<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Rural Cellular Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
April , 1998
Dear Shareholder of Rural Cellular Corporation:
On behalf of the Board of Directors and Management, it is my pleasure to invite
you to the Annual Meeting of Rural Cellular Corporation (RCC) Shareholders.
The annual meeting will be held on Thursday, May 21, 1998 at Arrowwood, A
Radisson Resort, 2100 Arrowwood Lane in Alexandria, Minnesota, at 2:00 p.m.,
Minnesota time. At the meeting, we will vote on the matters described in the
attached Proxy Statement and Notice of Annual Meeting of Shareholders.
Additionally, we will review RCC's progress and recent growth initiatives as
well as our vision and strategy for continued growth and success.
You are urged to read the enclosed Notice of Annual Meeting and Proxy Statement
so that you may be informed about the business to come before the Annual Meeting
of Shareholders. It is also important that you complete and sign the enclosed
proxy. RCC is your company, and I strongly urge you to exercise your right to
vote. Included with the Proxy Statement is the Company's Annual Report and Form
10-K for fiscal year 1997 as filed with the Securities and Exchange Commission.
PLEASE MARK, SIGN AND RETURN YOUR PROXY(IES) PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
On behalf of your Board of Directors and Management, thank you for returning
your proxy and for your continued support of and interest in Rural Cellular
Corporation.
We hope that you will be able to attend the meeting and look forward to seeing
you there.
Sincerely,
Richard P. Ekstrand
President and Chief Executive Officer
<PAGE>
RURAL CELLULAR CORPORATION
3905 DAKOTA STREET S.W.
ALEXANDRIA, MINNESOTA 56308
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
------------------------
Please take notice that the Annual Meeting of the Shareholders of Rural Cellular
Corporation, a Minnesota corporation (the "Company"), will be held at Arrowwood,
A Radisson Resort, 2100 Arrowwood Lane, Alexandria, Minnesota, on Thursday, May
21, 1998 at 2:00 p.m., Minnesota time, to consider and vote upon the following
matters:
1. To approve an amendment to the Company's Bylaws regarding the number of
directors;
2. To elect two directors, each for a three-year term;
3. To approve an increase in the number of shares authorized to be issued under
the 1995 Stock Compensation Plan;
4. To ratify appointment of Arthur Andersen LLP as the Company's independent
auditors for fiscal 1998; and
5. To act upon such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The Board of Directors of the Company has fixed the close of business on March
23, 1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. The transfer books of the Company
will not be closed.
Shareholders are urged to complete, date, sign, and return the accompanying
Proxy in the enclosed, self-addressed envelope. The Board of Directors of the
Company sincerely hopes, however, that all shareholders who can attend the
Annual Meeting will do so.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Don C. Swenson
Secretary
Dated: April , 1998
<PAGE>
RURAL CELLULAR CORPORATION
3905 DAKOTA STREET S.W.
ALEXANDRIA, MINNESOTA 56308
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
------------------------
SOLICITATION AND REVOCATION OF PROXIES
The accompanying Proxy is solicited by the Board of Directors of Rural
Cellular Corporation (the "Company") in connection with the Annual Meeting of
the Shareholders of the Company, which will be held on May 21, 1998, and any
adjournments thereof.
The person giving the enclosed Proxy has the power to revoke it at any time
prior to the convening of the Annual Meeting. Revocation must be in writing,
signed in exactly the same manner as the Proxy, and dated. Revocations of Proxy
will be honored if received at the offices of the Company, addressed to Don C.
Swenson, Secretary, on or before May 20, 1998. In addition, on the day of the
meeting, prior to the convening thereof, revocations may be delivered to the
tellers, who will be present at the meeting. Revocation may also be effected by
delivery of an executed, later dated Proxy. Unless revoked, all properly
executed Proxies received in time will be voted.
Proxies not revoked will be voted in accordance with the choice specified by
shareholders on the Proxies. Proxies which are signed but which lack any such
specification will, subject to the following, be voted FOR the directors
nominated by the Board of Directors and listed herein and FOR Items 1, 3 and 4.
If a shareholder abstains from voting as to any matter, then the shares held by
such shareholder will be deemed present at the meeting for purposes of
determining a quorum and for purposes of calculating the vote with respect to
such matter, but shall not be deemed to have been voted in favor of such matter.
Abstentions, therefore, as to any proposal will have the same effect as votes
against such proposal. If a broker turns in a "non-vote" Proxy, indicating a
lack of voting instruction by the beneficial holder of the shares and lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote Proxy shall be deemed present
at the meeting for purposes of determining a quorum but shall not be deemed to
be represented at the meeting for purposes of calculating the vote required for
approval of such matter.
The Company will pay for costs of soliciting Proxies, including the costs of
preparing and mailing the Notice of Annual Meeting of Shareholders and this
Proxy Statement. Solicitation will be primarily by mailing this Proxy Statement
to all shareholders entitled to vote at the meeting. Proxies may be solicited by
officers or other employees of the Company who will receive no special
compensation for their services. The Company may reimburse brokers, banks, and
others holding shares in their names for others for the costs of forwarding
proxy material to, and obtaining Proxies from, beneficial owners.
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The Annual Report of the Company, including financial statements, for the
fiscal year ended December 31, 1997, is being mailed with this Proxy Statement.
Copies of this Proxy Statement and Proxies will first be mailed to shareholders
on or about April , 1998.
VOTING RIGHTS
Only shareholders of record at the close of business on March 23, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. As of that date, there were issued and outstanding 7,612,504 shares of
Class A Common Stock and 1,260,668 shares of Class B Common Stock, the only
classes of securities of the Company entitled to vote at the meeting. Each
holder of record of Class A Common Stock is entitled to one vote for each share
registered in his or her name as of the record date, and each holder of record
of Class B Common Stock is entitled to ten votes for each share registered in
his or her name as of the record date. The Articles of Incorporation of the
Company do not grant the shareholders the right to vote cumulatively for the
election of directors. No shareholder will have appraisal rights or similar
dissenter's rights as a result of any matters expected to be voted on at the
meeting. The presence in person or by proxy of holders of a majority of the
voting power represented by the outstanding shares of the Class A and Class B
Common Stock, in the aggregate, entitled to vote at the Annual Meeting will
constitute a quorum for the transaction of business.
COMMON STOCK OWNERSHIP
The following table sets forth certain information provided to the Company
by the holders or contained in the Company's stock ownership records regarding
beneficial ownership of the Company's Common Stock as of March 23, 1998 by (i)
each person known by the Company to be the beneficial owner of more than 5% of
any class of the Company's outstanding Common Stock; (ii) the Chief Executive
Officer and each executive officer whose total annual salary and bonus exceeded
$100,000 during the year ended December 31, 1997 ("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 Securities and Exchange Commission, a person is
deemed to be the beneficial holder of shares that such person has a right to
acquire by exercise of an option exercisable at or becoming exercisable within
60 days of the record date ("currently exercisable option").
