other intangible assets................................ $ 6,710,419 $ 81,348,237 $ 80,797,233
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
OTHER ASSETS
Other assets primarily consist of costs related to deferred financing and
spectrum relocation. Deferred financing costs are amortized over the life of the
debt agreement. Spectrum relocation costs will be amortized when the PCS network
becomes operational.
BUSINESS AND CREDIT CONCENTRATIONS
The Company's cellular customers are geographically located in the northern
half of Minnesota, eastern North Dakota and central Maine. No single customer
accounted for a significant amount of revenues or accounts receivable.
LONG-LIVED ASSETS
The Company periodically evaluates the value of all long-lived assets to
determine if events have occurred that indicate the remaining estimated useful
lives of these assets may warrant revision, or whether the remaining balance may
not be recoverable. At each balance sheet date, the Company uses an estimate of
future net cash flows over the remaining useful lives of the long-lived assets
to measure recoverability.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated fair values using available market information and
appropriate valuation methods. Long-term debt fair values were determined based
on borrowing rates currently available to the Company and approximated carrying
value at December 31, 1996, December 31, 1997 and March 31, 1998.
F-10
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES
The preparation 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 reported
periods. Ultimate results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 1998, the statements of
operations and cash flows for the three months ended March 31, 1997 and 1998 and
the statement of shareholders' equity for the three months ended March 31, 1998
are unaudited, but, in the opinion of management, include all adjustments,
consisting solely of normal recurring adjustments necessary for a fair
presentation of results for these interim periods. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
to be expected for the entire year.
RECLASSIFICATIONS
Certain 1995 and 1996 amounts in the accompanying consolidated financial
statements have been reclassified to conform to the 1997 presentation. These
reclassifications had no effect on consolidated net income or total
shareholders' equity as previously reported.
4. LONG-TERM DEBT:
On May 1, 1997, the Company entered into an agreement with TD Securities
(USA), Inc. for a $140 million Senior Secured Reducing Revolving Credit Facility
("the Existing Credit Facility"). On December 30, 1997, the Company completed an
amendment to this agreement increasing the Existing Credit Facility to $160
million. Under the Existing Credit Facility, amounts may be borrowed or repaid
at any time through maturity provided that, at no time, the aggregate
outstanding borrowings exceed the total of the Existing Credit Facility. During
the second quarter of 1997, proceeds from the Existing Credit Facility were used
to acquire the net assets of Unicel and Northern Maine and to refinance all
outstanding amounts under the Company's previous loan facility with the St. Paul
Bank for Cooperatives.
At the Company's discretion, advances under the Existing Credit Facility
bear interest at London Interbank Offering Rate (7.6% as of December 31, 1997)
or base rate plus an applicable margin (9.1% as of December 31, 1997) and will
be based on the Company's ratio of indebtedness to annualized operating cash
flow as of the end of the most recently completed fiscal quarter. A commitment
fee on the unused portion of the Existing Credit Facility is payable quarterly.
The Existing Credit Facility security has been provided by a pledge of all the
assets of the Company excluding its ownership interest in Switch 2000 and its
stock in Cellular 2000. Mandatory commitment reductions will be required upon
any material sale of assets. The Existing Credit Facility is subject to various
covenants including the ratio of indebtedness to annualized operating cash flow
and the ratio of annualized operating cash flow to interest expense. As of
December 31, 1997, the Company was in compliance with all covenants under the
Existing Credit Facility.
F-11
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
4. LONG-TERM DEBT: (CONTINUED)
The Company has entered into three-year interest rate swap agreements with
two commercial banks in order to manage the relationship of its fixed rate
versus floating rate debt. Income and expense associated with swap transactions
are accrued over the periods prescribed by the contracts. These agreements,
which relate to $80 million of debt, effectively increased the Company's
interest rate on the debt by approximately .3% in 1997. The fair values of the
interest rate swap agreements as of December 31, 1997 were not significant.
Future scheduled maturities of the Company's debt are as follows:
<TABLE>
<S> <C>
1998...................................................................................... $ --
1999...................................................................................... 10,000,000
2000...................................................................................... 20,000,000
2001...................................................................................... 25,000,000
2002...................................................................................... 25,000,000
Thereafter................................................................................ 48,000,000
------------
$128,000,000
------------
------------
</TABLE>
5. SHAREHOLDERS' EQUITY:
AUTHORIZED SHARES
The Company's Restated Articles of Incorporation authorize the issuance of
30,000,000 shares of $.01 par value stock. Of such authorized shares, 10,000,000
have not been designated as to class as of December 31, 1997 and March 31, 1998.
INITIAL PUBLIC OFFERING
During 1996, the Company completed an initial public offering (the
"Offering") of 3,450,000 shares of Class A common stock, of which 2,869,863
shares were sold by the Company and 580,137 previously issued shares were sold
by certain shareholders. The net proceeds to the Company of approximately $26.0
million were used to repay long-term debt and to provide capital for future
expansion. In connection with the Offering, the exercise price of 150,600
employee stock options was fixed at $10.00 per share, the price at which the
stock was sold to the public in the Offering.
COMMON STOCK RIGHTS
Class A common shareholders are entitled to one vote for each share owned,
while Class B common shareholders are entitled to ten votes for each share
owned. Each share of Class B common stock may at any time be converted into one
share of Class A common stock at the option of the holder. Additionally, all
issued Class B common shares will be converted into an equivalent number of
Class A common shares upon the affirmative vote of not less than 66 2/3 of the
then-issued Class B common shares. Further, Class B common shares are
automatically converted to an equal number of Class A common shares if they are
transferred to anyone who is not an affiliate of the transferring shareholder of
the Company.
F-12
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
5. SHAREHOLDERS' EQUITY: (CONTINUED)
STOCK COMPENSATION PLANS
The stock compensation plan (the "Plan") for employees authorizes the
issuance of up to 890,000 shares of Class A common stock in the form of stock
options, stock appreciation rights or other stock-based awards. The Plan
provides that the exercise price of any option shall not be less than 85% of the
fair market value of the Class A common stock as of the date of the grant (100%
in the case of incentive stock options). Options and other awards granted under
the Plan shall vest and become exercisable as determined by the board of
directors or a stock option committee.
The stock option plan for nonemployee directors authorize the issuance of up
to 210,000 shares of Class A common stock. The plan provides that the option
price shall not be less than the fair market value of the Class A common stock
outstanding on the date of grant. The options vest and become exercisable over
one to three years and expire between four and six years from the date of grant.
Options outstanding as of March 31, 1998 have exercise prices ranging
between $8.75 and $16.81 and a weighted average remaining contractual life of
ten years. Information related to stock options is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
THREE MONTHS ENDED
1996 1997 MARCH 31, 1998
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of period:.......................... -- $ -- 459,700 $ 9.99 735,200 $ 9.47
Granted................................................. 549,700 10.32 319,750 9.09 92,500 13.50
Exercised............................................... -- -- -- -- (13,600) 10.00
Canceled................................................ (90,000) 12.00 (44,250) 8.75 (5,000) 8.75
--------- --------- ---------
Outstanding, end of period................................ 459,700 $ 9.99 735,200 $ 9.47 809,100 $ 9.93
--------- --------- ---------
--------- --------- ---------
Exercisable, end of period................................ 55,200 $ 9.92 161,895 $ 9.92 158,670 $ 10.12
--------- --------- ---------
--------- --------- ---------
Weighted average fair value of options granted............ $ 5.60 $ 6.40 $ 9.25
</TABLE>
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for the Company's plans been determined
F-13
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
5. SHAREHOLDERS' EQUITY: (CONTINUED)
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company's results of operations and net
income (loss) per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS ENDED
31 MARCH 31
--------------------- ---------------------
1996 1997 1997 1998
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net income (loss):
As reported.................. $3,476,934 $(1,266,116) $ (40,007) $(2,065,851)
Pro forma.................... 3,215,468 (1,890,506) (40,007) (2,921,435)
Net income (loss) per share:
As reported.................. 0.41 (0.14) (0.00) (0.23)
Pro forma.................... 0.38 (0.21) (0.00) (0.23)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996, 1997 and for the three months ended March
31, 1997 and 1998: expected volatility of 48.5%, 51.6%, 54.7% and 48.6%,
respectively; risk-free interest rates of 6.3%; and no expected dividend yield.
The per share weighted average fair value of options granted in 1996, 1997 and
for the three months ended March 31, 1998 was $5.75, $6.40 and $9.25 per share,
respectively. There were no options granted for the three months ended March 31,
1997.
6. INCOME TAXES:
The components of the Company's income tax provision are as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................................. $ 40,003 $ 106,000 $ --
State................................................... 35,000 94,000 --
---------- ---------- ----------
75,003 200,000 --
Deferred.................................................. 500,000 -- --
---------- ---------- ----------
$ 575,003 $ 200,000 $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-14
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
6. INCOME TAXES: (CONTINUED)
Reconciliation between the federal income tax rate and the effective income
tax rate is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate................................................ 34.0% 34.0% 34.0%
Tax benefit of loss carryforwards...................................... -- (29.8) (34.0)
Penalties and fines.................................................... (2.1) -- --
State income taxes, net of federal tax benefit......................... 6.5 1.2 --
Other, net............................................................. 3.7 -- --
--- --------- ---------
42.1% 5.4% --%
--- --------- ---------
--- --------- ---------
</TABLE>
The income tax effect of the items that create deferred income tax assets
and liabilities for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards.................................. $ 1,795,000 $ 4,488,000
Temporary differences:
Allowance for doubtful accounts............................. 123,000 450,000
Other....................................................... 202,000 302,000
Valuation allowance........................................... -- (400,000)
------------- -------------
Total deferred income tax assets.......................... 2,120,000 4,840,000
Deferred income tax liabilities:
Depreciation.................................................. (1,948,000) (3,971,000)
Intangible assets............................................. -- (724,000)
Other......................................................... (172,000) (145,000)
------------- -------------
Net deferred income tax asset............................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
A valuation allowance was established in 1997 for net deferred income tax
assets not expected to be offset by deferred income tax liabilities due to the
uncertainty of the realization of future tax benefits.
As of December 31, 1997, the Company had tax operating loss carryforwards of
approximately $11,091,000 available to offset future income tax liabilities.
These carryforwards expire in the years 2006 through 2012. The Tax Reform Act of
1986 contains provisions that may limit the availability and timing of usage of
net operating loss carryforwards in the event of certain changes in the
ownership of the Company's common stock.
7. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURE COMMITMENTS
The Company had capital expenditure purchase commitments outstanding of
approximately $8.4 million and $3.2 million as of December 31, 1997 and March
31, 1998, respectively.
F-15
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has employment agreements with executive officers and certain
other management personnel with terms ranging from two to three years. These
agreements provide for payment of amounts up to three times their annual
compensation if there is a termination of their employment as a result of change
in control of the Company, as defined in the agreements. The maximum contingent
liability under these agreements was $1.7 million at December 31, 1997 and March
31, 1998.
LEGAL AND REGULATORY MATTERS
The Company is subject to various legal and regulatory matters arising in
the normal course of business. Management does not believe any of these matters
will have a significant effect on the Company and, accordingly, no provision for
any liability that may result from these matters has been made.
LEASES
The Company leases office space and real estate under noncancelable
operating leases. Future minimum payments under these leases as of March 31,
1998 are as follows:
<TABLE>
<CAPTION>
YEAR
- ----------------------------------------------------------------------------
<S> <C>
1998 (nine months ended December 31, 1998).................................. $ 378,000
1999........................................................................ 434,000
2000........................................................................ 347,000
2001........................................................................ 247,000
2002........................................................................ 147,000
Thereafter.................................................................. 619,000
------------
Total................................................................... $ 2,172,000
------------
------------
</TABLE>
Under the terms of the lease agreements, the Company also is responsible for
certain operating expenses and taxes. Total rent expense of $347,000, $379,000,
$839,000 , $70,000 and $317,000 was charged to operations for the years ended
December 31, 1995, 1996, 1997 and the three months ended March 31, 1997 and
1998, respectively.
F-16
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
The Company holds a 40.77% ownership interest in Switch 2000, Inc., and a
41.67% ownership interest in Cellular 2000, Inc. and an entity with no
operations to date. As of March 31, 1998, the investment in unconsolidated
affiliates represents $1,687,000 of stock and capital contributions less
$741,000 of cumulative losses. Combined condensed results of operations and net
assets of these entities are as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED DECEMBER 31 ENDED
------------------------------- MARCH 31,
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Results of operations:
Revenues.................................... $7,074,877 $9,201,380 $6,655,665 $1,009,495
Operating expenses.......................... (7,035,889) (9,044,303) (7,541,533) (1,371,855)
Other income (expense), net................. (129,791) (11,811) 5,181 572
--------- --------- --------- ---------
Net income (loss)......................... $ (90,803) $ 145,266 $(880,687) $(361,788)
--------- --------- --------- ---------
--------- --------- --------- ---------
Company's share of net income (loss).......... $ (37,021) $ 51,519 $(350,539) $(148,451)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31 ENDED
-------------------------- MARCH 31,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Net assets and liabilities:
Current assets....................................................... $ 455,292 $ 549,541 $ 737,769
Noncurrent assets.................................................... 4,064,677 2,827,325 2,467,147
Current liabilities.................................................. (743,309) (708,893) (898,726)
Noncurrent liabilities............................................... (228,000) -- --
------------ ------------ -------------
Equity............................................................. $ 3,548,660 $ 2,667,973 $ 2,306,190
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
9. RELATED-PARTY TRANSACTIONS:
AFFILIATE AGREEMENT
The Company pays Switch 2000, Inc. for cellular switching and
interconnection services. The rates of reimbursement are negotiated by the
parties to the agreement and reflect rates charged by other service providers.
Amounts billed by Switch 2000, Inc. to the Company totaled $3,753,000,
$4,824,000, $3,230,000, $892,000 and $404,000 for the years ended December 31,
1995, 1996, 1997 and the three months ended March 31, 1997 and 1998,
respectively.
ROAMING AGREEMENT
The Company has a roaming agreement with a partnership that is affiliated
with a beneficial owner of greater than 10% of the Company's common stock.
Roaming charges are passed through to the customer. The rates of reimbursement
are negotiated by the parties to the agreement and reflect rates charged by
other service providers. Net payments by the Company to the partnership was
$336,000 for the year ended December 31, 1995 and net
F-17
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
9. RELATED-PARTY TRANSACTIONS: (CONTINUED)
payments to the Company from the partnership were $331,000, $156,000, $106,000
and $108,000 for the years ended December 31, 1996 and 1997 and the three months
ended March 31, 1997 and 1998, respectively.
10. DEFINED CONTRIBUTION PLAN:
The Company has a defined contribution savings and profit-sharing plan for
employees who meet certain age and service requirements. Under the savings
portion of the plan, employees may elect to contribute a percentage of their
salaries to the plan with the Company contributing a matching percentage of the
employees' contributions. Under the profit-sharing portion of the plan, the
Company contributes a percentage of employees' salaries. Contributions charged
to operations for the years ended December 31, 1995, 1996, 1997 and the three
months ended March 31, 1997 and 1998 were $66,000, $74,000, $162,000, $51,000
and $63,000, respectively. The percentages the Company matches under the savings
portion of the plan and contributes under the profit-sharing portion of the plan
are determined annually by the Company's board of directors.
11. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest............................. $1,400,722 $ 563,948 $4,630,281 $ 91,468 $2,371,657
Income taxes......................... 98,136 805,000 64,032 -- --
Cash received for:
Income taxes......................... -- -- -- -- 250,000
Noncash investing and financing
activity:
Contribution by Aerial
Communications, Inc. of PCS
licenses........................... -- 6,453,475 3,175,337 -- --
</TABLE>
12. SUBSEQUENT EVENTS:
ATLANTIC ACQUISITION
On February 13, 1998, the Company entered into a definitive agreement to
purchase the net assets of Atlantic Cellular, L.P. ("Atlantic") for
approximately $256 million. The cellular properties to be acquired from Atlantic
include the entire state of Vermont (RSA 1, RSA 2 and the Burlington
Metropolitan Statistical Area), western New Hampshire (RSA 1), the northeastern
corner of New York (RSA 2) and northwestern Massachusetts (RSA 1).
WMC ACQUISITION
On February 19, 1998, the Company entered into a definitive agreement to
purchase Western Maine Cellular (WMC), a wholly owned subsidiary of Utilities,
Inc., for approximately $7.5 million. The cellular properties provide service to
western Maine (RSA 1).
F-18
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
12. SUBSEQUENT EVENTS: (CONTINUED)
OFFERINGS
On May 14, 1998, the Company completed an offering of 9 5/8% Senior
Subordinated Notes of $125,000,000 due 2008 (the "Note Offering") and 125,000
shares of 11 3/8% Senior Exchangeable Preferred Stock with a liquidation
preference of $1,000 per share (collectively, "the Offerings"). The net proceeds
received by the Company from the Offerings are approximately $240.9 million (net
of estimated fees and expenses of approximately $9.1 million). The Company used
the net proceeds of the Senior Exchangeable Preferred Stock to repay
indebtedness under the Existing Credit Facility. The net proceeds from the Notes
Offering will be used to finance a portion of the Atlantic and WMC acquisitions
and pay related fees and expenses. If the Atlantic acquisition does not close
within 120 days after May 14, 1998, the Company will be required to make an
offer to repurchase the Senior Subordinated Notes at a price of 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of Atlantic Cellular Company, L.P. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Atlantic
Cellular Company, L.P. and Subsidiaries as of December 31, 1996 and 1997 and the
related consolidated statements of operations, partners' capital and cash flows
for each of the years in the three year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Atlantic
Cellular Company, L.P. and Subsidiaries at December 31, 1996 and 1997 and the
results of their operations and cash flows for each of the years in the three
year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in note 9, the Partnership entered into two separate purchase
and sale agreements in February 1998 which will result in the sale of
substantially all of the Partnership's assets.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 17, 1998
F-21
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ 1998
1996 1997 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets (notes 7 and 9):
Cash and cash equivalents...................................... $ 124,789 $ 1,014,060 $ 1,009,632
Due from Hawaiian Wireless, Inc. (notes 2(a) and 3(e))......... 405,235 659,568 324,968
Due from Michiana Partnership, L.P............................. 15,622 4,620 8,497
Accounts receivable, net of allowance for doubtful accounts of
$277,000 in 1996, $447,000 in 1997 and $488,000 (unaudited)
in 1998...................................................... 3,890,862 3,676,212 3,623,633
Inventories of cellular telephones and equipment............... 1,083,699 602,882 476,238
-------------- -------------- --------------
Total current assets......................................... 5,520,207 5,957,342 5,442,968
-------------- -------------- --------------
Property and equipment (notes 4, 5, 7, 8 and 9):
Cellular telephone systems..................................... 179,053,629 162,555,149 163,167,854
PCS Licenses................................................... -- 9,996,948 9,997,032
Other property and equipment................................... 5,490,066 4,913,454 4,935,764
-------------- -------------- --------------
184,543,695 177,465,551 178,100,650
Less accumulated depreciation and amortization................. 38,439,343 41,064,781 43,546,600
-------------- -------------- --------------
Net property and equipment................................... 146,104,352 136,400,770 134,554,050
-------------- -------------- --------------
Other assets (note 7 and 9):
Deposit (note 5)............................................... 3,000,000 -- --
Investment in equity securities................................ 292,491 -- --
Investments in other wireless entities (note 6)................ 355,551 297,835 300,094
Other assets................................................... 11,900 -- --
Deferred financing costs, net of accumulated amortization...... 1,965,366 1,637,805 1,555,915
-------------- -------------- --------------
Total other assets........................................... 5,625,308 1,935,640 1,856,009
-------------- -------------- --------------
Total assets................................................. $ 157,249,867 $ 144,293,752 $ 141,853,027
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable............................................... $ 17,608 $ 19,321 $ 21,412
Due to Atlantic Cellular Management Company (note 2(a))........ 2,890,849 911,689 988,582
Accrued consulting fees (note 2(c))............................ 75,000 75,000 112,500
Accrued interest (note 7)...................................... 546,638 458,089 130,019
Deposits on sales of other wireless entities................... -- 123,345 123,345
Current portion of capital lease obligations (note 8).......... 73,635 49,316 49,316
-------------- -------------- --------------
Total current liabilities.................................... 3,603,730 1,636,760 1,425,174
Notes payable -- bank (note 7)................................... 81,500,000 40,000,000 38,000,000
Capital lease obligations, net of current portion (note 8)....... 83,595 32,059 11,059
-------------- -------------- --------------
Total liabilities............................................ 85,187,325 41,668,819 39,436,233
-------------- -------------- --------------
Minority interests in partnerships (note 3)...................... 7,689,420 7,536,804 7,519,065
Partners' capital................................................ 64,708,945 95,088,129 94,897,729
Valuation allowance for unrealized loss on equity securities..... (335,823) -- --
-------------- -------------- --------------
Partners' capital, net........................................... 64,373,122 95,088,129 94,897,729
-------------- -------------- --------------
Commitments (note 8)
-------------- -------------- --------------
Total liabilities and partners' capital...................... $ 157,249,867 $ 144,293,752 $ 141,853,027
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------- MARCH 31, 1997 MARCH 31, 1998
1995 1996 1997 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Revenues from cellular operations.. $ 34,350,693 $ 43,283,440 $ 45,087,272 $ 11,522,341 $ 11,773,444
------------- ------------- ------------- ------------------ ------------------
Operating costs:
Costs of cellular operations..... 22,605,996 25,870,905 25,604,407 6,793,866 5,613,933
Corporate overhead expenses
(notes 2(a) and 3)............. 2,595,020 3,034,394 4,078,365 727,931 897,734
Depreciation and amortization.... 9,264,938 10,204,142 9,885,345 2,782,836 2,481,818
------------- ------------- ------------- ------------------ ------------------
Total operating costs.......... 34,465,954 39,109,441 39,568,117 10,304,633 8,993,485
------------- ------------- ------------- ------------------ ------------------
Income (loss) from
operations................... (115,261) 4,173,999 5,519,155 1,217,708 2,779,959
Other income (expenses):
Gain on sale of Mountain Cellular
assets (note 3(b))............. -- -- 28,076,875 -- --
Management fee income (note
2(a)).......................... -- 1,200,000 1,200,000 300,000 300,000
Interest expense................. (6,958,712) (6,502,602) (4,170,338) (1,429,600) (717,535)
Interest income.................. 142,010 145,552 201,073 28,257 48,827
Amortization of deferred
financing fees................. (629,637) (590,802) (327,561) (81,890) (81,890)
Consulting fees (note 2(c))...... (150,000) (150,000) (150,000) (37,500) (37,500)
Loss on sale of equity
securities..................... (206,540) -- (50,799) -- --
Loss on sale of equipment........ -- -- (79,723) -- --
Gain from sale of SMR
Channels....................... -- 50,625 -- -- --
Equity in net income (loss) of
Michiana Partnership, L.P...... (466) 4,545 7,886 -- --
------------- ------------- ------------- ------------------ ------------------
Total other income (expenses),
net.......................... (7,803,345) (5,842,682) 24,707,413 (1,220,733) (488,098)
------------- ------------- ------------- ------------------ ------------------
Income (loss) before minority
partners' share of loss...... (7,918,606) (1,668,683) 30,226,568 (3,025) 2,291,861
Minority partners' share of loss... (694,557) (221,687) (152,616) (8,404) (17,739)
------------- ------------- ------------- ------------------ ------------------
Net income (loss).............. $ (7,224,049) $ (1,446,996) $ 30,379,184 $ 5,379 $ 2,309,600
------------- ------------- ------------- ------------------ ------------------
------------- ------------- ------------- ------------------ ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<S> <C>
Balance at December 31, 1994...................... $77,160,416
Net loss........................................ (7,224,049)
-----------
Balance at December 31, 1995...................... 69,936,367
Stock distribution (note 3(e)).................. (3,780,426)
Net loss........................................ (1,446,996)
-----------
Balance at December 31, 1996...................... 64,708,945
Net income...................................... 30,379,184
-----------
Balance at December 31, 1997...................... 95,088,129
Distributions (unaudited)....................... (2,500,000)
Net income (unaudited).......................... 2,309,600
-----------
Balance at March 31, 1998 (unaudited)............. $94,897,729
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
------------------------------------------- 1997
1995 1996 1997 (UNAUDITED)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ (7,224,049) $ (1,446,996) $ 30,379,184 $ 5,379
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Gain on sale of Mountain Cellular assets................... -- -- (28,076,875) --
Loss on sale of equipment.................................. -- -- 79,723 --
Depreciation and amortization.............................. 9,849,573 10,794,944 10,212,906 2,864,729
Gain on sale of SMR Channels............................... -- (50,625) -- --
Loss on sale of equity securities.......................... 206,540 -- 50,799 --
Equity in income of investment............................. -- 4,545 7,886 --
Minority partners' share of loss........................... (694,557) (221,687) (152,616) (8,404)
Provision for doubtful accounts............................ 446,793 276,610 521,517 105,982
Changes in assets and liabilities:
(Increase) decrease in due from Hawaiian Wireless,
Inc.................................................... -- (405,235) (254,333) 199,156
Decrease (increase) in due from Michiana Partnership,
L.P.................................................... 25,108 4,587 11,002 (118,408)
Increase in accounts receivable.......................... (1,638,288) (385,860) (791,330) (434,029)
Decrease (increase) in inventories....................... 581,562 (223,907) 480,817 354,005
(Decrease) increase in accounts payable.................. 52,982 (315,977) 1,713 (50,153)
Increase (decrease) in advances from Atlantic Cellular
Management Company..................................... 1,107,686 622,369 (1,979,160) (3,176,139)
Decrease in accrued interest............................. (138,406) (78,568) (88,549) (237,075)
Increase in deposit...................................... -- -- 123,345 --
------------- ------------- ------------- -------------
Net cash provided by operating activities.............. 2,574,944 8,574,200 10,526,029 (494,957)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Net proceeds from sale of Mountain Cellular assets........... -- -- 41,314,294 --
Purchase and/or build-out of cellular telephone systems...... (9,541,700) (6,053,502) (2,745,947) (577,277)
Purchase of PCS licenses..................................... -- -- (9,996,948) --
Other capital expenditures................................... (1,187,873) (967,700) (374,039) (45,454)
Investment in specialized mobile radio systems............... (1,509,511) -- -- --
(Increase) decrease in other investments..................... 8,716 (42,680) 50,000 (789)
Proceeds from sale of equity securities...................... 373,460 -- 577,514 --
Proceeds from sale of equipment.............................. -- -- 88,018 --
(Increase) decrease in deposits.............................. -- (3,000,000) 3,000,000 --
------------- ------------- ------------- -------------
Net cash provided by (used in) investing activities.... (11,856,908) (10,063,882) 31,912,892 (623,520)
------------- ------------- ------------- -------------
Cash flows from financing activities:
(Payments) borrowings under senior secured revolver, net..... 7,000,000 -- (41,500,000) 1,000,000
Decrease (increase) in note receivable....................... (1,500,000) 1,500,000 -- 809,500
Repayment of note payable other, net......................... (500,000) -- -- --
Payments on capital lease obligations........................ (27,120) (62,500) (49,650) --
Proceeds from minority partners' capital contributions....... 160,800 -- -- --
Increase in deferred financing costs......................... (193,811) (115,878) -- --
Distribution to Partners'.................................... -- -- -- --
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities.... 4,939,869 1,321,622 (41,549,650) 1,809,500
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents........... (4,342,095) (168,060) 889,271 691,023
Cash and cash equivalents at beginning of period............... 4,634,944 292,849 124,789 124,789
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period..................... $ 292,849 $ 124,789 $ 1,014,060 $ 815,812
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental cash flow information:
Non cash investing and financing activities:
- Contribution of net assets to an affiliated entity........ $ -- $ 3,928,000 $ -- $ --
- Interest payments......................................... $ 6,947,000 $ 6,581,000 $ 4,082,000 $ 1,733,000
- Acquisition of property and equipment through capital
lease..................................................... $ 141,000 $ -- $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998
(UNAUDITED)
-------------
<S> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 2,309,600
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Gain on sale of Mountain Cellular assets................... --
Loss on sale of equipment.................................. --
Depreciation and amortization.............................. 2,563,708
Gain on sale of SMR Channels............................... --
Loss on sale of equity securities.......................... --
Equity in income of investment............................. --
Minority partners' share of loss........................... (17,739)
Provision for doubtful accounts............................ 102,314
Changes in assets and liabilities:
(Increase) decrease in due from Hawaiian Wireless,
Inc.................................................... 334,600
Decrease (increase) in due from Michiana Partnership,
L.P.................................................... (3,877)
Increase in accounts receivable.......................... (49,735)
Decrease (increase) in inventories....................... 126,644
(Decrease) increase in accounts payable.................. 39,592
Increase (decrease) in advances from Atlantic Cellular
Management Company..................................... 76,893
Decrease in accrued interest............................. (328,070)
Increase in deposit...................................... --
-------------
Net cash provided by operating activities.............. 5,153,930
-------------
Cash flows from investing activities:
Net proceeds from sale of Mountain Cellular assets........... --
Purchase and/or build-out of cellular telephone systems...... (612,705)
Purchase of PCS licenses..................................... (84)
Other capital expenditures................................... (22,310)
Investment in specialized mobile radio systems............... --
(Increase) decrease in other investments..................... (2,259)
Proceeds from sale of equity securities...................... --
Proceeds from sale of equipment.............................. --
(Increase) decrease in deposits.............................. --
-------------
Net cash provided by (used in) investing activities.... (637,358)
-------------
Cash flows from financing activities:
(Payments) borrowings under senior secured revolver, net..... (2,000,000)
Decrease (increase) in note receivable....................... --
Repayment of note payable other, net......................... --
Payments on capital lease obligations........................ (21,000)
Proceeds from minority partners' capital contributions....... --
Increase in deferred financing costs......................... --
Distribution to Partners'.................................... (2,500,000)
-------------
Net cash provided by (used in) financing activities.... (4,521,000)
-------------
Net increase (decrease) in cash and cash equivalents........... (4,428)
Cash and cash equivalents at beginning of period............... 1,014,060
-------------
Cash and cash equivalents at end of period..................... $ 1,009,632
-------------
-------------
Supplemental cash flow information:
Non cash investing and financing activities:
- Contribution of net assets to an affiliated entity........ $ --
- Interest payments......................................... $ 1,046,000
- Acquisition of property and equipment through capital
lease..................................................... $ --
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Atlantic Cellular Company, L.P. (the Partnership) is a Delaware limited
partnership created on May 5, 1989 to acquire, own and operate cellular
telephone systems throughout the United States. The term of the partnership will
continue until December 31, 2009, unless terminated earlier under the provisions
of the Partnership Agreement. On August 28, 1990 the original partnership
agreement was amended to allow additional partners to join the partnership under
terms and conditions set forth in the amended partnership agreement. In July
1996, the Partnership Agreement was again amended to allow for the distribution
of shares of HW Holding, Inc. to individual partners under the terms and
conditions set forth in the Amendment Agreement (see note 3(e)).
The partners and their respective capital account balances at December 31,
1995, 1996, and 1997 are reflected in the accompanying Statements of Partners'
Capital. Profits, losses and distributable cash are allocated to the individual
partners based upon their adjusted capital contributions and subject to certain
special allocations as defined in the amended partnership agreement.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Atlantic
Cellular Company, L.P. and the following subsidiaries:
Atlantic Cellular/New Hampshire RSA Number One Limited Partnership (NH
#1)
ACC Cellular Holdings, L.P. (ACCCH)
Mountain Cellular, L.P. (MC)
ACC Wireless L.P. (ACCW)
ACC Wireless Holdings, L.P. (ACCWH)
Hawaiian Wireless Partners, L.P. (HWP)
The Partnership owns a direct interest in NH #1 of 50.01% and owned a direct
interest in HWP of 83.7% in 1995. In 1996, HWP was dissolved as discussed in
note 3(e). The remaining partnerships are owned 100% by the Partnership and its
existing partners (see note 3). All significant intercompany balances and
transactions have been eliminated in consolidation.
At December 31, 1995, 1996, and 1997 ACCW owned a 17.2%, 17.2% and 6.7%
interest, respectively, in Michiana Partnership, L.P. (Michiana), an
unconsolidated equity investment, which was formed to acquire Specialized Mobile
Radio (SMR) channels. ACCW is also the General Partner. On March 21, 1997 the
partnership agreement was amended to admit additional partners and to approve
the transactions contemplated by an Assignment and Assumption Agreement with an
unrelated third party. Under the terms of the Assignment and Assumption
Agreement essentially all assets of Michiana are to be sold during 1998. ACCW
has recorded its investment in Michiana in accordance with the equity method of
accounting. In addition to its investment, the Partnership was owed $20,209,
$15,622 and $4,620 from Michiana at December 31, 1995, 1996, and 1997,
respectively.
F-26
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) CASH AND CASH EQUIVALENTS
Cash equivalents represent overnight repurchase agreements whose underlying
security consists of U.S. Treasury securities. At December 31, 1996 and 1997,
approximately $108,000 and $997,000, respectively is held by ACCW for investment
in wireless telephone systems other than cellular.
(D) INVENTORIES OF CELLULAR TELEPHONES AND EQUIPMENT
Inventories of cellular telephones and equipment are stated at cost
determined on a specific identification basis.
(E) PROPERTY AND EQUIPMENT
Costs incurred for the purchase of various personal communication service
("PCS") licenses are stated at cost. Costs incurred for the purchase of cellular
telephone construction permits and licenses are capitalized and amortized using
the straight-line method over twenty-five years. Costs incurred for the
construction of the cellular telephone systems are stated at cost and
depreciated over ten years using the straight-line method. Property and
equipment are stated at cost and depreciated or amortized using the
straight-line method with estimated useful lives ranging from five to ten years.
(F) INVESTMENT IN EQUITY SECURITIES
Investment in equity securities consisted of shares of a publicly traded,
unconsolidated company that owns and operates various wireless communication
systems. This investment was classified as available for sale and carried at its
market value. The equity securities were sold during 1997.
(G) INVESTMENTS IN OTHER WIRELESS ENTITIES
Investment in other wireless entities includes investments made in
unconsolidated partnerships, including Michiana, formed to carry on business in
other wireless communication systems and/or licenses. Investments in
unconsolidated partnerships are accounted for under the equity method of
accounting and investments in licenses are carried at the lower of their cost or
net realizable value.
(H) DEFERRED FINANCING COSTS
Costs incurred in obtaining a revolving loan agreement from a consortium of
banks in October, 1994 are being amortized on a straight line basis over eight
years, the life of the debt. Costs incurred to provide interest rate protection,
such as interest rate caps, required by the revolving loan agreement, are being
amortized as a rate adjustment over the respective lives of the cap or swap
agreements.
(I) DERIVATIVES
Premiums paid for purchased interest rate cap agreements and options to
enter into interest swap agreements are amortized to interest expense over the
terms of the agreement. Unamortized premiums are included in deferred financing
cost in the consolidated balance sheet.
F-27
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) REVENUE AND EXPENSE RECOGNITION
Cellular airtime revenue and access charges are recognized as service is
provided. Cellular airtime is billed in arrears and a majority of access charges
are billed in advance. Subscriber acquisition costs are expensed when incurred.
Accounts receivable consist mainly of amounts due from subscribers and other
cellular companies whose subscribers use the Company's cellular service.
(K) FINANCIAL INSTRUMENTS
Financial instruments of the Partnership consist of cash, accounts
receivable, accounts payable, notes payable and capital lease obligations. The
carrying amounts of these financial instruments approximate their fair value.
(L) INCOME TAXES
No provision is made for income taxes since the income or loss of the
Partnership is included in the income tax returns of the partners. Income for
financial statement purposes will differ from taxable income because of the
requirement to capitalize organization and pre-operating expenses and because of
different methods of depreciation used for tax and financial statement purposes.
(M) USE OF ESTIMATES
The preparation 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) RELATED PARTY TRANSACTIONS
(A) MANAGEMENT CONTRACTS
Atlantic Cellular Company, L.P. and Subsidiaries have entered into a
management agreement with Atlantic Cellular Management Company, the managing
general partner, to manage the business and affairs of the Partnership. Under
the terms of the management agreement, Atlantic Cellular Management Company is
reimbursed for all costs associated with its operation of the Partnership, which
totaled approximately $2,600,000, $3,000,000 and $4,000,000 in 1995, 1996, and
1997, respectively. The Partnership advances monies to the management company
which it uses to pay liabilities of the Partnership.
On March 6, 1996, Atlantic Cellular Company, L.P. entered into a management
agreement with Hawaiian Wireless, Inc. (see note 3(e)) to manage the design,
construction and operation of its SMR system in the State of Hawaii. The
Partnership is reimbursed for all out of pocket expenses reasonably incurred and
receives an annual management fee in an amount equal to the greater of
$1,200,000 or 5% of gross revenues of the SMR system, not to exceed $2,000,000
annually. This management fee amounted to $1,200,000 for both 1996 and 1997. At
December 31, 1996 and 1997, respectively, the Partnership was owed $405,235 and
$659,568 pursuant to the management agreement.
F-28
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(2) RELATED PARTY TRANSACTIONS (CONTINUED)
(B) REIMBURSEMENT OF EXPENSES
Pursuant to the terms of the Partnership Agreement, all partners are
reimbursed by the Partnership for any reasonable and necessary expenses, as
defined in the Partnership Agreement, incurred by them on behalf of the
Partnership.
(C) CONSULTING FEES
Pursuant to the amended Partnership Agreement, the Partnership was obligated
for consulting fees to the following partners:
SP CELLULAR CORP.--Commencing July 1, 1990, SP Cellular Corp. is entitled
to an annual fee of $93,750 payable on June 27, 1991, and each succeeding
year until termination of the partnership. At December 31, 1996 and 1997,
$46,875 of this annual fee remained to be paid.
SAUGATUCK ASSOCIATES, INC.--Commencing July 1, 1990, Saugatuck
Associates, Inc. is entitled to an annual fee of $150,000 payable on June
27, 1991 and each succeeding year until June 27, 1994. Thereafter,
$56,250 will be paid each June 27th until termination of the partnership.
At December 31, 1996 and 1997, $28,125 of the annual fee remained to be
paid.
(3) CONSOLIDATED SUBSIDIARIES
(A) ATLANTIC CELLULAR/NEW HAMPSHIRE RSA NUMBER ONE LIMITED PARTNERSHIP
On February 21, 1991, the Partnership entered into an agreement to purchase
a 50.01% interest in the non-wireline New Hampshire Number One Rural Service
Area License (the license) from New Hampshire One Cellular Telephone Company,
Inc. (the Limited Partner), which owned 100% of the license. Concurrently with
the transaction to purchase, the Partnership and the Limited Partner formed a
new partnership, Atlantic Cellular/New Hampshire RSA Number One Limited
Partnership (NH #1), and each contributed its interests in the license (50.01%
and 49.99%, respectively) to NH #1. The purpose of NH #1 is to construct and
operate a cellular system in the license area.
The Partnership has a put/call option to purchase the remaining 49.99% from
the Limited Partner on August 31, 1998 at fair market value under the terms of
the agreement as amended on September 30, 1997. Upon transfer of any portion of
the Limited Partners' interest, the Partnership is to receive 20% of the sale
price in excess of the Limited Partners' adjusted capital contribution as
defined by the Partnership Agreement.
The Partnership manages NH #1 under a management agreement. The Partnership
is reimbursed for all direct costs. At December 31, 1996 and 1997, the amount
currently payable to/receivable from NH #1 was $226,484 and $752,092,
respectively (eliminated in consolidation). Indirect costs are reimbursed based
on the allocation of total indirect expenses of the Partnership to all cellular
systems managed by the Partnership according to the relative size of their 1980
and 1990 U.S. Census populations, but not to exceed $437,000 per year for NH #1.
In addition, the Partnership receives a management fee of $96,000 per year or 5%
of gross revenues calculated on a quarterly basis, whichever is higher. The
Partnership is currently restricted under the terms of a revolving loan
agreement with various banks to receive payment for indirect costs and
management fees. Indirect costs and management fees not paid currently are
stated as a deferred account receivable and are subject to interest at 13.5%. At
December 31,
F-29
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(3) CONSOLIDATED SUBSIDIARIES (CONTINUED)
1996 and 1997, the deferred account receivable amounted to $5,416,840 and
$7,130,396 (eliminated in consolidation) and interest for the years ended
December 31, 1995, 1996, and 1997 amounted to $425,168, $604,839 and $850,449,
respectively (eliminated in consolidation).
(B) MOUNTAIN CELLULAR
On October 25, 1994, the Partnership, together with its existing partners,
formed Mountain Cellular, L.P. (MC) for the sole purpose of conducting its
business operations in the California Rural Service Area No. 11. As a result,
the Partnership contributed its assets used solely in the California system to
the new partnership. At December 31, 1996 the Partnership owned approximately
99% of MC, and the remaining 1% was owned by ACCCH.
On April 30, 1997, the Partnership sold substantially all its assets in MC
to an unrelated third party. Total proceeds of the sale were $41,500,000 plus
working capital on hand at the time of the sale. At the date of sale the
carrying value of the assets sold was approximately $13,200,000. Net income for
MC included in the operations of the Partnership for 1997 was approximately
$410,000. The proceeds of the sale were used to reduce the outstanding balance
of the Partnership's revolving loan agreement.
(C) ACC WIRELESS, L.P.
On October 25, 1994, the Partnership, together with its existing partners,
formed ACC Wireless, L.P. (ACCW) for the purpose of investing, developing and
operating wireless telephone systems other than cellular. The Partnership
contributed approximately $2,800,000 in cash plus other assets comprised of
options to purchase SMR channels and equipment to the new partnership. At
December 31, 1996 and 1997 the Partnership owned approximately 99% of ACCW, and
the remaining 1% is owned by ACCWH.
(D) ACC CELLULAR HOLDINGS, L.P. AND ACC WIRELESS HOLDINGS, L.P.
On October 25, 1994, the Partnership formed ACC Cellular Holdings, L.P.
(ACCCH) and ACC Wireless Holdings, L.P. (ACCWH). Concurrent with their
formation, the Partnership assigned its interest in ACCCH and ACCWH to its
existing partners in the same proportion of their respective ownership ratio in
ACLP.
(E) HAWAIIAN WIRELESS PARTNERS, L.P.
On October 25, 1994, ACCW formed Hawaiian Wireless Partners, L.P. (HWP) by
contributing options to purchase 100 SMR Channels for a 74.1% ownership. The
remaining 25.9% was owned by a single minority partner, who also contributed
options to purchase SMR channels. During 1995, ACCW contributed additional
options plus cash to HWP, increasing its ownership interest to 83.7% at December
31, 1995. The purpose of HWP, which was consolidated with the Partnership in the
1995 financial statements, is to purchase, develop and operate enhanced
specialized mobile radio systems in the State of Hawaii.
On March 6, 1996, substantially all the net assets of HWP totaling
approximately $3,900,000 were contributed to HW Holding, Inc. (HWH) in exchange
for 2,386 shares of HWH Series A Convertible Preferred Stock. The 2,386 shares
of HWH Series A Convertible Preferred Stock of HWH were concurrently distributed
to the partners of HWP with approximately 1,989 shares being distributed to the
Partnership. In July 1996, the Partnership Agreement was amended to allow for
the distribution of these shares to partners per the terms and conditions set
forth in the Amendment Agreement. On May 23, 1996, HWP was dissolved.
F-30
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Construction permits and licenses............................ $ 135,016,100 $ 121,016,080
Operating systems............................................ 44,037,529 41,539,069
PCS Licenses................................................. -- 9,996,948
Leasehold improvements....................................... 1,139,326 871,698
Other property and equipment................................. 4,350,740 4,041,756
-------------- --------------
$ 184,543,695 $ 177,465,551
-------------- --------------
-------------- --------------
</TABLE>
(5) DEPOSIT
On August 9, 1996 a wholly-owned subsidiary of ACC Wireless, L.P. deposited
$3,000,000 with the Federal Communications Commission as part of the
requirements enabling the subsidiary to participate in an auction of additional
spectrum which commenced in August 1996. In January 1997, the auction terminated
with the subsidiary of ACC Wireless L.P. winning high bids in nine markets for a
total cost of approximately $10,000,000 (see note 9).
(6) DEPOSITS ON SALES OF OTHER WIRELESS ENTITIES
During 1997, an unconsolidated investee of the Partnership entered into an
Assignment and Assumption Agreement with a third party to sell substantially all
of its assets. The buyer was required to pay a portion of the total anticipated
purchase price as a down payment. The Partnership's pro rata share of the down
payment, totaling $123,345, was distributed by the investee to the Partnership.
This amount has been recorded as deposits on sale of other wireless entities at
December 31, 1997. It is anticipated that the Partnership will recognize a gain
on its investment upon consummation of the sale which is expected to occur in
1998.
(7) NOTES PAYABLE -- BANK
On October 25, 1994 the Partnership entered into a $90,000,000 revolving
loan agreement with a consortium of banks. The loan agreement was amended on
September 11, 1996 to reduce the borrowing rate, to eliminate certain financial
covenants and to adjust the schedule of principal repayments. The interest rate
charged to the Partnership is based on a formula related to the bank's prime
lending rate and LIBOR. The weighted average interest rate charged on
outstanding balances was approximately 9%, 8% and 7% for the years ended
December 31, 1995, 1996, and 1997, respectively. In addition, the Partnership is
required to pay quarterly fees on the unused commitment. Substantially all of
the cellular assets of the Partnership are pledged as security under the loan
agreement. At December 31, 1996 and 1997, the outstanding borrowings under these
loan agreements were
F-31
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(7) NOTES PAYABLE -- BANK (CONTINUED)
$81,500,000 and $40,000,000, respectively. In accordance with the new revolving
loan agreement, the Partnership's loan commitment will be reduced quarterly as
follows:
<TABLE>
<CAPTION>
LAST DAYS OF MARCH, QUARTERLY ANNUAL
JUNE, SEPTEMBER AND COMMITMENT COMMITMENT
DECEMBER IN: REDUCTION REDUCTION
- ----------------------------------------------------------------- ------------ -------------
<S> <C> <C>
1998............................................................. 1,125,000 $ 4,500,000
1999............................................................. 5,625,000 22,500,000
2000............................................................. 5,062,500 20,250,000
2001............................................................. 5,062,500 20,250,000
2002............................................................. 5,625,000 22,500,000
-------------
$ 90,000,000
-------------
-------------
</TABLE>
At December 31, 1996 and 1997 the Partnership had an interest rate cap
agreement on a notional amount of $35,000,000 of the note payable through June
4, 1998. As of December 31, 1996 and 1997 the fair value of this hedge
approximated its carrying value. The fair value of the hedge agreement is the
amount at which the agreement could be exchanged in a current transaction
between willing parties and its value or cost is estimated using option pricing
models and essentially values the potential for the agreement to become
in-the-money through changes in interest rates during the remaining terms.
The loan agreements contain various covenants including limitations on
indebtedness, investments and certain transactions with Partners. The
Partnership was in full compliance with all covenants at December 31, 1996 and
1997.
(8) COMMITMENTS
The Company is obligated under various capital leases entered into during
1996 and 1997 for vehicles used in its operations that expire at various dates
during the next three years. The total capitalized cost of vehicles leased at
December 31, 1996 and 1997 under capital leases is approximately $250,000 and
$230,000, respectively.
In addition, the Partnership leases facilities for its cellular offices,
installation and operation locations, cell sites and corporate offices under
operating lease agreements. Total rent expense was approximately $1,400,000,
$1,600,000 and $2,000,000 in 1995, 1996, and 1997, respectively.
F-32
<PAGE>
ATLANTIC CELLULAR COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
(8) COMMITMENTS (CONTINUED)
The future minimum lease payments required pursuant to capital and operating
leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
------------ ---------
<S> <C> <C>
Year ended December 31:
1998................................................................................. $ 1,356,222 $ 63,132
1999................................................................................. 1,055,287 29,842
2000................................................................................. 874,757 3,282
2001................................................................................. 665,250 --
2002................................................................................. 372,293 --
Thereafter........................................................................... 209,485 --
------------ ---------
Total minimum lease payments......................................................... $ 4,533,294 96,256
------------
------------
Less amount representing interest.................................................... 14,881
---------
Net minimum capital lease payments................................................... 81,375
Less current installments............................................................ 49,316
---------
Obligations under capital leases, excluding current installments..................... $ 32,059
---------
---------
</TABLE>
(9) SUBSEQUENT EVENT -- SALE OF CELLULAR OPERATIONS AND PCS LICENSES
On February 13, 1998, the Partnership entered into a purchase and sale
agreement (the "Agreement") with an unrelated third party for the sale of the
Partnership's cellular operations. The Agreement provides that substantially all
of the assets of the Partnership will be transferred to the buyer for a purchase
price of $256 million or $239 million depending on whether the transaction is
structured as a sale of assets or a sale of partnership interests, respectively.
The ultimate purchase price is subject to potential adjustments for working
capital and a failure to attain targeted cash flow and subscriber levels as
defined in the Agreement. The sale is expected to be consummated in 1998.
On February 17, 1998, the Partnership entered into a separate purchase and
sale agreement with a different third party buyer for the sale of all of the
Partnership's PCS licenses for approximately $13 million. The carrying value of
the PCS licenses is approximately $10 million. The sale is also expected to be
consummated in 1998.
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Unity Cellular System, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of UNITY
CELLULAR SYSTEM, INC. (a Maine corporation) AND SUBSIDIARY as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholder's 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 financial statements referred to above present fairly,
in all material respects, the financial position of Unity Cellular System, Inc.
and Subsidiary as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1,
1996, the Company changed its method of accounting for promotional costs.
ARTHUR ANDERSEN LLP
Atlanta, Georgia,
February 3, 1997 (except Note 6, as to which
the date is May 1, 1997)
F-34
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 96,238 $ 186,288,853
Short-term investments............................................................. 0 75,658,893
Accounts receivable, less allowance for doubtful accounts of $152,842 and $99,244
in 1995 and 1996, respectively................................................... 1,843,118 2,085,419
Accounts receivable--affiliate..................................................... 38,692 0
Inventories........................................................................ 397,362 586,299
Deferred income taxes (NOTE 5)..................................................... 159,258 0
Prepaid expenses and other current assets.......................................... 268,239 163,949
------------ -------------
Total current assets............................................................. 2,802,907 264,783,413
------------ -------------
PROPERTY, PLANT, AND EQUIPMENT:
Land............................................................................... 353,160 414,172
Buildings and towers............................................................... 2,676,425 2,747,622
Equipment.......................................................................... 7,497,580 12,691,700
Furniture and fixtures............................................................. 163,485 191,967
Assets under construction.......................................................... 50,249 --
------------ -------------
10,740,899 16,045,461
Less accumulated depreciation...................................................... (2,289,841) (2,866,302)
------------ -------------
Property, plant, and equipment, net.............................................. 8,451,058 13,179,159
------------ -------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,445,484 and $2,057,090 in 1995 and
1996, respectively............................................................... 23,282,911 22,671,305
Deferred income taxes (NOTE 5)..................................................... 2,002,648 610,628
Deferred charges and other, net of accumulated amortization of $1,533,058 and
$122,293 in 1995 and 1996, respectively.......................................... 2,115,414 117,335
Other investments.................................................................. 389,515 389,515
------------ -------------
Total other assets............................................................... 27,790,488 23,788,783
------------ -------------
Total assets..................................................................... $ 39,044,453 $ 301,751,355
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................... $ 542,123 $ 485,397
Accounts payable--affiliate........................................................ 0 102,573
Accrued expenses and other current liabilities..................................... 865,648 893,689
Accrued income taxes............................................................... 0 3,222,662
Advanced billings and customer deposits............................................ 361,638 365,039
------------ -------------
Total current liabilities........................................................ 1,769,409 5,069,360
------------ -------------
DEFERRED REVENUE..................................................................... 389,515 389,515
------------ -------------
DUE TO PARENT (NOTE 3)............................................................... 14,734,789 264,015,666
------------ -------------
MINORITY INTEREST IN CELLULAR PARTNERSHIP............................................ 2,674,159 2,535,408
------------ -------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares authorized, 100 shares issued and
outstanding in 1995 and 1996..................................................... 100 100
Additional paid-in capital......................................................... 18,405,321 18,405,321
Retained earnings.................................................................. 1,071,160 11,335,985
------------ -------------
Total stockholder's equity....................................................... 19,476,581 29,741,406
------------ -------------
Total liabilities and stockholder's equity....................................... $ 39,044,453 $ 301,751,355
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- --------------
<S> <C> <C>
REVENUES AND SALES:
Monthly access revenue........................................................... $ 6,269,260 $ 7,612,423
Airtime revenue.................................................................. 2,561,826 3,277,268
Roaming revenue.................................................................. 1,235,981 1,288,357
Toll revenue..................................................................... 1,201,200 1,344,896
Installation, connection, and other revenue...................................... 345,960 388,797
------------- --------------
Total service revenues......................................................... 11,614,227 13,911,741
Equipment sales.................................................................. 2,354,543 2,172,409
------------- --------------
Total revenues and sales....................................................... 13,968,770 16,084,150
------------- --------------
OPERATING EXPENSES:
Cost of services................................................................. 1,418,883 1,817,877
Cost of equipment sales.......................................................... 1,783,813 1,786,673
Operations....................................................................... 1,595,992 2,038,979
Selling, general, and administrative............................................. 3,386,380 4,094,293
Depreciation and amortization.................................................... 3,184,061 4,190,078
------------- --------------
Total operating expenses....................................................... 11,369,129 13,927,900
------------- --------------
OPERATING INCOME................................................................... 2,599,641 2,156,250
------------- --------------
OTHER (INCOME) EXPENSE:
Interest expense................................................................. 859,924 987,828
Interest income.................................................................. 0 (15,207,288)
Other income..................................................................... 0 (7,658)
------------- --------------
Total other (income) expenses.................................................. 859,924 (14,227,118)
------------- --------------
INCOME BEFORE MINORITY INTEREST, INCOME TAXES, AND CUMULATIVE EFFECT............... 1,739,717 16,383,368
MINORITY INTEREST IN LOSS OF CELLULAR PARTNERSHIP.................................. 129,547 473,578
------------- --------------
INCOME BEFORE INCOME TAXES......................................................... 1,869,264 16,856,946
INCOME TAX PROVISION............................................................... 994,964 5,338,940
------------- --------------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.............. 874,300 11,518,006
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX BENEFIT OF $565,000
(NOTE 1)......................................................................... 0 (1,253,181)
------------- --------------
NET INCOME......................................................................... $ 874,300 $ 10,264,825
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK, PAID-IN RETAINED STOCKHOLDER'S
$1 PAR VALUE CAPITAL EARNINGS EQUITY
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994......................... $ 100 $ 18,405,321 $ 196,860 $ 18,602,281
Net income....................................... 0 0 874,300 874,300
--- ------------- ------------- -------------
BALANCE, December 31, 1995......................... 100 18,405,321 1,071,160 19,476,581
Net income....................................... 0 0 10,264,825 10,264,825
--- ------------- ------------- -------------
BALANCE, December 31, 1996......................... $ 100 $ 18,405,321 $ 11,335,985 $ 29,741,406
--- ------------- ------------- -------------
--- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-37
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- --------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income........................................................................ $ 874,300 $ 10,264,825
----------- --------------
Adjustments to reconcile net income to net cash provided by operating activities-
Minority interest in loss of partnership........................................ (129,547) (473,578)
Cumulative effect of change in accounting principle, before tax benefit......... 0 1,818,181
Depreciation and amortization................................................... 3,184,061 4,190,078
Deferred taxes, net............................................................. 994,964 1,551,278
Changes in assets and liabilities:
Accounts receivable........................................................... (726,963) (242,301)
Inventory..................................................................... (23,871) (188,937)
Prepaid expenses and other current assets..................................... (146,392) 104,290
Deferred charges and other.................................................... (2,428,539) (1,676,239)
Accounts payable, advanced billings and customer deposits, and accrued
expenses.................................................................... 169,476 3,197,378
----------- --------------
Total adjustments........................................................... 893,189 8,280,150
----------- --------------
Net cash provided by operating activities................................... 1,767,489 18,544,975
----------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant, and equipment....................................... (2,683,162) (6,450,436)
Increase in short-term investments................................................ 0 (75,658,893)
Receipt of proceeds from RTFC capital certificates................................ 1,840,592 0
----------- --------------
Net cash used in investing activities....................................... (842,570) (82,109,329)
----------- --------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in due to parent.............................................. (1,663,368) 249,280,877
Capital contributed by minority partner in Northern Maine Partnership............. 687,532 334,827
Advances from affiliate........................................................... 2,153 141,265
----------- --------------
Net cash provided by (used in) financing activities......................... (973,683) 249,756,969
----------- --------------
NET INCREASE (DECREASE) IN CASH..................................................... (48,764) 186,192,615
CASH, BEGINNING OF PERIOD........................................................... 145,002 96,238
----------- --------------
CASH, END OF PERIOD................................................................. $ 96,238 $ 186,288,853
----------- --------------
----------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-38
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP
In February 1987, Unity Cellular System, Inc. ("UNICEL" or the "Company")
was formed as a wholly owned subsidiary of Unity Telephone Company ("Unity") to
operate a cellular telephone system throughout central and northern Maine,
including the Bangor, Maine, metropolitan service area and two rural service
areas ("RSA2" and "RSA3"). UNICEL is the managing partner, with a 51% interest
of the RSA2 cellular partnership (the "Northern Maine Partnership") (NOTE 2). On
January 31, 1994, Unity spun off all its assets and liabilities, except for its
common stock of UNICEL, into a newly formed company, Unitel. InterCel, Inc.
("InterCel") then exchanged common stock and cash for all of the stock of the
Company and purchased, for cash, from two principal stockholders of Unity,
warrants entitling the holders to purchase common stock of the Company. The
merger was accounted for as a purchase. Accordingly, the excess of the purchase
price over the net book value of the assets is recorded as goodwill in the
accompanying consolidated balance sheets.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheets include the accounts of the
Northern Maine Partnership. All significant intercompany accounts and
transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's 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. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
REGULATION
The Company and its subsidiary are subject to the regulatory authority of
the Federal Communications Commission.
SOURCES OF SUPPLIES
The Company relies on local and long-distance telephone companies to provide
communications capacity. Although management feels that alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits, and
short-term investments with original maturities of three months or less.
F-39
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
Investments having maturities of more than three months but less than one
year are categorized as held-to-maturity. Accordingly, they are carried at cost,
without recognition of gains or losses deemed to be temporary, because the
Company has both the intent and ability to hold these investments to maturity.
At December 31, 1996, the fair value of these investments approximated cost.
REVENUE RECOGNITION
The Company earns revenues by providing cellular service to both local
subscribers and subscribers of other cellular carriers traveling (roaming)
through the Company's service area as well as from sales of cellular equipment.
Local service revenues consist of base monthly service fees and airtime
revenues. Base monthly service fees are billed one month in advance and are
recognized when earned. Airtime revenues are recognized when service is
provided. Roamer revenues consist of daily fees charged to certain
nonsubscribers (depending on the nonsubscriber's cellular carrier) for roaming
in the service area as well as airtime revenues for the use of the cellular
network. Roamer revenues are recognized when service is rendered.
Long-distance revenues (toll revenues) are charged to both local and roamer
users and are recognized when service is rendered. Local toll (intra-LATA)
revenue is passed through to the end user with no markup. Equipment sales are
recognized upon delivery of the equipment to the customer. Installation and
connection revenues are recognized when provided.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.
INVENTORIES
The Company maintains inventories of cellular telephones and accessory parts
(e.g., antennae, batteries, cable, etc.) for resale. Inventory is valued at the
lower of cost (which approximates first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at fair market value as of January 31,
1994 (which approximates historical cost), including certain labor, material,
and overhead costs. The Company records depreciation using the straight-line
method over the estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
10-20
Buildings and towers............................................ years
Leasehold improvements.......................................... 5-10 years
Equipment....................................................... 3-10 years
Furniture and fixtures.......................................... 5-10 years
</TABLE>
F-40
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon the
disposition of assets. There were no material retirements in 1995. During 1996,
the Company purchased dual-mode analog/digital switching and transmission
equipment. In conjunction with this purchase, the Company traded in its original
switching equipment. The accumulated depreciation of the original switching
equipment was removed, and the net book value of the original switching
equipment, approximately $1,364,000, was included in the cost basis of the
acquired dual-mode analog/digital switching and transmission equipment.
GOODWILL
Goodwill is stated at cost, less accumulated amortization, and is amortized
using the straight-line method over 40 years. The Company periodically reviews
the value assigned to goodwill to determine whether it has been other than
temporarily impaired by adverse conditions affecting the Company. In
management's opinion, there has been no diminution in the value assigned to
goodwill.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
InterCel. Under a joint consolidated income tax agreement, current and deferred
income taxes are allocated to the Company based on its stand-alone taxable
income.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the asset and liability approach for financial accounting and reporting
for income taxes.
OTHER ASSETS
Beginning in 1994, the Company began offering a promotional program under
which a customer could receive a substantial discount toward a cellular phone in
return for signing a noncancelable cellular telephone service agreement for a
term of one, two, or three years. Under the promotional program, the Company
deferred the cost associated with the program and amortized such cost over the
specific contract term. These costs are included in deferred charges and other
on the accompanying balance sheet as of December 31, 1995. Should a customer
cancel service prior to expiration of his/her service agreement or be
disconnected for nonpayment, the customer becomes liable to the Company for the
full original credit issued under this program. It is the Company's policy to
establish a full reserve for receivables that arise as a result of such
cancellations.
On January 1, 1996, the Company changed its method of accounting for
discounts offered through its promotional program. Rather than defer the costs
and amortize them over the contract term, the Company will expense the discounts
when provided. The change in accounting principle resulted in a write-off of net
deferred promotional costs of $1,253,181, which is net of an income tax benefit
of $565,000, for the year ended December 31, 1996, and this amount is presented
in the accompanying statement of operations as a cumulative effect of change in
accounting principle.
F-41
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INVESTMENTS
Other investments consist of noninterest-bearing patronage capital
certificates ("PCCs") issued by the RTFC. The PCCs are issued annually and may
be distributed as cash in the future at the discretion of the RTFC's board of
directors. The Company did not receive any PCCs from the RTFC during 1995 or
1996.
DEFERRED REVENUE
Deferred revenue consists of RTFC PCCs issued in connection with certain
debt financing which will be paid in the future at the discretion of the RTFC's
board of directors. They will be recognized as income when cash is received.
MINORITY INTEREST
Minority interest represents the minority partner's proportionate share of
the equity of the Northern Maine Partnership.
2. CELLULAR PARTNERSHIP
In June 1992, the Company entered into the Northern Maine Partnership with
New York Cellular Geographic Service Area ("NYCGSA"), a wholly owned subsidiary
of NYNEX Mobile Communication, Inc. The Northern Maine Partnership owns and
operates a cellular system in Maine RSA2 in Aroostook, Somerset, and Piscataquis
Counties.
Under the terms of the partnership agreement, the Company contributed
$2,325,600 to construct and begin operating the system in return for a 51%
ownership, and NYCGSA contributed the system construction permit, valued at
$2,234,400, for its 49% ownership. Subsequent capital requirements are to be met
based on the partners' respective ownership percentages.
In July 1995, NYCGSA transferred its interest to Cellco Partnership
("Cellco"). Cellco was formed pursuant to the merger of Bell Atlantic
Corporation and NYNEX Corporation.
In connection with the InterCel merger, UNICEL and InterCel entered into an
agreement with Cellco, the minority partner in the Northern Maine Partnership,
pursuant to which Cellco agreed not to exercise certain rights under the
partnership agreement.
The business and affairs of the Northern Maine Partnership are conducted by
a management committee (the "Management Committee"). The Management Committee is
composed of two individuals nominated by Cellco and three individuals nominated
by UNICEL.
The Northern Maine Partnership is functioning under a business plan for
1997, subject to review by the Management Committee, which includes capital
contributions from the partners to meet the expected operating and capital needs
of the Northern Maine Partnership through 1997. In management's opinion, funds
available from the partners are sufficient to meet the operating and capital
needs of the partnership through 1997 and beyond.
3. LONG-TERM DEBT
Subsequent to January 31, 1994, all RTFC obligations of the Company were
repaid by InterCel, and the Company executed notes payable, which is presented
as due to parent in the accompanying balance sheets, to
F-42
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
3. LONG-TERM DEBT (CONTINUED)
InterCel totaling approximately $18,085,000. For 1995, InterCel charged the
Company interest on the outstanding amount of the due to parent balance and
additional paid-in capital less gross goodwill at the rate of eight percent. For
1996, InterCel charged the Company interest on the outstanding amount of the due
to parent balance (excluding all items related to the InterCel offerings) and
additional paid-in capital less gross goodwill and investment balances at the
rate of eight percent.
InterCel's management has represented that the note, or any portion thereof,
will not be called in the normal course of business during 1997. Accordingly,
the unpaid balance of the note as of December 31, 1996 is classified as
long-term in the accompanying balance sheet.
4. COMMITMENTS AND CONTINGENCIES
LEASE
The Company leases office and warehouse space, dedicated lines and trunk
access facilities, and computer equipment. The leasing of certain dedicated
lines and trunk access is with the parent of the minority partner in the
cellular partnership. Lease expense under these leases totaled $553,649 and
$908,283 during 1995 and 1996, respectively.
At December 31, 1996, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more than one
year were as follows:
<TABLE>
<S> <C>
1997................ $ 339,016
1998................ 282,959
1999................ 203,903
2000................ 136,409
2001................ 127,918
Thereafter.......... 429,405
----------
Total............. $1,519,610
----------
----------
</TABLE>
Rental expense under these leases totaled $261,388 and $336,311 during 1995
and 1996, respectively.
LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. There are no material pending legal proceedings to
which the Company is a party.
5. INCOME TAXES
Components of the income tax provision are as follows as of December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Current provision................................................... $ 0 $ 3,222,662
Deferred provision.................................................. 994,964 1,551,278
---------- ------------
Total........................................................... $ 994,964 $ 4,773,940
---------- ------------
---------- ------------
</TABLE>
F-43
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
5. INCOME TAXES (CONTINUED)
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Statutory federal tax rate...................................................... 34% 34%
Increase (decrease) in tax provision resulting from:
Goodwill amortization......................................................... 11 1
State taxes, net of federal benefit........................................... 11 (4)
Other, net.................................................................... (3) 1
- -
53% 32%
- -
- -
</TABLE>
The sources of the differences between the financial accounting and tax
bases of assets and liabilities which give rise to the deferred tax assets as of
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................ $ 2,651,667 $ 1,049,866
Allowance for doubtful accounts................................. 42,598 30,854
Other........................................................... 133,735 79,293
------------ ------------
2,828,000 1,160,013
Deferred tax liability:
Depreciation.................................................... (666,094) (549,385)
------------ ------------
Net deferred tax asset............................................ 2,161,906 610,628
Less current portion.............................................. (159,258) 0
------------ ------------
Deferred tax asset--noncurrent.................................... $ 2,002,648 $ 610,628
------------ ------------
------------ ------------
</TABLE>
6. ASSET SALE
Pursuant to an Asset Purchase Agreement, dated as of December 23, 1996,
between UNICEL; InterCel Licenses, Inc., a wholly owned subsidiary of InterCel;
and MRCC, Inc., a wholly owned subsidiary of Rural Cellular Corporation
("MRCC"), MRCC acquired substantially all the assets and FCC licenses of UNICEL,
constituting UNICEL's cellular telephone operations in Maine, for approximately
$77.2 million, including $5.4 million held in escrow, on May 1, 1997.
