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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from __________________ TO
____________________.
COMMISSION FILE NUMBER 0-27416
RURAL CELLULAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MINNESOTA 41-1693295
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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3905 DAKOTA STREET
ALEXANDRIA, MINNESOTA 56308
(320) 762-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ YES ___ NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate value of shares of common stock held by nonaffiliates of the
Registrant based upon the closing price on The Nasdaq National Market on March
22, 1999 (only stock held by directors, officers and their affiliates, and
holders of more than 5% of Class A or Class B stock are excluded): $50,605,144
Number of shares of common stock outstanding as of the close of
business on March 22, 1999:
Class A 7,822,137
Class B 1,198,557
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's definitive Proxy Statement relating to the
1999 Annual Meeting of Shareholders ("Proxy Statement") are
incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
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PAGE
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PART I ....................................................................................1
ITEM 1. BUSINESS.......................................................................1
ITEM 2. PROPERTIES....................................................................12
ITEM 3. LEGAL PROCEEDINGS.............................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS...........................12
PART II...................................................................................14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...........................................................14
ITEM 6. SELECTED FINANCIAL DATA.......................................................15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................................17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................28
PART III..................................................................................29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................29
ITEM 11. EXECUTIVE COMPENSATION........................................................29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................29
PART IV...................................................................................30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..............30
SIGNATURES.............................................................................31
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Rural Cellular Corporation (the "Company" or "RCC") is engaged in the
construction, development, management, and operation of cellular telephone
systems in rural markets in the Midwest and New England regions of the United
States. The Company is also engaged, through a joint venture with an affiliate
of Aerial Communications, Inc. in the construction, development, management, and
operation of PCS systems in markets in Minnesota, Wisconsin, North Dakota, and
South Dakota. At December 31, 1998, the Company provided cellular telephone
services to 187,000 customers in fifteen licensed areas consisting of two
Metropolitan Statistical Areas ("MSAs") and thirteen Rural Services Areas
("RSAs") with an estimated aggregate population ("POPs") of approximately
2,341,000. The Company also provided PCS service to 5,000 customers in four
basic trading areas ("BTA") with an aggregate estimated population of 708,000.
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in
order to provide broad areas of uninterrupted service and achieve certain
economies of scale. During 1998, the Company acquired the Massachusetts, New
Hampshire, New York, and Vermont cellular telephone licenses, operations, and
related assets of Atlantic Cellular Company L.P. and one of its subsidiaries
("Atlantic"). In addition, the Company acquired Atlantic's long distance
business. The Company also acquired the outstanding stock of Western Maine
Cellular, Inc. ("WMC"), which provides cellular services in western Maine.
In February 1999, the Company acquired all of the outstanding stock of The
Revering Group, Inc., which provides cellular service in northeastern South
Dakota.
The Company was organized under the laws of the State of Minnesota in 1990.
Subsequently, it has formed several subsidiaries in which different aspects of
its business are operated. MRCC, Inc., a Maine corporation ("MRCC"), was
organized to own and operate the Company's cellular licenses in the State of
Maine. RCC Atlantic, Inc., a Minnesota corporation ("Atlantic"), was organized
to acquire and operate the cellular telephone licenses in Massachusetts, New
Hampshire, New York and Vermont, as well as the long distance business acquired
from Atlantic. Wireless Alliance, LLC ("Wireless Alliance") is a joint venture
that is 51% owned by RCC and 49% owned by an affiliate of Aerial Communications,
Inc. This joint venture was formed in 1996 to pursue providing PCS service to
certain markets in Minnesota, Wisconsin, North Dakota and South Dakota. RCC
Paging, Inc. was organized to market, distribute and resell paging services in
Minnesota and North Dakota. Unless the context indicates otherwise, the
"Company" refers to RCC and its subsidiaries.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Information regarding the Company's business segments is contained in Note 12 of
the Notes to Consolidated Financial Statements included in this Report.
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(c) DESCRIPTION OF BUSINESS/SERVICE AREAS
RCC CELLULAR:
The Company's cellular operations consist of its Midwest operation, which
includes five contiguous RSAs in northern Minnesota and one RSA in South Dakota,
and its operations in New England, covering portions of Maine, Massachusetts,
New Hampshire, New York, and all of Vermont.
MIDWEST OPERATION:
The Company's Midwest operation ("RCC Midwest") encompasses the Company's
original service areas in northern Minnesota. In February 1999, one RSA in
northeastern South Dakota was added, bringing total POPS to approximately
705,000. This service area is adjacent to Minnesota's three largest metropolitan
areas: Minneapolis/St. Paul, Duluth and Fargo/Moorhead. Due to its location, RCC
Midwest captures significant roaming traffic from users traveling between these
metropolitan areas. The Midwest operation also offers paging services that are
part of an overall business strategy aimed at stimulating wireless usage.
Effective February 1, 1999, the Company acquired RGI, Inc. d/b/a Glacial Lakes
Cellular 2000(R) ("Glacial") for approximately $11.9 million. Operating under
the name Cellular 2000(R), Glacial provides cellular service to northeastern
South Dakota (RSA 4), which includes eight counties and is adjacent to RCC's
existing cellular operation in northern and central Minnesota. Glacial's service
encompasses 69,000 POPs and serves 7,000 customers.
NEW ENGLAND OPERATION:
The New England operation serves a geographically contiguous service area with
approximately 1.7 million POPs that covers the entire state of Vermont and
portions of Maine, New Hampshire, Massachusetts and New York. This cellular
footprint is located within short drive times of New York, Boston, Montreal,
Albany, Hartford and Providence, which have a combined Metropolitan Service Area
("MSA") population of approximately 31 million. The New England operation began
with the Company's acquisition in 1997 of service areas in Maine and was
expanded further in 1998 through the acquisition of Atlantic. The New England
operation also provides long distance service to subscribers in Vermont.
WIRELESS ALLIANCE, LLC:
Wireless Alliance, LLC ("Wireless Alliance"), a joint venture that is 51%-owned
by RCC and 49%-owned by an affiliate of Aerial Communications, Inc., was formed
in 1996 to provide PCS service to targeted markets in Minnesota, Wisconsin,
North Dakota and South Dakota. Wireless Alliance began by reselling cellular
service to gain visibility in its markets. In the second quarter of 1998, PCS
networks were launched in Fargo, North Dakota; Moorhead and Duluth, Minnesota;
Virginia and Hibbing, Minnesota and Superior, Wisconsin. In the third quarter of
1998, PCS service was launched in Sioux Falls, South Dakota, followed by Grand
Forks, North Dakota in the fourth quarter of 1998. Wireless Alliance's service
area covers 708,000 POPs. Aerial has contributed the PCS licenses to the joint
venture, and RCC is responsible for the building and managing of the networks
and marketing the services. As of December 31, 1998, Wireless Alliance served
11,000 cellular customers and 5,000 PCS customers.
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Information regarding the Company's service areas, including Wireless Alliance,
is set forth in the following table.
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PERCENTAGE DATE OF
OWNERSHIP TOTAL POPS NET POPS ACQUISITION
- -------------------------------------------- ------------ -------------- -------------- -------------------
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RCC Cellular
Midwest Cluster
Minnesota RSA 1........................ 100% 50,000 50,000 4/01/91
Minnesota RSA 2........................ 100% 64,000 64,000 4/01/91
Minnesota RSA 3........................ 100% 59,000 59,000 4/01/91
South Dakota RSA 4..................... 100% 69,000 69,000 2/1/99
Minnesota RSA 5........................ 100% 206,000 206,000 4/01/91
Minnesota RSA 6........................ 100% 257,000 257,000 4/01/91
-------------- --------------
Total Midwest POPs................. 705,000 705,000
-------------- --------------
New England Cluster
MRCC
Maine, Bangor MSA...................... 100% 143,000 143,000 5/01/97
Maine RSA 1............................ 100% 83,000 83,000 7/31/98
Maine RSA 2............................ 100% 148,000 148,000 5/01/97
Maine RSA 3............................ 100% 221,000 221,000 5/01/97
-------------- --------------
Total MRCC POPs.................... 595,000 595,000
-------------- --------------
Atlantic
Massachusetts RSA 1.................... 100% 71,000 71,000 7/01/98
New Hampshire RSA 1................... 100% 223,000 223,000 7/01/98
New York RSA 2......................... 100% 226,000 226,000 7/01/98
Vermont, Burlington MSA................ 100% 148,000 148,000 7/01/98
Vermont RSA 1.......................... 100% 210,000 210,000 7/01/98
Vermont RSA 2.......................... 100% 232,000 232,000 7/01/98
-------------- --------------
Total Atlantic POPs................ 1,110,000 1,110,000
-------------- --------------
Total New England POPs............. 1,705,000 1,705,000
-------------- --------------
Total RCC Cellular POPs........ 2,410,000 2,410,000
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Wireless Alliance (PCS)
Duluth, Minnesota/Superior, Wisconsin:
Cook, Lake, St. Louis and Carlton
(portion) Counties in Minnesota and 51% 270,000 138,000 4/10/97
Douglas County in Wisconsin............
Fargo, North Dakota/Moorhead, Minnesota:
Cass and Trail Counties in North 51% 175,000 89,000 4/10/97
Dakota and Clay County in Minnesota....
Grand Forks, North Dakota:
Grand Forks County in North Dakota 51% 102,000 52,000 4/10/97
and Polk County in Minnesota...........
Sioux Falls, South Dakota:
Minnehaha and Lincoln Counties in 51% 161,000 82,000 9/30/97
South Dakota...........................
-------------- --------------
Total PCS POPs..................... 708,000 361,000
-------------- --------------
Total POPs.................... 3,118,000 2,771,000
-------------- --------------
-------------- --------------
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* Source: Updated for July 1, 1997 estimates, 1990 U. S. Census Bureau
Official Statistics.
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PAGING
The Company offers paging service in northern Minnesota and eastern North
Dakota and resells paging services in Minnesota, Wisconsin, North Dakota and
Maine. The Company markets its paging services under the names
"KEYPAGE-Registered Trademark-", "KEYPAGE-Registered Trademark- Plus" and
"Unicel-Registered Trademark- Paging Services".
MARKETING
The Company, through its business units, offers a number of service plan
options to its customers. Most service plans have a fixed monthly access fee,
which includes a specified number of minutes. Usually, the higher the monthly
access fee, the more minutes of use that are included. Customers who
subscribe to cellular service in connection with a special promotion are
typically required to enter into a commitment for service. The Company
engages in ongoing analysis of its service plans and equipment pricing to
ensure competitiveness.
Many of the Company's customers are voice mail service customers. There is no
charge for leaving or retrieving messages, and the Company believes that its
voice mail feature stimulates cellular usage in the form of returned calls.
The Company has established preferred roaming contracts and developed system
integration with adjacent cellular carriers. This approach permits the
Company's customers to receive automatic call delivery (ACD), call
forwarding, toll-free access to voice mail, call hand-off and reduced roaming
rates. The Company and most other cellular carriers offer their customers ACD
and reduced roaming rates on a nationwide basis. ACD allows roamers to use
all of their home features including custom calling features, making their
roaming experience identical to their local service. Since ACD was
introduced, the use of airtime by roamers has increased. As adjacent carriers
increase their cellular customer base and the industry as a whole expands its
customer base, the number of roamers will continue to increase. ACD helps the
Company capture roaming traffic within its markets.
During 1998, the Company introduced, through its joint venture with the
Wireless Alliance LLC, PCS service plans for the combined and contiguous
areas of Wireless Alliance's digital network and the Company's existing
analog network. These service plans offer fixed and tiered monthly fees and
peak and off peak per minute charges with no long distance or roaming charges
for calls within the RCC Midwest calling area.
The Company markets paging services provided both through the Company-owned
system, covering northern Minnesota and eastern North Dakota, and as a
reseller of paging services covering most of Minnesota, Maine and areas
within Iowa, Wisconsin, and eastern North Dakota. The Company believes that
paging services complement cellular usage.
ROAMING MARKETS
The Company believes that attractively priced regional roaming is important
to the development of customers for all cellular carriers. Accordingly, where
possible, the Company attempts to arrange reciprocal roaming rates that allow
customers to roam at competitive prices. The Company believes that this
increases usage on all cellular systems, including the Company's systems.
Roamer revenues are a substantial source of incremental revenue for the
Company due, in part, to the fact that a number of the Company's cellular
systems are located along major travel and commuting corridors. While there
is an industry trend to reduce roaming rates, the Company is addressing this
trend through its roaming agreements, which are usually reciprocal in nature
and are at or near home rates. While on an industry-wide basis as reported in
the Cellular Telephone Industry Association ("CTIA") Data Survey dated June
30, 1998, approximately 10.7% of total cellular revenue nationally is from
roaming traffic, the Company's percentage of roamer revenue was approximately
20.5% of revenues for the year ended December 31, 1998.
DISTRIBUTION AND SALES
The Company markets its wireless services through independent sales agents,
direct sales personnel and Company-owned stores, which are managed by
district and territory managers in both the Midwest and New England clusters.
The Company believes that its territory manager strategy is a major
contributor to the Company's success. The Company experiences higher than
industry average retention levels and lower than industry average customer
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acquisition costs. MRCC implemented this distribution strategy in the third
quarter of 1997 followed by Atlantic in the third and fourth quarter of 1998.
As of March 1, 1999, the Company had approximately 300 sales agents, 160
direct sales personnel and 30 Company-owned stores.
The territory managers recruit, train, and support the independent sales
agents. The training and support provided to agents is extensive and
continual. Currently, all individuals who have customer contact in the
Midwest cluster are required to complete a certification process annually in
order to continue to sell the Company's products and services or maintain any
contact with customers. The Company is currently in the process of
implementing this process in its New England cluster. The Company provides
cellular, digital, and paging equipment to the agents for sale or rent to
customers and the agents market the Company's services utilizing a
cooperative advertising program. These sales agents include retail electronic
stores, farm implement dealers, automobile dealers, automobile parts
suppliers, college and university bookstores, video and music stores, and
local telephone companies. Most of the agents sell the Company's service in
conjunction with their principal business.
CUSTOMER SERVICE
Customer service is a significant element of the Company's operating
philosophy. The Company is committed to attracting and retaining customers by
providing consistently superior customer service. In Alexandria, Minnesota,
Bangor, Maine and Colchester, Vermont, the Company has implemented
sophisticated local monitoring and control systems and maintains customer
service departments consisting of highly trained personnel who are aware of
the needs of the customers in local markets. The Company's customer service
personnel can be accessed 24 hours a day, 365 days a year, and are capable of
handling both routine and complex technical questions. The Company believes
that easy access to its customer service professionals is essential to
maintain a high level of customer satisfaction and loyalty and that its
strong emphasis on customer service contributes to its high customer
retention rate.
The customer service centers are also responsible for processing new service
orders and service changes for existing customers. The customer service
centers also maintain customer records and manage the Company's collection
process. The customer service centers implement a quality control process
that monitors call center performance and balances customer service center
resources to match call center load levels.
Territory managers work closely with customer service center personnel to
maintain high standards of service for their existing customers as well as to
attract new customers. Company customer service center representatives
attempt to contact every new customer within 30 days from the day the
customer begins service to confirm customer satisfaction and elicit feedback.
Customers are also contacted periodically to offer additional calling
features such as voice mail, call waiting, and call forwarding and to
recommend the best service pricing plan for the customer's usage levels.
These contact programs enhance customer loyalty, maintain high retention, and
increase sales of additional features that increase customer airtime usage
and generate customer referrals.
SERVICE MARKS
The Company uses the registered service mark CELLULAR 2000-Registered
Trademark- to provide the cellular services it offers in its Midwest markets.
The CELLULAR 2000-Registered Trademark- name and related marks are owned by
Cellular 2000, Inc. ("Cellular 2000"). The Company owns 50% of Cellular 2000.
The Company and other users of the service mark, all of which are cellular
providers in Minnesota or South Dakota, are shareholders of Cellular 2000.
The only business of Cellular 2000 is the licensing of its service mark to
its shareholders.
Each Cellular 2000 shareholder has entered into a license agreement with
Cellular 2000 that allows the shareholder to use the CELLULAR 2000-Registered
Trademark- service mark for marketing within its cellular service area
subject to certain restrictions. The license agreements are relatively
restrictive and Cellular 2000 has exclusive rights to control the use of the
name. Cellular 2000 and its shareholders have entered into a buy-sell
agreement that requires, in part, a Cellular 2000 shareholder who no longer
uses CELLULAR 2000-Registered Trademark- as the principal name under which it
markets its cellular service, to offer its shares of stock in Cellular 2000
for sale to Cellular 2000 and the other shareholders at the original cost.
The Company does not pay any license fees for the use of the CELLULAR
2000-Registered Trademark- mark.
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The Company uses the registered service mark UNICEL-Registered Trademark- to
market PCS services in its Midwest cluster and to market cellular services in
Maine. This mark is owned by the Company.
Atlantic's cellular services are marketed under the service mark
CELLULARONE-Registered Trademark- and its long distance services are marketed
under the service mark LONG DISTANCE BY CELLULARONE. The Company's use of the
CELLULARONE-Registered Trademark- and LONG DISTANCE BY CELLULARONE service
marks are governed by licenses between the Company and Cellular One Group,
the owner of the service marks.
The Company also provides paging services under the service marks
KEYPAGE-Registered Trademark-, KEYPAGE-Registered Trademark- PLUS and UNICEL
Paging Services as a complement to its wireless services. These marks are
owned by the Company.
NETWORK OPERATIONS
CELLULAR
The Company has constructed and maintains an integrated network of contiguous
cellular coverage throughout the Company's cellular service areas so that a
call can be handed off from one of the Company's cell sites to another as a
customer travels throughout cells. As a customer travels between cell sites,
the antenna works with the mobile telephone switching office ("MTSO") to
automatically monitor the signal strength of the call in progress. Call
handoff is automatic and virtually unnoticeable to customers.
As of December 31, 1998, the Company's cellular network consisted of 233 cell
sites in its Midwest and New England operations. The Company plans to
continue to develop its cellular service area by building new cell sites in
locations that increase capacity and improve hand-held coverage. The Company
constructed 23 cell sites and activated 53 PCS sites during the year ended
December 31, 1998 and plans to construct an additional 12 new cell sites
during 1999. The additional cell sites will further expand capacity and will
allow customers to use lower-powered or hand-held portable telephones
throughout the Company's service areas.
RCC Midwest uses a digital Northern Telecom MTSO located in Alexandria,
Minnesota. The MTSO used in MRCC's cellular network is located in Bangor,
Maine, and is also a digital Northern Telecom MTSO. The Company has invested
in these digital MTSOs so that it has the ability to increase capacity of
wireless telephone systems, as needed. In accordance with its strategy of
developing market clusters, the Company has selected wireless MTSOs that are
capable of serving multiple markets.
Atlantic's cellular network, which also includes 51 microwave links, is
connected to a MTSO located in Colchester, Vermont. This network currently
utilizes analog cellular technology with the ability to expand capacity
through the deployment of Narrowband Analog Mobile Phone System ("N-AMPS")
technology. N-AMPS is an enhanced technology that provides a three-fold
increase in capacity over conventional analog technology, as well as many of
the service features offered by digital cellular and PCS technology. The
Company is reviewing Atlantic's network infrastructure for potential digital
upgrades.
WIRELESS ALLIANCE
At December 31, 1998, Wireless Alliance had spent, since its inception, $23.0
million to acquire land, facilities and equipment in preparation for
deploying its PCS services. Wireless Alliance has completed the construction
of a GSM technology-based PCS network in its PCS service areas utilizing the
Aerial Communications MTSO to switch PCS calls. Wireless Alliance utilizes
the AirTouch Communications, Inc. ("AirTouch") and the Commnet Cellular Inc.
networks to transport its resale of cellular airtime within these markets.
PAGING
The Company's paging network, as of December 31, 1998, consisted of 61 paging
transmitters located throughout northern Minnesota and eastern North Dakota
and 33 paging transmitters in Maine. The paging transmitters in both networks
are connected to and controlled by a paging terminal that is connected to the
public telephone network.
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The paging transmitters use a transmit-only radio frequency licensed for a
given coverage contour around the paging transmitter that allows messages to
be broadcast to the paging customer.
SUPPLIERS AND EQUIPMENT PARTNERS
The Company does not manufacture any customer or network equipment. The high
degree of compatibility among different manufacturers' models of handsets and
network facilities equipment allows the Company to design, supply and operate
its systems without being dependent upon a single source of such equipment.
The Company currently purchases handsets primarily from Motorola, Inc.,
Ericsson, Inc. and Nokia Telecommunications, Inc. The Company currently
purchases network equipment from Northern Telecom, Lucent Technologies Inc.,
Harris, Inc., and Nokia Telecommunications, Inc.