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------- ------------------------ PERCENTAGE OF
NAME AND ADDRESS NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF COMBINED VOTING
OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS 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
Telephone & Data Systems, Inc.(2) ................. 671,799 8.8 137,398 10.9 % 10.1
30 North LaSalle Street
Chicago, IL 60602
T. Rowe Price Associates, Inc.(3) ................. 511,400 6.7 -- -- 2.5
100 E. Pratt Street
Baltimore, MD 21202
Goldman Sachs & Co.(4) ............................ 495,800 6.5 -- -- 2.5
85 Broad Street
New York, New York 10004
</TABLE>
2
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<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------- ------------------------ PERCENTAGE OF
NAME AND ADDRESS NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF COMBINED VOTING
OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS POWER
- --------------------------------------------------- ---------- ------------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Arvig Enterprises, Inc. ........................... 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 ................................. 94,106 1.2 85,332 6.8 4.7
Telephone Cooperative(5)
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(6)............................. 173,226 2.3 32,708 2.6 2.5
Robert K. Eddy(7).................................. 158,123 2.1 54,289 4.3 3.5
Jeffrey S. Gilbert(8).............................. 30,885 * -- -- *
Marvin C. Nicolai(9)............................... 212,607 2.8 86,189 6.8 5.3
George M. Revering(10)............................. 25,994 * 38,538 3.1 2.0
Don C. Swenson(11)................................. 374,257 4.9 121,664 9.7 7.9
George W. Wikstrom(12)............................. 93,535 1.2 34,944 2.8 2.2
Scott G. Donlea(13)................................ 29,024 * -- -- *
Wesley E. Schultz(14).............................. 46,083 * -- -- *
All directors and executive officers as a group (9 1,143,734 14.6 368,332 29.2 23.6
persons)(15).....................................
</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) 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.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
3
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(3) 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."
(4) 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.
(5) Includes 19,285 shares of Class A Common Stock owned by a subsidiary of
Paul Bunyan Rural Telephone Cooperative.
(6) 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.
(7) Includes 145,123 shares of Class A Common Stock and 54,289 shares of Class
B Common Stock owned by Sherburne Tel-Com, Inc., of which Mr. Eddy is
President. Sherburne Tel-Com, Inc. is a subsidiary of Sherburne Tele
Systems, Inc., of which Mr. Eddy is a shareholder. Also includes 10,500
shares of Class A Common Stock that may be purchased upon exercise of
currently exercisable options.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
4
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(13) 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.
(14) Includes 45,500 shares of Class A Common Stock that may be purchased upon
exercise of currently exercisable options.
(15) See Notes 6 through 14 above.
ITEM NO. 1
AMENDMENT TO THE COMPANY'S
BYLAWS REGARDING NUMBER OF DIRECTORS
The Board of Directors has determined that certain amendments to the
Company's Bylaws are advisable and has voted to recommend that the shareholders
approve and adopt such amendments. The proposal was approved by all directors
present at a meeting at which six of the current seven directors were in
attendance.
The Board of Directors is submitting to the shareholders an amendment to
Section 3.02 of Article III of the Company's Bylaws (the "Bylaws"), which will
provide for a minimum number of three directors and maximum number of nine
directors. The provision will also permit the maximum number of directors to be
increased by the number of any additional directors required to comply with the
applicable terms of any class or series of stock (not including Common Stock)
that allows for election of directors by the holders under certain
circumstances, such as default, in accordance with Section 3.01 of the Company's
Articles of Incorporation (the "Articles"). As provided in Section 9.01 of the
Bylaws, this amendment of Section 3.02 requires the affirmative vote of the
holders of not less than two-thirds ( 2/3) of the voting power of all shares
outstanding and entitled to vote, voting together as a single class.
SUMMARY OF PROVISIONS OF SECTION 3.02 AND THE PROPOSED AMENDMENT
The Articles and the Bylaws currently provide for a Board of Directors
divided into three classes of directors serving staggered three-year terms, with
a minimum of three directors constituting the entire Board of Directors. At
present, seven directors are serving. If the two proposed nominees are elected
at the annual meeting, there will be six directors, two in each of the three
classes. The proposed amendment to Section 3.02 of the Bylaws provides for a
minimum of three and a maximum of nine directors. The amendment would permit the
total number of directors to be increased to not more than nine by the Board of
Directors. In addition, the total number of directors could be increased or
decreased (provided any such decrease does not shorten the term of an incumbent
director) to not more than nine or less than three by the holders of a majority
of the voting power of the outstanding shares present at a duly held meeting of
the shareholders. Section 3.02 currently provides that if the number of
directors is increased or decreased, such increase or decrease is to be
apportioned among the three classes to maintain approximate equality of the
number of directors in each class.
The Bylaws currently provide that any vacancy occurring in the Board of
Directors as a result of resignation, death, removal, retirement or
disqualification may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director, and a director so
selected will hold office for the remaining term of the director's predecessor.
The proposed amendment would provide that any additional director of any class
appointed by the Board of Directors to fill a vacancy resulting from an increase
in the number of directors will hold office until the next meeting of
shareholders at which directors are elected.
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<PAGE>
The amendment to Section 3.02 further provides that, notwithstanding the
other provisions of Section 3.02, if the holders of any class or series of
capital stock other than common stock (e.g. preferred stock) have the right,
voting separately as a class, to elect one or more directors (such as is often
required by the terms of preferred stock in the event dividend payments are in
arrears for a period of time), then the total number of directors shall be
increased by the number of directors that such holders are entitled to elect.
Other matters, such as the method of election, term of office, filling of
vacancies and other features of such directorships will be governed by or
pursuant to the terms of the certificate of designation or other instrument
creating such class or series of stock, and such directors would not be
classified pursuant to Section 3.02 unless so provided by such terms.
The foregoing description of proposed amendment to Section 3.02 of the
Bylaws of the Company is not intended to be complete and is qualified in its
entirety by reference to the complete text of Section 3.02 of the Bylaws,
attached to this Proxy Statement as Appendix A.