Additionally, Cellco sold its interest in the Northern Maine Partnership to
MRCC.
7. EMPLOYEE BENEFIT PLAN
As a former subsidiary of Unitel, the Company included its employees as
participants in Unitel's pension plan (the "Plan") as of January 31, 1994. The
Plan covered all eligible employees of Unitel, Unity Cable Television, Inc., and
the Company until April 29, 1994, when benefit accruals for all plan
participants who were employees of the Company were terminated. On September 26,
1994, the Plan spun off all assets and liabilities attributable to the Unity
Telephone and subsidiary participants. The Plan provides retirement, disability,
and survivor benefits to eligible employees. The Company's policy is to fund
pension cost in accordance with applicable regulations.
F-44
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
7. EMPLOYEE BENEFIT PLAN (CONTINUED)
During fiscal 1996, the Company's interest in the Plan was merged with the
InterCel pension plan. Effective November 1, 1996, InterCel notified
participants of its intent to terminate the plan. The effective date of
termination is expected in the first half of fiscal 1997. The effects of the
proposed termination were not material. The following table sets forth the
Company's portion of the defined benefit plan's funded status as of December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits--
Accumulated benefit obligation.................................. $ (126,314) $ (102,919)
Additional amounts related to projected salary increases........ 0 0
----------- -----------
Projected benefit obligation...................................... (126,314) (102,919)
Less--
Fair value of plan assets....................................... 145,425 114,612
Unrecognized net loss........................................... 5,727 14,292
----------- -----------
Prepaid pension cost recognized in the accompanying balance
sheets............................................................ $ 24,838 $ 25,985
----------- -----------
----------- -----------
</TABLE>
The actuarial present value of the projected benefit obligation was
determined using a discount rate of 6% for 1995 and 1996, and the expected
long-term rate of return on assets was 6%.
The net periodic pension (income) cost for the years ended December 31, 1995
and 1996 was not material to the financial statements.
F-45
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS (THE
"PROSPECTUS") AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................................. 6
Risk Factors.................................................................. 24
The Exchange Offer............................................................ 32
The Pending Acquisitions...................................................... 38
Use of Proceeds............................................................... 40
Capitalization................................................................ 41
Selected Financial Data....................................................... 42
Unaudited Pro Forma Condensed Consolidated Financial Data..................... 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 53
Business...................................................................... 63
Management.................................................................... 82
Certain Transactions.......................................................... 86
Security Ownership of Certain Beneficial Owners and Management................ 88
Description of Other Indebtedness............................................. 91
Description of Capital Stock.................................................. 93
Description of Senior Subordinated Notes...................................... 96
Description of Exchangeable Preferred Stock
and Exchange Debentures.................................................... 119
Certain United States Federal Income Tax Considerations...................... 161
Plan of Distribution......................................................... 172
Legal Matters................................................................ 173
Experts...................................................................... 173
Additional Information....................................................... 173
Index to Financial Statements................................................ F-1
</TABLE>
$250,000,000
[LOGO]
RURAL CELLULAR CORPORATION
$125,000,000
9 5/8% SENIOR SUBORDINATED NOTES
DUE 2008
125,000 SHARES
11 3/8% SENIOR EXCHANGEABLE
PREFERRED STOCK
--------------------
PROSPECTUS
--------------------
, 1998
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Unless prohibited in a corporation's articles or bylaws, Minnesota Statutes
Section 302A.521 requires indemnification of officers, directors, employees and
agents, under certain circumstances, against judgments, penalties, fines,
settlements and reasonable expenses (including attorneys' fees and
disbursements) incurred by such person in connection with a threatened or
pending proceeding with respect to the acts or omissions of such person in his
official capacity. The general effect of Minnesota Statutes Section 302A.521 is
to require the Registrant to reimburse (or pay on behalf of) directors and
officers of the Registrant any personal liability that may be imposed for
certain acts performed in their capacity as directors and officers of the
Registrant, except where such persons have not acted in good faith.
The Articles of Incorporation and Bylaws of the Registrant provide for such
indemnification to the maximum extent permitted by Minnesota Statutes. The
Registrant has purchased insurance covering the liability of its directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DOCUMENT PAGE NO.
- ------ -------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Purchase Agreement dated as of May 7, 1998 by and among the Company and TD Securities
(USA) Inc., NationsBanc Montgomery Securities LLC, and BancBoston Inc. (the Initial
Purchasers)......................................................................... [vi]
2.1 Asset Purchase Agreement dated December 23, 1996 by and among the Registrant, Unity
Cellular Systems, Inc., InterCel Licenses, Inc. and InterCel, Inc................... [ii]
2.2 Partnership Interest Purchase Agreement dated April 18, 1997 by and between Cellco
Partnership dba Bell Atlantic NYNEX Mobile, Inc. and MRCC, Inc...................... [ii]
2.3 Asset Purchase Agreement among Atlantic Cellular Company, L.P., Atlantic Cellular/New
Hampshire RSA Number One Limited Partnership and RCC Atlantic Inc., Rural Cellular
Corporation as of February 13, 1998................................................. [viii]
3.1 Articles of Incorporation, as amended and restated to date............................ [iii]
3.2 Bylaws, as amended and restated to date............................................... [iii]
4.1 Indenture dated May 14, 1998 between the Registrant, as Issuer, and Norwest Bank
Minnesota, N.A., as Trustee, with respect to the 9 5/8% Senior Subordinated Notes
Due 2008............................................................................ [vi]
4.2 Form of the 9 5/8% Senior Subordinated Notes Due 2008 (included as an exhibit to the
Indenture, filed herewith as Exhibit 4.5)........................................... [vi]
4.3 Notes Exchange and Registration Rights Agreement dated as of May 14, 1998 by and among
the Registrant and the Initial Purchasers........................................... [vi]
4.4 Certificate of Designation of 11 3/8% Senior Exchangeable Preferred Stock............. [vi]
4.5 Preferred Stock Exchange and Registration Rights Agreement dated as of May 14, 1998 by
and among the Registrant and the Initial Purchasers................................. [vi]
5.1 Opinion of Moss & Barnett, A Professional Association................................. [vi]
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DOCUMENT PAGE NO.
- ------ -------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.1(a) Loan Agreement dated May 1, 1997 (the "Loan Agreement") among the Registrant and The
Toronto Dominion Bank, Bank Boston, N.A., St. Paul Bank for Cooperatives, CoBank
Fleet National Bank, First National Bank of Maryland, Societe Generale, New York
Branch, and Merita Bank Ltd, New York Branch (the "Banks"), BankBoston, N.A., and
St. Paul Bank for Cooperatives (the "Co-Agents"), and Toronto Dominion (Texas), Inc.
(the "Administrative Agent")........................................................ [ii]
10.1(b) Amendment to the Loan Agreement dated August 4, 1997.................................. [vi]
10.1(c) Amendment to the Loan Agreement dated December 30, 1997............................... [ix]
10.1(d) Amendment to the Loan Agreement dated April 17, 1997.................................. [vi]
10.1(e) Amendment to the Loan Agreement dated April 24, 1997.................................. [vi]
10.2 Cellular Switch User Agreement, as amended............................................ [iii]
10.3 Switch 2000 LLC Cellular Equipment User Agreement..................................... [iii]
10.4 Purchase Agreement by and between RCC Network, Inc. and Harris Corporation, Farinon
Division, dated May 12, 1995........................................................ [iii]
10.5 Cell Site Purchase Agreement between Northern Telecom, Inc. and Registrant dated
November 24, 1993, as amended on October 25, 1995................................... [iii]
10.6(a) Trademark and Trade Name License Agreements between Cellular 2000, Inc. and:
(i) North Woods Cellular Partnership
(ii) Northern Lights Cellular Partnership
(iii) Great River Cellular Partnership
(iv) Cellular Five Partnership
(v) Heartland Cellular Partnership................................................... [iii]
10.6(b) Assignment and Assumption Agreements by and between the Registrant and each
partnership......................................................................... [iii]
10.7 Roaming Agreements with CSM of St. Cloud.............................................. [iii]
10.8 1995 Stock Compensation Plan, as amended to date...................................... [vi]
10.9 Stock Option Plan for Nonemployee Directors, as amended to date....................... [v]
10.10(a) Employment Agreement with Richard P. Ekstrand effective December 1, 1996.............. [iii]
10.10(b) Amendment to Employment Agreement with Mr. Ekstrand effective December 18, 1996....... [v]
10.10(c) Amendment to Employment Agreement with Mr. Ekstrand effective December 18, 1997....... [ix]
10.11(a) Employment Agreement with Scott G. Donlea effective December 1, 1995.................. [v]
10.11(b) Amendment to Employment Agreement with Mr. Donlea effective December 18, 1996......... [v]
10.11(c) Amendment to Employment Agreement with Mr. Donlea effective December 18, 1997......... [ix]
10.12(a) Employment Agreement with Wesley E. Schultz effective May 14, 1996.................... [ix]
10.12(b) Amendment to Employment Agreement with Mr. Schultz effective December 18, 1996........ [ix]
10.12(c) Amendment to Employment Agreement with Mr. Schultz effective December 18, 1997........ [ix]
12 Statements re Computation of Ratios................................................... [vi]
21 Subsidiaries of Registrant............................................................ [ix]
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DOCUMENT PAGE NO.
- ------ -------------------------------------------------------------------------------------- ---------
<C> <S> <C>
23.1 Consent of Arthur Andersen LLP........................................................ [vi]
23.2 Consent of KPMG Peat Marwick LLP...................................................... [vi]
23.3 Consent of Arthur Andersen LLP........................................................ [vi]
23.4 Consent of Moss & Barnett, A Professional Association (included in exhibit 5.1)....... [vi]
25 Statement of Eligibility of Trustee................................................... [vi]
99.1 Form of Letter of Transmittal for 9 5/8% Senior Subordinated Notes Due 2008 of the
Company............................................................................. [vi]
99.2 Form of Letter of Transmittal for 11 3/8% Senior Exchangeable Preferred Stock of the
Company............................................................................. [vi]
99.3 Form of Notice of Guaranteed Delivery for 9 5/8% Senior Subordinated Notes Due 2008... [vi]
99.4 Form of Notice of Guaranteed Delivery for 11 3/8% Senior Exchangeable Preferred
Stock............................................................................... [vi]
99.5 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees for 9 5/8% Senior Subordinated Notes Due 2008.............................. [vi]
99.6 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees for 11 3/8% Senior Exchangeable Preferred Stock............................ [vi]
99.7 Form of Letter to Clients of Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees for 9 5/8% Senior Subordinated Notes Due 2008........................ [vi]
99.8 Form of Letter to Clients of Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees for 11 3/8% Senior Exchangeable Preferred Stock...................... [vi]
99.9 Form of Instruction from Owner of 9 5/8% Senior Subordinated Notes Due 2008 of the
Company............................................................................. [vi]
99.10 Form of Instruction from Owner of 11 3/8 Exchangeable Preferred Stock of the
Company............................................................................. [vi]
</TABLE>
- ------------------------
[i] Filed as an exhibit to Report on Form 8-K dated December 23, 1996 and
incorporated herein by reference.
[ii] Filed as an exhibit to Report on Form 8-K dated May 1, 1997 and
incorporated herein by reference.
[iii] Filed as an exhibit to Registration Statement on Form S-1 (Sec. No.
33-80189) filed December 8, 1995 and incorporated herein by reference.
[iv] Filed as an exhibit to Report on Form 10-Q for the quarter ended June 30,
1996 and incorporated herein by reference.
[v] Filed as an exhibit to Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference.
[vi] Filed herewith.
[vii] To be filed by amendment.
[viii] Filed as an exhibit to Report on Form 10-Q for the quarter ended March
31, 1998 and incorporated herein by reference
[ix] Filed as an exhibit to Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference
II-3
<PAGE>
(b) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts ................. F-20
All schedules not included are omitted either because they are not
applicable or because the information required therein is included in the
Company's Notes to Consolidated Financial Statements.
ITEM 22. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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
Company will, unless in the opinion of 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 Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 11, 12 and/or 13 of Form
S-4, 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.
(6) 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.
(7) That for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Alexandria,
State of Minnesota, on the 25th day of June, 1998.
<TABLE>
<S> <C> <C>
RURAL CELLULAR CORPORATION
By: /s/ RICHARD P. EKSTRAND
------------------------------------------
Richard P. Ekstrand
PRESIDENT AND C.E.O.
</TABLE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Richard P. Ekstrand, Wesley E. Schultz, David
DelZoppo, Ann K. Newhall and Deanne M. Greco, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-4 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 25th day of June, 1998 by
the following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
/s/ RICHARD P. EKSTRAND Officer and Director
- ------------------------------ (principal executive
Richard P. Ekstrand officer)
Vice President -- Finance
/s/ WESLEY E. SCHULTZ and Chief Financial
- ------------------------------ Officer (principal
Wesley E. Schultz financial and accounting
officer)
/s/ JEFFREY S. GILBERT
- ------------------------------ Director
Jeffrey S. Gilbert
/s/ MARVIN C. NICOLAI
- ------------------------------ Director
Marvin C. Nicolai
/s/ GEORGE M. REVERING
- ------------------------------ Director
George M. Revering
/s/ DON C. SWENSON
- ------------------------------ Director
Don C. Swenson
/s/ GEORGE W. WIKSTROM
- ------------------------------ Director
George W. Wikstrom
II-5
<PAGE>
RURAL CELLULAR CORPORATION
(a Minnesota corporation)
$125,000,000
9 5/8% Senior Subordinated Notes due 2008
125,000 shares of
11 3/8% Senior Exchangeable Preferred Stock
PURCHASE AGREEMENT
May 7, 1998
TD Securities (USA) Inc.
NationsBanc Montgomery Securities LLC
c/o TD Securities (USA) Inc.
BancBoston Securities Inc.
c/o TD Securities (USA) Inc.
31 West 52nd Street
New York, New York 10019-6101
Ladies and Gentlemen:
Rural Cellular Corporation, a Minnesota corporation (the "ISSUER")
proposes to issue and sell to TD Securities (USA) Inc. ("TD SECURITIES"),
NationsBanc Montgomery Securities LLC and BancBoston Securities Inc.
(collectively, the "INITIAL PURCHASERS") (i) $125,000,000 aggregate principal
amount of its 9 5/8% Senior Subordinated Notes due 2008 (the "SENIOR
SUBORDINATED NOTES") and (ii) 125,000 shares of 11 3/8% Senior Exchangeable
Preferred Stock, liquidation preference $1,000 per share (including
additional shares payable in lieu of cash dividends, the "EXCHANGEABLE
PREFERRED STOCK"). The Senior Subordinated Notes are to be issued pursuant
to an indenture to be dated on or about May 14, 1998 (the "NOTES INDENTURE")
between the Issuer and Norwest Bank Minnesota, National Association, as
trustee (the "NOTES TRUSTEE"). The Exchangeable Preferred Stock is to be
issued pursuant to a certificate of designation (the "CERTIFICATE OF
DESIGNATION") of the Issuer with respect to such stock. Subject to certain
conditions, the Exchangeable Preferred Stock is exchangeable in whole, but
not in part, at the option of the Issuer, for the Issuer's 11 3/8% Exchange
Debentures due May 15, 2010 (including additional debentures payable in lieu
of cash interest, the "EXCHANGE DEBENTURES") which will be issued pursuant to
an indenture (the "EXCHANGE INDENTURE") which will be entered into at the
time of issuance thereof between the Issuer and Norwest Bank Minnesota,
National Association or such other
<PAGE>
corporate trustee as the Issuer may select, as trustee (the "DEBENTURES
TRUSTEE" and together with the Notes Trustee, the "TRUSTEES"). The Senior
Subordinated Notes, together with the Exchangeable Preferred Stock or the
Exchange Debentures, if issued in exchange for the Exchangeable Preferred
Stock, are referred to herein as the "Securities." The Securities, the Notes
Indenture, the Exchange Indenture and the Certificate of Designation are more
fully described in the Offering Memorandum (as hereinafter defined).
Capitalized terms used herein and not otherwise defined herein have the
respective meanings specified in the Offering Memorandum.
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), in reliance on exemptions therefrom. The Issuer has prepared
a preliminary offering memorandum, dated April 24, 1998 (such preliminary
offering memorandum being hereinafter referred to as the "PRELIMINARY OFFERING
MEMORANDUM"), and a final offering memorandum, dated the date hereof (such final
offering memorandum, in the form first furnished to the Initial Purchasers for
use in connection with the offering of the Securities, being hereinafter
referred to as the "OFFERING MEMORANDUM"), each setting forth information
regarding the Issuer and the Securities. The Issuer hereby confirms that it has
authorized the use of the Preliminary Offering Memorandum and the Offering
Memorandum for the offering and resale of the Securities to the persons referred
to in clauses (i) and (ii) of the next paragraph.
The Issuer understands that the Initial Purchasers propose to make an
offering of the Securities on the terms set forth in the Offering Memorandum and
this Agreement, as soon as the Initial Purchasers deem advisable after this
Agreement has been executed and delivered, (i) to persons in the United States
whom the Initial Purchasers reasonably believe to be qualified institutional
buyers ("QUALIFIED INSTITUTIONAL BUYERS") as defined in Rule 144A under the
Securities Act, as such rule may be amended from time to time ("RULE 144A"), in
transactions complying with Rule 144A and/or (ii) to non-U.S. persons in
offshore transactions, as defined in Regulation S ("REGULATION S") under the
Securities Act, in compliance with Regulation S. The Issuer also understands
that, pursuant to the Communications Act of 1934, as amended, the Exchangeable
Preferred Stock is subject to restrictions on alien ownership and the
requirement of prior Federal Communications Commission ("FCC") approval of
transfers of control, as further described in the Offering Memorandum.
The holders of Senior Subordinated Notes and the holders of the
Exchangeable Preferred Stock will be entitled to the benefits of registration
rights agreements (collectively, the "REGISTRATION RIGHTS AGREEMENTS").
Pursuant to the Registration Rights Agreements, the Issuer will agree to file
with the Securities and Exchange Commission (the "COMMISSION") under the
circumstances set forth therein, either (i) a registration statement under the
Securities Act registering the Exchange Notes and the Exchange Preferred Stock
(as such terms are defined in the Registration Rights Agreements; collectively,
the "Exchange Securities") to be offered in exchange for the Senior
2
<PAGE>
Subordinated Notes and Exchangeable Preferred Stock and use its best efforts
to cause such registration statement to be declared effective or (ii) under
certain circumstances set forth therein, a shelf registration statement
pursuant to Rule 415 under the Securities Act relating to the resale of the
Senior Subordinated Notes and Exchangeable Preferred Stock, and use its best
efforts to cause such shelf registration statement to be declared effective.
If necessary, separate registration statements may be filed for the Senior
Subordinated Notes and the Exchangeable Preferred Stock, respectively.
As soon as practicable following the Closing Time, the Issuer expects
to consummate its purchase of (i) substantially all of the assets of Atlantic
Cellular Company, L.P. ("ACC") and one of its subsidiaries (the "ATLANTIC
ACQUISITION") and (ii) all of the issued and outstanding capital stock of
Western Maine Cellular, Inc. (collectively, the "PENDING ACQUISITIONS");
PROVIDED, that consummation of each of the Pending Acquisitions is subject to
(A) various regulatory approvals and consents, including the consent of the
Federal Communications Commission (the "FCC") and, in the case of the Atlantic
Acquisition, expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
and (B) fulfillment of all of the other conditions specified in the applicable
transaction documents.
The Issuer has an existing credit facility pursuant to a certain Loan
Agreement, dated as of May 1, 1997, among the Issuer, The Toronto-Dominion Bank,
Bank Boston, N.A., St. Paul Bank for Cooperatives, CoBank, Fleet National Bank,
First National Bank of Maryland, Societe Generale, New York Branch and Merita
Bank Ltd., New York Branch (as amended to date, the "EXISTING CREDIT FACILITY").
In connection with the transactions contemplated hereby and the Pending
Acquisitions, the Issuer has (i) entered into amendments to its Existing Credit
Facility and (ii) received a commitment pursuant to which an affiliate of TD
Securities would provide financing under a new credit facility (the "NEW CREDIT
FACILITY"), all as described in the Offering Memorandum (the Existing Credit
Facility and the New Credit Facility are collectively referred to herein as the
"CREDIT FACILITY").
This Agreement, the Notes Indenture, the Certificate of Designation,
the Exchange Indenture, the Senior Subordinated Notes, the Exchangeable
Preferred Stock, the Exchange Debentures and the Registration Rights Agreements
are sometimes collectively referred to herein as the "TRANSACTION DOCUMENTS."
Section 1. REPRESENTATIONS AND WARRANTIES. (a) The Issuer represents
and warrants to and agrees with the Initial Purchasers as of the date hereof and
as of the Closing Time (as defined in Section 2(b)) as follows:
(i) SIMILAR OFFERINGS. The Issuer and its affiliates (as defined in
Rule 501(b) under the Securities Act) have not, directly or indirectly
through any agent (provided that no representation is made as to the
Initial Purchasers, their affiliates
3
<PAGE>
or any person acting on their behalf), solicited any offer to buy, sold
or offered to sell (or otherwise negotiated in respect of), and will
not, directly or indirectly, solicit any offer to buy, sell or offer to
sell (or otherwise negotiate in respect of), in the United States or to
any United States citizen or resident, any security (as defined in the
Securities Act) (A) which is or would be integrated with the sale of the
Securities in a manner that would require the Securities to be
registered under the Securities Act or (B) in a manner that would
require the registration of the Securities under the Securities Act.
(ii) OFFERING MEMORANDUM. (A) GENERAL. As of their respective dates
and as of the Closing Time, none of the Preliminary Offering Memorandum,
(1) the Offering Memorandum or any amendment or supplement thereto will
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (2) all
reasonable inquiries have been made to ascertain such facts and to verify
the accuracy of all such information and statements and (3) any opinions
and intentions expressed in the Preliminary Offering Memorandum, the
Offering Memorandum or any amendment or supplement thereto with respect to
the Issuer and its subsidiaries are honestly held and are based on
reasonable assumptions; except that this representation and warranty does
not apply to untrue statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Issuer by the
Initial Purchasers through TD Securities expressly for use in the
Preliminary Offering Memorandum, the Offering Memorandum or any amendment
or supplement thereto.
(B) DOCUMENTS. There are no contracts or documents of a character
that would be required to be described in the Offering Memorandum, if it
were a prospectus filed as part of a registration statement on Form S-1
under the Securities Act, that are not described as would be so required.
All such contracts which are so described in the Offering Memorandum to
which the Issuer or any of its subsidiaries is a party have been duly
authorized, executed and delivered by the Issuer or its subsidiaries,
constitute valid and binding agreements of the Issuer or such subsidiary
and are enforceable against the Issuer or such subsidiary in accordance
with the terms thereof except as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding inequity or at law).
(C) CERTAIN TRANSACTIONS. No relationship, direct or indirect,
exists between or among the Issuer or any of its subsidiaries, on the one
hand, and the directors, officers, securityholders, customers or suppliers
of the Issuer or any of its subsidiaries, on the other hand, that is of a
character that would be required to be
4
<PAGE>
described in the Offering Memorandum if it were a prospectus filed as
part of a registration statement on Form S-1 under the Securities Act,
that is not described as would be so required.
(D) DATA. The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources which the Issuer
believes to be reliable and accurate in all material respects or represents
the Issuer's good faith estimates that are made on the basis of data
derived from such sources.
(iii) NO LISTED SECURITIES. There are no debt securities or
preferred stock of the Issuer registered under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), or listed on a national
securities exchange or quoted in a U.S. automated inter-dealer quotation
system. The Issuer has been advised by the National Association of
Securities Dealers, Inc. (the "NASD") Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") Market that the Securities
have been designated PORTAL eligible securities in accordance with the
rules and regulations of the NASD.
(iv) INDEPENDENT ACCOUNTANTS. Arthur Andersen LLP, which is reporting
upon the audited financial statements and related notes of the Issuer
included in the Offering Memorandum and the audited financial statement and
related notes of Unity Cellular Systems, Inc. ("UNITY") included in the
Offering Memorandum, is an independent public accountant with respect to
the Issuer and its subsidiaries and, to the Issuer's knowledge, with
respect to Unity and its subsidiary, in accordance with the provisions of
the Securities Act and the rules and regulations of the Commission
thereunder. To the Issuer's knowledge, KPMG Peat Marwick LLP, which is
reporting upon the audited financial statements and related notes of ACC
included in the Offering Memorandum, is an independent public accountant
with respect to ACC and its subsidiaries in accordance with the provisions
of the Securities Act and the rules and regulations of the Commission
thereunder.
(v) ACCOUNTING CONTROLS; RECEIPT AND PAYMENT OF FUNDS. The Issuer
and its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization,
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (C) access to assets
is permitted only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Issuer and its subsidiaries
have not made, and, to the knowledge of the Issuer, no employee or agent of
the Issuer or any of its subsidiaries has made, any payment of the Issuer's
funds or its subsidiaries' funds or received or retained
5
<PAGE>
any funds in violation of any applicable law, regulation or rule or that
would be required to be disclosed in the Offering Memorandum if it were
a prospectus filed as part of a registration statement on Form S-1 under
the Securities Act. Neither the Issuer nor any of its subsidiaries, nor
any director, officer, agent, employee or other person associated with
or acting on behalf of the Issuer or any of its subsidiaries, has used
any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(vi) FINANCIAL STATEMENTS. The financial statements included in the
Offering Memorandum, together with the related notes, present fairly (A)
the financial position of the Issuer and its consolidated subsidiaries as
of the dates indicated and (B) the results of operations and cash flows of
the Issuer and its consolidated subsidiaries, in each case for the periods
specified. Such financial statements have been prepared in conformity with
generally accepted accounting principles as applied in the United States,
applied on a consistent basis throughout the periods involved, subject, in
the case of unaudited financial statements, to normal year-end adjustments
which shall not be materially adverse to the business, results of
operations, financial conditions or properties of the Issuer and its
consolidated subsidiaries, taken as a whole. The selected financial data
included in the Offering Memorandum present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited consolidated financial statements included in the Offering
Memorandum. The pro forma financial statements and related notes thereto
and other pro forma financial information included in the Offering
Memorandum present fairly the information shown therein, have been prepared
in accordance with the applicable requirements of Regulation S-X
promulgated under the Securities Act, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements, and have been properly compiled on the pro forma bases
described therein and, in the opinion of the Issuer, the assumptions used
in the preparation thereof are made on a reasonable basis and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
(vii) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein or contemplated thereby, there has not been
(A) any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Issuer or
its subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business (a "MATERIAL ADVERSE EFFECT"), (B) any
transaction entered into by the Issuer or any of its subsidiaries other
6
<PAGE>
than in the ordinary course of business or (C) any dividend or distribution
of any kind declared, paid or made by the Issuer or any of its subsidiaries
on any class of their respective membership interests, partnership
interests or capital stock, as the case may be.
(viii) ORGANIZATION AND GOOD STANDING OF THE ISSUER. The Issuer is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Minnesota, and has all requisite corporate power
and authority under such laws to (A) own, lease and operate its properties
and conduct its business as described in the Offering Memorandum and (B)
enter into and perform its obligations under Transaction Documents. The
Issuer is duly qualified to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except to the extent that the failure to so qualify or be in good standing
would not have a Material Adverse Effect.
(ix) SUBSIDIARIES. SCHEDULE 1(a)(ix) attached hereto sets forth
each of the Issuer's subsidiaries (the "SUBSIDIARIES") and its ownership
thereof on the date hereof. Each of such Subsidiaries has been duly
organized or formed, as the case may be, and is validly existing and in
good standing as a corporation, limited liability company or limited
partnership, as the case may be, under the laws of the jurisdiction of
its organization or formation, as the case may be, and each such entity
has all requisite corporate, limited liability company or partnership
power and authority, as the case may be, under such laws to own, lease
and operate its properties and conduct its business as now conducted
and, if applicable, as described in the Offering Memorandum. Each of
such Subsidiaries, is duly qualified to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except to the extent that the failure to so
qualify or be in good standing would not have a Material Adverse Effect.
(x) CAPITALIZATION. (a) THE ISSUER. The actual capitalization
of the Issuer at December 31, 1997, is as set forth in the Offering
Memorandum under the caption "Capitalization" in the "Actual" column.
All of the outstanding capital stock of the Issuer has been duly
authorized and validly issued, is fully-paid and nonassessable and was
not issued in violation of any preemptive or similar rights (whether
provided contractually or pursuant to any of its articles of
incorporation, by-laws or other organizational documents), and was
issued free and clear of all interests, mortgages, deeds of trust,
pledges, liens, encumbrances or claims (collectively, "ENCUMBRANCES"),
including restrictions on transferability or voting of such capital
stock, except as set forth in the Offering Memorandum.
7
<PAGE>
(b) SUBSIDIARIES. All of the outstanding capital stock of the
Subsidiaries owned by the Issuer as disclosed on SCHEDULE 1(a)(ix) is owned
directly by the Issuer, free and clear of any Encumbrances, including
restrictions on transferability or voting of such capital stock, has been
duly authorized and validly issued, is fully-paid and nonassessable and was
not issued to or acquired by the Issuer in violation of any preemptive or
similar rights of any holder of any interest in such Subsidiaries (whether
provided contractually or pursuant to any of its articles of incorporation,
by-laws or other organizational documents) except as set forth in the
Offering Memorandum. All offers and sales by the Issuer of the Issuer's
securities which have taken place within the past three years were at all
relevant times exempt from the registration requirements of the Securities
Act or duly registered under the Securities Act, and were duly registered
or the subject of an available exemption from the requirements of
applicable state securities laws. Immediately after the filing of the
Certificate of Designation, the Issuer will have a duly authorized
capitalization of 15,000,000 shares of Class A Common Stock, par value $.01
per share, 5,000,000 shares of Class B Common Stock, par value $.01 per
share, 450,000 shares of Exchangeable Preferred Stock (which may be issued
in two separate classes of stock designated as Class A Exchangeable
Preferred Stock and Class B Exchangeable Preferred Stock) and 9,550,000
undesignated shares of capital stock, par value $.01 per share.
(xi) AUTHORIZATION OF THIS AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Issuer, and constitutes a valid
and binding agreement of the Issuer enforceable against the Issuer in
accordance with its terms, except as (A) enforcement thereof may be limited
by bankruptcy, insolvency including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or in law)
and (B) the enforceability of any right to indemnification provided herein
violates the public policy of any law, rule or regulation.
(xii) AUTHORIZATION OF THE INDENTURES. Each of the Notes Indenture
and the Exchange Indenture have been duly authorized by the Issuer, and
when duly executed and delivered by the Issuer and the other parties
thereto in accordance with the terms thereof, will constitute a valid
and binding agreement of the Issuer enforceable against the Issuer in
accordance with its terms, except as (A) enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (B) the enforceability of any right
8
<PAGE>
to indemnification or waiver of usury provided therein violates the public
policy of any law, rule or regulation.
(xiii) AUTHORIZATION OF THE SENIOR SUBORDINATED NOTES. The
issuance, execution and delivery of the Senior Subordinated Notes and
the Exchange Notes have been duly authorized by the Issuer and, at the
Closing Time, the Senior Subordinated notes will have been duly executed
by the Issuer. When executed, authenticated, issued and delivered in
the manner provided for in the Notes Indenture and delivered against
payment of the purchase price therefor as provided in this Agreement,
the Senior Subordinated Notes (A) will constitute valid and binding
obligations of the Issuer, enforceable against the Issuer in accordance
with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (B) will be in the form contemplated by, and
entitled to the benefits of, the Notes Indenture. The Exchange Notes,
when executed, authenticated, issued and delivered in exchange for the
Senior Subordinated Notes, will constitute valid and binding obligations
of the Issuer, entitled to the benefits of the Notes Indenture,
enforceable against the Issuer in accordance with the terms thereof,
subject to the exceptions noted in clause (A) above.
(xiv) AUTHORIZATION OF EXCHANGEABLE PREFERRED STOCK. The issuance
and delivery of the Exchangeable Preferred Stock and the Exchange Preferred
Stock have been duly authorized by the Issuer. The filing of the
Certificate of Designation relating to the Exchangeable Preferred Stock and
the Exchange Preferred Stock has been duly authorized and will have been
duly filed prior to the Closing Time. When issued and delivered against
payment therefor in accordance with the terms hereof or the Certificate of
Designation, the Exchangeable Preferred Stock will be (and if any Exchange
Preferred Stock is issued in exchange for the Exchangeable Preferred Stock,
such Exchange Preferred Stock will be) validly issued, fully paid and
nonassessable and free of any preemptive or similar rights. As of the
Closing Time, the Articles of Incorporation of the Issuer by virtue of the
Certificate of Designation will set forth the rights, preferences and
priorities of the Exchangeable Preferred Stock and the Exchange Preferred
Stock. The certificates for the Exchangeable Preferred Stock that are
being sold by the Issuer (and any Exchange Preferred Stock issued in
exchange therefor) are in due and proper form and holders of such
Exchangeable Preferred Stock (or such Exchange Preferred Stock) will not be
subject to personal liability by reason of being such holders.
(xv) AUTHORIZATION OF THE EXCHANGE DEBENTURES. The Exchange
Debentures have been duly authorized by the Issuer for issuance, subject to
further
9
<PAGE>
action by the Issuer's Board of Directors with respect to the due
execution and delivery thereof. The Exchange Debentures, when executed
by the Issuer and authenticated by the Debentures Trustee in accordance
with the provisions of the Exchange Indenture and delivered upon the
exchange of the Exchangeable Preferred Stock, (A) will have been duly
executed, issued and delivered by the Issuer, and (B) will constitute
valid and binding obligations of the Issuer enforceable against the
Issuer in accordance with their terms except as enforcement thereof may
be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (C) will be in the form contemplated by, and
entitled to the benefits of, the Exchange Indenture.
(xvi) AUTHORIZATION OF THE REGISTRATION RIGHTS AGREEMENTS. Each
of the Registration Rights Agreements has been duly authorized by the
Issuer, and, when executed and delivered by the Issuer and the other
parties thereto in accordance with the terms thereof, will constitute a
valid and binding agreement of the Issuer, enforceable against the Issuer
in accordance with its terms except (A) as enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and (B) the
enforceability of any right to indemnification provided therein violates
the public policy of any law, rule or regulation.
(xvii) THE PENDING ACQUISITIONS. No consent, approval,
authorization or order of any court or governmental agency or body
(except for such consents, approvals or authorizations as are required
by the FCC and relevant state regulatory authorities or, in the case of
the Atlantic Acquisition, under the HSR Act), is required for the
performance by the Issuer of the transactions contemplated by the
Pending Acquisitions, and the Issuer has no reasonable basis to believe
that the transactions contemplated by the Pending Acquisitions will not
be consummated in accordance with their terms.
(xviii) DESCRIPTION OF THE TRANSACTION DOCUMENTS AND OTHER MATTERS
The statements set forth in the Offering Memorandum, insofar as such
statements purport to summarize certain provisions of the Transaction
Documents, the Pending Acquisitions and the Credit Facility constitute
accurate summaries thereof in all material respects.
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(xix) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Issuer nor
any of its subsidiaries is in violation of its respective organizational
documents or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which any of them is a party or by which any of
them may be bound, or to which any of the property or assets of any of them
is subject (collectively, "AGREEMENTS AND INSTRUMENTS"), except for such
violations or defaults that would not result in a Material Adverse Effect;
and (A) the execution, delivery and performance of this Agreement, the
Securities, the Notes Indenture, the Exchange Indenture (if the Exchange
Debentures are issued in exchange for the Exchangeable Preferred Stock),
the Registration Rights Agreements, by the Issuer, and the consummation by
the Issuer of the transactions contemplated herein and therein (including
the issuance and sale by the Issuer of the Securities in accordance with
the offering and sale restrictions contained in this Agreement and the
Offering Memorandum and the use of the proceeds from the sale of the
Securities as described in the Offering Memorandum under the caption "USE
OF PROCEEDS"), (B) compliance by the Issuer with its obligations hereunder
and under the Securities, (C) compliance by the Issuer of its obligations
under the Notes Indenture, the Exchange Indenture (if the Exchange
Debentures are issued in exchange for the Exchangeable Preferred Stock) and
such other agreements to which it is or will be a party in connection with
the transactions contemplated by this Agreement, (D) consummation of the
Pending Acquisitions and (E) the execution, delivery and performance of the
Existing Credit Facility or the New Credit Facility, as applicable, will
not (1) whether with or without the giving of notice or the passage of time
or both, constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any Encumbrance
upon any property or assets of any such entity or any of its subsidiaries
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or Encumbrances that would not result in a Material
Adverse Effect or (2) result in any violation of (x) the provisions of the
respective organizational documents of the Issuer or any of its
subsidiaries or (y) any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Issuer or any of its subsidiaries or any of their assets, properties or
operations (except for such violations that would not result in a Material
Adverse Effect). As used herein, a "REPAYMENT EVENT" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by any such entity or any of its subsidiaries.
(xx) ABSENCE OF LABOR DISPUTES. No labor dispute with the employees
of the Issuer or any of its subsidiaries exists or, to the knowledge of the
Issuer, is threatened that, if such dispute were to occur, in either case
may reasonably be
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expected to result in a Material Adverse Effect, and the Issuer has no
actual knowledge of any existing or imminent labor disturbance by the
employees of the Issuer's or its subsidiaries' principal suppliers,
contractors or customers that could be expected to result in a Material
Adverse Effect.
(xxi) ABSENCE OF PROCEEDINGS. Except as set forth in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or investigation
before or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Issuer, threatened, to
which the Issuer or any of its subsidiaries is a party and which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
validity or enforceability of any material provision of any Transaction
Document or the rights and remedies of the Initial Purchasers, the Notes
Trustee, the Debenture Trustee or the holders of the Securities thereunder.
The aggregate of all pending legal or governmental proceedings that are not
described in the Offering Memorandum to which the Issuer or any of its
subsidiaries is a party including ordinary routine litigation incidental
to the business of the Issuer or any of its subsidiaries, could not
reasonably be expected to have a Material Adverse Effect.
(xxii) POSSESSION OF INTELLECTUAL PROPERTY. The Issuer and its
subsidiaries own or possess, or can acquire on reasonable terms (or have
the rights to sue at law or in equity for any infringement of), adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "INTELLECTUAL PROPERTY") necessary to carry on the business
now carried on by them, except where the failure to own, possess or hold
such rights to acquire or sue would not have a Material Adverse Effect; and
neither the Issuer nor any of its subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Issuer or its subsidiaries
therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xxiii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
(including, without limitation, the FCC) or quasi-governmental agency
(other than (A) under the Securities Act and the rules and regulations
thereunder with respect to the Registration Rights Agreements and the
transactions contemplated thereunder and the securities or "blue sky" laws
of any jurisdiction and (B) those that have been obtained and are in full
force and effect) is necessary or required on behalf of the Issuer for the
issuance, sale and delivery of the
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Securities, or for the execution, delivery or performance by the Issuer
of any Transaction Document, or for the consummation by the Issuer of
the transactions contemplated in such documents.
(xxiv) POSSESSION OF LICENSES AND PERMITS. The Issuer and its
subsidiaries possess, and, upon consummation of the transactions
contemplated under this Agreement, will possess, such permits, licenses,
approvals, consents and other authorizations (collectively, "GOVERNMENTAL
LICENSES") of the appropriate federal, state, local or foreign regulatory
and quasi-regulatory agencies or bodies (including, without limitation, the
FCC) necessary to conduct any business now conducted by them and as
contemplated to be conducted by them upon consummation of the transactions
contemplated under this Agreement or as disclosed in the Offering
Memorandum, except where the failure to possess such Governmental Licenses
would not, singly or in the aggregate, have a Material Adverse Effect; and
such Governmental Licenses contain no materially burdensome conditions or
restrictions not customarily imposed by the FCC on telecommunications
operators operating under the same types of licenses as the Issuer and its
subsidiaries. The Issuer and its subsidiaries are, and upon consummation
of the transactions contemplated under this Agreement will be, in
substantial compliance with the terms and conditions of all such
Governmental Licenses, except where the failure to comply would not, singly
or in the aggregate, have a Material Adverse Effect. All of the
Governmental Licenses are, and upon consummation of the transactions
contemplated under this Agreement will be, valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not have a Material Adverse Effect, and neither the Issuer nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses or which in
any manner otherwise affects or questions the validity or effectiveness
thereof, and which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect. No event has occurred which permits (nor has an event occurred
which with notice or lapse of time or both would permit) the revocation or
termination of such Governmental Licenses or the imposition of any material
adverse restriction or condition thereon or which might result in any other
material impairment of the rights of the Issuer or any of its subsidiaries
therein. The Issuer and its subsidiaries are in compliance with the
Communications Act of 1934, as amended, including the Telecommunications
Act of 1996, and all statutes, orders, rules, regulations and policies of
the FCC relating to or affecting the telecommunications operations of the
Issuer and its subsidiaries, except for such noncompliance as would not
have a Material Adverse Effect.
(xxv) TITLE TO PROPERTY. The Issuer and its subsidiaries have
title in fee simple to, or a valid leasehold interest in all their real
property and good title to, or a valid leasehold interest in, all of their
other properties and assets, free and clear of
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all Encumbrances, except such as (A) are described in the Offering
Memorandum or (B) do not, singly or in the aggregate, have a Material
Adverse Effect. All of the leases and subleases material to the
business of the Issuer and its subsidiaries, considered as one
enterprise, and under which the Issuer or any subsidiary holds
properties described in the Offering Memorandum, are in full force and
effect, and neither the Issuer nor any subsidiary has received any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Issuer or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of such corporation to the continued possession or the leased
or subleased premises under any such lease or sublease.
(xxvi) TAX RETURNS. The Issuer and its subsidiaries have filed any
federal, state, local and foreign income and other material tax returns
that are required to be filed by such entities or have duly requested
extensions thereof and have paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any such
taxes, assessments, fines or penalties that are being contested in good
faith and by appropriate proceedings; and adequate charges, accruals or
reserves have been provided for in the financial statements referred to in
Section 1(a)(vi) above in respect of any federal, state, local and foreign
income and other material taxes for all periods as to which the tax
liability of the Issuer or its subsidiaries has not been finally determined
or remains open to examination by applicable taxing authorities.
(xxvii) ENVIRONMENTAL LAWS. Except as described in the Offering
Memorandum and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Issuer nor its subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance or code, or rule of common law or any judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent, decree or judgment, regulating, or imposing
liability concerning, pollution, the protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "HAZARDOUS MATERIALS") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "ENVIRONMENTAL LAWS"), (B) the Issuer
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are in compliance with
such requirements, (C) there are no administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any
way to Environmental Laws pending or threatened against the Issuer or any
of its subsidiaries and (D) the Issuer has no knowledge of
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any events or circumstances that might reasonably be expected to form
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Issuer or any of its subsidiaries relating to Hazardous
Materials or any Environmental Laws.
(xxviii) REGISTRATION RIGHTS. Except as described in the Offering
Memorandum, there are no persons with registration rights or other similar
rights to have any securities registered by the Issuer or any of its
subsidiaries under the Securities Act.
(xxix) SOLVENCY. At the date of this Agreement, the Issuer is, and
immediately after the Closing Time, the Issuer will be, Solvent. As used
herein, the term "SOLVENT" means, with respect to the Issuer, on a
particular date, that on such date (A) the fair value of the assets of the
Issuer, on a consolidated basis with its subsidiaries, is greater than the
total amount of liabilities (including contingent liabilities) of the
Issuer, on a consolidated basis with its subsidiaries, (B) the present fair
salable value of the assets of the Issuer, on a consolidated basis with its
subsidiaries, is greater than the amount that will be required to pay the
probable liabilities of the Issuer, on a consolidated basis with its
subsidiaries, on its debts as they become absolute and matured, (C) the
Issuer, on a consolidated basis with its subsidiaries, is able to pay its
debts and other liabilities, including contingent obligations, as they
mature and (D) the Issuer, on a consolidated basis with its subsidiaries,
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which it has an unreasonably small capital.
(xxx) INVESTMENT COMPANY ACT. As of the date of this Agreement,
the Issuer is not, and upon the issuance and sale of the Securities as
herein contemplated and the application of the net proceeds as described in
the Offering Memorandum, the Issuer will not be, an "investment company" or
an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(xxxi) RULE 144A ELIGIBILITY. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities of the Issuer that are listed on a national
securities exchange registered under Section 6 of the Exchange Act, or
quoted in a U.S. automated interdealer quotation system.
(xxxii) NO GENERAL SOLICITATION. Neither the Issuer nor any person
acting on its behalf through any agent (provided that no representation is
made as to the Initial Purchasers, their affiliates or any person acting on
their behalf) (A) has engaged or will engage in any form of general
solicitation or general advertising (within the meaning of Rule 502(c)
under the Securities Act) in connection with the offering of the Securities
in the United States or (B) solicited offers for, or offered or sold, such
Securities by means of any form of general solicitation or general
advertising (within
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the meaning of Rule 502(c) under the Securities Act) or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(xxxiii) NO REGISTRATION REQUIRED. Assuming (A) that the
representations and warranties of the Initial Purchasers set forth in
Section 2 and Section 6 hereof are true and (B) the compliance by the
Initial Purchasers with the covenants and agreements set forth in Section 2
and Section 6 hereof, it is not necessary in connection with the offer,
sale and delivery of the Securities to the Initial Purchasers under, or in
connection with the initial resale of such Securities by the Initial
Purchasers in accordance with, this Agreement to register the Securities
under the Securities Act or to qualify any indenture in respect of the
Securities under the Trust Indenture Act of 1939, as amended.
(xxxiv) NO DIRECTED SELLING EFFORTS. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Issuer, any
of its affiliates or any person acting on its or their behalf (other
than the Initial Purchasers, their affiliates and any person acting on
their behalf, as to whom the Issuer makes no representation) has engaged
or will engage in any directed selling efforts (within the meaning of
Regulation S) in the United States and (B) the Issuer, its affiliates
and any person acting on its or their behalf (other than the Initial
Purchasers, their affiliates and any person acting on their behalf, as
to whom the Issuer makes no representation) has complied and will comply
with the offering restrictions requirement of Regulation S.
(xxxv) MARKET ACTIVITIES. The Issuer has not, directly or
indirectly, (A) taken any action designed to cause or to result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Issuer to
facilitate the sale or resale of the Securities or (B) (x) sold (except
pursuant to this Agreement), bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (y) paid or
agreed to pay to any person and compensation for soliciting another to
purchase any other securities of the Issuer.
(xxxvi) ERISA. The Issuer is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Issuer would have any liability; the Issuer has not
incurred and does not expect to incur liability under (A) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(B) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"CODE"); and each "pension plan" for which the Issuer would have liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all
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material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(xxxvii) INSURANCE. The Issuer and each of its subsidiaries
carry, or are covered by, insurance in such amounts and covering such
risks as is adequate for the conduct of their respective businesses and
the value of their respective properties and is customary for companies
engaged in similar businesses in similar industries.
(b) OFFICERS' CERTIFICATES. Any certificate signed by any officer of the
Issuer or any of its subsidiaries and delivered to the Initial Purchasers or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Issuer to the Initial Purchasers as to the matters covered thereby.
2. PURCHASE, SALE AND RESALE OF THE SECURITIES; CLOSING
REPRESENTATIONS AND WARRANTIES OF THE INITIAL PURCHASERS. (a) SECURITIES. On
the basis of the representations and warranties contained in this Agreement, and
subject to the terms and conditions set forth in this Agreement, the Issuer
agrees to sell to the Initial Purchasers, severally and not jointly, and each
Initial Purchaser, severally and not jointly, agrees to purchase from the
Issuer, at the price set forth in SCHEDULE B, the aggregate principal amount of
Securities set forth in SCHEDULE A opposite the name of such Initial Purchaser,
plus any additional amount of Securities which such Initial Purchaser may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) PAYMENT. Payment of the purchase price for, and delivery of, the
Securities shall be made at such place as shall be agreed upon by the Issuer and
the Initial Purchasers, at 9:00 A.M., New York time, on the fifth (5th) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 11), or such other time not later than ten (10) business days after such
date as shall be agreed upon by the Issuer and the Initial Purchasers (such date
and time of payment and delivery being herein called the "CLOSING TIME").
Payment shall be made to the Issuer by wire transfer of IMMEDIATELY
AVAILABLE FUNDS to a bank account designated by the Issuer, against delivery to
TD Securities for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized TD Securities, for its account, to accept
delivery of, and receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. TD Securities, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder.
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(c) QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Issuer that it is a
Qualified Institutional Buyer within the meaning of Rule 144A under the
Securities Act.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Securities shall be
in such denominations ($1,000 or integral multiples thereof) and registered in
such names as the Initial Purchasers may request in writing at least one full
business day before the Closing Time. The certificates representing the
Securities [(which may be in temporary form)] shall be registered in the name of
Cede & Co. pursuant to an agreement or agreements with The Depository Trust
Company ("DTC"), and shall be made available for examination and packaging by
the Initial Purchasers in The City of New York not later than 10:00 A.M. on the
last business day prior to the Closing Time.
Section 3. CERTAIN COVENANTS OF THE ISSUER. The Issuer covenants
with the Initial Purchasers as follows:
(a) OFFERING MEMORANDUM. The Issuer will promptly deliver to the Initial
Purchasers (without charge, for the period ending after the later of (i) the
completion of the distribution of the Securities as determined by TD Securities
and (ii) 45 days following the Closing Time, and at the expense of the Initial
Purchasers thereafter) such number of copies of the Offering Memorandum, as it
may then be amended or supplemented, or the Preliminary Offering Memorandum, as
it may then be amended or supplemented, as the Initial Purchasers may from time
to time reasonably request.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Issuer will as soon as is
practicable notify each Initial Purchaser, and confirm such notice in writing,
of (x) any filing made by the Issuer of information relating to the offering of
the Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction and (y) prior to the completion of the
distribution of the Securities by the Initial Purchasers as determined by TD
Securities, any material changes in or affecting the condition, financial or
otherwise, the earnings, business affairs or business prospects of the Issuer
and its subsidiaries which (i) make any statement of any material fact made in
the Offering Memorandum materially false or misleading or (ii) are not disclosed
in the Offering Memorandum. If, during the period referred to in paragraph (a)
above, any event shall occur or condition exist as a result of which it is
necessary, in the opinion of counsel for the Initial Purchasers or counsel for
the Issuer, to amend or supplement the Offering Memorandum in order that the
Offering Memorandum will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading or
if, in the opinion of counsel for the Initial Purchasers or counsel for the
Issuer, it is necessary to amend or supplement the Offering Memorandum to comply
with applicable law, the Issuer, at its own expense, will promptly prepare such
amendment or supplement as may be necessary so that the statements in the
Offering Memorandum as so amended or supplemented will not, in the
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light of the circumstances then existing, be misleading or so that such
Offering Memorandum as so amended or supplemented will comply with applicable
law, as the case may be, and furnish the Initial Purchasers such number of
copies as they may reasonably request (and the Initial Purchasers will, upon
receiving notice from the Issuer to do so, suspend use of the Offering
Memorandum, until such time as they shall have received such copies of the
amended or supplemented Offering Memorandum).
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Issuer will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers (except to the extent that any such
amendment or supplement objected to is necessary, in the judgment of counsel to
the Issuer, to make the statements made in the Offering Memorandum, in the light
of the circumstances under which they were made, not misleading). Neither the
consent of the Initial Purchasers, nor the Initial Purchasers' delivery of any
such amendment or supplement, shall constitute a waiver of any of the conditions
set forth in Section 5 hereof.
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Issuer will use
its best efforts, in cooperation with the Initial Purchasers, to qualify the
Securities for offering and sale under the applicable securities laws of such
states and other jurisdictions of the United States as the Initial Purchasers
may designate and maintain such qualifications in effect as long as required for
the sale of the Securities; PROVIDED, HOWEVER, that the Issuer shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(e) RATING OF SECURITIES. The Issuer shall take all reasonable action
necessary to enable Standard & Poor's Ratings Services, a division of McGraw
Hill, Inc. ("S&P"), and Moody's Investors Service Inc. ("MOODY'S"), to provide
their respective credit ratings of the Securities.
(f) DTC. The Issuer will use its reasonable efforts in cooperation with
the Initial Purchasers to obtain the necessary approvals for the Securities to
be eligible for clearance and settlement through DTC.
(g) PORTAL. The Issuer will use its reasonable efforts in cooperation
with the Initial Purchasers to obtain the necessary approvals for the Securities
to be designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to trading in the PORTAL market.
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(h) USE OF PROCEEDS. The Issuer will apply the net proceeds that it
receives from the offer and sale of the Securities issued by the Issuer in the
manner set forth in the Offering Memorandum under the heading "Use of Proceeds."
(i) RESTRICTION ON SALE OF SECURITIES. For a period of 90 days after the
date of the Offering Memorandum, the Issuer will not, without the prior written
consent of TD Securities, directly or indirectly, issue, sell, offer or agree to
sell, grant any option for the sale of, or otherwise dispose of, any other
securities that are substantially similar to the Securities or securities that
are exchangeable for or convertible into the Securities, other than the Exchange
Securities referred to in the Registration Rights Agreements.
Section 4. PAYMENT OF EXPENSES. (a) EXPENSES. Whether or not any
sale of the Securities is consummated, the Issuer will pay and bear all costs
and expenses incident to the performance of its and any of its respective
subsidiaries' obligations under any Transaction Document, including (i) the
preparation and printing of the Preliminary Offering Memorandum, the Offering
Memorandum and any amendments or supplements thereto, and the cost of furnishing
copies thereof to the Initial Purchasers, (ii) the delivery of the Securities to
the Initial Purchasers, (iii) the fees and disbursements of the Issuer's counsel
and accountants, (iv) the qualification of the Securities under the applicable
U.S. securities laws in accordance with Section 3(d) hereof and any filing for
review of the offering with NASD, including filing fees and fees and
disbursements of counsel for the Initial Purchasers in connection therewith and
in connection with the preparation of any "blue sky" or legal investment
memoranda, (v) any fees charged by rating agencies for rating the Securities,
(vi) the fees and expenses of the Notes Trustee and the Debenture Trustee,
including the fees and disbursements of counsel for the Notes Trustee and the
Debenture Trustee in connection with the Notes Indenture, the Exchange
Debenture, and the Securities, (vii) the cost of preparing certificates
representing the Securities, (viii) the cost of obtaining approval for the
trading of the Securities through PORTAL and (ix) all other costs and expenses
incident to the performance of the Issuer's obligations hereunder that are not
otherwise specifically provided for in this Section; PROVIDED, that except as
specifically provided herein, the Issuer will not be obligated to pay the costs
and expenses of counsel for the Initial Purchasers.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Initial Purchasers in accordance with the provisions of Section 5 or 10(a)(i),
the Issuer shall reimburse the Initial Purchasers for all of their documented
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers, reasonably incurred by the Initial
Purchasers in connection with this Agreement or the offering contemplated
hereunder.
Section 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the Initial Purchasers to purchase and pay for the Securities
that they have agreed to purchase hereunder are subject to the accuracy of the
representations and warranties of the Issuer contained herein and in
certificates of any officer of the Issuer and any subsidiary delivered
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pursuant to the provisions hereof, to the performance by the Issuer of its
obligations hereunder, and to the following further conditions:
(a) OPINION OF COUNSEL FOR THE ISSUER. At the Closing Time, the
Initial Purchasers shall have received a favorable opinion, dated as of the
Closing Time, of the following counsel for the Issuer, in form and substance
satisfactory to counsel for the Initial Purchasers: (i) Moss & Barnett, A
Professional Association, counsel for the Issuer, to the effect set forth in
EXHIBIT A-1 hereto and to such further effect as counsel for the Initial
Purchasers may reasonably request (in giving such opinion, such counsel may
rely, as to all matters governed by the laws of jurisdictions other than the
law of the State of Minnesota and the federal law of the United States upon
the opinions of counsel satisfactory to the Initial Purchasers), (ii) Lukas,
Nace, Gutierrez & Sachs, Chartered, special regulatory counsel for the
Issuer, to the effect of the regulatory matters set forth in Exhibit A-2
hereto and to such further effect as counsel for the Initial Purchasers may
reasonably request, (iii) Moss & Barnett, A Professional Association,
Minnesota regulatory counsel for the Issuer, to the effect of the regulatory
matters set forth in EXHIBIT A-3 hereto and to such further effect as counsel
for the Initial Purchasers may reasonably request and (iv) Curtis, Thaxter,
Stevens, Broder & Micoleau LLC, special Maine regulatory counsel for the
Issuer, to the effect of the regulatory matters substantially in the form set
forth in EXHIBIT A-4 hereto and to such further effect as counsel for the
Initial Purchasers may reasonably request. Each such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the Issuer and
its subsidiaries (and other affiliates) and certificates of public officials.
(b) OPINION OF COUNSEL FOR THE INITIAL PURCHASERS. At the Closing
Time, the Initial Purchasers shall have received the favorable opinion, dated
as of the Closing Time, of Paul, Hastings, Janofsky & Walker LLP, counsel for
the Initial Purchasers. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Initial Purchasers. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Issuer and its
subsidiaries (and other affiliates) and certificates of public officials.
(c) OFFICERS' CERTIFICATES. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any Material Adverse Effect,
whether or not arising in the ordinary course of business, and the Initial
Purchasers shall have received a certificate of the President or a Vice
President of the Issuer and of the chief financial or chief accounting
officer of the Issuer, dated as of the Closing Time, to the effect that (i)
there has been no such Material Adverse Effect, (ii) the representations and
warranties in Section 1 hereof are true and correct in all material respects
with the same force and effect as though expressly made at and as of the
Closing Time (except for those representations and warranties that are
expressly made as of
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a certain date) and (iii) the Issuer has complied in all material respects
with all agreements and satisfied in all material respects all conditions on
its part to be performed or satisfied at or prior to the Closing Time.
(d) ACCOUNTANTS' COMFORT LETTERS. At the time of the execution of this
Agreement, TD Securities shall have received from each of Arthur Anderson
LLP, independent public accountants for the Issuer and Unity, and KPMG Peat
Marwick LCC, independent auditors for ACC, a letter to the Initial Purchasers
dated the date hereof, in form and substance satisfactory to the Initial
Purchasers, together with signed or reproduced copies of such letter for each
of the other Initial Purchasers, containing statements and information of the
type ordinarily included in accountants' "comfort letters" with respect to
the financial statements and certain financial information contained in the
Offering Memorandum.
(e) BRING-DOWN COMFORT LETTERS. At the Closing Time, TD Securities
shall have received from each of Arthur Anderson LLP, independent public
accountants for the Issuer and Unity, and KPMG Peat Marwick LLC, independent
auditors for ACC, a letter, dated as of the Closing Time, to the effect that
they reaffirm the statements made in the letters furnished pursuant to
subsection (d) of this Section, except that the specified dates referred to
shall be a date not more than three (3) business days prior to the Closing
Time, together with signed or reproduced copies of such letter for the other
Initial Purchasers.
(f) MAINTENANCE OF RATING. At the Closing Time, the Senior
Subordinated Notes shall be rated at least B-3 by Moody's and B- by S&P, and
the Issuer shall have delivered to the Initial Purchasers a letter dated the
Closing Time from each such rating agency, or other evidence satisfactory to
the Initial Purchasers, confirming that the Securities have such ratings; and
since the date of this Agreement, there shall not have occurred a downgrading
in the rating assigned to the Securities or any of the Issuer's other debt
securities by any "nationally recognized statistical rating organization," as
that term is defined by the Commission in Rule 436(g)(2) under the Securities
Act, and no such securities rating agency shall have publicly announced that
it has under surveillance or review, with possible negative implications, its
rating of the Securities or any of the Issuer's other debt securities.
(g) PORTAL. At the Closing Time, the Senior Subordinated Notes and the
Exchangeable Preferred Stock shall have been designated for trading on PORTAL.
(h) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with all such documents, certificates
and opinions as they may require for the purpose of enabling them to pass
upon the matters referred to in Section 5(b) and in order to evidence (i) the
accuracy and completeness of any of the representations, warranties or
statements of the Issuer in this Agreement, (ii) the performance of the
covenants of the Issuer in this Agreement or (iii) the fulfillment of the
conditions herein contained and all proceedings taken by the Issuer at or
prior to the Closing Time in connection with the authorization, issuance and
sale of the Securities as contemplated in this
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Agreement. Such documents, certificates and opinions shall be satisfactory
in form and substance to the Initial Purchasers and to counsel for the
Initial Purchasers.
(i) EXECUTION AND DELIVERY OF AGREEMENTS. At or prior to the Closing
Time, the Notes Indenture and the Registration Rights Agreements, in form and
substance reasonably satisfactory to the Initial Purchasers, shall have been
duly executed and delivered by the Issuer and be in full force and effect.
(j) SOLVENCY CERTIFICATE. At the Closing Time, the Initial Purchasers
shall have received a solvency certificate of the Issuer's chief financial
officer, in form and substance reasonably satisfactory to the Initial
Purchasers and dated as of the Closing Time.
(k) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Initial Purchasers by notice to the
Issuer at any time at or prior to the Closing Time, and such termination
shall be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 7 and 8 shall survive any such
termination and remain in full force and effect.
(l) ATLANTIC FINANCIAL DATA CERTIFICATE AND BRING DOWN. At the time of
execution of this Agreement, the Initial Purchasers shall have received from
the Chief Executive Officer and the Chief Financial Officer of the Issuer a
certificate as of the date hereof in respect of certain financial data
included in the Offering Memorandum in the form previously agreed. At the
Closing Time, the Initial Purchasers shall have received from such officers a
certificate to the effect that they reaffirm as of the Closing Time the
statements made in the certificate referred to in the preceding sentence,
with any reference in such bring down certificate to "the date hereof" or any
similar reference being brought forward to the date of such bring down
certificate.
Section 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES. (a)
REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE INITIAL PURCHASERS. Each
of the Initial Purchasers represents, warrants and covenants to observe the
following procedures in connection with the offer and sale of the Securities:
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS. Each
Initial Purchaser understands that no action has been taken in any
jurisdiction by the Issuer that would permit a public offering of the
Securities in any jurisdiction where action would be required for such
purpose. Each Initial Purchaser represents and agrees that it has not
offered, sold or delivered and it will not offer, sell or deliver any of
the Securities in any jurisdiction except under circumstances that will
result in compliance with the applicable laws thereof, and that it will
take at its own expense whatever action is required to permit its purchase
and resale of the Securities in any such jurisdiction (other than in the
United States). Each such offer or sale shall only
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be made (A) to persons whom the offeror or seller reasonably believes to
be Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) or (B) to non-U.S. persons outside the United States
(which shall include dealers or other professional fiduciaries in the
United States acting on a discretionary basis for beneficial owners
(other than an estate or trust) that are non-U.S. persons) to whom the
offeror or seller reasonably believes offers and sales of the Securities
may be made in reliance upon Regulation S under the Securities Act and
applicable securities legislation of the relevant jurisdiction.
(ii) NO GENERAL SOLICITATION. Neither it nor any person acting on its
behalf has engaged or will engage in any form of general solicitation or
general advertising (within the meaning of Rule 502(c) under the Securities
Act) in connection with the offering or sale of the Securities in the
United States.
(iii) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial Purchaser
will take reasonable steps to inform, and cause each of its affiliates to
take reasonable steps to inform, persons acquiring Securities from such
Initial Purchaser or affiliate, as the case may be, in the United States
(the "SUBSEQUENT PURCHASERS") that the Securities (A) have not been and
will not be registered under the Securities Act, (B) are being sold to them
without registration under the Securities Act in reliance on Rule 144A or
in accordance with another exemption from registration under the Securities
Act, as the case may be and (C) may not be offered, sold or otherwise
transferred except (1) to the Issuer, (2) outside the United States in
accordance with Rule 904 of Regulation S or (3) inside the United States in
accordance with (x) Rule 144A to a person whom the seller reasonably
believes is a Qualified Institutional Buyer that is purchasing such
Securities for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or
transfer is being made in reliance on Rule 144A or (y) pursuant to another
available exemption from registration under the Securities Act.
(iv) RESTRICTIONS ON TRANSFER. The transfer restrictions set forth
under "Notice to Investors" in the Offering Memorandum, including the
legend required thereby, shall apply to the Securities except as otherwise
agreed by the Issuer and the Initial Purchasers.
(v) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. Each
Initial Purchaser understands that the Securities have not been and will
not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Regulation S under the Securities Act or
pursuant to an exemption from the registration requirements of the
Securities Act. Each Initial Purchaser severally represents, warrants and
agrees that it has offered and sold Securities and will offer and sell
Securities (A) as part of their distribution at any time and (B) otherwise
until
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forty (40) days after the later of the date upon which the offering
of the Securities commences and the Closing Time, only (x) outside the
United States in accordance with Rule 903 of Regulation S or (y) to a
Qualified Institutional Buyer in transactions that meet the requirements of
Rule 144A under the Securities Act. Accordingly, neither the Initial
Purchasers, their affiliates nor any persons acting on their behalf have
engaged or will engage in any directed selling efforts with respect to
Securities, and the Initial Purchasers, their affiliates and any person
acting on their behalf have complied and will comply with the offering
restriction requirements of Regulation S. Each Initial Purchaser agrees
that, at or prior to confirmation of a sale of Securities (other than a
sale of Securities pursuant to Rule 144A), it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Securities from it or through it during the
restricted period a confirmation or notice to substantially the following
effect:
The Securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and
may not be offered or sold within the United States or to or for
the account or benefit of U.S. persons (i) as part of their
distribution at any time and (ii) otherwise until forty (40) days
after the later of the date upon which the offering of the
Securities commenced and the date of closing, except in either
case in accordance with Regulation S or another exemption from
the registration requirements of the Securities Act. Terms used
above have the meaning given to them by Regulation S.
Terms used in the above paragraph but not otherwise defined have the
meaning given to them by Regulation S.
(vi) CONTRACTUAL ARRANGEMENTS WITH RESPECT TO DISTRIBUTION. Each
Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the
prior written consent of the Issuer.
(b) COVENANTS OF THE ISSUER. The Issuer covenants with each Initial
Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original distribution of
the Securities in accordance with the terms of this Agreement, the Issuer
agrees that, prior to any offer or resale of the Securities by the Initial
Purchasers, the Initial Purchasers and counsel for the Initial Purchasers
shall have the right to make reasonable inquiries into the businesses of
the Issuer and its subsidiaries.