COMPETITION
The wireless communications industry is highly competitive. Competition for
customers is based principally upon the services and features offered, the
technical quality of the wireless system, customer service, system coverage,
capacity and price. Such competition will increase as new technologies enter
the marketplace. The following table lists the Company's principal cellular
and PCS competitors in its various markets:
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TRADE NAME USED RCC TRADE NAME USED
MARKET BY RCC LICENSE BY COMPETITOR COMPETITOR
- ----------------------------------------- ------------------ --------- ------------------- ---------------------------------
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RCC Cellular
Midwest Cluster
Minnesota RSA 1 and RSA 2............ Cellular.2000 B CELLULARONE Western Wireless
Minnesota RSA 3, RSA 5 and RSA 6..... Cellular.2000 B CELLULARONE American Cellular
South Dakota RSA 4.................. Cellular.2000 B COMMNET Cellular COMMNET Cellular
New England Cluster
MRCC
Maine, Bangor MSA, RSA 1, RSA 2
and RSA 3........................ Unicel B US Cellular US Cellular
Atlantic
Massachusetts RSA 1................. CELLULARONE A SNET Southern New England Telephone
New Hampshire RSA 1................ CELLULARONE A US Cellular US Cellular
New York RSA 2...................... CELLULARONE A Frontier Frontier Communications, Inc.
Vermont, Burlington MSA, RSA 1,
RSA 2, and RSA 3.................. CELLULARONE A Bell Atlantic Bell Atlantic/NYNEX
Wireless Alliance (PCS)
Duluth, Minnesota/Superior,
Wisconsin; Fargo, North CELLULARONE, American Cellular
Dakota/Moorhead, Minnesota; Grand Unicel B AIRTOUCH Airtouch
Forks, North Dakota ............... WIRELESS NORTH
CELLULARONE Western Wireless
Sioux Falls, South Dakota ......... Unicel B COMMNET Cellular Blackstone
SPRINT Swift Tel
</TABLE>
Western Wireless Corporation ("Western Wireless"), and American Cellular
Corp. offer their service under the CELLULARONE -Registered Trademark- trade
name and are members of the North American Cellular Network, a consortium of
CELLULARONE service providers located throughout the United States that
reciprocally provide reduced roaming rates and ACD. The Company believes that
Western Wireless, American Cellular Corp. and AirTouch compete against the
Company primarily on the basis of price and have become significantly more
aggressive during the past two years.
Several companies operate relatively small paging networks in portions of the
Company's service area. One competitor, American Paging, Inc. ("American
Paging"), covers a large area within Minnesota and eastern North Dakota. The
Company has entered into an agreement with American Paging to resell American
Paging's 900 MHz paging service in the Company's service area as an
additional paging option for the customers of the Company. This service is
marketed under the trade name KEYPAGE -Registered Trademark- PLUS and is sold
in approximately 80% of the same areas
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in which the paging service of the Company, marketed under the trade name
KEYPAGE -Registered Trademark-, is provided. Both KEYPAGE -Registered
Trademark- and KEYPAGE -Registered Trademark- PLUS provide umeric display and
alphanumeric display services. Pricing and coverage areas differentiate the
services. Other 900 MHz regional paging systems have been licensed within the
Company's service area to other potential paging carriers. The Company
resells paging services in Maine through Northeast Paging using the UNICEL
name.
The Company believes that PCS networks will be initially focused primarily in
urban areas due to capital requirements and population coverage requirements.
Narrowband PCS services typically are advanced paging and messaging services.
Broadband PCS services will consist of wireless two-way telecommunications
services for voice, data, and other transmissions employing digital
micro-cellular technology. Many broadband PCS services are expected to
compete with existing cellular systems. The FCC has issued licenses for both
narrowband and broadband PCS services. Six broadband licenses were issued in
each part of the Company's cellular service area. Under recent FCC rulings,
license holders are allowed to disaggregate the spectrum covered by their
license. Accordingly, the Company may face competition from additional
providers of PCS services.
The Company also competes to a lesser extent with dispatch and conventional
mobile telephone companies, Specialized Mobile Radio Service ("SMR")
providers, resellers, paging companies and landline telephone service
providers. The FCC requires all cellular and PCS licensees to provide service
to "resellers." A reseller provides wireless services to customers but does
not hold a FCC license or own facilities. Instead, the reseller buys blocks
of wireless telephone numbers and capacity from a licensed carrier and
resells service through its own distribution network to the public. Thus, a
reseller is both a customer of a wireless licensee's service and also a
competitor of that licensee. Several small resellers currently operate in
competition with the Company's systems.
In the future, the Company expects to face increased competition for its
cellular and PCS services from entities providing other technologies and
services, including digital mobile communications systems on Enhanced
Specialized Mobile Radio ("ESMR") frequencies, fixed wireless services, and
satellite-based telecommunications systems, as well as other cellular and PCS
providers. Although some of these technologies are currently operational,
others are being developed or may be developed in the future. The entrance of
multiple competitors in the PCS markets is mandated by the FCC.
The Company anticipates that market prices for wireless communication
services and equipment will continue to decline in the future based upon
increased competition and reductions in production costs. The Company's
ability to compete successfully is dependent, in part, on its ability to
anticipate and respond to various competitive factors affecting the industry.
The Company's marketing and sales organization includes a group that
carefully monitors and analyzes competitive products and service offerings,
changes in consumer preferences, changes in demographic trends and economic
conditions and pricing strategies by competitors that could adversely affect
the Company's operations or present strategic opportunities.
The wireless communication industry is experiencing significant technological
change, as evidenced by the increasing pace of improvements in the capacity
and quality of digital technology, shorter cycles for new products and
enhancements, and changes in consumer preferences and expectations.
Continuing technological advances in telecommunications and FCC policies that
encourage the development of new spectrum-based technologies make it
difficult to predict the extent of future competition. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum
currently reserved for government use. It is possible that some portion of
the spectrum that is reallocated will be used to create new land-mobile
services or to expand existing land-mobile services.
The Company believes that it is strategically positioned to compete with
other communications technologies that now exist, such as SMR and ESMR
systems and PCS, and with cellular and paging resellers. Cellular service and
paging will also compete more directly with traditional landline telephone
service providers and with cable operators that are expanding into the
offering of traditional communications services over their cable systems. The
Company may face competition from new technologies not yet readily available
such as satellite networks.
8
<PAGE>
REGULATION
THE FOLLOWING SUMMARY OF REGULATORY DEVELOPMENTS AND LEGISLATION DOES NOT
PURPORT TO DESCRIBE ALL PRESENT AND PROPOSED FEDERAL, STATE, AND LOCAL
REGULATION AND LEGISLATION AFFECTING THE TELECOMMUNICATIONS INDUSTRY. OTHER
EXISTING FEDERAL AND STATE LEGISLATION AND REGULATIONS ARE CURRENTLY THE
SUBJECT OF JUDICIAL PROCEEDINGS, LEGISLATIVE HEARINGS AND ADMINISTRATIVE
PROPOSALS WHICH COULD CHANGE, IN VARYING DEGREES, THE MANNER IN WHICH THIS
INDUSTRY OPERATES. NEITHER THE OUTCOME OF THESE PROCEEDINGS NOR THEIR IMPACT
UPON THE TELECOMMUNICATIONS INDUSTRY OR THE COMPANY CAN BE PREDICTED AT THIS
TIME.
OVERVIEW
The Company's services are subject to varying degrees of Federal, state and
local regulation. The FCC exercises jurisdiction over all facilities of, and
services offered by, telecommunications common carriers such as the Company,
to the extent those facilities are used to provide, originate or terminate
interstate or international communications. State regulatory commissions
retain jurisdiction over most of the same facilities and services to the
extent they are used to originate or terminate intrastate communications. In
addition, many of the regulations issued by these regulatory bodies may be
subject to judicial review, the result of which review the Company is unable
to predict.
FEDERAL REGULATION
The Company must comply with the requirements of common carriage under the
Communications Act of 1934 (the "Communications Act"). Comprehensive
amendments to the Communications Act were made by the Telecommunications Act
of 1996 (the "1996 Act"). The 1996 Act effected plenary changes in regulation
at both the Federal and state levels that affect virtually every segment of
the telecommunications industry. The stated purpose of the 1996 Act is to
promote competition in all areas of telecommunications and to reduce
unnecessary regulation to the greatest extent possible. While management
believes it will take years for the industry to feel the full impact of the
1996 Act, it is already clear the legislation provides the Company with both
opportunities and challenges.
The 1996 Act greatly expands the interconnection requirements imposed by the
FCC on incumbent local exchange carriers ("ILECs"). The 1996 Act requires the
ILECs to: (i) provide physical co-location; (ii) unbundle and provide access
to components of their local service networks to other providers of local
service; and (iii) establish "wholesale" rates for the services they offer at
retail; and requires all local exchange carriers ("LECs") to: (i) establish
number portability; (ii) establish dialing parity; and (iii) provide
nondiscriminatory access to telephone poles, ducts, conduits and
rights-of-way. In addition, the 1996 Act requires LECs to compensate
telecommunications carriers for traffic originated by the LECs and terminated
on the other carriers' networks. The 1996 Act requires all telecommunications
carriers, including the Company, to provide interconnection upon reasonable
request.
LECs, other than certain rural telephone companies which benefit from an
exemption provided for by the 1996 Act, are required to negotiate in good
faith with carriers requesting any or all of the above arrangements. If a
requesting carrier and the LEC cannot reach an agreement within the
prescribed time, either carrier may request binding arbitration by the
appropriate state commission. Where an agreement cannot be reached, carriers
remain subject to the interconnection obligations established by the FCC and
state telecommunications regulatory commissions.
Because certain of the 1996 Act's interconnection requirements apply to all
providers of telecommunications services, including the Company, it may
provide the Company with the ability to reduce its own access costs by
interconnecting directly with non-ILECs, but may also cause the Company to
incur additional administrative and regulatory expenses in replying to
interconnection requests.
Near the conclusion of the initial term of a cellular, PCS, or paging
license, licensees must file applications for renewal of licenses to obtain
authority to operate for up to an additional ten-year term. Applications for
license renewal may be denied if the FCC determines that the grant of a
license would not serve the public interest, convenience, or necessity. The
FCC also may revoke a license prior to the end of its term in extraordinary
9
<PAGE>
circumstances. In addition, at license renewal time, other parties may file
competing applications for the authorization. The FCC has adopted specific
standards stating renewal expectancy will be awarded to a CMRS licensee that
(i) has provided substantial service during its license term and (ii) has
substantially complied with applicable FCC rules and policies and the
Communications Act. If the FCC awards the Commercial Radio Service ("CMRS")
licensee a renewal expectancy, its license renewal application is granted and
the competing applications are dismissed. The Company's cellular licenses for
Minnesota and South Dakota expire on October 1, 2000. The Company's cellular
licenses in New England expire on varying dates between October 1, 1999 and
January 22, 2008. The Company holds 13 FCC licenses for paging services,
which expire between April 1, 1999 and July 1, 2008. Wireless Alliance's PCS
licenses will expire on June 23, 2005.
Although the Company is unaware of any circumstances that would prevent the
approval of any future renewal application, no assurance can be given that
the FCC will renew any of the Company's licenses. Moreover, although
revocation and involuntary modification of licenses are extraordinary
measures, the FCC has the authority to restrict the operation of a licensed
facility or revoke or modify licenses. None of the Company's licenses has
ever been revoked or involuntarily modified.
The FCC requires registration of certain antenna structures, and the Company
has complied with such requirements. CMRS systems are subject to certain FAA
regulations respecting the location, marking, lighting, and construction of
transmitter towers and antennas and may be subject to regulation under the
National Environmental Policy Act and the environmental regulations of the
FCC. Effective September 1997, the FCC updated the guidelines and methods it
uses for evaluating radio frequency ("RF") emissions from radio equipment.
While the FCC's new rules impose more restrictive standards on RF emissions
from low power devices such as the Company's wireless devices, the Company
believes that all wireless devices currently provided by the Company to its
customers comply with the new standards.
The 1996 Act mandates that telecommunications carriers, such as the Company,
pay into the federal Universal Service Fund ("USF"). The purpose of the USF
is to ensure that basic telephone services are available and affordable for
all citizens. The USF will promote access to communications services in high
cost areas and for low income persons, schools, libraries, and rural health
care providers. The Company also is required to contribute to state universal
service funds. The federal USF is administered jointly by the FCC, the fund
administrator, and state regulatory authorities, many of which are still in
the process of establishing their administrative rules. While the FCC has
commenced collecting contributions, the financial effect of these regulations
on the Company cannot be determined at this time. However, as the Company is
permitted to collect the required contribution amounts from its customers,
the Company expects that its obligation to contribute to the USF will have a
minimal financial impact on the Company. The Company also is required to
contribute annually to the Telecommunications Relay Service Fund and the
North American Numbering Plan Administration fund and to remit regulatory
fees to the FCC with respect to its operations. The Company does not expect
that these contribution obligations will have a material financial impact on
the Company.
Cellular and broadband CMRS providers must comply with the FCC's rules
regarding emergency 911 service. In 1997, the FCC released timetables and
provisions for emergency 911 service availability provided by cellular, PCS
and other mobile service providers, including "enhanced 911" ("E911")
services that provide the caller's telephone number, location and other
useful information. Phase I of the implementation requires that the
metropolitan and rural markets must be able to provide automatic number
identification (ANI) and cell site information for 911 calls to the 911
dispatch points, called Public Safety Answering Points. Phase II provides
that covered carriers must have the capability to identify the location of
mobile units making 911 calls within a radius of no more than 125 meters. The
FCC's Order mandates that CMRS providers be reimbursed for their costs to
provide enhanced 911 services, but left it up to the state governments to
determine specific cost recovery mechanisms for each state. The FCC Order
also empowered state governments to initiate carrier compliance. In the
majority of states in which the Company operates, the state has not required
the Company to comply with Phase I or Phase II of the FCC's Order while
awaiting the completion of state legislation to coordinate cost recovery
mechanisms. The full implementation by the Company of its E911 obligations
may have a financial impact on the Company. The Company is not yet able to
predict the extent of that impact.
10
<PAGE>
Cellular and broadband PCS service providers are required to implement number
portability by November 2002. Number portability would enable customers to
change broadband CMRS providers and services without changing their telephone
number. The failure to comply with this obligation could result in a fine or
revocation of the Company's licenses.
Telecommunications carriers also are required to comply with the
Communications Assistance for Law Enforcement Act ("CALEA"). CALEA requires
carriers to modify and design their equipment, facilities and services to
support lawful electronic surveillance. The FCC recently extended the
compliance date to June 30, 2000. In November 1998, the FCC reached some
tentative conclusions and adopted a Further Notice of Proposed Rulemaking
about the technical requirements with which CMRS carriers must comply. A
significant amount of capital will be required to upgrade and install
equipment to ensure compliance with the FCC's rules. The Attorney General,
subject to availability of appropriations, may agree to reimburse wireless
providers for costs directly associated with modifications to provide the
required capacity.
Telecommunications carriers also must comply with the FCC's rules regarding
the use and protection of customer proprietary network information ("CPNI").
The FCC's new rules regarding CPNI became effective May 24, 1998. These rules
substantially increase the regulation of the Company's use of CPNI. The
Company expects that its implementation of measures to comply with these new
CPNI rules will have a financial impact upon the Company, but it does not
expect that impact to be material.
LIMITATION ON FOREIGN OWNERSHIP
Ownership of the capital stock of the Company by non-U.S. citizens is
subject to limitations under the Communications Act and FCC regulations.
STATE AND LOCAL REGULATION
The Company is also subject to certain regulation by state and local
government bodies. The extent of such regulation varies from state to state.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any commercial mobile radio service ("CMRS")
provider, subject to the ability of a state to petition the FCC for authority
to regulate rates due to local market conditions. The States of Minnesota,
Maine, Wisconsin, South Dakota, New York, New Hampshire, Massachusetts and
North Dakota do not currently regulate the rates for any commercial mobile
service, but could petition the FCC for such authority in the future. The
siting and construction of CMRS transmitter towers, antennas and equipment
shelters are often subject to state or local zoning, land use, and other
regulation. Such regulation may include environmental and building permit
approvals or other state or local certification.
EMPLOYEES
As of March 1, 1999, the Company had 498 employees, including 171 in sales
and marketing, 137 in customer service, 88 in network and systems operations,
and 102 in administration, finance and accounting. Seventeen of the Company's
employees were part-time. In addition, the Company has approximately 300
independent sales agents. None of the Company's employees are represented by
a labor organization, and the Company's management believes it has excellent
relations with its employees. Wireless Alliance has no full-time or part-time
employees but operates utilizing the Company's employees.
COMMUNITIES
In 1997, the Company joined the Minnesota Keystone Program as a business
entity that contributes 2% of its pre-tax earnings back to its communities.
The Company's "communities" include its customers, employees, investors,
suppliers, partners, and the communities to which it provides services
directly, as well as the wireless communications industry.
11
<PAGE>
ITEM 2. PROPERTIES
The Company owns its principal corporate headquarters located at 3905 Dakota
Street SW, Alexandria, Minnesota 56308. The headquarters is a two-story,
50,000 square-foot facility with land available for a 24,000 square-foot
expansion. The Company also owns 3,600 and 4,050 square-foot storage
facilities in Minnesota and a 5,500 square-foot storage facility in Maine.
As of December 31, 1998, the Company had 233 cellular cell sites in Maine,
Massachusetts, Minnesota, New Hampshire, New York and Vermont, of which 118
sites are subject to leases either for tower space or land.
As of December 31, 1998, the Company owned 94 operational paging transmitters
for its paging business.
As of December 31, 1998, Wireless Alliance had 53 PCS base stations
constructed. The Company owns the equipment within all of the base stations.
Wireless Alliance owns the land of one base station site and leases the land
on the other 52 base station sites.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine filings and customary regulatory
proceedings with the FCC and state regulatory agencies from time to time.
Also, the Company is involved in legal proceedings from time to time relating
to claims arising out of its operations in the normal course of business.
There are no pending legal proceedings to which the Company is a party or of
which any of its property is subject which, if adversely decided, would have
a material effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with regard to
each of the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard P. Ekstrand 49 President, Chief Executive Officer and Director
Ann K. Newhall 48 Senior Vice President and General Counsel
Wesley E. Schultz 42 Senior Vice President of Finance, Chief Financial Officer
David J. Del Zoppo 43 Vice President, Controller
Scott G. Donlea 39 Vice President of Sales and Marketing
</TABLE>
RICHARD P. EKSTRAND has served as President, Chief Executive Officer and a
director of the Company since 1990. Since 1984, Mr. Ekstrand has also served
as Vice President and a director of Lowry Telephone Co., Inc., a local
exchange telephone company and a shareholder of the Company, of which Mr.
Ekstrand is the sole shareholder. Mr. Ekstrand also serves as a director of
Cellular 2000. Mr. Ekstrand is past president of the Minnesota Telephone
Association ("MnTA") and the Association of Minnesota Telephone Utilities. He
currently serves as a director of the Rural Cellular Association ("RCA") and
is active in CTIA, serving on its Board of Directors, Executive Committee,
Industry Information Council Small Operators Caucus and Wireless Foundation
Board of Directors.
12
<PAGE>
ANN K. NEWHALL joined the Company in February 1999 as Senior Vice President
and General Counsel. Prior to joining the Company she served as a shareholder
attorney with Moss & Barnett, A Professional Association, Minneapolis,
Minnesota, most recently serving also as president and a director of the
firm. Moss & Barnett, A Professional Association, serves as general counsel
to the Company.
WESLEY E. SCHULTZ joined the Company in May 1996 as Vice President of Finance
and Chief Financial Officer and was promoted to Senior Vice President of
Finance and Chief Financial Officer in July 1998. Prior to joining the
Company, Mr. Schultz had served as acting Chief Financial Officer of Spanlink
Communications, Inc. since February 1996, as Chief Financial Officer of
Nicollet Process Engineering, Inc. from March 1995 through October 1995, as
Chief Financial Officer of Data Systems & Management, Inc. from November 1994
through March 1995, and as Vice President, Finance & Administration and Chief
Financial Officer of Serving Software, Inc. from December 1991 through
October 1994. Mr. Schultz is a CPA and served for three years as an auditor
with Deloitte and Touche, LLP.
DAVID J. DEL ZOPPO joined the Company in May 1997 as Controller. In June
1998 Mr. Del Zoppo was promoted to Vice President Controller. Prior to
joining the Company Mr. Del Zoppo served as a Vice President of Operations
with Business Records Corporation from January 1988 to May 1997, and with
Jostens, Inc. as an Internal Audit Manager from 1982 to 1986. Mr. Del Zoppo
is a CPA and served for over four years as an auditor with KPMG Peat Marwick.