POTENTIAL ANTITAKEOVER EFFECTS
The primary purpose of the proposed amendment is to clarify within the
Bylaws how the number of directors is to be determined, as contemplated by the
Minnesota Business Corporation Act ("MBCA") and the Articles. The Board of
Directors believes that adoption of the proposed amendment will not have
significant impact on the current ability of shareholders to change the
composition of the incumbent Board of Directors, but, in conjunction with other
provisions already contained in the Articles and Bylaws, could make more
difficult attempts to acquire control of the Company. The limitation on the
total number of directors may deter attempts to take control of the Board of
Directors by increasing its size and filling the resulting vacancies with those
in favor of the takeover. The proposed amendment is not being proposed as a
result of any current effort to change the composition of the Board of
Directors, gain control of the Company, or organize a proxy contest. The Board
of Directors does not currently contemplate adopting, or recommending to the
shareholders for their adoption, any further amendments to the Company's
Articles and Bylaws that would affect the ability of third parties to take over
or change control of the Company.
Certain other provisions of the Articles and Bylaws could also 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. None of these provisions will be changed by the amendment to
Section 3.02 or are submitted for shareholder vote. In addition, certain
provisions of the MBCA and certain Company stock plans and employment agreements
could also deter such attempts.
CLASSIFIED BOARD OF DIRECTORS, REMOVAL, VACANCIES. The Articles 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 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
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<PAGE>
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 of 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 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.
SUPERMAJORITY VOTE. The Articles 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
and Bylaws. Provisions requiring such approval include those described above.
UNDESIGNATED SHARES. The authorized capital stock of the Company consists
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, and
10,000,000 undesignated shares, par value $.01 per share (the "Undesignated
Shares"). The Articles authorize the Board of Directors to issue, from time to
time and without further shareholder action, one or more series of 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 Common Stock and could discourage any attempt to obtain
control of the Company.
MINNESOTA LAW. The Company is subject to certain provisions of Minnesota
law which may deter a change in control of the Company. Under the Minnesota
Business Combination Act, in the event the Company has an interested
shareholder, that is, a beneficial holder of at least 10% of the outstanding
voting shares (including an affiliate or associate of the Company who, within
the preceding four years, was a 10% shareholder regardless of such person's
present shareholdings), the Company is precluded from entering into certain
specified business combinations with, or proposed by, or on behalf of, the
interested shareholder (or affiliated or associated persons) for at least four
years after the shareholder acquires its 10% stock interest unless a committee
of the Board consisting of all of its disinterested directors (excluding present
officers and employees of the Company and persons who were officers or employees
of the Company within the preceding five years) approves the acquisition of the
10% stock interest or the business combination before the date on which the
shareholder acquires its 10% interest.
For purposes of the statute, business combinations include the following
transactions with an interested shareholder (or affiliated or associated
persons): (i) certain mergers of the Company or its subsidiaries, statutory
share exchanges or dispositions of substantial assets of the Company or its
subsidiaries; (ii) issuances or transfers by the Company or its subsidiaries of
substantial shares of the Company or its subsidiaries; (iii) loans or other
financial assistance or tax advantages provided by the Company or its
subsidiaries; and (iv) recapitalizations that increase the proportionate voting
power of the interested
7
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shareholder or affiliated or associated persons. Plans for the liquidation,
dissolution or reincorporation in another state of the Company proposed by, or
on behalf of, or pursuant to agreements, arrangements or understandings with an
interested shareholder (or affiliated or associated persons) also constitute
business combinations.
The Company is also subject to the Minnesota Control Share Acquisition Act
which, subject to certain exceptions, requires the approval of the holders of a
majority of the Company's voting shares and a majority of the Company's voting
shares held by disinterested shareholders before a person purchasing 20% or more
of the Company's voting shares can vote the shares in excess of 20%. Similar
shareholder approvals are required at the 33 1/3% and majority thresholds.
STOCK OPTION PLANS AND EMPLOYMENT AGREEMENTS. The Company's 1995 Stock
Compensation Plan and Stock Option Plan for Nonemployee Directors permit the
grant of options that provide, or the amendment of outstanding option agreements
to provide, that the option will become fully exercisable in the event of
certain changes in control of the Company, notwithstanding any other limitations
in the Plans regarding exercisability. In addition, employment agreements with
the Named Executive Officers and certain other employees provide for
compensation if the individual's employment is terminated under certain
circumstances following a change in control. See "Item 3. Approval of Increase
in Number of Shares Authorized for 1995 Stock Compensation Plan--Change of
Control" and "Executive Compensation--Employment Agreements."
RECOMMENDATION AND REQUIRED VOTE
The affirmative vote of 2/3 of the combined voting power of the outstanding
shares of Common Stock is required for the approval of the proposed amendment to
the Bylaws. If the amendment to Section 3.02 is not approved, the shareholders,
by electing the two nominees of management (as described in Item No. 2), will
effectively fix the number of directors at six, with two directors in each of
the three classes. The Board of Directors strongly recommends the approval of
the proposed amendment and believes that the Company's ability to obtain
financing through the sale of securities other than Common Stock will be
hampered if the Bylaws do not provide for the election of directors by the
holders of such securities.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
AMENDMENT TO SECTION 3.02 OF THE BYLAWS. YOUR PROXY WILL BE VOTED FOR THIS
PROPOSAL UNLESS YOU SPECIFY OTHERWISE.
ITEM NO. 2
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that directors are divided
into three classes, with each class serving a three-year term and approximately
one-third of the Board of Directors to be elected each year. At the 1998 Annual
Meeting, two Class I directors will be elected, each to hold office for a term
expiring at the Annual Meeting of Shareholders to be held in 2001, or until his
successor has been elected and qualified, or until his death, resignation, or
removal, if earlier.
Two directors in Class III whose terms are expiring, Jeffrey S. Gilbert and
Marvin C. Nicolai, have been nominated by the Board of Directors for reelection.
Election of directors will be determined by a majority vote of the combined
voting power of all shares of Common Stock present in person or by proxy and
voting at the Annual Meeting.
If the proposed amendment to Section 3.02 (See Item No. 1) is not approved,
election of the two nominees will effectively fix the number of directors at
six, two in each of the three classes.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE ABOVE NOMINEES BE
ELECTED. UNLESS INSTRUCTED NOT TO VOTE FOR THE ELECTION OF THE NOMINEES, THE
PROXIES WILL VOTE TO ELECT THE NOMINEES ABOVE NAMED. IF ANY NOMINEE IS NOT A
CANDIDATE FOR ELECTION AT THE MEETING, THE PROXIES MAY VOTE FOR SUCH OTHER
PERSON AS THEY, IN THEIR DISCRETION, MAY DETERMINE.