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(ii) INTEGRATION. The Issuer agrees that it will not and will
cause its affiliates not to solicit any offer to buy or make any offer
or sale of, or otherwise negotiate in respect of, securities of the
Issuer of any class thereof if, as a result of the doctrine of
"integration" referred to in Rule 502 under the Securities Act, such
offer or sale would render invalid the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof or
by Rule 144A or by Regulation S thereunder or otherwise with respect to
(A) the sale of the Securities by the Issuers to the Initial Purchasers,
(B) the resale of the Securities by the Initial Purchasers to Subsequent
Purchasers or (C) the resale of the Securities by such Subsequent
Purchasers to others).
(iii) RULE 144A INFORMATION. The Issuer agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
Securities Act, while any of the Securities remain outstanding, it will
make available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Issuer furnishes information to the Commission pursuant to
Section 13 or 15(d) of the Exchange Act.
(iv) RESTRICTION ON RESALES. After the Closing Time and until
the Issuer shall have filed, and the Commission shall have declared
effective, a Registration Statement (as defined in the Registration
Rights Agreements) covering the Securities, the Issuer shall not, and
shall not permit any of its affiliates to, sell any Securities that are
"restricted securities" (as such term is defined in Rule 144(a)(3) under
the Securities Act).
Section 7. INDEMNIFICATION. (a) INDEMNIFICATION OF INITIAL
PURCHASERS. The Issuer agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as
follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of an untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission;
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PROVIDED, that (subject to Section 7(d) below) any such settlement is
effected with the written consent of the Issuer; and
(iii) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by TD
Securities), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Issuer by any
Initial Purchaser through TD Securities expressly for use in the Preliminary
Offering Memorandum or the Offering Memorandum (or any amendment or supplement
thereto); PROVIDED FURTHER, that with respect to any untrue statement contained
in or omission from any Preliminary Offering Memorandum, this indemnity
agreement shall not inure to the benefit of any Initial Purchaser on account of
any loss, claim, damage, liability or action arising from the sale of any
Securities to any person in the initial resale by that Initial Purchaser if that
Initial Purchaser failed to send or give a copy of the Offering Memorandum, as
the same may be amended or supplemented, to that person at or prior to the
written confirmation of such initial resale, and the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in such Preliminary Offering Memorandum was corrected in the
Offering Memorandum and the Offering Memorandum was made available to that
Initial Purchaser prior to the sale of the Securities.
(b) INDEMNIFICATION OF ISSUER. Each Initial Purchaser severally agrees to
indemnify and hold harmless the Issuer, its directors, and each person, if any,
who controls the Issuer within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Preliminary
Offering Memorandum or the Offering Memorandum (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Issuer by such Initial Purchaser through TD Securities expressly for use
in the Preliminary Offering Memorandum or the Offering Memorandum (or any
amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure
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to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as
a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. In
the case of parties indemnified pursuant to Section 7(a) above, counsel to
the indemnified parties shall be selected by TD Securities, and, in the case
of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Issuer. An indemnifying party
may participate at its own expense in the defense of any such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be
sought under this Section 7 or Section 8 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel and the indemnifying party is
obligated to reimburse the indemnified party under the foregoing provisions of
this Section 7, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Section 8. CONTRIBUTION. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities pursuant to this
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Agreement or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Issuer on the one hand and of the Initial Purchasers on the
other hand in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Issuer on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Issuer and the total discount received by the Initial Purchasers, in each
case as set forth on the cover of the Offering Memorandum, bear to the aggregate
"Price to Investors" of the Securities as set forth on such cover.
The relative fault of the Issuer on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuer or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Issuer and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by PRO
RATA allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities purchased by it and sold pursuant to the
terms of this Agreement exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
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No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Initial Purchaser, and each director of the Issuer, and each person, if
any, who controls the Issuer within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Issuer. The Initial Purchasers' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the principal
amount of Securities set forth opposite their respective names in SCHEDULE A
hereto and not joint.
Section 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, indemnities, agreements and other
statements of the Issuer or its officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Issuer, and will survive delivery of the
Securities to the Initial Purchasers.
Section 10. TERMINATION OF AGREEMENT. (a) TERMINATION; GENERAL.
The Initial Purchasers may terminate this Agreement, by notice to the Issuer, at
any time at or prior to the Closing Time (i) if there has been, since the time
of the execution of this Agreement or the respective dates as of which
information is given in the Offering Memorandum, any event or condition which
would result in a Material Adverse Effect, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, or any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case, the effect of which is such as to make the judgment of
TD Securities, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Issuer has been suspended or materially limited by the Commission, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or in
the Nasdaq National Market has been suspended or materially limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of such exchanges or by such system or by order of the
Commission, NASD or any other governmental authority, in each case, the effect
of which is such as to make it, in the judgment of TD Securities, impracticable
to market the Securities or to enforce contracts for the sale of the Securities,
or (iv) if a banking moratorium has been declared by either Federal, New York or
Minnesota authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except as to the
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extent provided in Section 4; PROVIDED that the provisions of Sections 1, 7,
8 and 9 shall remain in full force and effect.
Section 11. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If one
or more of the Initial Purchasers shall fail, at the Closing Time, to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "DEFAULTED SECURITIES"), TD Securities shall have the right, but not the
obligation, within 24 hours thereafter, to make arrangements for one or more
non-defaulting Initial Purchasers, to purchase, each severally and not jointly,
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, TD Securities
shall not have completed such arrangements within such 24-hour period, then this
Agreement shall terminate without liability on the part of any non-defaulting
Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default that does not result in a termination
of this Agreement, either TD Securities or the Issuer shall have the right to
postpone the Closing Time for a period not exceeding seven (7) days in order to
effect any required changes in the Offering Memorandum or in any other documents
or arrangements.
Section 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to TD Securities at 31 West 52nd Street, New York,
New York 10019-6101, Attention: Gordon Paris, and notices to the Issuer shall
be directed to the Issuer at 3905 Dakota Street SW, Alexandria, Minnesota 56308,
Attention: President, with copies to Moss & Barnett, A Professional Association,
Attention: Ann K. Newhall, 4800 Norwest Center, Minneapolis, Minnesota 55402.
Section 13. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchasers and the Issuer and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Issuer and their respective successors and the
controlling persons and officers and directors referred to in Section 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Issuer and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Initial Purchaser shall be deemed to be a successor by reason merely of
such purchase.
31
<PAGE>
Section 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO ITS CONFLICTS OF LAW PROVISIONS). SPECIFIED TIMES OF THE DAY
REFER TO NEW YORK CITY TIME.
Section 15. EFFECT OF HEADINGS. The Section and other headings
herein are for convenience only and shall not affect the construction hereof.
Section 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and in separate counterparts and, when this Agreement has been
executed by each party in multiple or separate counterparts, all such
counterparts taken together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
If the foregoing is in accordance with the Initial Purchasers'
understanding of our agreement, please sign and return a counterpart hereof to
TD Securities, whereupon this instrument will become a binding agreement among
the Issuer and the Initial Purchasers in accordance with its terms.
Very truly yours,
RURAL CELLULAR CORPORATION
By:
---------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
TD SECURITIES (USA) INC.
By:
- -------------------------
Name:
Title:
NATIONSBANC MONTGOMERY
SECURITIES LLC
By:
----------------------
Name:
Title:
BANCBOSTON SECURITIES INC.
By:
----------------------
Name:
Title:
33
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
of Senior Number of Shares of
Subordinated Notes Exchangeable Preferred
Initial Purchasers to be Purchased Stock to be Purchased
<S> <C> <C>
TD Securities ( USA) Inc. $ 87,500,000 87,500
NationBanc Montgomery $ 25,000,000 25,000
Securities LLC
BancBoston Securities Inc. $ 12,500,000 12,500
Total $125,000,000 125,000
</TABLE>
<PAGE>
SCHEDULE B
1. The initial price of the Securities shall be 100% of the principal
amount or liquidation preference (as applicable) thereof, plus accrued
interest or dividends (as applicable) , if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the Senior
Subordinated Notes shall be 97.125% of the principal amount thereof
and for the Exchangeable Preferred Stock shall be 96.50% of the
liquidation preference thereof.
3. Interest on the Senior Subordinated Notes shall accrue at an annual
rate of 95/8% and will be payable on May 15 and November 15 of each
year, commencing on November 15, 1998. Dividends will accrue on the
Exchangeable Preferred Stock at an annual rate of 113/8% per annum and
will be payable on February 15, May 15, August 15 and November 15 of
each year, commencing on August 15, 1998.
4. The redemption prices to be supplied in the Offering Memorandum under
the caption "Description of the Senior Subordinated Notes - Optional
Redemption" (and correspondingly in the Notes Indenture) shall be on
or after May 15 of the years appearing below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2003 104.813%
2004 103.208%
2005 101.604%
2006 and thereafter 100.000%
</TABLE>
5. The redemption prices to be supplied in the Offering Memorandum under
the caption "Description of Exchangeable Preferred Stock and Exchange
Debentures - Exchangeable Preferred Stock - Optional Redemption" (and
correspondingly in the Certificate of Designation) shall be on or
after May 15 of the years appearing below:
<PAGE>
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2003 105.688%
2004 104.266%
2005 102.844%
2006 101.422%
2007 and thereafter 100.000%
</TABLE>
6. The redemption prices to be supplied in the Offering Memorandum
under the caption "Description of Exchangeable Preferred Stock
and Exchange Debentures - Exchange Debentures - Optional
Redemption" (and correspondingly in the Exchange Indenture) shall
be on or after May 15 of the years appearing below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2003 105.688%
2004 104.266%
2005 102.844%
2006 101.422%
2007 and thereafter 100.000%
</TABLE>
7. The redemption price to be supplied in the Offering Memorandum under
the caption "Description of Senior Subordinated Notes - Optional
Redemption" with respect to the redemption of Senior Subordinated
Notes from the net cash proceeds of a Qualifying Event (and
correspondingly in all other places in the Offering Memorandum where
such redemption price is referenced and in the Notes Indenture) shall
be 109.625%.
8. The redemption price to be supplied in the Offering Memorandum under
the caption "Description of Exchangeable Preferred Stock and Exchange
Debentures - Exchangeable Preferred Stock - Optional Redemption" with
respect to the redemption of Exchangeable Preferred Stock from the net
cash proceeds of a Qualifying Event (and correspondingly in all other
places in the Offering Memorandum where such redemption price is
referenced and in the Certificate of Designation) shall be 111.375%.
9. The redemption price to be supplied in the Offering Memorandum under
the caption "Description of Exchangeable Preferred Stock and Exchange
Debentures - Exchange Debentures - Optional Redemption" with respect
<PAGE>
to the redemption of Exchange Debentures from the net cash proceeds of
a Qualifying Event (and correspondingly in all other places in the
Offering Memorandum where such redemption price is referenced and in
the Exchange Indenture) shall be 111.375%.
<PAGE>
SCHEDULE 1(a)(ix)
SUBSIDIARIES
Wholly owned subsidiaries:
RCC Licenses, Inc., a Minnesota corporation
RCC Paging, Inc., a Minnesota corporation
RCC Atlantic Long Distance, Inc., a Minnesota corporation
RCC Atlantic, Inc., a Minnesota corporation
MRCC, Inc., a Maine corporation
Partially owned subsidiaries:
Cellular 2000, Inc., a Minnesota corporation
(41.67% ownership)
Switch 2000, LLC, a Minnesota limited liability company
(40.77% ownership)
Wireless Alliance, LLC, a Minnesota limited liability company
(51.00% ownership)
<PAGE>
EXHIBIT A-1
FORM OF OPINION OF MOSS & BARNETT
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF LUKAS, NACE, GUTTIERREZ
& SACHS, CHARTERED
<PAGE>
EXHIBIT A-3
FORM OF REGULATORY OPINION
OF MOSS & BARNETT
<PAGE>
EXHIBIT A-4
FORM OF REGULATORY OPINION
OF CURTIS, THAXTER, STEVENS, BRODER
& MICOLEAU LLC
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RURAL CELLULAR CORPORATION
TO
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
---------------
INDENTURE
Dated as of May 14, 1998
---------------
$175,000,000
9 5/8 % Senior Subordinated Notes due 2008
9 5/8% Series B Senior Subordinated Notes due 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE
<TABLE>
<CAPTION>
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . .1
<S> <C> <C>
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . .25
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . .26
SECTION 104. Acts of Holders; Record Date . . . . . . . . . . . . . . . .27
SECTION 105. Notices, Etc., to Trustee and Company. . . . . . . . . . . .28
SECTION 106. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . .28
SECTION 107. Conflict with Trust Indenture Act. . . . . . . . . . . . . .29
SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . .29
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . .29
SECTION 110. Separability Clause. . . . . . . . . . . . . . . . . . . . .29
SECTION 111. Benefits of Indenture. . . . . . . . . . . . . . . . . . . .29
SECTION 112. Governing Law. . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 114. Counterparts . . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE TWO
SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 201. Forms Generally. . . . . . . . . . . . . . . . . . . . . . .30
SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . .31
SECTION 203. Form of Reverse of Security. . . . . . . . . . . . . . . . .35
SECTION 204. Form of Trustee's Certificate of Authentication. . . . . . .40
ARTICLE THREE
THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
SECTION 301. Title and Terms. . . . . . . . . . . . . . . . . . . . . . .41
SECTION 302. Denominations. . . . . . . . . . . . . . . . . . . . . . . .43
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . .43
SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . .44
SECTION 305. Global Securities. . . . . . . . . . . . . . . . . . . . . .44
SECTION 306. Registration; Registration of Transfer and Exchange
Generally; Certain Transfers and Exchanges; Securities
Act Legends. . . . . . . . . . . . . . . . . . . . . . . . .46
i
<PAGE>
SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities . . . . . .50
SECTION 308. Payment of Interest; Interest Rights Preserved . . . . . . .51
SECTION 309. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . .52
SECTION 310. Cancellation . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 311. Computation of Interest. . . . . . . . . . . . . . . . . . .53
ARTICLE FOUR
SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 401. Satisfaction and Discharge of Indenture. . . . . . . . . . .53
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . .54
ARTICLE FIVE
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 501. Events of Default. . . . . . . . . . . . . . . . . . . . . .55
SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . .57
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee . . . . . . . . . . . . . . . . . . . . . . . . .58
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . .59
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities . . . . . . . . . . . . . . . . . . . . . . . . .59
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . .60
SECTION 507. Limitation on Suits. . . . . . . . . . . . . . . . . . . . .60
SECTION 508. Unconditional Right of Holders to Receive Principal
Premium and Interest . . . . . . . . . . . . . . . . . . . .61
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . .61
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . .62
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . .62
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . .62
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . .63
SECTION 514. Undertaking for Costs. . . . . . . . . . . . . . . . . . . .63
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . .63
ARTICLE SIX
THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 601. Certain Duties and Responsibilities. . . . . . . . . . . . .64
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . .64
SECTION 603. Certain Rights of Trustee. . . . . . . . . . . . . . . . . .65
SECTION 604. Not Responsible for Recitals or Issuance of Securities . . .67
SECTION 605. May Hold Securities. . . . . . . . . . . . . . . . . . . . .67
SECTION 606. Money Held in Trust. . . . . . . . . . . . . . . . . . . . .67
ii
<PAGE>
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . .67
SECTION 608. Disqualification; Conflicting Interests. . . . . . . . . . .68
SECTION 609. Corporate Trustee Required; Eligibility. . . . . . . . . . .68
SECTION 610. Resignation and Removal; Appointment of Successor. . . . . .69
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . .70
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . . . .70
SECTION 613. Preferential Collection of Claims Against Company. . . . . .71
SECTION 614. Appointment of Authenticating Agent. . . . . . . . . . . . .71
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . .73
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. .73
SECTION 702. Preservation of Information; Communications to Holders . . .73
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . .74
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . .74
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. . . . . . . . . . . .74
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms. . . . .74
SECTION 802. Successor Substituted. . . . . . . . . . . . . . . . . . . .76
ARTICLE NINE
SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . .76
SECTION 901. Supplemental Indentures Without Consent of Holders . . . . .76
SECTION 902. Supplemental Indentures with Consent of Holders. . . . . . .77
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . .78
SECTION 904. Effect of Supplemental Indentures. . . . . . . . . . . . . .78
SECTION 905. Conformity with Trust Indenture Act. . . . . . . . . . . . .78
SECTION 906. Reference in Securities to Supplemental Indentures . . . . .79
SECTION 907. Notice of Supplemental Indenture . . . . . . . . . . . . . .79
ARTICLE TEN
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . . .79
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . . . .79
SECTION 1003. Money for Security Payments to be Held in Trust. . . . . . .80
iii
<PAGE>
SECTION 1004. Existence. . . . . . . . . . . . . . . . . . . . . . . . . .81
SECTION 1005. Maintenance of Properties. . . . . . . . . . . . . . . . . .82
SECTION 1006. Payment of Taxes and Other Claims. . . . . . . . . . . . . .82
SECTION 1007. Maintenance of Insurance . . . . . . . . . . . . . . . . . .82
SECTION 1008. Limitation on Consolidated Indebtedness. . . . . . . . . . .82
SECTION 1009. Limitation on Preferred Stock of Restricted Subsidiaries . .85
SECTION 1010. Limitation on Certain Indebtedness . . . . . . . . . . . . .86
SECTION 1011. Limitation on Restricted Payments. . . . . . . . . . . . . .86
SECTION 1012. Limitations Concerning Distributions and Transfers By
Restricted Subsidiaries . . . . . . . . . . . . . . . . . .87
SECTION 1013. Limitations on Liens . . . . . . . . . . . . . . . . . . . .88
SECTION 1014. Limitation on Transactions with Affiliates and Related
Persons. . . . . . . . . . . . . . . . . . . . . . . . . . .89
SECTION 1015. Limitation on Asset Sales. . . . . . . . . . . . . . . . . .90
SECTION 1016. Limitation on Use of Proceeds; Proceeds Purchase Offer . . .92
SECTION 1017. Change of Control. . . . . . . . . . . . . . . . . . . . . .93
SECTION 1018. Statement by Officers as to Default; Compliance
Certificates . . . . . . . . . . . . . . . . . . . . . . . .95
SECTION 1019. Waiver of Certain Covenants. . . . . . . . . . . . . . . . .96
SECTION 1020. Provision of Financial Information . . . . . . . . . . . . .96
ARTICLE ELEVEN
REDEMPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .96
SECTION 1101. Right of Redemption. . . . . . . . . . . . . . . . . . . . .96
SECTION 1102. Applicability of Article Eleven. . . . . . . . . . . . . . .97
SECTION 1103. Election to Redeem; Notice to Trustee. . . . . . . . . . . .97
SECTION 1104. Selection by Trustee of Securities to Be Redeemed. . . . . .97
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . .98
SECTION 1106. Deposit of Redemption Price. . . . . . . . . . . . . . . . .98
SECTION 1107. Securities Payable on Redemption Date. . . . . . . . . . . .98
SECTION 1108. Securities Redeemed in Part. . . . . . . . . . . . . . . . .99
ARTICLE TWELVE
SUBORDINATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . .99
SECTION 1201. Securities Subordinate to Senior Indebtedness. . . . . . . .99
SECTION 1202. Payment Over of Proceeds Upon Dissolution. . . . . . . . . .99
SECTION 1203. No Payment When Senior Indebtedness in Default . . . . . . .101
SECTION 1204. Payment Permitted If No Default. . . . . . . . . . . . . . .102
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness. . .102
SECTION 1206. Provisions Solely to Define Relative Rights. . . . . . . . .102
SECTION 1207. Trustee to Effectuate Subordination. . . . . . . . . . . . .103
SECTION 1208. No Waiver of Subordination Provisions. . . . . . . . . . . .103
iv
<PAGE>
SECTION 1209. Notice to Trustee. . . . . . . . . . . . . . . . . . . . . .104
SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .105
SECTION 1211. Trustee Not Fiduciary for Holders of Senior Debt . . . . . .105
SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights . . . . . . . . . . . . . .105
SECTION 1213. Article Twelve Applicable to Paying Agents . . . . . . . . .106
SECTION 1214. Defeasance of this Article Twelve. . . . . . . . . . . . . .106
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . .106
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . .106
SECTION 1302. Defeasance and Discharge . . . . . . . . . . . . . . . . . .106
SECTION 1303. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . .107
SECTION 1304. Conditions to Defeasance or Covenant Defeasance. . . . . . .107
SECTION 1305. Deposited Money and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions. . . . . . . .109
SECTION 1306. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . .110
</TABLE>
v
<PAGE>
. . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture, dated as of May 14, 1998.
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
Section 310(a)(1) ...................................... 609
(a)(2) ...................................... 609
(a)(3) ...................................... Not applicable
(a)(4) ...................................... Not applicable
(a)(5) ...................................... 608
(b) ...................................... 608
610
(c) ...................................... Not applicable
Section 311(a) ...................................... 613
(b) ...................................... 613
(c) ...................................... Not applicable
Section 312(a) ...................................... 701
702(a)
(b) ...................................... 702(b)
(c) ...................................... 702(c)
Section 313(a) ...................................... 703(a)
(b)(1) ...................................... Not applicable
(b)(2) ...................................... 703(a)
(c) ...................................... 703(a)
106
(d) ...................................... 703(b)
Section 314(a) ...................................... 704
(b) ...................................... Not applicable
(c)(1) ...................................... 102
(c)(2) ...................................... 102
(c)(3) ...................................... Not applicable
(d) ...................................... Not applicable
(e) ...................................... 102
Section 315(a) ...................................... 601
603
(b) ...................................... 602
106
(c) ...................................... 601(a)
(d) ...................................... 601(b)
(e) ...................................... 514
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
Section 316(a)(last
sentence) ...................................... 101
(a)(1)(A) ...................................... 512
(a)(1)(B) ...................................... 513
(a)(2) ...................................... Not applicable
(b) ...................................... 508
Section 317(a)(1) ...................................... 503
(a)(2) ...................................... 504
(b) ...................................... 1003
Section 318(a) ...................................... 107
</TABLE>
- -------------------------------------------------------------------------------
This Reconciliation and tie shall not, for any purpose, be deemed to be a part
of the Indenture.
A-ii
<PAGE>
INDENTURE, dated as of May 14, 1998 (this "Indenture"), between Rural
Cellular Corporation, a corporation duly organized and existing under the laws
of the State of Minnesota (herein called the "Company"), having its principal
office at 3905 Dakota Street S. W., Alexandria, MN 56308, and Norwest Bank
Minnesota, National Association, a trust company duly organized and existing
under the laws of the State of Minnesota, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 9 5/8
% Senior Subordinated Notes due 2008 (the "Original Securities"), and 9 5/8 %
Series B Senior Subordinated Notes due 2008 (the "Exchange Securities," and
together with the Original Securities, the "Securities") of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
<PAGE>
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles (whether or not such is indicated herein), and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted at the date of such computation;
(4) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles but shall
not include the assets and liabilities of Unrestricted Subsidiaries, except
to the extent of dividends and distributions actually paid to the Company
or one of its Wholly Owned Restricted Subsidiaries; and
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Articles Six and Ten, are defined
as provided in such Articles.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in the case of both of the preceding clause (i) and
clause (ii), other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition. Acquired Indebtedness shall be deemed to be Incurred on the date
of the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Acquired Person" has the meaning specified in the definition of
Permitted Investment.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Securities" has the meaning set forth in Section 301.
"Additional Step-Up" has the meaning specified in the form of the
Securities set forth in Section 202.
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"Adjusted Annualized Operating Cash Flow Ratio" of any Person means
the Annualized Operating Cash Flow Ratio of such Person as adjusted to treat all
Preferred Stock of such Person as Redeemable Stock.
"Administrative Agent" means the Person or Persons designated as such
under the Credit Facility.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Annualized Operating Cash Flow" of any Person means the Operating
Cash Flow of such Person for the Reference Period multiplied by two.
"Annualized Operating Cash Flow Ratio" of any Person on any date (the
"Transaction Date") means, with respect to any Person and its Restricted
Subsidiaries, the ratio of (i) Consolidated Indebtedness of such Person and its
Restricted Subsidiaries on the Transaction Date (after giving pro forma effect
to the Incurrence of any Indebtedness on such Transaction Date) divided by (ii)
the aggregate amount of Annualized Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all dispositions of
businesses made by such Person and its Restricted Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
dispositions had occurred at the beginning of such Reference Period); PROVIDED,
that for purposes of such computation, in calculating Annualized Operating Cash
Flow and Consolidated Indebtedness: (a) the transaction giving rise to the need
to calculate the Annualized Operating Cash Flow Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period; (b)
the Incurrence of any Indebtedness during the Reference Period or subsequent
thereto and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to retire Indebtedness) will be assumed to
have occurred (on a pro forma basis) on the first day of such Reference Period;
(c) Consolidated Interest Expense attributable to any Indebtedness (whether
existing or being incurred) bearing a floating interest rate shall be computed
as if the rate in effect on the Transaction Date had been the applicable rate
for the entire Reference Period; (d) all members of the consolidated group of
such Person on the Transaction Date that were acquired during the Reference
Period shall be deemed to be members of the consolidated group of such Person
for the entire Reference Period; and (e) the Indebtedness and Annualized
Operating Cash Flow of any Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary shall be determined in accordance with the actual
percentage of the Person's common equity interest in such Restricted Subsidiary
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on the date of determination of the Annualized Operating Cash Flow Ratio (thus,
for example, in the case of a Restricted Subsidiary in which such Person owns a
51% common equity interest, 51% of such Subsidiary's Indebtedness and of such
Subsidiary's Annualized Operating Cash Flow would be included in the calculation
of such Person's aggregate Indebtedness and Annualized Operating Cash Flow,
respectively). When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its
Restricted Subsidiaries in the foregoing definition shall be deemed to refer to
the Company and its Restricted Subsidiaries.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, Euroclear and CEDEL,
in each case to the extent applicable to such transaction and as in effect from
time to time.
"Asset Sale" has the meaning specified in Section 1015.
"Atlantic Acquisition" means the acquisition of substantially all the
assets of Atlantic Cellular Company, L.P. and one of its Subsidiaries by the
Company.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Securities.
"Board of Directors" of a Person which is a corporation, means either
the board of directors of that Person or any duly authorized committee of that
board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors of the Company, to be in full force and effect on the
date of such certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York City or the
State of Minnesota are authorized or obligated by law or executive order to
close.
"Capital Lease Obligation" means that portion of any obligation of a
Person as lessee under a lease which is required to be capitalized on the
balance sheet of such lessee in accordance with generally accepted accounting
principles.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
including voting and non-voting) of equity of such Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality
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thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof), in each case maturing within one year
after the date of acquisition, (ii) time deposits and certificates of deposit
and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess
of $500 million and commercial paper issued by others rated at least A-2 or
the equivalent thereof by Standard & Poor's Corporation or at least P-2 or
the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments
in money market funds substantially all of whose assets comprise securities
of the types described in Clauses (i) and (ii) above.
"CEDEL" means Cedel Bank, S.A. (or any successor securities clearing
agency).
"Change of Control" has the meaning specified in Section 1017.
"Commission" means the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Consolidated Indebtedness" of any Person means at any date the
Indebtedness of such Person and its Restricted Subsidiaries at such date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Restricted Subsidiaries for such period, including without
limitation or duplication (or,
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to the extent not so included, with the addition of), (i) the portion of any
rental obligation in respect of any Capital Lease Obligation allocable to
interest expense in accordance with generally accepted accounting principles;
(ii) the amortization of Indebtedness discounts; (iii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar
facilities; (iv) fees with respect to Interest Hedge Agreements; (v) the
portion of any rental obligations in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such were treated
as a Capital Lease Obligation); and (vi) Preferred Stock dividends accrued or
payable other than dividends on Qualified Capital Stock of such Person.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (to the
extent included and without duplication) (i) the net income (or loss) of any
Person acquired by such Person or a Restricted Subsidiary of such Person after
the date of this Indenture in a pooling-of-interests transaction for any period
prior to the date of such transaction, (ii) the net income (or loss) of any
Person that is not a Restricted Subsidiary of such Person except to the extent
of the amount of dividends or other distributions actually paid to such Person
by such other Person during such period, (iii) gains or losses from sales of
assets other than sales of assets acquired and held for resale in the ordinary
course of business, (iv) for purposes of Section 1011, the net income, if
positive, of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
such net income is not at that time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to such Restricted Subsidiary, and (v)
all extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated
shareholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles; PROVIDED that, with
respect to the Company, adjustments following the date of this Indenture to the
accounting books and records of the Company in accordance with Accounting
Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) or
otherwise resulting from the acquisition of control of the Company by another
Person and its Subsidiaries shall not be given effect; PROVIDED FURTHER, that
such computation shall exclude (i) any amounts attributable to Redeemable Stock
or any equity security convertible into or exchangeable for Indebtedness, the
cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and (ii) Unrestricted Subsidiaries.
"Cooperative Banks" means lenders under the Credit Facility which are
cooperative banks.
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"Cooperative Bank Equity" means non-voting equity interests in
Cooperative Banks.
"Corporate Trust Office" means the principal office of the Trustee at
Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-0069 at which at
any particular time its corporate trust business shall be administered or such
other location designated by the Trustee in a report pursuant to Section 703(a).
"Credit Facility" means the Existing Credit Facility or the New Credit
Facility.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the date
of this Indenture, through and including the end of the last fiscal quarter
preceding the date of any proposed Restricted Payment.
"Cumulative Operating Cash Flow" means Operating Cash Flow of the
Company and its Restricted Subsidiaries for the period beginning on the first
day of the fiscal quarter immediately following the date of this Indenture,
through and including the end of the last fiscal quarter preceding the date of
any proposed Restricted Payment.
"Defaulted Interest" has the meaning specified in Section 308.
"Depositary" means a clearing agency registered under the Exchange Act
that is designated to act as Depositary for the Securities until a successor
Depositary shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Depositary" shall mean such successor Depositary.
The Depositary will initially be DTC.
"Designated Senior Indebtedness" means the Indebtedness under the
Credit Facility.
"Distribution Compliance Period" means the period through and
including the 40th day after the later of (i) the Issue Date and (ii) the
commencement of the offering of Original Securities pursuant to the Purchase
Agreement.
"DTC" means The Depository Trust Company, a New York corporation.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning specified in Section 501.
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"Exchangeable Preferred Stock" means the 11 3/8 % Senior Exchangeable
Preferred Stock of the Company.
"Exchange Act" refers to the Securities Exchange Act of 1934, as
amended.
"Exchange Debentures" means the Company's 11 3/8 % Senior Subordinated
Debentures due 2010, issuable in exchange for the Exchangeable Preferred Stock
in accordance with the terms thereof.
"Exchange Offer" means an offer made pursuant to an effective
registration statement under the Securities Act by the Company to exchange
securities substantially identical to Outstanding Securities (except for the
differences provided for herein) for Exchange Securities.
"Exchange Registration Statement" means a registration statement of
the Company under the Securities Act registering Exchange Securities for
distribution pursuant to the Exchange Offer.
"Exchange Securities" means the Securities designated as such in the
first paragraph of the recitals of the Company, all of which are to be issued
pursuant to the Exchange Offer or sold pursuant to the Resale Registration
Statement and their Successor Securities.
"Existing Credit Facility" means the Loan Agreement, dated as of May
1, 1997 (the "Loan Agreement"), among the Company, The Toronto-Dominion Bank,
Bank Boston, N.A., St. Paul Bank for Cooperatives, CoBank, Fleet National Bank,
First National Bank of Maryland, Societe Generale, New York Branch and Merita
Bank Ltd., New York Branch, as amended by a First Amendment to Loan Agreement
dated as of August 4, 1997, a Second Amendment to the Loan Agreement dated as of
December 30, 1997, a Third Amendment to the Loan Agreement dated as of April 17,
1998 and a Fourth Amendment to the Loan Agreement dated as of April 24, 1998,
and as such agreement may be further amended, supplemented, restated or
otherwise modified from time to time.
"Expiration Date" has the meaning specified in the definition of Offer
to Purchase.
"Fair Market Value" means, with respect to any assets or Person, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value
will be determined (i) if such Person or assets have a Fair Market Value in
excess of $20,000, but not in excess of $5 million, by any officer of the
Company and evidenced by an Officers' Certificate, dated
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within 30 days of the relevant transaction, or (ii) if such Person or assets
has a Fair Market Value of $5 million or more, by a majority of the Board of
Directors of the Company and evidenced by a Board Resolution, dated within 30
days of the relevant transaction, based on an appraisal of an independent
appraiser of national reputation.
"Global Securities" has the meaning set forth in Section 201.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or similar instruments, including obligations Incurred in connection with
the acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v) every Capital Lease
Obligation of such Person, (vi) the maximum fixed redemption or repurchase price
of Redeemable Stock of such Person at the time of determination, (vii) every
obligation to pay rent or other payment amounts of such Person with respect to
any Sale and Leaseback Transaction to which such Person is a party, (viii) all
obligations under Interest Hedge Agreements, (ix) every obligation of the type
referred to in Clauses (i) through (viii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise or which is secured by a Lien on any asset of such Person and (x) the
liquidation value of Preferred Stock of a Subsidiary of such person issued and
outstanding and held by other than such Person (or one of its Wholly Owned
Restricted Subsidiaries); PROVIDED that for all purposes of this Indenture, (A)
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the unamortized
portion of the original issue discount of such Indebtedness at the time of its
issuance as determined in conformity with generally accepted accounting
principles, (B)
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money borrowed at the time of the Incurrence of any Indebtedness in order to
pre-fund the payment of interest on such Indebtedness shall be deemed not to
be "Indebtedness" and (C) Indebtedness shall not include any liability for
federal, state, local or other taxes. For purposes of this Indenture, the
amount of any Indebtedness shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Indebtedness had terminated at the end of
such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by
and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person or in any event until
the counterparty thereunder defaults in its corresponding payment, then in
each such case, the amount of such obligations shall be the net amount so
determined, plus any premium due upon default by such Person.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC and BancBoston Securities Inc.
"Initial Regulation S Securities" means the Securities, if any, sold
by the Initial Purchasers in the initial offering contemplated by the Purchase
Agreement in reliance on Regulation S.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
"Investment" by any Person in any other Person means (without
duplication): (a) the acquisition (whether by purchase, merger, consolidation
or otherwise) by such Person (whether for cash, property, services, securities
or otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such other Person or any agreement to
make any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension;
10
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(c) the entering into by such Person of any guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of such other
Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of the
Company of any Person to be an Unrestricted Subsidiary. For purposes of
Section 1011 (i) "Investment" shall include and be valued at the Fair Market
Value of such Person's PRO RATA interest in the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the lesser of (A) the Fair Market
Value of such Person's pro rata interest in the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary and (B) the Fair Market Value of the
amount of such Person's Investments (other than Permitted Investments) made
in (net of cash distributions received from) such Unrestricted Subsidiary
since the date of this Indenture, and (ii) the amount of any Investment shall
be the Fair Market Value of such Investment at the time any such Investment
is made.
"Issue Date" means the time and date of the first issuance of the
Original Securities.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Maturity" means, when used with respect to any Security, the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means the aggregate amount of cash and Cash
Equivalents received by the Company and its Restricted Subsidiaries in respect
of an Asset Sale (including upon the conversion to cash and Cash Equivalents of
(a) any note or installment receivable at any time or (b) any other property as
and when any cash and Cash Equivalents are received in respect of any property
received in an Asset Sale but only to the extent such cash and Cash Equivalents
are received within one year after such Asset Sale), less the sum of (i) all
reasonable out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by the Board of Directors of the Company) of income, franchise, sales and other
applicable taxes required to be paid by the Company or any Restricted Subsidiary
of the Company in connection with such Asset Sale and (ii) the aggregate amount
of cash so received which is used to retire any existing Senior Indebtedness or
Indebtedness of the
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Company that ranks PARI PASSU in right of payment with the Securities or
existing Indebtedness of such Restricted Subsidiaries, as the case may be,
which is required to be repaid in connection with such Asset Sale or is
secured by a Lien on the property or assets of the Company or any of its
Restricted Subsidiaries, as the case may be.
"New Credit Facility" means the amendment and restatement or the
refinancing or replacement of the Existing Credit Facility with the same, a
deletion of, or additional lenders, including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing that
increase the aggregate amount of borrowings outstanding or the aggregate
commitments of the lenders thereunder.
"Notes Exchange and Registration Rights Agreement" means the Exchange
and Registration Rights Agreement (Notes), dated as of May 14, 1998, between the
Company and TD Securities (USA) Inc., NationsBanc Montgomery Securities LLC and
BancBoston Securities Inc., as such agreement may be amended from time to time.
"Notice of Default" has the meaning specified in Section 501.
"Offer" has the meaning specified in the definition of Offer to
Purchase.
"Offering Memorandum" means the Offering Memorandum dated May 7, 1998
with respect to the offering of, INTER ALIA, the Original Securities.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company to each Holder at his address appearing in the Security Register on the
date of the Offer offering to purchase up to the principal amount of Securities
specified in such Offer at the purchase price specified in such Offer (as
determined pursuant to this Indenture). Unless otherwise required by applicable
law, the Offer shall specify an expiration date (the "Expiration Date") of the
Offer to Purchase which, subject to any contrary requirements of applicable law,
shall be not less than 30 days nor more than 60 days after the date of such
Offer to Purchase and a settlement date (the "Purchase Date") for purchase of
Securities within 5 Business Days after the Expiration Date. The Company shall
notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to Section 704 (which
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requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
Clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Section hereof requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as specified
pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that on the Purchase Date the Purchase Price will become due and
payable upon each Security accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(8) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing);
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(9) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that such Holder
is withdrawing all or a portion of his tender;
(10) that (a) if Securities in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase Securities having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Securities in
denominations of $1,000 or integral multiples thereof shall be purchased);
and
(11) that in case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by two officers at
least one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Trustee.
"Operating Cash Flow" for any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions for
income taxes for such period for such Person and its Subsidiaries, (ii)
depreciation, amortization and other non-cash charges of such Person and its
Subsidiaries and (iii) Consolidated Interest Expense of such Person for such
period, determined, in each case, on a consolidated basis for such Person and
its Subsidiaries in accordance with generally accepted accounting principles,
less (c) the sum, without duplication (and only to the extent such amounts are
included in such Consolidated Net Income) of (i) all extraordinary gains of such
Person and its Subsidiaries during such period and (ii) the amount of all cash
payments made
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during such period by such Person and its Subsidiaries to the
extent such payments relate to non-cash charges that were added back in
determining Operating Cash Flow for such period or for any prior period; and in
the case of a Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary, the determination of the percentage of the Operating Cash Flow of
such Restricted Subsidiary that is to be included in the calculation of the
Company's Annualized Operating Cash Flow Ratio shall be made on a pro forma
basis on the assumption that the percentage of the Company's common equity
interest in such Restricted Subsidiary throughout the applicable Reference
Period was equivalent to its common equity interest on the date of the
determination. When the foregoing definition is used in connection with the
Company, references to a Person and its Subsidiaries in the foregoing definition
shall be deemed to refer to the Company and its Restricted Subsidiaries.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee,
delivered to the Trustee.
"Original Securities" means the Securities designated in the first
paragraph of the recitals of the Company.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, EXCEPT:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; PROVIDED that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Securities which have been paid pursuant to Section 307 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization,
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direction, notice, consent or waiver hereunder, Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company or of
such other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"PARI PASSU," when used with respect to the ranking of any
Indebtedness of any Person in relation to other Indebtedness of such Person,
means that each such Indebtedness (a) either (i) is not subordinated in right of
Payment to any other Indebtedness of such Person or (ii) is subordinate in right
of payment to the same Indebtedness of such Person as is the other and is so
subordinate to the same extent and (b) is not subordinate in right of payment to
the other or to any Indebtedness of such Person as to which the other is not so
subordinate.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Payment Blockage Period" has the meaning specified in Section 1203.
"Permitted Investments" means (i) Investments in Cash Equivalents;
(ii) Investments in the Company or a Restricted Subsidiary (other than payments
described in Clause (iv) of the second paragraph of Section 1011); (iii)
Investments in a Person substantially all of whose assets are of a type
generally used in a Wireless Communications Business (an "Acquired Person") if,
as a result of such Investments, (A) the Acquired Person immediately thereupon
becomes a Restricted Subsidiary or (B) the Acquired Person immediately thereupon
either (1) is merged or consolidated with or into the Company or any Restricted
Subsidiary or (2) transfers or conveys all or substantially all of its assets
to, or is liquidated into, the Company or any of its Restricted Subsidiaries;
(iv) Investments in accounts and notes receivable acquired in the ordinary
course of business; (v) any securities received in connection with an Asset Sale
and any investment with the Net Cash Proceeds from any Asset Sale in Capital
Stock of a Person, all or substantially all of whose assets are of a type used
in a Wireless Communications Business, that complies with the covenants in
Section 1015; (vi) advances and prepayments for asset purchases in the ordinary
course of business in a Wireless Communications Business of the Company or a
Restricted Subsidiary; (vii) customary loans or advances made in the ordinary
course of business to officers, directors or employees of the Company or any of
its Restricted Subsidiaries for travel, entertainment, and moving and other
relocation expenses; (viii) the purchase of Cooperative Bank Equity in
Cooperative Banks to the extent required by the charter documents of such
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Cooperative Banks in connection with the Incurrence of any Indebtedness which is
provided by such Cooperative Banks under the Credit Facility, PROVIDED that such
Incurrence is permitted under the terms of this Indenture; and (ix) Investments
in Wireless Alliance not exceeding $25 million in the aggregate made after the
Issue Date; PROVIDED, that the matters referenced in clauses (iii) and (ix)
above shall not be Permitted Investments if made at any time that an Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 307 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares of Capital Stock of such Person that have preferential rights to any
other Capital Stock of such Person with respect to dividends or redemptions or
upon liquidation.
`
"Proceeding" has the meaning specified in Section 1202.
"Proceeds Purchase Offer" has the meaning specified in Section 1016.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
filed with the Commission in accordance with the Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated as of May 7,
1998, between the Company and the Initial Purchasers, as such agreement may be
amended from time to time.
"Purchase Amount" has the meaning specified in the definition of Offer
to Purchase.
"Purchase Date" has the meaning specified in the definition of Offer
to Purchase.
"Purchase Price" has the meaning specified in the definition of Offer
to Purchase.
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"Qualified Capital Stock" means, with respect to any Person, any and
all shares of Capital Stock other than Redeemable Stock issued by such Person
after the date of this Indenture.
"Qualified Capital Stock Proceeds" means, with respect to any Person,
(a) in the case of any sale of Qualified Capital Stock, the aggregate net cash
proceeds received by such Person, after payment of expenses, commissions and the
like Incurred by such Person in Connection therewith, and net of Indebtedness
that such Person Incurred, guaranteed or otherwise became liable for in
connection with the issuance or acquisition of such Capital Stock; and (b) in
the case of any exchange, exercise, conversion or surrender of any Redeemable
Stock or Indebtedness of such Person issued (other than to any Subsidiary) for
cash after the date of this Indenture for or into shares of Qualified Capital
Stock of such Person, the liquidation value of the Redeemable Stock or the net
book value of such Indebtedness as adjusted on the books of such Person to the
date of such exchange, exercise, conversion or surrender, plus any additional
amount paid by the securityholders to such Person upon such exchange, exercise,
conversion or surrender and less any and all payments made to the
securityholders, and all other expenses, commissions and the like Incurred by
such Person or any Subsidiary in connection therewith.
"Qualifying Event" means a Public Equity Offering or one or more
Strategic Equity Investments which in either case results in aggregate net
proceeds of not less than $50 million.
"Redeemable Stock" of any Person means any equity security of such
Person that by its terms or otherwise is required to be redeemed prior to the
final Stated Maturity of the Securities or is redeemable at the option of the
holder thereof at any time prior to the final Stated Maturity of the Securities;
PROVIDED that any Capital Stock that would not constitute Redeemable Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of a "change of
control" occurring prior to the final Stated Maturity of the Securities shall
not constitute Redeemable Stock if the "change of control" provisions applicable
to such Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions contained in Section 1017 of this Indenture and such Capital
Stock specifically provides that such Person will not repurchase or redeem any
such stock pursuant to such provision prior to the Company's repurchase of the
Securities as required to be repurchased pursuant to Section 1017.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
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"Reference Period" with regard to any Person means the last two full
fiscal quarters of such Person immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Securities or this
Indenture.
"Registered Securities" means the Exchange Securities and all other
Securities sold or otherwise disposed of pursuant to an effective registration
statement under the Securities Act, together with their respective Successor
Securities.
"Registration Default" has the meaning specified in the form of the
Securities set forth in Section 202.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 1 or November 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Regulation S Global Security" has the meaning specified in Section
201.
"Related Person" of any Person means any other Person owning (a) 5% or
more of the outstanding Common Stock of such Person or (b) 5% or more of the
Voting Power of such Person.
"Resale Registration Statement" means a shelf registration statement
under the Securities Act filed by the Company, if required by, and meeting the
requirements of, the Notes Exchange and Registration Rights Agreement,
registering the Original Securities for resale.
"Restricted Global Security" has the meaning specified in Section 201.
"Restricted Payments" means, with respect to any Person, (i) any
declaration or payment of a dividend or other distribution on any shares of
Capital Stock of such Person or any Subsidiary of such Person (other than a
dividend payable solely in shares of its Capital Stock or options, warrants or
other rights to acquire its Capital Stock and other than any declaration or
payment of a dividend or other distribution by a Restricted Subsidiary to the
Company or another Restricted Subsidiary), (ii) any payment on the account of
the purchase, redemption, retirement or acquisition (including by way of issuing
any Indebtedness or Redeemable Stock in exchange for Qualified Capital Stock) of
(A) any shares of Capital Stock of such Person or any Subsidiary of such Person
held by other than such Person or any of its Restricted Subsidiaries or (B) any
option, warrant or other right to acquire shares of Capital Stock of such Person
or any Subsidiary of such Person or any of its Restricted Subsidiaries, in each
case other than pursuant to the cashless exercise of options, (iii) any
Investment (other than a Permitted
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Investment) made by such Person and (iv) any redemption, defeasance,
repurchase or other acquisition or retirement for value prior to any
scheduled maturity, repayment or sinking fund payment, any Subordinated
Indebtedness of such Person; PROVIDED, that the term "Restricted Payment"
does not include the payment of a dividend or other distribution by any
Restricted Subsidiary on shares of its Capital Stock that is paid pro rata to
all holders of such Capital Stock.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person other than an Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act (or any successor
provision) as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Securities" means the Securities purchased by the Initial
Purchasers from the Company pursuant to the Purchase Agreement, other than the
Initial Regulation S Securities.
"Sale and Leaseback Transaction" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any property or asset of such Person
which has been or is being sold or transferred by such Person more than 270 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Securities" means securities designated in the first paragraph of the
recitals of the Company and includes the Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Act Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 202 to be
placed upon a Rule 144A Security or an Initial Regulation S Security.
"Securities Offering" means the offering of $125,000,000 of 9_% Senior
Subordinated Notes due 2008 by the Company pursuant to the Offering Memorandum.
"Securities Payment" has the meaning set forth in Section 1202.
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"Security Registrar" and "Security Register" have the respective
meanings specified in Section 306.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or improvement by the
Company or any Restricted Subsidiary of assets in the Wireless Communications
Business, (iii) all other Indebtedness of the Company referred to in the
definition of Indebtedness other than Clauses (iv), (vi) and (ix) thereof (and
Clause (viii) thereof to the extent applicable to Indebtedness Incurred under
Clauses (iv) and (vi) thereof), whether Incurred on or prior to the date of this
Indenture, other than the Securities, and (iv) amendments, renewals, extensions,
modifications, refinancings and refundings of any such Indebtedness; PROVIDED,
HOWEVER, the following shall not constitute Senior Indebtedness: (A) any
Indebtedness owed to a Person when such Person is a Restricted Subsidiary of the
Company, (B) any Indebtedness which by the terms of the instrument creating or
evidencing the same is not superior in right of payment to the Securities, (C)
any Indebtedness Incurred in violation of this Indenture (but, as to any such
Indebtedness, no such violation shall be deemed to exist for purposes of this
Clause (C) if the holder(s) of such Indebtedness or their representative and the
Trustee shall have received an Officers' Certificate to the effect that the
Incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the Incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made would not) violate this
Indenture) or (D) any Indebtedness which is subordinated in right of payment to
any other Indebtedness of the Company.
"Senior Nonmonetary Default" has the meaning specified in Section
1203.
"Senior Payment Default" has the meaning specified in Section 1203.
"Special Interest" has the meaning specified in the form of the
Securities set forth in Section 202.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the date on which the principal of such Security or such installment of interest
is due and payable.
"Step-Down Date" has the meaning specified in the form of the
Securities set forth in Section 202.
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"Step-Up" has the meaning specified in the form of the Securities set
forth in Section 202.
"Strategic Equity Investment" means an investment in Qualified Stock
made by a Strategic Investor in an aggregate amount of not less than $50
million.
"Strategic Investor" means a Person (other than an Affiliate of the
Company or a Person who by virtue of such Investment becomes such an Affiliate)
engaged in one or more Telecommunications Businesses with an equity market
capitalization at the time such Person makes a Strategic Equity Investment in
the Company in excess of $1 billion.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment to the Securities.
"Subsidiary" of any Person means (i) any corporation of which more
than fifty percent (50%) of the outstanding Capital Stock (other than directors'
qualifying shares) having ordinary Voting Power to elect its board of directors,
regardless of the existence at the time of a right of the holders of any class
or classes of securities of such corporation to exercise such Voting Power by
reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (ii) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person.
"Successor Company" has the meaning specified in Section 801.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 307 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in Clause (i) or (ii) above (in the case of this Clause (iii),
however, in a manner consistent with the Company's manner of business on the
date of this Indenture), and
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shall, in any event, include all businesses in which the Company or any of
its Subsidiaries is engaged on the date of this Indenture or has entered into
agreements to engage in or to acquire a company to engage in or contemplate
engaging in, as expressly set forth in the Offering Memorandum; PROVIDED that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Company's Board of Directors.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 905; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"U.S. Government Obligations" has the meaning specified in Section
1304.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors of such Person in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors of any Person may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, such Person or any Restricted
Subsidiary; PROVIDED that either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, such Person's PRO RATA interest in the Fair Market Value of the net
assets of such Subsidiary at the time of such designation would be permitted as
an investment under Section 1011. The Board of Directors of any Person may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary of such
Person, PROVIDED that immediately after giving effect to such designation (x)
such Person would be permitted to Incur $1.00 of additional Indebtedness
pursuant to the first paragraph of Section 1008 and (y) no Event of Default or
event which with notice or lapse of time or both would become an Event of
Default has occurred and is continuing. Any such designation by the Board of
Directors shall be evidenced by a Board Resolution submitted to the Trustee.
Wireless Alliance shall be deemed an Unrestricted Subsidiary as of the date of
this Indenture and shall thereafter remain an Unrestricted Subsidiary unless and
until designated by the Board of Directors of the Company as a Restricted
Subsidiary in accordance with the terms of this Indenture.
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"Voting Power" of any Person means the aggregate number of votes of
all classes of Capital Stock of such Person which ordinarily have voting power
for the election of directors of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means any business substantially
related to the ownership, development, operation or acquisition of wireless
communications services permitted under the Federal Communications Commission's
("FCC") Commercial Mobile Radio Services rules (and the related provisions of
the FCC's Public Mobile Services and Personal Communications Services rules),
and other related telecommunications business services.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as in its reasonable judgment is
necessary to enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
individual, such condition or covenant has been complied with.
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SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any certificate or opinion of
counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATE.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are received
by the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section 104.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by
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a certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient
proof of his authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee reasonably deems
sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to
any record date, only the Holders on such date (or their duly designated
proxies) shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Trust
Officer, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company,
Attention: Chief
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Executive Officer, addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for communication with or notice to
Holders, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be part
of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the provision of this
Indenture shall be deemed to apply.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
27
<PAGE>
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness (subject to Article Thirteen
hereof) and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or Purchase
Date, or at the Stated Maturity, PROVIDED that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Purchase Date
or Stated Maturity, as the case may be if such payment is made on such next
succeeding Business Day.
SECTION 114. COUNTERPARTS.
28
<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, and all of which
counterparts shall together constitute but one and the same instrument.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in this Article Two, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
The Rule 144A Securities shall initially be represented by one or more
Securities in registered, global form without coupons (collectively, the
"Restricted Global Security"). The Initial Regulation S Securities shall
initially be represented by one or more Securities in registered, global form
without interest coupons (collectively, the "Regulation S Global Security" and,
together with the restricted Global Security, the "Global Securities"). The
Global Securities shall be deposited upon issuance with the Trustee as custodian
for DTC and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below. Prior to the expiration of the Distribution Compliance Period,
beneficial interests in the Regulation S Global Security may only be held
through Euroclear or CEDEL (as indirect participants in DTC), unless exchanged
for interests in the Restricted Global Security in accordance with the transfer
and certification requirements described in this Indenture.
SECTION 202. FORM OF FACE OF SECURITY.
Rule 144A Securities and the Initial Regulation S Securities
(including beneficial interests in the Global Securities and, subject to Section
306(c), their Successor
29
<PAGE>
Securities) shall be subject to certain restrictions on transfer and shall
bear a legend in substantially the following form:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH OTHER APPLICABLE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR (B)
IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE
TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES
ACT ("REGULATION S"), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S, OR (E) PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND;
PROVIDED THAT THE COMPANY AND THE TRUSTEE AND THE SECURITIES REGISTRAR, AS
APPLICABLE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I)
PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE, THE TRANSFER AGENT AND THE
SECURITIES REGISTRAR, AS APPLICABLE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES"
30
<PAGE>
AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S.
[IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT -- THIS SECURITY IS
A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS
SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND
NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME
OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
[IF THE SECURITY IS A GLOBAL SECURITY AND THE DEPOSITORY TRUST COMPANY
IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT -- UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
31
<PAGE>
9 5/8 % [SERIES B]. SENIOR SUBORDINATED NOTES DUE 2008
No. ________ $________
[If Restricted Global Security - CUSIP Number __________]
[If Regulation S Global Security - CUSIP Number __________]
[If Non-Global Security - CUSIP Number __________]
Rural Cellular Corporation, a corporation duly organized and existing
under the laws of Minnesota (herein called the "Company," which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________, or registered assigns, the
principal sum of ___________ Dollars [IF THE SECURITY IS A GLOBAL SECURITY, THEN
INSERT -- , or such other principal amount (which, when taken together with the
principal amounts of all other Outstanding Securities, shall not exceed
$175,000,000 in the aggregate at any time) as may be set forth in the records of
the Trustee hereinafter referred to in accordance with the Indenture,] on May
15, 2008, and to pay interest in cash thereon from May 14, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on May 15 and November 15 in each year, commencing November
15, 1998, at the rate of 9 5/8% per annum, until the principal hereof is paid or
made available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of 10 5/8% per annum on any overdue
principal and premium, if any, and on any overdue installment of interest until
paid [IF THE SECURITY IS AN ORIGINAL SECURITY, THEN INSERT --, PROVIDED that if
(i) the Company has not filed an Exchange Registration Statement under the
Securities Act registering a security substantially identical to this Security
for distribution pursuant to an Exchange Offer or, if applicable, a Resale
Registration Statement registering this Security for resale, in either case on
or prior to the 90th day following the Issue Date, (ii) either the Exchange
Registration Statement or, if applicable, the Resale Registration Statement has
not become or been declared effective within 120 days following the Issue Date,
(iii) the expiration of the Exchange Offer has not occurred within 45 days after
the date on which the Exchange Registration Statement has become or been
declared effective initially or (iv) either the Exchange Registration Statement
or, if applicable, the Resale Registration Statement is filed and declared
effective but shall thereafter cease to be effective (except as specifically
permitted pursuant to the agreement referred to below) without being succeeded
immediately by an additional registration statement filed and declared
effective, in each case (i) through (iv) upon the terms and conditions set forth
in the Notes Exchange and Registration Rights Agreement (each such event
referred to in clauses (i) through (iv), a "Registration Default"; PROVIDED that
no more than one Registration Default shall be deemed to be in effect at any one
time), then interest will accrue (in
- ---------------------------
1/ Include only for Exchange Securities
32
<PAGE>
addition to the stated interest on this Security) (the "Step-Up") at a rate
of 0.5% per annum on the principal amount of the Securities for the period
from the occurrence of the Registration Default until such time (the
"Step-Down Date") as no Registration Default is in effect. Special Interest
(as defined below) shall be payable in cash semi-annually in arrears on each
May 15 and November 15. For each 90-day period that the Registration Default
continues, the per annum rate of such Special Interest shall increase (each
such increase, an "Additional Step-Up") by an additional 0.5% per annum,
PROVIDED that the sum of the Step-Up and all Additional Step-Ups shall in no
event exceed 2.0% per annum in the aggregate. On the Step-Down Date the
interest rate will be restored to its initial rate. The Company shall
provide the Trustee with written notice of the date of any Registration
Default and the Step-Down Date. Interest accruing as a result of the Step-Up
or an Additional Step-Up is referred to herein as "Special Interest."] The
interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be May 1 or November 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date [IF THE SECURITY
IS AN ORIGINAL SECURITY, THEN INSERT --, PROVIDED that any accrued and unpaid
interest (including Special Interest) on this Security upon the issuance of an
Exchange Security in exchange for this Security shall cease to be payable to
the Holder hereof and shall be payable on the next Interest Payment Date for
such Exchange Security to the Holder thereof on the related Regular Record
Date]. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice of which shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the Corporate Trust Office or at the office or agency
of the Company maintained for that purpose in the Borough of Manhattan, New York
City, in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
33
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
RURAL CELLULAR CORPORATION
[Seal]
By:
----------------------------
Name:
Title:
Attest:
- ------------------------
Name:
Title:
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of
the Company designated as its 9 5/8 % [Series B](1) Senior Subordinated Notes
due 2008 (herein called the "Securities"), limited in aggregate principal
amount to $175,000,000, issued and to be issued under an Indenture, dated as
of May 14, 1998 (herein called the "Indenture"), between the Company and
Norwest Bank Minnesota, National Association, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which
the Securities are, and are to be, authenticated and delivered.
After May 15, 2003, the Securities may be redeemed at any time at
the option of the Company, in whole or from time to time in part, at the
following
- ------------------------
(1) Include only for Exchange Securities.
34
<PAGE>
Redemption Prices (expressed as percentages of the principal amount
thereof). If redeemed during the 12-month period beginning May 15 of the
years indicated,
<TABLE>
<CAPTION>
Year Redemption
---- Price
----------
<S> <C>
2003 104.813%
2004 103.208%
2005 101.604%
2006 and thereafter 100.000%
</TABLE>
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but any interest installment whose Stated
Maturity is on or prior to such Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record
at the close of business on the relevant Record Dates referred to on the face
hereof, all as provided in the Indenture.
Notwithstanding the foregoing, at any time prior to May 15, 2001,
the Company may redeem up to 25% of the aggregate principal amount of
Securities actually issued under the Indenture from the net cash proceeds of
a Qualifying Event at a Redemption Price equal to 109.625% of the aggregate
principal amount thereof, together with accrued and unpaid interest to but
excluding the Redemption Date; PROVIDED, that at least $90 million in
aggregate principal amount of Securities remains outstanding immediately
following such redemption. Any such redemption must be made within 30 days
after the related Qualifying Event.
Notice of any optional redemption of any Securities (or portion
thereof) will be given to the Holders at their addresses appearing in the
Security Register not less than 30 nor more than 60 days prior to the
Redemption Date. The notice of redemption shall state the Redemption Date,
the Redemption Price, if less than all the Outstanding Securities are to be
redeemed, principal amounts of the particular Securities to be redeemed, that
on the Redemption Date the Redemption Price will become due and payable upon
each Security to be redeemed and the place or places where such Securities
are to be surrendered for payment of the Redemption Price. If less than all
of the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee by such method as the Trustee deems fair and appropriate.
The Securities do not have the benefit of any sinking fund
obligations.
In the event of redemption or purchase pursuant to an Offer to
Purchase of this Security in part only, a new Security or Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
35
<PAGE>
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder
of this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact
for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared or automatically become due and payable in
the manner and with the effect provided in the Indenture.
The Indenture provides that, subject to certain conditions, if (i)
certain Net Cash Proceeds are available to the Company as a result of Asset
Sales (ii) net proceeds of the sale of the Securities have not been applied
to the purchase of assets in the Atlantic Acquisition, or (iii) a Change of
Control occurs, the Company shall be required to make an Offer to Purchase
for Securities.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Security or (ii) certain restrictive
covenants and Events of Default with respect to this Security, in each case
upon compliance with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Company and the rights of the Holders of the Securities under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders
of this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of
such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security at the time, place and rate,
and in the coin or currency, herein prescribed.
36
<PAGE>
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Security Register, upon surrender of this Security for registration of
transfer at the Corporate Trust Office or at the office or agency of the
Company in the Borough of Manhattan, New York City, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
Interest on this Security shall be computed on the basis of a 360-day
year of twelve 30-day months[IF THE SECURITY IS AN ORIGINAL SECURITY, THEN
INSERT-- ; PROVIDED, HOWEVER, that any Special Interest shall be computed on the
basis of a 365- or 366- day year, as the case may be, and the number of days
actually elapsed].
All terms used in this Security which are not defined herein but
which are defined in the Indenture shall have the meanings assigned to them
in the Indenture.
The Indenture and this Security shall be governed by and construed
in accordance with the laws of the State of New York.
37
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its
entirety by the Company pursuant to Section 1015,1016 or 1017 of the
Indenture, check the box:
/ /
If you want to elect to have only a part of this Security purchased
by the Company pursuant to Section 1015, 1016 or 1017 of the Indenture, state
the amount: $_______
Dated: Your Signature:
--------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:
------------------------------
(Signature must be guaranteed
by a member firm of the New York
Stock Exchange or a commercial
bank or trust company)
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
Norwest Bank Minnesota, National Association,
as Trustee
By: ,
-----------------------
Authorized Officer
38
<PAGE>
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $175,000,000,
except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 304, 305, 306, 307, 906 or 1108 or in connection with an Offer to
Purchase pursuant to Section 1015, 1016 or 1017.
Subject to Section 303, the Trustee shall authenticate Securities
for original issue on the date of this Indenture in the aggregate principal
amount of $125,000,000 (the "Original Securities"). With respect to any
securities issued after the date of this Indenture (except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, Original Securities pursuant to this Indenture), there
shall be established in or pursuant to a resolution of the Board of Directors
of the Company, and subject to Section 303, set forth, or determined in the
manner provided in an Officers' Certificate, or established in one or more
indentures supplemental hereto, prior to the issuance of such Securities
("Additional Securities"):
(1) the aggregate principal amount of such Securities that may
be authenticated and delivered under this Indenture (which shall not
be less than $25,000,000);
(2) the issue price and issuance date of such Securities that
may be authenticated and delivered under this Indenture (PROVIDED,
HOWEVER, that such Additional Securities shall be required to be
issued with the same amount of original issue discount for federal
income tax purposes, if any, as applicable to an other Securities
previously issued); and
(3) that such Additional Securities shall be issuable in the
same form as the then Outstanding Securities (i.e., as either a Global
Security or as non-Global Securities and, if the Exchange Securities
have been issued, as Exchange Securities) and having the same terms as
the then Outstanding Securities and the same depositaries.
The Original Securities shall be known and designated as the "9
5/8% Senior Subordinated Notes due 2008" and the Exchange Securities shall be
known and designated as the "9 5/8% Series B Senior Subordinated Notes due
2008," in each case, of the Company. Their Stated Maturity shall be May 15,
2008 and they shall bear interest at the rate of 9 5/8% per annum, from May
14, 1998 or from the most recent Interest Payment Date to which interest has
been paid in cash or duly provided for, as the case may
39
<PAGE>
be, payable semi-annually on May 15 and November 15, commencing on November
15, 1998, to the Holders of record on the immediately preceding May 1 and
November 1, until the principal thereof is paid or made available for
payment; PROVIDED, HOWEVER, with respect to Original Securities, that if a
Registration Default occurs (provided that no more than one Registration
Default shall be deemed to be in effect at any one time), then a Step-Up will
occur for the period from the occurrence of the Registration Default until
the Step-Down Date and, PROVIDED, FURTHER, that for each 90-day period that
the Registration Default continues, an Additional Step-Up shall occur,
PROVIDED that the sum of the Step-Up and all Additional Step-Ups shall in no
event exceed 2.0% per annum in the aggregate. On the Step-Down Date the
interest rate will be restored to its initial rate. The Company shall
provide the Trustee with written notice of the date of any Registration
Default and the Step-Down Date. The interest so payable, and punctually paid
or duly provided for in respect of any Security, on any Interest Payment Date
will, as provided in this Indenture, be paid to the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, which shall be May
1 or November 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Accrued Special Interest, if any,
shall be paid in cash in arrears semiannually on May 15 and November 15 in
each year and the amount of accrued Special Interest shall be determined on
the basis of the number of days actually elapsed and computed as provided in
Section 311.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the Corporate Trust Office or at the office or
agency of the Company in the City and State of New York maintained for such
purpose; PROVIDED, HOWEVER, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Company pursuant
to an Offer to Purchase as provided in Sections 1015, 1016 and 1017.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be subject to defeasance at the option of the
Company as provided in Article Thirteen.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiples thereof.
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SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary, one of its
Assistant Secretaries or its Chief Financial Officer. The signature of any of
these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the Company shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company
to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
At any time and from time to time after the execution and delivery
of this Indenture and after the effectiveness of a registration statement
under the Securities Act with respect thereto, the Company may deliver
Exchange Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Exchange Securities and a like principal amount of Original
Securities for cancellation in accordance with Section 310 of this Indenture,
and the Trustee in accordance with the Company Order shall authenticate and
deliver such Securities. Prior to authenticating such Exchange Securities,
and accepting any additional responsibilities under this Indenture in
relation to such Securities, the Trustee shall be entitled to receive, if
requested, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating in substance
(a) that all conditions hereunder precedent to the authentication and
delivery of such Exchange Securities have been complied with and that such
Exchange Securities, when such Securities have been duly authenticated and
delivered by the Trustee (and subject to any other conditions specified in
such Opinion of Counsel), have been duly issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and
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(b) that the issuance of the Exchange Securities in exchange for
Original Securities has been effected in compliance with the Securities
Act.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided
for herein executed by the Trustee by manual signature, and such certificate
upon any Security shall be conclusive evidence, and the only evidence, that
such Security has been duly authenticated and delivered hereunder.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Securities the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. GLOBAL SECURITIES.
(a) Each Global Security authenticated under this Indenture shall
be registered in the name of the Depositary designated by the Company for
such Global Security or a nominee thereof and delivered to such Depositary or
a nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other
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than the Depositary for such Global Security or a nominee thereof unless (i)
such Depositary (A) has notified the Company that it is unwilling or unable
to continue as Depositary for such Global Security or (B) has ceased to be a
clearing agency registered as such under the Exchange Act, (ii) there shall
have occurred and be continuing an Event of Default with respect to such
Global Security, (iii) the Company executes and delivers to the Trustee a
Company Order stating that it elects to cause the issuance of the Securities
in certificated form and that all Global Securities shall be exchanged in
whole for Securities that are not Global Securities (in which case such
exchange shall be effected by the Trustee) or (iv) pursuant to the following
sentence. All or any portion of a Global Security may be exchanged for a
Security that has a like aggregate principal amount and is not a Global
Security, upon 20 days' prior request made by the Depositary or its
authorized representative to the Trustee.