SCOTT G. DONLEA has served as Vice President of Sales and Marketing since
August 1995. Mr. Donlea joined the Company in 1992 as Manager of Market
Operations. From 1990 to 1992, Mr. Donlea was regional manager for CommNet
Cellular, Inc., responsible for marketing and sales in Iowa and South Dakota.
From 1988 to 1990, Mr. Donlea served as branch manager for US WEST Cellular,
Inc., in Sioux Falls, South Dakota. Mr. Donlea currently serves as
chairperson of the RCA's business and marketing committee.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock trades on The Nasdaq National Market under
the symbol RCCC. The following table indicates the high and low closing price
for each quarter of the 1998 and 1997 fiscal years.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
HI LOW HI LOW HI LOW HI LOW
- --------------- ----------- ------------ ------------ ------------ -------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 17 3/8 11 1/2 18 1/4 15 5/8 16 9/16 10 7/8 12 13/16 10 1/8
1997 11 9 3/8 10 7/8 8 5/8 13 10 1/8 13 1/4 10 3/4
</TABLE>
The Company's Class B Common Stock is not publicly traded.
As of March 22, 1999, there were approximately 83 holders of record of the
Company's Class A Common Stock and approximately 30 holders of record of the
Company's Class B Common Stock.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock. The Company
currently intends to retain all future earnings, if any, for the operation
and expansion of its business and does not expect to pay any cash dividends
on its Common Stock in the foreseeable future. Further, the documents related
to the Company's credit facility, the 9 5/8 Senior Subordinated Notes, and
Exchangable Preferred Stock limit the Company's ability to pay dividends on
its Common Stock.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the periods
indicated. This information should be read in conjunction with the
Consolidated Financial Statements and related notes contained in Item 14
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Item 7 herein. The Company's acquisitions
and issuance of subordinated notes and preferred stock in 1998 and its
acquisition in 1997 affect comparability of the Selected Financial Data. See
Notes 2, 4, and 6 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
(In thousands, except per share and
other cellular operating data). YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service............................ $ 75,633 $ 43,408 $ 23,120 $ 14,289 $ 9,784
Roamer............................. 20,199 9,475 6,414 4,562 3,897
Equipment.......................... 2,700 1,020 927 1,476 2,008
-------- -------- --------- --------- ---------
Total revenues................... 98,532 53,903 30,461 20,327 15,689
-------- -------- --------- --------- ---------
Operating expenses:
Network costs...................... 18,877 11,578 6,731 4,974 3,293
Costs of equipment sales........... 5,968 2,807 1,375 1,914 2,214
Selling, general and administrative 39,156 25,225 13,576 7,700 6,570
Depreciation and amortization...... 26,532 12,458 5,539 3,249 2,426
-------- -------- --------- --------- ---------
Total operating expenses......... 90,533 52,068 27,221 17,837 14,503
-------- -------- --------- --------- ---------
Operating income ..................... 7,999 1,835 3,240 2,490 1,186
-------- -------- --------- --------- ---------
Other income (expense):
Interest expense................... (19,060) (6,065) (281) (1,365) (1,195)
Interest and dividend income....... 1,461 232 335 277 170
Equity in earnings (losses) of
unconsolidated subsidiaries...... (535) (350) 52 (37) (37)
Minority interest.................. 4,553 3,082 331 - -
-------- -------- --------- --------- ---------
Other income (expense), net...... (13,581) (3,101) 437 (1,125) (1,062)
-------- -------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item................. (5,582) (1,266) 3,677 1,365 124
Income tax provision (benefit)........ - - 200 575 (486)
-------- -------- --------- --------- ---------
Net Income (loss) before extraordinary
item............................. (5,582) (1,266) 3,477 790 610
-------- -------- --------- --------- ---------
Extraordinary item - early
extinguishment of debt........... (1,042) - - - -
-------- -------- --------- --------- ---------
Net income (loss) .................... (6,624) (1,266) 3,477 790 610
-------- -------- --------- --------- ---------
Preferred stock dividend.............. (9,090) - - - -
-------- -------- --------- --------- ---------
Net income (loss) applicable to common
shares........................... $(15,714) $ (1,266) $ 3,477 $ 790 $ 610
======== ======== ========= ========= =========
Basic and diluted net income (loss)
per common share................... $(1.76) $(0.14) $0.41 $0.13 $0.11
======== ======== ========= ========= =========
Basic and diluted weighted average 8,916 8,853 8,509 5,983 5,522
common shares outstanding.......... ======== ======== ========= ========= =========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997 1996 1995 1994
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......... $ (9,538) $ 514 $(11,215) $(4,415) $ 80
Net property and equipment......... 131,714 77,920 41,935 23,517 16,479
Total assets....................... 480,524 181,588 60,507 30,138 22,439
Total debt......................... 298,851 128,000 8,492 19,123 15,117
Total shareholders' equity......... 19,279 33,731 34,996 5,458 4,668
</TABLE>
<TABLE>
<CAPTION>
OTHER OPERATING DATA YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Customers at period end:
RCC Cellular 186,892 84,600 45,094 26,764 17,402
Wireless Alliance - Cellular 11,079 17,167 - - -
Wireless Alliance - PCS 5,129 - - - -
Other 11,550 9,312 6,890 3,783 2,089
---------- ----------- ----------- ------------ -----------
Total customers 214,650 111,079 51,984 30,547 19,491
Penetration: (1)
RCC Cellular 8.0% 7.6% 7.5% 4.5% 2.9%
Wireless Alliance - PCS 0.7% 3.3% - - -
Retention: (2)
RCC Cellular 98.5% 98.4% 98.7% 99.0% 99.2%
Wireless Alliance - PCS 98.2% 98.7% - - -
Average monthly revenue per customer: (3)
RCC Cellular $52 $55 $66 $69 $84
Wireless Alliance - PCS 64 61 - - -
Acquisition cost per customer: (4)
RCC Cellular $362 $403 $307 $395 $448
Wireless Alliance - PCS 565 280 - - -
Cell sites / Base Stations:
RCC Cellular 233 121 72 64 55
Wireless Alliance - PCS 53 - - - -
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the ratio of cellular customers at the end of the period to
POPs.
(2) Determined for each period by dividing total cellular customers
discontinuing service during such period by the average cellular customers
for such period (customers at the beginning of the period plus customers at
the end of the period, divided by two), dividing that result by the number
of months in the period, and subtracting such result from one.
(3) Determined for each period by dividing the sum of access, airtime, roaming,
long distance, features, connections, disconnection, and other revenues for
such period by average cellular customers for such period (customers at the
beginning of the period plus customers at the end of the period, divided by
two), and dividing that result by the number of months in such period.
(4) Determined for each period by dividing selling and marketing expenses,
costs of equipment sales, and depreciation of rental telephone equipment by
the gross cellular customers added during such period.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Over the past three years, acquisitions of additional cellular operations,
development of the PCS markets through Wireless Alliance, and the issuance of
subordinated notes and preferred stock have affected the Company's financial
performance and, accordingly, the year-to-year comparability of such
performance. Further, the Company's past performance, especially the changes
from year to year, should not be considered predictive of the Company's
future performance.
ACQUISITIONS
UNITY CELLULAR SYSTEM, INC
Effective May 1, 1997, the Company completed the acquisition of the related
assets of the Maine wireless telephone operations and related assets of Unity
Cellular Systems, Inc. and related cellular and microwave licenses from
InterCel, Inc. In addition, the Company acquired InterCel's 51% interest in
the Northern Maine Cellular Partnership, which holds a cellular license for
Maine RSA2 and acquired the remaining 49% in Northern Maine from an unrelated
third party. The costs for all of the acquired properties in Maine (the "MRCC
Acquisition") was $86 million. The acquired licenses cover the Bangor, Maine
MSA and Maine RSA 3 (which includes Augusta, the state capitol). The Company
operates its Maine operations through a wholly owned subsidiary, MRCC.
Headquartered in Bangor, MRCC serves a 20,500 square-mile service area that
encompasses approximately 518,000 POPs. The acquisitions (the "MRCC
Acquisitions") have been accounted for under the purchase method of
accounting.
ATLANTIC CELLULAR COMPANY, L.P.
Effective July 1, 1998, the Company completed the acquisition of the Vermont,
New Hampshire, New York and Massachusetts cellular telephone licenses,
operations and related assets of Atlantic Cellular Company L.P. and one of
its subsidiaries ("Atlantic"), for approximately $262.5 million. Under the
terms of the agreement, the Company acquired a contiguous, multi-state
service area of 21,000 square miles, encompassing approximately 1.1 million
POPs. The cellular properties acquired from Atlantic include: (i) the entire
state of Vermont (RSA 1, RSA 2, and the Burlington MSA); (ii) western New
Hampshire (RSA 1); (iii) the northeastern corner of New York (RSA 2); and
(iv) northwestern Massachusetts (RSA 1). In addition, the Company has
acquired Atlantic's long distance business. The Company operates its Atlantic
operations as RCC Atlantic, Inc.
WESTERN MAINE CELLULAR, INC.
Effective July 31, 1998, the Company completed the acquisition of the
outstanding stock of Western Maine Cellular ("WMC"), a wholly-owned
subsidiary of Utilities, Inc. for approximately $7.5 million. WMC provides
cellular service to western Maine RSA 1, a 3,700 square-mile area of western
Maine encompassing 83,000 POPs. The Company operates WMC through its wholly
owned subsidiary, MRCC.
EVENTS SUBSEQUENT TO DECEMBER 31, 1998
Effective February 1, 1999, the Company acquired RGI, Inc. d/b/a Glacial
Lakes Cellular 2000 ("Glacial") for approximately $11.9 million. Operating
under the name Cellular 2000(R), Glacial provides cellular service to
northeastern South Dakota (RSA 4), which includes eight counties and is
adjacent to RCC's existing cellular operation in northern and central
Minnesota. Glacial Lakes' service area encompasses 69,000 POPs and the
operation serves more than 6,800 customers.
On February 2, 1999, the Company entered into two swap transactions with TD
Bank Financial Group, which together, effectively lower the interest on the
Senior Subordinated Notes from 9.625% to 8.535% through May 2003. During the
period of June 2003 through May 2008, the Company will pay the difference
between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR, and the
Company will receive the difference between LIBOR and the fixed swap rate if
LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset dates
17
<PAGE>
specified by the terms of the contracts. The notional principal amount of the
interest rates swaps outstanding was $125 million at February 2, 1999.
JOINT VENTURE
Wireless Alliance, LLC ("Wireless Alliance"), a joint venture that is
51%-owned by RCC and 49%-owned by an affiliate of Aerial Communications,
Inc., was formed in 1996 to provide PCS service to targeted markets in
Minnesota, Wisconsin, North Dakota and South Dakota. Wireless Alliance began
by reselling cellular service to gain visibility in its markets. In the
second quarter of 1998, PCS networks were launched in Fargo, North Dakota;
Moorhead and Duluth, Minnesota; Virginia/Hibbing, Minnesota and Superior,
Wisconsin. In the third quarter of 1998, PCS service was launched in Sioux
Falls, South Dakota followed by Grand Forks, North Dakota in the fourth
quarter of 1998. Wireless Alliance's service area covers 708,000 POPs. In all
of these markets, Aerial contributed the licenses, and RCC is responsible for
the building and managing of the networks and marketing of the PCS services.
Like Aerial's other PCS systems, Wireless Alliance utilizes industry-standard
Global System for Mobile ("GSM") technology. Of the $19.6 million total
investment, as of December 31, 1998, the Company has contributed $10.0
million towards its 51 percent ownership while APT has contributed $9.6
million in PCS licenses. In addition, the Company has contributed $28.1
million in excess of its 51 percent ownership, which is reflected as a note
receivable from Wireless Alliance eliminated in consolidation.
GENERAL
The Company's principal operating objective is to increase revenues and
achieve profitability through the acquisition and development of new cellular
and digital markets and increased penetration in existing markets. Its total
market encompasses 3.1 million POPs. The Company has continued to penetrate
its existing Midwest markets through innovative sales initiatives. However,
the development of the Wireless Alliance PCS network and the customers added
through the acquisition of MRCC and Atlantic were the primary factors in the
Company's increased revenues in Fiscal 1998. Total customers increased 93% to
214,650 in 1998 as compared to 111,079 in 1997. Offsetting the increase in
customers was a decrease in the average monthly cellular revenue per customer
from $55 in 1997 to $52 in 1998. The Company believes that this decrease
reflects an industry wide trend of adding lower-usage customers, who use
cellular service for personal convenience, security or as an alternative
communication resource to their traditional landline telephone service. The
Company intends to pursue acquisitions to the extent they enhance or extend
its network or increase shareholder value, although there can be no assurance
any such acquisition will be consummated.
The Company emphasizes customer support in an effort to maximize its customer
retention. For the year ended December 31, 1998, the Company experienced an
average monthly cellular retention rate of 98.5%, as compared to an industry
average monthly retention rate of 97.9%, as reported in the CTIA Data Survey
dated June 30, 1998. Customer retention continues to be a challenge as the
Company's customer base grows and competition increases. However, the Company
believes that it will continue to maintain relatively high retention rates
due in part to its territory manager distribution philosophy, by offering
communication service packages and value-added features anticipating customer
needs, and by providing high quality and knowledgeable customer service.
The Company's revenues consist of charges to customers for cellular and
paging service, roamer revenues and equipment sales. Service revenues include
monthly access charges, charges for airtime used in excess of the time
included in the service package purchased, long distance charges derived from
calls placed by the Company's customers and cellular and paging equipment
lease revenues. In addition, other charges include activation and feature
charges for such features as voice mail, call waiting, and call forwarding.
Roamer revenues consist of airtime, long distance and service fees charged
for providing service to customers of other cellular systems that place or
receive a call within the Company's cellular service area. The per minute
rate paid by a roamer, or the intercarrier exchange rate, is determined by an
agreement between the Company and the roamer's cellular carrier. The Company
has reciprocal agreements with cellular licensees in adjacent cellular
service areas that allow the Company to provide service to its customers
calling from or receiving calls in these territories at favorable rates. The
Company believes that roamer revenues will continue to increase as a result
of an
18
<PAGE>
increase in both the number of roaming customers and roaming minutes of use
as the cellular industry matures. The Company believes these increases will
more than offset an expected decline in intercarrier exchange rates.
Equipment sales consist of cellular and paging equipment and accessory sales
to customers. Within certain markets, the Company rents equipment to
customers in order to reduce the customers' perception that the cost of
purchasing cellular service is prohibitive. This program may negatively
affect equipment sales; however, its effect is lessened by other equipment
sales programs initiated in newly acquired markets.
19
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain consolidated statements of operations data
as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Service................................... 76.8% 80.5% 75.9%
Roamer.................................... 20.5 17.6 21.1
Equipment................................. 2.7 1.9 3.0
-------------- -------------- --------------
Total revenues.......................... 100.0 100.0 100.0
-------------- -------------- --------------
OPERATING EXPENSES:
Network costs............................. 19.2 21.5 22.1
Cost of equipment sales................... 6.1 5.2 4.5
Selling, general and administrative....... 39.7 46.8 44.6
Depreciation and amortization............. 26.9 23.1 18.2
-------------- -------------- --------------
Total operating expenses................ 91.9 96.6 89.4
-------------- -------------- --------------
OPERATING INCOME 8.1 3.4 10.6
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense.......................... (19.4) (11.3) (0.9)
Interest and dividend income.............. 1.5 0.4 1.1
Equity in earnings (losses) of
unconsolidated affiliates............... (0.5) (0.6) 0.2
Minority interest......................... 4.6 5.7 1.1
-------------- -------------- --------------
Other expense, net...................... (13.8) (5.8) 1.5
-------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAX AND
EXTRAORDINARY ITEM (5.7) (2.4) 12.1
INCOME TAX PROVISION - - 0.7
-------------- -------------- --------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5.7) (2.4) 11.4
-------------- -------------- --------------
EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF
DEBT (1.0) - -
-------------- -------------- --------------
NET INCOME (LOSS) (6.7) (2.4) 11.4
-------------- -------------- --------------
PREFERRED STOCK DIVIDEND (9.2) - -
-------------- -------------- --------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES (15.9)% (2.4)% 11.4%
============== ============== ==============
EBITDA (1)................................... 35.1% 26.5% 28.8%
ADJUSTED EBITDA (1).......................... 44.9% 41.7% 31.2%
</TABLE>
(1) EBITDA is the sum of earnings before interest, taxes, depreciation and
amortization and is utilized as a performance measure within the cellular
industry. EBITDA is not intended to be a performance measure that should be
regarded as an alternative for other performance measures and should not be
considered in isolation. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and does not
reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA should not be considered as having
greater significance than or as an alternative to net income or operating
income as an indicator of operating performance or to cash flows as a
measure of liquidity. Adjusted EBITDA represents EBITDA excluding Wireless
Alliance's EBITDA.
20
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Service revenues for the year ended December 31, 1998 increased 74.2% to
$75.6 million from $43.4 million in 1997. This growth was primarily due to a
26.1% increase in customers from existing markets and a 67.1% increase in
customers through the RCC Atlantic acquisition. Increased customer count
however, was offset by a decrease of 5.8% in the average revenue per cellular
customer from $55 in 1997 to $52 in 1998. During the year ended December 31,
1998, Wireless Alliance generated service revenues of $12.2 million.
Roamer revenues for year ended December 31, 1998 increased 113.2% to $20.2
million from $9.5 million for the comparable period in 1997. Roamer revenues
have increased due to the activation of additional cell sites and
acquisitions of new service areas. Reflecting the RCC Atlantic acquisition
and its greater percentage of roamer revenue as compared to MRCC and RCC
Midwest, roamer revenues as a percentage of cellular revenues (excluding
equipment sales and the impact of Wireless Alliance) increased to 34.2% from
29.1% in 1997. Wireless Alliance had no roamer revenues in 1997 because it
was exclusively engaged in reselling cellular services and generated an
immaterial amount in roamer revenues during 1998.
Equipment revenues for 1998 increased 164.7% to $2.7 million from $1.0
million in 1997. This growth was primarily due to an increase in customers
acquired through the RCC Atlantic acquisition that utilize a direct phone
sales program as oppose to an equipment rental program currently popular in
the Company's Midwest markets.
OPERATING EXPENSES
Network costs include switching and transport expenses and the expenses
associated with the maintenance and operation of the Company's wireless
network facilities, as well as charges from other service providers for
resold minutes and services. Network costs for the year ended December 31,
1998, increased 63.0% to $18.9 million from $11.6 million in 1997. The
increase in network costs resulted primarily from expenses incurred by
Wireless Alliance, RCC Atlantic, and MRCC, which more than offset network
cost reductions in the Company's Midwest operations. However, as a percentage
of total revenues, network costs decreased to 19.2% in 1998 from 21.5% in
1997. Contributing to the reduction of network costs in the Midwest service
area was the completed installation of the Company's MTSO in the third
quarter of 1997, thereby reducing the Company's network costs for switching
services provided by Switch 2000, LLC. Network costs for Wireless Alliance
increased to $9.3 million for the year ended December 31, 1998 from $6.0
million in 1997. The increase is attributed to additional network costs
associated with increased cellular reselling customers.
Selling, general, and administrative ("SG&A") expenses include salaries,
benefits, and operating expenses such as marketing, commissions, customer
support, accounting, administration, and billing. SG&A expenses for the year
ended December 31, 1998 increased 55.2% to $39.2 million from $25.2 million
in 1997. The increase in SG&A over the prior year resulted primarily from
additional costs related to the acquisition of Atlantic on July 1, 1998 and
operating MRCC during all of 1998. As a percentage of total revenue, SG&A
decreased to 39.7% in 1998 from 46.8% in 1997, reflecting operating
efficiencies achieved through the integration of the Company's New England
operation.
Depreciation and amortization expense for year ended December 31, 1998
increased 113.0% to $26.5 million from $12.5 million in 1997. The increase
reflects the Company's continued construction and acquisition efforts and its
investments in network facilities and rental equipment. Specifically
contributing to the increase was the depreciation relating to the
construction of 23 additional cell sites for RCC Cellular, an additional 89
cell sites from the RCC Atlantic Acquisition, and the activation of 53
Wireless Alliance PCS cell sites. In addition, license and other intangible
asset amortization resulting from acquisitions increased $6.6 million for the
year ended December 31, 1998 from $1.5 million in the prior year.
21
<PAGE>
OTHER INCOME (EXPENSE)
Interest expense for 1998 increased to $19.1 million from $6.1 million in
1997. The increase in interest expense was a result of higher average
borrowings under credit facilities and interest related to the 9 5/8% Senior
Subordinated Notes ("Senior Subordinated Notes") used to finance the
acquisitions of Atlantic Cellular and WMC, the construction of 23 cell sites
for the Company's cellular network and other growth initiatives. Other income
also includes an increase in 1998 in the minority partner's absorption of
Wireless Alliance losses.