8
<PAGE>
Certain information regarding the nominees and the continuing directors of
the Company is set forth below:
NOMINEES FOR ELECTION (TERMS EXPIRING IN 2001)
JEFFREY S. GILBERT, 48, 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. Mr. Gilbert
had served as General Manager of Deer River 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,
Inc. ("Cellular 2000") and the Minnesota Telephone Association ("MTA") and a
member of the Board of Governors of Switch 2000 LLC ("Switch 2000") and Rural
Vision LLC, a DBS Company.
MARVIN C. NICOLAI, 56, 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, Minnesota Equal Access Network
Services, Inc. ("MEANS"), and Independent Information Services Corp. and a
member of the Board of Governors of Independent Emergency Services LLC.
CONTINUING CLASS II DIRECTORS (TERMS EXPIRING IN 1999)
GEORGE M. REVERING, 56, has been a director of the Company since 1990. Mr.
Revering has been President of Midwest Information Systems, Inc. ("MISI") since
1976 and is President of Midwest Telephone Company and 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., the general partner of a
partnership that 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.
DON C. SWENSON, 56, 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.
CONTINUING CLASS III DIRECTORS (TERMS EXPIRING IN 2000)
RICHARD P. EKSTRAND, 48, 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 and as a director of Cellular 2000. Mr.
Ekstrand is past president of the MTA and the Association of Minnesota Telephone
Utilities. He currently serves as a director for the Rural Cellular Association
and is active in the Cellular Telecommunications Industry Association ("CTIA"),
serving on the Board of Directors, Executive Committee, Small Operators
Committee and Foundation Committee.
GEORGE W. WIKSTROM, 60, 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 a director of Cellular 2000 and as a governor of Switch 2000. Mr.
Wikstrom has been the
9
<PAGE>
Commissioner of the Northwest Regional Development Commission since 1979 and
serves as a director of the Association of Minnesota Telephone Utilities and
MEANS.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1997, the Board of Directors held 15 meetings. All directors
attended at least 75% of the meetings of the Board and the committees on which
they served.
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. Jeffrey S. Gilbert (Chair), Marvin C. Nicolai and George
M. 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. The Audit Committee held two meetings during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Don C. Swenson (Chair), 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. The Compensation Committee held nine meetings during 1997.
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, 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules promulgated thereunder, requires the Company's officers,
directors, and holders of 10% or more of its outstanding Common Stock to file
certain reports with the Securities and Exchange Commission (the "Commission").
To the Company's best knowledge, based solely on information provided to it by
the reporting individuals, all of the reports required to be filed by these
individuals were filed.
10
<PAGE>
ITEM NO. 3
APPROVAL OF INCREASE IN NUMBER OF SHARES AUTHORIZED FOR
1995 STOCK COMPENSATION PLAN
The 1995 Stock Compensation Plan (the "Plan") was adopted in September 1995
and has since been amended by the Board of Directors to conform to new rules
adopted under Section 16 of the Exchange Act. The Board and the shareholders
also approved an increase in the number of shares that may be issued under the
Plan.
PROPOSED INCREASE IN NUMBER OF SHARES. A maximum of 890,000 shares of Class
A Common Stock is currently authorized to be issued under the Plan. As of the
end of the 1997 fiscal year, 666,950 of such shares were subject to outstanding
options. During 1998, the Board has granted options to purchase, in the
aggregate, 92,500 shares, including options to purchase 50,000 shares, in the
aggregate, to the Named Executive Officers. The Board anticipates granting
additional options to management employees, including employees of companies
that the Company acquires, as part of its incentive program. In order to have
sufficient shares available, the Board has recommended that the number of shares
reserved for issuance under the Plan be increased by 510,000 to 1,400,000. As of
March 23, 1998, 7,612,504 shares of Class A Common Stock and 1,260,668 shares of
Class B Common Stock were issued and outstanding. On March 23, 1998, the closing
price for the Class A Common Stock on The Nasdaq National Market was $17.00 per
share.
DESCRIPTION OF PLAN. 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 nonqualified 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.
SHARES SUBJECT TO THE PLAN. The shares of Class A Common Stock that may be
issued or transferred to grantees under the Plan may be unissued shares or
treasury shares. The Plan provides for appropriate adjustment in the number of
shares subject to the Plan and to the grants previously made if there is a stock
split, stock dividend, reorganization or other relevant change affecting the
Company's corporate structure or its equity securities. If shares subject to a
grant are not issued or transferred to the extent permitted prior to expiration
of the grant or an award is otherwise forfeited, the shares will become
available for inclusion in future grants.
ADMINISTRATION. The Plan is administered by the Board or a committee
composed of "non-employee" directors (as defined in Rule 16b-3 under the
Exchange Act). The Board or committee determines the participants, grants stock
options, with or without stock appreciation rights, and other awards,
establishes rules and regulations for the operation of the Plan, and determines
the price, term, vesting schedule, number of shares and other terms of options
and other awards. The Board or committee may delegate its powers and duties to
members of the Company's administration with respect to participants who are not
subject to Section 16 of the Exchange Act.
ELIGIBLE PARTICIPANTS. Employees eligible to receive grants under the Plan
are the officers and certain other key employees of the Company, which as of
March 23, 1998 totaled 56 persons. The number of grantees could vary from year
to year.
The following table sets forth as of March 31, 1998, the number of stock
options granted to the Named Executive Officers (see "Summary Compensation
Table"), all current executive officers as a group, and all employees as a
group. No nonemployee director or other nonemployee has received any grant
11
<PAGE>
under the Plan, nor has any person (other than a Named Executive Officer)
received a grant to purchase 5% or more of the shares available under the Plan.
<TABLE>
<CAPTION>
TOTAL OPTIONS
GRANTED UNDER
THE PLAN (#)
--------------
<S> <C>
NAMED EXECUTIVE OFFICERS:
Richard P. Ekstrand......................................................... 186,750
Scott G. Donlea............................................................. 100,000
Wesley E. Schultz........................................................... 109,000
ALL EXECUTIVE OFFICERS AS A GROUP (3 persons)................................. 395,750
ALL EMPLOYEES AS A GROUP (excluding executive officers)....................... 358,700
</TABLE>
STOCK OPTIONS. Options granted under the Plan may be in the form of either
options that qualify as "incentive stock options" under Section 422 of the Code
("ISOs") or those that do not qualify as such ("NQSOs"). The term of an option
will be fixed by the Board or committee, but no option may have a term of more
than ten years from the date of grant. Options will be exercisable at such times
as determined by the Board or committee. The option exercise price will be
determined by the Board or committee at the time of grant but will not be less
than 85% of the fair market value of the Common Stock on the date of grant (100%
of the fair market value for ISOs). The grantee may pay the option price in cash
or, if permitted by the Board or committee, by delivering to the Company shares
of Common Stock already owned by the grantee that have a fair market value equal
to the option exercise price. The Code also places the following additional
restrictions on the award of ISOs. If an ISO is granted to a participant who
owns, at the date of grant, in excess of 10% of the Company's outstanding Common
Stock, the exercise price must be at least 110% of the fair market value on the
date of grant and the term of the ISO may be no more than five years from the
date of grant. The total fair market value of shares subject to ISOs which are
exercisable for the first time by any participant in any given calendar year
cannot exceed $100,000 (valued as of the date of grant).