(c) If any Global Security is to be exchanged for other Securities
or cancelled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange
or cancellation as provided in this Article Three. If any Global Security is
to be exchanged for other Securities or cancelled in part, or if another
Security is to be exchanged in whole or in part for a beneficial interest in
any Global Security, then either (i) such Global Security shall be so
surrendered for exchange or cancellation as provided in this Article Three or
(ii) the principal amount thereof shall be reduced or increased by an amount
equal to the portion thereof to be so exchanged or cancelled, or equal to the
principal amount of such other Security to be exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment
made on the records of the Trustee, as Security Registrar, whereupon the
Trustee, in accordance with the Applicable Procedures, shall instruct the
Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a Global
Security, the Trustee shall, subject to Section 305(b) and as otherwise
provided in this Article Three, authenticate and deliver any Securities
issuable in exchange for such Global Security (or any portion thereof) to or
upon the order of, and registered in such names as may be directed by, the
Depositary or its authorized representative. Upon the request of the Trustee
in connection with the occurrence of any of the events specified in the
preceding paragraph, the Company shall promptly make available to the Trustee
a reasonable supply of Securities that are not in the form of Global
Securities. The Trustee shall be entitled to rely upon any order, direction
or request of the Depositary or its authorized representative which is given
or made pursuant to this Article Three if such order, direction or request is
given or made in accordance with the Applicable Procedures.
(d) Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article Three, Section 906, 1015,
1016, 1017 or 1108 or otherwise, shall be authenticated and delivered in the
form of, and shall be, a Global Security, unless such Security is registered
in the name of a Person other than the Depositary for such Global Security or
a nominee thereof.
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(e) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under the
Indenture and the Securities, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
SECTION 306. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE GENERALLY;
CERTAIN TRANSFERS AND EXCHANGES; SECURITIES ACT LEGENDS.
(a) REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE GENERALLY.
The Company shall cause to be kept at the Corporate Trust Office a register
(the register maintained in such office and in any other office or agency
designated pursuant to Section 1002 being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers and exchanges of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers and exchanges of Securities as herein
provided. Such Security Register shall distinguish between Original
Securities and Exchange Securities.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations, of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture.
At the option of the Holder, Securities may be exchanged for new
Securities of any authorized denominations, of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid Obligations of the Company, evidencing the same
debt, and (except for the differences between Original Securities and Exchange
Securities provided for herein) entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be
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accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 304, 305, 306, 906, 1015, 1016, 1017
or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 1104 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption, in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
(b) CERTAIN TRANSFERS AND EXCHANGES. Notwithstanding any other
provision of this Indenture or the Securities, transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds
specified in this Section 306(b) shall be made only in accordance with this
Section 306(b).
(i EXCHANGES BETWEEN THE RESTRICTED GLOBAL SECURITY AND THE
REGULATION S GLOBAL SECURITY. (A) Beneficial interests in the
Restricted Global Security may be exchanged for beneficial interests in
the Regulation S Global Security and vice versa only in connection with a
transfer of such interest. Such transfers are subject to compliance with
the certification requirements described below.
(B A beneficial interest in the Restricted Global Security may be
transferred to a Person who takes delivery in the form of an interest in
the Regulation S Global Security, whether before or after the expiration
of the Distribution Compliance Period, only upon receipt by the Trustee
of a written certification on behalf of the transferor to the effect that
such transfer is being made in accordance with Rule 904 of Regulation S
or (if available) Rule 144 under the Securities Act and that, if such
transfer occurs prior to the expiration of the Distribution Compliance
Period, the interest transferred will be held immediately thereafter
through Euroclear or CEDEL.
(C Prior to the expiration of the Distribution Compliance Period, a
beneficial interest in the Regulation S Global Security may be
transferred to a person who takes delivery in the form of an interest in
the Restricted Global Security only upon receipt by the Trustee of a
written certification on behalf of the transferor to the effect that such
transfer is being made to a person who the
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transferor reasonably believes is a qualified institutional buyer
acquiring for its own account or the account of a qualified institutional
buyer in a transaction complying with Rule 144A and any applicable
securities laws of the states of the United States and other
jurisdictions. After the expiration of the Distribution Compliance
Period, this certification requirement shall no longer apply to such
transfers.
(D Any beneficial interest in one of the Global Securities that is
exchanged for an interest in the other Global Security shall cease to be
an interest in such Global Security and shall become an interest in the
other Global Security. Accordingly, such interest shall thereafter be
subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Security for as long as it
remains such an interest.
(E A beneficial interest in a Global Security may not be exchanged
for a Security in certificated form unless (1) DTC (x) notifies the
Company that it is unwilling or unable to continue as Depositary for the
Global Security or (y) has ceased to be a clearing agency registered
under the Exchange Act, and in either case the Company fails to appoint
a successor Depositary, (2) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of the
Securities in certificated form or (3) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the
Securities. In all cases, certificated Securities delivered in exchange
for any Global Security or beneficial interests therein shall be
registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its
customary procedures). Any certificated Security issued in exchange for
an interest in a Global Security shall bear the legend restricting
transfers that is borne by such Global Security. Any such exchange of a
beneficial interest in the Regulation S Global Security for a beneficial
interest in the Restricted Global Security or vice versa will be
effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/Withdrawal at Custodian ("DWAC") system.
(ii EXCHANGES OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES. A
beneficial interest in a Global Security may not be exchanged for a Security
in certificated form unless (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Security or (y)
has ceased to be a clearing agency registered under the Exchange Act, and in
either case the Company fails to appoint a successor Depository, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Securities in certificated form or (iii) there shall
have occurred and be continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default with respect to
the Securities. In all cases, certificated Securities delivered in exchange
for any Global Security or beneficial interests therein shall be registered
in the names, and issued in any approved denominations, requested by
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or on behalf of the Depositary (in accordance with its customary procedures).
Any certificated Security issued in exchange for an interest in a Global
Security shall bear the legend restricting transfers that is borne by such
Global Security. Any such exchange shall be effected only through the DWAC
System and an appropriate adjustment shall be made in the records of the
Security Register to reflect a decrease in the principal amount of the
relevant Global Security.
(c) SECURITIES ACT LEGENDS. Rule 144A Securities and their
respective Successor Securities shall bear a Securities Act Legend, and
Initial Regulation S Securities and their Successor Securities shall bear a
Securities Act Legend, subject to the following:
(i subject to the following Clauses of this Section 306(c), a
Security or any portion thereof which is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Securities Act Legend borne by such Global Security while represented
thereby;
(ii subject to the following Clauses of this Section 306(c), a new
Security which is not a Global Security and is issued in exchange for
another Security (including a Global Security) or any portion thereof,
upon transfer or otherwise, shall bear the Securities Act Legend borne
by such other Security;
(iii Registered Securities shall not bear a Securities Act
Legend;
(iv a new Security which does not bear a Securities Act Legend may be
issued in exchange for or in lieu of a Security (other than a Global
Security) or any portion thereof which bears such a legend if, in the
Company's judgment, placing such a legend upon such new Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the direction of the Company, shall
authenticate and deliver such a new Security as provided in this Article
Three; and
(v notwithstanding the foregoing provisions of this Section 306(c),
a Successor Security of a Security that does not bear a particular form
of Securities Act Legend shall not bear such form of legend unless the
Company has reasonable cause to believe that such Successor Security is a
"restricted security" within the meaning of Rule 144, in which case the
Trustee, at the direction of the Company, shall authenticate and deliver
a new Security bearing a Securities Act Legend in exchange for such
Successor Security as provided in this Article Three.
SECTION 307. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security
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of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or Stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 308. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been held by such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
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(3 The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(4 The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue interest, which were carried by such other Security.
SECTION 309. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person
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in whose name such Security is registered as the owner of such security for
the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 308) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 310. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase, pursuant to
Section 1015, 1016 or 1017, shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section 310,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall (subject to the record-retention requirements of the
Exchange Act) be disposed of as directed by a Company Order.
SECTION 311. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months; PROVIDED, HOWEVER, that any Special
Interest on Original Securities shall be computed on the basis of a 365- or
366-day year, as the case may be, and the number of days actually elapsed.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to
any surviving rights of registration of transfer or exchange of Securities
herein expressly provided for),
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and the Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture (including, but not limited to, Article Twelve hereof), when
(1 either
(A all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 307 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B all such Securities not theretofore delivered to the Trustee
for cancellation
(i have become due and payable, or
(ii will become due and payable at their Stated Maturity
within one year, or
(iii are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2 the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3 the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided that relate to the satisfaction and discharge of this
Indenture have been satisfied.
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Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the Obligations of the Trustee to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1 failure to pay the principal of (or premium, if any, on) any
Security at its Maturity; or
(2 failure to pay any interest upon any Security for a period of 30
days or more after it becomes due and payable; or
(3 failure to Offer to Purchase or, on the applicable Purchase Date,
to purchase Securities required to be purchased by the Company pursuant to
Section 1015, 1016 or 1017; or
(4 failure to perform or comply with, or breach of, Article Eight;
or
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(5 failure to perform, or breach of, any covenant or agreement of
the Company in this Indenture (other than a covenant or agreement a default
in whose performance or whose breach is elsewhere in this Section 501
specifically addressed), and continuance of such failure or breach for a
period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities a written notice specifying such failure or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(6 a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of Indebtedness by the Company or any Restricted
Subsidiary of the Company or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Indebtedness of such type by the Company or any
such Restricted Subsidiary with a principal amount then outstanding,
individually or in the aggregate, in excess of $5 million, whether such
Indebtedness now exists or shall hereafter be created, which default or
defaults result in the acceleration of the payment of such Indebtedness or
shall constitute a failure to pay any portion of the principal of such
Indebtedness at maturity after the expiration of any applicable grace
period with respect thereto or shall have resulted in such Indebtedness
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable; or
(7 a final judgment or final judgments for the payment of money are
entered against the Company or any Restricted Subsidiary of the Company in
an aggregate amount in excess of $5 million, which judgments remain
undischarged, unstayed or unbonded for a period (during which execution
shall not be effectively stayed) of 60 days after the right to appeal has
expired; or
(8 the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any such
Restricted Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any such Restricted
Subsidiary under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any such Restricted Subsidiary or of any
substantial part of the property of the Company or any such Restricted
Subsidiary, or ordering the winding up or liquidation of the affairs of the
Company or any such Restricted Subsidiary, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
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(9 the commencement by the Company or any Restricted Subsidiary of
the Company of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Restricted Subsidiary to the entry
of a decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Restricted Subsidiary of the Company,
or the filing by the Company or any such Restricted Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by the Company or any such
Restricted Subsidiary to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or any Restricted
Subsidiary of the Company or of any substantial part of the property of the
Company or any Restricted Subsidiary of the Company, or the making by the
Company or any Restricted Subsidiary of the Company of an assignment for
the benefit of creditors, or the admission by the Company or any such
Restricted Subsidiary in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company or any such Restricted Subsidiary in furtherance of any such
action.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) shall occur and be continuing, then and in every such
case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal (and premium, if any) and any accrued interest shall become
immediately due and payable. If an Event of Default specified in Section 501(8)
or (9) occurs, the principal of (and premium, if any) and any accrued interest
on the Securities then Outstanding shall IPSO FACTO become immediately due and
payable without any declaration or other Act on the part of the Trustee or any
Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree based on acceleration for payment of the money due
has been obtained by the Trustee as hereinafter provided in this Article Five,
the Holders of a majority in aggregate principal amount of the Outstanding
Securities, by written notice to the Company and the Trustee, may rescind and
annul such declaration of acceleration and its consequences if
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(1 the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A all overdue interest on all Securities,
(B the principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of
acceleration (including any Securities required to have been purchased
on the Purchase Date pursuant to an Offer to Purchase made by the
Company) and, to the extent that payment of such interest is lawful,
interest thereon at the rate provided by the Securities,
(C to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate provided by the Securities,
and
(D all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2 all Events of Default, other than the nonpayment of the principal
of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1 default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2 default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof or, with respect to any
Security required to have been purchased pursuant to an Offer to Purchase
made by the Company, at the Purchase Date thereof,
the Company shall, upon demand of the Trustee, and subject to Article Twelve,
pay to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable
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on such Securities for principal (and premium, if any) and interest, and, to
the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate provided by the Securities, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as Trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding
or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have claims of the Holders and the Trustee allowed
in any such proceeding. In particular, the Trustee shall be authorized to
collect and receive any moneys or other property payable or deliverable on
any such claims and, subject to Article Twelve, to distribute the same; and
any custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and Counsel,
and any other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or composition affecting
the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding;
PROVIDED, HOWEVER, that the Trustee may, on behalf of
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the Holders, vote for the election of a trustee in bankruptcy or similar
official and may be a member of the creditors' committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the extent provided in Article Twelve, to the holders of
Senior Indebtedness in accordance with Article Twelve; and
THIRD: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
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(1 such Holder has previously given written notice to the Trustee
of an Event of Default;
(2 the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3 such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; and
(4 no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever, by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL PREMIUM AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 308) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or, in the case of an Offer to Purchase made by the Company and required to
be accepted as to such Security, on the Purchase Date) and to institute suit for
the enforcement of any such payment, on or after such respective dates and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their
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former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 307, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder,
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article Five or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or
by the Holders, as the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 601, the Trustee shall have
the right to decline to follow any such direction if the Trustee, being
advised by counsel, shall determine that the action or proceeding so
directed may not lawfully be taken or if the Trustee in good faith shall
determine that the action or proceedings so directed might involve the
Trustee in personal liability or if the
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Trustee in good faith shall so determine that the actions or
forbearances specified in or pursuant to such direction shall be unduly
prejudicial to the interest of holders of the Securities not joining in
the giving of said direction, it being understood that the Trustee shall
have no duty to ascertain whether or not such actions or forbearances
are unduly prejudicial to such holders.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to have
been purchased pursuant to an Offer to Purchase which has been made by the
Company), or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, a court may require any party litigant in such
suit to file an undertaking to pay the costs of such suit, and may assess
costs against any such party litigant, in the manner and to the extent
provided in the Trust Indenture Act. This Section 514 does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 508 or a suit
by the Holders of more than 10% in aggregate principal amount of the
Securities.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture;
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and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustee shall be as
provided in this Indenture and by the Trust Indenture Act. Notwithstanding
the foregoing, no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it. If a default or an Event of
Default has occurred and is continuing, the Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent Person would exercise or use
under the circumstances in the conduct of such Person's own affairs.
Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 601.
(b) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this Section 601(b) does not limit the effect of
Section 603;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 512.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default hereunder
within 90 days after the occurrence thereof as and to the extent provided by
the Trust Indenture
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Act. For the purpose of this Section 602, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default. Except in the case of a default or an Event of Default in payment
of principal of (and premium, if any, on) or interest on any Securities, the
Trustee may withhold the notice to the Holders if and so long as a committee
of its trust officers in good faith determines that withholding such notice
is in the interests of the Holders.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) except during the continuance of a default or an Event of
Default the Trustee shall undertake to perform such duties as are
specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee;
(b) except during the continuance of a default or an Event of
Default, in the absence of bad faith in its part, the Trustee may rely
and shall be protected in acting or refraining from acting upon any
resolution, certificate, Officers' Certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(c) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of the Company may be sufficiently
evidenced by a Board Resolution;
(d) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(e) before the Trustee acts or refrains from acting, the Trustee may
consult with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
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(f) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(g) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document unless requested to do so by the Holders of not less
than a majority in aggregate principal amount of the Securities then
Outstanding, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(h) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder;
(i) the Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder;
(j) the Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any covenants, conditions or agreements
on the part of the Company, except as otherwise provided herein, but the
Trustee may require of the Company full information and advice as to the
performance of the covenants, conditions and agreements contained herein
and shall be entitled in connection herewith to examine the books,
records and premises of the Company; and
(k) except for (i) a default under Sections 501(1), (2) or (3)
hereof, or (ii) any other event of which the Trustee has "actual
knowledge" and which event, with the giving of notice or the passage
of time or both, would constitute an Event of Default under this
Indenture, the Trustee shall not be deemed to have notice of any
default or Event of Default unless specifically notified in writing of
such event by the Company or the Holders of not less than 25% in
aggregate principal amount of the Securities then Outstanding. As used
herein, the term "actual knowledge" means the actual fact or statement
of knowing, without any duty to make any investigation with regard
thereto.
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SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and,
subject to Sections 608 and 613, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall
be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time, and the Trustee shall
be entitled to, reasonable compensation for all services rendered by
it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture, including costs of collection (including
the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as
may be attributable to its negligence or willful misconduct; and
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(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or willful
misconduct on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section 607 shall survive
the satisfaction and discharge of this Indenture. As security for the
performance of such obligations of the Company, the Trustee shall have a claim
prior to the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of
(and premium, if any) and interest on particular Securities. When the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Article Five hereof, the expenses (including reasonable fees and
expenses of its counsel) and the compensation for the services in connection
therewith are intended to constitute expense of administration under any
applicable bankruptcy law.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. Neither the
Company nor any Person directly or indirectly controlling, or controlled by, or
under common control with the Company shall serve as the Trustee.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has (or in the case of a Person included in a bank holding company system, the
related bank holding company shall have) a combined capital and surplus of at
least $50 million and its Corporate Trust Office in New York City or
Minneapolis. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section 609, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published. If at any
time the Trustee shall cease to be eligible in accordance with the provisions
of this Section 609, it shall resign immediately in the manner and with the
effect hereinafter specified in this Article Six.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
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(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
a majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case, (i)
the Company by a Board Resolution may remove the Trustee, or (ii)
subject to Section 514, any Holder who has been a bona fide Holder of a
Security for at least 6 months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and
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accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least 6 months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article Six.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article Six, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall
have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
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SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor, directly or
indirectly, secured or unsecured, of the Company (or any other obligor upon
the Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents which
shall be authorized to act on behalf of the Trustee to authenticate
Securities issued upon original issue and upon exchange, registration of
transfer, partial conversion or partial redemption or pursuant to Section
307, and Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed
to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf
of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having (or in the case of a corporation included in a
bank holding company system, the related bank holding company having) a
combined capital and surplus of not less than $50 million and subject to
supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section 614.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the Corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
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An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 614, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to all
Holders as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 614.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 614, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section 614, the Securities
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
Norwest Bank Minnesota, National Association,
As Trustee
By:_______________________________________,
As Authenticating Agent
By:_______________________________________,
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
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SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
(a) The Trustee shall transmit to the Holders such reports required
pursuant to the Trust Indenture Act as promptly as practicable after each June
15 and beginning on June 15, 1998, or at such other time as may be provided in
the Trust Indenture Act, in the manner provided in the Trust Indenture Act.
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(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Commission, and provide to the Trustee
and the Holders, annual reports and such other information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to the Trust
Indenture Act; PROVIDED that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder, within 15 days after it is or
would have been required to file with the Commission if the Company were subject
to the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's certified
independent public accountants as such would be required in such reports to the
Commission, and in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.
The Company (a) shall not consolidate with or merge into any other
Person; (b) shall not permit any other Person to consolidate with or merge into
the Company; and (c) shall not, directly or indirectly, transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties and
assets to any Person; UNLESS, in any such transaction:
(1) immediately after giving effect to such transaction and treating
any Indebtedness Incurred by the Company or a Restricted Subsidiary of
the Company as a result of such transaction as having been Incurred by
the Company or such Restricted Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or
lapse of time, or both, would become an Event of Default, shall have
occurred and be continuing;
(2) (x) the Company is the surviving entity or (y) in the case the
Company shall consolidate with or merge into another Person or shall
directly or indirectly transfer, convey, sell, lease or otherwise dispose
of all or substantially all
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of its properties and assets as an entirety, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by transfer, conveyance, sale, lease or other disposition all or
substantially all of the properties and assets of the Company as an
entirety (for purposes of this Article Eight, a "Successor Company")
shall be a corporation, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District
of Columbia and shall expressly assume by an indenture supplemental
hereto executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the performance
of every covenant of this Indenture on the part of the Company to be
performed or observed;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company or, if applicable, the Successor
Company shall be equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction;
(4) immediately after giving effect to such transaction, and treating
any Indebtedness Incurred by the Company or any Restricted Subsidiary as
a result of such transaction as having been Incurred at the time of such
transaction, the Company or the Successor Company would be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph under Section 1008; and
(5) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, lease or disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, complies with this Article Eight and that all
conditions precedent herein provided for relating to such transaction
have been complied with, and, with respect to such Officers' Certificate,
setting forth the manner of determination of the Consolidated Net Worth
and the ability to Incur Indebtedness in accordance with Clause (4) of
Section 801, the Company or, if applicable, of the Successor Company as
required pursuant to the foregoing.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer, conveyance, sale, lease or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety in accordance with Section 801, the successor Company
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except
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in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities pursuant to the requirements of Section
1013 or otherwise; or
(4) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture, PROVIDED such action pursuant to this Clause (5)
shall not adversely affect the interests of the Holders in any material
respect.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this
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Indenture or of modifying in any manner the rights of the Holders under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable thereon, or change the
place of payment where, or the coin or currency in which, the principal of,
or any premium or the interest on any Security is payable, or impair the
right to institute suit for the enforcement of any such payment on or with
respect to any Security (or, in the case of redemption, on or after the
Redemption Date or, in the case of an Offer to Purchase which has been
made, on or after the applicable Purchase Date), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required to amend
this Indenture or for any such supplemental indenture, or the consent of
whose Holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section 902, Section 513 or
Section 1019, except to increase any percentage specified in any such
provision or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby, or
(4) modify any of the provisions of this Indenture relating to the
subordination of the Securities in a manner adverse to the Holders, or
(5) following the mailing of an Offer with respect to an Offer to
Purchase pursuant to Sections 1015, 1016 or 1017, modify the provisions
of this Indenture with respect to such Offer to Purchase in a manner
adverse to such Holder, or
(6) modify any of the provisions of Section 1010.
Notice shall be given to all Holders and the Trustee at least 10
Business Days prior to the adoption of any proposed amendment pursuant to this
Section 902. It shall not be necessary for any Act of Holders under this
Section 902 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
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In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized pursuant to, is permitted by, and that all conditions
precedent have been met under, this Indenture. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby. No such supplemental indenture
shall directly or indirectly modify the provisions of Article Twelve in any
manner which might terminate or impair the rights of the Senior Indebtedness
pursuant to such subordination provisions.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURE.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, New York City,
an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, New York City)
where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
New York City, for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
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Whenever the Company shall have one or more Paying Agents, other than
the Company, it will, prior to each due date of the principal of (and premium,
if any) or interest on any Securities, deposit to such Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to
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be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in New
York City, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 1004. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors of the Company in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Restricted Subsidiary of the Company to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Board of Directors of the Company in
good faith, desirable in the conduct of its business or the business of any such
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders.
SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (l) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its Restricted
Subsidiaries or upon the income, profits or property of the Company or any of
its Restricted Subsidiaries, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
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SECTION 1007. MAINTENANCE OF INSURANCE.
The Company shall, and shall cause its Restricted Subsidiaries to,
keep at all times all of their properties which are of an insurable nature
insured against loss or damage with insurers believed by the Company to be
responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice.
SECTION 1008. LIMITATION ON CONSOLIDATED INDEBTEDNESS.
The Company shall not, and shall not permit its Restricted
Subsidiaries to, Incur any Indebtedness, except that the Company may Incur
Indebtedness if (x) there exists no Event of Default or an event which with
notice or lapse of time or both would become an Event of Default immediately
prior and subsequent thereto, and (y) after giving effect thereto, the Company's
Annualized Operating Cash Flow Ratio on a pro forma basis (calculated on the
assumption that such Indebtedness had been incurred on the first day of the
applicable Reference Period), would have been less than:
<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
-------------- -----
<S> <C>
Prior to January 1, 2000........ 9.0 to 1.0;
Thereafter...................... 8.0 to 1.0.
</TABLE>
Notwithstanding the foregoing paragraph, if there exists no Event
of Default or an event which with notice or lapse of time or both would
become an Event of Default immediately prior and subsequent thereto, the
Company and/or any Restricted Subsidiary of the Company, as the case may be,
may Incur the following Indebtedness (other than the Indebtedness evidenced
by the Exchange Debentures) without regard to the foregoing limitations:
(i) Indebtedness evidenced by the Securities on the date of this
Indenture;
(ii) the Incurrence by the Company of (x) prior to the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
Existing Credit Facility in an aggregate principal amount not to exceed
$160 million at any time outstanding, reduced by repayments and permanent
reductions thereof due to application of Net Cash Proceeds set forth in
Section 1015; PROVIDED, HOWEVER, that if such Indebtedness is repaid with
the net proceeds of the
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sale of the Securities pursuant to Section 1016, no Indebtedness in
excess of $30 million in the aggregate at any time outstanding may be
Incurred thereunder except for Indebtedness whose proceeds are applied
by the Company for the sole purpose of funding a repurchase of the
Securities pursuant to Section 1016; and (y) on and after the date of the
consummation of the Atlantic Acquisition, Indebtedness Incurred under the
New Credit Facility in an aggregate principal amount not to exceed $300
million at any time outstanding, reduced by repayments and permanent
reductions thereof due to the application of Net Cash Proceeds as set
forth in Section 1015;
(iii) Indebtedness of the Company or any Restricted Subsidiary of
the Company owing to the Company or any Restricted Subsidiary of the
Company ("Intercompany Indebtedness"); PROVIDED that (A) in the case of
any such Indebtedness of the Company, such obligations shall be unsecured
and subordinated in all respects to the Holders' rights pursuant to the
Securities to the same extent as the Securities are subordinated to
Senior Indebtedness and (B) if any event occurs that causes a Restricted
Subsidiary to no longer be a Restricted Subsidiary, then this Clause
(iii) shall no longer be applicable to such Indebtedness of that
Restricted Subsidiary;
(iv) Indebtedness of the Company or any Restricted Subsidiary of the
Company to renew, extend, refinance or refund any Indebtedness of the
Company or such Restricted Subsidiary outstanding or committed on the date
of renewal, extension, refinancing or refunding other than Indebtedness
Incurred pursuant to Clause (ii) or (iii); PROVIDED, HOWEVER, that such
Indebtedness does not exceed the principal amount of outstanding or
committed Indebtedness so renewed, extended, refinanced or refunded plus
financing fees and other expenses associated therewith; and PROVIDED
FURTHER, HOWEVER, that (a) such renewing, extending, refinancing or
refunding Indebtedness shall not have a final maturity and shall not have
any other mandatory repayments or redemptions prior to or in amounts
greater than those of the Indebtedness being renewed, extended, refinanced
or refunded, (b) in the case of any refinancing or refunding of
Indebtedness that ranks PARI PASSU in right of payment to the Securities,
the refinancing or refunding Indebtedness ranks PARI PASSU or is
subordinated in right of payment to the Securities, and, in the case of any
refinancing or refunding of Indebtedness subordinated to the Securities,
the refinancing or refunding Indebtedness ranks subordinate in right of
payment to the Securities to substantially the same extent as the
Indebtedness refinanced or refunded and (c) no Restricted Subsidiary of the
Company shall be permitted to refinance any Indebtedness of the Company;
(v) Indebtedness Incurred by the Company or any Restricted Subsidiary
of the Company under Interest Hedge Agreements to hedge interest on
permitted Indebtedness, PROVIDED, that the notional principal amount of any
such Interest
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Hedge Agreements does not exceed the principal amount of Indebtedness to
which such Interest Hedge Agreements relate;
(vi) Indebtedness of any Restricted Subsidiary of the Company which
does not exceed $30 million in the aggregate for all such Restricted
Subsidiaries at any time outstanding (excluding any Intercompany
Indebtedness or Acquired Indebtedness permitted to be Incurred under this
Indenture), PROVIDED that after giving effect thereto on a pro forma basis
the Company's Annualized Operating Cash Flow Ratio is less than 7.5 to 1.0
and the Adjusted Annualized Operating Cash Flow Ratio of such Restricted
Subsidiary is less than 5.0 to 1.0;
(vii) any guarantee by any Restricted Subsidiary of any
Indebtedness Incurred under the Existing Credit Facility or New Credit
Facility in compliance with this Section 1008;
(viii) Acquired Indebtedness, PROVIDED that on a pro forma basis
after giving effect to the Incurrence of such Indebtedness, the Company
shall be able to Incur $1.00 of additional Indebtedness pursuant to the
provisions described under the first paragraph of this Section 1008;
(ix) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of business;
(x) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than guaranties of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in an amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with
such disposition; and
(xi) Indebtedness of the Company or any Restricted Subsidiary, other
than Indebtedness permitted pursuant to Clauses (i) through (x) above,
which does not exceed $10 million at any time outstanding or committed.
SECTION 1009. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary of the Company
to create or issue any Preferred Stock except:
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(i) Preferred Stock outstanding on the date of this Indenture;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by a Person prior to the time such
Person became a direct or indirect Restricted Subsidiary of the Company;
and
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance outstanding Preferred Stock of a Restricted
Subsidiary, provided that (a) the liquidation value of the refinancing
Preferred Stock does not exceed the liquidation value so refinanced plus
financing fees and other expenses associated with such refinancing and (b)
such refinancing Preferred Stock has no mandatory redemptions prior to (and
in no greater amounts than) the Preferred Stock being refinanced.
SECTION 1010. LIMITATION ON CERTAIN INDEBTEDNESS.
The Company shall not Incur any Indebtedness that is subordinate in
right of payment to any other Indebtedness of the Company unless the
Indebtedness so Incurred is either PARI PASSU or subordinate in right of payment
to the Securities.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, make any Restricted Payments, unless after giving effect
thereto:
(1) no Event of Default or event that with notice or lapse of time or
both would become an Event of Default shall have occurred and is
continuing;
(2) the Company would be permitted to Incur an additional $1.00 of
Indebtedness pursuant to the first paragraph of Section 1008; and
(3) the aggregate of all Restricted Payments made on or after the
date of this Indenture does not exceed the sum of
(A) Cumulative Operating Cash Flow less 1.75 times Cumulative
Interest Expense;
(B) 100% of the aggregate Qualified Capital Stock Proceeds of
the Company after the date of this Indenture; and
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(C) 100% of the cash proceeds received from an Unrestricted
Subsidiary to the extent of Investments (other than Permitted
Investments) made in such Unrestricted Subsidiary since the date of
this Indenture.
The foregoing provision shall not be violated, so long as no Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing (other than in the case of
Clause (ii)), by reason of (i) the payment of any dividend within 60 days after
declaration thereof if at the declaration date such payment would have complied
with the foregoing provision; (ii) any refinancing of any Indebtedness
otherwise permitted under Clause (ii) or (iv) of Section 1008; (iii) the
issuance of the Exchange Debentures in exchange for the Exchangeable Preferred
Stock in accordance with the terms of the Exchangeable Preferred Stock, PROVIDED
that after giving effect thereto the Company the Company's Annualized Operating
Cash Flow Ratio on a pro forma basis (calculated on the assumption that such
Indebtedness had been Incurred on the first day of the applicable Reference
Period), would have been less than 7.0 to 1.0; (iv) the purchase, redemption or
other acquisition or retirement for value of shares of Capital Stock of any
Restricted Subsidiary held by Persons other than the Company or any of its
Restricted Subsidiaries, (v) the redemption, defeasance, repurchase or other
acquisition or retirement of any Capital Stock of the Company or any
Subordinated Indebtedness prior to its scheduled maturity either in exchange for
or out of the net cash proceeds of the substantially concurrent sale (other than
to a Subsidiary of the Company) of Qualified Capital Stock of the Company and
(vi) Restricted Payments, in addition to Restricted Payments permitted pursuant
to Clauses (i) through (v) of this paragraph, not in excess of $10 million in
the aggregate after the date of this Indenture. The payments described in
Clauses (i), (iii), (v) (provided the proceeds of the sale of the Qualified
Capital Stock referred to in such Clause constitute Qualified Capital Stock
Proceeds) and (vi) of this paragraph shall constitute Restricted Payments for
the calculation under the first paragraph of this Section 1011.
SECTION 1012. LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, create or otherwise cause or suffer to exist or become
effective any consensual restriction or prohibition on the ability of any
Restricted Subsidiary of the Company to (i) pay, directly or indirectly,
dividends on, or make any other distributions in respect of, its Capital Stock,
or any other ownership interest or participation in, or measured by, its
profits, to the Company or any Restricted subsidiary of the Company or pay any
Indebtedness or other obligation owed to the Company or any Restricted
Subsidiary of the Company; (ii) make loans or advances to the Company or any
Restricted Subsidiary of the Company; or (iii) transfer any of its property or
assets to the Company or any Restricted Subsidiary of the Company.
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Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, suffer to exist any such restriction or prohibition
(a) pursuant to this Indenture, the Existing Credit Facility, any other
agreement in effect on the date of this Indenture or, if executed and
delivered, the Exchange Indenture, PROVIDED that any such restriction or
prohibition in the Exchange Indenture is no more restrictive than that
contained in this Indenture, (b) pursuant to an agreement relating to any
Indebtedness of such Restricted Subsidiary which was outstanding or committed
prior to the date on which such Restricted Subsidiary became a Restricted
Subsidiary of the Company other than in anticipation of becoming a Restricted
Subsidiary; PROVIDED, that such restriction or prohibition shall not apply to
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets of such Restricted Subsidiary and its Subsidiaries,
(c) pursuant to an agreement effecting a renewal, extension, refinancing or
refunding of any agreement described in Clauses (a) and (b) above, PROVIDED,
HOWEVER, that the provisions contained in such renewal, extension,
refinancing or refunding agreement relating to such restriction or
prohibition are no more restrictive in any material respect than the
provisions contained in the agreement which is the subject thereof (it being
understood that for purposes of this Clause (c) the New Credit Facility is
deemed to be a refinancing of the Existing Credit Facility), (d) existing
under or by reason of applicable law, (e) customary provisions restricting
subletting or assignment of any lease governing any leasehold interest of any
Restricted Subsidiary, (f) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of the type
referred to in Clause (iii) of this Section 1012, (g) restrictions of the
type referred to in Clause (iii) of this Section 1012 contained in security
agreements securing Indebtedness of a Restricted Subsidiary of the Company to
the extent that such Liens were otherwise Incurred in accordance with Section
1013 and restrict the transfer of property subject to such agreements, or (h)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
SECTION 1013. LIMITATIONS ON LIENS.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or hereafter acquired to secure any Indebtedness
that ranks in right of payment PARI PASSU with or subordinate to the Securities
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the Securities (i) equally and ratably with such
Indebtedness as to such property for so long as such Indebtedness will be so
secured or (ii) in the event such Indebtedness is Indebtedness of the Company or
a Restricted Subsidiary which is subordinate in right of payment to the
Securities prior to such Indebtedness as to such property for so long as such
Indebtedness will be so secured.
The foregoing restrictions shall not apply to:
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(a) Liens existing in respect of any Indebtedness that exists on the
date of this Indenture;
(b) Liens in favor of the Company or Liens in favor of a Wholly Owned
Restricted Subsidiary of the Company on the assets or Capital Stock of another
Wholly Owned Restricted Subsidiary of the Company;
(c) Liens to secure Indebtedness outstanding or committed for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the equipment or other property subject to such
Liens; PROVIDED, HOWEVER, that (I) the principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost, (II)
such Lien does not extend to or cover any property other than such item of
property or any improvements on such item and (III) the Incurrence of such
Indebtedness is otherwise permitted by this Indenture;
(d) Liens on property existing immediately prior to the time of
acquisition thereof (and not Incurred in anticipation of the financing of such
acquisition);
(e) Liens to secure Indebtedness to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, Indebtedness secured by any Lien referred to in the foregoing
Clauses (a), (c) and (d) so long as such Lien does not extend to any other
property and the principal amount of Indebtedness so secured is not increased
except as otherwise permitted under Clause (ii) or (iv) of Section 1008;
(f) Liens on any Permitted Investment in Cooperative Bank Equity in
favor of any Cooperative Banks; or
(g) any other Liens in respect of any Indebtedness, which
Indebtedness does not exceed $500,000 in the aggregate.
SECTION 1014. LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, enter into any transaction involving aggregate consideration
in excess of (a) $1 million, including, without limitation, any purchase, sale,
lease or exchange of property or the rendering of any service, with or to any
Affiliate or Related Person of the Company (other than a Restricted Subsidiary),
unless a majority of the disinterested members of the Board of Directors of the
Company determines (which determination will be evidenced by a Board Resolution)
that (i) such transaction is in the best interests of the Company or such
Restricted Subsidiary and (ii) such transaction is on terms that are no less
favorable to the Company or such Restricted Subsidiary than those which might be
obtained in arm's-length transactions with a third party at the time and (b) $5
million unless (in addition to the provisions of the foregoing Clause (a)) the
Company receives a
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written opinion from an investment banking firm of national reputation to the
effect that such transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view; PROVIDED, that in the case of
transactions entered into in the ordinary course of business involving the
provision of telecommunication services by Affiliates or Related Persons of
the Company (who are regularly engaged in the provision of telecommunications
services) to the Company or any of its Restricted Subsidiaries (x) if the
aggregate consideration involved is not in excess of $5 million, then Clause
(a) above shall be applicable but the good faith judgment of an officer of
the Company shall be substituted for the requirement of a resolution of the
Board of Directors of the Company and (y) if the aggregate consideration
involved exceeds $5 million, Clause (b) above shall not be applicable but
Clause (a) above shall be applicable.
SECTION 1015. LIMITATION ON ASSET SALES AND SALES OF SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, in one transaction or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including any sale or
other transfer or issuance of any Capital Stock of any Restricted Subsidiary of
the Company, whether owned on the date of this Indenture or thereafter acquired
(an "Asset Sale") unless (a) such Asset Sale is for Fair Market Value, (b) at
least 80% of the value of the consideration for such Asset Sale consists of (i)
cash, (ii) the assumption by the transferee (and release of the Company or
Subsidiary, as the case may be) of Senior Indebtedness or Indebtedness of the
Company that ranks PARI PASSU in right of payment to the Securities or
Indebtedness of such Restricted Subsidiary, or (iii) notes, obligations or other
marketable securities (collectively "Marketable Securities") that are
immediately converted into cash and (c) the Net Cash Proceeds therefrom are
applied on or prior to the date that is 360 days after the date of such Asset
Sale (i) to the repayment of Indebtedness under the Credit Facility (which
payment permanently reduces the commitment thereunder) or (ii) to the repurchase
of the Securities pursuant to an Offer to Purchase (an "Asset Sale Offer")
described below or (iii) to an Investment in a Wireless Communications Business.
Notwithstanding the foregoing paragraph:
(i) any Restricted Subsidiary of the Company may convey, sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(ii) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, (A) convey, sell, lease, transfer, assign or otherwise
dispose of assets in the ordinary course of business provided that the
consideration received
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reflects the Fair Market Value of such assets and (B) exchange assets for
either assets or equity interests in Wireless Communications Businesses,
PROVIDED that (I) the assets or equity interests have a Fair Market Value
substantially equal to the assets exchanged, (II) the assets received by
the Company are controlled by the Company with respect to voting rights
and day-to-day operations, or the equity interests received by the Company
represent a controlling interest in the total Voting Power and day-to-day
operations of a Person that is the issuer of such equity interests, (III)
there exists no Event of Default or event which with notice or lapse of
time or both would become an Event of Default immediately prior and
subsequent thereto, and (IV) immediately after giving effect to such
transaction, the Company would be permitted to Incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 1008;
(iii) the Company and its Restricted Subsidiaries may convey,
sell, lease, transfer, assign or otherwise dispose of assets pursuant to
and in accordance with the covenants described in Article Eight;
(iv) the Company and its Restricted Subsidiaries may (a) sell damaged,
worn out or other obsolete property in the ordinary course of business or
other property no longer necessary for the proper conduct of the business
of the Company or any of its Restricted Subsidiaries or (b) abandon such
property if it cannot, through reasonable efforts, be sold; and
(v) in addition to the Asset Sales permitted by the foregoing Clauses
(i) through (iv), the Company and its Restricted Subsidiaries may
consummate Asset Sales (other than in the case of Capital Stock of any
Restricted Subsidiary of the Company) with respect to property, business or
assets the Fair Market Value of which does not exceed $5 million in the
aggregate after the date of this Indenture.
The Company may defer an Asset Sale Offer until the accumulated Net
Cash Proceeds not applied to the uses set forth in Subsections (c)(i) or
(c)(iii) in the first paragraph of this Section 1015 exceeds $5 million. An
Asset Sale Offer shall remain open for a period of 20 Business Days following
its commencement and no longer, except to the extent that a longer period is
required by applicable law (the "Asset Sale Offer Period"). No later than 5
Business Days after the termination of the Asset Sale Offer Period (the "Asset
Sale Purchase Date"), the Company will purchase the principal amount of
Securities required to be purchased pursuant to this Section 1015 (the "Asset
Sale Offer Amount") at a purchase price equal to 100% of the principal amount of
the Securities plus accrued and unpaid interest to but excluding the date of the
purchase or, if less than the Asset Sale Offer Amount has been tendered, all
Securities tendered in response to the Asset Sale Offer. Payment for any
Securities so purchased will be made in the same manner as interest payments are
made.
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If the Asset Sale Purchase Date is on or after a Regular Record Date
and on or before the related Interest Payment Date, any accrued and unpaid
interest will be paid to the Person in whose name a Security is registered at
the close of business on such Regular Record Date, and no additional interest
will be payable to Holders who tender Securities pursuant to the Asset Sale
Offer.
On or before the Asset Sale Purchase Date, the Company will, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Asset Sale Offer Amount of Securities or portions thereof tendered pursuant
to the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been
tendered, all Securities tendered, and will deliver to the Trustee an Officers'
Certificate stating that such Securities or portions thereof were accepted for
payment by the Company in accordance with the terms of this covenant. The
Company, the Depositary or the Paying Agent, as the case may be, will promptly
(but in any case not later than 5 days after the Asset Sale Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of
the Securities tendered by such Holder and accepted by the Company for purchase,
and the Company will promptly issue a new Security, and the Trustee, upon
written request from the Company will authenticate and mail or deliver such new
Security to such Holder, in a principal amount equal to any unpurchased portion
of the Security surrendered. Any Security not so accepted will be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the Asset Sale Purchase
Date.
SECTION 1016. LIMITATION ON USE OF PROCEEDS; PROCEEDS PURCHASE OFFER.
All proceeds (net of underwriting discounts and commissions and other
transaction expenses as set forth in the Offering Memorandum under the caption
"Use of Proceeds") received by the Company from the Securities Offering shall be
applied to the purchase of assets in the Atlantic Acquisition or, as set forth
below, to repay indebtedness under the Existing Credit Facility pending such
acquisition. Pending the consummation of the Atlantic Acquisition, all such
proceeds shall be held by the Company in a separate account (held in cash or
Cash Equivalents), except to the extent such proceeds are used to repay
indebtedness under the Existing Credit Facility (which repayment out of such
proceeds shall be permitted under this Indenture only if the banks thereunder or
under the New Credit Facility, as applicable, unconditionally consent to allow
an amount equal to the amount repaid from proceeds of the Securities Offering
and any accrued and unpaid interest thereon to be reborrowed for the sole
purpose of funding either (a) a repurchase of the Securities, and any accrued
and unpaid interest thereon, pursuant to a Proceeds Purchase Offer (as defined
below) or (b) the Atlantic Acquisition).
In the event that all of the net proceeds of the sale of the
Securities have not been so applied, directly or indirectly, to the purchase of
assets in the Atlantic Acquisition within 120 days of the date of this
Indenture, the Company shall make an Offer to
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Purchase (a "Proceeds Purchase Offer") to all Holders of Securities to
purchase, at a price equal to 101% of the principal amount thereof plus
accrued interest to but excluding the purchase date, all Securities.
If applicable, within 5 Business Days following the end of the 120-day
period referred to above, the Company will mail a notice to each Holder setting
forth the Proceeds Purchase Offer and offering to repurchase Securities pursuant
to the procedures required in this Indenture and described in such notice.
The Proceeds Purchase Offer will remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Proceeds Purchase Offer
Period"). No later than 5 Business Days after the termination of the Proceeds
Purchase Offer Period (the "Proceeds Purchase Date"), the Company will purchase
all Securities tendered in response to the Proceeds Purchase Offer. Payment for
any Securities so purchased will be made in the same manner as interest payments
are made.
If the Proceeds Purchase Date is on or after a Regular Record Date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Security is registered at the close
of business on such Regular Record Date, and no additional interest will be
payable to Holders who tender Securities pursuant to the Proceeds Purchase
Offer.
On or before the Proceeds Purchase Date, the Company will, to the
extent lawful, accept for payment all Securities or portions thereof tendered,
and will deliver to the Trustee an Officers' Certificate stating that such
Securities or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 1016. The Company, the Depositary or
the Paying Agent, as the case may be, will promptly (but in any case not later
than 5 Business Days after the Proceeds Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Securities
tendered by such Holder and accepted by the Company for purchase, and the
Company will promptly issue a new Security, and the Trustee, upon written
request from the Company will authenticate and mail or deliver such new Security
to such Holder, in a principal amount equal to any unpurchased portion of the
Security surrendered. Any Security not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Proceeds Purchase Offer on the Proceeds Purchase
Date.
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SECTION 1017. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change in Control, each Holder of a
Security shall have the right to have such Security repurchased by the Company
on the terms and conditions set forth in this Section 1017 and this Indenture.
The Company shall, within 30 days following the date of the consummation of a
transaction resulting in a Change of Control, mail to each Holder of Securities
an Offer to Purchase all Outstanding Securities at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to but excluding the Purchase Date (a "Change of Control Offer"). A
Change of Control Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Change of Control Offer Period"). No
later than 5 Business Days after the termination of the Change of Control Offer
Period (the "Change of Control Purchase Date"), the Company shall purchase all
Securities tendered in response to the Change of Control Offer. Payment for any
Securities so purchased shall be made in the same manner as interest payments
are made.
If the Change of Control Purchase Date is on or after a Regular Record
Date and on or before the related Interest Payment Date, any accrued and unpaid
interest will be paid to the Person in whose name a Security is registered at
the close of business on such Regular Record Date, and no additional interest
will be payable to Holders who tender Securities pursuant to the Change of
Control Offer.
On or before the Change of Control Purchase Date, the Company will, to
the extent lawful, accept for payment all Securities or portions thereof
tendered, and will deliver to the Trustee an Officers' Certificate stating that
such Securities or portions thereof were accepted for payment by the Company in
accordance with the terms of this covenant. The Company, the Depositary or the
Paying Agent, as the case may be, will promptly (but in any case not later than
5 days after the Change of Control Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Securities
tendered by such Holder and accepted by the Company for purchase, and the
Company will promptly issue a new Security, and the Trustee, upon written
request from the Company will authenticate and mail or deliver such new Security
to such Holder, in a principal amount equal to any unpurchased portion of the
Security surrendered. Any Security not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Change of Control Offer on the Change of Control
Purchase Date.
(b) "Change of Control" means (i) directly or indirectly a sale,
transfer or other conveyance of all or substantially all the assets of the
Company, on a consolidated basis, to any "person" or "group" (as such terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable), excluding transfers or conveyances to or among the Company's
Wholly Owned Restricted Subsidiaries, as an entirety or substantially as an
entirety in one transaction or series of related transactions, in
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each case with the effect that any Person or group of Persons owns more than
50% of the total Voting Power entitled to vote in the election of directors,
managers or trustees of the transferee entity immediately after such
transaction, (ii) any "person" or "group" (as such terms are used for
purposes of Section 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner" (as that term is used in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Power of the Company or
(iii) during any period of 24 consecutive months, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
(c) The Company will comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-l thereunder, in
connection with any Offer to Purchase (whether pursuant to Section 1015 or
Section 1016 or this Section 1017).
SECTION 1018. STATEMENT BY OFFICERS AS TO DEFAULT; COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year of the Company ending after the date hereof an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company has performed its obligations under this Indenture
and whether or not the Company is in default in the performance and observance
of any of the terms, provisions and conditions of this Indenture and if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and
in any event within 10 days after the Company becomes aware or should reasonably
become aware of the occurrence of an Event of Default or an event which, with
notice or the lapse of time or both, would constitute an Event of Default, an
Officers' Certificate setting forth the details of such Event of Default or
default, the period of existence thereof and the action that the Company
proposes to take with respect thereto.
(c) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year a written statement by the Company's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any event
which, with notice or the lapse of time
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or both, would constitute an Event of Default has come to their attention
and, if such default has come to their attention, specifying the nature and
period of the existence thereof.
SECTION 1019. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 801, 1015 and 1017, if before the
time for such compliance the Holders of at least a majority in aggregate
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent such covenant or condition except to
the extent so expressly waived, and, until such waiver shall become effective,
the obligations of the Company and the duties of the Trustee in respect of any
such covenant or condition shall remain in full force and effect; PROVIDED,
HOWEVER, with respect to an Offer to Purchase as to which an Offer has been
mailed, no such waiver may be made or shall be effective against any Holders
tendering Securities pursuant to such Offer, and the Company may not omit to
comply with the terms of such Offer as to such Holder.
SECTION 1020. PROVISION OF FINANCIAL INFORMATION.
If the Company at any time is not subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act (or any
successor provisions) at any time while any Security constitutes a "restricted
security" within the meaning of Rule 144, it will take all actions necessary to
permit resales of the Original Securities (or any successor securities) to be
made pursuant to Rule 144A, including furnishing to any holder of such a
security (or a beneficial interest therein), or to any prospective purchaser
designated by such holder, upon the request of such holder, such financial and
other information as may be required to be delivered under paragraph (d) (4) of
Rule 144A to permit such resales and such information that would be required if
the Company were subject to the informational requirements of Sections 13 or
15(d) of the Exchange Act.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
Subject to Article Twelve, the Securities may be redeemed at the
election of the Company, as a whole or from time to time in part, at the
Redemption Prices specified in the form of Security set forth in Article Two
together with accrued interest to but excluding the Redemption Date.
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SECTION 1102. APPLICABILITY OF ARTICLE ELEVEN.
Redemption of Securities at the election of the Company, as permitted
by any provision of this Indenture, shall be made in accordance with such
provision and this Article Eleven.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all the Securities, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by prorating, as nearly as may be practicable, the
principal amount of Securities to be redeemed. In any proration pursuant to
this Section 1104, the Trustee shall make such adjustments, reallocations and
eliminations as it shall deem proper (and in compliance with the requirements of
the principal national securities exchange, if any, on which the Securities are
listed) to the end that the principal amount of Securities so prorated shall be
$1,000 or a multiple thereof, by increasing or decreasing or eliminating the
amount which would be allocable to any Holder on the basis of exact proportion
by an amount not exceeding $1,000.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the
case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.
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SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date and
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
If a notice of redemption has been given as aforesaid, the Securities
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with
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accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments
of interest whose Stated Maturity is on or prior to the Redemption Date shall
be payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant
Record Dates according to their terms and the provisions of Section 308.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate provided by the
Security.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered
at any office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
SECTION 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article Twelve (subject to the
provisions of Article Four and Article Thirteen), the payment of the principal
of (and premium, if any) and interest on each and all of the Securities are
hereby expressly made subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness.
SECTION 1202. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding-up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment
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for the benefit of creditors or any other marshalling of assets and
liabilities of the Company, then and in any such event specified in (a), (b)
or (c) above (each such event, if any, herein sometimes referred to as a
"Proceeding") the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Indebtedness, before the holders of the Securities are entitled to
receive any payment or distribution of any kind or character, whether in
cash, property or securities, on account of principal of (or premium, if any)
or interest on or other obligations in respect of the Securities or other
Indebtedness of the Company that is PARI PASSU or subordinate in right of
payment to the Securities or on account of any purchase or other acquisition
of Securities or such other Indebtedness by the Company or any Subsidiary of
the Company (all such payments, distributions, purchases and acquisition
herein referred to, individually and collectively, as a "Securities
Payment"), and to that end the holders of Senior Indebtedness shall be
entitled to receive, for application to the payment thereof, any Securities
Payment which may be payable or deliverable in respect of the Securities in
any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section 1202, the Trustee or the Holder of any Security shall have received any
Securities Payment before all Senior Indebtedness is paid in full or payment
thereof has been provided for in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness, and if such fact
shall, at or prior to the time of such Securities Payment, have been made known
to the Trustee by delivery to the Trustee of any notice set forth in Section
1209 or, as the case may be, such Holder, then and in such event such Securities
Payment shall be paid over or delivered forthwith by the Trustee (if any notice
set forth in Section 1209 has been delivered to the Trustee) or by the Holder to
the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the Company
(which may be the Administrative Agent) for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article Twelve only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment
authorized by an order or decree of a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law or of any other
corporation provided for by such plan of reorganization or readjustment which
stock or securities are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as the Securities are so
subordinated as provided in this Article Twelve. The consolidation of the
Company with, or the merger of the Company into, another Person or the
liquidation or dissolution of the Company following the conveyance or transfer
of all or substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in
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Article Eight shall not be deemed a Proceeding for the purposes of this
Section 1202 if the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer such
properties and assets as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article Eight.
SECTION 1203. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
In the event that any Senior Payment Default (as defined below) shall
have occurred and be continuing, or the maturity of any Senior Indebtedness
shall have been accelerated, then no Securities Payment shall be made unless and
until such Senior Payment Default shall have been cured or waived or shall have
ceased to exist and any acceleration of Senior Indebtedness shall have been
rescinded or annulled. "Senior Payment Default" means any default in the
payment of principal of (or premium, if any) or interest on any Senior
Indebtedness when due, whether at the Stated Maturity of any such payment or by
declaration of acceleration, call for redemption or otherwise.
In the event that any Senior Nonmonetary Default (as defined below)
shall have occurred and be continuing, then, upon the receipt by the Company and
the Trustee of written notice of such Senior Nonmonetary Default from an
Administrative Agent or, if there is no outstanding Designated Senior
Indebtedness, any representative of a holder of Senior Indebtedness, no
Securities Payment shall be made during the period (the "Payment Blockage
Period") commencing on the date of such receipt of such written notice and
ending on the earlier of (i) the date on which such Senior Nonmonetary Default
shall have been cured or waived or shall have ceased to exist and any
acceleration of Senior Indebtedness shall have been rescinded or annulled or the
Senior Indebtedness to which such Senior Nonmonetary Default relates shall have
been discharged or (ii) the 179th day after the date of such receipt of such
written notice. No more than one Payment Blockage Period may be commenced with
respect to the Securities during any 360-day period and there shall be a period
of at least 181 consecutive days in each 360-day period when no Payment Blockage
Period is in effect. For all purposes of this Section 1203, no Senior
Nonmonetary Default that was known to the holders of Senior Indebtedness to
exist or be continuing on the date of commencement of any Payment Blockage
Period shall be, or be made, the basis for the commencement of a subsequent
Payment Blockage Period by an Administrative Agent unless such Senior
Nonmonetary Default shall have been cured for a period of not less than 90
consecutive days. "Senior Nonmonetary Default" means the occurrence or
existence and continuance of any event of default, or of any event which, after
notice or lapse of time (or both), would become an event of default, under the
terms of any instrument pursuant to which any Senior Indebtedness is
outstanding, permitting (after notice or lapse of time or both) one or more
holders of such Senior Indebtedness (or an administrative agent on behalf of the
holders thereof) to declare such Senior Indebtedness due and payable prior to
the date on which it would otherwise become due and payable, other than a Senior
Payment Default.
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SECTION 1204. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the Company, at any time
except during the pendency of any Proceeding referred to in Section 1202 or
under the conditions described in Section 1203, from making Securities Payments,
or (b) the application by the Trustee of any money deposited with it hereunder
to Securities Payments or the retention of such Securities Payment by the
Holders, if, at the time of such application by the Trustee, it had not received
any notice set forth in Section 1209.
SECTION 1205. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all amounts due or to become due on
or in respect of Senior Indebtedness, or the provision for such payment in cash
or cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. For purposes of such subrogation, no payments
or distributions to the holders of the Senior Indebtedness of any cash, property
or securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article Twelve, and no payments over
pursuant to the provisions of this Article Twelve to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.
SECTION 1206. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article Twelve are and are intended solely
for the purpose of defining the relative rights of the Holders on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article Twelve or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and
unconditional (and which, subject to the rights under this Article Twelve of
the holders of Senior Indebtedness, is intended to rank equally with all
other general obligations of the Company), to pay to the Holders of the
Securities the principal of (and premium, if any) and interest on the
Securities as and when the same shall become due and payable in accordance
with their terms; or (b) affect the relative rights against the Company of the
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Holders of the Securities and creditors of the Company other than the holders
of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article Twelve of the holders of Senior Indebtedness to receive cash,
property and securities otherwise payable or deliverable to the Trustee or
such Holder.
SECTION 1207. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Twelve and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1208. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this Article Twelve or the obligations hereunder of the Holders of the
Securities to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness, or otherwise
amend or supplement in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release
any Person liable in any manner for the collection of Senior Indebtedness;
and (iv) exercise or refrain from exercising any rights against the Company
and any other Person.
SECTION 1209. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the
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Trustee in respect of the Securities. Notwithstanding the provisions of this
Article Twelve or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or a holder of Senior Indebtedness or from any
trustee, representative or Administrative Agent therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 601, shall be entitled in all respects to assume that no such facts
exist; PROVIDED, HOWEVER, that if the Trustee shall not have received the
notice provided for in this Section 1209 at least 5 Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest on any Security), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such money and to apply the same to the purpose for
which such money was received and shall not be affected by any notice to the
contrary which may be received by it within 5 Business Days prior to such
date.
Subject to the provisions of Section 601, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee or
Administrative Agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee or Administrative Agent therefor).
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Twelve, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Twelve, and if such evidence is not furnished,
the Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment.
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SECTION 1210. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to
in this Article Twelve, the Trustee, subject to the provisions of Section 601,
and the Holders of the Securities shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which a Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Twelve.
SECTION 1211. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and it undertakes to perform and observe only
such of its covenants and obligations with respect to the Senior Indebtedness as
are specifically set forth in this Indenture, and no implied covenants or
obligations with respect to the Senior Indebtedness shall be read into this
Indenture against the Trustee and the Trustee shall not be liable to any such
holders if it shall in good faith mistakenly pay over or distribute to Holders
of Securities or to the Company or to any other Person cash, property or
securities to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article Twelve or otherwise.
SECTION 1212. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION
OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Twelve with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
Nothing in this Article Twelve shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
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SECTION 1213. ARTICLE TWELVE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article Twelve shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article Twelve in addition to or in place of the Trustee;
PROVIDED, HOWEVER, that Section 1212 shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
SECTION 1214. DEFEASANCE OF THIS ARTICLE TWELVE.
The subordination of the Securities provided by this Article Twelve is
expressly made subject to the provisions for defeasance or covenant defeasance
in Article Thirteen hereof and, anything herein to the contrary notwithstanding,
upon the effectiveness of any such defeasance or covenant defeasance, the
Securities then Outstanding shall thereupon cease to be subordinated pursuant to
this Article Twelve.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may at its option by Board Resolution, at any time, elect
to have either Section 1302 or Section 1303 applied to the Outstanding
Securities upon compliance with the conditions set forth below in this Article
Thirteen.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to the Outstanding Securities, and
the provisions of Article Twelve hereof shall cease to be effective, on the date
the conditions set forth below are satisfied (hereinafter, "defeasance"). For
this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Outstanding
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1305 and the other Sections of this Indenture referred to in
Clauses (A) and (B) below, and to have satisfied all its other obligations under
such Securities and this Indenture insofar as such Securities are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same),
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except for the following which shall survive until otherwise terminated or
discharged hereunder: (A) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1304 and as more
fully set forth in such Section, payments in respect of the principal of (and
premium, if any) and interest on such Securities when such payments are due,
(B) the Company's obligations with respect to such Securities under Sections
304, 305, 306, 307, 1002 and 1003, (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (D) this Article Thirteen. Subject to
compliance with this Article Thirteen, the Company may exercise its option
under this Section 1302 notwithstanding the prior exercise of its option
under Section 1303.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, (i) the Company shall be released from its
obligations under Sections 1005 through 1017, inclusive, and Clauses (3), (4)
and (5) of Section 801, (ii) the occurrence of an event specified in Sections
501(3), 501(4) (with respect to Clauses (1), (3), (4) or (5) of Section 801),
501(5) (with respect to any of Sections 1005 through 1017, inclusive), 501(6)
and 501(7) shall not be deemed to be an Event of Default and (iii) the
provisions of Article Twelve hereof shall cease to be effective on and after the
date all conditions set forth below are satisfied (hereinafter, "covenant
defeasance"). For this purpose, such covenant defeasance means that the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section, Clause or Article or by
reason of any reference in any such Section, Clause or Article to any other
provision herein or in any other document, but the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
1302 or Section 1303 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 609 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms, without the need for reinvestment, will
provide, not later than one day before the due date of any payment, money
in an amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants
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expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal of (and premium,
if any,) and each installment of interest, if any, on the Outstanding
Securities on the Stated Maturity of such principal or installment of
interest in accordance with the terms of this Indenture and of such
Securities. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of
America for the payment of which its full faith and credit is pledged or
(y) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any
such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian
for the account of the holder of such depository receipt, PROVIDED that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository
receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred.
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit and covenant
defeasance and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit covenant defeasance and discharge had not occurred.
(4) The Company shall have delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit.
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(5) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 608 and for
purposes of the Trust Indenture Act with respect to any securities of the
Company.
(6) No Event of Default or event that, with notice or lapse of time
or both, would become an Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Section 501(8) is
concerned, at any time during the period ending on the 121st day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
(7) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to either the defeasance under Section 1302 or the
covenant defeasance under Section 1303 (as the case may be) have been
satisfied.
(9) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company as
defined in the Investment Company Act of 1940, as amended, or such trust
shall be qualified under such act or exempt from regulation thereunder.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee -- collectively, for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to
the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Holders of such Securities, of all sums due and to become due thereon in
respect of principal (and premium, if any) and interest, but such money need
not be segregated from other funds except to the extent required by law.
Money so held in trust shall not be subject to the provisions of Article
Twelve.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited
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pursuant to Section 1304 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon
Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent defeasance or
covenant defeasance.
SECTION 1306. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1302 or 1303 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Thirteen until such time as the Trustee or Paying agent
is permitted to apply all such money in accordance with Section 1302 or 1303;
PROVIDED, HOWEVER, that if the Company makes any payment of principal of (and
premium, if any) or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
RURAL CELLULAR CORPORATION
By: /s/ Wesley E. Schultz
-----------------------------------------------
Name: Wesley E. Schultz
Title: Vice President Finance &
CFO
Attest:
/s/ Don L. Swenson
- ----------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Jane Y. Schweiger
-----------------------------------------------
Name: Jane Y. Schweiger
Title: Corporate Trust Officer
(Authorized Officer)
Attest:
/s/ Tim May
- ----------------------------
107
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STATE OF Minnesota )
ss.:
COUNTY OF Hennepin)
On the 14th day of May, 1998, before me personally came Wesley E.
Schultz, to me known, who, being duly sworn, did depose and say that he is
theVice President of Rural Cellular Corporation, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to instrument is such corporate seal;
that is was so affixed by authority of by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like authority.
Gary K. Hall
(SEAL) Notary Public-Minnesota /s/ Gary K. Hall
RAMSEY COUNTY ----------------------------
My Commission Expires Jan. 31, 2000
STATE OF MINNESOTA )
ss.:
COUNTY OF HENNEPIN )
On the 14th day of May, 1998, before me personally came Jane Y.
Scheiger , to me known, who, being by me duly sworn, did depose and say that
[he/she] is CORP. TRUST OFFICER of Norwest Bank Minnesota, National
Association, one of the corporations described in and which executed the
foregoing instrument; that [he/she] knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said corporation, and that [he/she]
signed [his/or her] name thereto by like authority.
Gary K. Hall
(SEAL) Notary Public-Minnesota /s/ Gary K. Hall
RAMSEY COUNTY ----------------------------
My Commission Expires Jan. 31, 2000
<PAGE>
NOTES EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
THIS NOTES EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of May 14, 1998 between Rural Cellular
Corporation, a Minnesota corporation (the "Company"), and TD Securities (USA)
Inc., NationsBanc Montgomery Securities LLC and BancBoston Securities Inc.
(collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated May 7,
1998 between the Company and the Initial Purchasers (the "Purchase Agreement"),
which provides for, in relevant part, the sale by the Company to the Initial
Purchasers of $125,000,000 aggregate principal amount of the Company's 9___%
Senior Subordinated Notes due 2008 (the "Notes"). In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide to the Initial Purchasers and their direct and indirect transferees
and assigns the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Company" shall have the meaning set forth in the preamble of this
Agreement and also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, PROVIDED, HOWEVER, that any such depositary
must have an address in the Borough of Manhattan, in New York City.
"Exchange Notes" shall mean 9___% Series B Senior Subordinated Notes
due 2008 issued by the Company under the Indenture containing terms identical in
all respects to the Notes (except that (i) interest thereon shall accrue from
the last date on which interest was paid on the Notes or, if no such interest
has been paid, from the Original Issue Date, (ii) the transfer restrictions
thereon shall be eliminated and (iii) certain provisions relating to an increase
in the stated rate of interest thereon shall be eliminated) to be offered to
Holders of Notes in exchange for Registrable Notes pursuant to the Notes
Exchange Offer.
<PAGE>
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes under the
Indenture.
"Indenture" shall mean the Indenture relating to the Notes dated as of
May 14, 1998 between the Company and Norwest Bank Minnesota, National
Association, as Trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble
of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; PROVIDED that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Company
or any of its affiliates (as such term is defined in Rule 405 under the 1933
Act) (other than the Initial Purchasers or subsequent holders of Registrable
Notes if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Notes) shall be disregarded in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.
"Notes" shall have the meaning set forth in the preamble of this
Agreement.
"Notes Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Notes Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"Notes Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Notes Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the then Registrable Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Original Issue Date" shall mean the date on which the Notes are first
issued to the Initial Purchasers under the Indenture.
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"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(f) of this Agreement.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Notes covered by a Notes Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
of this Agreement.
"Registrable Notes" shall mean the Notes; PROVIDED, HOWEVER, that
certain Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have been declared effective under
the 1933 Act and such Notes shall have been disposed of pursuant to such
Registration Statement, (ii) such Notes shall have been sold to the public
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Notes shall have ceased to be outstanding,
(iv) such Notes shall have been exchanged by a Person other than a Broker-Dealer
for Exchange Notes upon consummation of the Notes Exchange Offer or (v)
following the exchange by a Participating Broker-Dealer in the Notes Exchange
Offer of a Note for an Exchange Note, that Exchange Note is sold to a purchaser
who receives from that Participating Broker-Dealer on or before the date of that
sale a copy of the Prospectus.