EXTRAORDINARY ITEM
On May 28, 1998, the Company repayed approximately $140 million of the
outstanding amount under its $160 million credit facility utilizing the
proceeds from its issuance of $125 million in Senior Subordinated Notes and
$125 million in Exchangeable Preferred Stock ("Exchangeable Preferred
Stock"). Accordingly, the Company recognized an extraordinary loss of
approximately $1 million related to the early retirement of debt representing
the unamortized debt issuance costs.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Service revenues for 1997 increased 87.8% to $43.4 million from $23.1 million
in 1996. This growth was primarily due to the increase in the number of
customers partially offset by a decrease of 16.7% in the average revenue per
customer. Customer growth in existing markets accounted for approximately 25%
of the increase in customers while newly acquired or developing markets
accounted for the other 75%. Newly acquired or developing markets include
customers gained through the MRCC Acquisition and the formation of Wireless
Alliance. In 1997, Wireless Alliance generated service revenues of $7.3
million.
Roamer revenues for 1997 increased 47.7% to $9.5 million from $6.4 million in
1996, reflecting the increase in the number of markets served. Markets have
increased as a result of the activation of additional cell sites and
acquisitions of new service areas. Individual customer roamer revenue
remained relatively unchanged when compared to 1996.
Equipment revenues for 1997 increased 10.0% to $1.0 million from $927,000 in
1997. This growth reflects an increase in customers acquired through the MRCC
Acquisition purchasing their cellular handsets and equipment as compared to
the Company's Midwest customers who more frequently rent them.
OPERATING EXPENSES
Network costs for 1997, which increased 72.0% to $11.6 million from $6.7
million in 1996, improved as a percentage of total revenues from 22.1% in
1996 to 21.5% in 1997. The increase in network costs resulted primarily from
expenses incurred by Wireless Alliance and MRCC, which more than offset
network cost reductions in the Company's Midwest Cellular operations.
Contributing to the reduction of network costs in the Midwest service area
was the substantial completion in late 1996 of the digital microwave network,
which reduced the Company's reliance on third-party assistance in connecting
cell site communication to the MTSO. In addition, the Company completed
installation of its own MTSO in the third quarter of 1997 thereby reducing
the Company's network costs for switching services provided by Switch 2000,
Inc. Network costs for Wireless Alliance increased to $6.0 million in 1997
from $220,000 in 1996. The increase is attributable to additional network
costs associated with increased customers.
SG&A expenses for 1997 increased 85.8% to $25.2 million from $13.6 million in
1996. The increase in SG&A over the prior year results primarily from
additional costs from MRCC and a $6.2 million increase in costs of Wireless
Alliance.
22
<PAGE>
Depreciation and amortization expense for 1997 increased 124.9% to $12.5
million from $5.5 million in 1996. The increase reflects the Company's
continued construction and acquisition efforts and its investments in network
facilities, including the Company's newly installed MTSO, and rental
equipment. Contributing to the increase was the depreciation relating to the
construction of 15 additional cell sites and the acquisition of 35 cell sites
in Maine. In addition, the Company shortened the depreciation life from three
years to two years for new rental telephones placed in service during 1997.
OTHER INCOME (EXPENSE)
Interest expense for 1997 increased to $6.1 million from $280,000 in 1996.
The increase in interest expense was a result of higher average borrowings to
finance the MRCC Acquisitions, the construction of 15 cell sites for the
Company's cellular network and other growth initiatives. Other income also
includes an increase in 1997 in the minority partners absorption of losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for working capital, capital
expenditures, debt service, acquisitions, and customer growth. These
requirements have been met through cash flow from operations and borrowings
under the Company's credit facility. On July 1, 1998, the Company entered
into a new revolving Credit Facility with a syndicate of banks totaling $300
million ("the Credit Facility") which replaced its previous $160 million
credit facility, (See Note 4 in the Notes to Consolidated Financial
Statements regarding the terms of the Credit Facility). As of December 31,
1998, the Company had $173 million outstanding under its Credit Facility.
Under the Credit Facility, amounts may be borrowed or repaid at any time
through maturity provided that, at no time, the aggregate outstanding
borrowings exceed the total of the Credit Facility. The Company believes that
it will have adequate capital resources to satisfy all its liquidity
requirements for at least the next twelve months.
Net cash provided by operating activities was $28.6 million for the year
December 31, 1998. Adjustments to the $6.6 million net loss to reconcile to
net cash used in operating activities included $26.5 million in depreciation
and amortization and a $9.1 million increase in accounts payable partially
offset by a $4.5 million decrease in minority interest.
Net cash used in investing activities for the year ended December 31, 1998
was $313.2 million. The principal uses of cash included the Company's $270.0
million acquisition of Atlantic and WMC, and purchases of property and
equipment of $41.5 million, of which $13.3 million was attributable to
Wireless Alliance capital expenditures. These purchases reflect the
construction and launch of Wireless Alliance's PCS network, expansion of
existing coverage in RCC Cellular, and the continued upgrading of existing
cell sites and switching equipment. Capital expenditures (including $5.7
million for Wireless Alliance) are expected to be approximately $30.5 million
in 1999. Capital expenditures and debt service are expected to be funded
through internally generated cash flows and, if necessary, borrowings under
the $300 million Credit Facility.
Net cash provided by financing activities was $284.7 million for the year
ended December 31, 1998. Financing activities for such period consisted
primarily of the placement on May 14, 1998 of $125 million of 9 5/8% Senior
Subordinated Notes due May 15, 2008 and $125 million of 11 3/8% Exchangeable
Preferred Stock. The net proceeds were used to repay a portion of
indebtedness and to finance the acquisitions of Atlantic and WMC.
In the ordinary course of business, the Company continues to evaluate
acquisition opportunities and other potential business transactions. Such
acquisitions, joint ventures and business transactions may be material. Such
transactions may also require the Company to seek additional sources of
funding through the issuance of additional debt and/or additional equity.
There can be no assurance that such funds will be available to the Company on
acceptable or favorable terms.
23
<PAGE>
OTHER MATTERS
INFLATION
The impact of inflation on the Company has not been significant.
YEAR 2000 READINESS
GENERAL
Issues regarding Year 2000 readiness exist because many computer systems and
applications currently in use employ two-digit fields to designate a year. As
a result, date sensitive systems may recognize the year 2000 as 1900 or not
at all. This inability to recognize or properly treat the Year 2000 may
result in system failures or miscalculations causing disruptions of
operations, including, among other things, an inability to process
transactions, send invoices, or engage in normal business activities. Hence,
the computerized systems used by the Company must be reviewed, evaluated and
if and where necessary, modified or replaced to ensure that all financial,
information and operating systems are Year 2000 ("Y2K") compliant.
STATE OF READINESS
The Company has formed a Y2K Project Team, representing all business units,
and staffed with subject matter experts to address Y2K readiness matters. The
Y2K Project Team's plan is made up of six phases: inventory, assessment,
remediation, test and acceptance, implementation, and contingency planning.
Major areas being addressed by the Y2K project team include: the cellular
network; interconnect arrangements to connect the cellular network with
landline systems; clearinghouse arrangements to allow verification and
billing of roaming traffic; the Company's wide area and local area networks;
the Company's internal communications systems; Company server hardware,
software and desktop systems; billing software and related elements;
financial and operational reporting systems; information integration systems;
critical suppliers including financial institutions, payroll/benefits
processing, credit bureaus, benefit plans, building systems, and office
equipment.
With respect to internal matters, the project team has prepared an inventory
of all computer hardware, software, and computer based systems. The Company
has distributed inquiries and requests for Y2K readiness certification to all
known system vendors. Although the Company is still in the process of
obtaining and assessing vendor responses and declarations of Y2K readiness,
it has been determined that critical areas with non -Y2K compliant software
and hardware include switching and billing systems.
RISKS RELATING TO Y2K COMPLIANCE MATTERS
The failure of the Company to upgrade its billing and switching systems to be
Y2K ready may result in the Company being unable to continue operations.
Accordingly, the Company is working toward Y2K certification of its various
billing systems to insure Y2K readiness. The Company also upgraded its MTSO
software for two of its three switches in 1998 and has plans to upgrade the
third switch software in the second quarter of 1999.
The Company anticipates having mission critical software and hardware
remedied and Y2K ready by mid-year 1999 and will continue testing throughout
the third and fourth quarters of 1999. Although the Company believes that
these efforts should result in a cellular network that will continue to
function without material service affecting outages due to Y2K problems,
network equipment suppliers have been unwilling to give unqualified
warranties that network equipment is Y2K compliant. Service affecting
outages, if prolonged and widespread, will materially affect the Company's
revenues.
The terms and conditions under which the Company provides cellular and paging
services to its customers contain provisions that limit the Company's liability
in the event that there is a service failure. The terms and conditions provide
that the Company is not liable for any consequential or incidental damages to
its customers. They further provide that no credit will be given for service
outages of less than 24 hours in duration. In addition, they limit
24
<PAGE>
damages for failure to provide service to a credit for the pro rated number
of days that service was unavailable. Service affecting outages have occurred
in limited geographic areas in the past and the Company has not been found
liable to any person for damages in excess of the limitations imposed by the
terms and conditions of service. The Company believes it is unlikely that an
outage occasioned by a failure attributable to a Y2K readiness would lead to
a different result. The Company has adopted a policy of not giving any
warranties to customers regarding Y2K readiness. The Company, at this time,
does not anticipate any litigation involving the Company that would arise as
a result of Y2K readiness issues.
ESTIMATED Y2K COMPLIANCE COSTS
During 1998, the Company did not incur material costs related to bringing
systems into Y2K compliance. For 1999, the Company has budgeted $2.0 million
to cover costs associated with Y2K assessments, modifications, and associated
upgrades.
THIRD PARTY PROVIDERS
The potential impact of the Y2K will also depend on the way in which the Y2K
issue is addressed by customers, vendors, service providers, utilities,
governmental agencies and other entities with which the Company does
business. The Company is communicating with these parties to learn how they
are addressing the Y2K issue and to evaluate any likely impact on the
Company. The Company has requested commitment dates from the various parties
as to their Y2K readiness and delivery of compliant software and other
products. The Y2K efforts of third parties are not within the Company's
control, however their failure to respond to Y2K issues successfully could
result in business disruption and increased operating costs for the Company.
At the present time, it is not possible to determine whether any such events
are likely to occur, or to quantify any potential negative impact they may
have on the Company's future results of operations and financial condition.
CONTINGENCY PLANNING
The Company has begun the process of developing contingency plans that might
be available in the event of either internal or external Y2K compliance
problems. To this end, the Company's Y2K Project Team has begun to prepare
potential contingency alternatives. The Company intends to complete its
contingency planning in respect of Y2K compliance during the remainder of
1999.
Y2K FORWARD LOOKING INFORMATION
The foregoing discussion regarding the Y2K project's timing, effectiveness,
implementation, and cost, contains forward-looking statements, which are
based on management's best estimates derived using assumptions. These
forward-looking statements involve inherent risks and uncertainties, and
actual results could differ materially from those contemplated by such
statements. Factors that might cause material differences include, but are
not limited to, the availability of key Y2K personnel, the Company's ability
to locate and correct all relevant computer codes, the readiness of third
parties, and the Company's ability to respond to unforeseen Y2K
complications. Such material differences could result in, among other things,
business disruption, operational problems, financial loss, legal liability
and similar risks.
SEASONALITY
The Company experiences seasonal fluctuations in revenues and operating
income (loss). Somewhat offset by the New England acquisitions which have
better roaming revenues year around, the Company's average monthly roamer
revenue per cellular customer increases during the second and third calendar
quarters. This increase reflects greater usage by the Company's roamer
customers who travel in the Company's cellular service area for weekend and
vacation recreation or work in seasonal industries, such as agriculture and
construction. Because the Company's cellular service area includes many
seasonal recreational areas, the Company expects that roamer revenues will
continue to fluctuate seasonally more than service revenues.
25
<PAGE>
Certain unaudited quarterly results for 1998 and 1997 are set forth below
(in thousands, except average monthly revenue per cellular customer):
<TABLE>
<CAPTION>
1998 QUARTER ENDED
-------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total revenues............... $14,797 $17,672 $33,955 $32,108
Operating income (loss)...... (524) 364 5,903 2,256
EBITDA (*)................... 3,694 5,211 14,361 11,266
Average monthly revenue
per cellular customer.... $46 $53 $57 $51
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTER ENDED
--------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total revenues............... $8,323 $13,326 $16,747 $15,507
Operating income (loss)...... (354) 511 1,781 (103)
EBITDA(*).................... 1,608 3,438 5,429 3,818
Average monthly revenue
per cellular customer.... $52 $58 $61 $50
</TABLE>
(*) See footnote (1) on page 20 under "Item 7. Management Discussion and
Analysis of Financial Condition and Results of Operations" for a definition
and discussion of EBITDA.
FORWARD-LOOKING INFORMATION
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to be correct. A number of factors could cause actual results,
performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors
include but are not limited to, the competitive environment in the wireless
and telecommunications industries, changes in economic conditions in general
and in the Company's business, demographic changes, changes in prevailing
interest rates and the availability of and terms of financing to fund the
anticipated growth of the Company's business, the ability to attract and
retain qualified personnel, the significant indebtedness of the Company, and
changes in the Company's acquisition and capital expenditure plans. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties.
In addition, such forward-looking statements are necessarily dependent upon
assumptions, estimates and data that may be incorrect or imprecise and
involve known and unknown risks, uncertainties and other factors.
Accordingly, any forward-looking statements included herein do not purport to
be predictions of future events or circumstances and may not be realized. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the foregoing cautionary statements. The Company disclaims any
obligation to update any such factors or to announce publicly the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
26
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Rural Cellular Corporation uses Exchangeable Preferred Stock, Senior
Subordinated Notes, and bank credit facilities to finance its operations.
These on-balance sheet financial instruments, to the extent they provide for
variable rates of interest, expose the Company to interest rate risk, with
the primary interest rate risk exposure resulting from changes in LIBOR or
the prime rate, which are used to determine the interest rates that are
applicable to borrowings under the Company's bank credit facilities. The
Company uses off-balance sheet derivative financial instruments, including
interest rate swap and interest rate protection agreements, to partially
hedge interest transactions. All of the Company's derivative financial
instrument transactions are entered into for non trading purposes. The terms
and characteristics of the derivative financial instruments are matched with
the underlying on-balance sheet instrument or anticipated transaction and do
not constitute speculative or leveraged positions independent of these
exposures.
The information below summarizes the Company's sensitivity to market risk
associated with fluctuations in interest rates as of December 31, 1998. To
the extent that the Company's financial instruments expose the Company to
interest rate risk, they are presented within each market risk category in
the table below. The table presents principal cash flows and related interest
rates by year of maturity for the Company's Senior Subordinated Notes, and
bank credit facilities in effect at December 31, 1998. The table also
presents payments in kind, interest and related interest rates by year of
maturity for the Company's Exchangeable Preferred Stock in effect at December
31, 1998. The cash flows related to the variable portion of interest rate
swaps are determined by dealers using valuation models that estimate the
future level of interest rates, with consideration of the applicable yield
curve as of December 31, 1998. For interest rate swaps and interest rate
protection agreements, the table presents notional amounts and the related
reference interest rates by year of maturity. Fair values included herein
have been determined based on (i) quoted market prices for Exchangeable
Preferred Stock and Senior Subordinated Notes; (ii) the carrying value for
the bank credit facilities at December 31, 1998 as interest rates are reset
periodically; and (iii) estimates obtained from dealers to settle interest
rate swaps and interest rate protection agreements. Notes 4, 5 and 6 to the
Consolidated Financial Statements contain descriptions of the Company's
Exchangeable Preferred Stock, Senior Subordinated Notes and the Credit
Facility, and interest rate risk management agreements and should be read in
conjunction with the table below.
<TABLE>
<CAPTION>
TOTAL
THERE INTEREST
(IN THOUSANDS) 1998 1999 2000 2001 2002 AFTER PAID FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVITY:
SENIOR SUBORDINATED NOTES:
Fixed Rate $7,653 $12,031 $12,031 $12,031 $12,031 $64,802 $120,579 $131,250
Average Interest Rate 9.63% 9.63% 9.63% 9.63% 9.63% 9.63% 9.63%
EXCHANGEABLE PREFERRED STOCK
Fixed Rate $9,099 $15,711 $17,553 $19,637 $22,133 $144,136 $228,269 126,250
Average Interest Rate 11.38% 11.38% 11.38% 11.38% 11.38% 11.38% 11.38%
CREDIT FACILITY
Variable Rate $11,407 $11,850 $11,902 $12,024 $12,110 $49,184 $108,477 $173,000
Average Interest Rate 7.07% 6.85% 6.88% 6.95% 7.00% 7.05% 6.95%
INTEREST RATE SWAPS:
Fixed to Variable - $(1,249) $(1,363) $(1,363) $(1,363) $10,881 $ 5,543 $939
Average Pay Rate - - - - - 1.86% 1.86%
Average Receive Rate - 1.09% 1.09% 1.09% 1.09% - 1.09%
Variable to Fixed $122 $998 $972 $866 $783 $292 $4,033 $(4,758)
Average Pay Rate 0.66% 0.63% 0.59% 0.53% 0.48% 0.43% 0.55%
</TABLE>
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements and Notes thereto commencing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth in the Proxy
Statement under the heading "Election of Directors" and is incorporated
herein by reference. The information regarding executive officers of the
Company is contained in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the Proxy Statement under
the headings "Election of Directors" and "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth in the Proxy Statement under
the heading "Common Stock Ownership" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Proxy Statement under
the heading "Certain Transactions" and is incorporated herein by reference.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number
In this
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS Form 10-K
--------------------------------- ---------
<C> <C> <S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as
part of this Form 10-K:
Report of Independent Public Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
All schedules not included are omitted either because
they are not applicable or because the information
required therein is included in Notes to Consolidated
Financial Statements.
(3) EXHIBITS
See Exhibit Index on page 54.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
See Exhibit Index on page 54.
(d) OTHER FINANCIAL STATEMENTS
Not applicable.
</TABLE>
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Rural Cellular Corporation
/s/ Richard P. Ekstrand
---------------------------------------
RICHARD P. EKSTRAND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Richard P. Ekstrand President and March 29, 1999
- ------------------------------------------------ Chief Executive Officer
Richard P. Ekstrand (Principal Executive Officer
and Director)
/s/ Wesley E. Schultz Vice President of Finance and March 29, 1999
- ------------------------------------------------ Chief Financial Officer
Wesley E. Schultz (Principal Financial
and Accounting Officer)
/s/ David J. Del Zoppo Vice President, Controller March 29, 1999
- ------------------------------------------------
David J. Del Zoppo
/s/ George W. Wikstrom Jr. Director March 29, 1999
- ------------------------------------------------
George W. Wikstrom Jr.