STOCK APPRECIATION RIGHTS. The Board or committee may grant stock
appreciation rights ("SARs") in connection with a stock option granted under the
Plan. If a grantee exercises a SAR, the grantee will receive an amount equal to
the excess of the fair market value of the shares with respect to which the SAR
is being exercised over the option exercise price of the shares. If a SAR is
exercised in whole or in part, the right under the related option to purchase
shares with respect to which the SAR has been exercised will terminate to the
same extent. If a stock option is exercised, any SAR related to the shares
purchased will terminate.
OTHER STOCK-BASED AWARDS. The Board or committee, in its discretion, may
grant other awards that are valued in whole or in part by reference to, or
otherwise based on, the Common Stock, including, without limitation, performance
shares, convertible preferred stock, convertible debentures, or exchangeable
securities. Such awards may be granted in addition to or in tandem with stock
options or stock appreciation rights granted under the Plan. The Board or
committee may set such terms with regard to the vesting of such awards as it
deems reasonable.
TERMINATION OF EMPLOYMENT. Unless otherwise provided in the related award
agreement, awards granted under the Plan are generally not transferable other
than 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. Following the
death of an optionee, any option held may be exercised, to the extent such
option was exercisable at the time of death or on such accelerated basis as the
Board or committee may determine at or after grant, 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 Board or committee may
12
<PAGE>
specify at grant) from the date of such death or until the expiration of the
stated term of the option, whichever period is shorter. If a participant's
employment by the Company is terminated because of disability, any option held
by such participant may thereafter be exercised, to the extent it was
exercisable at the time of termination or on such accelerated basis as the Board
or committee may determine at or after grant, until the expiration of the stated
term of such option (unless otherwise specified by the Board or committee at the
time of grant). If the optionee dies prior to the expiration of any unexercised
option, the option may thereafter be exercised to the extent it was exercisable
at the time of death for a period of one year from the date of death or until
the expiration of the stated term of the option, whichever period is shorter. If
any optionee's employment by the Company is terminated for any other reason, the
option may be exercised, to the extent otherwise then exercisable, for the
lesser of three months from the date of termination of employment or the balance
of the term of the option. Terms for awards other than stock options and stock
appreciation rights may be set by the Board or committee at the time of the
granting of the award.
CHANGE OF CONTROL. In the event of a "Change in Control" (as defined in the
Plan) any award granted under the Plan will become fully exercisable and vested.
For purposes of the Plan, a "Change in Control" occurs when (i) the majority of
the directors of the Company are persons other than persons whose election has
been solicited by the Board of Directors or have been appointed by the Board to
fill vacancies created by death, resignation, or a new position, (ii) any person
or group of persons (as defined in Section 13(d) of the Exchange Act and the
rules thereunder) acquires 30% or more of the outstanding voting stock of the
Company, or (iii) the shareholders of the Company approve a merger or
consolidation (other than a merger or consolidation with a subsidiary of the
Company or in which the Company is the surviving corporation and the
shareholders of the Company immediately prior to the merger own more than 70% of
the outstanding voting stock of the surviving corporation or its parent
corporation), exchange of shares, sale or other disposition of all or
substantially all of the Company's assets, or liquidation or dissolution of the
Company.
TAX RULES. The following is a brief summary of the federal income tax rules
currently applicable to stock options that may be granted under the Plan.
The grant of a NQSO will have no immediate tax consequences to the grantee
or to the Company. Upon the exercise of a NQSO, the grantee will recognize
ordinary income (and the Company will generally be entitled to a compensation
deduction) in an amount equal to the excess of the fair market value of the
shares of Common Stock on the date of the exercise of the option over the option
exercise price. The grantee's tax basis in the shares will be the exercise price
plus the amount of ordinary income recognized by the grantee, and the grantee's
holding period will commence on the date the shares are transferred. Special
rules apply in the event all or a portion of the exercise price is paid in the
form of stock.
Upon a subsequent sale of shares of Common Stock acquired pursuant to the
exercise of an NQSO, any difference between the grantee's tax basis in the
shares and the amount realized on the sale is treated as long-term or short-term
capital gain or loss, depending on the holding period of the shares.
The grant of an ISO will have no immediate tax consequences to the grantee
or to the Company. The exercise of an ISO by the payment of cash to the Company
will generally have no immediate tax consequences to the grantee (except to the
extent it is an adjustment in computing alternative minimum taxable income) or
to the Company. If a grantee holds the shares acquired pursuant to the exercise
of an ISO for the required holding period, the grantee generally will realize
long-term capital gain or long-term capital loss upon a subsequent sale of the
shares in the amount of the difference between the amount realized upon the sale
and the purchase price of the shares (i.e., the exercise price). In such a case,
no compensation deduction will be allowable to the Company in connection with
the grant or exercise of the ISO or the sale of shares of Common Stock acquired
pursuant to such exercise.
If, however, a grantee disposes of the shares prior to the expiration of the
required holding period (a "disqualifying disposition"), the grantee will
recognize ordinary income (and the Company will generally
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<PAGE>
be entitled to a compensation deduction) equal to the excess of the fair market
value of the shares of Common Stock on the date of exercise (or the proceeds of
the disposition, if less) over the exercise price. Special rules apply in the
event all or a portion of the exercise price is paid in the form of stock.
Certain limitations apply to the Company's deduction of compensation payable
to the person serving as its chief executive officer or to any of its four other
most highly compensated executives in office as of the end of the year in which
such compensation would otherwise be deductible. In general, the Company may not
deduct compensation, other than "performance-based" compensation, payable to
such an executive in excess of $1 million for any year.
The affirmative vote of a majority of the combined voting power of the
shares of Common Stock present and voting on such matter is necessary for the
approval of the increase in the number of shares of Class A Common Stock subject
to the 1995 Stock Compensation Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO INCREASE
THE NUMBER OF SHARES AUTHORIZED TO BE ISSUED UNDER THE 1995 STOCK COMPENSATION
PLAN BY 510,000 SHARES OF CLASS A COMMON STOCK. YOUR PROXY WILL BE SO VOTED
UNLESS YOU SPECIFY OTHERWISE.