"Registration Default" shall have the meaning set forth in Section
2(e).
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state or other
securities or blue sky laws and compliance with the rules of the NASD (including
reasonable fees and disbursements of counsel for any underwriters or Holders in
connection with state or other securities or blue sky qualification of any of
the Exchange Notes or Registrable Notes), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements, certificates
representing the Registrable Notes or Exchange Notes and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) all fees and expenses incurred in
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<PAGE>
connection with the listing, if any, of any of the Registrable Notes or
Exchange Notes on any securities exchange or exchanges, (vi) all fees and
disbursements relating to the qualification of the Indenture under applicable
securities laws, (vii) the reasonable fees and disbursements of counsel for
the Company and, in the case of a Notes Shelf Registration Statement, the
reasonable fees and disbursements (including the expenses of preparing and
distributing any underwriting or securities sales agreement) of one counsel
(in addition to appropriate local counsel, if any) for the Holders (which
counsel shall be selected in writing by the Majority Holders), (viii) the
fees and disbursements of the independent public accountants of the Company,
including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, (ix) the fees and
expenses of a "qualified independent underwriter" as defined by Conduct Rule
2720 of the NASD (if required by the NASD rules) in connection with the
offering of the Registrable Notes or Exchange Notes, (x) the fees and
expenses of the Trustee, including its counsel, and any escrow agent or
custodian and (xi) any fees and disbursements of the underwriters customarily
required to be paid by issuers or sellers of securities and the reasonable
fees and expenses of any special experts retained by the Company in
connection with any Registration Statement, but excluding underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Exchange Notes or Registrable Notes pursuant to
the provisions of this Agreement, and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Rule 144A" means Rule 144A under the 1933 Act (or any successor
provision), as it may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Special Interest" shall have the meaning set forth in Section 2(e).
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
2. REGISTRATION UNDER THE 1933 ACT. (a) NOTES EXCHANGE OFFER
REGISTRATION. To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company at its cost
shall (A) file on or prior to the 90th calendar day following the Original
Issue Date with the SEC a Notes Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Notes for Exchange Notes, (B) use its best efforts to cause such
Notes Exchange Offer Registration Statement to be declared effective by the
SEC on or prior to the 120th calendar day following the Original Issue Date,
(C) use its best efforts to cause such Notes Exchange Offer Registration
Statement to
4
<PAGE>
remain effective until 90 calendar days after the closing of the Notes
Exchange Offer and (D) use its best efforts to keep the Notes Exchange Offer
open for not less than 30 days after, and to consummate the Notes Exchange
Offer on or prior to the 45th calendar day following (or longer if required
by applicable law), the date that the Notes Exchange Offer Registration
Statement is declared effective. The Exchange Notes will be issued under the
Indenture. Upon the effectiveness of the Notes Exchange Offer Registration
Statement, the Company shall promptly commence the Notes Exchange Offer, it
being the objective of such Notes Exchange Offer to enable each Holder (other
than Participating Broker-Dealers (as defined in Section 3(f) hereof)),
eligible and electing to exchange Registrable Notes for Exchange Notes
(assuming that such Holder is not an affiliate of the Company within the
meaning of Rule 405 under the 1933 Act, acquires the Exchange Notes in the
ordinary course of such Holder's business and has no arrangements or
understandings with any Person to participate in the Notes Exchange Offer for
the purpose of distributing the Exchange Notes) to trade such Exchange Notes
from and after their receipt without any limitations or restrictions under
the 1933 Act and without material restrictions under the securities laws of a
substantial proportion of the several states of the United States.
In connection with the Notes Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Notes Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) use the services of the Depositary for the Notes Exchange
Offer with respect to Notes evidenced by global certificates;
(iii) permit Holders to withdraw, in whole or in part, tendered
Registrable Notes at any time prior to the close of business, New York City
time, on the last business day on which the Notes Exchange Offer shall
remain open, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Registrable Notes delivered for
exchange, and a statement that such Holder is withdrawing, in whole or in
part, his election to have such Notes exchanged; and
(iv) otherwise comply in all respects with all applicable laws
relating to the Notes Exchange Offer.
As soon as practicable after the close of the Notes Exchange Offer,
the Company shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Notes Exchange Offer in accordance with
the terms of the Notes Exchange Offer Registration Statement and the letter
of transmittal which is an exhibit thereto;
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<PAGE>
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the Company;
and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in amount to the
Registrable Notes of such Holder so accepted for exchange.
Interest on each Exchange Note will accrue from the last date on
which interest was paid on the Registrable Notes surrendered in exchange
therefor or, if no interest has been paid on the Registrable Notes, from the
Original Issue Date. The Notes Exchange Offer shall not be subject to any
conditions, other than that the Notes Exchange Offer, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the Staff of the SEC. Each Holder of Registrable Notes
(other than Participating Broker-Dealers) who wishes to exchange such
Registrable Notes for Exchange Notes in the Notes Exchange Offer shall have
represented that (i) any Exchange Notes to be received by it were acquired in
the ordinary course of business,(ii) at the time of the commencement of the
Notes Exchange Offer it has no arrangement with any Person to participate in
the distribution (within the meaning of the 1933 Act) of the Exchange
Notes,(iii) it is not an affiliate (as defined in Rule 405 under the 1933
Act) of the Company, or if it is an affiliate it will comply with the
registration and prospectus delivery requirements of the 1933 Act to the
extent applicable and (iv) it is not acting on behalf of any Person who could
not make the representations in clauses (i) through (iii) above. The Company
shall inform the Initial Purchasers of the names and addresses of the Holders
to whom the Notes Exchange Offer is made, and the Initial Purchasers shall
have the right to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Notes Exchange Offer.
(b) SHELF REGISTRATION. (i) If, because of any change in law or
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Notes Exchange Offer as contemplated by section 2(a)
hereof, or (ii) if for any other reason the Notes Exchange Offer cannot be
consummated within 210 days following the Original Issue Date, or (iii)if any
Holder (other than an Initial Purchaser) is not eligible to participate in the
Notes Exchange Offer or (iv) upon the request of any Initial Purchaser (with
respect to any Registrable Notes which it acquired directly from the Company)
following the consummation of the Notes Exchange Offer, if any such Initial
Purchaser shall hold Registrable Notes which it acquired directly from the
Company and if such Initial Purchaser is not permitted, in the reasonable
opinion of counsel to such Initial Purchaser, pursuant to applicable law or
applicable interpretation of the Staff of the SEC to participate in the Notes
Exchange Offer, the Company shall, at its cost:
(A) as promptly as practicable, and in any event within 90 days after
the date on which such filing obligation arises, file with the SEC a Notes
Shelf Registration Statement relating to the offer and sale of the then
outstanding Registrable Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Majority Holders
of such Registrable Notes and set forth in such Notes Shelf Registration
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Statement, and use its best efforts to cause such Notes Shelf Registration
Statement to be declared effective by the SEC on or prior to the 150th
calendar day following the Original Issue Date (or promptly in the event of
a request by any Initial Purchaser pursuant to clause (iv) above). In the
event that the Company is required to file a Notes Shelf Registration
Statement upon the request of any Holder (other than an Initial Purchaser)
not eligible to participate in the Notes Exchange Offer pursuant to clause
(iii) above or upon the request of any Initial Purchaser pursuant to clause
(iv) above, the Company shall file and have declared effective by the SEC
both a Notes Exchange Offer Registration Statement pursuant to Section 2(a)
with respect to all Registrable Notes and a Notes Shelf Registration
Statement (which may be a combined Registration Statement with the Notes
Exchange Offer Registration Statement) with respect to offers and sales of
Registrable Notes held by such Holder or such Initial Purchaser after
completion of the Notes Exchange Offer; PROVIDED, that with respect to
Exchange Notes received by an Initial Purchaser in exchange for any portion
of an unsold allotment of Notes, the Company may, if permitted by current
interpretations of the staff of the SEC, file a post-effective amendment to
the Notes Exchange Offer Registration Statement containing the information
required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under Section 2(b) with respect thereto,
and any such Notes Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and be governed by (for so long as such
interpretation of the SEC shall continue to be effective) the provisions
herein applicable to, a Notes Shelf Registration Statement.
(B) use its best efforts to keep the Notes Shelf Registration
Statement continuously effective in order to permit the Prospectus forming
a part thereof to be usable by Holders for a period of two years from the
date the Notes Shelf Registration Statement is declared effective by the
SEC (or one year from the date the Notes Shelf Registration Statement is
declared effective if such Notes Shelf Registration Statement is filed upon
the request of any Initial Purchaser pursuant to clause (iv) above) or such
shorter period which will terminate when (i) all of the Registrable Notes
covered by the Notes Shelf Registration Statement have been sold pursuant
to the Notes Shelf Registration Statement, (ii) the date on which all of
the Registrable Notes become eligible for resale pursuant to Rule 144 under
the 1933 Act without volume restrictions, or (iii) the date on which there
ceases to be any outstanding Registrable Notes; and
(C) notwithstanding any other provisions hereof, use its best efforts
to ensure that (i) any Notes Shelf Registration Statement and any amendment
thereto and any Prospectus forming a part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules
and regulations thereunder,(ii) any Notes Shelf Registration Statement and
any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (iii) any Prospectus forming a part of any Notes Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to
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<PAGE>
make the statements, in light of the circumstances under which they were
made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Notes Shelf Registration Statement if reasonably requested by the Majority
Holders with respect to information relating to the Holders and otherwise as
required by Section 3(b) below, to use all reasonable efforts to cause any such
amendment to become effective and such Shelf Registration to become usable as
soon as practicable thereafter and to furnish to the Holders of Registrable
Notes copies of any such supplement or amendment promptly after its being used
or filed with the SEC.
(c) EXPENSES. The Company shall be liable for and pay all
Registration Expenses in connection with the registration pursuant to Section
2(a) and 2(b). Each Holder shall pay all expenses of its counsel other than as
set forth in the preceding sentence, underwriting discounts and commissions
(prior to the reduction thereof with respect to selling concessions, if any) and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Notes pursuant to the Notes Shelf Registration Statement.
(d) EFFECTIVE REGISTRATION STATEMENT.
(i) The Company will be deemed not to have used its best efforts to
cause the Notes Exchange Offer Registration Statement or the Notes Shelf
Registration Statement, as the case may be, to become, or to remain,
effective during the requisite period if the Company voluntarily takes any
action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Notes covered thereby
not being able to exchange or offer and sell such Registrable Notes during
that period unless (A) such action is required by applicable law or (B)
such action is taken by the Company in good faith and for valid business
reasons (but not including avoidance of the Company's obligations
hereunder), including a material corporate transaction, so long as the
Company promptly complies with the requirements of Section 3(k) hereof,
if applicable.
(ii) A Notes Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Notes Shelf Registration Statement pursuant to Section
2(b) hereof will not be deemed to have become effective unless it has been
declared effective by the SEC; PROVIDED, HOWEVER, that if, after it has
been declared effective, the offering of Registrable Notes pursuant to a
Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or
court, such Registration Statement will be deemed not to have been
effective during the period of such interference, until the offering of
Registrable Notes pursuant to such Registration Statement may legally
resume.
(e) INCREASE IN INTEREST RATE. In the event that (i) the Notes
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 90th day following the Original
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Issue Date,(ii) the Notes Exchange Offer Registration Statement (or, if
applicable, the Notes Shelf Registration Statement) has not become effective
within 120 days following the Original Issue Date, (iii) the expiration of
the Notes Exchange Offer has not occurred within 45 days after the effective
date of the Notes Exchange Offer Registration Statement or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective (except as specifically
permitted herein) without being succeeded immediately by an additional
Registration Statement filed and declared effective (any such event referred
to in clauses (i) through (iv) above, a "Registration Default;" PROVIDED that
no more than one Registration Default shall be deemed in effect at any one
time), the interest rate borne by the Notes shall be increased by one-half of
one percent (0.5%) per annum for the period from the occurrence of the
Registration Default until such time as no Registration Default is in effect,
PROVIDED, that if a different event specified in clause (i), (ii), (iii) or
(iv) above occurs the interest rate will again be increased as pursuant to
the foregoing provisions . Such additional interest (the "Special Interest")
shall be payable in cash semiannually in arrears on each May 15 and November
15. For each 90-day period that the Registration Default continues, the per
annum rate of such Special Interest shall increase by an additional one-half
of one percent (0.5%), PROVIDED that such rate shall in no event exceed two
percent (2.0%) per annum in the aggregate. If the Company issues a notice
that the Notes Shelf Registration Statement is unusable pending the
announcement of a material corporate transaction or otherwise pursuant to
Section 3(k) hereof, or such a notice is required under applicable securities
laws to be issued by the Company, and the aggregate number of days in any
consecutive twelve-month period for which all such notices are issued or
required to be issued exceeds 30 days in the aggregate, then the interest
rate borne by the Notes will be increased by one-half of one percent per
annum following the date that such Notes Shelf Registration Statement ceases
to be usable beyond the 30-day period permitted above, which rate shall be
increased by an additional one-half of one percent per annum for each
additional 90-day period that such Notes Shelf Registration Statement
continues to be unusable; PROVIDED that the aggregate increase in such annual
interest rate may in no event exceed two percent (2.0%). Upon the Company
declaring that the Notes Shelf Registration Statement is usable after the
interest rate has been increased pursuant to the preceding sentence, the
interest rate borne by the Notes will be reduced to the original interest
rate if the Company is otherwise in compliance with this paragraph; PROVIDED,
HOWEVER, that if after any such reduction in interest rate the Notes Shelf
Registration Statement again ceases to be usable beyond the period permitted
above, the interest rate will again be increased and thereafter reduced
pursuant to the foregoing provisions.
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its respective obligations under Sections
2(a) and 2(b) hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Sections 2(a) and 2(b) hereof.
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3. REGISTRATION PROCEDURES. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company, (ii) shall, in the case of
a Shelf Registration, be available for the sale of the Registrable Notes by the
selling Holders thereof and (iii) shall comply as to form in all material
respects with the requirements of the applicable form and include or incorporate
by reference all financial statements required by the SEC to be filed therewith,
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to (i) the Notes Exchange Offer Registration Statement as may be
necessary under applicable law to keep such Notes Exchange Offer Registration
Statement effective for the period required to comply with Section 2(a) and
(ii) the Notes Shelf Registration Statement as may be necessary under applicable
law to keep such Notes Shelf Registration Statement effective for the period
required pursuant to Section 2(b) hereof; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Notes Registration
Statement (or amendment thereto) with respect to the Registrable Notes is being
filed and advising such Holders that the distribution of Registrable Notes will
be made in accordance with the method elected by the Majority Holders; and (ii)
furnish to each Holder of Registrable Notes, to counsel for the Initial
Purchasers, to counsel for the Holders and to each underwriter of an
underwritten offering of Registrable Notes, if any, without charge, as many
copies of each Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as such Holder, counsel
or underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the last paragraph of
Section 3, hereby consent to the use of the Prospectus, including each
preliminary Prospectus, or any amendment or supplement thereto, by each of the
selling Holders of Registrable Notes in connection with the offering and sale of
the Registrable Notes covered by the Prospectus, or any amendment or supplement
thereto;
(d) use its best efforts to register or qualify the Registrable Notes
under all applicable state securities or "blue sky" laws of such jurisdictions
as any Holder of Registrable Notes covered by a Registration Statement and each
underwriter of an underwritten offering of
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Registrable Notes shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, to cooperate with
the Holders in connection with any filings required to be made with the NASD,
to keep each such registration or qualification effective during the period
such Registration Statement is required to be effective and to do any and all
other acts and things that may be reasonably necessary or advisable to enable
such Holders to consummate the disposition in each such jurisdiction of such
Registrable Notes owned by such Holders; PROVIDED, HOWEVER, that the Company
shall not be required to (i) qualify as a foreign corporation or as a dealer
in securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d) or (ii) take any action which would subject
it to general service of process or taxation in any such jurisdiction if it
is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for the Initial Purchasers promptly and, if
requested by such Holder or counsel, confirm such advice in writing promptly
(i) when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii) of
any request by the SEC or any state securities authority for post-effective
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Notes covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales agreement
or other similar agreement, if any, relating to such offering cease to be
true and correct in all material respects, (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification of
the Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of any
event or the discovery of any facts during the period a Notes Shelf
Registration Statement is effective which makes any statement made in such
Notes Shelf Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such Notes
Shelf Registration Statement or Prospectus in order to make the statements
therein not misleading and (vii) of any determination by the Company that a
post-effective amendment to a Registration Statement would be appropriate;
(f) (A) in the case of the Notes Exchange Offer, (i) include in the
Notes Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Notes Exchange Offer
Registration Statement by broker-dealers who have exchanged their Registrable
Notes for Exchange Notes for the resale of such Exchange Notes, (ii) furnish
to each broker-dealer who desires to participate in the Notes Exchange Offer,
without charge, as many copies of each Prospectus included in the Notes
Exchange Offer Registration Statement, including any preliminary prospectus,
and any amendment or supplement thereto, as such broker-dealer may reasonably
request, (iii) include in the Notes Exchange Offer Registration Statement a
statement that any broker-dealer who holds Registrable Notes acquired for its
own account as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer"), and who receives Exchange Notes
for Registrable
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Notes pursuant to the Notes Exchange Offer, may be a statutory underwriter
and must deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes,(iv) subject to the last
paragraph of Section 3, hereby consent to the use of the Prospectus forming
part of the Notes Exchange Offer Registration Statement or any amendment or
supplement thereto, by any broker-dealer in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any amendment or
supplement thereto in accordance with the 1933 Act, and (v) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Notes Exchange Offer (x) the following
provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the undersigned
is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were
acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a
prospectus meeting the requirements of the 1933 Act in connection
with any resale of such Exchange Notes pursuant to the Notes
Exchange Offer; PROVIDED, HOWEVER, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the 1933
Act";
and (y) a statement to the effect that by making the acknowledgment described in
subclause (x) and by delivering a Prospectus in connection with the exchange of
Registrable Notes, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates
in the Notes Exchange Offer, the Company shall use its best efforts to
cause to be delivered at the request of an entity representing the
Participating Broker-Dealers (which entity shall be TD Securities
(USA) Inc., unless it elects not to act as such representative) only
one, if any, "cold comfort" letter with respect to the Prospectus in
the form existing on the last date for which exchanges are accepted
pursuant to the Notes Exchange Offer and with respect to each
subsequent amendment or supplement, if any, effected during the period
specified in clause (C) below;
(C) to the extent any Participating Broker-Dealer participates
in the Notes Exchange Offer, the Company shall use its best efforts to
maintain the effectiveness of the Notes Exchange Offer Registration
Statement for a period of 90 days following the closing of the Notes
Exchange Offer; and
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<PAGE>
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Notes Exchange Offer Registration
Statement as would otherwise be contemplated by Section 3(b), or take
any other action as a result of this Section 3(f), for a period
exceeding 120 days after the last date for which exchanges are
accepted pursuant to the Notes Exchange Offer (as such period may be
extended by the Company) and Participating Broker-Dealers shall not be
authorized by the Company to, and shall not, deliver such Prospectus
after such period in connection with resales contemplated by this
Section 3;
(g) (A) in the case of a Notes Exchange Offer, furnish counsel for
the Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the SEC or
any state securities authority for amendments or supplements to a Registration
Statement and Prospectus or for additional information;
(h) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as practicable
and provide immediate notice to each Holder of the withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and delivery
of certificates representing Registrable Notes to be sold and not bearing any
restrictive legends; and cause such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders or the underwriters, if any, may reasonably
request at least two business days prior to the closing of any sale of
Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section 3(e)(vi)
hereof, use best efforts to prepare a supplement or post-effective amendment to
a Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes, such Prospectus will not
contain at the time of such delivery any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly as
practicable after the occurrence of such an event, and each Holder hereby agrees
to suspend use of the Prospectus until the Company has amended or supplemented
the Prospectus to correct such misstatement or omission. At such time as such
public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any
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<PAGE>
omitted material fact, the Company agrees promptly to notify each Holder of
such determination and to furnish each Holder such numbers of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably request;
(l) obtain a CUSIP number for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a Registration
Statement, and provide the Trustee with printed certificates for the Exchange
Notes or the Registrable Notes, as the case may be, in a form eligible for
deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may be,
(ii) cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions (including those reasonably requested by the Majority Holders) in order
to expedite or facilitate the disposition of such Registrable Notes and in such
connection whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
(i) make such representations and warranties to the Holders of such
Registrable Notes and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in similar
underwritten offerings as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Registrable Notes being
sold) addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in sales of
securities or underwritten offerings and such other matters as may be
reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, and use best efforts to have such letters addressed
to the selling Holders of Registrable Notes, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with similar
underwritten offerings;
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<PAGE>
(iv) enter into a securities sales agreement with all of the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same to
set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth in
Section 5 hereof with respect to the underwriters and all other parties to
be indemnified pursuant to said Section; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings.
The above actions shall be done at (i) the effectiveness of such Notes Shelf
Registration Statement (and, if appropriate, each post-effective amendment
thereto) and (ii) each closing under any underwriting or similar agreement as
and to the extent required thereunder. In the case of any underwritten
offering, the Company shall provide written notice to the Holders of all
Registrable Notes of such underwritten offering at least 30 days prior to the
filing of a prospectus supplement for such underwritten offering. Such notice
shall (x) offer each such Holder the right to participate in such underwritten
offering, (y) specify a date, which shall be no earlier than 10 days following
the date of such notice, by which such Holder must inform the Company of its
intent to participate in such underwritten offering and (z) include the
instructions such Holder must follow in order to participate in such
underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and any
underwriters participating in any disposition pursuant to a Notes Shelf
Registration Statement and any counsel or accountant retained by such Holders or
underwriters, during business hours, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested upon
reasonable notice by any such Persons, and cause the respective officers,
directors, employees, and any other agents of the Company to supply all
information reasonably requested by any such representative, underwriter,
special counsel or accountant in connection with such Notes Shelf Registration
Statement; PROVIDED, HOWEVER, that such Persons shall first agree in writing
with the Company that any information that is reasonably and in good faith
designated by the Company in writing as confidential at the time of delivery of
such information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities,(ii) disclosure
of such information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of such Notes
Shelf Registration Statement or the use of any Prospectus), (iii)such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard such information by such Person or (iv)
such information becomes available to such Person from a source other than the
Company and its subsidiaries and such source is not bound by a confidentiality
agreement;
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(p) (i) in the case of an Exchange Offer, a reasonable time prior to
the filing of any Notes Exchange Offer Registration Statement, any Prospectus
forming a part thereof, any amendment to a Notes Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of such
document to the Initial Purchasers, and make such changes in any such document
prior to the filing thereof as any of the Initial Purchasers or their counsel
may reasonably request; (ii) in the case of a Shelf Registration, a reasonable
time prior to filing any Notes Shelf Registration Statement, any Prospectus
forming a part thereof, any amendment to such Notes Shelf Registration Statement
or amendment or supplement to such Prospectus, provide copies of such document
to the Holders of Registrable Notes, to the Initial Purchasers, to counsel on
behalf of the Holders and to the underwriter or underwriters of an underwritten
offering of Registrable Notes, if any, and make such changes in any such
document prior to the filing thereof as the Holders of Registrable Notes, the
Initial Purchasers on behalf of such Holders, their counsel and any underwriter
may reasonably request; and (iii) cause the representatives of the Company to be
available for discussion of such document as shall be reasonably requested by
the Holders of Registrable Notes, the Initial Purchasers on behalf of such
Holders or any underwriter and shall not at any time make any filing of any such
document of which such Holders, the Initial Purchasers on behalf of such
Holders, their counsel or any underwriter shall not have previously been advised
and furnished a copy or to which such Holders, the Initial Purchasers on behalf
of such Holders, their counsel or any underwriter shall reasonably object, each
of which actions in this clause (iii) by the Holders shall be coordinated by one
representative for all the Holders at reasonable times and in a reasonable
manner;
(q) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange on which
similar debt securities issued by the Company are then listed if requested by
the Majority Holders or by the underwriter or underwriters of an underwritten
offering of Registrable Notes, if any;
(r) in the case of a Shelf Registration, unless the rating in effect
for the Notes applies to the Exchange Notes and the Notes to be sold pursuant to
a Shelf Registration, use its best efforts to cause the Registrable Notes to be
rated with the appropriate rating agencies, if so requested by the Majority
Holders or by the underwriter or underwriters of an underwritten offering of
Registrable Notes, if any, unless the Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933 Act and
Rule 158 thereunder; and
(t) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Notes Shelf Registration Statement, the Company may
(as a condition to such Holder's participation in the Shelf Registration)
require each Holder of Registrable Notes to furnish to the Company such
information regarding such Holder and the
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<PAGE>
proposed distribution by such Holder of such Registrable Notes and make such
representations, in each case, as the Company may from time to time
reasonably request in writing.
In the case of a Notes Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies in its possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Notes current at the time of receipt of
such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Notes pursuant to a Notes Shelf Registration
Statement as a result of the happening of any event or the discovery of any
facts, each of the kind described in Section 3(e)(vi) hereof, the Company shall
be deemed to have used its best efforts to keep the Notes Shelf Registration
Statement effective during such period of suspension, PROVIDED, that the Company
shall use its best efforts to file and have declared effective (if an amendment)
as soon as practicable an amendment or supplement to the Notes Shelf
Registration Statement and shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions or
written notice from the Company that the use of the Prospectus may be resumed.
4. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall indemnify
and hold harmless each Holder, including the Initial Purchaser and Participating
Broker-Dealers, each underwriter who participates in an offering of Registrable
Notes, their respective affiliates, and their respective directors, officers,
employees and agents, and each Person, if any, who controls any such parties
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
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(i) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendments or supplements thereto) pursuant to which
Exchange Notes or Registrable Notes were registered under the 1933 Act,
including all documents incorporated therein by reference, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendments or supplements
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED that (subject to Section
5(c) below) any such settlement is effected with the consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred (including
reasonable fees and disbursements of counsel chosen by an indemnified
party), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 5(a);
PROVIDED, HOWEVER, that (i) this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, any Holder, including Participating Broker-Dealers, or any
underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) and (ii) the Company shall not be liable to any indemnified
party under this indemnity agreement with respect to the Registration Statement
or Prospectus to the extent that any such loss, claim, damage or liability of
such indemnified party results solely from an untrue statement of a material
fact contained in, or the omission of a material fact from, the Registration
Statement or Prospectus which untrue statement or omission was corrected in an
amended or supplemented Registration Statement or Prospectus, if the person
alleging such loss, claim, damage or liability was not sent or given, at or
prior to the written confirmation of such sale, a copy of the amended or
supplemented Registration Statement or Prospectus if the Company had previously
furnished copies thereof to such indemnified party and if delivery of a
prospectus is required by the 1933
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Act and was not so made. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Initial Purchasers, each underwriter who participates in an offering of
Registrable Notes and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement) and each Person, if any, who controls the Company, each
Initial Purchaser, any underwriter or any other selling Holder, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all losses, liabilities, claims, damages and expenses described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder, as the case may be,
expressly for use in the Registration Statement (or any amendment thereto), or
the Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Notes
pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice in writing as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel, in addition to any local counsel, for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 (whether or not the indemnified parties are actual or
potential parties thereof), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying
19
<PAGE>
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 5(a)(ii) hereof effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with
such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Initial Purchaser and the Holders, from
the offering of the Exchange Notes or Registrable Notes included in such
offering or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Initial Purchasers, and the Holders, in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company, the Initial Purchasers, and the Holders shall
be determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Initial Purchasers or the Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Initial Purchasers and the Holders of the
Registrable Notes agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation (even if the
Initial Purchasers were treated as one entity, and the Holders were treated as
one entity, for such purpose) or by another method of allocation which does not
take account of the equitable considerations referred to above in this Section
5. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 5 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or Holder, and each
director of the Company and each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The parties hereto agree
that any underwriting discount or commission or reimbursement of fees paid to
any Initial Purchaser pursuant to the
20
<PAGE>
Purchase Agreement shall not be deemed to be a benefit received by any
Initial Purchaser in connection with the offering of the Exchange Notes or
Registrable Notes in such offering.
6. MISCELLANEOUS. (a) RULE 144 AND RULE 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Notes (i) make
publicly available such information as is necessary to permit sales pursuant to
Rule 144 under the 1933 Act,(ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933
Act and (iii) take such further action that is reasonable in the circumstances,
in each case, to the extent required from time to time to enable such Holder to
sell its Registrable Notes without registration under the 1933 Act within the
limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (y) Rule 144A under the 1933 Act, as
such Rule may be amended from time to time, or (z) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Notes, the Company will deliver to such Holder a written statement
as to whether it has complied with such requirements.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered into nor
will the Company, on or after the date of this Agreement, enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; PROVIDED, HOWEVER, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile transmission, or any courier guaranteeing
overnight delivery (i) if to a Holder (other than an Initial Purchaser), at
the most current address set forth on the records of the Securities Registrar
under the Indenture,(ii) if to an Initial Purchaser, at the most current
address given by such Initial Purchaser to the Company by means of a notice
given in accordance with the provisions of this Section 6(d), which address
initially is the address set forth in the Purchase Agreement; and (iii) if to
the Company, initially at the Company's address set forth in the Purchase
Agreement
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<PAGE>
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if faxed; and on the next business day if timely delivered to
an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Notes in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Registrable Notes, in any manner,
whether by operation of law or otherwise, such Registrable Notes shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Notes, such Person shall be conclusively deemed to have agreed to be
bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts and in separate counterparts and, when this Agreement has been
executed by each party in multiple or separate counterparts, all such
counterparts taken together shall constitute one and the same agreement.
(h) EFFECT OF HEADINGS. The Section and other headings herein are
for convenience only and shall not affect the construction hereof.
(i) GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO ITS CONFLICTS OF LAW PROVISIONS). SPECIFIED TIMES OF DAY REFER TO NEW
YORK CITY TIME.
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<PAGE>
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
RURAL CELLULAR CORPORATION
By:
-----------------------
Name:
Title:
By:
-----------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
TD SECURITIES (USA) INC.
By:
--------------------------------
Authorized Signatory
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
--------------------------------
Authorized Signatory
BANCBOSTON SECURITIES INC.
By:
--------------------------------
Authorized Signatory
24
<PAGE>
CERTIFICATE OF DESIGNATION OF VOTING POWER,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF
11 3/8% SENIOR EXCHANGEABLE PREFERRED STOCK
OF
RURAL CELLULAR CORPORATION
------------------
Pursuant to Section 302A.401 of the
Minnesota Business Corporation Act
------------------
Rural Cellular Corporation, a Minnesota corporation (the "Company")
certifies that pursuant to the authority contained in ARTICLE VI of its
Articles of Incorporation, as amended (the "Articles of Incorporation"), and in
accordance with the provisions of Section 302A.401 of the Minnesota Business
Corporation Act, the Board of Directors of the Company (the "Board of
Directors") at a meeting duly called and held on May 11, 1998, duly approved
and adopted the following resolution which resolution remains in full force and
effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Articles of Incorporation, the Board of Directors does hereby
designate, create, authorize and provide for the issue of preferred stock
having a par value of $.01 per share, which shall be designated as 11 3/8%
Senior Exchangeable Preferred Stock (the "Exchangeable Preferred Stock")
consisting of 450,000 shares which shall include 125,000 shares issued
pursuant to the Offering Memorandum and an additional 25,000 shares reserved
for possible future issuance from time to time and shall have the voting
powers, preferences and relative participating, optional and other special
rights, and qualifications, limitations and restrictions thereon as follows:
1. CERTAIN DEFINITIONS.
<PAGE>
Unless the context otherwise requires, the terms defined in this Section 1
shall have, for all purposes of this resolution, the meanings herein specified
(with terms defined in the singular having comparable meanings when used in the
plural).
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in the case of both of the preceding clause (i) and
clause (ii), other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition. Acquired Indebtedness will be deemed to be Incurred on the date
of the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"ACQUIRED PERSON" has the meaning specified in the definition of Permitted
Investment.
"ADDITIONAL SHARES" means 50,000 shares of Exchangeable Preferred Stock
authorized by this Certificate of Designation which are not being issued on the
Issue Date but which are reserved for issuance from time to time after the
Issue Date, other than Dividend Shares and Exchange Shares.
"ADJUSTED ANNUALIZED OPERATING CASH FLOW RATIO" of any Person means the
Annualized Operating Cash Flow Ratio of such Person as adjusted to treat all
Preferred Stock of such Person as Redeemable Stock.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ANNUALIZED OPERATING CASH FLOW" of any Person means the Operating Cash
Flow of such Person for the Reference Period multiplied by two.
"ANNUALIZED OPERATING CASH FLOW RATIO" of any Person on any date (the
"Transaction Date") means, with respect to any Person and its Restricted
Subsidiaries, the ratio of (i) Consolidated Indebtedness of such Person and its
Restricted Subsidiaries on the Transaction Date (after giving pro forma effect
to the Incurrence of any Indebtedness on such Transaction Date) divided by (ii)
the aggregate amount of Annualized Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all dispositions of
businesses made by such Person and its Restricted Subsidiaries from the
beginning of the
2
<PAGE>
Reference Period through the Transaction Date as if such dispositions had
occurred at the beginning of such Reference Period); PROVIDED, that for
purposes of such computation, in calculating Annualized Operating Cash Flow
and Consolidated Indebtedness: (i) the transaction giving rise to the need
to calculate the Annualized Operating Cash Flow Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period;
(ii) the incurrence of any Indebtedness during the Reference Period or
subsequent thereto and on or prior to the Transaction Date (and the
application of the proceeds therefrom to the extent used to retire
Indebtedness) will be assumed to have occurred (on a pro forma basis) on the
first day of such Reference Period; (iii) Consolidated Interest Expense
attributable to any Indebtedness (whether existing or being incurred) bearing
a floating interest rate shall be computed as if the rate in effect on the
Transaction Date had been the applicable rate for the entire period; (iv) all
members of the consolidated group of such Person on the Transaction Date that
were acquired during the Reference Period shall be deemed to be members of
the consolidated group of such Person for the entire Reference Period and (v)
the Indebtedness and Annualized Operating Cash Flow of any Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be
determined in accordance with the actual percentage of the Person's common
equity interest in such Restricted Subsidiary on the date of determination of
the Annualized Operating Cash Flow Ratio (thus, for example, in the case of a
Restricted Subsidiary in which such Person owns a 51% common equity interest,
51% of such Subsidiary's Indebtedness and of such Subsidiary's Annualized
Operating Cash Flow would be included in the calculation of such Person's
aggregate Indebtedness and Annualized Operating Cash Flow, respectively.
When the foregoing definition is used in connection with the Company and its
Restricted Subsidiaries, references to a Person and its Restricted
Subsidiaries in the foregoing definition shall be deemed to refer to the
Company and its Restricted Subsidiaries.
"APPLICABLE REDEMPTION PRICE" means, for each share of Exchangeable
Preferred Stock, the price equal to the redemption prices set forth below
(expressed as percentages of the then effective Liquidation Preference
thereof), plus, without duplication, all accumulated and unpaid dividends, if
any, to but excluding the Redemption Date (including an amount in cash equal to
a prorated dividend for the period from the Dividend Payment Date immediately
prior to but excluding the Redemption Date), if redeemed during the 12-month
period commencing on May 15 of the years set forth below:
<TABLE>
<S> <C>
2003 105.688%
2004 104.266%
2005 102.844%
2006 101.422%
2007 and thereafter 100.000%
</TABLE>
"ASSET SALE" means the sale, conveyance, transfer, assignment or other
disposition of, directly or indirectly, in one transaction or a series of
related transactions, by the
3
<PAGE>
Company or any Restricted Subsidiary of the Company of any of its property,
business or assets, including any sale or other transfer or issuance of any
Capital Stock of any Restricted Subsidiary of the Company whether owned on
the Issue Date or thereafter acquired.
"ATLANTIC ACQUISITION" means the acquisition of substantially all of the
assets of Atlantic Cellular Company, L.P. and one of its Subsidiaries by the
Company.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Transfer Agent.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or the State
of Minnesota are authorized or obligated by law or executive order to close.
"CAPITAL LEASE OBLIGATION" means that portion of any obligation of a
Person as lessee under a lease which is required to be capitalized on the
balance sheet of such lessee in accordance with generally accepted accounting
principles.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of equity of such Person.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Rating Group or at least P-2 or the
equivalent thereof by Moody's Investors Services, Inc. and in each case
maturing within one year after the date of acquisition, and (iii) investments
in money market funds substantially all of whose assets comprise securities of
the types described in clauses (i) and (ii) above.
"CERTIFICATE OF DESIGNATION" means this Certificate of Designation of
Voting Power, Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions of 11 3/8%
Senior Exchangeable Preferred Stock of the Company.
"CERTIFICATED SECURITIES" has the meaning set forth in Section 14(a).
4
<PAGE>
"CHANGE OF CONTROL" means (i) directly or indirectly, a sale, transfer or
other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's
Wholly Owned Restricted Subsidiaries, as an entirety or substantially as an
entirety in one transaction or series of related transactions, in each case
with the effect that any Person or group of Persons owns more than 50% of the
total Voting Power entitled to vote in the election of directors, managers or
trustees of the transferee entity immediately after such transaction, (ii) any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a Person shall be deemed
to have "beneficial ownership" of all shares that any such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Power of the Company, or (iii) during any period of 24 consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by such Board or
whose nomination for election by the shareholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors then in office.
"CHANGE OF CONTROL OFFER" has the meaning set forth in Section 8(a).
"CHANGE OF CONTROL PAYMENT" has the meaning set forth in Section 8(a).
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth in Section
8(d).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"CONSOLIDATED INDEBTEDNESS" of any Person means at any date the
Indebtedness of such Person and its Restricted Subsidiaries at such date.
"CONSOLIDATED INTEREST EXPENSE" of any Person means for any period the
interest expense included in an income statement (taking into account the
effect of any Interest Hedge Agreements but without deduction of interest
income) of such Person and its Restricted Subsidiaries for such period,
including without limitation or duplication (or, to the
5
<PAGE>
extent not so included, with the addition of), (i) the portion of any rental
obligation in respect of any Capital Lease Obligation allocable to interest
expense in accordance with generally accepted accounting principles; (ii) the
amortization of Indebtedness discounts; (iii) any payments or fees with
respect to letters of credit, bankers' acceptances or similar facilities;
(iv) fees with respect to Interest Hedge Agreements; (v) the portion of any
rental obligations in respect of any Sale and Leaseback Transaction allocable
to interest expense (determined as if such were treated as a Capital Lease
Obligation); and (vi) Preferred Stock dividends accrued or payable other than
dividends on Qualified Capital Stock of the Company.
"CONSOLIDATED NET INCOME" of any Person means for any period the net
income (or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (to the
extent included and without duplication) (i) the net income (or loss) of any
Person acquired by such Person or a Restricted Subsidiary of such Person after
the Issue Date in a pooling of interests transaction for any period prior to
the date of such transaction; (ii) the net income (or loss) of any Person that
is not a Restricted Subsidiary of such Person except to the extent of the
amount of dividends or other distributions actually paid to such Person by such
other Person during such period; (iii) gains or losses from sales of assets
other than sales of assets acquired and held for resale in the ordinary course
of business; (iv) for the purposes of the covenants in Section 9(c), the net
income, if positive, of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not at that time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to such Restricted
Subsidiary and (v) all extraordinary gains and extraordinary losses.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
shareholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles; PROVIDED, that with
respect to the Company, adjustments following the Issue Date to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person and its
Subsidiaries shall not be given effect; PROVIDED FURTHER, that such computation
shall exclude (i) any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable from
the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries and (ii) Unrestricted Subsidiaries.
"COOPERATIVE BANKS" means lenders under the Credit Facility which are
cooperative banks.
"COOPERATIVE BANK EQUITY" means non-voting equity interests in Cooperative
Banks.
6
<PAGE>
"CREDIT FACILITY" means the Existing Credit Facility or the New Credit
Facility.
"CUMULATIVE INTEREST EXPENSE" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the
Issue Date through and including the end of the last fiscal quarter preceding
the date of any proposed Restricted Payment.
"CUMULATIVE OPERATING CASH FLOW" means Operating Cash Flow of the Company
and its Restricted Subsidiaries for the period beginning on the first day of
the fiscal quarter immediately following the Issue Date, through and including
the end of the last fiscal quarter preceding the date of any proposed
Restricted Payment.
"DEBENTURES TRUSTEE" has the meaning set forth in Section 6(a).
"DEPOSITARY" means a clearing agency registered under the Exchange Act
that is designated to act as Depositary for the Exchangeable Preferred Stock
until a successor Depositary shall have become such pursuant to the applicable
provisions of this Certificate of Designation, and thereafter "Depositary"
shall mean such successor Depositary. The Depositary initially is DTC.
"DISTRIBUTION COMPLIANCE PERIOD" means the period through and including
the 40th day after the later of the commencement of the offering of the
Exchangeable Preferred Stock and the Issue Date.
"DIVIDEND PAYMENT DATE" has the meaning set forth in Section 3(a).
"DIVIDEND SHARES" means shares of Exchangeable Preferred Stock paid by the
Company to Holders of then outstanding shares of Exchangeable Preferred Stock
as dividends on such outstanding shares in accordance with this Certificate of
Designation.
"DTC" means The Depository Trust Company, a New York corporation.
"DWAC" has the meaning set forth in Section 14(b).
"EXCHANGEABLE PREFERRED STOCK" has the meaning designated in the second
paragraph of the recitals of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE DATE" has the meaning set forth in Section 6(c).
7
<PAGE>
"EXCHANGE DEBENTURES" means the Company's 11 3/8% Senior Subordinated
Debentures due 2010, issuable in exchange for the Exchangeable Preferred Stock
in accordance with the terms hereof.
"EXCHANGE INDENTURE" has the meaning set forth in Section 6(a).
"EXCHANGE NOTICE" has the meaning set forth in Section 6(c).
"EXCHANGE SHARES" means shares of Exchangeable Preferred Stock to be
issued in the exchange offer contemplated under the Registration Rights
Agreement.
"EXISTING CREDIT FACILITY" means the Loan Agreement, dated as of May 1,
1997, among the Company, The Toronto-Dominion Bank, Bank Boston, N.A., St. Paul
Bank for Cooperatives, CoBank, Fleet National Bank, First National Bank of
Maryland, Societe Generale, New York Branch and Merita Bank Ltd., New York
Branch, as amended by a First Amendment to Loan Agreement dated as of August 4,
1997, a Second Amendment to Loan Agreement dated as of December 30, 1997, a
Third Amendment to Loan Agreement dated as of April 17, 1998 and a Fourth
Amendment to Loan Agreement dated as of April 24, 1998, and as such agreement
may be further amended, supplemented, restated or otherwise modified from time
to time.
"FAIR MARKET VALUE" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets has a Fair Market Value of in excess of
$20,000 but not in excess of $5 million, by any officer of the Company and
evidenced by an Officers' Certificate, dated within 30 days of the relevant
transaction, or (ii) if such Person or assets has a Fair Market Value in excess
of $5 million, or more, by a majority of the Board of Directors and evidenced
by a Board Resolution, dated within 30 days of the relevant transaction, based
on an appraisal of an independent appraiser of national reputation.
"GLOBAL SECURITIES" has the meaning set forth in Section 14(a).
"GLOBAL SECURITY HOLDER" has the meaning set forth in Section 14(a).
"HOLDER" means a Person in whose name a share of Exchangeable Preferred
Stock is registered.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording,
8
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as required pursuant to generally accepted accounting principles or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurable" and "Incurring"
shall have meanings correlative to the foregoing); PROVIDED, HOWEVER, that a
change in generally accepted accounting principles that results in an
obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or similar instruments, including obligations Incurred in connection with
the acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v) every Capital
Lease Obligation of such Person, (vi) the maximum fixed redemption or
repurchase price of Redeemable Stock of such Person at the time of
determination, (vii) every obligation to pay rent or other payment amounts of
such Person with respect to any Sale and Leaseback Transaction to which such
Person is a party, (viii) all obligations under Interest Hedge Agreements, (ix)
every obligation of the type referred to in clauses (i) through (viii) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, or which is secured by a
lien on any asset of such Person; and (x) the liquidation value of Preferred
Stock of a Subsidiary of such Person issued and outstanding and held by other
than such Person (or one of its Wholly Owned Restricted Subsidiaries); PROVIDED
that for all purposes of this Certificate of Designation, (A) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the unamortized portion of the
original issue discount of such Indebtedness at the time of its issuance as
determined in conformity with generally accepted accounting principles, (B)
money borrowed at the time of the Incurrence of any Indebtedness in order to
pre-fund the payment of interest on such Indebtedness shall be deemed not to be
"Indebtedness" and (C) Indebtedness shall not include any liability for
federal, state, local or other taxes. For purposes of this Certificate of
Designations, the amount of any Indebtedness shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Indebtedness had terminated at
the end of such fiscal quarter, and in making such determination, if any
agreement relating to such obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person or in any event until
the counterparty thereunder defaults in its corresponding payment, the in each
such case, the amount of such obligations shall be the net amount so
determined, plus any premium due upon default by such Person.
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"INITIAL PURCHASERS" means TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC and BancBoston Securities Inc.
"INTERCOMPANY INDEBTEDNESS" has the meaning set forth in Section 9(a).
"INTEREST HEDGE AGREEMENTS" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest
costs, arising at any time between the Company or any of its Restricted
Subsidiaries, on the one hand, and any Person (other than an Affiliate of the
Company or any of its Restricted Subsidiaries), on the other hand, as such
agreement or arrangement may be modified, supplemented and in effect from time
to time.
"INVESTMENT" by any Person in any other Person means (without
duplication): (i) the acquisition (whether by purchase, merger, consolidation
or otherwise) by such Person (whether for cash, property, services, securities
or otherwise) of Capital Stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such other Person or any agreement
to make any such acquisition; (ii) the making by such Person of any deposit
with, or advance, loan or other extension of credit to, such other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other Person) or any commitment to make any such advance, loan or
extension; (iii) the entering into by such Person of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
other Person; (iv) the making of any capital contribution by such Person to
such other Person; and (v) the designation by the Board of Directors of any
Person to be an Unrestricted Subsidiary. For purposes of the covenants
described in Section 9(c), (x) "Investment" shall include and be valued at the
Fair Market Value of such Person's PRO RATA interest in the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the lesser of (A) Fair Market
Value of such Person's PRO RATA interest in the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (B) the Fair Market Value of the amount of such
Person's Investments (other than Permitted Investments) made in (net of cash
distributions received from) such Unrestricted Subsidiary since the Issue Date,
and (y) the amount of any Investment shall be the Fair Market Value of such
Investment at the time any such Investment is made.
"ISSUE DATE" means the time and date of the first issuance of the
Exchangeable Preferred Stock.
"JUNIOR STOCK" has the meaning set forth in Section 2.
"LIEN" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge,
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easement (other than an easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever on or with
respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"LIQUIDATION PREFERENCE" means $1,000 per share of Exchangeable Preferred
Stock.
"MANDATORY REDEMPTION DATE" has the meaning set forth in Section 5(a).
"MBCA" has the meaning set forth in Section 3(b).
"NEW CREDIT FACILITY" means the amendment and restatement or the
refinancing or replacement of the Existing Credit Facility with the same, a
deletion of, or additional lenders, including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing that
increase the aggregate amount of borrowings outstanding or the aggregate
commitments of the lenders thereunder.
"NOTES INDENTURE" means the Indenture dated the Issue Date between the
Company and Norwest Bank Minnesota, National Association pursuant to which the
Senior Subordinated Notes were issued.
"OFFERING MEMORANDUM" means the Offering Memorandum dated May 7, 1998 with
respect to the offering of, INTER ALIA, the Exchangeable Preferred Stock.
"OFFICERS' CERTIFICATE" means a certificate signed by two officers at
least one of whom shall be the principal executive officer, principal
accounting officer or principal financial officer of the Company and delivered
to the Transfer Agent.
"OPERATING CASH FLOW" for any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions
for income taxes for such period for such Person and its Subsidiaries, (ii)
depreciation, amortization and other non-cash charges of such Person and its
Subsidiaries and (iii) Consolidated Interest Expense of such Person for such
period, determined, in each case, on a consolidated basis for such Person and
its Subsidiaries in accordance with generally accepted accounting principles,
less (c) the sum, without duplication (and only to the extent such amounts are
included in such Consolidated Net Income) of (i) all extraordinary gains of
such Person and its Subsidiaries during such period and (ii) the amount of all
cash payments made during such period by such Person and its Subsidiaries to
the extent such payments relate to non-cash charges that were added back in
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determining Operating Cash Flow for such period or for any prior period; and in
the case of a Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary, the determination of the percentage of the Operating Cash Flow of
such Restricted Subsidiary that is to be included in the calculation of the
Company's Annualized Operating Cash Flow Ratio shall be made on a pro forma
basis on the assumption that the percentage of the Company's common equity
interest in such Restricted Subsidiary throughout the applicable Reference
Period was equivalent to its common equity interest on the date of the
determination. When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its
Subsidiaries in the foregoing definition shall be deemed to refer to the
Company and its Restricted Subsidiaries.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Transfer
Agent, delivered to the Transfer Agent.
"PAYING AGENT" means any Person authorized by the Company to pay the
Liquidation Preference (and premium, if any) or accumulated and unpaid
dividends, if any, on any Exchangeable Preferred Stock on behalf of the
Company.
"PARITY STOCK" has the meaning set forth in Section 2(a).
"PERMITTED INVESTMENTS" means: (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than payments
described in clause (B) of Section 9(c)(ii), (iii) Investments in a Person
substantially all of whose assets are of a type generally used in a Wireless
Communications Business (an "Acquired Person") if, as a result of such
Investments, (A) the Acquired Person immediately thereupon becomes a Restricted
Subsidiary or (B) the Acquired Person immediately thereupon either (1) is
merged or consolidated with or into the Company or any of its Restricted
Subsidiaries or (2) transfers or conveys all or substantially all of its assets
to, or is liquidated into, the Company or any of its Restricted Subsidiaries;
(iv) Investments in accounts and notes receivable acquired in the ordinary
course of business; (v) any securities received in connection with an Asset
Sale and any investment with the Net Cash Proceeds (as defined in the Notes
Indenture) from any Asset Sale in Capital Stock of a Person, all or
substantially all of whose assets are of a type used in a Wireless
Communications Business, that complies with Section 1015 of the Notes
Indenture; (vi) advances and prepayments for asset purchases in the ordinary
course of business in a Wireless Communications Business of the Company or a
Restricted Subsidiary; (vii) customary loans or advances made in the ordinary
course of business to officers, directors or employees of the Company or any of
its Restricted Subsidiaries for travel, entertainment, and moving and other
relocation expenses; (viii) the purchase of Cooperative Bank Equity in
Cooperative Banks to the extent required by the charter documents of such
Cooperative Banks in connection with the Incurrence of any Indebtedness which
is provided by such Cooperative Banks under the Credit Facility,
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provided that such Incurrence is permitted under the terms of this
Certificate of Designation; and (ix) Investments in Wireless Alliance not
exceeding $25 million in the aggregate made after the Issue Date; PROVIDED,
that the matters referenced in clauses (iii) and (ix) above shall not be
Permitted Investments if made at any time that an Event of Default or event
which with notice or lapse of time or both would become an Event of Default
has occurred and is continuing.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"PREFERRED STOCK" means, with respect to any Person, and any and all
shares of Capital Stock of such Person that have preferential rights to any
other Capital Stock of such Person with respect to dividends or redemptions or
upon liquidation.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement filed with
the Commission in accordance with the Securities Act.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, any and all
shares of Capital Stock other than Redeemable Stock issued by such Person after
the date of this Certificate of Designation.
"QUALIFIED CAPITAL STOCK PROCEEDS" means, with respect to any Person, (a)
in the case of any sale of Qualified Capital Stock, the aggregate net cash
proceeds received by such Person, after payment of expenses, commissions and
the like, Incurred by such Person in connection therewith, and net of
Indebtedness that such Person Incurred, guaranteed, or otherwise became liable
for in connection with the issuance or acquisition of such Capital Stock; and
(b) in the case of any exchange, exercise, conversion or surrender of any
Redeemable Stock or Indebtedness of such Person issued (other than to any
Subsidiary) for cash after the Issue Date for or into shares of Qualified
Capital Stock of such Person, the aggregate net cash proceeds received from the
issuance of such Qualified Capital Stock, plus the aggregate net cash proceeds,
if any, received by such Person upon such exchange, exercise, conversion or
surrender, and less any and all payments made to the securityholders, and all
other expenses, commissions and the like Incurred by such Person or any
Subsidiary in connection therewith.
"QUALIFIED INSTITUTIONAL BUYER" has the meaning provided in Rule 144A.
"QUALIFIED JUNIOR STOCK" means Junior Stock that does not constitute
Redeemable Stock.
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"QUALIFYING EVENT" means a Public Equity Offering or one or more Strategic
Equity Investments which in either case results in aggregate net proceeds of
not less than $50 million.
"RECORD DATE" has the meaning set forth in Section 3(a).
"REDEEMABLE STOCK" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the
Mandatory Redemption Date or is redeemable at the option of the holder thereof
at any time prior to the Mandatory Redemption Date, PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of a "change of control" occurring prior
to the Mandatory Redemption Date shall not constitute Redeemable Stock if the
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
Section 8 and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of the Exchangeable Preferred Stock as required pursuant
to Section 8.
"REDEMPTION DATE" has the meaning set forth in Section 5(d).
"REFERENCE PERIOD" with regard to any Person means the last two full
fiscal quarters of such Person immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Senior Subordinated
Notes or this Certificate of Designation.
"REGISTRATION RIGHTS AGREEMENT" means the Preferred Stock Exchange and
Registration Rights Agreement dated as of May 14, 1998 among the Company, TD
Securities (USA) Inc., NationsBank Montgomery Securities LLC and BancBoston
Securities Inc. relating to the Exchangeable Preferred Stock.
"REGULATION S PREFERRED STOCK" means Exchangeable Preferred Stock offered
and sold in offshore transactions in reliance on Regulation S promulgated under
the Securities Act.
"RELATED PERSON" of any Person means any other Person owning (a) 5% or
more of the outstanding Common Stock of such Person or (b) 5% or more of the
Voting Power of such Person.
"RESTRICTED GLOBAL PREFERRED STOCK CERTIFICATES" has the meaning set forth
in Section 14(a).
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"RESTRICTED PAYMENT" means, with respect to any Person, (i) any
declaration or payment of a dividend or other distribution on any shares of
Junior Stock of such Person or any Subsidiary of such Person (other than a
dividend payable solely in shares of its Junior Stock or options, warrants or
other rights to acquire its Junior Stock and other than any declaration or
payment of a dividend or other distribution by a Restricted Subsidiary to the
Company or another Restricted Subsidiary), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (A) any shares of Junior
Stock of such Person or any Subsidiary of such Person held by other than such
Person or any of its Restricted Subsidiaries or (B) any option, warrant or
other right to acquire shares of Junior Stock of such Person or any Subsidiary
of such Person or any of its Restricted Subsidiaries, in each case other than
pursuant to the cashless exercise of options, (iii) any Investment (other than
a Permitted Investment) made by such Person; PROVIDED, that the term
"Restricted Payment" does not include the payment of a dividend or other
distribution by any Restricted Subsidiary on shares of its Capital Stock that
is paid PRO RATA to all holders of such Capital Stock.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"RULE 144" means Rule 144 under the Securities Act (or any successor
provision) as may be amended from time to time.
"RULE 144A" means Rule 144A under the Securities Act (or any successor
provision) as it may be amended from time to time.
"RULE 144A PREFERRED STOCK" means Exchangeable Preferred Stock being
offered and sold to Qualified Institutional Buyers in reliance on Rule 144A
promulgated under the Securities Act.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 270 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR INDEBTEDNESS" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company whether or not a
claim for post-petition interest is allowed in such proceeding) on (i)
Indebtedness of the Company created pursuant to the Credit Facility and all
other obligations thereunder or under the notes, security documents, pledge
agreements, Interest Hedge Agreements or other agreements or instruments
executed in connection therewith, (ii) Indebtedness of the Company created
pursuant to any vendor financing Incurred for the acquisition, construction
or improvement by the Company or any of its Restricted Subsidiaries of assets
in the Wireless Communications Business, (iii) all other Indebtedness of the
Company referred to in the definition of Indebtedness other than clauses
(iv), (vi) and (ix) thereof (and clause (viii) thereof to the extent
applicable to Indebtedness Incurred under clauses (iv) and (vi) thereof),
whether Incurred on or prior to the Issue Date, other than the Senior
Subordinated Notes, and (iv) amendments, renewals, extensions, modifications,
refinancings and refundings of any such Indebtedness; PROVIDED, HOWEVER, the
following shall not constitute Senior Indebtedness: (A) any Indebtedness owed
to a Person when such Person is a Restricted Subsidiary of the Company, (B)
any Indebtedness which by the terms of the instrument creating or evidencing
the same is not superior in right of payment to the Exchange Debentures, if
and when issued, (C) any Indebtedness Incurred in violation of this
Certificate of Designation (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (c) if the
holder(s) of such Indebtedness or their representative shall have received an
Officers' Certificate to the effect that the Incurrence of such Indebtedness
does not (or in the case of revolving credit Indebtedness, that the
Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate this Certificate of
Designation or (D) any Indebtedness which is subordinated in right of payment
to any other Indebtedness of the Company.
"SENIOR STOCK" has the meaning set forth in Section 2(a).
"SENIOR SUBORDINATED NOTES" means the 9_% Senior Subordinated Notes due
2008 of the Company.
"STRATEGIC EQUITY INVESTMENT" means an investment in Qualified Junior
Stock made by a Strategic Investor in an aggregate amount of not less than $50
million.
"STRATEGIC INVESTOR" means a Person (other than an Affiliate of the
Company or a Person who by virtue of such Investment becomes such an Affiliate)
engaged in one or more Telecommunications Businesses with an equity market
capitalization at the time such Person makes a Strategic Equity Investment in
the Company in excess of $1.0 billion.
"SUBORDINATED INDEBTEDNESS" mean Indebtedness of the Company that is
subordinated in right of payment to the Exchange Debentures, if and when
issued.
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"SUBSIDIARY" means, as applied to any Person, (a) any corporation of which
more than fifty percent (50%) of the outstanding Capital Stock (other than
directors' qualifying shares) having ordinary Voting Power to elect its board
of directors, regardless of the existence at the time of a right of the holders
of any class or classes of securities of such corporation to exercise such
Voting Power by reason of the happening of any contingency, or any entity other
than a corporation of which more than fifty percent (50%) of the outstanding
ownership interests, is at the time owned directly or indirectly by such
Person, or by one or more Subsidiaries of such Person, or by such Person and
one or more Subsidiaries of such Person, or (b) any other entity which is
directly or indirectly controlled or capable of being controlled by such
Person, or by one or more Subsidiaries of such Person, or by such Person and
one or more Subsidiaries of such Person.
"TELECOMMUNICATIONS BUSINESS" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in clause (i) or (ii) above (in the case of this clause (iii),
however, in a manner consistent with the Company's manner of business on the
Issue Date), and shall, in any event, include all businesses in which the
Company or any of its Subsidiaries is engaged on the Issue Date or has entered
into agreements to engage in or to acquire a company to engage in or
contemplate engaging in, as expressly set forth in the Offering Memorandum;
PROVIDED that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors.
"TRANSFER AGENT" means Norwest Bank Minnesota, National Association, a
national banking association.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"UNDESIGNATED SHARES" means the undesignated shares of the capital stock
of the Company which are authorized under its Articles of Incorporation.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner provided
below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of any Person may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, such Person or any Restricted
Subsidiary; PROVIDED that either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater
than $1,000, such Person's PRO RATA interest in the
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Fair Market Value of the net assets of such Subsidiary at the time of such
designation would be permitted as an Investment under Section 9(c). The
Board of Directors of any Person may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary of such Person; PROVIDED that immediately after
giving effect to such designation (x) such Person would be permitted to Incur
$1.00 of additional Indebtedness pursuant to Section 9(a) and (y) no Voting
Rights Triggering Event or event which with notice or lapse of time or both
would become a Voting Rights Triggering Event has occurred and is continuing.
Any such designation by the Board of Directors shall be evidenced by a Board
Resolution submitted to the Transfer Agent. Wireless Alliance shall be
deemed an Unrestricted Subsidiary as of the Issue Date and shall thereafter
remain an Unrestricted Subsidiary unless and until designated by the Board of
Directors as a Restricted Subsidiary in accordance with the terms of this
Certificate of Designation.
"VOTING POWER" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily have voting power for
the election of directors of such Person.
"VOTING RIGHTS AMENDMENT" means an amendment to the Bylaws of the Company
providing for an increase in the size of the Board of Directors to, at all
times, accommodate the appointment of a sufficient number of directors
designated by the Holders of Exchangeable Preferred Stock in compliance with
clauses (I) and (II) of Section 7(b).
"VOTING RIGHTS DIVIDEND INCREASE" has the meaning set forth in Section
7(c).
"VOTING RIGHTS TRIGGERING EVENT" has the meaning set forth in Section
7(b).
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"WIRELESS ALLIANCE" means Wireless Alliance, LLC, a Minnesota limited
liability company.
"WIRELESS COMMUNICATIONS BUSINESS" means any business substantially
related to the ownership, development, operation or acquisition of mobile
wireless communications services permitted under the Federal Communications
Commission's ("FCC") Commercial Mobile Radio Service rules (and the related
provisions of the FCC's Public Mobile Services and Personal Communications
Services rules), and other related telecommunications business services.
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2. RANKING.
(a) The Exchangeable Preferred Stock shall, with respect to dividend
rights and rights upon the liquidation, winding-up and dissolution of the
Company, rank (i) senior to all classes of common stock of the Company and to
each other class of Capital Stock established after the Issue Date by the Board
of Directors the terms of which expressly provide that it ranks junior to the
Exchangeable Preferred Stock as to dividend rights and rights upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all classes of common stock of the Company, as "Junior
Stock"); (ii) subject to certain conditions, described below, on a parity with
each other class of Capital Stock established after the Issue Date by the Board
of Directors, the terms of which expressly provide that such class or series
will rank on a parity with the Exchangeable Preferred Stock as to dividend
rights and rights upon the liquidation, winding-up and dissolution of the
Company (collectively referred to as "Parity Stock"); and (iii) subject to
certain conditions described below, junior to each class of Capital Stock
established after the Issue Date by the Board of Directors the terms of which
do not expressly provide that such class or series of Capital Stock will rank
junior to, or on a parity with, the Exchangeable Preferred Stock as to dividend
rights and rights upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Stock").
(b) The Company shall not authorize or issue any new class of Senior
Stock or Parity Stock without the affirmative vote or consent (voting or
consenting as one class) of the holders of at least (i) 66_% of the shares of
Exchangeable Preferred Stock then outstanding with respect to Senior Stock and
(ii) a majority of the shares of Exchangeable Preferred Stock then outstanding
with respect to Parity Stock; PROVIDED, that Dividend Shares, Additional Shares
and Exchange Shares may be issued by the Company without the approval of the
Holders of the Exchangeable Preferred Stock; PROVIDED FURTHER, that, without
the approval of Holders of the Exchangeable Preferred Stock, the Company may
issue shares of Senior Stock in exchange for, or the proceeds of which are used
to redeem or purchase, all (but not less than all) shares of the Exchangeable
Preferred Stock then outstanding in accordance with this Certificate of
Designation.
3. DIVIDENDS.
(a) The Holders of the outstanding shares of the Exchangeable Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Company legally available therefor, dividends on
the Exchangeable Preferred Stock, which shall accrue at a rate per annum equal
to 11 3/8% of the Liquidation Preference plus any applicable Voting Rights
Dividend Increase. If at any time dividends on the Exchangeable Preferred
Stock are in arrears and unpaid for six or more quarterly dividend periods
(whether or not consecutive), holders of Exchangeable Preferred Stock will be
entitled to either (i) if the Voting Rights Amendment has been adopted, the
voting rights
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specified in Section 7 of this Certificate of Designation or (ii) if the
Voting Rights Amendment has not been adopted, a Voting Rights Dividend
Increase as provided in Section 7 of this Certificate of Designation. All
dividends will be cumulative, whether or not earned or declared, from May 14,
1998 and will be payable quarterly in arrears on February 15, May 15, August
15, and November 15, of each year, commencing on August 15, 1998, or, if any
such date is not a Business Day, on the next succeeding Business Day (each a
"Dividend Payment Date") to the Holders of record on the February 1, May 1,
August 1 or November 1 immediately preceding the relevant Dividend Payment
Date (each, a "Record Date"). On or before May 15, 2003, the Company may, at
its option, pay dividends in cash or in Dividend Shares (including fractional
shares, PROVIDED, that the Company may, at its option, pay cash in lieu of
issuing fractional shares) having an aggregate Liquidation Preference equal
to the amount of such dividends. After May 15, 2003, dividends shall be paid
only in cash. The issuance of such Dividend Shares of Exchangeable Preferred
Stock shall constitute "payment" of the related dividend for all purposes of
this Certificate of Designation. Dividends payable on the Exchangeable
Preferred Stock will be computed on the basis of a 360-day year consisting of
twelve 30-day months and shall be deemed to accrue on a daily basis.
(b) Dividends on the Exchangeable Preferred Stock shall accrue whether or
not the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. If any dividend (or portion thereof) payable on any Dividend Payment
Date on or before May 15, 2003, is not declared or paid in full in cash or in
Dividend Shares as described above on such Dividend Payment Date, the amount of
the accumulated and unpaid dividends will bear interest at the dividend rate on
the Exchangeable Preferred Stock, compounding quarterly from such Dividend
Payment Date until paid in full. If any dividend (or portion thereof) payable
on any Dividend Payment Date after May 15, 2003, is not declared or paid in
full in cash on such Dividend Payment Date, the amount of the accumulated and
unpaid dividend will bear interest at the dividend rate on the Exchangeable
Preferred Stock, compounding quarterly from such Dividend Payment Date until
paid in full. The Company shall take all actions required or permitted under
the Business Corporation Act of the State of Minnesota (the "MBCA") to permit
the payment of dividends on the Exchangeable Preferred Stock, including,
without limitation, through the revaluation of its assets in accordance with
the MBCA, to make or keep funds legally available for the payment of dividends.
(c) No full dividends shall be declared or paid or funds set apart for
the payment of dividends on any Parity Stock for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
(or are deemed declared and paid) in full or declared and, if payable in cash,
a sum in cash sufficient for such payment set apart for such payment on the
Exchangeable Preferred Stock. If full dividends are not so paid, the
Exchangeable Preferred Stock will share dividends PRO RATA with the Parity
Stock. Unless full cumulative dividends on all outstanding shares of
Exchangeable Preferred Stock for all
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past dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart, then: (i) no dividend
(other than a dividend on Junior Stock payable solely in shares of any Junior
Stock) shall be declared or paid upon (or deemed paid), or any sum set apart
for the payment of dividends upon, any shares of Junior Stock; (ii) no other
distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Stock, other than a
distribution consisting solely of Junior Stock; (iii) no shares of Junior
Stock or Parity Stock shall be repurchased, redeemed or otherwise acquired or
retired by the Company or any of its Subsidiaries; and (iv) no monies shall
be paid into or set apart or made available for a sinking or other like fund
for the purchase, redemption or other acquisition or retirement for value of
any shares of Junior Stock or Parity Stock by the Company or any of its
Subsidiaries. Dividends on account of arrears for any past dividend period
and dividends in connection with any optional redemption may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
holders of record of the Exchangeable Preferred Stock on such date, not more
than 45 days prior to the payment thereof, as may be fixed by the Board of
Directors.