/s/ Don C. Swenson Director March 29, 1999
- ------------------------------------------------
Don C. Swenson
/s/ Jeffrey S. Gilbert Director March 29, 1999
- ------------------------------------------------
Jeffrey S. Gilbert
/s/ Marvin C. Nicolai Director March 29, 1999
- ------------------------------------------------
Marvin C. Nicolai
/s/ George M. Revering Director March 29, 1999
- ------------------------------------------------
George M. Revering
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rural Cellular Corporation:
We have audited the accompanying consolidated balance sheets of Rural
Cellular Corporation (a Minnesota corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rural Cellular Corporation
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 5, 1999
F-1
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 2,062 $ 1,995
Accounts receivable, less allowance of $1,555 and $1,146 ........ 13,796 9,621
Inventories...................................................... 2,321 1,774
Other current assets............................................. 813 766
----------- -----------
Total current assets........................................... 18,992 14,156
----------- -----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $42,538 and
$23,874 ....................................................... 131,714 77,920
----------- -----------
LICENSES AND OTHER ASSETS:
Licenses and other intangible assets, less accumulated
amortization of $8,108 and $1,490.............................. 309,672 81,348
Deferred debt issuance costs, less accumulated amortization of
$509 and $120.................................................. 11,761 1,080
Other assets..................................................... 8,385 7,084
----------- -----------
Total licenses and other assets................................ 329,818 89,512
----------- -----------
$480,524 $181,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-2
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................. $ 16,524 $ 7,960
Advance billings and customer deposits........................... 3,229 2,541
Accrued interest................................................. 3,508 1,595
Dividends payable................................................ 1,880 -
Other accrued expenses........................................... 3,389 1,546
---------- ---------
Total current liabilities...................................... 28,530 13,642
LONG-TERM DEBT...................................................... 298,851 128,000
Total liabilities.............................................. 327,381 141,642
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST................................................... 1,663 6,215
EXCHANGEABLE PREFERRED STOCK........................................ 132,201 -
SHAREHOLDERS' EQUITY:
Class A common stock; $.01 par value; 15,000 shares authorized,
7,780 and 7,593 shares issued and outstanding.................. 78 76
Class B common stock; $.01 par value; 5,000 shares authorized,
1,203 and 1,260 shares issued and outstanding.................. 12 13
Additional paid-in capital....................................... 35,707 34,446
Accumulated deficit.............................................. (16,518) (804)
---------- ---------
Total shareholders' equity..................................... 19,279 33,731
---------- ---------
$ 480,524 $ 181,588
========== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES:
Service ............................................ $75,633 $43,408 $23,120
Roamer ............................................. 20,199 9,475 6,413
Equipment .......................................... 2,700 1,020 927
------- ------- -------
Total revenues.................................... 98,532 53,903 30,460
------- ------- -------
OPERATING EXPENSES:
Network costs....................................... 18,877 11,578 6,731
Cost of equipment sales............................. 5,968 2,807 1,375
Selling, general and administrative................. 39,156 25,225 13,575
Depreciation and amortization....................... 26,532 12,458 5,539
------- ------- -------
Total operating expenses.......................... 90,533 52,068 27,220
------- ------- -------
OPERATING INCOME ...................................... 7,999 1,835 3,240
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense.................................... (19,060) (6,065) (280)
Interest and dividend income........................ 1,461 232 335
Equity in earnings (losses) of
unconsolidated affiliates......................... (535) (350) 51
Minority interest................................... 4,553 3,082 331
------- ------- -------
Other income (expense), net....................... (13,581) (3,101) 437
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX AND
EXTRAORDINARY ITEM................................ (5,582) (1,266) 3,677
INCOME TAX PROVISION................................... - - 200
------- ------- -------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............ (5,582) (1,266) 3,477
------- ------- -------
EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF
DEBT.............................................. (1,042) - -
------- ------- -------
NET INCOME (LOSS)...................................... (6,624) (1,266) 3,477
PREFERRED STOCK DIVIDEND............................... (9,090) - -
------- ------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES.......... $(15,714) $(1,266) $ 3,477
------- ------- -------
------- ------- -------
NET INCOME (LOSS) PER BASIC AND DILUTED /
COMMON SHARES..................................... $(1.76) $(0.14) $ 0.41
------- ------- -------
------- ------- -------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
BASIC AND DILUTED................................. 8,916 8,853 8,509
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS TOTAL
COMMON STOCK COMMON STOCK PAID -IN (ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
- --------------------------------- ----------- ---------- ----------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995....... 4,303 $43 1,680 $17 $ 8,413 $ (3,015) $ 5,458
Issuance of common stock,
net of offering expenses.... 2,870 29 - - 26,033 - 26,062
Conversion of Class B common
stock to Class A common
stock....................... 330 3 (330) (3) - - -
Net Income.................... - - - - - 3,477 3,477
- --------------------------------- ----------- ---------- ----------- --------- -------------- -------------- --------------
BALANCE, December 31, 1996....... 7,503 75 1,350 14 34,446 462 34,997
Conversion of Class B common
stock to Class A common
stock....................... 90 1 (90) (1) - - -
Net Loss...................... - - - - - (1,266) (1,266)
- --------------------------------- ----------- ---------- ----------- --------- -------------- -------------- --------------
BALANCE, December 31, 1997....... 7,593 76 1,260 13 34,446 (804) 33,731
Conversion of Class B common
stock to Class A common
stock....................... 57 1 (57) (1) - - 0
Stock issued through
employee stock purchase
plan........................ 6 0 - - 57 - 57
Stock options exercised....... 124 1 - - 1,204 - 1,205
Net Loss...................... - - - - - (15,714) (15,714)
- --------------------------------- ----------- ---------- ----------- --------- -------------- -------------- --------------
BALANCE, December 31, 1998....... 7,780 $78 1,203 $12 $35,707 $(16,518) $19,279
================================= =========== ========== =========== ========= ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ (6,624) $ (1,266) $ 3,477
Adjustments to reconcile to net cash provided by
operating activities................................
Depreciation and amortization....................... 26,532 12,458 5,539
Extraordinary item - early extinguishment of debt... 1,042 - -
Equity in (earnings) losses of unconsolidated
affiliates......................................... 655 350 (52)
Change in minority interest......................... (4,552) (3,082) (331)
Other............................................... 7 (42) (184)
Change in other operating elements:
Accounts receivable............................... (1,058) (1,008) (3,220)
Inventories....................................... (230) (27) (682)
Other current assets.............................. 365 (262) (246)
Accounts payable.................................. 9,097 (2,525) 4,872
Advance billings and customer deposits............ (16) 797 435
Other accrued expenses............................ 3,346 2,649 31
-------------- -------------- --------------
Net cash provided by operating activities....... 28,564 8,042 9,639
-------------- -------------- --------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net............. (41,491) (34,928) (24,214)
Contributions to unconsolidated affiliates........... - (2) (225)
Purchases of Atlantic and Western Maine Cellular..... (269,984) - -
Purchases of Unicel and Northern Maine............... - (85,706) -
Other................................................ (1,734) (3,983) (997)
-------------- -------------- --------------
Net cash used in investing activities.............. (313,209) (124,619) (25,436)
-------------- -------------- --------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options.............. 1,262 - -
Proceeds from issuance of senior subordinated notes.. 125,000 - -
Proceeds from issuance of preferred stock............ 125,000 -
Proceeds from issuance of common stock............... - - 26,540
Proceeds from issuance of long-term debt............. 193,625 137,695 14,741
Proceeds from termination of interest rate swap...... 1,003 - -
Repayments of long-term debt......................... (148,625) (18,161) (25,372)
Payments of debt issuance costs...................... (12,553) (1,199) -
-------------- -------------- --------------
Net cash provided by financing activities.......... 284,712 118,335 15,909
-------------- -------------- --------------
NET INCREASE IN CASH................................... 67 1,758 112
CASH, at beginning of year............................. 1,995 237 125
-------------- -------------- --------------
CASH, at end of period................................. $ 2,062 $ 1,995 $ 237
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS:
Rural Cellular Corporation and its subsidiaries ("Company" or "RCC") provide
cellular communication service in the northern half of Minnesota and portions of
New England and paging service in northern Minnesota, eastern North Dakota and
portions of Maine. The Company operates its cellular and paging systems under
licenses granted by the Federal Communications Commission ("FCC"). The Company's
operations are subject to the applicable rules and regulations of the FCC.
2. ACQUISITIONS:
UNITY CELLULAR SYSTEM, INC.
Effective May 1, 1997, the Company completed the acquisition of the Maine
wireless telephone operations and related assets of Unity Cellular Systems, Inc.
and related cellular and microwave licenses from InterCel, Inc. In addition, the
Company acquired InterCel's 51% interest in the Northern Maine Cellular
Partnership, which holds a cellular license for Maine RSA2 and acquired the
remaining 49% in Northern Maine from an unrelated third party. The costs for all
of the acquired properties in Maine (the "MRCC Acquisition") was $86 million.
The acquired licenses cover the Bangor, Maine MSA and Maine RSA 3 (which
includes Augusta, the state capitol). The Company operates its Maine operations
through a wholly owned subsidiary, MRCC. Headquartered in Bangor, MRCC serves a
20,500 square-mile service area that encompasses approximately 518,000 POPs. The
acquisitions (the "MRCC Acquisitions") have been accounted for under the
purchase method of accounting.
ATLANTIC CELLULAR COMPANY, L.P.
Effective July 1, 1998, the Company completed the acquisition of the
Massachusetts, New Hampshire, New York, Vermont and cellular telephone licenses,
operations and related assets of Atlantic Cellular Company L.P. and one of its
subsidiaries ("Atlantic"), an independent provider of wireless communication
services in the New England region for approximately $262.5 million. Under the
terms of the agreement, the Company acquired a contiguous, multi-state service
area of 21,000 square miles, encompassing approximately 1.1 million POPs. The
cellular properties acquired from Atlantic include: (i) northwestern
Massachusetts (RSA 1); (ii) western New Hampshire (RSA 1); (iii) the
northeastern corner of New York (RSA 2); and (iv) the entire state of Vermont
(RSA 1, RSA 2, and the Burlington MSA). In addition, the Company has acquired
Atlantic's long distance business. The Company operates its Atlantic operations
through its wholly-owned subsidiary, RCC Atlantic, Inc. ("RCC Atlantic").
WESTERN MAINE CELLULAR, INC.
Effective July 31, 1998, the Company completed the acquisition of the
outstanding stock of Western Maine Cellular, Inc. ("WMC"), a wholly-owned
subsidiary of Utilities, Inc. for approximately $7.5 million. WMC provides
cellular service to western Maine RSA 1, which incorporates a 3,700 square-mile
service area of western Maine and encompasses 83,000 POPs. The Company operates
WMC through its wholly-owned subsidiary, MRCC, Inc.
("MRCC").
ACCOUNTING TREATMENT
In addition, the purchase price for Atlantic, WMC and Unity was allocated to the
net assets based on their estimated fair values and the excess was recorded as
goodwill and is being amortized over 33 to 39 years. The purchase price
allocations for Atlantic and WMC have been completed on a preliminary basis,
subject to adjustment should new or additional facts about the businesses become
known. All of the above acquisitions have been accounted for under the purchase
method of accounting; accordingly operating results have been included from the
date of acquisition.
F-7
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(CONTINUED)
The following unaudited pro forma information presents the consolidated results
of operations as if the acquisitions of MRCC, Atlantic, and WMC had occurred as
of January 1, 1997. This summary is not necessarily indicative of what the
results of operations of the Company and the acquired entities would have been
if they had been a single entity during such period, nor does it purport to
represent results of operations for any future periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(In thousands except for per share data) 1998 1997
--------------- ---------------
<S> <C> <C>
Total revenues............................ $122,198 $100,786
Operating income.......................... 12,125 8,958
Net loss.................................. $(25,151) $(27,602)
--------------- ---------------
--------------- ---------------
Basic and diluted net loss per share $(2.82) $(3.12)
--------------- ---------------
--------------- ---------------
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", effective January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive earnings
and its components in financial statements; however, the adoption of this
Statement had no impact on the Company's net earnings or shareholders' equity.
SFAS 130 requires minimum pension liability adjustments, unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
earnings. There were no material differences between net earnings and
comprehensive earnings for any periods presented in the accompanying
consolidated financial statements.
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" effective January 1, 1998. This new standard
requires companies to disclose segment data based on how management makes
decisions about allocating resources to segments and how it measures segment
performance. SFAS 131 requires companies to disclose a measure of segment
profit or loss (operating income, for example), segment assets and
reconciliations to consolidated totals. It also requires entity-wide
disclosures about a company's products and services, its major customers and
the material countries in which it holds assets and reports revenues.
SFAS 133, "Accounting for Derivative Instruments and for Hedging Activities"
was issued in July 1998. This standard establishes accounting and reporting
standards requiring that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at fair value. SFAS
133 requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, and designate and assess
the effectiveness of transactions that receive hedge accounting treatment.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, and
cannot be applied retroactively. The Company has not yet quantified the
impacts of adopting SFAS 133 on its financial statements; however, SFAS 133
could increase the volatility of reported earnings and other comprehensive
income once adopted.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-up Activities". SOP 98-5 requires
costs of start-up activities and organization costs to be expensed as incurred.
The initial application of SOP 98-5 will be reported as the cumulative effect of
a change in accounting principle. The Company intends to adopt SOP 98-5
effective January 1, 1999. The adoption of SOP 98-5 is not expected to have a
material effect on the Company's financial position or results of operations.
F-8
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RCC and its
wholly-owned subsidiaries, RCC Atlantic, Inc., MRCC, Inc., RCC Paging, Inc., RCC
Atlantic Long Distance, Inc., RCC Network, Inc. and its majority owned joint
venture, Wireless Alliance, LLC ("Wireless Alliance"). All significant
intercompany balances and transactions have been eliminated. Investments in
unconsolidated affiliates represent investments in companies in which RCC has a
20% to 50% ownership interest and which are accounted for under the equity
method.
REVENUE RECOGNITION
The Company earns revenue by providing cellular and paging services to customers
of the Company and of other cellular carriers traveling (roaming) in the
Company's service area and from sales and rentals of cellular and paging
equipment and accessories. Service revenue consists of the base monthly service
fee and airtime revenue. Base monthly service fees are billed one month in
advance and are recognized in the month earned. Airtime revenue is recognized
when service is provided. Roamer revenue consists of the fee charged to other
cellular carriers' customers for roaming in the Company's service area as well
as related airtime revenue for use of RCC's cellular network. Roamer revenue is
recognized when the service is rendered. The Company recognizes other service
revenues from equipment installations, equipment leases and connection fees when
earned.
INCOME TAXES
The Company follows the liability method of accounting for income taxes, and
deferred income taxes are based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities based on enacted tax laws.
NET INCOME (LOSS) PER COMMON SHARE
In 1997, the Company adopted SFAS Statement No. 128, "Earnings per Share". SFAS
128 replaced primary earnings per share ("EPS") with basic EPS. Basic EPS is
computed by dividing net income (loss) by the weighted average number of shares
outstanding during the year. Diluted EPS is computed by including dilutive
common stock equivalents with the basic weighted average shares outstanding. At
the time of adoption, all prior year EPS was restated in accordance with SFAS
No. 128.
INVENTORIES
Inventories consist of cellular telephone equipment, pagers and accessories and
are stated at the lower of cost, determined using the specific identification
method, or market.
F-9
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions, improvements or major
renewals are capitalized, while expenditures, that do not enhance or extend the
asset's useful life, are charged to operating expenses as incurred. Depreciation
is computed using the straight-line method based on the estimated useful life of
the asset.
The components of property and equipment and the useful lives of the assets are
as follows as of December 31:
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT (IN THOUSANDS) 1998 1997 USEFUL LIVES
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 4,247 $ 1,965 N/A
Building and towers 43,947 23,836 15 Years
Equipment 115,661 62,164 2-10 Years
Furniture and fixtures 9,620 6,604 3-10 Years
Assets under construction 777 7,225 N/A
------------------------------------------------------------------------------------------------------------
174,252 101,794
Less--accumulated depreciation (42,538) (23,874)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET $131,714 $ 77,920
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's network construction expenditures are recorded as assets under
construction until the system or assets are placed in service, at which time the
assets are transferred to the appropriate property and equipment category. As a
component of assets under construction, the Company capitalizes salaries of the
Company's engineering employees during the construction period for projects that
extend beyond one year.
LICENSES AND OTHER INTANGIBLE ASSETS
Licenses consist of the cost of acquiring paging licenses, the value assigned to
the Wireless Alliance Personal Communication Systems ("PCS") licenses, and the
value assigned to cellular licenses acquired through the acquisitions of Unicel,
Northern Maine, Atlantic Cellular, and WMC. Other intangibles, resulting
primarily from the acquisitions of Unicel, Northern Maine, Atlantic and WMC,
include the value assigned to subscriber lists and goodwill.
F-10
<PAGE>
The components of licenses and other intangible assets are as follows as of
December 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 AMORTIZABLE LIVES
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
LICENSES:
Cellular $135,407 $31,891 33 - 39 Years
PCS 9,629 9,629 40 Years
Paging 275 275 30 Years
OTHER INTANGIBLE ASSETS:
Goodwill 122,744 26,452 33 - 39 Years
Subscriber lists 49,725 14,591 10 - 33 Years
----------------------------------------------------------------------------------------
317,780 82,838
Less-accumulated amortization (8,108) (1,490)
----------------------------------------------------------------------------------------
LICENSES AND OTHER INTANGIBLE
ASSETS, NET $309,672 $81,348
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs relate to the Credit Facility, the Senior
Subordinated Notes and the Exchangeable Preferred Stock (see Notes 4 and 6).
These costs are being amortized over the respective instruments' terms.
OTHER ASSETS
Other assets primarily consist of costs related to spectrum relocation,
restricted investments, and investments in unconsolidated affiliates.
Investments in unconsolidated affiliates are accounted for using the equity
method and represent the Company's ownership interests in Cellular 2000, Inc.
Cellular 2000, Inc. is an entity organized to own the trade name and related
trademark for Cellular 2000. Restricted investments represent the Company's
investments in stock of the St. Paul Bank for Cooperatives and are stated at
cost, which approximates fair value. The restricted investments were purchased
pursuant to the terms of a loan agreement and are restricted as to withdrawal.
BUSINESS AND CREDIT CONCENTRATIONS
The Company's cellular customers are geographically located in the northern half
of Minnesota, eastern North Dakota, western and central Maine, Vermont, New
Hampshire, northeastern New York, and north central Massachusetts. No single
customer accounted for a significant amount of revenues or accounts receivable.
LONG-LIVED ASSETS
The Company periodically evaluates the value of all long-lived assets to
determine if events have occurred that indicate the remaining estimated useful
lives of these assets may warrant revision, or whether the remaining balance may
not be recoverable. If asset recovery is in question, the Company uses an
estimate of future net cash flows over the remaining useful lives of the
long-lived assets to measure recoverability.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments for which it
is practicable to estimate that value, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts do not represent the underlying value of the
Company.
F-11
<PAGE>
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are as follows
<TABLE>
<CAPTION>
CARRYING AMOUNT ESTIMATED FAIR VALUE
(In thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSET
Cash $ 2,062 $ 1,995 $ 2,062 $ 1,995
FINANCIAL LIABILITIES
$300 million credit facility 173,000 - 173,000 -
$160 million credit facility - 128,000 - 128,000
9 5/8 % Senior Subordinated Notes 125,000 - 131,250 -
OTHER FINANCIAL INSTRUMENTS
$65 million Toronto Dominion Bank - - (1,701) -
interest rate swap agreement
$65 million Bank Boston interest rate - - (2,238) -
swap agreement
$35 million PNC Bank interest rate - - (819) -
swap agreement
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Ultimate results could differ from those estimates.
RECLASSIFICATIONS
Certain 1997 and 1996 amounts in the accompanying consolidated financial
statements have been reclassified to conform to the 1998 presentation. These
reclassifications had no effect on consolidated net income or total
shareholders' equity as previously reported.
F-12
<PAGE>
4. LONG-TERM DEBT:
The Company had the following long-term debt outstanding at:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
$300 million credit facility $173,000 -
$160 million credit facility - 128,000
Deferred gain on hedge agreement 851 -
9 5/8% Senior Subordinated Notes 125,000 -
--------------------------------
Long-term debt $298,851 $128,000
================================
</TABLE>
9 5/8 % SENIOR SUBORDINATED NOTES - On May 14, 1998, the Company issued $125
million principal amount of 9 5/8 % Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes"). Interest on the Senior Subordinated Notes began to
accrue on May 14, 1998, and is payable semi-annually on May 15 and November 15
of each year, commencing on November 15, 1998. The Senior Subordinated Notes
will mature on May 15, 2008, and are redeemable, in whole or in part, at the
option of the Company, at any time on or after May 15, 2003. In addition, at any
time prior to May 15, 2001, the Company may redeem up to 25% of the aggregate
principal amount of Senior Subordinated Notes with the net cash proceeds of a
qualified event at a price equal to 109.625% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption;
provided that at least $90 million in aggregate principal amount of Senior
Subordinated Notes remains outstanding immediately after such redemption. A
qualified event is a public equity offering or one or more strategic equity
investments which in either case results in aggregate net proceeds to the
Company of not less than $50 million. Within 30 days after the occurrence of a
change of control, the Company will be required to make an offer to purchase all
outstanding Senior Subordinated Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. The Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and will be subordinated in right of payment to
future senior indebtedness (as defined in the Indenture related to the Senior
Subordinated Notes) of the Company and effectively subordinated to all
obligations of the Company's subsidiaries (including the guarantees by such
subsidiaries of the Credit Facility described below).
$160 MILLION CREDIT FACILITY - On May 28, 1998, the Company repayed $140 million
of the outstanding principal amount of its $160 million credit facility
utilizing the proceeds from its issuance of Senior Subordinated Notes and $125
million in 11 3/8% Exchangeable Preferred Stock ("Exchangeable Preferred
Stock"). Accordingly, the Company recognized an extraordinary loss of
approximately $1 million related to the early retirement of debt, representing
the unamortized debt issuance costs.