ITEM NO. 4
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Company's independent auditors for Fiscal 1997 were Arthur Andersen LLP,
independent public accountants. The Audit Committee of the Board of Directors
has considered the qualifications and experience of Arthur Andersen LLP, and,
based upon the recommendation of the Audit Committee, the Board of Directors has
appointed them as independent auditors of the Company for the current fiscal
year, which ends December 31, 1998 ("Fiscal 1998"). Although the submission of
this matter to the shareholders is not required by law, the Board of Directors
desires to obtain the shareholders' ratification of such appointment. If
ratification is not obtained, the adverse vote will be considered as a direction
to the Board to select other auditors for the following year. However, because
of the difficulty and expense of making any substitutions of auditors for the
fiscal year already in progress, it is contemplated that the appointment for
Fiscal 1998 will stand unless the Board finds other good reason for making a
change.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement, if they desire
to do so, and to respond to appropriate questions.
The affirmative vote of a majority of the combined voting power of the
shares of Common Stock present and voting on such matter is required for
ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
FISCAL 1998. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
EXECUTIVE COMPENSATION
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
14
<PAGE>
annual salary and bonus for fiscal 1997 exceeded $100,000 (the "Named Executive
Officers") for services rendered during the last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL 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 1996 120,000 52,000 81,000 4,255
Executive Officer 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 1996 84,100 35,000 64,600 3,170
Marketing 1995 73,080 25,000 20,400 3,042
Wesley E. Schultz............................ 1997 $ 126,000 $ 30,738 6,500 $ 2,908
Vice President, Finance and 1996(2) 56,567 13,333 90,000 --
Chief Financial 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
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED 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.
(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.
15
<PAGE>
(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 VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT FISCAL
SHARES ACQUIRED FISCAL YEAR-END(#)(1) YEAR-END($)(2)
NAME ON EXERCISE (#) VALUE REALIZED ($) 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.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of the Named
Executive Officers. Each agreement may be terminated at any time by either the
individual or the Company. Each agreement prohibits the individual from engaging
in any activity competitive with the business of the Company or contacting
customers or employees of the Company for such purpose for a period of one year
following termination of the Agreement. If the individual is terminated for
other than "just cause" following a "change in control" of the Company (as
defined in the 1995 Stock Compensation Plan), 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 Code).
The employment agreements with Messrs. Ekstrand and Donlea provided for an
initial term ending December 31, 1998 and were renewable for successive one-year
periods. The employment agreement with Mr. Schultz provided for an initial term
ending May 14, 1997. By action taken by the Board during fiscal 1996 and 1997,
the terms of the employment agreements were extended to December 31, 2000. If
any of the agreements is terminated at any time by the Company 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 remainder of
the term.
16
<PAGE>
REPORT OF COMPENSATION COMMITTEE
OVERVIEW AND PHILOSOPHY. The Compensation Committee of the Board (the
"Compensation Committee") is composed entirely of nonemployee Directors. The
members of the Compensation Committee during fiscal 1997 were Don C. Swenson
(Chair), Robert K. Eddy, and George W. Wikstrom. The Compensation Committee's
duties include consideration of and recommendation 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.
The objectives of the Company's executive compensation program are:
- to attract and retain superior talent and reward individual performance;
- to support the achievement of the Company's financial and strategic goals;
and
- through stock-based compensation, align the executive officers' interest
with the success of the Company.
The Company's executive compensation program strives to be competitive with
the compensation programs of comparable wireless telecommunications companies.
In that respect, the Company compares itself to companies similar in size within
the wireless telecommunications industry. These may include companies in the
peer group described below under "Stock Performance Graph," but nonpublic
companies similar in size to the Company are also included. In comparing itself
to these companies, the Company relies upon salary survey data developed and
published by external sources, including the Cellular Telephone Industry
Association and a compensation consulting firm.
The Committee periodically conducts a review of its executive compensation
programs. The purpose of the review is to ensure that the Company's executive
compensation programs are meeting the objectives listed above. In its review,
the Committee considers data submitted by management and external data,
including the data referred to in the preceding paragraph.
Compensation for the Company's executives has three components: base salary,
annual incentive bonuses, and stock options. The Compensation Committee
recommends executive compensation at levels which, in its judgment, are
warranted by external, internal and individual circumstances.
BASE SALARY. In making recommendations to the Board of Directors regarding
an individual's base salary, the Compensation Committee considers the
compensation levels of similar positions at comparable companies, the
responsibilities and performance of the individual executive officer, and the
Company's recent financial performance.
Generally, salary determinations are made prior to the beginning of each
calendar year based upon evaluations and recommendations made by the Chief
Executive Officer. The Chief Executive Officer provides the Compensation
Committee with a performance appraisal for each other executive officer that
assesses the individual's performance in the following areas: accountabilities
of the position, individual goals and objectives, special projects and
assignments, and management skills and the achievement of an annual
training/development plan. A salary recommendation is made based upon the
individual's overall performance assessment and where the individual's salary
falls within the range of salaries for similar positions at comparable companies
within the industry. Salary determinations for newly hired executive officers
are made prior to an offer of employment and are based upon the individual's
prior experience, anticipated contribution to the Company, and the range of
salaries for similar positions at comparable companies within the industry.
Increases in the base salaries of the Company's Named Executive Officers
averaged 39% in fiscal 1997.
INCENTIVE BONUSES. Each executive officer is eligible to receive a cash
bonus at the end of the fiscal year based upon the Company's financial
performance. The purpose of this annual cash incentive program
17
<PAGE>
is to provide a direct financial incentive to the executive officers to meet or
exceed the Company's financial and other market-based performance objectives.
Potential bonus awards for executive officers are determined prior to the
beginning of each fiscal year. For fiscal 1997, each Named Executive Officer's
potential bonus was based on attainment of certain EBITDA goals and key
indicator goals for 1997 as reflected in the Company's fiscal 1997 budget.
Target bonuses were between approximately 32% and 53% of salary. For fiscal
1997, the Named Executive Officers earned bonuses of between 24% and 46% of
salary.
STOCK OPTIONS. Stock options are the principal vehicle used by the Company
for the payment of long-term compensation and to provide a stock-based incentive
to improve the Company's financial performance. The objectives of stock option
grants are to assist in the recruitment, motivation, and retention of key
professional and managerial personnel as well as to reward eligible employees
for outstanding performance.
Stock options are designed to align the interest of the Company's executives
with those of shareholders by encouraging executives to enhance the value of the
Company and, hence, the price of the Class A Common Stock and return to
shareholders. In addition, through deferred vesting, this component of the
compensation system is designed to create an incentive for the individual
executive to remain with the Company.