4 LIQUIDATION PREFERENCE.
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company or reduction or decrease in its Capital Stock resulting in a
distribution of assets to the holders of any class or series of the Company's
Capital Stock, Holders of Exchangeable Preferred Stock shall be entitled to
payment, out of the assets of the Company available for distribution to
stockholders, the Liquidation Preference per share of Exchangeable Preferred
Stock, plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends thereon to but excluding the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Stock, including, without limitation, common stock of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Exchangeable Preferred Stock
and all other Parity Stock are not paid in full, the Holders of the
Exchangeable Preferred Stock and the Parity Stock shall share equally and
ratably in any distribution of assets of the Company in proportion to the full
liquidation preference to which each is entitled. After payment of the full
amount of the Liquidation Preference and accumulated and unpaid dividends to
which they are entitled, the Holders of shares of Exchangeable Preferred Stock
shall not be entitled to any further participation in any distribution of
assets of the Company. However, neither the sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Company nor the
consolidation or merger of the Company with or into one or more Persons shall
be deemed to be a liquidation, dissolution or winding-up of the Company,
unless such sale,
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conveyance, exchange or transfer shall be in connection with a liquidation,
dissolution or winding-up of the business of the Company.
5 REDEMPTION BY THE COMPANY.
(a) On May 15, 2010 (the "Mandatory Redemption Date"), the Company shall
be required to redeem (subject to the MBCA) in whole all outstanding shares of
Exchangeable Preferred Stock at a price in cash equal to 100% of the aggregate
Liquidation Preference thereof, plus, without duplication, all accumulated and
unpaid dividends, if any, to but excluding the Redemption Date (including an
amount in cash equal to a prorated dividend for the period from the Dividend
Payment Date immediately prior to the Redemption Date). The Company shall not
be required to make sinking fund payments to protect the Liquidation Preference
with respect to the Exchangeable Preferred Stock.
(b) The Exchangeable Preferred Stock shall not be redeemed at the option
of the Company prior to May 15, 2003. The Exchangeable Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect thereto
and to the MBCA) at any time, in whole or from time to time in part, at the
option of the Company after May 15, 2003, at the Applicable Redemption Price.
In addition, at any time prior to May 15, 2001, the Company may redeem shares
of Exchangeable Preferred Stock having an aggregate Liquidation Preference of
up to 25% of the aggregate Liquidation Preference of all shares of Exchangeable
Preferred Stock (including Additional Shares and Dividend Shares but excluding
any Exchange Shares to the extent the Exchangeable Preferred Stock in exchange
for which it was issued is included in the amount of all such shares of
Exchangeable Preferred Stock issued) issued, from the net cash proceeds of a
Qualifying Event at a price equal to 111.375% of the aggregate Liquidation
Preference thereof, plus, without duplication, accumulated and unpaid
dividends, if any, to but excluding the Redemption Date (including an amount in
cash equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the Redemption Date), subject to the right of Holders of
record on the relevant Record Date to receive dividends due on a Dividend
Payment Date; PROVIDED, that at least $75 million in aggregate Liquidation
Preference of the Exchangeable Preferred Stock remains outstanding immediately
following such redemption. Any such redemption must be made within 30 days
after the related Qualifying Event.
(c) In case of redemption of less than all of the shares of Exchangeable
Preferred Stock at the time outstanding, the shares to be redeemed shall be
determined PRO RATA, except that the Company may redeem such shares held by a
Holder of fewer than 100 shares without regard to such PRO RATA redemption
requirement.
(d) Notice of any redemption shall be sent by or on behalf of the Company
not less than 30 nor more than 60 days prior to the date specified for
redemption in such notice (including the Mandatory Redemption Date, the
"Redemption Date"), by first class mail, postage prepaid, to all Holders of
record of the Exchangeable Preferred Stock at their
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registered address. In addition to any information required by law or by the
applicable rules of any exchange upon which Exchangeable Preferred Stock may
be listed or admitted to trading, such notice shall state: (i) whether such
redemption is being made pursuant to the optional or the mandatory redemption
provisions hereof; (ii) the Redemption Date; (iii) the redemption price; (iv)
if less than all the outstanding shares of Exchangeable Preferred Stock are
to be redeemed, the Liquidation Preference of, and the accrued and unpaid
dividends on, the shares of Exchangeable Preferred Stock to be redeemed; (v)
that on the Redemption Date the redemption price shall become due and payable
upon each share of Exchangeable Preferred Stock to be redeemed; and (vii) the
place or places where shares are to be surrendered for payment of the
redemption price. Upon the mailing of any such notice of redemption, the
Company shall become obligated to redeem at the time of redemption specified
thereon all shares called for redemption.
(e) If notice has been mailed in accordance with Section 5(d) above and,
PROVIDED that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the PRO RATA benefit of
the Holders of the shares so called for redemption, so as to be, and to
continue to be available therefor, then, on and after the Redemption Date,
unless the Company defaults in the payment of the applicable redemption price,
dividends on the shares of the Exchangeable Preferred Stock so called for
redemption shall cease to accumulate and all rights of the Holders of such
shares shall terminate except for the right to receive from the Company the
redemption price, without interest; PROVIDED, HOWEVER, that if a notice of
redemption shall have been given and the funds necessary for redemption
(including an amount in respect of all dividends that will accrue to the
Redemption Date) shall have been segregated and irrevocably set apart by the
Company, in trust for the benefit of the Holders of the shares called for
redemption, dividends shall cease to accumulate on the Redemption Date on the
shares to be redeemed and, at the close of business on the day on which such
funds are segregated and set apart, the Holders of the shares to be redeemed
shall cease to be stockholders of the Company and shall be entitled only to
receive the redemption price for such shares. New certificates of Exchangeable
Preferred Stock having an aggregate Liquidation Preference equal to the
unredeemed portion of the Exchangeable Preferred Stock shall be issued in the
name of the Holder thereof upon cancellation of the original shares of
Exchangeable Preferred Stock without cost to the Holder thereof. Upon
surrender, in accordance with said notice, of the certificates for any shares
so redeemed (properly endorsed or assigned for transfer, if the Company shall
so require and the notice shall so state), such shares shall be redeemed by the
Company at the applicable redemption price. Shares of Exchangeable Preferred
Stock issued and reacquired by the Company shall, upon compliance with the
applicable requirements of Minnesota law, have the status of authorized but
unissued Undesignated Shares of the Company and may, with any and all other
authorized but unissued Undesignated Shares of the Company, be designated or
redesignated, and issued or reissued, as the case may be, as part of any series
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of capital stock of the Company, except that any issuance or reissuance of
shares of Exchangeable Preferred Stock must be in compliance with this
Certificate of Designation.
(f) Any deposit of funds with a bank or trust company for the purpose of
redeeming Exchangeable Preferred Stock shall be irrevocable except that:
(i) the Company shall be entitled to receive from such bank or trust
company the interest or other earnings, if any, earned on any money so
deposited in trust, and the Holders of any shares redeemed shall have no
claim to such interest or other earnings; and
(ii)any balance of monies so deposited by the Company and unclaimed
by the Holders of the Exchangeable Preferred Stock entitled thereto at the
expiration of two years from the applicable Redemption Date shall be
repaid, together with any interest or other earnings earned thereon, to
the Company, and after any such repayment, the Holders of the shares
entitled to the funds so repaid to the Company shall look only to the
Company for payment without interest or other earnings.
(g) No Exchangeable Preferred Stock may be redeemed except with funds
legally available for the purpose. The Company shall take all actions required
or permitted under the MBCA to permit any redemption which is required pursuant
to clause (a) above or which the Company elects pursuant to clause (b) above.
(h) No optional redemption shall be authorized or made unless on or prior
to such redemption full unpaid cumulative dividends shall have been paid or a
sum set apart for such payment on the Exchangeable Preferred Stock.
6 EXCHANGE OF EXCHANGEABLE PREFERRED STOCK FOR EXCHANGE DEBENTURES.
(a) The Company may, at its option, on any scheduled Dividend Payment
Date, exchange, in whole, but not in part, the Exchangeable Preferred Stock for
the Exchange Debentures to be issued under an indenture (the "Exchange
Indenture") in the form attached hereto as Annex A to be entered into between
the Company and a trustee to be selected by the Company (the "Debentures
Trustee"); PROVIDED, that (i) on the date of such exchange there are no
accumulated and unpaid dividends on the Exchangeable Preferred Stock (including
the dividends payable on such date) or other contractual impediments to such
exchange; (ii) there shall be legally available funds sufficient therefor
(including, without limitation, funds sufficient under Minnesota law to repay
Indebtedness when due); (iii) either (A) a registration statement relating to
the Exchange Debentures shall have been declared effective under the Securities
Act prior to or on the Exchange Date and shall continue to be in effect on the
date of such exchange or (B) the Company shall have obtained a written Opinion
of Counsel that an exemption from the registration requirements of the
Securities
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Act is available for such exchange and that upon receipt of such Exchange
Debentures pursuant to such exchange made in accordance with such exemption,
each Holder of an Exchange Debenture that is not an Affiliate of the Company
shall not be subject to any restrictions imposed by the Securities Act upon
the resale of such Exchange Debenture, and such exemption is relied upon by
the Company for such exchange; (iv) if required by applicable law, the
Exchange Indenture and the Debentures Trustee thereunder shall have been
qualified under the Trust Indenture Act; (v) immediately prior and after
giving effect to such exchange, no Event of Default (as defined in the
Exchange Indenture) or event which with notice or lapse of time or both would
become such an Event of Default would exist and be continuing and no material
breach or default would exist under the Credit Facility or the Notes
Indenture; and (vi) the Company shall have delivered to the Debentures
Trustee a written Opinion of Counsel, dated the Exchange Date, regarding the
satisfaction of all the conditions to be satisfied prior to such exchange
including, without limitation, those conditions set forth in clauses (i),
(ii), (iii) and (iv) and the due authorization, execution, delivery and
enforceability of both the Exchange Debentures and the Exchange Indenture.
In the event that (x) the issuance of the Exchange Debentures is not
permitted on the Exchange Date or (y) any of the conditions set forth in
clauses (i) through (vi) of the preceding sentence are not satisfied on the
Exchange Date, the Company shall use its best efforts to satisfy such
conditions and effect such exchange as soon as practicable.
(b) Upon any exchange of Exchangeable Preferred Stock for Exchange
Debentures on the Exchange Date pursuant to clause (a) of this Section 6,
Holders of outstanding shares of Exchangeable Preferred Stock shall be entitled
to receive, subject to the second succeeding sentence, $1.00 of principal
amount of Exchange Debentures for each $1.00 of the Liquidation Preference of
Exchangeable Preferred Stock held by them. The Exchange Debentures shall be
issued in registered form, without coupons. Exchange Debentures issued in
exchange for Exchangeable Preferred Stock shall be issued in principal amounts
of $1,000 and integral multiples thereof, and the Company shall pay cash in
lieu of issuing an Exchange Debenture in any other principal amount. On and
after the Exchange Date, dividends will cease to accumulate on the outstanding
shares of Exchangeable Preferred Stock, and all rights of the Holders of
Exchangeable Preferred Stock (except the right to receive the Exchange
Debentures, an amount in cash, to the extent applicable, equal to the
accumulated and unpaid dividends to the Exchange Date and cash in lieu of any
Exchange Debenture that is in a principal amount less than $1,000) shall
terminate. The person entitled to receive the Exchange Debentures issuable
upon such exchange shall be treated for all purposes as the registered holder
of such Exchange Debentures.
(c) The Company shall send a written notice (the "Exchange Notice") of
exchange by mail to each Holder of record of Exchangeable Preferred Stock,
which notice shall state: (i) that the Company is exercising its option to
exchange the Exchangeable Preferred Stock for Exchange Debentures pursuant to
this Certificate of Designation; (ii) the date fixed for exchange (the
"Exchange Date"), which date shall not be less than 30 days nor
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more than 60 days following the date on which the Exchange Notice is mailed;
(iii) that the Holder is to surrender to the Company, at the place or places
where shares of Exchangeable Preferred Stock are to be surrendered for
exchange, including any procedures applicable to exchanges to be accomplished
through book-entry transfers, in the manner designated in the Exchange
Notice, the shares of Exchangeable Preferred Stock to be exchanged; (iv) that
dividends on the shares of Exchangeable Preferred Stock to be exchanged shall
cease to accrue on the Exchange Date whether or not the shares of
Exchangeable Preferred Stock are surrendered for exchange on the Exchange
Date unless the Company shall default in the delivery of Exchange Debentures;
and (v) that interest on the Exchange Debentures shall accrue from the
Exchange Date whether or not the shares of Exchangeable Preferred Stock are
surrendered for exchange on the Exchange Date. On the Exchange Date, if the
conditions set forth in Sections 6(a)(i) through 6(a)(vi) above and Section
6(f) below are satisfied, the Company shall issue Exchange Debentures in
exchange for the Exchangeable Preferred Stock as provided in this Section 6.
(d) A Holder delivering Exchangeable Preferred Stock for exchange shall
not be required to pay any taxes or duties in respect of the issue or delivery
of Exchange Debentures on exchange but shall be required to pay any tax or duty
that may be payable in respect of any transfer involved in the issue or
delivery of the Exchange Debentures in a name other than that of the Holder of
the Exchangeable Preferred Stock. Certificates representing Exchangeable
Debentures shall not be issued or delivered unless all taxes and duties, if
any, payable by the Holder have been paid.
(e) On or before the Exchange Date, each Holder of Exchangeable Preferred
Stock shall surrender the shares of Exchangeable Preferred Stock, in the manner
and at the place designated in the Exchange Notice. The Company shall cause
the Exchange Debentures to be executed on the Exchange Date and, upon surrender
in accordance with Exchange Notice of the shares of Exchangeable Preferred
Stock so exchanged (properly endorsed or assigned for transfer, if the notice
shall so state), such shares shall be exchanged by the Company for Exchange
Debentures. The Company shall pay interest, if any, on the Exchange Debentures
at the rate and on the dates specified therein from the Exchange Date.
(f) If the Exchange Notice has been mailed in accordance with Section
6(c) , the conditions set forth in Section 6(a)(i) through 6(a)(vi) have been
satisfied, and before the Exchange Date (i) the Exchange Indenture shall have
been duly executed and delivered by the Company and the Debentures Trustee;
(ii) all Exchange Debentures necessary for such exchange shall have been duly
executed and authenticated by the Company and delivered to the Debentures
Trustee with irrevocable instructions to authenticate the Exchange Debentures
necessary for such exchange; and (iii) an amount in cash, set aside by the
Company, separate and apart from its other funds in trust, or additional
Exchangeable Preferred Stock (as applicable) equal to all accumulated and
unpaid dividends thereon to the Exchange Date shall have been deposited with
the Debentures Trustee, then on and after the
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close of business on the Exchange Date, dividends on the shares of
Exchangeable Preferred Stock so exchanged shall cease to accumulate and all
rights of the Holders of such shares shall terminate except for the right to
receive from the Company the Exchange Debentures, cash, if any, and all
accrued interest, if any, thereon to the Exchange Date. Shares of
Exchangeable Preferred Stock issued and reacquired by the Company shall, upon
compliance with the applicable requirements of Minnesota law, have the status
of authorized but unissued Undesignated Shares of the Company, and may, with
any and all other authorized but unissued Undesignated Shares of the Company,
be designated or redesignated, and issued or reissued, as the case may be, as
part of any series of capital stock of the Company, but not as Exchangeable
Preferred Stock.
(g) The Company shall comply with the provisions of Rule 13e-4
promulgated pursuant to the Exchange Act in connection with any exchange, to
the extent applicable.
7 VOTING RIGHTS.
(a) The Holders of shares of the Exchangeable Preferred Stock shall have
no voting rights, except as required by Minnesota law and as hereinafter
provided in this Section 7.
(b) If:
(i) at any time, cash dividends on the outstanding Exchangeable
Preferred Stock are in arrears and unpaid for six (6) or more quarterly
dividend periods (whether or not consecutive);
(ii)the Company fails to redeem the Exchangeable Preferred Stock on
the Mandatory Redemption Date, or fails to otherwise discharge any
redemption or repurchase obligation with respect to the Exchangeable
Preferred Stock;
(iii) the Company fails to make a Change of Control Offer on the
terms and in accordance with the provisions described below in Section 8
hereof or fails to purchase shares of Exchangeable Preferred Stock from
Holders who elect to have such shares purchased pursuant to the Change of
Control Offer;
(iv)the Company breaches or violates any of the other covenants or
agreements set forth in this Certificate of Designation and such breach or
violation continues for a period of 30 days or more after the Company
receives notice thereof specifying the default from the Holders of at
least 25% of the shares of Exchangeable Preferred Stock then outstanding;
or
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(v) the Company or any of its Restricted Subsidiaries defaults under
the terms of any instrument evidencing or securing Indebtedness having an
outstanding principal amount in excess of $5 million in the aggregate,
which default results in the acceleration of the payment of such
Indebtedness or constitutes the failure to pay the principal of such
Indebtedness at maturity (each of the events described in clauses (i),
(ii), (iii), (iv) and (v) being referred to herein as a "Voting Rights
Triggering Event");
then the Holders of a majority of the then outstanding shares of Exchangeable
Preferred Stock, voting as a class (together with the holders of any Parity
Stock having similar voting rights) shall be entitled to elect the lesser of
(I) two directors of the Board of Directors and (II) such number of members to
the Board of Directors constituting at least 25% of the Board of Directors;
PROVIDED, that the Company's shareholders approve the Voting Rights Amendment.
If the Voting Rights Amendment is not so approved, as an alternative, the
Holders of the then outstanding shares of Exchangeable Preferred Stock shall be
entitled to receive a Voting Rights Dividend Increase as described in clause
(c) of this Section 7. The voting rights or Voting Rights Dividend Increase
provided for in this Section 7 shall be the exclusive remedy at law or in
equity for the Holders of the Exchangeable Preferred Stock for any violation by
the Company of its obligations under this Certificate of Designation that
constitutes a Voting Rights Triggering Event.
(c) If the Voting Rights Amendment shall not have been effected by May
22, 1998 (or if at any time thereafter such Voting Rights Amendment does not
remain in effect) and whether or not a Voting Rights Triggering Event shall
have occurred or be continuing, then from such date, up to and including the
date such Voting Rights Amendment is effected (and during any other period of
time thereafter that the Voting Rights Amendment does not remain in effect),
the dividend rate borne by the Exchangeable Preferred Stock shall be increased
by 1.00% per annum (the "Voting Rights Dividend Increase"). In addition, if a
Voting Rights Triggering Event has occurred and is continuing during any period
of time that the Voting Rights Dividend Increase is in effect, then the Voting
Rights Dividend Increase shall be increased, to 3.00% per annum and shall
continue as described in this Section 7.
(d) Whenever the foregoing voting rights shall have vested, such rights
may be exercised initially either at a special meeting of the Holders of
Exchangeable Preferred Stock, called as hereinafter provided, or at any annual
meeting of stockholders of the Company held for the purpose of electing
directors, and thereafter at such annual meetings or by the written consent of
the Holders of Exchangeable Preferred Stock. Such right of the Holders of
Exchangeable Preferred Stock to elect directors may be exercised or, in the
alternative, the Voting Rights Dividend Increase (as increased pursuant to the
second sentence of Section 7(c)) shall continue until such time as (i) in the
case of a dividend default, all dividends in arrears on the Exchangeable
Preferred Stock shall have been paid
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in full (and in the case of dividends payable after May 15, 2003, paid in
cash) and (ii) in all other cases, any failure, breach or default giving rise
to such Voting Rights Triggering Event or Voting Rights Dividend Increase is
remedied or waived by the Holders of at least a majority of the shares of
Exchangeable Preferred Stock then outstanding, at which time the term of any
directors elected pursuant to the provisions of Section 7(b) shall thereupon
terminate, and such directors shall be deemed to have resigned.
(e) At any time when the foregoing voting rights shall have vested in the
Holders of Exchangeable Preferred Stock and if such rights shall not already
have been initially exercised, a proper officer of the Company shall, upon the
written request of Holders of record of 10% or more of the Exchangeable
Preferred Stock then outstanding, addressed to the Secretary of the Company,
call a special meeting of Holders of Exchangeable Preferred Stock. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Company or, if none, at a place designated by the Secretary
of the Company. If such meeting shall not be called by the proper officers of
the Company within 30 days after the personal service of such written request
upon the Secretary of the Company, or within 30 days after mailing the same
within the United States, by registered mail, addressed to the Secretary of the
Company at its principal office (such mailing to be evidenced by the registry
receipt issued by the postal authorities), then the Holders of record of 10% of
the shares of Exchangeable Preferred Stock then outstanding may designate in
writing a Holder of Exchangeable Preferred Stock to call such meeting at the
expense of the Company, and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders and
shall be held at the place for holding annual meetings of the Company or, if
none, at a place designated by such Holder. Any Holder of Exchangeable
Preferred Stock that would be entitled to vote at such meeting shall have
access to that portion of the stock books of the Company listing the Holders
for the purpose of causing a meeting of stockholders to be called pursuant to
the provisions of this Section 7. Notwithstanding the provisions of this
Section 7(e) however, no such special meeting shall be called if any such
request is received less than 90 days before the date fixed for the next
ensuing annual or special meeting of stockholders.
(f) If any director so elected by the Holders of Exchangeable Preferred
Stock shall cease to serve as a director before his term shall expire, the
Holders of Exchangeable Preferred Stock then outstanding may, at a special
meeting of the Holders called as provided above, elect a successor to hold
office for the unexpired term of the director whose place shall be vacant.
(g) In addition to the matters set forth in Section 2(b), the Company
shall not, without the affirmative vote or consent of the Holders of at least a
majority of the shares of Exchangeable Preferred Stock then outstanding (with
shares held by the Company or any of
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its Affiliates not being considered to be outstanding for this purpose)
voting or consenting as the case may be, as one class:
(i) amend or otherwise alter this Certificate of Designation
(including the provisions of Section 8 hereof) in any manner that
adversely affects the specified rights, preferences or privileges (but not
the voting rights) of Holders of Exchangeable Preferred Stock;
(ii)except as provided in Section 2(b), authorize the issuance of
any additional share of Exchangeable Preferred Stock;
(iii) waive any existing Voting Rights Triggering Event or
compliance with any provision of this Certificate of Designation;
(iv)change the shares of Exchangeable Preferred Stock into the same
or a different number of shares, either with or without par value, of
another class or series of stock; or
(v) divide the shares of Exchangeable Preferred Stock into series
and determine the designation of each series and the variations in the
relative rights and preferences between the shares of each series, or
authorize the Board of Directors to do so;
PROVIDED, HOWEVER, that the Company may not amend the Change of Control
provisions of this Certificate of Designation (including the related
definitions) without the approval of the Holders of at least 75% of the then
outstanding shares of Exchangeable Preferred Stock, voting or consenting, as
the case may be, as one class.
(h) Without the consent of each Holder affected, an amendment or waiver
of the Company's Articles of Incorporation or of this Certificate of
Designation may not (with respect to any shares of Exchangeable Preferred Stock
held by a non-consenting Holder):
(i) alter the voting rights with respect to the Exchangeable
Preferred Stock (PROVIDED, HOWEVER, that the consent of Holders of
Exchangeable Preferred Stock shall not be required to approve the Voting
Rights Amendment) or reduce the number of shares of Exchangeable Preferred
Stock whose holders must consent to an amendment, supplement or waiver;
(ii)reduce the Liquidation Preference of or change the Mandatory
Redemption Date of any share of Exchangeable Preferred Stock or alter the
provisions with respect to the redemption of the Exchangeable Preferred
Stock (except as provided with respect to Section 8 hereof):
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(iii) reduce the rate or change the time for payment of dividends
on any share of Exchangeable Preferred Stock;
(iv) waive the consequences of any failure to pay dividends on the
Exchangeable Preferred Stock;
(v) make any share of Exchangeable Preferred Stock payable in any
form other than that stated in this Certificate of Designation;
(vi) make any change in the provisions of this Certificate of
Designation relating to waivers of the rights of holders of Exchangeable
Preferred Stock to receive the Liquidation Preference and dividends on the
Exchangeable Preferred Stock;
(vii) waive a redemption payment with respect to any share of
Exchangeable Preferred Stock (except as provided with respect to Section 8
hereof); or
(viii) make any change in the foregoing amendment and waiver
provisions.
(i) The Company in its sole discretion may, without the vote or consent
of any Holders of the Exchangeable Preferred Stock, amend or supplement this
Certificate of Designation:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Exchangeable Preferred Stock in
addition to or in place of certificated Exchangeable Preferred Stock; or
(iii) to make any change that would provide any additional rights
or benefits to the Holders of the Exchangeable Preferred Stock or that
does not adversely affect the legal rights under this Certificate of
Designation of any such Holder.
8 CHANGE OF CONTROL.
(a) Within 30 days after the occurrence a Change of Control, the Company
shall make an offer (the "Change of Control Offer") to each Holder of shares of
Exchangeable Preferred Stock to repurchase all or any part (but not, in the
case of any Holder requiring the Company to purchase less than all of the
shares of Exchangeable Preferred Stock held by such Holder, any fractional
shares) of such Holder's Exchangeable Preferred Stock at an
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offer price in cash equal to 101% of the aggregate Liquidation Preference
thereof plus, without duplication, accumulated and unpaid dividends, if any,
thereon to but excluding the date of purchase (the "Change of Control
Payment") (including an amount in cash equal to a pro rated dividend for the
period from the Dividend Payment Date immediately prior to the Change of
Control Payment Date).
(b) The Change of Control Offer shall include all instructions and
materials necessary to enable Holders to tender their shares of Exchangeable
Preferred Stock.
(c) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including the requirements of Rule
14e-1 and any other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
the Exchangeable Preferred Stock as a result of a Change of Control. The
Change of Control Offer shall contain information concerning the business of
the Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Change of
Control Offer (which at a minimum will include (i) the most recent annual and
quarterly financial statements, (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such financial
statements referred to in clause (i) (including a description of the events
requiring the Company to make the Change of Control Offer) and (iii) if
applicable, appropriate pro forma financial information concerning the Change
of Control Offer.
(d) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 8 and that all shares of Exchangeable Preferred Stock tendered
shall be accepted for payment;
(ii) the amount of the Change of Control Payment, the purchase date,
which shall be not earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date");
(iii) that any share of Exchangeable Preferred Stock not tendered
shall continue to accumulate dividends;
(iv) the place or places where shares of Exchangeable Preferred
Stock are to be surrendered for tender pursuant to the Change of Control
Offer;
(v) that on the Change of Control Payment Date the purchase price
shall become due and payable upon each share of Exchangeable Preferred
Stock accepted
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for payment pursuant to the Change of Control Offer and, unless the
Company fails to pay the Change of Control Payment on the Change of
Control Payment Date, all shares of Exchangeable Preferred Stock
accepted for payment pursuant to the Change of Control Offer shall cease
to accumulate dividends after the Change of Control Payment Date;
(vi) that Holders electing to have any shares of Exchangeable
Preferred Stock purchased pursuant to a Change of Control Offer will be
required to surrender the shares of Exchangeable Preferred Stock, with the
form entitled "Option of Holder to Elect Purchase" which shall be included
with the notice of Change of Control completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
third Business Day preceding the Change of Control Payment Date;
(vii) that Holders will be entitled to withdraw all or any
portion of their election if the Paying Agent receives, not later than the
close of business on the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the number of shares of Exchangeable
Preferred Stock delivered for purchase, the certificate number of the
Exchangeable Preferred Stock tendered and a statement that such Holder is
withdrawing all or a portion of his election to have such shares
purchased; and
(viii) that the Holder may tender all or any portion of the shares
of Exchangeable Preferred Stock held by such Holder and that in the case
of any Holder whose shares are to be purchased only in part, the Company
shall execute, authorize and deliver to the Holder, without service
charge, a new certificate as requested by such Holder, for the unpurchased
portion of his shares of Exchangeable Preferred Stock.
(e) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all shares of Exchangeable Preferred
Stock or portions thereof properly tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all shares of Exchangeable Preferred Stock or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Transfer Agent the shares of Exchangeable Preferred Stock so accepted together
with an Officers' Certificate stating the aggregate Liquidation Preference of
the shares of Exchangeable Preferred Stock or portions thereof being purchased
by the Company. The Paying Agent shall promptly mail to each holder of
Exchangeable Preferred Stock so tendered the Change of Control Payment for such
Exchangeable Preferred Stock, and the Transfer Agent shall promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new certificate representing the shares of Exchangeable
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Preferred Stock equalin Liquidation Preference amount to any unpurchased
portion of the shares of the shares of Exchangeable Preferred Stock
surrendered, if any. The Company shall publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(f) If, at the time of a Change of Control, the Company is prohibited by
the terms of any Indebtedness from purchasing shares of Exchangeable Preferred
Stock that may be tendered by holders pursuant to a Change of Control Offer,
prior to complying with the provisions of this Section 8, but in any event
within 90 days following a Change of Control, the Company shall either
(i) repay in full all outstanding Indebtedness or (ii) obtain the requisite
consents, if any, under all agreements governing outstanding Indebtedness to
permit the repurchase of Exchangeable Preferred Stock required by this Section
8. The Company must first comply with the covenant described in the preceding
sentence before it will be required to repurchase shares of Exchangeable
Preferred Stock in the event of a Change of Control; PROVIDED, that if the
Company fails to comply with the covenant described in the preceding sentence,
the sole remedy to holders of Exchangeable Preferred Stock will be the voting
rights arising from a Voting Rights Triggering Event or, in the alternative,
the Voting Rights Dividend Increase in the event the Voting Rights Amendment is
not in effect. Moreover, the Company shall not repurchase or redeem any
Exchangeable Preferred Stock pursuant to this Change of Control provision prior
to the Company's repurchase of the Senior Subordinated Notes pursuant to the
Change of Control covenants in the Notes Indenture.
(g) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 8 applicable to a Change of Control Offer made by the
Company and purchases all shares of Exchangeable Preferred Stock validly
tendered and not withdrawn under such Change of Control Offer.
9 CERTAIN COVENANTS
(a) LIMITATION ON CONSOLIDATED INDEBTEDNESS.
(i) The Company and its Restricted Subsidiaries shall not Incur any
Indebtedness, except that the Company may Incur Indebtedness if (A) there
exists no Voting Rights Triggering Event or event which with notice or
lapse of time or both would become a Voting Rights Triggering Event
immediately prior and subsequent thereto and (B) after giving effect
thereto, the Company's Annualized Operating Cash Flow Ratio on a pro forma
basis (calculated on the assumption that such Indebtedness had been
incurred on the first day of the applicable Reference Period), would have
been less than:
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<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
-------------- -----
<S> <C>
Prior to January 1, 2000. . . . . . . . . . . . 9.0 to 1.0
Thereafter. . . . . . . . . . . . . . . . . . . 8.0 to 1.0
</TABLE>
(ii) Notwithstanding the foregoing, if there exists no Voting Rights
Triggering Event or event which with notice or lapse of time or both would
become a Voting Rights Triggering Event immediately prior and subsequent
thereto, the Company and its Restricted Subsidiaries may Incur the
following Indebtedness without regard to the foregoing limitations:
(A) Indebtedness evidenced by the Senior Subordinated Notes on
the Issue Date;
(B) the Incurrence by the Company of (x) prior to the date of
the consummation of the Atlantic Acquisition, Indebtedness Incurred
under the Existing Credit Facility in an aggregate principal amount
not to exceed $160 million at any time outstanding, reduced by
repayments and permanent reductions thereof due to application of Net
Cash Proceeds (as defined in the Notes Indenture) pursuant to Section
1015 of the Notes Indenture; PROVIDED, HOWEVER, that if such
Indebtedness is repaid with the net proceeds of the sale of the
Senior Subordinated Notes pursuant to Section 1016 of the Notes
Indenture, no Indebtedness in excess of $30 million in the aggregate
at any time outstanding shall be Incurred thereunder except for
Indebtedness whose proceeds are applied by the Company for the sole
purpose of funding a repurchase of the Senior Subordinated Notes
under Section 1016 of the Notes Indenture and (y) on and after the
date of the consummation of the Atlantic Acquisition, Indebtedness
Incurred under the New Credit Facility in an aggregate principal
amount not to exceed $300 million at any time outstanding, reduced by
such repayments and permanent reductions thereof due to application
of Net Cash Proceeds (as defined in the Notes Indenture) as set forth
in Section 1015 of the Notes Indenture;
(C) Indebtedness of the Company or any Restricted Subsidiary
of the Company owing to the Company or any Restricted Subsidiary of
the Company ("Intercompany Indebtedness"); PROVIDED that (I) in the
case of any such Indebtedness of the Company, such obligations shall
be unsecured and subordinated in all respects to the rights of the
holders of the Exchange Debentures, if and when issued, to the same
extent as the Exchange Debentures will be subordinated to Senior
Indebtedness and (II) if any event
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<PAGE>
occurs that causes a Restricted Subsidiary of the Company to no
longer be a Restricted Subsidiary of the Company, then this clause
(C) shall no longer be applicable to such Indebtedness of that
Restricted Subsidiary;
(D) Indebtedness of the Company or any Restricted Subsidiary of
the Company to renew, extend, refinance or refund any Indebtedness of
the Company or such Restricted Subsidiary outstanding or committed on
the date of renewal, extension, refinancing or refunding other than
Indebtedness Incurred pursuant to clause (B) or (C); PROVIDED,
HOWEVER, that such Indebtedness does not exceed the principal amount
of outstanding or committed Indebtedness so renewed, extended,
refinanced or refunded plus financing fees and other expenses
associated therewith; and PROVIDED FURTHER, HOWEVER, that (I) such
renewing, extending, refinancing or refunding Indebtedness shall not
have a final maturity and shall not have any other mandatory
repayments or redemptions prior to those of the Indebtedness being
renewed, extended, refinanced or refunded; (II) in the case of any
refinancing or refunding of Indebtedness that would rank PARI PASSU
in right of payment to the Exchange Debentures (if and when issued),
the refinancing or refunding Indebtedness would rank PARI PASSU or
subordinate in right of payment to the Exchange Debentures (if and
when issued) and, in the case of any refinancing or refunding of
Indebtedness that would rank subordinate to the Exchange Debentures
(if and when issued), the refinancing or refunding Indebtedness would
rank subordinated in right of payment to the Exchange Debentures to
substantially the same extent as the Indebtedness refinanced or
refunded; and (III) no Restricted Subsidiary of the Company shall be
permitted to refinance any Indebtedness of the Company;
(E) Indebtedness Incurred by the Company or any Restricted
Subsidiary of the Company under Interest Hedge Agreements to hedge
interest on permitted Indebtedness; PROVIDED, that the notional
principal amount of any such Interest Hedge Agreements does not
exceed the principal amount of Indebtedness to which such Interest
Hedge Agreements relate;
(F) Indebtedness of any Restricted Subsidiary of the Company
which does not exceed $30 million in the aggregate for all such
Restricted Subsidiaries at any time outstanding (excluding any
Intercompany Indebtedness or Acquired Indebtedness permitted to be
Incurred under this Certificate of Designation), PROVIDED that after
giving effect thereto on a pro forma basis the Company's Annualized
Operating Cash Flow Ratio is less than 7.5 to 1.0 and the Adjusted
Annualized Operating Cash Flow Ratio of such Restricted Subsidiary is
less than 5.0 to 1.0;
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<PAGE>
(G) any guarantee by any Restricted Subsidiary of the Company
of any Indebtedness Incurred under the Existing Credit Facility or
New Credit Facility in compliance with this Section 9(a);
(H) Acquired Indebtedness, PROVIDED that on a pro forma basis
after giving effect to the Incurrence of such Indebtedness, the
Company shall be able to Incur $1.00 of additional Indebtedness
pursuant to the provisions described under Section 9(a)(i);
(I) Indebtedness in respect of performance, surety or appeal
bonds provided in the ordinary course of business;
(J) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from guarantees or letters of credit, surety bonds or performance
bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets
or Restricted Subsidiary of the Company (other than guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of
such business, assets or Restricted Subsidiary of the Company for the
purpose of financing such acquisition), in an amount not to exceed
the gross proceeds actually received by the Company or any of its
Restricted Subsidiaries in connection with such disposition; and
(K) Indebtedness of the Company or any of its Restricted
Subsidiaries, other than Indebtedness permitted pursuant to clauses
(A) through (J) of this Section 9(a)(ii), which does not exceed $10
million at any time outstanding or committed.
(b) LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary of the Company
to create or issue any Preferred Stock except:
(i) Preferred Stock outstanding on the Issue Date ;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by any Person prior to that Person's
having become a direct or indirect Restricted Subsidiary of the Company;
and
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(iv) Preferred Stock issued by a Restricted Subsidiary of the
Company the proceeds of which are used to refinance certain outstanding
Preferred Stock of such Restricted Subsidiary, PROVIDED that (A) the
liquidation value of the refinancing Preferred Stock does not exceed the
liquidation value so refinanced plus financing fees and other expenses
associated with such refinancing and (B) such refinancing Preferred Stock
has no mandatory redemptions prior to (and in no greater amounts than) the
Preferred Stock being refinanced.
(c RESTRICTED PAYMENTS.
(i The Company and its Restricted Subsidiaries shall not make any
Restricted Payment unless after giving effect thereto (A) no Voting Rights
Triggering Event or event which, with notice or lapse of time or both,
would become a Voting Rights Triggering Event has occurred and is
continuing; (B) the Company would be permitted to Incur an additional
$1.00 of Indebtedness pursuant to Section 9(a)(i); (C the total of all
Restricted Payments made on or after the Issue Date does not exceed the
sum of (I) Cumulative Operating Cash Flow less 1.75 times Cumulative
Interest Expense, (II) 100% of the aggregate Qualified Capital Stock
Proceeds of the Company after the Issue Date and (III) 100% of the cash
proceeds received from an Unrestricted Subsidiary to the extent of
Investments (other than Permitted Investments) made in such Unrestricted
Subsidiary since the Issue Date; and (D)all accumulated and unpaid
dividends on the Exchangeable Preferred Stock shall have been paid in full
as provided in this Certificate of Designation.
(ii The provisions in Section 9(c)(i) shall not be violated, so
long as no Voting Rights Triggering Event or event which with notice or
lapse of time or both would become a Voting Rights Triggering Event has
occurred and is continuing or shall occur as a consequence of the actions
or payments set forth below, by reason of (A) the payment of any dividend
within 60 days after declaration thereof, if at the declaration date such
payment would have complied with the foregoing provision, (B) the
purchase, acquisition, redemption or other acquisition or retirement for
value of shares of Capital Stock of any Restricted Subsidiary held by
Persons other than the Company or any of its Restricted Subsidiaries, (C)
the redemption, defeasance, repurchase or other acquisition or retirement
of any Junior Stock of the Company or its Restricted Subsidiaries either
in exchange for or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of Qualified
Junior Stock and (D) Restricted Payments, in addition to Restricted
Payments permitted pursuant to clauses (A) through (C) above, not in
excess of $10 million in the aggregate after the Issue Date. The payments
described in clauses (A), (C) (provided the proceeds of the sale of the
Qualified Junior Stock constitute Qualified Capital Stock Proceeds) and
(D) of this Section 9(c)(ii) shall count as Restricted Payments for the
calculation under Section 9(c)(i).
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<PAGE>
(d LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, create or otherwise cause or suffer to exist or become
effective any consensual restriction or prohibition on the ability of any
of its Restricted Subsidiaries to: (A) pay dividends on, or make other
distributions in respect of, its Capital Stock, or any other ownership
interest or participation in, or measured by, its profits, to the Company
or any Restricted Subsidiary of the Company or pay any Indebtedness or
other obligation owed to the Company or any Restricted Subsidiary of the
Company, (B) make any loans or advances to the Company or any Restricted
Subsidiary of the Company, or (C) transfer any of its property or assets
to the Company or any Restricted Subsidiary of the Company.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary of the Company to, suffer to exist any such
restriction or prohibition (S) pursuant to this Certificate of
Designation, the Notes Indenture, the Existing Credit Facility or any
other agreement in effect on the Issue Date, (T) pursuant to an agreement
relating to any Indebtedness of such Restricted Subsidiary which was
outstanding or committed prior to the date on which such Restricted
Subsidiary was acquired by the Company other than in anticipation of
becoming a Restricted Subsidiary; PROVIDED that such restriction or
prohibition shall not apply to any property or assets of the Company or
any of its Restricted Subsidiaries other than the property or assets of
such Restricted Subsidiary and its Subsidiaries, (U) pursuant to an
agreement effecting a renewal, extension, refinancing or refunding of any
agreement described in clauses (S) and (T) above, PROVIDED, HOWEVER, that
the provisions contained in such renewal, extension, refinancing or
refunding agreement relating to such restriction or prohibition are no
more restrictive in any material respect than the provisions contained in
the agreement the subject thereof (it being understood that for purposes
of this clause (U) the New Credit Facility is deemed to be a refinancing
of the Existing Credit Facility), (V) existing under or by reason of
applicable law, (W) customary provisions restricting subletting or
assignment of any lease governing any leasehold interest of any Restricted
Subsidiary, (X) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the type referred
to in clause (C) of this Section 9(d), (Y) restrictions of the type
referred to in clause (C) of this Section 9(d) contained in security
agreements securing Indebtedness of a Restricted Subsidiary to the extent
that such Liens were otherwise Incurred in accordance with Section 9(f)
below and restrict the transfer of property subject to such agreements, or
(Z) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.
(e) LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS.
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<PAGE>
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, enter into any transaction involving aggregate
consideration in excess of (i) $1 million, including, without limitation,
any purchase, sale, lease or exchange of property or the rendering of any
service, with or to any Affiliate or Related Person of the Company (other
than a Restricted Subsidiary), unless a majority of the disinterested
members of the Board of Directors determines (which determination shall be
evidenced by a Board Resolution) that (A) such transaction is in the
best interests of the Company or such Restricted Subsidiary and (B) such
transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary than those which might be obtained in arm's-length
transactions with a third party at the time and (ii) $5 million unless (in
addition to the provisions of the foregoing clause (i)) the Company
receives a written opinion from an investment banking firm of national
reputation to the effect that such transaction is fair to the Company or
such Restricted Subsidiary, from a financial point of view; PROVIDED,
that in the case of transactions entered into in the ordinary course of
business principally involving the provision of telecommunication services
by Affiliates or Related Persons of the Company (who are regularly engaged
in the provision of telecommunications services) to the Company or any of
its Restricted Subsidiaries (X) if the aggregate consideration involved is
not in excess of $5 million, then clause (i) above shall be applicable but
the good faith judgment of an officer of the Company shall be substituted
for the requirement of a resolution of the Board of Directors and (Y) if
the aggregate consideration involved exceeds $5 million, clause (ii) above
shall not be applicable but clause (i) above shall be applicable.
(f) LIMITATIONS ON LIENS.
(iii) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, Incur or suffer to exist any Lien on or with
respect to any property or assets now owned or hereafter acquired to
secure any Indebtedness that ranks in right of payment PARI PASSU with or
subordinate to the Exchange Debentures, if and when issued, without
making, or causing such Restricted Subsidiary to make, effective provision
for securing the Exchange Debentures, if and when issued, (A) equally and
ratably with such Indebtedness as to such property for so long as such
Indebtedness shall be so secured or (B) in the event such Indebtedness is
Indebtedness of the Company or a Restricted Subsidiary of the Company
which is subordinate in right of payment to the Exchange Debentures, if
and when issued, prior to such Indebtedness as to such property for so
long as such Indebtedness will be so secured.
(iv) The restrictions in Section 9(f)(i) shall not apply to (A)
Liens existing in respect of any Indebtedness that exists on the Issue
Date; (B) Liens in favor of the
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Company or Liens in favor of a Wholly Owned Restricted Subsidiary of the
Company on the assets or Capital Stock of another Wholly Owned
Restricted Subsidiary of the Company; (C) Liens to secure Indebtedness
outstanding or committed for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of the
equipment or other property subject to such Liens; PROVIDED, HOWEVER,
that (I) the principal amount of any Indebtedness secured by such a Lien
does not exceed 100% of such purchase price or cost, (II) such Lien does
not extend to or cover any other property other than such item of
property or any improvements on such item and (III) the Incurrence of
such Indebtedness is otherwise permitted by this Certificate of
Designation; (D) Liens on property existing immediately prior to the
time of acquisition thereof (and not Incurred in anticipation of the
financing of such acquisition); (E) Liens to secure Indebtedness to
extend, renew, refinance or refund (or successive extensions, renewals,
refinancings or refundings), in whole or in part, Indebtedness secured
by any Lien referred to in clauses (A), (C) and (D) of this Section
9(f)(ii) so long as such Lien does not extend to any other property and
the principal amount of Indebtedness so secured is not increased except
as otherwise permitted under clause (B) or (D) of Section 9 (a)(ii); (F)
Liens on any Permitted Investment in Cooperative Bank Equity in favor of
any Cooperative Banks; or (G) any other Liens in respect of any
Indebtedness which Indebtedness does not exceed $500,000 in the
aggregate.
(g LIMITATION ON CERTAIN DEBT.
The Company shall not Incur any Indebtedness that is subordinate in
right of payment to any other Indebtedness of the Company unless the
Indebtedness so Incurred is either PARI PASSU or subordinate in right of
payment to the Exchange Debentures (if and when issued).
(h CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.
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The Company shall not consolidate with or merge into any Person or
permit any other Person to consolidate with or merge into the Company, or
transfer, sell, convey or lease or otherwise dispose of all or
substantially all of its assets to, any Person unless, (i) (A) the Company
is the surviving entity or (B) if the Company is not the surviving entity,
then the successor or transferee shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and the Exchangeable Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor
or transferee company, having in respect of such successor or transferee
company substantially the same powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon that the Exchangeable Preferred Stock
had immediately prior to such transaction, (ii) the Consolidated Net Worth
of the successor or transferee immediately after the transaction is not
less than 100% of the Company's Consolidated Net Worth immediately prior
to the transaction, (iii)immediately after giving effect to such
transaction, the Company (or its permitted successor or transferee) would
be permitted to Incur at least $1.00 of additional Indebtedness pursuant
to Section 9(a)(i), (iv) after giving effect to such transaction no Voting
Rights Triggering Event or event which with notice or lapse of time would
become a Voting Rights Triggering Event has occurred and is continuing,
and (v) an Officers' Certificate and an Opinion of Counsel covering such
conditions shall be delivered to the Transfer Agent.
(i REPORTS.
Whether or not the Company is subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, the Company shall deliver to
the Transfer Agent and to each Holder, within 15 days after it is or would
have been required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that
would have been included in reports filed with the Commission, if the
Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such
would be required in such reports to the Commission, and in each case,
together with a management's discussion and analysis of financial
condition and results of operations which would be so required.
10. AMENDMENT.
Unless otherwise provided in Section 2(b) or 7, this Certificate of
Designation shall not be amended, either directly or indirectly, or through
merger or consolidation with another entity, in any manner that would alter or
change the powers, preferences or special rights of the Exchangeable Preferred
Stock so as to affect them adversely without the affirmative vote
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<PAGE>
of the Holders of a majority or more of the outstanding Exchangeable
Preferred Stock voting separately as a class.
11. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Exchangeable
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time in accordance with the terms
hereof) and in the Articles of Incorporation. The shares of Exchangeable
Preferred Stock shall have no preemptive or subscription rights.
12. HEADINGS OF SECTIONS.
The headings of the various sections and subsections hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
13. SEVERABILITY OF PROVISIONS.
If any voting power, preference or relative, participating, optional and
other special right of the Exchangeable Preferred Stock or qualification,
limitation or restriction thereof set forth in this Certificate of Designation
(as this Certificate of Designation may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Exchangeable Preferred
Stock and qualifications, limitations and restrictions thereof set forth in
this Certificate of Designation (as so amended) which can be given effect
without the invalid, unlawful or unenforceable voting power, preference and
relative, participating, optional or other special right of Exchangeable
Preferred Stock or qualification, limitation or restriction thereof, shall,
nevertheless, remain in full force and effect, and no voting powers,
preferences and relative, participating, optional or other special rights of
Exchangeable Preferred Stock and qualifications, limitations and restrictions
thereof herein set forth shall be deemed dependent upon any other such voting
powers, preferences and relative, participating, optional or other special
rights of Exchangeable Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
14. FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER.
(a FORM OF RULE 144A PREFERRED STOCK AND REGULATION S PREFERRED STOCK.
(i) The Rule 144A Preferred Stock shall initially be represented by one or more
Exchangeable Preferred Stock Certificates in registered, global form
("Restricted Global Preferred Stock Certificates"). Regulation S Preferred
Stock shall initially be represented by one or more
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Exchangeable Preferred Stock Certificates in registered, global form (the
"Regulation S Global Preferred Stock Certificates" and, together with the
Restricted Global Preferred Stock Certificates, the "Global Securities").
The Global Securities shall be deposited on the Issue Date with a custodian
for the Depositary in New York, New York and registered in the name of DTC or
its nominee (DTC or such nominee being referred to as the "Global Security
Holder"), in each case for credit to an account of a direct or indirect
participant in DTC as described in this Section 14. Prior to the expiration
of the Distribution Compliance Period, beneficial interests in the Regulation
S Global Preferred Stock Certificate may only be held through Euroclear or
CEDEL (as indirect participants in DTC), unless exchanged for interests in
the Restricted Global Preferred Stock Certificate in accordance with the
transfer and certification requirements set forth in this Section 14.
(ii) SO LONG AS THE GLOBAL SECURITY HOLDER IS THE REGISTERED OWNER
OF ANY EXCHANGEABLE PREFERRED STOCK, THE GLOBAL SECURITY HOLDER SHALL BE
CONSIDERED THE SOLE HOLDER UNDER THIS CERTIFICATE OF DESIGNATION OF ANY
SHARES OF EXCHANGEABLE PREFERRED STOCK EVIDENCED BY THE GLOBAL SECURITIES.
BENEFICIAL OWNERS OF SHARES OF EXCHANGEABLE PREFERRED STOCK EVIDENCED BY THE
GLOBAL SECURITIES SHALL NOT BE CONSIDERED THE OWNERS OR HOLDERS THEREOF UNDER
THIS CERTIFICATE OF DESIGNATION FOR ANY PURPOSE.
(iii) Any person having a beneficial interest in a Global Security
may, upon request to the Company, exchange such beneficial interest for
Exchangeable Preferred Stock in the form of registered definitive certificates
(the "Certificated Securities"). Upon any such issuance, the Company shall
register such Certificated Securities in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). If (i)
the Company notifies the holders in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the holders in writing that it elects to cause the issuance of Exchangeable
Preferred Stock in the form of Certificated Securities under this Certificate
of Designation, then, upon surrender by the Global Security Holder of its
Global Security, Exchangeable Preferred Stock in such form will be issued to
each person that the Global Security Holder and the Depositary identify as
being the beneficial owner of the related Exchangeable Preferred Stock.
(v) Rule 144A Preferred Stock and the Regulation S Preferred Stock
(including beneficial interests in the Global Preferred Stock Certificates)
shall be subject to certain restrictions on transfer and such Exchangeable
Preferred Stock shall bear a legend in substantially the following form:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD,
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ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER APPLICABLE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR
(B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE
TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES
ACT ("REGULATION S"), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY AND THE
TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
COMPANY AND THE DEBENTURES TRUSTEE, THE TRANSFER AGENT AND THE SECURITY
REGISTER, AS APPLICABLE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM
BY REGULATION S.
(vi) In addition, transfers of beneficial interests in the Global
Preferred Stock Certificates shall be subject to the applicable rules and
procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear or CEDEL), which may change from time to time.
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(vii) Except as set forth in Section 14(b), the Global Preferred Stock
Certificates may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee. Beneficial interests
in the Global Preferred Stock Certificates may not be exchanged for
Exchangeable Preferred Stock in certificated form except in the limited
circumstances described in Section 14(b). In addition, beneficial interests in
the Restricted Global Preferred Stock Certificate may not be exchanged for
beneficial interests in the Regulation S Global Preferred Stock Certificate or
vice versa except in accordance with the transfer and certification
requirements described in Section 14(b).
(b) EXCHANGES BETWEEN THE RESTRICTED GLOBAL PREFERRED STOCK CERTIFICATE
AND THE REGULATION S GLOBAL PREFERRED STOCK CERTIFICATE. (i) Beneficial
interests in the Restricted Global Preferred Stock Certificate may be exchanged
for beneficial interests in the Regulation S Global Preferred Stock Certificate
and vice versa only in connection with a transfer of such interest. Such
transfers are subject to compliance with the certification requirements
described below.
(ii) A beneficial interest in the Restricted Global Preferred Stock
Certificate may be transferred to a person who takes delivery in the form of an
interest in the Regulation S Global Preferred Stock Certificate, whether before
or after the expiration of the Restricted Period, only upon receipt by the
Transfer Agent of a written certification on behalf of the transferor to the
effect that such transfer is being made in accordance with Rule 904 of
Regulation S or (if available) Rule 144 under the Securities Act and that, if
such transfer occurs prior to the expiration of the Restricted Period, the
interest transferred will be held immediately thereafter through Euroclear or
CEDEL.
(iii) Prior to the expiration of the Restricted Period, a beneficial
interest in the Regulation S Global Preferred Stock Certificate may be
transferred to a person who takes delivery in the form of an interest in the
Restricted Global Preferred Stock Certificate only upon receipt by the Transfer
Agent of a written certification on behalf of the transferor to the effect that
such transfer is being made to a person who the transferor reasonably believes
is a Qualified Institutional Buyer acquiring for its own account or the account
of a Qualified Institutional Buyer in a transaction complying with Rule 144A
and any applicable securities laws of the states of the United States and other
jurisdictions. After the expiration of the Restricted Period, this
certification requirement shall no longer apply to such transfers.
(iv) Any beneficial interest in one of the Global Preferred Stock
Certificates that is exchanged for an interest in the other Global Preferred
Stock Certificate shall cease to be an interest in such Global Preferred Stock
Certificate and shall become an interest in the other Global Preferred Stock
Certificate. Accordingly, such interest will thereafter be subject
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to all transfer restrictions and other procedures applicable to beneficial
interests in such other Global Preferred Stock Certificate for as long as it
remains such an interest.
(v) Any exchange of a beneficial interest in the Regulation S Global
Preferred Stock Certificate for a beneficial interest in the Restricted Global
Preferred Stock Certificate or vice versa will be effected in DTC by means of
an instruction originated by the Transfer Agent through the DTC
Deposit/Withdrawal at Custodian ("DWAC") system. Accordingly, in connection
with any such exchange, appropriate adjustments will be made in the Company's
records to reflect a decrease in the liquidation preference of such Regulation
S Global Preferred Stock Certificate and a corresponding increase in the
liquidation preference of such Restricted Global Preferred Stock Certificate or
vice versa, as applicable.
(c) EXCHANGES OF BOOK ENTRY PREFERRED STOCK CERTIFICATE FOR CERTIFICATED
PREFERRED STOCK. A beneficial interest in a Global Preferred Stock Certificate
may not be exchanged for Exchangeable Preferred Stock in certificated form
unless (i) DTC (x) notifies the Company that it is unwilling or unable to
continue as Depositary for the Global Preferred Stock Certificate or (y) has
ceased to be a clearing agency registered under the Exchange Act, and in either
case the Company fails to appoint a successor Depository, (ii) the Company, at
its option, notifies the Transfer Agent in writing that it elects to cause the
issuance of the Exchangeable Preferred Stock in certificated form or (iii)
there shall have occurred and be continuing a Voting Rights Triggering Event or
any event which after notice or lapse of time or both would be a Voting Rights
Triggering Event. In all cases, certificated Exchangeable Preferred Stock
delivered in exchange for any Global Preferred Stock Certificate or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures). Any certificated Exchangeable Preferred Stock
issued in exchange for an interest in a Global Preferred Stock Certificate will
bear the legend restricting transfers that is borne by such Global Preferred
Stock. Any such exchange will be effected only through the DWAC system and an
appropriate adjustment will be made in the Company's records to reflect a
decrease in the liquidation preference of the relevant Global Preferred Stock
Certificate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this certificate to be duly
executed by THE PRESIDENT of the Company and by THE VICE PRESIDENT of the
Company, this 14th day of May, 1998.
RURAL CELLULAR CORPORATION
By: /s/ Richard Ekstrand
----------------------------
Name: Richard Eckstrand
Title: President/CEO
By: /s/ Welsey E. Schultz
----------------------------
Name: Wesley E. Schultz
Title: VP. Finance/CFO
ATTEST:
By:
-------------------------------
Name:
Title:
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ANNEX A
FORM OF EXCHANGE INDENTURE
(OMITTED)
49
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PREFERRED STOCK EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
THIS PREFERRED STOCK EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of May 14, 1998 between Rural Cellular
Corporation, a Minnesota corporation (the "Company"), and TD Securities (USA)
Inc., NationsBanc Montgomery Securities LLC and BancBoston Securities Inc.
(collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated May 7,
1998 between the Company and the Initial Purchasers (the "Purchase Agreement"),
which provides for, in relevant part, the sale by the Company to the Initial
Purchasers of 125,000 shares of the Company's Exchangeable Preferred Stock (as
defined herein). In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide to the Initial Purchasers
and their direct and indirect transferees and assigns the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Certificate of Designation" shall mean the Certificate of Designation
of Voting Power, Preferences and Relative Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions of the 11 3/8%
Senior Exchangeable Preferred Stock of Rural Cellular Corporation, as filed with
the Minnesota Secretary of State on May 13, 1998.
"Company" shall have the meaning set forth in the preamble of this
Agreement and also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, PROVIDED, HOWEVER, that any such depositary
must have an address in the Borough of Manhattan, in New York City.
<PAGE>
"Exchange Preferred Stock" shall mean new shares of preferred stock
issued by the Company under the Certificate of Designation having terms
identical in all respects to the Preferred Stock (except that (i) dividends
thereon shall accrue from the last date on which dividends were paid on the
Preferred Stock or, if no such dividends have been paid, from the Original Issue
Date (or, with respect to Additional Shares, the date of issuance thereof) ,
(ii) the transfer restrictions thereon shall be eliminated and (iii) certain
provisions relating to an increase in the stated dividend rate thereon shall be
eliminated) to be offered to Holders of Preferred Stock in exchange for
Registrable Preferred Stock pursuant to the Preferred Stock Exchange Offer.
"Exchangeable Preferred Stock" shall mean shares of the Company's
113/8% Senior Exchangeable Preferred Stock, liquidation preference $1,000 per
share, issued under the Certificate of Designation.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Preferred Stock and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable Preferred
Stock.
"Initial Purchasers" shall have the meaning set forth in the preamble
of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate liquidation preference of outstanding Registrable Preferred Stock;
PROVIDED that whenever the consent or approval of Holders of a specified
percentage of Registrable Preferred Stock is required hereunder, Registrable
Preferred Stock held by the Company or any of its affiliates (as such term is
defined in Rule 405 under the 1933 Act) (other than the Initial Purchasers or
subsequent holders of Registrable Preferred Stock if such subsequent holders are
deemed to be such affiliates solely by reason of their holding of such
Registrable Preferred Stock) shall be disregarded in determining whether such
consent or approval was given by the Holders of such required percentage or
amount.
"Original Issue Date" shall mean the date on which the Exchangeable
Preferred Stock is first issued to the Initial Purchasers under the Certificate
of Designation.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(f) of this Agreement.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"Preferred Stock" shall mean (i) the 125,000 shares of Exchangeable
Preferred Stock purchased by the Initial Purchasers pursuant to the Purchase
Agreement and (ii) shares of
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Exchangeable Preferred Stock which may be issued as dividends on the shares
of Exchangeable Preferred Stock referred to in clause (i) above in accordance
with the Certificate of Designation.
"Preferred Stock Exchange Offer" shall mean the exchange offer by the
Company of Exchange Preferred Stock for Registrable Preferred Stock pursuant to
Section 2(a) hereof.
"Preferred Stock Exchange Offer Registration" shall mean a
registration under the 1933 Act effected pursuant to Section 2(a) hereof.
"Preferred Stock Exchange Offer Registration Statement" shall mean an
exchange offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Preferred Stock Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Section 2(b)
of this Agreement which covers all of the then Registrable Preferred Stock on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Preferred Stock covered by a Preferred Stock Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
of this Agreement.
"Registrable Preferred Stock" shall mean the Preferred Stock;
PROVIDED, HOWEVER, that certain Preferred Stock shall cease to be Registrable
Preferred Stock when (i) a Registration Statement with respect to such Preferred
Stock shall have been declared effective under the 1933 Act and such Preferred
Stock shall have been disposed of pursuant to such Registration Statement, (ii)
such Preferred Stock shall have been sold to the public pursuant to Rule 144(k)
(or any similar provision then in force, but not Rule 144A) under the 1933 Act,
(iii) such Preferred Stock shall have ceased to be outstanding, (iv) such
Preferred Stock shall have been exchanged by a Person other than a Broker-Dealer
for Exchange Preferred Stock upon consummation of the Preferred Stock Exchange
Offer or (v) following the exchange by a
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Participating Broker-Dealer in the Preferred Stock Exchange Offer of
Preferred Stock for Exchange Preferred Stock, that Exchange Preferred Stock
is sold to a purchaser who receives from that Participating Broker-Dealer on
or before the date of that sale a copy of the Prospectus.
"Registration Default" shall have the meaning set forth in Section
2(e).
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state or other
securities or blue sky laws and compliance with the rules of the NASD (including
reasonable fees and disbursements of counsel for any underwriters or Holders in
connection with state or other securities or blue sky qualification of any of
the Exchange Preferred Stock or Registrable Preferred Stock), (iii) all expenses
of any Persons in preparing or assisting in preparing, word processing, printing
and distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates representing the Registrable Preferred Stock or Exchange Preferred
Stock and other documents relating to the performance of and compliance with
this Agreement, (iv) all rating agency fees, (v) all fees and expenses incurred
in connection with the listing, if any, of any of the Registrable Preferred
Stock or Exchange Preferred Stock on any securities exchange or exchanges, (vi)
the reasonable fees and disbursements of counsel for the Company and, in the
case of a Preferred Stock Shelf Registration Statement, the reasonable fees and
disbursements (including the expenses of preparing and distributing any
underwriting or securities sales agreement) of one counsel (in addition to
appropriate local counsel, if any) for the Holders (which counsel shall be
selected in writing by the Majority Holders), (vii) the fees and disbursements
of the independent public accountants of the Company, including the expenses of
any special audits or "cold comfort" letters required by or incident to such
performance and compliance, (viii) the fees and expenses of a "qualified
independent underwriter" as defined by Conduct Rule 2720 of the NASD (if
required by the NASD rules) in connection with the offering of the Registrable
Preferred Stock or Exchange Preferred Stock, (ix) the fees and expenses of the
Transfer Agent, including its counsel, and any escrow agent or custodian and (x)
any fees and disbursements of the underwriters customarily required to be paid
by issuers or sellers of securities and the reasonable fees and expenses of any
special experts retained by the Company in connection with any Registration
Statement, but excluding underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable Preferred
Stock by a Holder.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Exchange Preferred Stock or Registrable
Preferred Stock pursuant to the provisions of this Agreement, and all amendments
and supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
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"Rule 144A" means Rule 144A under the 1933 Act (or any successor
provision), as it may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Special Dividend" shall have the meaning set forth in Section 2(e).
"Transfer Agent" shall mean the transfer agent for the Preferred
Stock.
2. REGISTRATION UNDER THE 1933 ACT. (a) PREFERRED STOCK EXCHANGE
OFFER REGISTRATION. To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company at its cost shall
(A) file on or prior to the 90th calendar day following the Original Issue Date
with the SEC a Preferred Stock Exchange Offer Registration Statement covering
the offer by the Company to the Holders to exchange all of the Registrable
Preferred Stock for Exchange Preferred Stock, (B) use its best efforts to cause
such Preferred Stock Exchange Offer Registration Statement to be declared
effective by the SEC on or prior to the 120th calendar day following the
Original Issue Date, (C) use its best efforts to cause such Preferred Stock
Exchange Offer Registration Statement to remain effective until 90 calendar days
after the closing of the Preferred Stock Exchange Offer and (D) use its best
efforts to keep the Preferred Stock Exchange Offer open for not less than 30
days after, and to consummate the Preferred Stock Exchange Offer on or prior to
the 45th calendar day following (or longer if required by applicable law), the
date that the Preferred Stock Exchange Offer Registration Statement is declared
effective. Upon the effectiveness of the Preferred Stock Exchange Offer
Registration Statement, the Company shall promptly commence the Preferred Stock
Exchange Offer, it being the objective of such Preferred Stock Exchange Offer to
enable each Holder (other than Participating Broker-Dealers (as defined in
Section 3(f) hereof)), eligible and electing to exchange Registrable Preferred
Stock for Exchange Preferred Stock (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act,
acquires the Exchange Preferred Stock in the ordinary course of such Holder's
business and has no arrangements or understandings with any Person to
participate in the Preferred Stock Exchange Offer for the purpose of
distributing the Exchange Preferred Stock) to trade such Exchange Preferred
Stock from and after its receipt without any limitations or restrictions under
the 1933 Act and without material restrictions under the securities laws of a
substantial proportion of the several states of the United States.
In connection with the Preferred Stock Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Preferred Stock Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
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(ii) use the services of the Depositary for the Preferred Stock
Exchange Offer with respect to Preferred Stock evidenced by global
certificates;
(iii) permit Holders to withdraw, in whole or in part, tendered
Registrable Preferred Stock at any time prior to the close of business, New
York City time, on the last business day on which the Preferred Stock
Exchange Offer shall remain open, by sending to the institution specified
in the notice, a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Registrable
Preferred Stock delivered for exchange, and a statement that such Holder is
withdrawing, in whole or in part, his election to have such Preferred Stock
exchanged; and
(iv) otherwise comply in all respects with all applicable laws
relating to the Preferred Stock Exchange Offer.
As soon as practicable after the close of the Preferred Stock Exchange
Offer, the Company shall:
(i) accept for exchange Registrable Preferred Stock duly tendered
and not validly withdrawn pursuant to the Preferred Stock Exchange Offer
in accordance with the terms of the Preferred Stock Exchange Offer
Registration Statement and the letter of transmittal which is an exhibit
thereto;
(ii) deliver, or cause to be delivered, to the Transfer Agent for
cancellation of certificates representing all Registrable Preferred Stock
so accepted for exchange by the Company; and
(iii) cause the Transfer Agent promptly to authenticate and
deliver certificates representing Exchange Preferred Stock to each Holder
of Registrable Preferred Stock equal in amount to the Registrable Preferred
Stock of such Holder so accepted for exchange.