$300 MILLION CREDIT FACILITY - On July 1, 1998, the Company entered into a new
revolving Credit Facility for $300 million with a syndicate of banks (the
"Credit Facility"), which replaced the $160 million credit facility. At the
Company's discretion, advances under the Credit Facility bear interest at the
London Interbank Offering Rate ("LIBOR") plus an applicable margin (1.75% as of
December 31, 1998) and will be based on the Company's ratio of indebtedness to
annualized operating cash flow as of the end of the most recently completed
fiscal quarter. As of December 31, 1998, the effective rate of interest on the
Credit Facility, excluding the impact of the hedge agreements, was 7.07%. A
commitment fee of 0.375% on the unused portion of the Credit Facility is payable
quarterly. Borrowings under the Credit Facility are secured by a pledge of all
the assets of the Company excluding its ownership in the stock of Cellular 2000,
Inc. Mandatory commitment reductions will be required upon any material sale of
assets. The Credit Facility is subject to various covenants including the ratio
of indebtedness to annualized operating cash flow and the ratio of annualized
operating cash flow to interest expense. As of December 31, 1998, the Company
was in compliance with all covenants under the Credit Facility.
F-13
<PAGE>
The Credit Facility is to be reduced in equal quarterly amounts as follows:
<TABLE>
<CAPTION>
(In thousands)
-------------------------------------
YEAR AMOUNT
-------------------------------------
<C> <C>
1999 $ 0
2000 0
2001 9,731
2002 16,219
2003 23,787
Thereafter 123,263
-------------------------------------
Total $ 173,000
-------------------------------------
</TABLE>
5. FINANCIAL INSTRUMENTS:
As required by the Credit Facility, the Company maintains interest rate swaps on
at least 50% of the principal amount of the loans outstanding such that the
weighted average term of all interest rate protection is not less than three
years at all dates of determination, and as otherwise provided in the Credit
Facility. Under the interest rate swap agreements, the Company will pay the
difference between LIBOR and the fixed swap rate if the LIBOR exceeds the swap
rate. Income and expense associated with swap transactions are accrued over the
periods prescribed by the contracts. As of December 31, 1998, the Company is
party to three interest rate swaps expiring August 6, 2003, with a total
outstanding notional amount of $165 million and a fair market value of $(4.8)
million.
In anticipation of the offering of the Senior Subordinated Notes and
Exchangeable Preferred Stock, the Company also entered into a $150 million hedge
agreement. On May 12, 1998, the Company settled the hedge agreement, resulting
in a gain of approximately $1.0 million. This gain is being accreted as a
reduction of interest expense over the lives of the underlying debt instruments.
6. EXCHANGEABLE PREFERRED STOCK:
On May 14, 1998, the Company completed the placement of 125,000 shares of 11
3/8% Exchangeable Preferred Stock with a liquidation preference of $1,000 per
share. The Exchangeable Preferred Stock is senior to all classes of junior
preferred stock and common stock of the Company with respect to dividend rights
and rights on liquidation, winding-up and dissolution of the Company. The
Exchangeable Preferred Stock is non-voting, except as otherwise required by law
and as provided in the Certificate of Designation. Dividends on the Exchangeable
Preferred Stock are cumulative, accrue at 11 3/8% per annum from May 14, 1998,
are payable quarterly, and may be paid, at the Company's option, on any dividend
payment date occurring on or before May 15, 2003, either in cash or by the
issuance of additional shares of Exchangeable Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends.
Thereafter, all dividends will be payable in cash only. As of December 31, 1998,
the Company has accrued $1.9 million in preferred stock dividends which were
distributed on February 15, 1999.
7. SHAREHOLDERS' EQUITY:
AUTHORIZED SHARES
The Company's Restated Articles of Incorporation authorize the issuance of
30,000,000 shares of $.01 par value stock. Of such authorized shares, 9,550,000
have not been designated as to class as of December 31, 1998.
F-14
<PAGE>
INITIAL PUBLIC OFFERING
During 1996, the Company completed an initial public offering (the "Offering")
of 3,450,000 shares of Class A common stock, of which 2,869,863 shares were sold
by the Company and 580,137 previously issued shares were sold by certain
shareholders. The net proceeds to the Company of approximately $26.0 million
were used to repay long-term debt and to provide capital for future expansion.
In connection with the Offering, the exercise price of 150,600 employee stock
options was fixed at $10.00 per share, the price at which the stock was sold to
the public in the Offering.
COMMON STOCK RIGHTS
Class A common shareholders are entitled to one vote for each share owned while
Class B common shareholders are entitled to ten votes for each share owned. Each
share of Class B common stock may at any time be converted into one share of
Class A common stock at the option of the holder. Additionally, all issued Class
B common shares will be converted into an equivalent number of Class A common
shares upon the affirmative vote of not less than 66-2/3 of the then issued
Class B common shares. Further, Class B common shares are automatically
converted to an equal number of Class A common shares if they are transferred to
anyone who is not an affiliate of the transferring shareholder of the Company.
STOCK COMPENSATION PLANS
The stock compensation plan (the "Plan") for employees authorizes the issuance
of up to 1,400,000 shares of Class A common stock in the form of stock options,
stock appreciation rights or other stock-based awards. The Plan provides that
the exercise price of any option shall not be less than 85% of the fair market
value of the Class A common stock as of the date of the grant (100% in the case
of incentive stock options). Options and other awards granted under the Plan
shall vest and become exercisable as determined by the Board of Directors or a
stock option committee.
The stock option plan for nonemployee directors authorizes the issuance of up to
210,000 shares of Class A common stock. The plan provides that the option price
shall not be less than the fair market value of the Class A common stock
outstanding on the date of grant. The options vest and become exercisable over
one to three years and expire between four and six years from the date of grant.
Options outstanding as of December 31, 1998 have exercise prices ranging
between $8.75 and $16.81. Information related to stock options is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ----------------------------- ---------------------------
Weighted Weighted
Average Weighted Average
Exercise Average Exercise
Shares Price Shares Exercise Price Shares Price
-------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS
Outstanding, beginning
of period 735,200 $ 9.47 459,700 $ 9.99 - $ -
Granted 291,250 14.66 319,750 9.09 549,700 10.32
Exercised (123,750) 9.78 - - - -
Canceled (30,000) 9.13 (44,250) 8.75 (90,000) 12.00
-------------------------- ----------------------------- ---------------------------
Outstanding, end of
period 872,700 11.17 735,200 9.47 459,700 9.99
-------------------------- ----------------------------- ---------------------------
-------------------------- ----------------------------- ---------------------------
Exercisable, end of
period 264,590 $ 10.06 161,895 $ 9.92 55,200 $ 9.92
-------------------------- ----------------------------- ---------------------------
-------------------------- ----------------------------- ---------------------------
Weighted average fair
value of options granted $ 10.94 $ 6.40 $ 5.60
-------------------------- ----------------------------- ---------------------------
-------------------------- ----------------------------- ---------------------------
</TABLE>
F-15
<PAGE>
The Company accounts for stock options under Accounting Principles Board Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for the Company's plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's results of operations
and net loss per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands except for per share data) 1998 1997 1996
---------- ------------ -----------
<S> <C> <C> <C>
Net loss:
As reported $(15,714) $(1,266) $3,477
Pro forma (16,790) (1,890) 3,215
Basic and diluted net loss per share:
As reported $ (1.76) $ (.14) $ .41
Pro forma (1.88) (.21) .38
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998 and 1997: expected volatility of 50.50 and
51.61%, respectively; risk-free interest rates of 5.6%; and no expected dividend
yield. The per share weighted average fair value of options granted in 1998 and
1997 was $10.04 per share and $6.40 per share, respectively.
8. INCOME TAXES:
The components of the Company's income tax provisions are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
----------- ------------------ ----------
<S> <C> <C> <C>
Current:
Federal............... $ - $ - $106
State................. - - 94
----------- ------------------ ----------
- - 200
Deferred................... - - -
----------- ------------------ ----------
$ - $ - $200
----------- ------------------ ----------
----------- ------------------ ----------
</TABLE>
F-16
<PAGE>
Reconciliation between the federal income tax rate and the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ------------- ----------
<S> <C> <C> <C>
Federal income tax rate................................ -% -% 34.0%
Tax benefit of loss carryforwards...................... - - (29.8)
Penalties and fines.................................... - - -
State income taxes, net of federal tax benefit......... - - 1.2
Other, net............................................. - - -
----------- ------------- ----------
-% -% 5.4%
----------- ------------- ----------
----------- ------------- ----------
</TABLE>
The income tax effect of the items that create deferred income tax assets and
liabilities are as follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
-------- ------------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards................. $ 14,383 $ 4,488
Tax credit carryforwards..................... 485 -
Temporary differences:
Allowance for doubtful accounts............ 616 450
Other...................................... 1,745 302
Valuation allowance.......................... (7,781) (400)
-------- ------------
Total deferred income tax assets........... 9,448 4,840
Deferred income tax liabilities:
Depreciation................................. (6,225) (3,971)
Intangible assets............................ (3,223) (724)
Other........................................ - (145)
-------- ------------
Net deferred income tax asset.............. $ - $ -
-------- ------------
-------- ------------
</TABLE>
A valuation allowance was established in 1997 for net deferred income tax assets
not expected to be offset by deferred income tax liabilities due to the
uncertainty of the realization of future tax benefits.
As of December 31, 1998, the Company had tax operating loss carryforwards of
approximately $36 million available to offset future income tax liabilities.
These carryforwards expire in the years 2006 through 2018. The Tax Reform Act of
1986 contains provisions that may limit the availability and timing of usage of
net operating loss carryforwards in the event of certain changes in the
ownership of the Company's common stock.
9. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURE COMMITMENTS
The Company had capital expenditure purchase commitments outstanding of
approximately $7 million as of December 31, 1998.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with executive officers with terms ranging
from two to three years. These agreements provide for payment of amounts up to
three times their annual compensation if there is a
F-17
<PAGE>
termination of their employment as a result of change in control of the
Company, as defined in the agreements. The maximum contingent liability under
these agreements was $1.7 million at December 31, 1998.
LEGAL AND REGULATORY MATTERS
The Company is subject to various legal and regulatory matters arising in the
normal course of business. Management does not believe any of these matters will
have a significant effect on the Company and, accordingly, no provision for any
liability that may result from these matters has been made.
LEASES (IN THOUSANDS)
The Company leases office space and real estate under noncancelable operating
leases. Future minimum payments under these leases as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Year Amount
-----------------------------------
<S> <C>
1999.............. $ 2,275
2000.............. 1,963
2001.............. 1,525
2002.............. 1,155
2003.............. 806
Thereafter........ 389
-------
Total.......... $ 8,113
-------
-------
</TABLE>
Under the terms of the lease agreements, the Company also is responsible for
certain operating expenses and taxes. Total rent expense of $2,300, $839 and
$379 was charged to operations for the years ended December 31, 1998, 1997 and
1996.
10. RELATED-PARTY TRANSACTIONS (IN THOUSANDS):
AFFILIATE AGREEMENT
The Company pays Switch 2000, Inc. for cellular switching and interconnection
services. The rates of reimbursement are negotiated by the parties to the
agreement and are similar to rates charged by other service providers. Amounts
billed by Switch 2000, Inc. to the Company totaled $710, $3,230 and $4,824 for
the years ended December 31, 1998, 1997 and 1996 respectively. In September
1998, the Company sold its interest in Switch 2000.
ROAMING AGREEMENT
The Company has a roaming agreement with a partnership that is affiliated with a
beneficial owner of greater than 10% of the Company's common stock. Roaming
charges are passed through to the customer. The rates of reimbursement are
negotiated by the parties to the agreement and reflect rates charged by other
service providers. Net payments by the Company to the partnership were $47, $167
and $331 for the years ended December 31, 1998, 1997 and 1996, respectively.
11. DEFINED CONTRIBUTION PLAN (IN THOUSANDS):
The Company has a defined contribution savings and profit-sharing plan for
employees who meet certain age and service requirements. Under the savings
portion of the plan, employees may elect to contribute a percentage of their
salaries to the plan, with the Company contributing a matching percentage of the
employees' contributions. Under the profit-sharing portion of the plan, the
Company contributes a percentage of employees' salaries. Contributions charged
to operations for the years ended December 31, 1998, 1997 and 1996 were $297,
$162 and $74, respectively. The percentages the Company matches under the
savings portion of the plan and contributes under the profit-sharing portion of
the plan are determined annually by the Company's Board of Directors.
F-18
<PAGE>
12. SEGMENT INFORMATION:
The Company's consolidated financial statements consist of the business units
RCC Cellular and Wireless Alliance. RCC Cellular includes cellular operations in
Minnesota, Maine, Massachusetts, New Hampshire, New York and Vermont. Wireless
Alliance, a joint venture that commenced cellular reselling operations in
November 1996 and launched its first PCS networks in the second quarter of 1998,
is 51%-owned by the Company and 49%-owned by APT Inc., an affiliate of Aerial
Communications, Inc. Information about the Company's operations in its business
units for the years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
(In thousands) 1998 1997
---------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
RCC Cellular $ 87,720 $ 47,591
Wireless Alliance LLC 12,369 7,339
Eliminating (1,557) (1,027)
---------------------------------------
Total revenue 98,532 53,903
---------------------------------------
Operating expenses
RCC Cellular 71,853 39,531
Wireless Alliance LLC 20,237 13,564
Eliminating (1,557) (1,027)
---------------------------------------
Total operating expenses 90,533 52,068
Operating income (loss)
RCC Cellular 15,867 8,060
Wireless Alliance LLC (7,868) (6,225)
---------------------------------------
Total operating income 7,999 1,835
---------------------------------------
Depreciation and amortization
RCC Cellular 23,490 11,800
Wireless Alliance LLC 3,043 658
---------------------------------------
Total depreciation and 26,533 12,458
amortization
Interest expense
RCC Cellular 19,208 6,065
Wireless Alliance LLC 1,439 65
Eliminating (1,587) (65)
---------------------------------------
Total interest expense 19,060 6,065
OTHER OPERATING DATA:
EBITDA (*)
RCC Cellular 39,357 19,860
Wireless Alliance LLC (4,825) (5,567)
---------------------------------------
Total EBITDA 34,532 14,293
Capital expenditures
RCC Cellular 29,563 26,127
Wireless Alliance LLC 13,300 8,801
---------------------------------------
Total capital expenditures 42,863 34,928
BALANCE SHEET DATA:
Property and equipment
RCC Cellular 151,227 92,630
Wireless Alliance LLC 23,025 9,164
---------------------------------------
Total property and equipment 174,252 101,794
Total assets
RCC Cellular 480,251 175,612
Wireless Alliance LLC 34,870 24,273
Eliminating (30,597) (18,297)
---------------------------------------
Total assets 480,524 181,588
</TABLE>
(*)EBITDA is the sum of earnings before interest, taxes, depreciation
and amortization and is utilized as a performance measure within the
cellular industry. EBITDA is not intended to be a performance measure
that should be regarded as an alternative for other performance
measures and should not be considered in isolation. EBITDA is not a
measurement of financial performance under generally accepted
accounting principles and does not reflect all expenses of doing
business (e.g., interest expense, depreciation). Accordingly, EBITDA
should not be considered as having greater significance than or as an
alternative to net income or operating income as an indicator of
operating performance or to cash flows as a measure of liquidity.
F-19
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
(IN THOUSANDS) 1998 1997 1996
--------- ---------- ------------
<S> <C> <C> <C>
Cash paid for:
Interest............................................ $16,273 $4,630 $ 564
Income taxes........................................ - 64 805
Non-cash investing and financing activity:
Preferred stock dividends paid in kind.............. 7,201 - -
Contribution by an affiliate of Aerial Communications,
Inc. of PCS licenses.............................. - $3,175 $6,453
</TABLE>
14. EVENTS SUBSEQUENT TO DECEMBER 31, 1998:
Effective February 1, 1999, the Company acquired RGI, Inc. d/b/a Glacial
Lakes Cellular 2000 ("Glacial") for approximately $11.9 million. Operating
under the name Cellular 2000-Registered Trademark-, Glacial provides cellular
service to northeastern South Dakota (RSA 4), which includes eight counties
and is adjacent to RCC's existing cellular operation in northern and central
Minnesota. Glacial's service area encompasses 69,000 POPs and the operation
serves more than 7,000 customers.
On February 2, 1999, the Company entered into two Swap transactions with TD
Bank Financial Group, which together, effectively lower the interest on the
Senior Subordinated Notes from 9.625% to 8.535% through May 2003. During the
period of June 2003 through May 2008, the Company will pay the difference
between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR, and the
Company will receive the difference between LIBOR and the fixed swap rate if
LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset dates
specified by the terms of the contracts. The notional principal amount of the
interest rates swaps outstanding was $125 million at February 2, 1999.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rural Cellular Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Rural Cellular
Corporation's Form 10-K and have issued our report thereon dated February 5,
1999. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index of consolidated
financial statements is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 5, 1999
S-1
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Balance, at beginning of year.......................... $1,146 $ 308 $163
Additions charged to income........................ 2,843 1,511 602
Write-offs, net of recoveries...................... (2,434) (673) (457)
-------------- ------------ ------------
Balance, at end of year................................ $1,555 $1,146 $308
============== ============ ============
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number Description Page
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Purchase Agreement dated as of May 7, 1998 by and among the Company and TD Securities [i]
(USA) Inc., NationsBanc Montgomery Securities LLC, and BancBoston Inc. (the Initial
Purchasers)
2.1 Asset Purchase Agreement among Atlantic Cellular Company, L.P., Atlantic Cellular/New [ii]
Hampshire RSA Number One Limited Partnership and RCC Atlantic Inc., Rural Cellular
Corporation as of February 13, 1998
2.2 Stock Purchase Agreement among the shareholders of RGI Group, Inc. and the Company as of [viii]
February 1, 1999
3.1 Articles of Incorporation, as amended and restated to date [iii]
3.2 Bylaws, as amended and restated to date [viii]
4.1 Indenture dated May 14, 1998 between the Registrant, as Issuer, and Norwest Bank [i]
Minnesota, N.A., as Trustee, with respect to the 9 5/8% Senior Subordinated Notes Due 2008
4.2 Form of the 9 5/8% Senior Subordinated Notes Due 2008 (included as an exhibit to the [i]
Indenture, filed herewith as Exhibit 4.1)
4.3 Notes Exchange and Registration Rights Agreement dated as of May 14, 1998 by and among [i]
the Registrant and the Initial Purchasers
4.4 Certificate of Designation of 11 3/8% Senior Exchangeable Preferred Stock [i]
4.5 Preferred Stock Exchange and Registration Rights Agreement dated as of May 14, 1998 by [i]
and among the Registrant and the Initial Purchasers
10.1 (a) Loan Agreement dated May 1, 1997 (the "Loan Agreement") among the Registrant and The Toronto
Dominion Bank, Bank Boston, N.A., St. Paul Bank for Cooperatives, CoBank, Fleet National
Bank, First National Bank of Maryland, Societe Generale, New York Branch, and Merita Bank
Ltd New York Branch (the "Banks"), BankBoston, N.A. and St. Paul Bank for Cooperatives (the
"Co-Agents"), and Toronto Dominion (Texas), Inc. (the "Administrative Agent") [iv]
10.1 (b) Amendment to the Loan Agreement dated August 4, 1997 [i]
10.1 (c) Amendment to the Loan Agreement dated December 30, 1997 [v]
10.1 (d) Amendment to the Loan Agreement dated April 17, 1998 [i]
10.1 (e) Amendment to the Loan Agreement dated April 24, 1998 [i]
10.2 (a) Amended and Restated Loan Agreement among the Registrant, as borrower, the financial [vi]
institutions whose names appear as lenders on the signature
pages thereof, TD Securities (USA), Inc., as arranging agent for
the lenders, and Toronto Dominion (Texas), Inc., as
administrative agent for the lenders, dated as of July 1, 1998
10.2 (b) Exhibit A-Form of Amended and Restated Borrower's Pledge Agreement [vi]
10.2 (c) Exhibit E-Form of Revolving Loan Note [vi]
10.2 (d) Exhibit F-Form of Amended and Restated Security Agreement [vi]
10.2 (e) Exhibit G-Form of Subsidiary Guaranty [vi]
10.2 (f) Exhibit H-Form of Subsidiary Pledge Agreement [vi]
10.2 (g) Exhibit I-Form of Subsidiary Security Agreement [vi]
10.2 (h) Exhibit J-Form of Term Loan Note [vi]
10.2 (i) Exhibit K-Form of Incremental Facility Note [vi]
10.2 (j) Exhibit Q-Form of Assignment and Assumption Agreement [vi]
10.3 (a) Trademark and Trade Name License Agreements between Cellular 2000, Inc. and: [iii]
(i) North Woods Cellular Partnership
(ii) Northern Lights Cellular Partnership
(iii) Great River Cellular Partnership
(iv) Cellular Five Partnership
(v) Heartland Cellular Partnership
10.3 (b) Assignment and Assumption Agreements by and between the Registrant and each partnership [iii]
*10.4 1995 Stock Compensation Plan, as amended to date [i]
*10.5 Stock Option Plan for Non-employee Directors, as amended to date [vii]
*10.6 Employment Agreement with Richard P. Ekstrand effective January 22, 1999 [viii]
*10.7 Employment Agreement with Wesley E. Schultz effective January 22, 1999 [viii]
*10.8 (a) Employment Agreement with Scott G. Donlea effective December 1, 1995 [vii]
*10.8 (b) Amendment to Employment Agreement with Mr. Donlea effective December 18, 1996 [vii]
*10.8 (c) Amendment to Employment Agreement with Mr. Donlea effective December 18, 1997 [v]
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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21 Subsidiaries of Registrant [viii]
23 Consent of Arthur Andersen LLP [viii]
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</TABLE>
*Indicates management contract or compensatory plan or agreement required to be
filed as an exhibit to this Form.