In 1997, stock options were granted to the Named Executive Officers. The
grants were based on the individual's actual and/or potential contributions to
the Company. The exercise price for the options was equal to the market price of
the Class A Common Stock on the date of grant. Accordingly, an executive
receiving an option is rewarded only if the market price of the Company's Class
A Common Stock appreciates. Stock options are recommended by the Compensation
Committee and authorized by the Board of Directors. The Company may periodically
grant new options to these individuals to provide continuing incentives for
future performance.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The Committee determines Mr.
Ekstrand's compensation package in accordance with the methodology described
above. In evaluating and setting the CEO's target annual compensation, the
Committee reviews the Company's business and financial performance, considering
such factors as sales, earnings, customer growth, and market share, as well as
the Company's progress with respect to its long-term goals and strategies. The
Committee does not assign relative weights or rankings to these factors, but
instead makes a subjective determination based upon a consideration of all of
these factors.
For fiscal 1997, the Compensation Committee recommended that the Chief
Executive Officer's salary be increased by approximately 47% to $176,000, based
upon its evaluation of Mr. Ekstrand's contribution toward the achievement of the
Company's financial strategies and other goals, significant Company growth
during 1996, and comparative chief executive officer salary information.
Mr. Ekstrand's bonus for fiscal 1997 was based on the formula described
above, thus linking the bonus to the Company's performance compared to
management's budget projections. For 1997, Mr. Ekstrand received a bonus of
$54,599.
In 1997 Mr. Ekstrand was granted options to purchase 11,750 shares at $13.06
per share.
OTHER INFORMATION. In 1993, Section 162(m) of the Internal Revenue Code was
adopted which, beginning in 1994, imposes an annual deduction limitation of $1.0
million on the compensation of certain executive officers of publicly held
companies. The Compensation Committee does not believe that the Section 162(m)
limitation will materially affect the Company in the near future given the
current level of the compensation of the executive officers.
Don C. Swenson Robert K. Eddy George W. Wikstrom
Members of the Compensation Committee
18
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its Common Stock for the period beginning February 8, 1996, the date
the Class A Common Stock was first traded on The Nasdaq National Market, through
December 31, 1997, with the cumulative total returns of the Standard & Poor's
Corporation ("S&P") 500 Stock Index and a peer group consisting of eight
publicly traded cellular telephone companies (described below). The comparison
assumes $100 was invested in the Company's Common Stock and in each index at the
beginning of the comparison period and reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
2/08/96 12/31/96 12/31/97
<S> <C> <C> <C>
RURAL CELLULAR CORPORATION $100 $96 $131
PEER GROUP $100 $79 $114
S & P 500 $100 $115 $153
</TABLE>
Note: The Peer Group Index was prepared by Research Data Group specifically for
the Company and consists of AirTouch Communications, Inc., Centennial Cellular
Corp., Commnet Cellular, Inc., Powertel, Inc. (formerly Intercel, Inc.),
PriCellular Corporation, Rogers Cantel Mobile Communications, Inc., United
States Cellular Corporation, and Vanguard Cellular Systems, Inc. Cellular
Communications of Puerto Rico, Inc. and Palmer Wireless, Inc., which had been
included in the Peer Group Index the past two years, are no longer publicly
traded.
19
<PAGE>
CERTAIN TRANSACTIONS
SWITCHING SERVICES
The Company utilizes switching services provided 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 1997, charges to the Company from Switch 2000 for
switching services and related equipment totaled $3,230,000. During fiscal 1997,
the Company activated its own mobile telephone switching office and has reduced
its reliance on services provided by Switch 2000. During fiscal 1998, the
Company anticipates paying Switch 2000 approximately $600,000 pursuant to the
terms of the user agreement.
TRANSACTIONS WITH SHAREHOLDERS AND OTHER RELATED ENTITIES
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
and involving affiliates of directors where the total amounts involved exceeded
5% of the related entity's annual revenues for 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 leased 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 1997, the Company was charged
$1,092,247 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 1997, the Company was
charged $554,706 by Consolidated Telephone Company and its affiliates for all
such services. Consolidated Telephone 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
1997, the Company was charged $90,168 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.
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 United States Cellular Corporation ("US Cellular"), a subsidiary of
Telephone & Data Systems, Inc. ("TDS"), which beneficially owns more than 5% of
the Company's outstanding Common Stock. Under the roaming agreements, the
Company pays for service provided to its customers in areas served by CMS or US
Cellular and receives payment for service provided to customers of CMS or US
Cellular in the Company's cellular service areas. The rates of reimbursement are
negotiated by the parties to the agreements and reflect rates charged by all
carriers. Roaming charges
20
<PAGE>
are passed through to the customer. During 1997, charges to the Company's
customers for services provided by CMS and US Cellular totaled $1,045,266 and
$50,258, respectively, and charges to customers of CMS and US Cellular by the
Company were $1,201,552 and $108,819, respectively.
RESALE OF PAGING SERVICE. The Company has entered into an agreement with
American Paging, Inc., a subsidiary of TDS, to resell certain paging service
provided by American Paging. Under the terms of this agreement, the Company was
charged $94,658 during 1997 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 phones and pagers from
the Company. During 1997, Arvig Enterprises, Inc. and its affiliates,
Consolidated Telephone Company and its affiliates, and Paul Bunyan and its
affiliates were billed $1,643, $8,366, and $11,193, respectively, for such
service and equipment.
OTHER MATTERS
The Board of Directors is not aware that any matter other than those
described in the Notice will be presented for action at the meeting. If,
however, other matters do properly come before the meeting, it is the intention
of the persons named in the enclosed Proxy to vote the proxied shares in
accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
All shareholder proposals intended to be presented at the 1999 Annual
Shareholders' Meeting must be received by the Company at its offices on or
before December , 1998.
A COPY OF THE COMPANY'S ANNUAL REPORT AND REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, ACCOMPANY THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.
It is important that Proxies be returned promptly. Shareholders are urged to
sign, date, and forward the Proxy by return mail.
BY ORDER OF THE BOARD OF
DIRECTORS
[SIGNATURE]
Don C. Swenson
Secretary
April , 1998
21
<PAGE>
APPENDIX A
REVISED SECTION 3.02 OF ARTICLE III
OF THE BYLAWS
OF RURAL CELLULAR CORPORATION
NOTE: THE FIRST TWO PARAGRAPHS ARE NEW. THERE IS NO CHANGE TO THE THIRD
PARAGRAPH.
Section 3.02. NUMBER AND TERMS OF DIRECTORS.