Dividends on Preferred Stock will accrue from the last date on
which dividends were paid on the Registrable Preferred Stock surrendered in
exchange therefor or, if no dividends have been paid on the Registrable
Preferred Stock, from the Original Issue Date. The Preferred Stock Exchange
Offer shall not be subject to any conditions, other than that the Preferred
Stock Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the Staff of the
SEC. Each Holder of Registrable Preferred Stock (other than Participating
Broker-Dealers) who wishes to exchange such Registrable Preferred Stock for
Exchange Preferred Stock in the Preferred Stock Exchange Offer shall have
represented that (i) any Exchange Preferred Stock to be received by it was
acquired in the ordinary course of business, (ii) at the time of the
commencement of the Preferred Stock Exchange Offer it has no arrangement with
any Person to participate in the distribution (within
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the meaning of the 1933 Act) of the Exchange Preferred Stock,(iii) it is not
an affiliate (as defined in Rule 405 under the 1933 Act) of the Company, or
if it is an affiliate it will comply with the registration and prospectus
delivery requirements of the 1933 Act to the extent applicable and (iv) it is
not acting on behalf of any Person who could not make the representations in
clauses (i) through (iii) above. The Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Preferred
Stock Exchange Offer is made, and the Initial Purchasers shall have the right
to contact such Holders and otherwise facilitate the tender of Registrable
Preferred Stock in the Preferred Stock Exchange Offer.
(b) SHELF REGISTRATION. (i) If, because of any change in law or
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Preferred Stock Exchange Offer as contemplated by
section 2(a) hereof, or (ii)if for any other reason the Preferred Stock Exchange
Offer cannot be consummated within 210 days following the Original Issue Date,
or (iii) if any Holder (other than an Initial Purchaser) is not eligible to
participate in the Preferred Stock Exchange Offer or (iv) upon the request of
any Initial Purchaser (with respect to any Registrable Preferred Stock which it
acquired directly from the Company) following the consummation of the Preferred
Stock Exchange Offer, if any such Initial Purchaser shall hold Registrable
Preferred Stock which it acquired directly from the Company and if such Initial
Purchaser is not permitted, in the reasonable opinion of counsel to such Initial
Purchaser, pursuant to applicable law or applicable interpretation of the Staff
of the SEC to participate in the Preferred Stock Exchange Offer, the Company
shall, at its cost:
(A) as promptly as practicable, and in any event within 90 days after
the date on which such filing obligation arises, file with the SEC a
Preferred Stock Shelf Registration Statement relating to the offer and sale
of the then outstanding Registrable Preferred Stock by the Holders from
time to time in accordance with the methods of distribution elected by the
Majority Holders of such Registrable Preferred Stock and set forth in such
Preferred Stock Shelf Registration Statement, and use its best efforts to
cause such Preferred Stock Shelf Registration Statement to be declared
effective by the SEC on or prior to the 150th calendar day following the
Original Issue Date (or promptly in the event of a request by any Initial
Purchaser pursuant to clause (iv) above). In the event that the Company is
required to file a Preferred Stock Shelf Registration Statement upon the
request of any Holder (other than an Initial Purchaser) not eligible to
participate in the Preferred Stock Exchange Offer pursuant to clause (iii)
above or upon the request of any Initial Purchaser pursuant to clause (iv)
above, the Company shall file and have declared effective by the SEC both a
Preferred Stock Exchange Offer Registration Statement pursuant to Section
2(a) with respect to all Registrable Preferred Stock and a Preferred Stock
Shelf Registration Statement (which may be a combined Registration
Statement with the Preferred Stock Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Preferred Stock held by
such Holder or such Initial Purchaser after completion of the Preferred
Stock Exchange Offer; PROVIDED, that with respect to Exchange Preferred
Stock received by an Initial Purchaser in exchange for any
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portion of an unsold allotment of Preferred Stock, the Company may, if
permitted by current interpretations of the staff of the SEC, file a
post-effective amendment to the Preferred Stock Exchange Offer
Registration Statement containing the information required by Regulation
S-K Items 507 and/or 508, as applicable, in satisfaction of its
obligations under Section 2(b) with respect thereto, and any such
Preferred Stock Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and be governed by (for so long as such
interpretation of the SEC shall continue to be effective) the provisions
herein applicable to, a Preferred Stock Shelf Registration Statement.
(B) use its best efforts to keep the Preferred Stock Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming a part thereof to be usable by Holders for a period of
two years from the date the Preferred Stock Shelf Registration Statement is
declared effective by the SEC (or one year from the date the Preferred
Stock Shelf Registration Statement is declared effective if such Preferred
Stock Shelf Registration Statement is filed upon the request of any Initial
Purchaser pursuant to clause (iv) above) or such shorter period which will
terminate when (i) all of the Registrable Preferred Stock covered by the
Preferred Stock Shelf Registration Statement has been sold pursuant to the
Preferred Stock Shelf Registration Statement, (ii) the date on which all of
the Registrable Preferred Stock becomes eligible for resale pursuant to
Rule 144 under the 1933 Act without volume restrictions or (iii) the date
on which there ceases to be any outstanding Registrable Preferred Stock;
and
(C) notwithstanding any other provisions hereof, use its best efforts
to ensure that (i) any Preferred Stock Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder,(ii) any Preferred Stock Shelf
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming a part
of any Preferred Stock Shelf Registration Statement, and any supplement to
such Prospectus (as amended or supplemented from time to time), does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Preferred Stock Shelf Registration Statement if reasonably requested by the
Majority Holders with respect to information relating to the Holders and
otherwise as required by Section 3(b) below, to use all reasonable efforts to
cause any such amendment to become effective and such Shelf Registration to
become usable as soon as practicable thereafter and to furnish to the Holders of
Registrable Preferred Stock copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
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(c) EXPENSES. The Company shall be liable for and pay all
Registration Expenses in connection with the registration pursuant to Section
2(a) and 2(b). Each Holder shall pay all expenses of its counsel other than as
set forth in the preceding sentence, underwriting discounts and commissions
(prior to the reduction thereof with respect to selling concessions, if any) and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Preferred Stock pursuant to the Preferred Stock Shelf Registration
Statement.
(d) EFFECTIVE REGISTRATION STATEMENT.
(i) The Company will be deemed not to have used its best efforts to
cause the Preferred Stock Exchange Offer Registration Statement or the
Preferred Stock Shelf Registration Statement, as the case may be, to
become, or to remain, effective during the requisite period if the Company
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Registrable
Preferred Stock covered thereby not being able to exchange or offer and
sell such Registrable Preferred Stock during that period unless (A) such
action is required by applicable law or (B) such action is taken by the
Company in good faith and for valid business reasons (but not including
avoidance of the Company's obligations hereunder), including a material
corporate transaction, so long as the Company promptly complies with the
requirements of Section 3(k) hereof, if applicable.
(ii) A Preferred Stock Exchange Offer Registration Statement pursuant
to Section 2(a) hereof or a Preferred Stock Shelf Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become effective
unless it has been declared effective by the SEC; PROVIDED, HOWEVER, that
if, after it has been declared effective, the offering of Registrable
Preferred Stock pursuant to a Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Registration Statement will be
deemed not to have been effective during the period of such interference,
until the offering of Registrable Preferred Stock pursuant to such
Registration Statement may legally resume.
(e) INCREASE IN DIVIDEND RATE. In the event that (i) the Preferred
Stock Exchange Offer Registration Statement is not filed with the SEC on or
prior to the 90th day following the Original Issue Date,(ii) the Preferred Stock
Exchange Offer Registration Statement (or, if applicable, the Preferred Stock
Shelf Registration Statement) has not become effective within 120 days following
the Original Issue Date, (iii) the expiration of the Preferred Stock Exchange
Offer has not occurred within 45 days after the effective date of the Preferred
Stock Exchange Offer Registration Statement or (iv) any Registration Statement
required by this Agreement is filed and declared effective but shall thereafter
cease to be effective (except as specifically permitted herein) without being
succeeded immediately by an additional Registration Statement filed and declared
effective (any such event referred to in clauses (i) through (iv) above, a
"Registration Default;" PROVIDED that no more than one Registration Default
shall be deemed in effect at any one time), the dividend rate borne by the
Preferred Stock shall be
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<PAGE>
increased by one-half of one percent (0.5%) per annum for the period from the
occurrence of the Registration Default until such time as no Registration
Default is in effect, PROVIDED, that if a different event specified in clause
(i), (ii), (iii) or (iv) above occurs the dividend rate will again be
increased as pursuant to the foregoing provisions. Such additional dividend
(the "Special Dividend") shall be payable in cash (or in kind to the extent
dividends are payable in kind pursuant to Section 3(a) of the Certificate of
Designation) quarterly in arrears on each February 15, May 15, August 15 and
November 15. For each 90-day period that the Registration Default continues,
the per annum rate of such Special Dividend shall increase by an additional
one-half of one percent (0.5%), PROVIDED that such rate shall in no event
exceed two percent (2.0%) per annum in the aggregate. If the Company issues
a notice that the Preferred Stock Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction or otherwise
pursuant to Section 3(k) hereof, or such a notice is required under
applicable securities laws to be issued by the Company, and the aggregate
number of days in any consecutive twelve-month period for which all such
notices are issued or required to be issued exceeds 30 days in the aggregate,
then the dividend rate borne by the Preferred Stock will be increased by
one-half of one percent per annum following the date that such Preferred
Stock Shelf Registration Statement ceases to be usable beyond the 30-day
period permitted above, which rate shall be increased by an additional
one-half of one percent per annum for each additional 90-day period that such
Preferred Stock Shelf Registration Statement continues to be unusable;
PROVIDED that the aggregate increase in such annual dividend rate may in no
event exceed two percent (2.0%). Upon the Company declaring that the
Preferred Stock Shelf Registration Statement is usable after the dividend
rate has been increased pursuant to the preceding sentence, the dividend rate
borne by the Preferred Stock will be reduced to the original dividend rate if
the Company is otherwise in compliance with this paragraph; PROVIDED,
HOWEVER, that if after any such reduction in dividend rate the Preferred
Stock Shelf Registration Statement again ceases to be usable beyond the
period permitted above, the dividend rate will again be increased and
thereafter reduced pursuant to the foregoing provisions.
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its respective obligations under Sections
2(a) and 2(b) hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Sections 2(a) and 2(b) hereof.
3. REGISTRATION PROCEDURES. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be
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selected by the Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Preferred Stock by the selling
Holders thereof and (iii) shall comply as to form in all material respects
with the requirements of the applicable form and include or incorporate by
reference all financial statements required by the SEC to be filed therewith,
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to (i) the Preferred Stock Exchange Offer
Registration Statement as may be necessary under applicable law to keep such
Preferred Stock Exchange Offer Registration Statement effective for the
period required to comply with Section 2(a) and (ii) the Preferred Stock
Shelf Registration Statement as may be necessary under applicable law to keep
such Preferred Stock Shelf Registration Statement effective for the period
required pursuant to Section 2(b) hereof; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the 1933 Act; and comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by each Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the selling
Holders thereof;
(c) in the case of a Shelf Registration,(i) notify each Holder of
Registrable Preferred Stock, at least ten days prior to filing, that a
Preferred Stock Registration Statement (or amendment thereto) with respect to
the Registrable Preferred Stock is being filed and advising such Holders that
the distribution of Registrable Preferred Stock will be made in accordance
with the method elected by the Majority Holders; and (ii) furnish to each
Holder of Registrable Preferred Stock, to counsel for the Initial Purchasers,
to counsel for the Holders and to each underwriter of an underwritten
offering of Registrable Preferred Stock, if any, without charge, as many
copies of each Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as such Holder,
counsel or underwriter may reasonably request, including financial statements
and schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Preferred Stock; and (iii) subject to the last
paragraph of Section 3, hereby consent to the use of the Prospectus,
including each preliminary Prospectus, or any amendment or supplement
thereto, by each of the selling Holders of Registrable Preferred Stock in
connection with the offering and sale of the Registrable Preferred Stock
covered by the Prospectus, or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Preferred Stock under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Preferred Stock covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Preferred Stock shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with the Holders in connection with any filings required to be made
with the NASD, to keep each such registration or qualification effective
during the period such Registration Statement is required to be effective
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<PAGE>
and to do any and all other acts and things that may be reasonably necessary
or advisable to enable such Holders to consummate the disposition in each
such jurisdiction of such Registrable Preferred Stock owned by such Holders;
PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d) or
(ii) take any action which would subject it to general service of process or
taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Preferred Stock and counsel for the Initial Purchasers promptly
and, if requested by such Holder or counsel, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii) of
any request by the SEC or any state securities authority for post-effective
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Preferred Stock covered thereby, the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to such offering
cease to be true and correct in all material respects, (v) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Preferred Stock for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, (vi) of
the happening of any event or the discovery of any facts during the period a
Preferred Stock Shelf Registration Statement is effective which makes any
statement made in such Preferred Stock Shelf Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Preferred Stock Shelf Registration Statement or
Prospectus in order to make the statements therein not misleading and
(vii) of any determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) (A) in the case of the Preferred Stock Exchange Offer,
(i) include in the Preferred Stock Exchange Offer Registration Statement a
"Plan of Distribution" section covering the use of the Prospectus included in
the Preferred Stock Exchange Offer Registration Statement by broker-dealers
who have exchanged their Registrable Preferred Stock for Exchange Preferred
Stock for the resale of such Exchange Preferred Stock, (ii) furnish to each
broker-dealer who desires to participate in the Preferred Stock Exchange
Offer, without charge, as many copies of each Prospectus included in the
Preferred Stock Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (iii) include in the Preferred Stock
Exchange Offer Registration Statement a statement that any broker-dealer who
holds Registrable Preferred Stock acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer"), and who receives Exchange Preferred Stock for Registrable
Preferred Stock
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<PAGE>
pursuant to the Preferred Stock Exchange Offer, may be a statutory
underwriter and must deliver a prospectus meeting the requirements of the
1933 Act in connection with any resale of such Exchange Preferred Stock,
(iv) subject to the last paragraph of Section 3, hereby consent to the use of
the Prospectus forming part of the Preferred Stock Exchange Offer
Registration Statement or any amendment or supplement thereto, by any
broker-dealer in connection with the sale or transfer of the Exchange
Preferred Stock covered by the Prospectus or any amendment or supplement
thereto in accordance with the 1933 Act, and (v) include in the transmittal
letter or similar documentation to be executed by an exchange offeree in
order to participate in the Preferred Stock Exchange Offer (x) the following
provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Preferred Stock. If the
undersigned is a broker-dealer that will receive Exchange
Preferred Stock for its own account in exchange for Registrable
Preferred Stock, it represents that the Registrable Preferred
Stock to be exchanged for Exchange Preferred Stock was acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Preferred Stock pursuant to the Preferred
Stock Exchange Offer; PROVIDED, HOWEVER, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the 1933
Act";
and (y) a statement to the effect that by making the acknowledgment described
in subclause (x) and by delivering a Prospectus in connection with the
exchange of Registrable Preferred Stock, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates
in the Preferred Stock Exchange Offer, the Company shall use its best
efforts to cause to be delivered at the request of an entity
representing the Participating Broker-Dealers (which entity shall be
TD Securities (USA) Inc., unless it elects not to act as such
representative) only one, if any, "cold comfort" letter with respect
to the Prospectus in the form existing on the last date for which
exchanges are accepted pursuant to the Preferred Stock Exchange Offer
and with respect to each subsequent amendment or supplement, if any,
effected during the period specified in clause (C) below;
(C) to the extent any Participating Broker-Dealer participates
in the Preferred Stock Exchange Offer, the Company shall use its best
efforts to maintain the effectiveness of the Preferred Stock Exchange
Offer Registration
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<PAGE>
Statement for a period of 90 days following the closing of the
Preferred Stock Exchange Offer; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Preferred Stock Exchange Offer
Registration Statement as would otherwise be contemplated by
Section 3(b), or take any other action as a result of this
Section 3(f), for a period exceeding 120 days after the last date for
which exchanges are accepted pursuant to the Preferred Stock Exchange
Offer (as such period may be extended by the Company) and
Participating Broker-Dealers shall not be authorized by the Company
to, and shall not, deliver such Prospectus after such period in
connection with resales contemplated by this Section 3;
(g) (A) in the case of a Preferred Stock Exchange Offer, furnish
counsel for the Initial Purchasers and (B) in the case of a Shelf
Registration, furnish counsel for the Holders of Registrable Preferred Stock
copies of any request by the SEC or any state securities authority for
amendments or supplements to a Registration Statement and Prospectus or for
additional information;
(h) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal of
any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Preferred Stock, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Preferred Stock to facilitate the timely
preparation and delivery of certificates representing Registrable Preferred
Stock to be sold and not bearing any restrictive legends; and cause such
Registrable Preferred Stock to be in such denominations (consistent with the
provisions of the Certificate of Designation) and registered in such names as
the selling Holders or the underwriters, if any, may reasonably request at
least two business days prior to the closing of any sale of Registrable
Preferred Stock;
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by
Section 3(e)(vi) hereof, use best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Preferred Stock, such Prospectus will not contain at the time
of such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
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<PAGE>
circumstances under which they were made, not misleading. The Company agrees
to notify each Holder to suspend use of the Prospectus as promptly as
practicable after the occurrence of such an event, and each Holder hereby
agrees to suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission. At
such time as such public disclosure is otherwise made or the Company
determines that such disclosure is not necessary, in each case to correct any
misstatement of a material fact or to include any omitted material fact, the
Company agrees promptly to notify each Holder of such determination and to
furnish each Holder such numbers of copies of the Prospectus, as amended or
supplemented, as such Holder may reasonably request;
(l) obtain a CUSIP number for all Exchange Preferred Stock, or
Registrable Preferred Stock, as the case may be, not later than the effective
date of a Registration Statement, and provide the Transfer Agent with printed
certificates for the Exchange Preferred Stock or the Registrable Preferred
Stock, as the case may be, in a form eligible for deposit with the Depositary;
(m) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Preferred Stock and in such connection whether or not an
underwriting agreement is entered into and whether or not the registration is
an underwritten registration:
(i) make such representations and warranties to the Holders of such
Registrable Preferred Stock and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
similar underwritten offerings as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Registrable Preferred
Stock being sold) addressed to each selling Holder and the underwriters, if
any, covering the matters customarily covered in opinions requested in
sales of securities or underwritten offerings and such other matters as may
be reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, and use best efforts to have such letters addressed
to the selling Holders of Registrable Preferred Stock, such letters to be
in customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with similar
underwritten offerings;
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<PAGE>
(iv) enter into a securities sales agreement with all of the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Preferred Stock, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same to
set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth in
Section 5 hereof with respect to the underwriters and all other parties to
be indemnified pursuant to said Section; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings.
The above actions shall be done at (i) the effectiveness of such Preferred Stock
Shelf Registration Statement (and, if appropriate, each post-effective amendment
thereto) and (ii) each closing under any underwriting or similar agreement as
and to the extent required thereunder. In the case of any underwritten
offering, the Company shall provide written notice to the Holders of all
Registrable Preferred Stock of such underwritten offering at least 30 days prior
to the filing of a prospectus supplement for such underwritten offering. Such
notice shall (x) offer each such Holder the right to participate in such
underwritten offering, (y) specify a date, which shall be no earlier than 10
days following the date of such notice, by which such Holder must inform the
Company of its intent to participate in such underwritten offering and (z)
include the instructions such Holder must follow in order to participate in such
underwritten offering;
(n) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Preferred Stock
and any underwriters participating in any disposition pursuant to a Preferred
Stock Shelf Registration Statement and any counsel or accountant retained by
such Holders or underwriters, during business hours, all financial and other
records, pertinent corporate documents and properties of the Company reasonably
requested upon reasonable notice by any such Persons, and cause the respective
officers, directors, employees, and any other agents of the Company to supply
all information reasonably requested by any such representative, underwriter,
special counsel or accountant in connection with such Preferred Stock Shelf
Registration Statement; PROVIDED, HOWEVER, that such Persons shall first agree
in writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by such Persons, unless
(i) disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities,(ii)
disclosure of such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with the filing
of such Preferred Stock Shelf Registration Statement or the use of any
Prospectus),(iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard such information
by such Person or (iv) such information becomes available to such Person from a
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source other than the Company and its subsidiaries and such source is not bound
by a confidentiality agreement;
(o) (i)in the case of an Exchange Offer, a reasonable time prior to
the filing of any Preferred Stock Exchange Offer Registration Statement, any
Prospectus forming a part thereof, any amendment to a Preferred Stock Exchange
Offer Registration Statement or amendment or supplement to a Prospectus, provide
copies of such document to the Initial Purchasers, and make such changes in any
such document prior to the filing thereof as any of the Initial Purchasers or
their counsel may reasonably request; (ii) in the case of a Shelf Registration,
a reasonable time prior to filing any Preferred Stock Shelf Registration
Statement, any Prospectus forming a part thereof, any amendment to such
Preferred Stock Shelf Registration Statement or amendment or supplement to such
Prospectus, provide copies of such document to the Holders of Registrable
Preferred Stock, to the Initial Purchasers, to counsel on behalf of the Holders
and to the underwriter or underwriters of an underwritten offering of
Registrable Preferred Stock, if any, and make such changes in any such document
prior to the filing thereof as the Holders of Registrable Preferred Stock, the
Initial Purchasers on behalf of such Holders, their counsel and any underwriter
may reasonably request; and (iii) cause the representatives of the Company to be
available for discussion of such document as shall be reasonably requested by
the Holders of Registrable Preferred Stock, the Initial Purchasers on behalf of
such Holders or any underwriter and shall not at any time make any filing of any
such document of which such Holders, the Initial Purchasers on behalf of such
Holders, their counsel or any underwriter shall not have previously been advised
and furnished a copy or to which such Holders, the Initial Purchasers on behalf
of such Holders, their counsel or any underwriter shall reasonably object, each
of which actions in this clause (iii) by the Holders shall be coordinated by one
representative for all the Holders at reasonable times and in a reasonable
manner;
(p) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Preferred Stock to be listed on any securities exchange on
which similar securities issued by the Company are then listed if requested by
the Majority Holders or by the underwriter or underwriters of an underwritten
offering of Registrable Preferred Stock, if any;
(q) in the case of a Shelf Registration, unless the rating in effect
for the Preferred Stock applies to the Exchange Preferred Stock and the
Preferred Stock to be sold pursuant to a Shelf Registration, use its best
efforts to cause the Registrable Preferred Stock to be rated with the
appropriate rating agencies, if so requested by the Majority Holders or by the
underwriter or underwriters of an underwritten offering of Registrable Preferred
Stock, if any, unless the Registrable Preferred Stock is already so rated;
(r) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933 Act and
Rule 158 thereunder; and
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<PAGE>
(s) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Preferred Stock Shelf Registration Statement, the
Company may (as a condition to such Holder's participation in the Shelf
Registration) require each Holder of Registrable Preferred Stock to furnish to
the Company such information regarding such Holder and the proposed distribution
by such Holder of such Registrable Preferred Stock and make such
representations, in each case, as the Company may from time to time reasonably
request in writing.
In the case of a Preferred Stock Shelf Registration Statement, each
Holder agrees that, upon receipt of any notice from the Company of the happening
of any event or the discovery of any facts, each of the kind described in
Section 3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue
disposition of Registrable Preferred Stock pursuant to a Registration Statement
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(k) hereof, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies in its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Preferred Stock current
at the time of receipt of such notice. If the Company shall give any such
notice to suspend the disposition of Registrable Preferred Stock pursuant to a
Preferred Stock Shelf Registration Statement as a result of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(vi) hereof, the Company shall be deemed to have used its best efforts to
keep the Preferred Stock Shelf Registration Statement effective during such
period of suspension, PROVIDED, that the Company shall use its best efforts to
file and have declared effective (if an amendment) as soon as practicable an
amendment or supplement to the Preferred Stock Shelf Registration Statement and
shall extend the period during which the Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during the
period from and including the date of the giving of such notice to and including
the date when the Holders shall have received copies of the supplemented or
amended Prospectus necessary to resume such dispositions or written notice from
the Company that the use of the Prospectus may be resumed.
4. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Preferred
Stock covered by any Shelf Registration is to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Majority Holders of such
Registrable Preferred Stock included in such offering and shall be reasonably
acceptable to the Company.
No Holder of Registrable Preferred Stock may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Preferred Stock on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires,
18
<PAGE>
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall indemnify
and hold harmless each Holder, including the Initial Purchaser and Participating
Broker-Dealers, each underwriter who participates in an offering of Registrable
Preferred Stock, their respective affiliates, and their respective directors,
officers, employees and agents, and each Person, if any, who controls any such
parties within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendments or supplements thereto) pursuant to which
Exchange Preferred Stock or Registrable Preferred Stock was registered
under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendments
or supplements thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED that (subject to Section
5(c) below) any such settlement is effected with the consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by an
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
court or governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 5(a);
PROVIDED, HOWEVER, that (i) this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, any Holder, including Participating Broker-Dealers, or any
underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any
19
<PAGE>
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) and (ii) the Company shall not be liable to any indemnified party
under this indemnity agreement with respect to the Registration Statement or
Prospectus to the extent that any such loss, claim, damage or liability of
such indemnified party results solely from an untrue statement of a material
fact contained in, or the omission of a material fact from, the Registration
Statement or Prospectus which untrue statement or omission was corrected in
an amended or supplemented Registration Statement or Prospectus, if the
person alleging such loss, claim, damage or liability was not sent or given,
at or prior to the written confirmation of such sale, a copy of the amended
or supplemented Registration Statement or Prospectus if the Company had
previously furnished copies thereof to such indemnified party and if delivery
of a prospectus is required by the 1933 Act and was not so made. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Initial Purchasers, each underwriter who participates in an offering of
Registrable Preferred Stock and the other selling Holders and each of their
respective directors and officers (including each officer of the Company who
signed the Registration Statement) and each Person, if any, who controls the
Company, each Initial Purchaser, any underwriter or any other selling Holder,
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all losses, liabilities, claims, damages and expenses described
in the indemnity contained in Section 5(a) hereof, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Holder, as
the case may be, expressly for use in the Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Preferred Stock pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice in writing as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel, in addition to any local counsel, for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to
20
<PAGE>
the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 5 (whether or not the
indemnified parties are actual or potential parties thereof), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Initial Purchaser and the Holders, from
the offering of the Exchange Preferred Stock or Registrable Preferred Stock
included in such offering or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, the Initial Purchasers, and the Holders, in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, the Initial
Purchasers, and the Holders shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company, the Initial Purchasers or the Holders and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Initial Purchasers and the
Holders of the Registrable Preferred Stock agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity, and the
Holders were treated as one entity, for such purpose) or by another method of
allocation which does not take account of the equitable considerations referred
to above in this Section 5. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 5 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in
21
<PAGE>
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 (f) of the
1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as such Initial Purchaser or Holder, and
each director of the Company and each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company. The parties
hereto agree that any underwriting discount or commission or reimbursement of
fees paid to any Initial Purchaser pursuant to the Purchase Agreement shall
not be deemed to be a benefit received by any Initial Purchaser in connection
with the offering of the Exchange Preferred Stock or Registrable Preferred
Stock in such offering.
6. MISCELLANEOUS. (a) RULE 144 AND RULE 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Preferred Stock
(i) make publicly available such information as is necessary to permit sales
pursuant to Rule 144 under the 1933 Act,(ii) deliver such information to a
prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the 1933 Act and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Preferred Stock without registration under
the 1933 Act within the limitation of the exemptions provided by (x) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, (y) Rule 144A
under the 1933 Act, as such Rule may be amended from time to time, or (z) any
similar rules or regulations hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Preferred Stock, the Company will deliver to such
Holder a written statement as to whether it has complied with such requirements.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered into nor
will the Company, on or after the date of this Agreement, enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Preferred Stock in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any such
agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has
22
<PAGE>
obtained the written consent of Holders of at least a majority in aggregate
principal amount of the outstanding Registrable Preferred Stock affected by
such amendment, modification, supplement, waiver or departure; PROVIDED,
HOWEVER, that no amendment, modification, supplement or waiver or consent to
any departure from the provisions of Section 5 hereof shall be effective as
against any Holder of Registrable Preferred Stock unless consented to in
writing by such Holder.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile transmission, or any courier guaranteeing
overnight delivery (i) if to a Holder (other than an Initial Purchaser), at
the most current address set forth on the records of the Transfer Agent,
(ii)if to an Initial Purchaser, at the most current address given by such
Initial Purchaser to the Company by means of a notice given in accordance
with the provisions of this Section 6(d), which address initially is the
address set forth in the Purchase Agreement; and (iii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if faxed; and on the next business day if timely delivered to
an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Transfer Agent at
the address specified by the Transfer Agent from time to time in writing.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Preferred
Stock in violation of the terms hereof or of the Purchase Agreement or the
Certificate of Designation. If any transferee of any Holder shall acquire
Registrable Preferred Stock, in any manner, whether by operation of law or
otherwise, such Registrable Preferred Stock shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Preferred
Stock, such Person shall be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement, including the
restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder.
23
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts and in separate counterparts and, when this Agreement has been
executed by each party in multiple or separate counterparts, all such
counterparts taken together shall constitute one and the same agreement.
(h) EFFECT OF HEADINGS. The Section and other headings herein are
for convenience only and shall not affect the construction hereof.
(i) GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO ITS CONFLICTS OF LAW PROVISIONS). SPECIFIED TIMES OF DAY REFER TO NEW
YORK CITY TIME.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
RURAL CELLULAR CORPORATION
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
TD SECURITIES (USA) INC.
By:
------------------------------------
Authorized Signatory
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
-------------------------------------
Authorized Signatory
BANCBOSTON SECURITIES INC.
By:
-------------------------------------
Authorized Signatory
<PAGE>
Exhibit 5.1
Law Offices
MOSS & BARNETT
A Professional Association
4800 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4129
Telephone (612) 347-0300
Facsimile (612) 339-6686
June 25, 1998
Board of Directors
Rural Cellular Corporation
3905 Dakota Street SW
Alexandria, MN 56308
Gentlemen:
This opinion is rendered in connection with the filing by Rural Cellular
Corporation (the "Company"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, of a Registration Statement on
Form S-4 (the "Registration Statement") with respect to the issuance by the
Company of $125,000,000 of its 9-5/8% Series B Senior Subordinated Notes Due
2008 (the "New Notes") and 125,000 shares of its 11-3/8% Series B
Exchangeable Preferred Stock (the "New Exchangeable Preferred Stock") in
exchange for the Company's $125,000,000 9-5/8% Series A Senior Subordinated
Notes Due 2008 (the "Old Notes") and 125,000 shares of its 11-3/8% Series A
Exchangeable Preferred Stock (the "Old Exchangeable Preferred Stock"),
respectively. The Old Notes and the New Notes are issued under an Indenture
(the "Indenture") between the Company and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee"). The shares of Old Exchangeable
Preferred Stock and New Exchangeable Preferred Stock are issued pursuant to a
Certificate of Designation filed with the Secretary of State of Minnesota.
We have examined the originals or copies, certified to our satisfaction,
of such corporate instruments and certificates of public officials and
officers and representatives of the Company, and have made such examination
of law, as we have deemed relevant and necessary as a basis for the opinions
hereafter set forth. In such examination, we have assumed the genuineness of
all signatures and the authenticity and conformity to original documents
submitted to us as certified or photocopies.
Based upon the foregoing and subject to the qualifications noted below,
we are of the opinion that:
<PAGE>
Board of Directors
June 25, 1998
Page 2
(1) The Indenture has been duly authorized by the Company and constitutes
a valid and legally binding instrument enforceable against the
Company in accordance with its terms.
(2) The Old Notes and the New Notes have been duly authorized by the
Company and, upon their execution and delivery by the Company and
authentication by the Trustee under the Indenture, will constitute
valid and legally binding obligations of the Company entitled to the
benefits of the Indenture.
(3) The shares of Old Exchangeable Preferred Stock and the New
Exchangeable Preferred Stock have been duly authorized and, upon
issuance against payment therefor, will be validly issued and
nonassessable.
The foregoing opinion with respect to the enforceability and valid and
legally binding nature of the Indenture, the Old Notes and the New Notes is
subject to bankruptcy, insolvency, reorganization, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors'
rights and to general equity principles. Further, this opinion is based upon
an examination of the Federal laws of the United States and the laws of the
state of Minnesota and no opinion is expressed as to the application of the
laws of any other jurisdiction.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus included
therein.
Very truly yours,
MOSS & BARNETT
A Professional Association
Deanne M. Greco
DMG/laa
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of
the 4th day of August, 1997 (the "Amendment Date"), by and among RURAL
CELLULAR CORPORATION, a Minnesota corporation (the "Borrower"); THE
TORONTO-DOMINION BANK, BANKBOSTON, N.A., ST. PAUL BANK FOR COOPERATIVES,
COBANK, FLEET NATIONAL BANK, SOCIETE GENERALE, NEW YORK BRANCH and MERITA BANK
LTD NEW YORK BRANCH (together with their successors, assigns and any
subsequent holder, the "Banks"); BANKBOSTON, N.A. AND ST. PAUL BANK FOR
COOPERATIVES, as co-agents (the "Co-Agents"); and TORONTO DOMINION (TEXAS),
INC., as administrative agent (the "Administrative Agent") for the Banks;
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and the
Banks are parties to that certain Loan Agreement dated as of May 1, 1997 (as
hereafter amended, modified, supplemented and restated from time to time, the
"Loan Agreement"); and
WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and the
Banks have agreed to amend certain provisions of the Loan Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree that all capitalized terms used herein shall have
the meanings ascribed thereto in the Loan Agreement, and further agree as
follows:
1. AMENDMENT TO ARTICLE 7. Section 7.8 of the Loan Agreement,
LEVERAGE RATIO, is hereby amended by deleting the table at the end of such
Section in its entirety and by substituting the following table in lieu
thereof:
<PAGE>
<TABLE>
<CAPTION>
"PERIOD RATIO
------- -----
<S> <C>
Agreement Date through 7.25:1
June 30, 1997
July 1, 1997 through 6.50:1
March 31, 1998
April 1, 1998 through 6.00:1
December 31, 1998
January 1, 1999 through 5.00:1
December 1, 1999
January 1, 2000 and thereafter 4.50:1"
</TABLE>
2. AMENDMENT TO LOAN DOCUMENTS. All of the Loan Documents are hereby
amended to the extent necessary to give full force and effect to the
amendment contained in this Amendment.
3. NO OTHER AMENDMENT OR WAIVER. Except for the amendment set forth
above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect. No waiver by the
Administrative Agent, the Co-Agents or the Banks under the Loan Agreement or
any other Loan Document is granted or intended except as expressly set forth
herein, and the Administrative Agent, the Co-Agents and the Banks expressly
reserve the right to require strict compliance in all other respects (whether
or not in connection with any Requests for Advance). Except as set forth
herein, the amendment agreed to herein shall not constitute a modification of
the Loan Agreement or any of the other Loan Documents, or a course of dealing
with the Administrative Agent, the Co-Agents and the Banks at variance with
the Loan Agreement or any of the other Loan Documents, such as to require
further notice by the Administrative Agent, the Co-Agents and the Banks, or
the Majority Banks to require strict compliance with the terms of the Loan
Agreement and the other Loan Documents in the future.
4. LOAN DOCUMENTS. This document shall be deemed to be a Loan
Document for all purposes under the Loan Agreement and the other Loan
Documents.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.
-2-
<PAGE>
6. GOVERNING LAW. This Amendment shall be construed in accordance
with and governed by the laws of the State of New York.
7. SEVERABILITY. Any provision of this Amendment which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of
such provision in any other jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: RURAL CELLULAR CORPORATION, a Minnesota
corporation
By: /s/ RICHARD EKSTRAND
--------------------------------------------
Its: CEO
----------------------------------------
Attest: /s/ WESLEY E. SCHULTZ
-----------------------------------------
Its: CFO
----------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By: /s/ KIMBERLY BURLESON
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
CO-AGENTS AND BANKS: BANKBOSTON, N.A., as a Co-Agent and a Bank
By: /s/ SHEPARD D. RAINIE
--------------------------------------------
Its: DIRECTOR
----------------------------------------
ST. PAUL BANK FOR COOPERATIVES, as a Co-Agent
and a Bank
By: /s/ MARVIN L. LINDO
--------------------------------------------
Its: SENIOR VICE PRESIDENT
----------------------------------------
THE TORONTO-DOMINION BANK, as a Bank
By: /s/ KIMBERLY BURLESON
--------------------------------------------
Its: MGR CR ADMIN
----------------------------------------
RURAL CELLULAR CORPORATION
FIRST AMENDMENT TO LOAN AGREEMENT
Signature Page 1
<PAGE>
COBANK, as a Bank
By:
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
FLEET NATIONAL BANK, as a Bank
By: /s/ CHRISTOPHER J. SWINDELL
--------------------------------------------
Its: VP
----------------------------------------
FIRST NATIONAL BANK OF MARYLAND, as a Bank
By: /s/ W. BLAKE HAMPSON
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
SOCIETE GENERALE, NEW YORK BRANCH, as a Bank
By: /s/ JOHN SADIK-KHAN
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
MERITA BANK LTD NEW YORK BRANCH, as a Bank
By:
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
By: /s/ CHARLES J,. LANSDOWN
--------------------------------------------
Its: VICE PRESIDENT
----------------------------------------
RURAL CELLULAR CORPORATION
FIRST AMENDMENT TO LOAN AGREEMENT
Signature Page 2
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of
the 17th day of April, 1998 (the "AMENDMENT DATE"), by and among RURAL
CELLULAR CORPORATION, a Minnesota corporation (the "BORROWER"); THE
TORONTO-DOMINION BANK, BANKBOSTON, N.A., ST. PAUL BANK FOR COOPERATIVES,
COBANK, FLEET NATIONAL BANK, FIRST NATIONAL BANK OF MARYLAND, SOCIETE
GENERALE, NEW YORK BRANCH and MERITA BANK LTD NEW YORK BRANCH (the "BANKS");
BANKBOSTON, N.A. AND ST. PAUL BANK FOR COOPERATIVES, as co-agents (the
"CO-AGENTS"); and TORONTO DOMINION (TEXAS), INC., as administrative agent
(the "ADMINISTRATIVE AGENT") for the Banks;
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and the
Banks are parties to that certain Loan Agreement, dated as of May 1, 1997, as
amended by that certain First Amendment to Loan Agreement, dated as of August 4,
1997, and that certain Second Amendment to Loan Agreement, dated as of
December 30, 1997 (as hereafter further amended, modified, supplemented and
restated from time to time, the "LOAN AGREEMENT"); and
WHEREAS, the Borrower has requested that the Banks permit the Borrower to
incur up to $150,000,000 of paid-in-kind preferred equity (the "PIK EQUITY")
and up to $200,000,000 of subordinated Indebtedness (the "SUB DEBT"); and
WHEREAS, the Administrative Agent, the Co-Agents and the Banks have
agreed to permit the Borrower to incur such additional Indebtedness on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree that all capitalized terms used herein shall have
the meanings ascribed thereto in the Loan Agreement, and further agree as
follows:
1. AMENDMENT TO SECTION 7.1. Section 7.1 of the Loan Agreement,
INDEBTEDNESS OF THE BORROWER AND ITS SUBSIDIARIES, is hereby amended by
inserting the following new Section 7.1(i) and (j) to read as follows:
"(i) Exchangeable preferred equity of the Borrower which does not
exceed $150,000,000 in an aggregate original issue amount after
the Agreement Date; PROVIDED that such preferred equity is issued
(A) with the repayment terms set
<PAGE>
forth on SCHEDULE 1 attached to the Third Amendment to this
Agreement and (B) having other terms and conditions substantially
similar to those set forth on SCHEDULE 1 to the Third Amendment
to this Agreement; and"
"(j) Other Indebtedness of the Borrower which does not exceed
$200,000,000 in the aggregate after the Agreement Date; PROVIDED
such additional Indebtedness (A) is subordinated to the
Obligations on terms and conditions satisfactory to the Majority
Banks, (B) has the repayment terms set forth on SCHEDULE 1 to the
Third Amendment to this Agreement, and (C) has other terms and
conditions substantially similar to those set forth on SCHEDULE 1
to the Third Amendment to this Agreement."
2. AMENDMENT TO LOAN DOCUMENTS. All of the Loan Documents are hereby
amended to the extent necessary to give full force and effect to the
amendment contained in this Amendment.
3. USES OF PROCEEDS. In consideration of the Amendment, the Borrower
agrees that the proceeds of any preferred equity raised under Section 7.1(i)
of the Loan Agreement (the "PIK EQUITY PROCEEDS") shall be used to repay the
Obligations then outstanding; PROVIDED, HOWEVER, any such repayment from the
PIK Equity Proceeds shall not reduce the Commitment. In addition, the
Borrower shall apply the proceeds of any subordinated Indebtedness raised
under Section 7.1(j) of the Loan Agreement (the "SUB DEBT PROCEEDS") by
either (A) depositing one-hundred percent (100%) of the Sub Debt Proceeds in
a special purpose account of the Borrower pending the closing of (the
"ATLANTIC CLOSING") the transactions described in that certain Asset Purchase
Agreement among Atlantic Cellular Company, L.P., Atlantic Cellular/New
Hampshire RSA Number One Limited Partnership, on the one hand, and RCC
Atlantic, Inc. and Rural Cellular Corporation, on the other hand, dated as of
February 13, 1998 (the "ATLANTIC PURCHASE AGREEMENT"), or (B) applying a
portion of the Sub Debt Proceeds to repay the Obligations outstanding after
application of the PIK Equity Proceeds and depositing the remaining balance
of the Sub Debt Proceeds in a special purpose account of the Borrower to be
used solely in connection with the Atlantic Closing. In addition, if, for any
reason, the Atlantic Closing shall not occur on or prior to September 30,
1998, (i) all or a portion of the Sub Debt proceeds deposited in a special
purpose account of the Borrower in accordance with this Amendment shall be
withdrawn from such account and contemporaneously used to permanently repay
Sub Debt; and (ii) if the Borrower has made a repayment of the Obligations,
the Borrower may, in compliance with the Loan Agreement, reborrow under the
Commitment up to the amount of such repayment, PLUS all accrued interest,
fees and premiums associated with the repurchase or other redemption of Sub
Debt, PROVIDED that such amounts reborrowed are used as a permanent repayment
or other cancellation of the Sub Debt. Notwithstanding any of the foregoing
or anything contained in the Loan Agreement to the contrary, from the date
on which the Borrower receives the PIK Equity Proceeds until the earlier to
occur of the Atlantic closing (or other termination of the Borrower's
obligations under the Atlantic Purchase Agreement) and September 30, 1998,
the Available
-2-
<PAGE>
Commitment, subject to the terms and conditions of the Loan Agreement, shall
not exceed $20,000,000, PLUS fees, costs and expenses associated with the
issuance of the PIK Equity and the Sub Debt. Notwithstanding anything in the
Loan Agreement to the contrary, so long as no Default then exists or would be
caused thereby, the Borrower may (A) make scheduled payments of interest with
respect to the Sub Debt, and (B) make scheduled payments with respect to the
PIK Equity from the portion of Excess Cash Flow for the preceding fiscal year
not required to repay the Loans.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby reaffirms each and
every representation and warranty heretofore made by it under or in
connection with the Loan Agreement or the Loan Documents (including, without
limitation, those representations and warranties with respect to Borrower's
Subsidiaries), as such representations and warranties are amended hereby, as
fully as though such representations and warranties had been made on the date
hereof. Borrower hereby further represents and warrants that (a) Borrower
and each of its Subsidiaries has the power and authority to enter into this
Amendment and the other instruments, documents or agreements executed by such
party pursuant hereto or in connection herewith (the "Amendment Documents")
and to perform all of its obligations hereunder and thereunder; (b) the
execution and delivery of this Amendment and the Amendment Documents have
been duly authorized by all necessary action (corporate or otherwise) on the
part of Borrower and each of its Subsidiaries; and (c) the execution and
delivery of this Amendment and the Amendment Documents and performance
thereof by Borrower and each of its Subsidiaries does not and will not
violate the Articles of Incorporation, By-laws or other organizational
documents of such party and does not and will not violate or conflict with
any law, order, writ, injunction, or decree of any court, administrative
agency or other governmental authority applicable to such party or its
properties.
5. EFFECT OF AMENDMENT; NO NOVATION. Except as expressly set forth
herein, the Loan Agreement shall remain in full force and effect and shall
constitute the legal, valid, binding and enforceable obligation of Borrower
to the Banks, and Borrower hereby restates, ratifies and reaffirms each and
every term and condition set forth in the Loan Agreement, as amended hereby.
The terms of this Amendment are not intended to and do not serve as a
novation as to the Loan Agreement or the Notes or the indebtedness evidenced
thereby. The parties hereto expressly do not intend to extinguish any debt or
security interest created pursuant to the Loan Agreement or any document
executed in connection therewith. Instead it is the express intention to
affirm the Loan Agreement and the security created thereby.
6. NO OTHER AMENDMENT OR WAIVER. Except for the amendment set forth
above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect. No waiver by the
Administrative Agent, the Co-Agents or the Banks under the Loan Agreement or
any other Loan Document is granted or intended except as expressly set forth
herein, and the Administrative Agent, the Co-Agents and the Banks expressly
reserve the right to require strict compliance in all other respects (whether
or not in connection with any Requests for Advance).
- 3 -
<PAGE>
Except as set forth herein, the amendment agreed to herein shall not
constitute a modification of the Loan Agreement or any of the other Loan
Documents, or a course of dealing with the Administrative Agent, the
Co-Agents and the Banks at variance with the Loan Agreement or any of the
other Loan Documents, such as to require further notice by the Administrative
Agent, the Co-Agents and the Banks, or the Majority Banks to require strict
compliance with the terms of the Loan Agreement and the other Loan Documents
in the future.
7. LOAN DOCUMENTS. This document shall be deemed to be a Loan Document
for all purposes under the Loan Agreement and the other Loan Documents.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.
9. GOVERNING LAW. This Amendment shall be construed in accordance with
and governed by the laws of the State of New York.
10. SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first written.
BORROWER: RURAL CELLULAR CORPORATION, a Minnesota
corporation
By: /s/ Wesley E. Schultz
--------------------------------------------
Its: Vice President - Finance CFO
-------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC., as
CO-AGENTS AND BANKS: Administrative Agent
By: /s/ Diane Bailey
--------------------------------------------
Its: VP
-------------------------------------
BANKBOSTON, N.A., as a Co-Agent and a Bank
By: /s/ Shepard D. Rainie
--------------------------------------------
Its: Managing Director
-------------------------------------
ST. PAUL BANK FOR COOPERATIVES, as a Co-Agent
and a Bank
By: /s/ Marvin L. Lindo
--------------------------------------------
Its: Senior Vice President
-------------------------------------
RURAL CELLULAR CORPORATION
THIRD AMENDMENT TO LOAN AGREEMENT
SIGNATURE PAGE 1
<PAGE>
THE TORONTO-DOMINION BANK, as a Bank
By: /s/ Diane Bailey
--------------------------------------------
Its: Mgr Cr Admin
-------------------------------------
COBANK, as a Bank
By: /s/ Fred Matthes
--------------------------------------------
Its: Vice President
-------------------------------------
FLEET NATIONAL BANK, as a Bank
By: /s/ Richard E. Anderson
--------------------------------------------
Its: Senior Vice President
-------------------------------------
FIRST NATIONAL BANK OF MARYLAND, as a Bank
By: /s/ W. Blake Hampson
--------------------------------------------
Its: Vice President
-------------------------------------
SOCIETE GENERALE, NEW YORK BRANCH, as a Bank
By: /s/ John Sadik-Khan
--------------------------------------------
Its: Vice President
-------------------------------------
RURAL CELLULAR CORPORATION
THIRD AMENDMENT TO LOAN AGREEMENT
SIGNATURE PAGE 2
<PAGE>
MERITA BANK LTD NEW YORK BRANCH, as a Bank
By: /s/ Gerald E. Chelius
--------------------------------------------
Its: Senior Vice President
-------------------------------------
By: /s/ Charles J. Lansdown
--------------------------------------------
Its: Vice President
-------------------------------------
RURAL CELLULAR CORPORATION
THIRD AMENDMENT TO LOAN AGREEMENT
SIGNATURE PAGE 3
<PAGE>
SCHEDULE I
THE OFFERINGS
The following summary descriptions of the Senior Subordinated Notes and
Exchangeable Preferred Stock are qualified in entirety by the more detailed
information set forth under the caption "Description of Senior Subordinated
Notes" and "Description of Exchangeable Preferred Stock and Exchange
Debentures" contained elsewhere in this Offering Memorandum.
% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------------------
<TABLE>
<S> <C>
Notes Offered..................... $_______ million aggregate principal amount of ___% Senior
Subordinated Notes due 2008.
Maturity.......................... ______________, 2008
Interest Payment Due.............. ______ and _________ of each year, commencing
______________, 1998.
Optional Redemption............... The Senior Subordinated Notes will be redeemable, in
whole or in part, at the option of the Company at any
time on or after ________1, 2003 at the redemption prices
set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time
prior to __________, 2001, the Company may redeem up to [25%]
of the principal amount of Senior Subordinated Notes
actually issued under the Indenture from the net proceeds
of a Qualifying Event (as defined herein) at a redemption
price equal to __________% (expressed as a percentage
of the stated principal amount thereof), together
with accrued and unpaid interest to but excluding
the date fixed for redemption; provided that at least
$[___] million in aggregate principal amount of Senior
Subordinated Notes remain outstanding immediately after the
occurrence of such redemption. See "Description of Senior
Subordinated Notes -- Senior Subordinated Optional Redemption."
Limitations on Use of Proceeds;
Proceeds Purchase Offer........... All net proceeds received by the Company from the Note
Offering shall be applied to Atlantic Acquisition or,
as set forth below, to repay indebtedness under the
Company's Existing Credit Facility pending the
Atlantic Acquisition. Pending the consummation of the
Atlantic Acquisition, all net proceeds from the
Offering shall be held by the Company in a separate
bank account, except to the extent such proceeds are used
to repay indebtedness under the Existing Credit Facility
(which repayment out of such proceeds shall be
permitted only if the lenders thereunder unconditionally
consent to allow an amount equal to the amount repaid
from the proceeds of the Offerings, and any accrued
and unpaid interest then
</TABLE>
<PAGE>
<TABLE>
<S> <C>
to be reborrowed for the sole purpose of funding a
repurchase of the Senior Subordinated Notes in the
event that the Atlantic Acquisition does not occur
within 120 days following the closing of the sale of
the Senior Subordinated Notes pursuant to a Proceeds
Purchase Offer (as defined herein).
In the event that all of the net proceeds of the
sale of the Senior Subordinated Notes have not
been so applied, directly or indirectly, to the Atlantic
Acquisition, within 120 days of the closing of the
sale of the Senior Subordinated Notes, then the
Company will make an offer (a "Proceeds Purchase Offer")
to all holders of Senior Subordinated Notes to purchase
on a pro rata basis, at a price of 101% of the
principal amount thereof plus accrued and unpaid interest
to the purchase date, all Senior Subordinated Notes that
may be purchased at such price with such unapplied
net proceeds.
Ranking........................... The Senior Subordinated Notes will be general unsecured
obligations of the Company and will be senior
subordinated obligations of the Company, subordinated
in right of payment to Senior Indebtedness (as defined
herein) and senior or PARI PASSU in right of payment to
all future Subordinated Indebtedness (as defined
herein) of the Company. At December 31, 1997, on a pro
forma basis, after giving effect to the Pending
Acquisitions and the Offerings, Senior Indebtedness
aggregated approximately $___ million, (including $___
million of secured borrowings under the Existing Credit
Facility). In addition, all existing and future
indebtedness and other liabilities of the Company's
Subsidiaries will be effectively senior in right of
payment to the Senior Subordinated Notes. The Notes
Indenture (as defined herein) will allow the Company to
incur additional indebtedness. See "Description of
Senior Subordinated Notes -- Certain Covenants."
Certain Covenants................. The Indenture imposes certain limitations on
the ability of the Company and its Restricted
Subsidiaries (as defined herein) to, among other things,
incur Indebtedness (as defined herein), make Restricted
Payments (as defined herein), effect certain Asset Sales
(as defined herein), enter into certain transactions with
Affiliates and Related Persons (as defined herein), merge
or consolidate with any other person or transfer all or
substantially all of their properties and assets. See
"Description of Senior Subordinated Notes -- Certain
Covenants."
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Change of Control................. Upon the occurrence of a Change of Control (as defined
herein), the Company will make an offer to all
holders of the Senior Subordinated Notes to
purchase on a pro rata basis at a price of 101%
of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the repurchase date.
Events of Default................. Events of Default under the Senior Subordinated Indenture
include failure to pay principal or interest on the
Senior Subordinated Notes, failure to make payments on
other indebtedness, breach of certain covenants,
certain events of bankruptcy and insolvency and other
customary events. See "Description of Senior
Subordinated Notes --Events of Default and Remedies."
EXCHANGEABLE PREFERRED STOCK OFFERING
-------------------------------------
Exchangeable Preferred Stock
Offered........................... _____________ Shares of _____% Exchangeable Preferred
Stock.
Liquidation Preference............ $1,000 per share, plus accumulated and unpaid dividends.
Ranking........................... The Exchangeable Preferred Stock will be senior to all
classes of common stock and junior Exchangeable
Preferred Stock of the Company with respect to dividend
rights and rights on liquidation, winding up and
dissolution of the Company.
Mandatory Redemption.............. _____________, 2010 (subject to the legal availability
of funds therefor) at a redemption price of 100% of the
liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to the
date of redemption.
Optional Redemption............... The Exchangeable Preferred Stock will be redeemable in
whole or in part, at the option of the Company at any
time on or after __________, 2003 at the redemption
prices set forth herein, plus accumulated and unpaid
dividends (if any) to the date of redemption.
In addition, prior to ___________, 2001, the Company may
redeem up to [25%] of the aggregate of the liquidation
preference of the Exchangeable Preferred Stock issued
and outstanding with the net proceeds of a Qualifying
Event (as defined herein), provided that at least
[$________] in liquidation preference of such
securities must remain outstanding after the occurrence
of such redemption. See "Description of Exchangeable
Preferred Stock and Exchange Debentures -- Optional
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Redemption."
Change of Control................. Within 30 days following a Change of Control, as defined
herein, each holder of Exchangeable Preferred Stock and
Exchange Debentures will have the right to require the
Company to repurchase such holder's Exchangeable
Preferred Stock or Exchange Debentures at a purchase
price equal to 101% of the then effective liquidation
preference thereof, plus, as applicable without
duplication, accumulated and unpaid dividends to the
date of purchase.
Dividends......................... Dividends will accrue from the Issue Date and will be
payable quarterly commencing __________,1998 at a rate
per annum of ____% of the then effective liquidation
preference thereof. Dividends may be paid, at the
Company's option, on any dividend payment date
occurring on or before either _______ in cash or by the
issuance of additional shares of Exchangeable Preferred
Stock having an aggregate liquidation preference equal
to the amount of such dividends.
Voting Rights..................... The Exchangeable Preferred Stock will be non-voting,
except as otherwise required by law and as provided in
the Certificate of Designation. The Certificate of
Designation will provide that upon (i) the accumulation
of accrued and unpaid dividends on the outstanding
Exchangeable Preferred Stock in an amount equal to six
full quarterly dividends (whether or not consecutive);
(ii) the failure of the Company to satisfy any
mandatory redemption or repurchase obligation with
respect to the Exchangeable Preferred Stock; (iii) the
failure of the Company to make a Change of Control
offer on the terms and in accordance with the
provisions contained in the Certificate of
Designations; (iv) the failure of the Company to comply
with any of the other covenants or agreements set forth
in the Certificate of Designation and the continuance
of such failure for [30] days consecutive days or more;
or (v) the failure to pay, when due, the principal,
interest or premium aggregating [$_________ or more]
with respect to any Indebtedness of the Company or any
Restricted Subsidiary or the final maturity of debt is
accelerated, then the holders of a majority of the
outstanding shares of Exchangeable Preferred Stock,
voting as a separate class, will be entitled to elect
the lesser of two directors and that number of
directors constituting 25% of the members of the Board
of Directors.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Ranking........................... The Certificate of Designations will provide that the
Company will not authorize any class of Senior Stock
(as defined herein) or any class of Parity Stock (as
defined herein) without the affirmative vote or consent
of holders of at least (i) 66 2/3% of the shares of
Exchangeable Preferred Stock then outstanding with
respect to Senior Stock; and (ii) a majority of the
shares of Exchangeable Preferred Stock then outstanding
with respect to Parity Stock; PROVIDED, that up to
[______] additional shares of Exchangeable Preferred
Stock may be issued by the Company without the approval
of the holders of the Exchangeable Preferred Stock.
Exchange Option................... The Exchangeable Preferred Stock may be exchanged,
in whole but not in part, at the option of the Company
for ____% Senior Subordinated Exchange Debentures due
2010 (the "Exchange Debentures") in an aggregate
principal amount equal to the liquidation preference of
the shares of Exchangeable Preferred Stock plus
accumulated and unpaid dividends, if any, to the date
of change.
% SENIOR SUBORDINATED NOTES DUE 2010
--------------------------------------------
Notes Offered..................... $_______ million aggregate principal amount of ____%
Exchange Debentures due 2010.
Maturity.......................... __________, 2010.
Interest Payment Due.............. ________________ and _______________ of each year,
commending _____________,____.
Optional Redemption............... The Exchange Debentures will be redeemable, in whole or
in part, at the option of the Company at any time on or
after _______1, 2010, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time prior to
________, 2001, the Company may redeem up to [25%] of the
principal amount of Exchange Debentures, if any,
actually issued under the Exchange Indenture from the
net proceeds of a Qualifying Event (as defined herein)
at a redemption price equal to ____% (expressed as a
percentage of the stated principal amount thereof),
together with accrued and unpaid interest to but
excluding the date fixed for redemption; provided that
at least $[__] million in aggregate principal amount of
Senior Subordinated Notes and Exchange Debentures, in
the aggregate, remain outstanding immediately after the
</TABLE>
<PAGE>
<TABLE>
<S> <C>
occurance of such redemption. See "Description of
Exchange Debentures -- Optional Redemption."
Ranking........................... The Exchange Debentures will be general unsecured
obligations of the Company and will be senior
subordinated obligations of the Company, subordinated
in right of payment to Senior Indebtedness and senior
or PARI PASSU in right of payment to all future
Subordinated Indebtedness of the Company. In addition,
all existing and future indebtedness and other
liabilities of the Company's Subsidiaries will be
effectively senior in right of payment to the Exchange
Debentures. The Exchange Indenture (as defined herein)
will allow the Company to incur additional
indebtedness. See "Exchange Debentures -- Certain
Covenants."
Certain Covenants................. The Exchange Indenture imposes certain limitations on
the ability of the Company and its Restricted
Subsidiaries to, among other things, incur
Indebtedness, make Restricted Payments, effect certain
Asset Sales, enter into certain transactions with
Affiliates and Related Persons, merge or consolidate
with any other person or transfer all or substantially
all of their properties and assets. See "Description of
Exchange Debentures --Certain Covenants."
Change of Control................. Upon the occurrence of a Change of Control, the Company
will make an offer to all holders of the Exchange
Debentures to purchase on a pro rata basis at a price
of 101% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the repurchase date.
Events of Default................. Events of Default under the Exchange Indenture include
failure to pay principal or interest on the Exchange
Debentures, failure to make payments on other
indebtedness, breach of certain covenants, certain
events of bankruptcy and insolvency and other customary
events. See "Description of Exchange Debentures --
Events of Default and Remedies."
</TABLE>
<PAGE>
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of
the 24th day of April, 1998 (the "AMENDMENT DATE"), by and among RURAL
CELLULAR CORPORATION, a Minnesota corporation (the "BORROWER"); THE
TORONTO-DOMINION BANK, BANKBOSTON, N.A., ST. PAUL BANK FOR COOPERATIVES,
COBANK, FLEET NATIONAL BANK, FIRST NATIONAL BANK OF MARYLAND, SOCIETE
GENERALE, NEW YORK BRANCH and MERITA BANK LTD NEW YORK BRANCH (the "BANKS");
BANKBOSTON, N.A. and ST. PAUL BANK FOR COOPERATIVES, as co-agents (the
"CO-AGENTS"); and TORONTO DOMINION (TEXAS), INC., as administrative agent
(the "ADMINISTRATIVE AGENT") for the Banks;
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and the
Banks are parties to that certain Loan Agreement, dated as of May 1, 1997 (as
heretofore and hereafter amended, modified, supplemented and restated from
time to time, the "LOAN AGREEMENT"); and
WHEREAS, the Borrower has requested that the Administrative Agent, the
Co-Agents and the Banks amend certain definitions and provisions in the Loan
Agreement as more specifically set forth below; and
WHEREAS, the Administrative Agent, the Co-Agents and the Banks have
agreed to such amendments on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree that all capitalized terms used herein shall have
the meanings ascribed to such terms in the Loan Agreement, and further agree
as follows:
1. AMENDMENT TO ARTICLE 1. Article 1 of the Loan Agreement,
DEFINITIONS, is hereby amended by deleting the definitions of "ANNUALIZED
OPERATING CASH FLOW" and "LEVERAGE RATIO" in their entireties and
substituting the following therefor (which amendments shall be effective for
all periods commencing on or after January 1, 1998):
"'ANNUALIZED OPERATING CASH FLOW' shall mean, as of any date, the
Operating Cash Flow for the twelve (12) calendar month period ending on
such date."
"'LEVERAGE RATIO' shall mean, as of any date, the ratio of (a) the
Total Debt (for purposes hereof, Total Debt shall not include the principal
amount of any Indebtedness
<PAGE>
for Money Borrowed equal to the amount of any cash balance maintained by
the Borrower in a segregated deposit account which is designated solely
for repayments of such Indebtedness for Money Borrowed) of the Borrower
and its Subsidiaries on a consolidated basis on such date, to (b)
Annualized Operating Cash Flow of the Borrower and its Subsidiaries on a
consolidated basis as of the calendar quarter end being tested or the
most recently completed calendar quarter for which financial statements
are required to have been delivered pursuant to Section 6.1 or 6.2
hereof, as the case may be."
2. AMENDMENT TO LOAN DOCUMENTS. All of the Loan Documents are hereby
amended to the extent necessary to give full force and effect to the
amendment contained in this Amendment.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby reaffirms each and
every representation and warranty heretofore made by it under or in
connection with the Loan Agreement or the Loan Documents.
4. NO OTHER AMENDMENT OR WAIVER. Except for the amendment set forth
above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect. No waiver by the
Administrative Agent, the Co-Agents or the Banks under the Loan Agreement or
any other Loan Document is granted or intended except as expressly set forth
herein, and the Administrative Agent, the Co-Agents and the Banks expressly
reserve the right to require strict compliance in all other respects (whether
or not in connection with any Requests for Advance). Except as set forth
herein, the amendment agreed to herein shall not constitute a modification of
the Loan Agreement or any of the other Loan Documents, or a course of dealing
with the Administrative Agent, the Co-Agents and the Banks at variance with
the Loan Agreement or any of the other Loan Documents, such as to require
further notice by the Administrative Agent, the Co-Agents and the Banks, or
the Majority Banks to require strict compliance with the terms of the Loan
Agreement and the other Loan Documents in the future.
5. LOAN DOCUMENTS. This document shall be deemed to be a Loan Document
for all purposes under the Loan Agreement and the other Loan Documents.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.
7. GOVERNING LAW. This Amendment shall be construed in accordance with
and governed by the laws of the State of New York.
-2-
<PAGE>
8. SEVERABILITY. Any provision of this Amendment which is prohibited
or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: RURAL CELLULAR CORPORATION, a Minnesota
corporation
By: /s/ Wesley E. Schultz
-----------------------------------------------
Its: Vice President - Finance - CFO
-----------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC., as
CO-AGENTS AND BANKS: Administrative Agent
By: /s/ Diane Bailey
-----------------------------------------------
Its: VP
-----------------------------------------
BANKBOSTON, N.A., as a Co-Agent and a Bank
By: /s/ Jonathan D. Sharkey
-----------------------------------------------
Its: Vice President
-----------------------------------------
ST. PAUL BANK FOR COOPERATIVES, as a Co-
Agent and a Bank
By: /s/ Stuart S. Peterson
-----------------------------------------------
Its: Sr VP
-----------------------------------------
<PAGE>
THE TORONTO-DOMINION BANK, as a Bank
By: /s/ Diane Bailey
-----------------------------------------------
Its: Mgr - Synd & Cr Adm
-----------------------------------------
COBANK, as a Bank
By: /s/ Fred Matthes
-----------------------------------------------
Its: Vice President
-----------------------------------------
FLEET NATIONAL BANK, as a Bank
By: /s/ Christopher A. Swindell
-----------------------------------------------
Its: VP
-----------------------------------------
FIRST NATIONAL BANK OF MARYLAND, as a Bank
By: /s/ W. Blake Hampson
-----------------------------------------------
Its: Vice President
-----------------------------------------
SOCIETE GENERALE, NEW YORK BRANCH, as a Bank
By: /s/ John Sadik-Khan
-----------------------------------------------
Its: Vice President
-----------------------------------------
<PAGE>
MERITA BANK LTD NEW YORK BRANCH, as a
Bank
By: /s/ Charles J. Lansdown
-----------------------------------------------
Its: Vice President
-----------------------------------------
By: /s/ Gerald E. Chelius
-----------------------------------------------
Its: Senior Vice President
-----------------------------------------
<PAGE>
RURAL CELLULAR CORPORATION
1995 STOCK COMPENSATION PLAN
(AS AMENDED THROUGH FEBRUARY 27, 1998)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ---- ----------- ----
<S> <C> <C>
SECTION 1 Purpose; Definitions. . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 Administration. . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3 Stock Subject to Plan . . . . . . . . . . . . . . . . . . . . 4
SECTION 4 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 5 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 6 Stock Appreciation Rights . . . . . . . . . . . . . . . . . . 8
SECTION 7 Other Stock-Based Awards. . . . . . . . . . . . . . . . . . .10
SECTION 8 Change in Control Provisions. . . . . . . . . . . . . . . . .11
SECTION 9 Amendments and Termination. . . . . . . . . . . . . . . . . .13
SECTION 10 Unfunded Status of Plan . . . . . . . . . . . . . . . . . . .14
SECTION 11 General Provisions. . . . . . . . . . . . . . . . . . . . . .14
SECTION 12 Effective Date of Plan. . . . . . . . . . . . . . . . . . . .16
SECTION 13 Term of Plan. . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
<PAGE>
RURAL CELLULAR CORPORATION
1995 STOCK COMPENSATION PLAN
(AS AMENDED THROUGH FEBRUARY 27, 1998)
1. Purpose; Definitions.
The purpose of the Rural Cellular Corporation 1995 Stock Compensation Plan
(the "Plan") is to enable Rural Cellular Corporation (the "Company"), and its
Parents, Subsidiaries, and Affiliates, to attract, retain, and reward employees
and to strengthen the mutuality of interests between such employees and the
Company's shareholders, by offering such employees stock options and/or other
equity-based incentives.