[i] Filed as an exhibit to Registration Statement on Form S-4 (SEC No.
333-57677), filed June 25, 1998, and incorporated herein by reference.
[ii] Filed as an exhibit to Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference.
[iii] Filed as an exhibit to Registration Statement on Form S-1 (Sec. No.
33-80189) filed December 8, 1995 and incorporated herein by reference.
[iv] Filed as an exhibit to Report on Form 8-K dated May 1, 1997 and
incorporated herein by reference.
[v] Filed as an exhibit to Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
[vi] Filed as an exhibit to Report on Form 8-K dated July 1, 1998 and
incorporated herein by reference.
[vii] Filed as an exhibit to Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
[viii] Filed herewith.
<PAGE>
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
DATED OCTOBER 15 , 1998
BY AND AMONG
RURAL CELLULAR CORPORATION
(PURCHASER)
AND
GEORGE M. REVERING, JOYCE C. REVERING, GEORGE D. REVERING,
DAN J. REVERING, DEREK V. REVERING AND THE GEORGE M.
REVERING IRREVOCABLE TRUST U/A JULY 22, 1996
(SHAREHOLDERS)
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TABLE OF CONTENTS
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ARTICLE 1: DEFINITIONS.........................................................................................2
ARTICLE 2: PURCHASE OF STOCK; PURCHASE PRICE...................................................................9
2.1 Purchase and Sale of Stock..............................................................................9
2.2 Purchase Price..........................................................................................9
2.3 Payment of Purchase Price on the Date of Closing.......................................................10
2.4 Payments of Purchase Price after the Date of Closing...................................................11
2.5 Determination of Purchase Price Adjustments; Closing Balance Sheet; Final Payment......................11
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.....................................................13
3.1 Due Incorporation......................................................................................14
3.2 Capitalization.........................................................................................14
3.3 Due Authorization......................................................................................14
3.4 No Breach..............................................................................................14
3.5 Clear Title............................................................................................15
3.6 Condition of Assets....................................................................................15
3.7 Litigation.............................................................................................15
3.8 Labor Matters..........................................................................................15
3.9 Taxes..................................................................................................15
3.10 Employee Benefits......................................................................................16
3.11 [THIS SECTION INTENTIONALLY OMITTED]...................................................................17
3.12 Financial Statements...................................................................................18
3.13 Absence of Certain Developments........................................................................18
3.14 Intellectual Property..................................................................................20
3.15 Compliance with Laws...................................................................................20
3.16 Operating Contracts....................................................................................20
3.17 Real Estate............................................................................................20
3.18 Accounts Receivable....................................................................................23
3.19 Books and Records; Bank Accounts.......................................................................23
3.20 Employees..............................................................................................23
3.21 Licenses and Permits...................................................................................23
3.22 Other Material Contracts and Obligations...............................................................23
3.23 Subsidiaries...........................................................................................24
3.24 Insurance..............................................................................................24
3.25 Brokers................................................................................................24
3.26 Relationship with Related Persons......................................................................24
3.27 Hazardous Materials....................................................................................25
3.28 Other Environmental Matters............................................................................25
3.29 Debt Instruments.......................................................................................26
3.30 Dissolution of GLCLP and Glacial DBS...................................................................26
3.31 Year 2000 Compliance...................................................................................26
3.32 Customers and Suppliers................................................................................27
3.33 CGSA...................................................................................................27
3.34 Network................................................................................................27
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ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................27
4.1 Due Incorporation......................................................................................27
4.2 Due Authorization......................................................................................27
4.3 No Breach..............................................................................................27
4.4 Investment Representations.............................................................................28
4.5 Brokers................................................................................................28
ARTICLE 5: PERFORMANCE PENDING CLOSING........................................................................28
5.1 Access to Information..................................................................................28
5.2 Conduct of Business....................................................................................28
5.3 Encumbrances...........................................................................................28
5.4 Pay Increases..........................................................................................29
5.5 Restrictions on New Contracts..........................................................................29
5.6 Preservation of Business...............................................................................29
5.7 Payment and Performance of Obligations.................................................................29
5.8 Restrictions on Sale of Assets.........................................................................29
5.9 Prompt Notice..........................................................................................29
5.10 Consents...............................................................................................29
5.11 Copies of Documents....................................................................................29
5.12 No Solicitation of Other Offers........................................................................29
5.13 Accounts Receivable and Payable........................................................................30
5.14 Inventory..............................................................................................30
5.15 Insurance..............................................................................................30
5.16 Filing Reports and Making Payments.....................................................................30
5.17 Capital Expenditures...................................................................................30
5.18 Monthly Financials.....................................................................................30
5.19 Title Review...........................................................................................30
5.20 Litigation.............................................................................................30
5.21 Notification of Inaccuracy.............................................................................31
5.22 Valley Sale............................................................................................31
5.23 Employment Matters.....................................................................................32
5.24 Amendment of 401(k)....................................................................................32
ARTICLE 6: MUTUAL COVENANTS AND CONDITIONS PRECEDENT TO OBLIGATIONS...........................................32
6.1 Proceedings............................................................................................32
6.2 Consents and Approvals.................................................................................32
6.3 Valley Sale............................................................................................32
ARTICLE 7: CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS....................................................32
7.1 Accuracy of Representations and Warranties.............................................................32
7.2 Compliance with Covenants and Agreements...............................................................33
7.3 No Material Adverse Change.............................................................................33
7.4 Approval by Counsel....................................................................................33
7.5 Legal Opinion..........................................................................................33
7.6 Resignation of Directors and Officers..................................................................33
7.7 Corporate Action.......................................................................................33
7.8 [THIS SECTION INTENTIONALLY OMITTED.]..................................................................33
7.9 Environmental Audit....................................................................................33
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7.10 Title Matters; Surveys.................................................................................34
7.11 Pending FCC Application................................................................................35
7.12 Due Diligence..........................................................................................35
ARTICLE 8: CONDITIONS PRECEDENT TO SHAREHOLDERS'OBLIGATIONS...................................................35
8.1 Accuracy of Representations and Warranties.............................................................35
8.2 Compliance with Covenants and Agreements...............................................................35
8.3 Approval by Counsel....................................................................................35
8.4 Legal Opinion..........................................................................................35
8.5 Delivery of Purchase Price and Other Consideration.....................................................35
8.6 Pending Fee Application................................................................................35
ARTICLE 9: INDEMNIFICATION....................................................................................35
9.1 Indemnification by Certain Shareholders................................................................35
9.2 Indemnification by Purchaser...........................................................................36
9.3 Procedure for Indemnification..........................................................................37
9.4 Dispute Resolution.....................................................................................38
ARTICLE 10: CLOSING...........................................................................................39
10.1 Date of Closing........................................................................................39
10.2 Documents to be Delivered by Shareholders..............................................................40
10.3 Documents to be Delivered by Purchaser.................................................................41
ARTICLE 11: PERFORMANCE FOLLOWING THE DATE OF CLOSING.........................................................42
11.1 Further Acts and Assurances............................................................................42
11.2 Non-Competition Agreement..............................................................................42
11.3 Non-Solicitation Agreement.............................................................................42
11.4 Confidential Information...............................................................................42
11.5 Reasonableness of Covenants............................................................................43
11.6 Injunctive Relief......................................................................................43
11.7 Blue Pencil Doctrine...................................................................................43
11.8 Name of Company........................................................................................43
11.9 Employee Retention.....................................................................................43
11.10 Tax Matters............................................................................................44
ARTICLE 12: TERMINATION.......................................................................................45
12.1 Termination............................................................................................45
12.2 Return of Documents and Nondisclosure..................................................................46
ARTICLE 13: MISCELLANEOUS.....................................................................................46
13.1 Survival of Representations and Warranties.............................................................46
13.2 Preservation of and Access to Records..................................................................46
13.3 Cooperation............................................................................................46
13.4 Public Announcements...................................................................................47
13.5 Notices................................................................................................47
13.6 Entire Agreement.......................................................................................47
13.7 Remedies...............................................................................................47
13.8 Amendments.............................................................................................47
13.9 Successors and Assigns.................................................................................48
13.10 Costs..................................................................................................48
13.11 Governing Law..........................................................................................48
13.12 Counterparts...........................................................................................48
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13.13 Headings...............................................................................................48
13.14 Scope of Agreement.....................................................................................48
13.15 Number and Gender......................................................................................48
13.16 Severability...........................................................................................48
13.17 Parties in Interest....................................................................................48
13.18 Waiver.................................................................................................49
13.19 Forum and Jurisdiction.................................................................................49
13.20 Construction...........................................................................................49
13.21 Payment Agent..........................................................................................49
13.22 Supplementation of Schedules...........................................................................49
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 15th day of October, 1998, by and among Rural Cellular
Corporation, a Minnesota corporation (the "Purchaser"), and George M.
Revering, Joyce C. Revering, George D. Revering, Dan J. Revering, Derek V.
Revering, and the George M. Revering Irrevocable Trust U/A July 22, 1996
(individually a "Shareholder" and collectively the "Shareholders").
RECITALS
A. The Shareholders are the owners of all of the issued and
outstanding shares of each class and series of capital stock (collectively
the "Stock") of RGI Group, Inc., a Minnesota corporation (the "Company").
B. The Company is engaged by and through its division known as
Glacial Lakes Cellular 2000 in the business of providing cellular radio
telephone services (the "Business") to end users in Market 637B-South Dakota
4 -- Marshall, South Dakota, pursuant to a license issued by the United States
Federal Communications Commission (the "FCC").
C. The Company owns all of the issued and outstanding stock of
Valley Telephone Company, a Minnesota corporation ("Valley"), which is
engaged in the businesses of providing local exchange telephone services,
long distance access, the sale of internet access, DirecTV DBS and related
telecommunications services in and around Browns Valley, Minnesota, and West
Browns Valley, South Dakota, pursuant to licenses issued by the Minnesota
Public Utilities Commission and the South Dakota Public Utilities Commission,
respectively.
D. The Company intends to sell all of the stock in Valley (the
"Valley Sale") prior to the Closing.
E. Prior to December 30, 1997, the Company was the general partner
and owner of approximately seventy-six percent (76%) of the interests in
Glacial Lake Cellular Limited Partnership, a South Dakota limited partnership
("GLCLP"). On December 30, 1997, the Company acquired the remaining
approximately twenty-four percent (24%) interest in GLCLP.
F. During 1997, the Company sold substantially all of the assets of
its subsidiary, Glacial Lakes DBS, Inc., a South Dakota corporation ("Glacial
DBS").
G. The Company owns all of the issued and outstanding stock of
Revering Finance Corporation, a Minnesota corporation ("RFC"), which is
engaged in no business other than borrowing money used to finance the Company
and Valley.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises
contained in this Agreement, Purchaser and the Shareholders agree as follows:
ARTICLE 1: DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings specified:
"AAA RULES" - has the meaning set forth in Section 9.4(b) of this
Agreement.
"ACQUISITION PROPOSAL" - means any proposal relating to the possible
acquisition of the Company whether by way of merger, purchase of capital stock
of the Company representing fifty percent (50%) or
2
<PAGE>
more of the voting power or equity of the Company, purchase of all or
substantially all of the assets of the Company, or otherwise.
"AFFILIATE" - when used in reference to a specified Person, means
any Person that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with the specified
Person.
"AGREEMENT" - has the meaning set forth in the introductory
paragraph hereof.
"APPLICABLE LAWS" - means any and all laws, ordinances,
constitutions, regulations, statutes, treaties, rules, codes, licenses,
certificates, franchises, permits, requirements and Injunctions adopted,
enacted, implemented, promulgated, issued, entered or deemed applicable by or
under the authority of any Governmental Body having jurisdiction over a
specified Person or any of such Person's properties or assets.
"AUDIT" - has the meaning set forth in Section 7.9 of this Agreement.
"AUDITOR" - has the meaning set forth in Section 2.5(a) of this
Agreement.
"BALANCE SHEET" - has the meaning set forth in Section 3.12 of this
Agreement.
"BALANCE SHEET DATE" - has the meaning set forth in Section 3.12 of
this Agreement.
"BANK" - has the meaning set forth in Section 2.2(c) of this
Agreement.
"BASKET AMOUNT" - has the meaning set forth in Section 9.1(a) of
this Agreement.
"BENEFIT PLAN" - means any and all bonus, stock option, restricted
stock, stock purchase, stock appreciation, phantom stock, profit
participation, profit-sharing, deferred compensation, severance, pension,
retirement, disability, medical, dental, health, life or dental insurance,
death benefit, incentive, welfare and/or other benefit, compensation and/or
retirement plan, policy, arrangement and/or Contract maintained, sponsored or
participated in by the Company.
"BUSINESS" - has the meaning set forth in the recitals to this
Agreement.
"CLOSING" - has the meaning set forth in Section 10.1 of this
Agreement.
"CLOSING BALANCE SHEET" - has the meaning set forth in Section
2.5(a)(i) of this Agreement.
"CLOSING CERTIFICATE" - has the meaning set forth in Section
2.5(a)(i) of this Agreement.
"CODE" - means the Internal Revenue Code of 1986, as amended, or any
successor law and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"COMPANY" - has the meaning set forth in the Recitals; provided,
however, that the term, "Company" as used in Sections 3.9, 3.10, 3.12, 3.13,
3.24, 3.27, 3.28 and 5.20, and in the definition of "Knowledge," includes the
Company, Valley, RFC, Glacial DBS and GLCLP.
"COMPANY INCOME TAX LIABILITY"- means the actual aggregate income
Taxes set forth as "Tax Due" (federal) or "Amount Due" (state), as shown on
the Company's consolidated state and federal income Tax Returns, for the 1998
Tax year and the stub period, if any, ending on the Date of Closing.
"COMPETING BUSINESS" - has the meaning set forth in Section 3.26 of
this Agreement.
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<PAGE>
"CONFIDENTIAL INFORMATION" - means any information or compilation of
information not generally known to the public or the industry or which the
Company has not disclosed to third parties without a written obligation of
confidentiality, which is proprietary to the Company, relating to the
Company's procedures, techniques, methods, concepts, ideas, affairs,
products, processes and services, including, but not limited to, information
relating to marketing, merchandising, selling, research, development,
manufacturing, purchasing, accounting, engineering, financing, costs,
customers, plans, pricing, billing, needs of customers and products and
services used by customers, all lists of customers and their addresses,
prospects, sales calls, products, services, prices and the like as well as
any specifications, formulas, plans, drawings, accounts or sales records,
sales brochures, code books, manuals, trade secrets, knowledge, know-how,
pricing strategies, operating costs, sales margins, methods of operations,
invoices or statements and the like.
"CONSOLIDATED TAX ENTITIES" - has the meaning set forth in Section
3.9 of this Agreement.
"CONTRACT" - means any agreement, lease, license, contract,
obligation, promise, commitment, arrangements, understanding or undertaking,
instrument, document (whether written or oral and whether express or implied)
of any type, nature or description that is legally binding. As used herein,
the word "Contract" shall be limited in scope if modified by an adjective
specifying the type of contract to which this Agreement or a Section hereof
refers.
"CONVERTIBLE SECURITIES" - means any and all securities convertible
or exchangeable for (i) any shares of capital stock of the Company,
including, without limitation, common stock, or (ii) any Debt Securities.
"DATE OF CLOSING" - has the meaning set forth in Section 10.1 hereof.
"DEBT INSTRUMENT" - has the meaning set forth in Section 3.29 of
this Agreement.
"DEBT SECURITIES" - means any and all indebtedness issued by or on
behalf of the Company which constitutes a security under the Securities Act
of 1933, as amended, except for indebtedness reflected in the financial
statements of the Company described on SCHEDULE 3.12 hereto.
"DEFERRED COMPENSATION AGREEMENTS" - means all of the following:
Letter Agreement between the Company and Bill Randall dated July 22, 1996,
Letter Agreement between the Company and Jim Jung dated October 1, 1993, as
amended on October 1, 1998; Letter Agreement between the Company and Max Tite
dated October 1, 1993, as amended on October 1, 1998; and Letter Agreement
between the Company and Bill Chase dated July 15, 1996.
"DEFERRED COMPENSATION AMOUNT" - means the amount payable by the
Company pursuant to the Deferred Compensation Agreements.
"DISCLOSE" - means to reveal, deliver, divulge, disclose, publish,
copy, communicate, show or otherwise make known or available to any other
Person, or in any way to copy, any of the Company's Confidential Information.
"EASEMENTS" - has the meaning set forth in Section 3.17 of this
Agreement.
"EMPLOYEE RETENTION AMOUNT" - has the meaning set forth in Section
11.9(b) of this Agreement.
"ENCUMBRANCE" - means and includes:
(i) with respect to any personal property, any intangible
property or any property other than real property, any security or
other property interest or right, claim, lien, pledge, option, charge,
security interest, contingent or conditional sale, or other title claim
or retention agreement
4
<PAGE>
or lease or use agreement in the nature thereof whether voluntarily
incurred or arising by operation of law, and including any agreement
to grant or submit to any of the foregoing in the future; and
(ii) with respect to any real property (whether and including
Owned Real Estate or Leased Real Estate), any mortgage, lien, easement,
interest, right-of-way, condemnation or eminent domain proceeding,
encroachment, any building, use or other form of restriction,
encumbrance or other claim (including adverse or prescriptive) or right
of third parties (including Governmental Bodies), any lease or
sublease, boundary dispute, and agreements with respect to any real
property including: purchase, sale, right of first refusal, option,
construction, building or property service, maintenance, property
management, conditional or contingent sale, use or occupancy, franchise
or concession, whether voluntarily incurred or arising by operation of
law, and including any agreement to grant or submit to any of the
foregoing in the future.
"ENVIRONMENTAL AUDIT FIRM" - has the meaning set forth in Section
7.9 of this Agreement.
"ENVIRONMENTAL LAWS" - means any and all Applicable Laws (i)
regulating the use, treatment, generation, transportation, storage, control
or disposal of any Hazardous Material, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.) ("CERCLA"), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Federal Water
Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean Water Act
(33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401
ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.),
the Minnesota Environmental Response and Liability Act (Minn. Stat. Ch.
115B), and the Minnesota Petroleum Tank Release Cleanup Act (Minn. Stat. Ch.
115C), and/or (ii) relating to the protection, preservation or conservation
of the environment and public or worker health and safety, all as existing,
defined or interpreted as of the Date of Closing.
"ERISA" - means the Employee Retirement Income Security Act of 1974,
as amended.
"FINAL ORDER" - has the meaning set forth in Section 6.2 of this
Agreement.
"FCC" - has the meaning set forth in the recitals to this Agreement.
"GAAP" - means generally accepted accounting principles in the
United States.
"GLCLP" - has the meaning set forth in the recitals to this
Agreement.
"GLACIAL DBS" - has the meaning set forth in the recitals to this
Agreement.
"GOVERNMENTAL BODY" - any:
(i) nation, state, county, city, town, village, district
or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other
government;
(iii) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, board, commission,
department, instrumentality, office or other entity, and any court or
other tribunal);
(iv) multi-national organization or body; and/or
(v) body exercising, or entitled or purporting to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
5
<PAGE>
"HAZARDOUS MATERIALS" - any and all (i) dangerous, toxic or
hazardous pollutants, contaminants, chemicals, wastes, materials or
substances listed or identified in, or directly or indirectly regulated by,
any Environmental Law, and (ii) any of the following, whether or not included
in the foregoing: polychlorinated biphenyls, asbestos in any form or
condition, urea-formaldehyde, petroleum, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquified natural gas, synthetic
gas usable for fuel or mixtures thereof, nuclear fuels or materials, chemical
wastes, radioactive materials, explosives and known possible carcinogens.
"INDEMNIFIED PARTY" - has the meaning set forth in Section 9.3 of
this Agreement.
"INDEMNIFYING PARTY" - has the meaning set forth in Section 9.3 of
this Agreement.
"INDEPENDENT ACCOUNTANTS" - has the meaning set forth in Section
2.5(f) of this Agreement.