The aggregate number of directors as of the date this amendment to the
Bylaws is adopted shall be six, two in each class. Thereafter, the number of
directors in each class shall be the number last elected by the shareholders,
provided that the aggregate number of directors in the three classes shall not
be less than three nor more than nine. The number of directors in any class may
be increased by the Board of Directors from the number of directors last elected
by the shareholders and the resulting vacancy may be filled pursuant to Section
3.15 hereof; provided, however, that the Board of Directors may not increase the
aggregate number of directors in the three classes to more than nine, and,
further provided, that the persons appointed by the Board to fill any such
resulting vacancy shall hold office until a qualified successor is elected by
the shareholders at the next meeting of the shareholders at which directors are
elected. Vacancies occurring on the Board of Directors resulting from the death,
resignation, removal or disqualification of a director or as a result of the
expiration of a director's term need not be filled by the Board or shareholders,
provided that the Board continues to have at least the minimum number of members
required by the Articles of Incorporation.
Notwithstanding the foregoing, whenever the holders of any one or more
classes of capital stock (other than common stock) issued by the corporation
shall have the right, voting separately by class or series, to elect directors
at a regular or special meeting of shareholders, pursuant to the applicable
terms of the certificate of designation or other instrument creating such class
or series of stock as provided in the last paragraph of Section 3.01 of the
Articles of Incorporation, any directors so elected shall be in addition to the
aggregate number of directors determined in the manner set forth in the
preceding paragraph and shall increase the maximum number of directors permitted
pursuant to the provisions of the preceding paragraph. Any directors so elected
shall not be divided into classes as provided in the following paragraph unless
expressly provided by the applicable terms of the certificate of designation or
other such instrument.
The directors shall be divided into three (3) classes, designated Class I,
Class II, and Class III, and each class shall be as nearly equal in number as
possible. Each class shall be elected to three-year terms, with one class to be
elected each year. At each regular meeting of the shareholders, directors shall
be elected for a full term of three years to succeed those whose terms expire.
When the number of directors is changed, any increase or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class. In
no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the regular meeting for
the year in which the director's term expires and until a successor shall be
elected and qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
A-1
<PAGE>
RURAL CELLULAR CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS--MAY 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard P. Ekstrand and Don C. Swenson, or
either of them, proxies or proxy, with full power of substitution, to vote all
shares of CLASS A COMMON STOCK of Rural Cellular Corporation (the "Company"),
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held on May 21, 1998 at 2:00 p.m., Minnesota time, at Alexandria,
Minnesota, and at any adjournment thereof, as directed below with respect to the
proposals set forth below, all as more fully described in the Proxy Statement,
and in their discretion upon any other matter that may properly come before the
meeting or any adjournment thereof.
1. AMENDMENT TO SECTION 3.02 OF THE BYLAWS
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS (for terms ending in 2001)
Jeffrey S. Gilbert / / FOR / / WITHHOLD AUTHORITY
Marvin C. Nicolai / / FOR / / WITHHOLD AUTHORITY
3. APPROVAL OF INCREASE IN NUMBER OF SHARES AUTHORIZED FOR 1995 STOCK
COMPENSATION PLAN
/ / FOR / / AGAINST / / ABSTAIN
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
/ / FOR / / AGAINST / / ABSTAIN
5. Upon such other matters as may properly come before the meeting.
<PAGE>
The power to vote granted by this Proxy may be exercised by the named
individuals, jointly or singly, or their substitute(s), who are present and
acting at said Annual Meeting or any adjournment of said Annual Meeting. The
undersigned hereby revokes any and all prior proxies given by the undersigned to
vote at this Annual Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDER'S
(SHAREHOLDERS') INSTRUCTIONS. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSED NOMINEES AND "FOR" ITEMS 1, 3, AND 4.
It is important that each shareholder complete, date, sign, and mail this
Proxy as soon as possible.
PLEASE DO NOT FORGET TO DATE THIS PROXY
DATED AND SIGNED ___________, 1998
__________________________________
Signature of Shareholder
__________________________________
Signature of Shareholder, if
jointly held
IMPORTANT: Please date and sign
exactly as your name or names
appear hereon. When signing as
attorney, executor, trustee,
guardian, or authorized officer of
a corporation or partner of a
partnership, please give your
title as such.
/ / Please check if you plan to attend the Annual Meeting.
<PAGE>
RURAL CELLULAR CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS--MAY 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard P. Ekstrand and Don C. Swenson, or
either of them, proxies or proxy, with full power of substitution, to vote all
shares of CLASS B COMMON STOCK OF Rural Cellular Corporation (the "Company"),
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held on May 21, 1998 at 2:00 p.m., Minnesota time, at Alexandria,
Minnesota, and at any adjournment thereof, as directed below with respect to the
proposals set forth below, all as more fully described in the Proxy Statement,
and in their discretion upon any other matter that may properly come before the
meeting or any adjournment thereof.
1. AMENDMENT TO SECTION 3.02 OF THE BYLAWS
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS (for terms ending in 2001)
<TABLE>
<S> <C> <C>
Jeffrey S. Gilbert / / FOR / / WITHHOLD AUTHORITY
Marvin C. Nicolai / / FOR / / WITHHOLD AUTHORITY
</TABLE>
3. APPROVAL OF INCREASE IN NUMBER OF SHARES AUTHORIZED FOR 1995 STOCK
COMPENSATION PLAN
/ / FOR / / AGAINST / / ABSTAIN
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
/ / FOR / / AGAINST / / ABSTAIN
5. Upon such other matters as may properly come before the meeting.
<PAGE>
The power to vote granted by this Proxy may be exercised by the named
individuals, jointly or singly, or their substitute(s), who are present and
acting at said Annual Meeting or any adjournment of said Annual Meeting. The
undersigned hereby revokes any and all prior proxies given by the undersigned to
vote at this Annual Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDER'S
(SHAREHOLDERS') INSTRUCTIONS. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSED NOMINEES AND "FOR" ITEMS 1, 3, AND 4.
It is important that each shareholder complete, date, sign, and mail this
Proxy as soon as possible.
PLEASE DO NOT FORGET TO DATE THIS PROXY
Dated and Signed ___________, 1998
__________________________________
Signature of Shareholder
__________________________________
Signature of Shareholder, if
jointly held
IMPORTANT: Please date and sign
exactly as your name or names
appear hereon. When signing as
attorney, executor, trustee,
guardian, or authorized officer of
a corporation or partner of a
partnership, please give your
title as such.
/ / Please check if you plan to attend the Annual Meeting.
<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.
-2-
<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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(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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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.
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(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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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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(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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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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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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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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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.
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(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.
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(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
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(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 (subject to the approval of the Company's shareholders at the 1998
annual meeting).
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