In addition to definitions that may be contained elsewhere in this Plan,
for purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Parents and Subsidiaries that is designated by the Board as a participating
employer under the Plan, provided that the Company directly or indirectly
owns at least 20% of the combined voting power of all classes of stock of
such entity or at least 20% of the ownership interests in such entity.
(b) "Award" means any Option, Stock Appreciation Right, or Other
Stock-Based Award, or any other right, interest, or option relating to
Stock or other securities of the Company granted pursuant to the provisions
of this Plan.
(c) "Award Agreement" means any written agreement, contract or other
instrument or document evidencing any Award granted by the Committee
hereunder and signed by both the Company and the Participant.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(f) "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
Where the Board has retained administrative authority with respect to the
Plan, references herein to the "Committee" shall refer to the Board.
<PAGE>
(g) "Company" means Rural Cellular Corporation, a corporation
organized under the laws of the State of Minnesota, or any successor
corporation.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan or, as applied to
Incentive Stock Options, as defined in Section 22(e)(3) of the Code.
(i) [deleted]
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(k) "Fair Market Value" means as of any given date, unless otherwise
determined by the Committee in good faith, the closing bid price of the
Stock as reported on The Nasdaq Small-Cap Market or, if the Stock is then
traded on The Nasdaq National Market or a national or regional securities
exchange, the closing price of the Stock on The Nasdaq National Market or
such exchange.
(l) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning of Section
422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Other Stock-Based Award" means an Award under Section 7 below
that is valued in whole or in part by reference to, or is otherwise based
on, Stock.
(o) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of
granting of an Award, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(p) "Participant" means any person who is selected by the Committee
to receive an Award under the Plan.
(q) "Plan" means this Rural Cellular Corporation 1995 Stock
Compensation Plan, as hereafter amended from time to time.
(r) "Stock" means the Class A Common Stock, $.01 par value per share,
one vote per share, of the Company.
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<PAGE>
(s) "Stock Appreciation Right" or "SAR" means the right to receive a
payment in cash or Stock as determined by the Committee.
(t) "Stock Option" or "Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
(u) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time
of the granting of an Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
In addition, the term "Change in Control" shall have the meaning set forth
in Section 8(b) below.
2. Administration.
The Plan shall be administered by a Committee of not fewer than two members
of the Board, who shall be appointed by the Board and serve at the pleasure of
the Board. The functions of the Committee specified in the Plan shall be
exercised by the Board, if and to the extent that no Committee exists that has
the authority to so administer the Plan, or to the extent that the Board retains
authority to administer the Plan under specified circumstances. As to the
selection of and grants of Awards to persons who are not subject to Sections
16(a) and 16(b) of the Exchange Act, the Committee may delegate any or all of
its responsibilities to members of the Company's administration. The grants of
Awards and determination of the terms thereof to persons who are subject to
Sections 16(a) and 16(b) of the Exchange Act shall be made in a manner that
satisfies the requirements of Rule 16b-3 under the Exchange Act, or any
successor rule.
The Committee shall have full power and authority, consistent with the
provisions of the Plan and subject to such orders or resolutions not
inconsistent with the provisions of the Plan as may be adopted by the Board:
(a) to select the employees of the Company and any Parent,
Subsidiary, or Affiliate to whom Awards may from time to time be granted
hereunder;
(b) to determine the type or types of Awards to be granted to
employees hereunder;
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder:
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<PAGE>
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder;
(e) to determine whether, to what extent, and under what
circumstances an Award may be settled in cash, Stock or other property or
canceled or suspended;
(f) to determine whether, to what extent, and under what
circumstances cash, Stock, and other property and other amounts payable
with respect to an Award shall be deferred either automatically or at the
election of the Participant;
(g) to interpret and administer the Plan and any instrument or
agreement entered into thereunder;
(h) to establish such rules and regulations and appoint such agents
as it shall deem appropriate for proper administration of the Plan; and
(i) to make any other determination and take any other action that
the Committee deems necessary or desirable for administration of the Plan.
Members of the Board and of the Committee acting under the Plan shall be
fully protected in relying in good faith upon the advice of counsel and shall
incur no liability except for gross negligence or willful misconduct in the
performance of their duties.
Decisions of the Committee shall be made in the Committee's sole discretion
and shall be final, conclusive, and binding on all persons, including the
Company, any Participant, any shareholder, and any employee of the Company or
any Parent, Subsidiary, or Affiliate.
3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 1,400,000 shares of Stock. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
Subject to the possible adjustments described in the last paragraph of this
Section 3, the total number of shares of Stock reserved and authorized for
issuance upon exercise of Incentive Stock Options shall be 1,400,000. To the
extent that such shares are not used for Incentive Stock Options, they shall be
available for other Awards to be granted under the Plan.
If any shares of Stock subject to an Award are not issued to a Participant
because an Option or SAR is not exercised or an Award is otherwise forfeited or
any such Award otherwise terminates without a payment being made to the
Participant in the
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<PAGE>
form of Stock, such shares shall again be available for distribution in
connection with future Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, Stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and option price of shares subject to outstanding Options granted under
the Plan, and in the number of shares subject to other outstanding Awards
granted under the Plan as may be determined to be appropriate by the Board, in
its sole discretion, provided that the number of shares subject to any Award
shall always be a whole number. Any such adjusted option price shall also be
used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Stock Option.
4. Eligibility.
Officers, management, or highly compensated employees of the Company and
any Subsidiary, Parent, or Affiliate are eligible to be granted Awards under the
Plan. The Committee shall have the exclusive authority to determine what
constitutes management or a "highly compensated employee" and in making such a
determination shall take into consideration guidelines established by the
Department of Labor and court decisions as to what constitutes a "select group
of management or highly compensated employees."
5. Stock Options.
Stock Options may be granted alone, in addition to, or in tandem with other
Awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Nonqualified Stock Options. Options may be issued with
or without Stock Appreciation Rights.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) EXERCISE PRICE. Except as provided in Section 5(i), the exercise
price per share of Stock purchasable under a Stock Option shall be
determined by the Committee at the time of grant but shall be not less than
85% of the Fair Market Value of the Stock on the date of grant.
(b) OPTION TERM. Except as provided in Section 5(i) hereof, the term
of each Stock Option shall be fixed by the Committee.
-5-
<PAGE>
(c) EXERCISABILITY. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at or after grant; provided, however, that, except as
provided in Sections 5(f), (g), and (h) and Section 8, unless otherwise
determined by the Committee at or after grant, no Stock Option shall be
exercisable prior to the first anniversary date of the granting of the
Option. If the Committee provides, in its sole discretion, that any Stock
Option is exercisable only in installments, the Committee may waive such
installment exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall determine, in its
sole discretion.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be exercised in
whole or in part at any time during the option period.
Payment of the exercise price may be made by check, note (if approved
by the Board), or such other instrument or method as the Committee may
accept. If so provided in the related Award Agreement, payment in full or
in part may also be made by delivery of Stock owned by the optionee for at
least six months prior to the exercise of the Option (based on the Fair
Market Value of the Stock on the date the Option is exercised, as
determined by the Committee). Payment of the exercise price may be made
through exercise of either Tandem SARs or Freestanding SARs held by the
optionee.
No shares of Stock shall be issued until full payment therefor has
been made. An optionee shall generally have the rights to dividends or
other rights of a shareholder with respect to shares subject to the Option
after the optionee has given written notice of exercise, has paid in full
for such Stock, and, if requested, has given the representation described
in Section 11(a).
(e) NONTRANSFERABILITY OF OPTIONS. Subject to Section 5(i) hereof,
unless otherwise provided in the related Award Agreement, no Stock Option
shall be transferable by the optionee otherwise than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules and regulations thereunder, and all Stock
Options shall be exercisable during the optionee's lifetime only by the
optionee.
(f) TERMINATION BY DEATH. Subject to Section 5(i), if an optionee's
employment by the Company or any Subsidiary, Parent, or Affiliate
terminates by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent such Option was exercisable at the
time of death or on such accelerated basis as the Committee may determine
at or after grant (or as may be determined in accordance with procedures
established by the
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<PAGE>
Committee), by the legal representative of the optionee's estate or by any
person who acquired the Option by will or the laws of descent and
distribution, for a period of one year (or such other period as the
Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(g) TERMINATION BY REASON OF DISABILITY. Subject to Section 5(i), if
an optionee's employment by the Company or any Subsidiary, Parent, or
Affiliate terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the
Committee may determine at or after grant (or as may be determined in
accordance with procedures established by the Committee), until the
expiration of the stated term of such Stock Option (unless otherwise
specified by the Committee at the time of grant); provided, however, that,
if the optionee dies prior to such expiration (or within such other period
as the Committee shall specify at grant), any unexercised Stock Option held
by such optionee shall thereafter be exercisable to the extent to which it
was exercisable at the time of death for a period of one year from the date
of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(h) OTHER TERMINATION. Subject to Section 5(i), unless otherwise
determined by the Committee (or pursuant to procedures established by the
Committee) at or after grant, if an optionee's employment by the Company or
any Subsidiary, Parent, or Affiliate terminates for any reason other than
death or Disability, the Stock Option shall be exercisable, to the extent
otherwise then exercisable, for the lesser of three months from the date of
termination of employment or the balance of such Stock Option's term.
(i) INCENTIVE STOCK OPTIONS. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options
shall be interpreted, amended, or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section 422.
To the extent required for "incentive stock option" status under
Section 422 of the Code (taking into account applicable Internal Revenue
Service regulations and pronouncements and court decisions), the Plan shall
be deemed to provide:
(i) that Incentive Stock Options may be granted only to
employees of the Company or any Parent or Subsidiary of the Company;
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<PAGE>
(ii) that the exercise price of any Incentive Stock Option
shall not be less than 100% of the Fair Market Value of the Stock as
of the date of grant (110% for an optionee who owns stock possessing
more than 10% of the voting power of all classes of stock of the
Company or of a Parent or Subsidiary);
(iii) that the maximum term of exercise for any Incentive Stock
Option shall not exceed ten years (five years in the case of an
optionee who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company or of a Parent or Subsidiary);
and
(iv) that Incentive Stock Options shall not be transferable by
the optionee otherwise than by will or the laws of descent and
distribution and shall be exercisable, during the optionee's lifetime,
only by the optionee.
To the extent permitted under Section 422 of the Code or applicable
regulations thereunder or any applicable Internal Revenue Service
pronouncements:
(i) if a Participant's employment is terminated by reason of
death or Disability and the portion of any Incentive Stock Option that
becomes exercisable during the post-termination period specified in
Section 5(f) or (g) hereof exceeds the $100,000 limitation contained
in Section 422(d) of the Code, such excess shall be treated as a
Nonqualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of such
Option that exceeds the $100,000 limitation contained in Section
422(d) of the Code shall be treated as a Nonqualified Stock Option.
(j) NO TANDEM OPTIONS. Options consisting of both an Incentive Stock
Option and a Nonqualified Stock Option shall not be granted under the Plan.
6. Stock Appreciation Rights.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted
either alone ("Freestanding SAR") or in addition to other Awards granted
under the Plan and may, but need not, relate to all or part of any Stock
Option granted under the Plan ("Tandem SAR"). In the case of a
Nonqualified Stock Option, a Tandem SAR may be granted either at or after
the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, a Tandem SAR may be granted only at the time of the grant of
such Stock Option.
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<PAGE>
A Tandem SAR shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Tandem SAR is
granted with respect to less than the full number of shares covered by a
related Stock Option. Stock Options relating to exercised Tandem SARs
shall no longer be exercisable to the extent that the related Tandem SARs
have been exercised.
A Stock Appreciation Right may be exercised, subject to Section 6(b),
in accordance with the procedures established by the Committee for such
purpose and as set forth in the related Award Agreement. Upon such
exercise, the optionee shall be entitled to receive an amount determined in
the manner prescribed in Section 6(b).
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the
Plan, as shall be determined from time to time by the Committee, including
the following:
(i) The exercise price of a Tandem SAR shall be the exercise
price of the related Option. The exercise price of a Freestanding SAR
shall be not less than 100% of the Fair Market Value of the Stock on
the date of grant of the Freestanding SAR. Notwithstanding the
foregoing, the Committee may unilaterally limit the appreciation in
value of Stock attributable to an SAR at any time prior to its
exercise.
(ii) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent provided in the related Award
Agreement; provided, however, that the exercise provisions of an SAR
granted in tandem with an Incentive Stock Option shall be the same as
the related Option.
(iii) Upon the exercise of a Stock Appreciation Right, the
holder shall be entitled to receive an amount in cash or shares of
Stock equal in value to the excess of the Fair Market Value of one
share of Stock on the date of exercise, or such other date as the
Committee shall specify in the Award Agreement, over the exercise
price per share specified in the related Award Agreement multiplied by
the number of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the right to
determine the form of payment. When payment is to be made in Stock,
the number of shares to be paid shall be calculated on the basis of
the Fair Market Value of the Stock on the date of exercise.
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<PAGE>
(iv) Unless otherwise provided in the related Award Agreement,
Stock Appreciation Rights shall not be transferable except under the
laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the lifetime of the Participant only by the
Participant.
(v) Upon the exercise of a Stock Appreciation Right, any
related Stock Option or part thereof to which such Stock Appreciation
Right is related shall be deemed to have been exercised for the
purpose of the limitation set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under the Plan.
7. Other Stock-Based Awards.
(a) ADMINISTRATION. Other Awards of Stock or that are valued in
whole or in part by reference to, or are otherwise based on, Stock ("Other
Stock-Based Awards"), including, without limitation, performance shares,
convertible preferred stock, convertible debentures, or exchangeable
securities, may be granted either alone or in addition to or in tandem with
Stock Options or Stock Appreciation Rights granted under the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which
such Awards shall be made, the number of shares of Stock to be awarded
pursuant to such Awards, and all other conditions of the Awards. The
Committee may also provide for the grant of Stock upon the completion of a
specified performance period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
(b) TERMS AND CONDITIONS. Unless otherwise provided in the related
Award Agreement, Stock subject to Awards made under this Section 7 may not
be sold, assigned, transferred, pledged, or otherwise encumbered prior to
the date on which the Stock is issued or, if later, the date on which any
applicable restriction, performance, or deferral period lapses.
The Participant shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend equivalents
with respect to the Stock covered by the Award, as determined at the time
of the Award by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Stock or otherwise reinvested.
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<PAGE>
Any Award under Section 7 and any Stock covered by any such Award
shall vest or be forfeited to the extent so provided in the Award
Agreement, as determined by the Committee, in its sole discretion.
In the event of the Participant's retirement, Disability, or death, or
in cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining
limitations imposed with respect to any or all of an Award under this
Section 7.
Each Award under this Section 7 shall be confirmed by, and subject to
the terms of, an Award Agreement or other instrument entered into by the
Company and the Participant.
Stock (including securities convertible into Stock) issued on a bonus
basis under this Section 7 may be issued for no cash consideration. The
purchase price of any Stock (including securities convertible into Stock)
subject to a purchase right awarded under this Section 7 shall be at least
85% of the Fair Market Value of the Stock on the date of grant.
8. Change in Control Provisions.
(a) IMPACT OF EVENT. In the event of a "Change in Control" as
defined in Section 8(b), any Award granted under this Plan shall become
fully exercisable and vested.
(b) DEFINITION OF "CHANGE IN CONTROL." For purposes of Section 8(a),
a "Change in Control" means the happening of any of the following:
(i) A majority of the directors of the Company shall be
persons other than persons
(A) For whose election proxies shall have been solicited by
the Board, or
(B) Who are then serving as directors appointed by the
Board to fill vacancies on the Board caused by death or
resignation (but not by removal) or to fill newly-created
directorships,
(ii) 30% or more of the outstanding voting stock of the Company
is acquired or beneficially owned (as defined in Rule 13d-3 under the
Exchange Act or any successor rule thereto) by any person (other than
the Company or a subsidiary of the Company) or group of persons acting
in concert (other than the acquisition and beneficial
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<PAGE>
ownership by a parent corporation or its wholly-owned subsidiaries, as
long as they remain wholly-owned subsidiaries, of 100% of the
outstanding voting stock of the Company as a result of a merger which
complies with paragraph (iii)(A)(2) hereof in all respects), or
(iii) The shareholders of the Company approve a definitive
agreement or plan to
(A) Merge or consolidate the Company with or into another
corporation other than
(1) a merger or consolidation with a subsidiary of the
Company or
(2) a merger in which
(a) the Company is the surviving corporation,
(b) no outstanding voting stock of the Company
(other than fractional shares) held by shareholders
immediately prior to the merger is converted into cash,
securities, or other property (except (i) voting stock
of a parent corporation owning directly, or indirectly
through wholly owned subsidiaries, both beneficially
and of record 100% of the voting stock of the Company
immediately after the merger and (ii) cash upon the
exercise by holders of voting stock of the Company of
statutory dissenters' rights),
(c) the persons who were the beneficial owners,
respectively, of the outstanding common stock and
outstanding voting stock of the Company immediately
prior to such merger beneficially own, directly or
indirectly, immediately after the merger, more than 70%
of, respectively, the then outstanding common stock and
the then outstanding voting stock of the surviving
corporation or its parent corporation, and
(d) if voting stock of the parent corporation is
exchanged for voting stock of the Company in the
merger, all holders of any class or
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series of voting stock of the Company immediately prior
to the merger have the right to receive substantially
the same per share consideration in exchange for their
voting stock of the Company as all other holders of
such class or series,
(B) exchange, pursuant to a statutory exchange of shares of
voting stock of the Company held by shareholders of the Company
immediately prior to the exchange, shares of one or more classes
or series of voting stock of the Company for cash, securities, or
other property,
(C) sell or otherwise dispose of all or substantially all
of the assets of the Company (in one transaction or a series of
transactions), or
(D) liquidate or dissolve the Company.
9. Amendments and Termination.
The Board may amend, alter, discontinue, or terminate the Plan, or any
portion thereof, but no amendment, alteration, or discontinuation shall be made
which would impair the vested rights of a Participant under any Award
theretofore granted without the Participant's consent or which, without the
approval of the Company's shareholders, would:
(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan;
(b) authorize an increase in the total number of shares reserved for
issuance upon exercise of Incentive Stock Options;
(c) decrease the option price of any Incentive Stock Option to less
than 100% of the Fair Market Value on the date of grant;
(d) permit the issuance of Stock prior to payment in full therefor;
(e) change the employees or class of employees eligible to
participate in the Plan; or
(f) extend the maximum option period under Section 5(i) of the Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall
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<PAGE>
impair the vested rights of any holder without the holder's consent. The
Committee may also substitute new Stock Options for previously granted Stock
Options (on a one-for-one or other basis), including previously granted Stock
Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
10. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or payments in lieu of or with respect to Awards hereunder;
provided, however, that, unless the Committee otherwise determines with the
consent of the affected Participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
11. General Provisions.
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option or receiving shares pursuant to any other Award under the
Plan to represent to and agree with the Company in writing that the
Participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any over-the-counter market on which the Stock is quoted, any
stock exchange upon which the Stock is then listed, and any applicable
federal or state securities law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) The Committee may at any time offer to buy out for a payment in
cash or Stock an Award previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made.
-14-
<PAGE>
(c) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) Neither the adoption of this Plan nor the grant of any Award
hereunder shall confer upon any employee of the Company or any Subsidiary,
Parent, or Affiliate any right to continued employment with the Company or
a Subsidiary, Parent, or Affiliate, as the case may be, or interfere in any
way with the right of the Company or a Subsidiary, Parent, or Affiliate to
terminate the employment of any of its employees at any time.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the Participant for federal income tax
purposes with respect to any Award under the Plan, the Participant shall
pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount. The
obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company and any Subsidiary, Parent, or
Affiliate shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
Participant. If so provided in the related Award Agreement, a Participant
may authorize the withholding of shares of Stock otherwise deliverable upon
exercise of an Option or the grant or vesting of an Award to satisfy any
tax obligations arising from such exercise, grant, or vesting.
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Stock at the time of any dividend payment shall
only be permissible if sufficient shares of Stock are available under
Section 3 for such reinvestment (taking into account then outstanding Stock
Options and other Plan Awards).
(g) To the extent that federal laws (such as the Code, the Exchange
Act, or the Employee Retirement Income Security Act of 1974) do not
otherwise control, this Plan and all Awards made and actions taken
hereunder shall be governed by and construed in accordance with the laws of
the State of Minnesota.
(h) Unless otherwise provided in the related Award Agreement, no
rights granted hereunder may be assigned, transferred, pledged, or
hypothecated (whether by operation of law or otherwise) or be subject to
execution, attachment, or similar process, and any attempted assignment,
transfer, pledge, hypothecation, or other disposition or levy of attachment
or similar process upon any such right will be null and void and without
effect.
-15-
<PAGE>
(i) If any term, provision, or portion of this Plan or any Award
granted hereunder shall be deemed unenforceable or in violation of
applicable law, such term, provision, or portion of the Plan or the Award
shall be deemed severable from all other terms, provisions, or portions of
this Plan or the Award or any other Awards granted hereunder, which shall
otherwise continue in full force and effect.
12. Effective Date of Plan.
The Plan shall be effective as of September 30, 1995, subject to the
approval of the Plan by a majority of the votes cast by the holders of the
Company's Common Stock at the annual shareholders' meeting next following
adoption of the Plan. Any grants made under the Plan prior to such approval
shall be effective when made (unless otherwise specified by the Committee at the
time of grant), but shall be conditioned on, and subject to, such approval of
the Plan by such shareholders.
13. Term of Plan.
No Incentive Stock Option shall be granted pursuant to the Plan on or after
the tenth anniversary of the date of adoption of the Plan, but Incentive Stock
Options granted prior to such tenth anniversary may extend beyond that date.
All other Awards may be granted at any time and for any period unless otherwise
provided by the Plan.
-----------------------------------------
Approved and adopted by the Board of Directors of Rural Cellular
Corporation as of August 23, 1995, and approved by the shareholders on September
15, 1995. The number of shares originally reserved for this Plan has been
adjusted to reflect a Stock split approved by the Board of Directors on November
28, 1995.
This Plan has been restated to reflect:
(i) an amendment adopted by the Board of Directors effective
March 21, 1996, deleting Section 6(b)(vi);
(ii) amendments adopted by the Board of Directors effective
October 18, 1996, to comply with changes in Rule 16b-3 under the Securities
Exchange Act of 1934;
(iii) an increase in the number of shares authorized to be issued
under the Plan adopted by the Board of Directors effective December 18,
1996; and
-16-
<PAGE>
(iv) an increase in the number of shares authorized to be issued
under the Plan adopted by the Board of Directors effective February 27,
1998.
-17-
<PAGE>
Exhibit 12
Rural Cellular Corporation and Subsidiaries
Ratio of Earnings to Fixed Charges and Preferred Dividends
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------------------------------------------- -------------------------------------
Three Months Year Ended Three Months
Year Ended December 31 Ended March 31 December 31 Ended March 31
---------------------------------------- --------------------------- ---------------- -------------------
1993 1994 1995 1996 1997 1997 1998 1997(1) 1997(2) 1998(3) 1998(4)
------- ------- ------ ------ ------ ------------ ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on debt $ 622 $ 1,195 $1,365 $ 281 $6,065 $ 215 $ 2,410 $ 138 $24,940 $ 270 $ 6,448
Interest capitalized - - - - 137 - - 137 137 - -
Amortization of debt
financing costs - - - - 19 - 47 19 961 47 240
-------------------------------------------------------------------------------------------------------------
Total fixed charges 622 1,195 1,365 281 6,221 215 2,457 294 26,038 317 6,688
Preferred
dividends(5) - - - - - - - 23,698 23,698 5,925 5,925
-------------------------------------------------------------------------------------------------------------
Total fixed charges
and preferred
dividends $ 622 $ 1,195 $1,365 $ 281 $6,221 $ 215 $ 2,457 $23,992 $49,736 $6,242 $12,613
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
EARNINGS:
Consolidated net
income (loss) $(2,220) $ 610 $ 790 $3,477 $(1,266) $ (40) $ (2,066) $ 4,593 $(13,018) $ 74 $(2,860)
Consolidated
provision (benefit)
for income taxes - (486) 575 200 - - - - - - -
Fixed charges less
interest
capitalized 622 1,195 1,365 281 6,084 215 2,457 157 25,901 317 6,688
-------------------------------------------------------------------------------------------------------------
$(1,598) $ 1,319 $2,730 $3,958 $ 4,818 $ 175 $ 391 $ 4,750 $ 12,883 $ 391 $ 3,828
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Ratio of earnings to
fixed charges and
preferred dividends n/a 1.10 2.00 14.09 0.77 0.81 0.16 0.20 0.26 0.06 0.30
Earnings deficiency $ 976 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
</TABLE>
(1) Includes the historical operations of the Company and gives effect to the
following as if they occurred as of January 1, 1997: (i) the MRCC
Acquisitions, (ii) the Exchangeable Preferred Stock Offering, and (iii) the
temporary repayment of $120.6 million of the Existing Credit Facility.
(2) Includes the historical operations of the Company and gives effect to the
following as if they occurred as of January 1, 1997: (i) the MRCC
Acquisitions, (ii) the Exchangeable Preferred Stock Offering, (iii) the
Notes Offering, (iv) the borrowings under the New Credit Facility, (v) the
repayment in full and termination of the Existing Credit Facility, and (vi)
the Atlantic Acquisition.
(3) Includes the historical operations of the Company and gives effect to the
following as if they had occurred as of January 1, 1998: (i) the
Exchangeable Preferred Stock Offering and (ii) the temporary repayment of
$120.6 million of the Existing Credit Facility.
(4) Includes the historical operations of the Company and gives effect to the
following as if they had occurred as of January 1, 1998: (i) the
Exchangeable Preferred Stock Offering, (ii) the Notes Offering, (iii) the
borrowings under the New Credit Facility, (iv) the repayment in full and
termination of the Existing Credit Facility, and (v) the Atlantic
Acquisition.
(5) Preferred dividends are reflected on a pretax basis at a 40% effective tax
rate.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Wholly owned subsidiaries:
RCC Licenses, Inc., a Minnesota corporation
RCC Paging, Inc., a Minnesota corporation
RCC Atlantic Long Distance, Inc., a Minnesota corporation
RCC Atlantic, Inc., a Minnesota corporation
MRCC, Inc., a Maine corporation
Partially owned subsidiaries:
Cellular 2000, Inc., a Minnesota corporation
(41.67% ownership)
Switch 2000, LLC, a Minnesota limited liability company
(40.77% ownership)
Wireless Alliance, LLC, a Minnesota limited liability company
(51.00% ownership)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
to Rural Cellular Corporation (and to all references to our Firm) included in
or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 24, 1998
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Partners of Atlantic Cellular Company, L.P.
and Subsidiaries:
We consent to the inclusion of our report dated February 17, 1998 with
respect to the consolidated balance sheets of Atlantic Cellular Company, L.P.
and Subsidiaries as of December 31, 1996 and 1997 and the related
consolidated statements of operations, partners' capital and cash flows for
each of the years in the three-year period ended December 31, 1997, which
report appears in the Registration Statement on Form S-4 of Rural Cellular
Corporation dated June 25, 1998 and to the reference to our firm under the
heading "Experts" in the Prospectus. Our report included an explanatory
paragraph stating that the Partnership entered into two separate purchase and
sale agreements in February 1998 which will result in the sale of
substantially all of the Partnership's assets.
KPMG Peat Marwick LLP
Providence, Rhode Island
June 23, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
to Unity Cellular System, Inc. and Subsidiary (and to all references to our
Firm) included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia,
June 24, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
_____ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
RURAL CELLULAR CORPORATION
(Exact name of obligor as specified in its charter)
MINNESOTA 41-1693295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3905 DAKOTA STREET SW
ALEXANDRIA, MN 56308
(Address of principal executive offices) (Zip code)
-----------------------------
$125,000,000 - 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 1. GENERAL INFORMATION. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to
The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis and
The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-53851.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 3rd day of June 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
-----------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 6
June 3, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
-----------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED SERIES B
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING SERIES A
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS, DATED , 1998.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ON [ , 1998] UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.
ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: IN PERSON:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Services
Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
BY HAND OR OVERNIGHT COURIER: BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations
Norwest Center CONFIRM RECEIPT OF NOTICE OF
Sixth and Marquette GUARANTEED DELIVERY BY TELEPHONE:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via a facsimile number other than the one
listed above, will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Rural Cellular Corporation, a
Minnesota corporation (the "Company"), and this Letter of Transmittal (this
"Letter") which, together with the Prospectus, constitute the Company's offer
(the "Exchange Offer") to exchange an aggregate principal amount at maturity of
$125,000,000 of 9 5/8% Series B Senior Subordinated Notes Due 2008 (the "New
Notes") which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for an equal principal amount of the Company's outstanding
9 5/8% Series A Senior Subordinated Notes Due 2008 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Company reserves the right, at any time or from time
to time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by oral or written notice and will
mail to the record holders of Old Notes an announcement thereof, each prior to
9:00 a.m., New York City Time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
1
<PAGE>
This Letter is to be completed by holders of Old Notes if (i) certificates
of the Old Notes are to be forwarded herewith or (ii) delivery of old Notes is
to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
List below the Old Notes to which this Letter relates. If the space below is
inadequate, the certificate numbers and principal amount of Old Notes should be
listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
---------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESSES OF REGISTERED CERTIFICATE AMOUNT AMOUNT
HOLDER(S) (PLEASE FILL IN, IF BLANK) NUMBER(S)(1) OF OLD NOTE(S) TENDERED(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Old Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number __________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (For use
by Eligible Institutions Only)
Name(s) of Registered Old Note Holder(s) ___________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number __________________ Transaction Code Number __________________
2
<PAGE>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company the aggregate principal amount of Old Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered in accordance with this Letter of Transmittal, the undersigned
sells, assigns and transfers to, or upon the order of, the Company all rights,
title and interest in and to the Old Notes tendered hereby.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner of the Old Notes tendered hereby, (ii) the undersigned has full power
and authority to tender, exchange, sell, assign and transfer the Old Notes
tendered hereby and (iii) the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents to the Company that (i) any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the undersigned or such other person
receiving such New Notes, (ii) neither the holder of such Old Notes nor any such
other person is engaged in, or intends to engage in, a distribution of such New
Notes, or has an arrangement or understanding with any person to participate in
the distribution of such New Notes, and (iii) neither the holder of such Old
Notes nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that: (1) such
holders are not affiliates of the Company within the meaning of Rule 405 under
the Securities Act; (2) such New Notes are acquired in the ordinary course of
such holders' business; and (3) such holders are not engaged in, and do not
intend to engage in, a distribution of such New Notes and have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the staff of the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in other circumstances. If a holder of Old Notes is an
affiliate of the Company and is engaged in or intends to engage in a
distribution of the New Notes or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder could not rely on the applicable interpretations of
the staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. If the undersigned is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
3
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- ---------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person(s) whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to
be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue New Notes and/or Old Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
(INCLUDING ZIP CODE)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)*
/ / Credit New Notes or unexchanged Old Notes delivered by book-entry
transfer to the Book-Entry Transfer Facility account set forth below.
BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER (IF APPLICABLE)
____________________________________________________________________________
- ---------------------------------------------
- ---------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above, or to such person(s) at an
address other than shown in the box entitled "Description of Old Notes" on
this Letter above.
Mail New Notes and/or Old Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
(INCLUDING ZIP CODE)
- -----------------------------------------------------
4
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE SUBSTITUTE FORM W-9 ON LAST PAGE)
____________________________________________________________________________
____________________________________________________________________________
(SIGNATURE(S) OF OWNER(S))
Dated: _______________________________________________________________, 1998
Area Code and Telephone Number: ____________________________________________
If a holder is tendering any Old Notes, this Letter of Transmittal must
be signed by the registered holder(s) as the name(s) appear(s) on the
certificates for the Old Notes or by a Person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s): ___________________________________________________________________
______________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed
by an Eligible Institution: ________________________________________________
(AUTHORIZED SIGNATURE)
____________________________________________________________________________
(TITLE)
____________________________________________________________________________
(NAME AND FIRM)
Dated: _____________________________________________________________________
- --------------------------------------------------------------------------------
5
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer to Exchange Registered
9 5/8% Series B Senior Subordinated Notes Due 2008 for any and all Outstanding
9 5/8% Series A Senior Subordinated Notes Due 2008 of Rural Cellular
Corporation.
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five business
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
five business days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City Time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered" A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
6
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond with the name as written on the face of
the certificates without any change whatsoever. If any tendered Old Notes are
owned of record by two or more joint owners, all such owners must sign this
Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of any
certificates specified herein, such certificates must be endorsed or accompanied
by appropriate bond powers, in either case signed exactly as the name of the
registered holder appears on the certificates and the signatures on such
certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) tendered who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. A holder of
Old Notes tendering Old Notes by book-entry transfer may request that Old Notes
not exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Notes may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name and address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In
7
<PAGE>
addition, delivery of New Notes to such tendering holder may be subject to
backup withholding in an amount equal to 31% of all reportable payments made
after the exchange. If withholding results in an overpayment of taxes, a refund
may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident, alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: RURAL CELLULAR CORPORATION
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE PROVIDE TIN: ------------------
FORM W-9 YOUR TIN IN THE BOX AT Social Security number OR
Department of Treasury RIGHT AND CERTIFY BY Employer identification
Internal Revenue Service SIGNING AND DATING BELOW number
---------------------------------------------------------
Part 2--TIN Applied for / /
Payer's Request for Taxpayer
Identification Number (TIN)
and Certification
- -------------------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that
I am subject to backup withholding as a result of a failure to report all interest and/or
dividends, or (c) I have been notified by the IRS that I am no longer subject to backup
withholding; and
(3) any other information provided on this form is true and correct.
Signature --------------------------------- Date
- -------------------
You must cross out item (2) of the above certification if you have been notified by the IRS
that you are subject to backup withholding because of underreporting of interest or
dividends on your tax return and you have not been notified by the IRS that you are no
longer subject to backup withholding.
- -------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature Date
- ------------------------------------------ ---------------------------------
- ------------------------------------------------------------------------------
9
<PAGE>
EXHIBIT 99.2
LETTER OF TRANSMITTAL
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED SERIES B
11 3/8% SENIOR EXCHANGEABLE PREFERRED STOCK
FOR ANY AND ALL OF ITS OUTSTANDING SERIES A
11 3/8% SENIOR EXCHANGEABLE PREFERRED STOCK
PURSUANT TO THE PROSPECTUS, DATED , 1998.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ON [ , 1998] , UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.
ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
BY REGISTERED OR CERTIFIED MAIL;
BY OVERNIGHT COURIER; OR BY HAND:
Norwest Bank Minnesota, N.A.
161 No. Concord Exchange
South St. Paul MN 55075
Attention: Reorganization Department
BY FACSIMILE: (612) 450-4078
Attention: Reorganization Department
Telephone: (612) 450-4064
Delivery of this Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via a facsimile number other than the one
listed above will not constitute a valid delivery. The instructions accompanying
this Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Rural Cellular Corporation, a
Minnesota corporation (the "Company"), and this Letter of Transmittal (this
"Letter") which, together with the Prospectus, constitute the Company's offer
(the "Exchange Offer") to exchange shares of its 11 3/8% Series B Senior
Exchangeable Preferred Stock (the "New Exchangeable Preferred Stock"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for an equal number of shares of the Company's outstanding 11 3/8%
Series A Senior Exchangeable Preferred Stock (the "Old Exchangeable Preferred
Stock").
For each share of Old Exchangeable Preferred Stock accepted for exchange,
the holder of such share of Old Exchangeable Preferred Stock will receive a
share of New Exchangeable Preferred Stock having a liquidation preference equal
to that of the surrendered Old Exchangeable Preferred Stock. The Company
reserves the right, at any time or from time to time, to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the latest time and date to which the Exchange Offer is extended. In order to
extend the Expiration Date, the Company will notify the Exchange Agent of any
extension by oral or written notice and will mail to the record holders of Old
Exchangeable Preferred Stock an announcement thereof, each prior to 9:00 a.m.,
New York City Time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
This Letter is to be completed by holders of Old Exchangeable Preferred
Stock if (i) certificates of the Old Exchangeable Preferred Stock are to be
forwarded herewith or (ii) delivery of Old Exchangeable Preferred Stock is to be
made by book-entry transfer to the account maintained by the Exchange Agent at
The Depository
1
<PAGE>
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer" section of the Prospectus. Holders of Old
Exchangeable Preferred Stock whose certificates are not immediately available,
or who are unable to deliver their certificates or confirmation of the
book-entry tender of their Old Exchangeable Preferred Stock into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Exchangeable
Preferred Stock in accordance with the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Old Exchangeable Preferred
Stock must complete this Letter of Transmittal in its entirety.
List below the Old Exchangeable Preferred Stock to which this Letter
relates. If the space below is inadequate, the certificate numbers and number of
shares of Old Exchangeable Preferred Stock should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
DESCRIPTION OF OLD EXCHANGEABLE PREFERRED STOCK
---------------------------------------------------------------------------------------------
AGGREGATE NUMBER OF
NUMBER OF SHARES OF OLD
SHARES OF OLD EXCHANGEABLE
NAME(S) AND ADDRESSES OF REGISTERED CERTIFICATE EXCHANGEABLE PREFERRED STOCK
HOLDER(S) (PLEASE FILL IN, IF BLANK) NUMBER(S)(1) PREFERRED STOCK TENDERED(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if shares of Old Exchangeable Preferred Stock are
being tendered by book-entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the shares of Old Exchangeable Preferred Stock indicated in
column 2. See Instruction 2.
/ / CHECK HERE IF CERTIFICATES FOR TENDERED OLD EXCHANGEABLE PREFERRED STOCK
ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF SHARES OF TENDERED OLD EXCHANGEABLE PREFERRED STOCK ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number __________________
/ / CHECK HERE IF SHARES OF TENDERED OLD EXCHANGEABLE PREFERRED STOCK ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND
COMPLETE THE FOLLOWING (For use by Eligible Institutions Only)
Name(s) of Registered Old Exchangeable Preferred Stock Holder(s) ___________
Window Ticket Number (if any) ______________________________________________
2
<PAGE>
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number __________________ Transaction Code Number __________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company the aggregate number of shares of Old Exchangeable
Preferred Stock indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Exchangeable Preferred Stock tendered in accordance with
this Letter of Transmittal, the undersigned sells, assigns and transfers to, or
upon the order of, the Company all rights, title and interest in and to the Old
Exchangeable Preferred Stock tendered hereby.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner of the Old Exchangeable Preferred Stock tendered hereby, (ii) the
undersigned has full power and authority to tender, exchange, sell, assign and
transfer the Old Exchangeable Preferred Stock tendered hereby and (iii) the
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim when the same are accepted by the Company. The undersigned hereby further
represents to the Company that (i) any New Exchangeable Preferred Stock acquired
in exchange for Old Exchangeable Preferred Stock tendered hereby will have been
acquired in the ordinary course of business of the undersigned or such other
person receiving such New Exchangeable Preferred Stock, (ii) neither the holder
of such Old Exchangeable Preferred Stock nor any such other person is engaged
in, or intends to engage in, a distribution of such New Exchangeable Preferred
Stock, or has an arrangement or understanding with any person to participate in
the distribution of such New Exchangeable Preferred Stock, and (iii) neither the
holder of such Old Exchangeable Preferred Stock nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Exchangeable
Preferred Stock issued in exchange for the Old Exchangeable Preferred Stock
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that: (1) such holders are not
affiliates of the Company within the meaning of Rule 405 under the Securities
Act; (2) such New Exchangeable Preferred Stock is acquired in the ordinary
course of such holders' business; and (3) such holders are not engaged in, and
do not intend to engage in, a distribution of such New Exchangeable Preferred
Stock and have no arrangement or understanding with any person to participate in
the distribution of such New Exchangeable Preferred Stock. However, the staff of
the Commission has not considered the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in
other circumstances. If a holder of Old Exchangeable
3
<PAGE>
Preferred Stock is an affiliate of the Company and is engaged in or intends to
engage in a distribution of the New Exchangeable Preferred Stock or has any
arrangement or understanding with respect to the distribution of the New
Exchangeable Preferred Stock to be acquired pursuant to the Exchange Offer, such
holder could not rely on the applicable interpretations of the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. If the undersigned is a broker-dealer that will receive New
Exchangeable Preferred Stock for its own account in exchange for Old
Exchangeable Preferred Stock, it represents that the Old Exchangeable Preferred
Stock to be exchanged for the New Exchangeable Preferred Stock was acquired by
it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Exchangeable Preferred Stock; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Exchangeable Preferred Stock tendered
hereby. All authority conferred or agreed to be conferred in this Letter and
every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by, and
shall survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Exchangeable Preferred Stock (and,
if applicable, substitute certificates representing Old Exchangeable Preferred
Stock for any Old Exchangeable Preferred Stock not exchanged) in the name of the
undersigned or, in the case of a book-entry delivery of Old Exchangeable
Preferred Stock, please credit the account indicated above maintained at the
Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the
box entitled "Special Delivery Instructions" below, please send the New
Exchangeable Preferred Stock (and, if applicable, substitute certificates
representing Old Exchangeable Preferred Stock for any Old Exchangeable Preferred
Stock not exchanged) to the undersigned at the address shown above in the box
entitled "Description of Old Exchangeable Preferred Stock."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
EXCHANGEABLE PREFERRED STOCK" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL
BE DEEMED TO HAVE TENDERED THE SHARES OF OLD EXCHANGEABLE PREFERRED STOCK AS SET
FORTH IN SUCH BOX ABOVE.
4
<PAGE>
- ---------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Exchangeable Preferred
Stock not exchanged and/or New Exchangeable Preferred Stock are to be issued
in the name of and sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above, or if Old Exchangeable
Preferred Stock delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue New Exchangeable Preferred Stock and/ or Old Exchangeable Preferred
Stock to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
(INCLUDING ZIP CODE)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)*
/ / Credit New Exchangeable Preferred Stock or unexchanged Old Exchangeable
Preferred Stock delivered by book-entry transfer to the Book-Entry
Transfer Facility account set forth below.
BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER (IF APPLICABLE)
____________________________________________________________________________
- ---------------------------------------------
- ---------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Exchangeable Preferred
Stock not exchanged and/or New Exchangeable Preferred Stock are to be sent
to someone other than the person(s) whose signature(s) appear(s) on this
Letter above, or to such person(s) at an address other than shown in the box
entitled "Description of Old Exchangeable Preferred Stock" on this Letter
above. Mail New Exchangeable Preferred Stock and/or Old Exchangeable
Preferred Stock to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
(INCLUDING ZIP CODE)
- -----------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD EXCHANGEABLE PREFERRED STOCK OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
5
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE SUBSTITUTE FORM W-9 ON LAST PAGE)
_________________________________________________________________________
_______________________________________________________________________
(SIGNATURE(S) OF OWNER(S))
Dated: _______________________________________________________________, 1998
Area Code and Telephone Number: ____________________________________________
If a holder is tendering any Old Exchangeable Preferred Stock, this
Letter of Transmittal must be signed by the registered holder(s) as the
name(s) appear(s) on the certificates for the Old Exchangeable Preferred
Stock or by a Person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s): ___________________________________________________________________
______________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed
by an Eligible Institution: ________________________________________________
(AUTHORIZED SIGNATURE)
____________________________________________________________________________
(TITLE)
____________________________________________________________________________
(NAME AND FIRM)
Dated: _____________________________________________________________________
- --------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer to Exchange Registered
11 3/8% Series B Senior Exchangeable Preferred Stock for any and all Outstanding
11 3/8% Series A Senior Exchangeable Preferred Stock of Rural Cellular
Corporation.
1. DELIVERY OF THIS LETTER AND OLD EXCHANGEABLE PREFERRED STOCK; GUARANTEED
DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Exchangeable Preferred
Stock either if certificates are to be forwarded herewith or if tenders are to
be made pursuant to the procedures for delivery by book-entry set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Old Exchangeable Preferred Stock or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other documents
required by this Letter, must be received at the address set forth herein on or
prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below.
Holders of Old Exchangeable Preferred Stock whose certificates for Old
Exchangeable Preferred Stock are not immediately available or who cannot deliver
their certificates and all other required documents to the Exchange Agent on or
prior to the Expiration Date, or who cannot complete the procedure for
book-entry transfer on a timely basis, may tender their Old Exchangeable
Preferred Stock pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution (as defined below), (ii) prior to the Expiration Date, the Exchange
Agent must receive from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Exchangeable Preferred Stock and the number of shares of Old
Exchangeable Preferred Stock tendered, stating that the tender is being made
thereby and guaranteeing that within five business days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Exchangeable Preferred Stock or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Exchangeable
Preferred Stock, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within five business days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Exchangeable Preferred Stock
and all other required documents is at the election and risk of tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If shares of Old Exchangeable Preferred Stock
are sent by mail, it is suggested that the mailing be made sufficiently in
advance of the Expiration Date to permit delivery to the Exchange Agent prior to
5:00 p.m., New York City Time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD EXCHANGEABLE PREFERRED
STOCK WHO TENDER BY BOOK-ENTRY TRANSFER).
If less than all of the shares of Old Exchangeable Preferred Stock evidenced
by a submitted certificate are to be tendered, the tendering holder(s) should
fill in the aggregate number of shares of Old Exchangeable Preferred Stock to be
tendered in the box above entitled "Description of Old Exchangeable Preferred
Stock-- Number of Shares of Old Exchangeable Preferred Stock Tendered." A
reissued certificate representing the balance of nontendered shares of Old
Exchangeable Preferred Stock will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Exchangeable Preferred Stock delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
7
<PAGE>
3. SIGNATURES ON THIS LETTER; STOCK POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Exchangeable
Preferred Stock tendered hereby, the signature must correspond with the name as
written on the face of the certificates without any change whatsoever.
If any shares of tendered Old Exchangeable Preferred Stock are owned of
record by two or more joint owners, all such owners must sign this Letter.
If any shares of tendered Old Exchangeable Preferred Stock are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate copies of this Letter as there are different
registrations of certificates.
When this Letter is signed by the registered holder of the Old Exchangeable
Preferred Stock specified herein and tendered hereby, no endorsements of
certificates or separate stock powers are required. If, however, New
Exchangeable Preferred Stock is to be issued, or any untendered Old Exchangeable
Preferred Stock is to be reissued, to a person other than the registered holder,
then endorsements of any certificates transmitted hereby or separate stock
powers are required. Signatures on such certificates must be guaranteed by an
Eligible Institution.
If this Letter is signed by a person other than the registered holder of any
certificates specified herein, such certificates must be endorsed or accompanied
by appropriate stock powers, in either case signed exactly as the name of the
registered holder appears on the certificates, and the signatures on such
certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or stock powers are signed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
Endorsements on certificates for Old Exchangeable Preferred Stock or
signatures on stock powers required by this Instruction 3 must be guaranteed by
a firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Exchangeable Preferred Stock is tendered: (i) by a registered
holder of Old Exchangeable Preferred Stock (which term, for purposes of the
Exchange Offer, includes any participant in the Book-Entry Transfer Facility
system whose name appears on a security position listing as the holder of such
Old Exchangeable Preferred Stock) tendered who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter, or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Exchangeable Preferred Stock should indicate in the
applicable box the name and address to which New Exchangeable Preferred Stock
issued pursuant to the Exchange Offer and/or substitute certificates evidencing
Old Exchangeable Preferred Stock not exchanged are to be issued or sent, if
different from the name or address of the person signing this Letter. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. A holder of Old
Exchangeable Preferred Stock tendering Old Exchangeable Preferred Stock by
book-entry transfer may request that shares of Old Exchangeable Preferred Stock
not exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Exchangeable Preferred Stock may designate
hereon. If no such instructions are given, such shares of Old Exchangeable
Preferred Stock not exchanged will be returned to the name and address of the
person signing this Letter.
8
<PAGE>
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
shares of Old Exchangeable Preferred Stock are accepted for exchange must
provide the Company (as payor) with such holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9 below, which, in the case
of a tendering holder who is an individual, is his or her social security
number. If the Company is not provided with the current TIN or an adequate basis
for an exemption, such tendering holder may be subject to a $50 penalty imposed
by the Internal Revenue Service. In addition, delivery of New Exchangeable
Preferred Stock to such tendering holder may be subject to backup withholding in
an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Exchangeable Preferred Stock (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old Exchangeable
Preferred Stock must provide its correct TIN by completing the "Substitute Form
W-9" set forth below, certifying that the TIN provided is correct (or that such
holder is awaiting a TIN) and that (i) the holder is exempt from backup
withholding, (ii) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of a
failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Exchangeable Preferred Stock is a
nonresident, alien or foreign entity not subject to backup withholding, such
holder must give the Company a completed Form W-8, Certificate of Foreign
Status. These forms may be obtained from the Exchange Agent. If the shares of
Old Exchangeable Preferred Stock are in more than one name or are not in the
name of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If such holder does not provide its TIN to
the Company within 60 days, backup withholding will begin and continue until
such holder furnishes its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Exchangeable Preferred Stock to it or its order pursuant to the Exchange
Offer. If, however shares of New Exchangeable Preferred Stock and/or substitute
shares of Old Exchangeable Preferred Stock not exchanged are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Old Exchangeable Preferred Stock tendered hereby, or if
tendered shares of Old Exchangeable Preferred Stock are registered in the name
of any person other than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer of Old Exchangeable Preferred
Stock to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Exchangeable Preferred Stock
specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
9
<PAGE>
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Exchangeable Preferred Stock, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Exchangeable Preferred Stock for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Exchangeable Preferred Stock nor shall any of them incur any liability for
failure to give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD EXCHANGEABLE PREFERRED STOCK.
Any holder whose Old Exchangeable Preferred Stock has been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
above for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: RURAL CELLULAR CORPORATION
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE PROVIDE TIN: ------------------
FORM W-9 YOUR TIN IN THE BOX AT Social Security number OR
Department of Treasury RIGHT AND CERTIFY BY Employer identification
Internal Revenue Service SIGNING AND DATING BELOW number
---------------------------------------------------------
Part 2--TIN Applied for / /
Payer's Request for Taxpayer
Identification Number (TIN)
and Certification
- -------------------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that
I am subject to backup withholding as a result of a failure to report all interest and/or
dividends, or (c) I have been notified by the IRS that I am no longer subject to backup
withholding; and
(3) any other information provided on this form is true and correct.
Signature --------------------------------- Date
- -------------------
You must cross out item (2) of the above certification if you have been notified by the IRS
that you are subject to backup withholding because of underreporting of interest or
dividends on your tax return and you have not been notified by the IRS that you are no
longer subject to backup withholding.
- -------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature Date
- ------------------------------------------ ---------------------------------
- ------------------------------------------------------------------------------
11
<PAGE>
EXHIBIT 99.3
FORM OF
NOTICE OF GUARANTEED DELIVERY FOR
RURAL CELLULAR CORPORATION
This form or one substantially equivalent thereto must be used to accept the
Exchange Offer of Rural Cellular Corporation (the "Company") made pursuant to
the Prospectus, dated , 1998 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal") if certificates for Old
Notes of the Company are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 P.M., New York
City Time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by facsimile transmission, mail or hand delivery to
Norwest Bank Minnesota, N.A. (the "Exchange Agent") as set forth below. In
addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 P.M., New York City Time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: IN PERSON:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Services
Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
BY HAND OR OVERNIGHT COURIER: BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS
Norwest Bank Minnesota, ONLY):
National Association (612) 667-4927
Corporate Trust Operations
Norwest Center
Sixth and Marquette CONFIRM RECEIPT OF NOTICE OF
Minneapolis, MN 55479-0113 GUARANTEED DELIVERY BY TELEPHONE:
(612) 667-9764
</TABLE>
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Principal Amount of Old Notes Tendered:
$ ----------------------------------------- If Old Notes will be delivered by book entry
transfer to The Depository Trust Company,
provide account number.
Certificate Nos. (if available)
- -------------------------------------------
Total Principal Amount Represented by Old
Notes Certificate (s):
- -------------------------------------------
Account Number --------------------------
</TABLE>
1
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X ----------------------------------------
--------------------------------------------
X ----------------------------------------
--------------------------------------------
Signature(s) of Owner(s)
or Authorized Signatory Date
Area Code and Telephone Number: ---------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Old Notes as the name(s) of such
holder(s) appear(s) on the Old Notes certificates or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If any signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
Please print name(s) and address(s)
<TABLE>
<S> <C>
Name(s):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------------
Address(es):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
hereby guarantees that the certificates representing the principal amount of Old
Notes tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantee and any other documents required
by the Letter of Transmittal, will be received by the Exchange Agent at the
address set forth above, no later than five business days after the date of
execution hereof.
<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- -------------------------------------------
Address Title
-------------------------------------------
- ------------------------------------------- Area Code and Tele. No. (Please Type or
Zip Code Print)
Dated: -----------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL
3
<PAGE>
EXHIBIT 99.4
FORM OF
NOTICE OF GUARANTEED DELIVERY FOR
RURAL CELLULAR CORPORATION
This form or one substantially equivalent thereto must be used to accept the
Exchange Offer of Rural Cellular Corporation (the "Company") made pursuant to
the Prospectus, dated , 1998 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal") if certificates for Old
Exchangeable Preferred Stock of the Company are not immediately available or if
the procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Company prior to 5:00
P.M., New York City Time, on the Expiration Date of the Exchange Offer. Such
form may be delivered or transmitted by facsimile transmission, mail or hand
delivery to Norwest Bank Minnesota, N.A. (the "Exchange Agent") as set forth
below. In addition, in order to utilize the guaranteed delivery procedure to
tender Old Exchangeable Preferred Stock pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M., New York City Time,
on the Expiration Date. Capitalized terms not defined herein are defined in the
Prospectus.
BY REGISTERED OR CERTIFIED MAIL;
BY OVERNIGHT COURIER; OR BY HAND:
Norwest Bank Minnesota, N.A.
161 No. Concord Exchange
South St. Paul MN 55075
Attention: Reorganization Department
BY FACSIMILE: (612) 450-4078
Attention: Reorganization Department
Telephone: (612) 450-4064
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the shares of Old Exchangeable Preferred Stock set forth below, pursuant
to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Shares of Old Exchangeable
Preferred Stock Tendered:
- -------------------------------------------
If Old Exchangeable Preferred Stock will be
delivered by book entry transfer to The
Depository Trust Company, provide account
number.
Certificate Nos. (if available)
- -------------------------------------------
Total Shares Represented by Old Exchangeable
Preferred Stock Certificate(s):
- -------------------------------------------
Account Number --------------------------
</TABLE>
1
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X ----------------------------------------
--------------------------------------------
X ----------------------------------------
--------------------------------------------
Signature(s) of Owner(s)
or Authorized Signatory Date
Area Code and Telephone Number: ---------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Old Exchangeable Preferred Stock as the
name(s) of such holder(s) appear(s) on the Old Exchangeable Preferred Stock
certificates or on a security position listing, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with this
Notice of Guaranteed Delivery. If any signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
Please print name(s) and address(s)
<TABLE>
<S> <C>
Name(s):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------------
Address(es):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
hereby guarantees that the certificates representing the shares of Old
Exchangeable Preferred Stock tendered hereby in proper form for transfer, or
timely confirmation of the book-entry transfer of such Old Exchangeable
Preferred Stock into the Exchange Agent's account at The Depository Trust
Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantee and any other documents required by the Letter
of Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five business days after the date of execution hereof.
<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- -------------------------------------------
Address Title
-------------------------------------------
- ------------------------------------------- Area Code and Tele. No. (Please Type or
Zip Code Print)
Dated: -----------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD EXCHANGEABLE PREFERRED STOCK WITH THIS
FORM. CERTIFICATES FOR OLD EXCHANGEABLE PREFERRED STOCK SHOULD ONLY BE
SENT WITH YOUR LETTER OF TRANSMITTAL
3
<PAGE>
EXHIBIT 99.5
FORM OF
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
Rural Cellular Corporation (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus, dated , 1998 (the "Prospectus"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), its registered 9 5/8% Series B
Senior Subordinated Notes Due 2008 (the "New Notes") for any and all of its
outstanding 9 5/8% Series A Senior Subordinated Notes Due 2008 (the "Old
Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Notes Exchange and Registration
Rights Agreement dated as of May 14, 1998, between the Company and the Initial
Purchasers.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 19 ;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to
the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Norwest Bank, N.A., the Exchange Agent for
the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City Time, on , 19 (the "Expiration Date") (30 days
following commencement of the Exchange Offer), unless extended by the Company.
The Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time before 5:00 p.m., New York City Time, on the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer
1
<PAGE>
procedures on a timely basis, a tender may be effected by following guaranteed
delivery procedures described in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set forth
on the front of the Letter of Transmittal.
Very truly yours,
RURAL CELLULAR CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT 99.6
FORM OF
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
11 3/8% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK
To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
Rural Cellular Corporation (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus, dated , 1998 (the "Prospectus"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), its registered 11 3/8% Series B
Senior Exchangeable Preferred Stock (the "New Exchangeable Preferred Stock") for
any and all of its outstanding 11 3/8% Series A Senior Exchangeable Preferred
Stock (the "Old Exchangeable Preferred Stock"). The Exchange Offer is being made
in order to satisfy certain obligations of the Company contained in the
Preferred Stock Exchange and Registration Rights Agreement dated as of May 14,
1998, between the Company and the Initial Purchasers.
We are requesting that you contact your clients for whom you hold Old
Exchangeable Preferred Stock regarding the Exchange Offer. For your information
and for forwarding to your clients for whom you hold Old Exchangeable Preferred
Stock registered in your name or in the name of your nominee, or who hold Old
Exchangeable Preferred Stock registered in their own names, we are enclosing the
following documents:
1. Prospectus dated , 19 ;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Exchangeable Preferred Stock are not immediately
available or time will not permit all required documents to reach the
Exchange Agent prior to the Expiration Date (as defined below) or if the
procedure for book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Exchangeable Preferred Stock registered in your name or the name
of your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Norwest Bank, N.A., the Exchange Agent for
the Old Exchangeable Preferred Stock.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City Time, on , 19 (the "Expiration Date") (30 days
following commencement of the Exchange Offer), unless extended by the Company.
The Old Exchangeable Preferred Stock tendered pursuant to the Exchange Offer may
be withdrawn at any time before 5:00 p.m., New York City Time, on the Expiration
Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Exchangeable Preferred Stock should
be delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
1
<PAGE>
If holders of Old Exchangeable Preferred Stock wish to tender, but it is
impracticable for them to forward their certificates for Old Exchangeable
Preferred Stock prior to the expiration of the Exchange Offer or to comply with
the book-entry transfer procedures on a timely basis, a tender may be effected
by following guaranteed delivery procedures described in the Prospectus under
"The Exchange Offer-- Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Exchangeable Preferred Stock held by them as nominee or in a
fiduciary capacity. The Company will pay or cause to be paid all stock transfer
taxes applicable to the exchange of Old Exchangeable Preferred Stock pursuant to
the Exchange Offer, except as set forth in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Exchangeable Preferred Stock, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
RURAL CELLULAR CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT 99.7
FORM OF
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
To: Our Clients
Enclosed for your consideration is a Prospectus, dated , 1998
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Rural Cellular
Corporation (the "Company") to exchange its registered 9 5/8% Series B Senior
Subordinated Notes Due 2008 (the "New Notes") for any and all of its outstanding
9 5/8% Series A Senior Subordinated Notes Due 2008 (the "Old Notes"), upon the
terms and subject to the conditions described in the Prospectus. The Exchange
Offer is being made in order to satisfy certain obligations of the Company
contained in the Notes Exchange and Registration Rights Agreement dated as of
May 14, 1998, between the Company and the Initial Purchasers.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City Time, on , 19 (the "Expiration Date") (30 days
following the commencement of the Exchange Offer) unless extended by the
Company. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time before 5:00 p.m., New York City Time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided
in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City Time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for your information
only and may not be used directly by you to tender Old Notes.
1
<PAGE>
INSTRUCTIONS WITH RESPECT TO
EXCHANGE OFFER
This undersigned acknowledges receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by the Company
with respect to the Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
<TABLE>
<S> <C>
Aggregate Principal Amount of Old Notes
9 5/8% Series A Senior Notes Due 2008
-------------------------------------------
Please do not tender any Old Notes
held by you for my account
-------------------------------------------
-------------------------------------------
Dated: , 1998
------------ (Signature(s)
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
Area Code(s) and Telephone Number(s)
-------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
2
<PAGE>
EXHIBIT 99.8
FORM OF
RURAL CELLULAR CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
11 3/8% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK
To: Our Clients
Enclosed for your consideration is a Prospectus, dated _______________,
19__(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Rural Cellular
Corporation (the "Company") to exchange its registered 11 3/8% Series B Senior
Exchangeable Preferred Stock (the "New Exchangeable Preferred Stock") for any
and all of its outstanding 11 3/8% Series A Senior Exchangeable Preferred Stock
(the "Old Exchangeable Preferred Stock"), upon the terms and subject to the
conditions described in the Prospectus. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the Preferred
Stock Exchange and Registration Rights Agreement dated as of May 14, 1998,
between the Company and the Initial Purchasers.
This material is being forwarded to you as the beneficial owner of the Old
Exchangeable Preferred Stock carried by us in your account but not registered in
your name. A tender of such Old Exchangeable Preferred Stock may only be made by
us as the holder of record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Exchangeable Preferred Stock held by us for your account,
pursuant to the terms and conditions set forth in the enclosed Prospectus and
Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Exchangeable Preferred Stock on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at 5:00 p.m., New York City Time, on _________________, 19__ (the
"Expiration Date") (30 days following the commencement of the Exchange Offer)
unless extended by the Company. Any Old Exchangeable Preferred Stock tendered
pursuant to the Exchange Offer may be withdrawn at any time before 5:00 p.m.,
New York City Time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Exchangeable Preferred Stock.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Exchangeable
Preferred Stock from the holder to the Company will be paid by the
Company, except as otherwise provided in the Instructions in the Letter
of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City Time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Exchangeable Preferred Stock, please
so instruct us by completing, executing and returning to us the instruction form
on the back of this letter. The Letter of Transmittal is furnished to you for
your information only and may not be used directly by you to tender Old
Exchangeable Preferred Stock.
1
<PAGE>
INSTRUCTIONS WITH RESPECT TO
EXCHANGE OFFER
This undersigned acknowledges receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by the Company
with respect to the old Exchangeable Preferred Stock.
This will instruct you to tender the Old Exchangeable Preferred Stock held
by you for the account of the undersigned, upon and subject to the terms and
conditions set forth in the Prospectus and the related Letter of Transmittal.
<TABLE>
<S> <C>
Aggregate No. of Shares
11 3/8% Senior Exchangeable Preferred Stock
-------------------------------------------
Please do not tender any Old Exchangeable
Preferred Stock held by you for my account
-------------------------------------------
-------------------------------------------
Dated: , 1998
------------ (Signature(s)
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
Area Code(s) and Telephone Number(s)
-------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Exchangeable Preferred Stock held by us for your account
will be tendered unless we receive written instructions from you to do so.
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all the Old
Exchangeable Preferred Stock held by us for your account.
2
<PAGE>
EXHIBIT 99.9
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
RURAL CELLULAR CORPORATION
9 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
(CUSIP #781904 AA 5)
To: Registered Holder and/or Participant of the Book-Entry Transfer Facility
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus") of Rural Cellular Corporation, a Minnesota corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its registered 9 5/8% Series B Senior Subordinated Notes Due
2008 (the "New Notes") for any outstanding 9 5/8% Series A Senior Subordinated
Notes Due 2008 (the "Old Notes"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ _________ of the 9 5/8% Senior Subordinated Notes due 2008 (CUSIP #781904
AA 5).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
/ / To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if
any):
$ _________ of the 9 5/8% Senior Subordinated Notes Due 2008 (CUSIP
#781904 AA 5).
/ / NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representations and warranties contained in the Letter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) the holder is
not an "affiliate" of the Company, (ii) any New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder and
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it represents that such Old Notes were
acquired as a result of market-making activities or other trading activities,
and it acknowledges that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, such broker-dealer is not deemed to admit that it is an "underwriter"
within the meaning of the Securities Act of 1933, as amended.
1
<PAGE>
SIGN HERE
NAME OF BENEFICIAL OWNER(S): ___________________________________________________
SIGNATURE(S): __________________________________________________________________
NAME(S) (PLEASE PRINT): ________________________________________________________
ADDRESS: _______________________________________________________________________
TELEPHONE NUMBER: ______________________________________________________________
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER: _____________________________
DATE: __________________________________________________________________________
2
<PAGE>
EXHIBIT 99.10
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
RURAL CELLULAR CORPORATION
11 3/8% SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK
(CUSIP #781904 20 6)
To: Registered Holder and/or Participant of the Book-Entry Transfer Facility
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus") of Rural Cellular Corporation, a Minnesota corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its registered 11 3/8% Series B Senior Exchangeable
Preferred Stock (the "New Exchangeable Preferred Stock") for any outstanding
11 3/8% Series A Senior Exchangeable Preferred Stock (the "Old Exchangeable
Preferred Stock"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Exchangeable Preferred Stock held by you
for the account of the undersigned.
The aggregate number of shares of Old Exchangeable Preferred Stock held by
you for the account of the undersigned is (fill in amount):
_________ shares of 11 3/8% Senior Exchangeable Preferred Stock (CUSIP
#781904 20 6).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
/ / To TENDER the following shares of Old Exchangeable Preferred Stock
held by you for the account of the undersigned (insert number of
shares of Old Exchangeable Preferred Stock to be tendered, if any):
_________ shares of 11 3/8% Senior Exchangeable Preferred Stock (CUSIP
#781904 20 6).
/ / NOT to TENDER any Old Exchangeable Preferred Stock held by you for
the account of the undersigned.
If the undersigned instructs you to tender the Old Exchangeable Preferred
Stock held by you for the account of the undersigned, it is understood that you
are authorized to make, on behalf of the undersigned (and the undersigned, by
its signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations, that (i) the holder is not an "affiliate" of the Company, (ii)
any New Exchangeable Preferred Stock acquired pursuant to the Exchange Offer is
being acquired in the ordinary course of business of the person receiving such
New Exchangeable Preferred Stock, whether or not such person is the holder and
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Exchangeable Preferred Stock. If the undersigned is a broker-dealer that will
receive New Exchangeable Preferred Stock for its own account in exchange for Old
Exchangeable Preferred Stock, it represents that such Old Exchangeable Preferred
Stock was acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Exchangeable Preferred Stock, such broker-dealer is not deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933, as
amended.
1
<PAGE>
SIGN HERE
NAME OF BENEFICIAL OWNER(S): ___________________________________________________
SIGNATURE(S): __________________________________________________________________
NAME(S) (PLEASE PRINT): ________________________________________________________
ADDRESS: _______________________________________________________________________
TELEPHONE NUMBER: ______________________________________________________________
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER: _____________________________
DATE: __________________________________________________________________________
2