"INJUNCTION" - means any and all writs, rulings, awards, directives,
injunctions (whether temporary, preliminary or permanent), judgments, decrees
or orders (whether executive, judicial or otherwise) adopted, enacted,
implemented, promulgated, issued, entered or deemed applicable by or under
the authority of any Governmental Body.
"INTELLECTUAL PROPERTY" - means any and all (i) inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations in
part, revisions, extensions and reexaminations thereof; (ii) trademarks,
service marks, trade dress, logos, trade names, assumed names and corporate
names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith; (iii)
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith; (iv) mask works and all applications,
registrations and renewals in connection therewith; (v) trade secrets and
confidential business information (including ideas, research and development,
know-how, technology, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and
marketing plans and proposals); (vi) computer software (including data and
related software program documentation in computer-readable and hard-copy
forms); (vii) other intellectual property and proprietary rights of any kind,
nature or description; and (viii) copies of tangible and embodiments thereof
(in whatever form or medium).
"IRS" - means the United States Internal Revenue Service.
"KNOWLEDGE" or "BEST KNOWLEDGE" - an individual will be deemed to
have "Knowledge" or "knowledge" of a particular fact or other matter if such
individual is actually aware of such fact or other matter; provided, however,
that Knowledge by one Shareholder of a particular fact or other matter shall
be deemed knowledge by all of the Shareholders, and that each Shareholder
shall be deemed to have Knowledge of all matters regarding the Company of
which the Company's directors, officers, or any of the following employees
have Knowledge: George M. Revering, Dean Revering, Dan Revering, Max Tite,
William Chase, Kathy Scharf, and Cindy Foos.
"LEASED REAL ESTATE" - has the meaning set forth in Section 3.17
hereof.
"LIABILITY" or "LIABILITIES" - means any and all debts, liabilities
and/or obligations of any type, nature or description (whether known or
unknown, asserted or unasserted, secured or unsecured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated and whether due
or to become due).
"LOSS" OR "LOSSES" - has the meaning set forth in Section 9.1 of
this Agreement.
"MANAGEMENT FEE" - has the meaning set forth in Section 5.22(c) of
this Agreement.
6
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"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE"- means, in
connection with any Person, any event, change or effect that is materially
adverse, individually or in the aggregate, to the condition (financial or
otherwise), properties, assets, Liabilities, revenues, income, business,
operations, results of operations or prospects of such Person, taken as a
whole.
"OPERATING CONTRACTS" - has the meaning set forth in Section 3.16 of
this Agreement.
"ORDINARY COURSE OF BUSINESS" - means an action taken by a Person
only if:
(i) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; and
(ii) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
constituting a governing body of a Person exercising similar
authority).
"OWNED REAL ESTATE" - has the meaning set forth in Section 3.17
hereof.
"PCB'S" - has the meaning set forth in Section 3.28(g) of this
Agreement.
"PAYMENT AGENT" - means Revering Shareholder Representative
Corporation, a Minnesota corporation.
"PERMITTED ENCUMBRANCES" - has the meaning set forth in Section
3.17(d) of this Agreement.
"PERSON" - means any individual, corporation (including any
non-profit corporation), general, limited or limited liability partnership,
limited liability company, joint venture, estate, trust, association,
organization, or other entity or Governmental Body.
"PROCEEDING" - means any suit, litigation, arbitration, hearing,
audit, investigation or other action (whether civil, criminal, administrative
or investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"PURCHASER" - has the meaning set forth in the introductory
paragraph hereof.
"PURCHASE PRICE" - has the meaning set forth in Section 2.2 of this
Agreement.
"PURCHASE PRICE ADJUSTMENTS" - has the meaning set forth in Section
2.2 of this Agreement.
"QUALIFIED EMPLOYEE" - has the meaning set forth in Section 11.9(b)
of this Agreement.
"REAL ESTATE" - has the meaning set forth in Section 3.17(b) of this
Agreement.
"RELATED PERSON" - means, with respect to a particular individual,
(i) each other member of such individual's Family (as
hereafter defined); and
(ii) any Affiliate of one or more members of such
individual's Family.
With respect to a specified Person other than an individual:
(i) any Affiliate of such specified Person; and
(ii) each Person that serves as a director, governor,
officer, manager, general partner, executor or trustee of such
specified Person (or in a similar capacity). For purposes of this
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definition, the "FAMILY" of an individual includes (i) such
individual, (ii) the individual's spouse, (iii) any lineal ancestor
or lineal descendant of the individual, or (iv) a trust for the benefit
of any of the foregoing.
"RELEASE" - has the meaning set forth in Section 10.2(i) of this
Agreement.
"RESPONSE PERIOD" - has the meaning set forth in Section 2.5(e) of
this Agreement.
"RETENTION AGREEMENT" has the meaning set forth in Section 11.9(b)
of this Agreement.
"RFC" - has the meaning set forth in the recitals to this Agreement.
"RIGHTS" shall mean any and all outstanding subscriptions, warrants,
options, or other arrangements or commitments obligating or which may
obligate (with or without notice or passage of time or both) the Company to
issue or dispose of any securities of the Company including, without
limitation, Convertible Securities, and Debt Securities.
"SCHEDULES" - has the meaning set forth in the introductory
paragraph to Article 3 of this Agreement.
"SHAREHOLDER" or "SHAREHOLDERS" - has the meaning set forth in the
introductory paragraph hereof.
"STOCK" - has the meaning set forth in the recitals to this
Agreement.
"SUPPLEMENT" - has the meaning set forth in Section 13.22 of this
Agreement.
"TAX" or "TAXES" - means any and all net income, gross income, gross
revenue, gross receipts, net receipts, ad valorem, franchise, profits,
transfer, sales, use, social security, employment, unemployment, disability,
license, withholding, payroll, privilege, excise, value-added, severance,
stamp, occupation, property, customs, duties, real estate and/or other taxes,
assessments, levies, fees or charges of any kind whatsoever imposed by any
Governmental Body, together with any interest or penalty relating thereto.
"TAX RETURN" - means any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including
without limitation any schedule or attachment thereto, any amendment thereof,
and any estimated report or statement.
"THREATENED" - a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made in writing, or any notice has been given in writing that would lead a
reasonably prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter will, with substantial certainty, be asserted,
commenced, taken or otherwise pursued in the future; provided, however, that
the foregoing shall not include customer billing disputes in the Ordinary
Course of Business.
"TRANSITION PERIOD" - has the meaning set forth in Section 11.9(a)
of this Agreement.
"USE" - means to appropriate any of the Company's Confidential
Information for the benefit of oneself or any other Person other than the
Company.
"VALLEY" - has the meaning set forth in the recitals to this
Agreement.
"VALLEY EMPLOYEES" - has the meaning set forth in Section 5.22(d) of
this Agreement.
"VALLEY SALE" - has the meaning set forth in the recitals to this
Agreement.
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"VALLEY SALE CLOSING DATE" - means the date on which the Valley Sale
is consummated by a closing.
"VALLEY SALE DOCUMENTS" - has the meaning set forth in Section
5.22(a) of this Agreement.
"VALLEY SALE EXPENSES" - means expenses paid or incurred by the
Company which arise from or in connection with the Valley Sale, which
expenses are (i) the Valley Sale Tax Holdback (ii) attorney's, accountants or
other professional fees incurred in connection with the Valley Sale, (iii)
sales, use or other transfer Taxes (but excluding income Taxes) incurred
solely as a result of the Valley Sale, (iv) fees of financial advisors in
connection with the Valley Sale, which includes one-half of the fee paid to
Dain Bosworth, and (v) any other direct, out of pocket expenses. Valley Sale
Expenses shall not include costs related to the use of Company or Valley
facilities and equipment and the time expended by executives and other
employees of the Company or Valley in connection with the Valley Sale.
"VALLEY SALE NET PROCEEDS" - means the Valley Sale Proceeds, less
(i) Valley Sale Expenses, (ii) amounts paid by the Company with Valley Sale
Proceeds for: (a) reduction of long term debt to the Bank and (b) reduction
of debt to any Shareholder, (iii) any amount paid by the Company prior to the
Closing of the Deferred Compensation Amount, and (iv) any portion of the
Indemnification Holdback (as defined by the Valley Sale Stock Purchase
Agreement) that is not directly transferred to the Company.
"VALLEY SALE PROCEEDS" - means the "Purchase Price" (as defined in
the Valley Sale Stock Purchase Agreement) (a) increased or decreased by the
final adjustment specified in Sections 2.2(b) and 2.8 of the Valley Sale
Stock Purchase Agreement, if any, without reduction for the "Indemnification
Holdback" (as defined in the Valley Sale Stock Purchase Agreement) and the
Valley Sale Tax Holdback.
"VALLEY SALE STOCK PURCHASE AGREEMENT" - means the September 1, 1998
Stock Purchase Agreement between Valley and Park Region Mutual Telephone
Company.
"VALLEY SALE TAX HOLDBACK" - means the "Tax Holdback," as defined in
the Valley Sale Stock Purchase Agreement.
"WORKING CAPITAL ADJUSTMENT" - has the meaning set forth in Section
2.2(e) of this Agreement.
ARTICLE 2: PURCHASE OF STOCK; PURCHASE PRICE
2.1 PURCHASE AND SALE OF STOCK. In reliance upon the
representations, warranties and covenants contained in this Agreement on the
Date of Closing, Purchaser agrees to purchase the Stock from the
Shareholders, and the Shareholders agree to sell, assign, transfer and
deliver the Stock to Purchaser on the terms and conditions set forth in this
Agreement.
2.2 PURCHASE PRICE. The purchase price for the Stock (the
"Purchase Price") shall be the aggregate of Eleven Million Nine Hundred
Thousand and 00/100 Dollars ($11,900,000) plus or minus, as indicated, the
sum of the following adjustments (collectively, the "Purchase Price
Adjustments").
(a) less sixty percent (60%) of the Employee Retention Amount
set forth in Schedule 11.9 hereof, plus sixty percent (60%) of any
Employee Retention Amount not paid by the Company to Qualified
Employees that, in accordance with Section 11.9 hereof, shall be
remitted to the Shareholders.
(b) less sixty percent (60%) of any Deferred Compensation
Amount that is payable by the Company after the Date of Closing and is
set forth on the Closing Balance Sheet. No later than five (5) business
days prior to the Date of Closing, Shareholder shall provide Purchaser
with SCHEDULE 2.2(b) hereof, which Schedule shall set forth the
Deferred Compensation Amount, itemized to show the estimated (or
actual, if available) amount owing to each recipient of a Deferred
Compensation Amount.
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(c) less principal payments, if any, made on debt owed by the
Company or RFC to St. Paul Bank for Cooperatives (the "Bank") after
January 1, 1998 and prior to or at Closing, except for (i) regularly
scheduled principal payments during such period, and (ii) unscheduled
(or accelerated) principal payments made from sale proceeds of the
Company's Glacial DBS sale transaction or from Valley Sale Proceeds.
(d) less the amount of all long term debt and long term
liabilities shown on the Closing Balance Sheet after any payment to the
Bank pursuant to Section 2.2(c) of this Agreement (the "Long Term
Obligations"). The estimated amount of the Long Term Obligations shall
be jointly agreed upon between Shareholders and Purchaser in good faith
prior to the Closing, and the amount of the Long Term Obligations
determined shall be withheld from the amount payable at Closing and
reconciled after the Date of Closing in accordance with Section 2.5
hereof.
(e) less the amount, if any, by which current liabilities exceed
current assets on the Closing Balance Sheet (the "Working Capital
Adjustment"). The composition of, and adjustments required under this
Agreement to, current assets and current liabilities for purposes of
preparation of the Closing Balance Sheet is set forth in Section 2.5
hereof. The estimated amount of the Working Capital Adjustment shall
be jointly agreed upon between Shareholders and Purchaser in good faith
prior to the Closing and the estimated Working Capital Adjustment so
determined shall be withheld from the amount payable to Shareholders
at Closing and reconciled after the Date of Closing in accordance with
Section 2.5 hereof.
(f) plus the Valley Sale Net Proceeds. The estimated amount of the
Valley Net Proceeds shall be jointly agreed upon between the
Shareholders and Purchaser in good faith prior to the Closing, and the
amount of the Valley Sale Net Proceeds so determined will be added to
the amount payable at Closing and reconciled after Date of Closing in
accordance with Section 2.5 hereof.
(g) plus $33,897, but only if the escrow from the Glacial DBS sale
has not been paid to the Company at or prior to the Date of Closing.
(h) less the Company Income Tax Liability. The estimated amount of
the Company Income Tax Liability shall be jointly agreed upon between
Shareholders and Purchaser in good faith prior to the Closing and the
estimated Company Income Tax Liability so determined shall be withheld
from the amount payable to Shareholders at Closing and reconciled after
the Date of Closing in accordance with Section 2.5 hereof.
(i) plus the amount, if any, of any refund of any income Taxes
prepaid by the Company to which the Company is entitled with respect to
the Company's combined state and federal income Taxes for the 1998 Tax
year and the stub period ending on the Date of Closing, except any such
refund received by the Company at or prior to the Closing.
(j) plus the excess portion, if any, of the Valley Sale Tax
Holdback disbursed to the Company in accordance with the Valley Sale
Stock Purchase Agreement.
2.3 PAYMENT OF PURCHASE PRICE ON THE DATE OF CLOSING. The Purchase
Price to be paid on the Date of Closing shall be $11,900,000 plus or minus, as
applicable, the sum of (a) a reduction for the Employee Retention Amount
described in Section 2.2(a), (b) a reduction, if any, for the Deferred
Compensation Amount set forth in Section 2.2(b), (c) a reduction ,if any, for
the principal payments (subject to exceptions) set forth in Section 2.2(c), (d)
a reduction, if any, for the Long Term Obligations estimated in accordance with
Section 2.2(d), (e) a reduction, if any, for the estimate by which current
liabilities exceed current assets on the Closing Balance Sheet in accordance
with Section 2.2(e) and computed in accordance with Section 2.5, (f) an increase
for the amount, if any, of the Valley Sale Net Proceeds estimated in accordance
with Section 2.2(f), (g) an increase for the amount, if any, required to be paid
in accordance with Section 2.2(g), and (h) a reduction, if any, of the Company
Income Tax Liability estimated in accordance with Section 2.2(h). The Purchase
Price Adjustment set forth in Section 2.2(i) shall be paid by Purchaser causing
the Company to transfer to the Payment Agent the Tax refund, if any, specified
in said Section 2.2(i). Upon the Closing, the Company shall be deemed, without
the requirement of further documentation, to have assigned said Tax refund to
the Shareholders. The Purchase Price Adjustment set forth in Section 2.2(j)
shall, immediately at the time of disbursement, be paid by Purchaser to the
Payment Agent. The Purchase Price shall be paid directly to the Payment Agent
and shall be for all purposes deemed payment to the Shareholders. All payments
to the Shareholders pursuant to this
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Agreement shall be made by certified or bank cashier's check, or by wire
transfer of immediately available funds to accounts designated by the Payment
Agent.
2.4 PAYMENTS OF PURCHASE PRICE AFTER THE DATE OF CLOSING. The
Purchase Price Adjustment set forth in Section 2.2(i) shall be paid by
Purchaser causing the Company to transfer to the Payment Agent the Tax
refund, if any, specified in said Section 2.2(i). Upon the Closing, the
Company shall be deemed, without the requirement of further documentation, to
have assigned said Tax refund to the Shareholders. The Purchase Price
Adjustment set forth in Section 2.2(j) shall, immediately at the time of
disbursement, be paid by Purchaser to the Payment Agent. The Purchase Price
shall be paid directly to the Payment Agent and shall be for all purposes
deemed payment to the Shareholders. All payments to the Shareholders pursuant
to this Agreement shall be made by certified or bank cashier's check, or by
wire transfer of immediately available funds to accounts designated by the
Payment Agent.
2.5 DETERMINATION OF PURCHASE PRICE ADJUSTMENTS; CLOSING BALANCE
SHEET; FINAL PAYMENT.
(a) Promptly following the Date of Closing (but in any event
within ninety (90) days after the Date of Closing), the Shareholders
shall cause to be prepared and delivered to the Purchaser a
certification (the "Closing Certificate") prepared by an auditor (the
"Auditor") selected by the Shareholders in their sole discretion. The
Closing Certificate shall include:
(i) A closing balance sheet
(the "Closing Balance Sheet") prepared in accordance with
Section 2.5(b) of this Agreement;
(ii) The following itemized
calculations and reconciliations of estimated Purchase Price
Adjustments:
(1) The amount, if any, estimated and
deducted from the Purchase Price paid on the Date of
Closing for Long Term Obligations shall be subtracted
from the actual Long Term Obligations existing on the
Date of Closing. If the amount of the actual Long
Term Obligations existing on the Date of Closing (i)
exceeds the estimated amount, the Purchase Price is
reduced and such amount shall be an amount due to
Purchaser, or (ii) is less than the estimated amount,
the Purchase Price is increased and such amount shall
be an amount due to the Shareholders.
(2) The amount, if any, estimated and
deducted from the Purchase Price, by which current
liabilities exceed current assets on the Date of
Closing shall be subtracted from the actual amount by
which current liabilities exceed current assets on
the Closing Balance Sheet. If the actual amount of
such excess current liabilities over current assets
(i) exceeds the estimated amount, the Purchase Price
is reduced and such amount shall be an amount due to
Purchaser, or (ii) is less than or equal to the
estimated amount, the Purchase Price shall be
increased (but not if the estimated amount was $0 on
the Date of Closing) and such amount shall be an
amount due to the Shareholders.
(3) The amount, if any, estimated and by
which the Purchase Price was increased for the Valley
Net Sale Proceeds shall be subtracted from the actual
Valley Net Sale Proceeds computed by the Auditors
(for which an itemized calculation shall be made by
the Auditors as a schedule to the Closing
Certificate). If the amount of the actual Valley Net
Sale Proceeds (i) exceeds the estimated amount, the
Purchase Price is increased and such amount shall be
an amount due to the Shareholders, or (ii) is less
than the estimated amount, the Purchase Price is
reduced and such amount shall be an amount due to
Purchaser.
(4) The amount, if any, estimated and
deducted from the Purchase Price paid on the Date of
Closing for the Company Income Tax Liability shall
be subtracted from the actual Company Income Tax
Liability computed by the Auditors (for which an
itemized calculation shall be made by the Auditors
as a schedule to the Closing Certificate). If the
amount of the actual Company Income Tax Liability
(i) exceeds the estimated amount, the Purchase Price
is reduced and such amount shall be an amount due to
the Purchaser or (ii) is less
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than the estimated amount, the Purchase Price shall
be increased and such amount shall be an amount due
to the Shareholders.
(iii) The foregoing increases or decreases to the
Purchase Price shall be summarized and computed in the
aggregate as either an amount (i) due to Purchaser, or (ii)
due to the Shareholders, with interest thereon computed in
accordance with Section 2.5(g)
(iv) Copies of all supplementary documents, work
papers, and other data relating to the Closing Certificate;
and
(v) Such other supplementary evidence as
Purchaser may require either prior to or after delivery of the
Closing Certificate.
(b) In connection with the preparation of the Closing Balance
Sheet and all other matters arising under the Closing Certificate,
Purchaser shall afford the Shareholders and their representatives
complete access to the books, records, personnel and facilities of or
pertaining to the Company to permit the Auditor to review such
information as is necessary or desirable to prepare the Closing Balance
Sheet and all other statements arising under the Closing Certificate.
(c) The itemized calculations required by Section 2.5(a)(ii)
shall be presented and calculated in accordance with EXHIBIT B-2
hereto.
(d) The Closing Balance Sheet shall consist of the opinion of
the Auditor, substantially in the form of Exhibit B-1 hereto, based on
an audit of the balance sheet of the Company as of the close of
business on the Date of Closing in accordance with GAAP consistently
applied by the Company (including any change in accounting methods or
principles disclosed in any Schedule or Supplement) and without giving
effect to the consummation of the transactions contemplated hereby. The
Auditor's statement on the Closing Balance Sheet shall be unqualified,
except for the modifications to GAAP mandated by this Agreement for the
proper presentation and calculation of the matters required to be
included with and in the Closing Certificate. The expense of the
preparation of the Closing Balance Sheet by the auditor shall be borne
by the Shareholders. The parties hereby acknowledge and agree that,
regardless of whether it is otherwise required by GAAP, or whether it
is inconsistent with the past accounting practices of the Company, the
Closing Balance Sheet shall not contain accruals for the expenses
associated with the preparation of the Closing Balance Sheet.
In furtherance of the foregoing, the Closing Balance Sheet
prepared by the Auditor shall be adjusted to reflect the following
adjustments to and/or departures from GAAP (as GAAP is applied in a
manner consistent with the Company's past accounting practices):
(i) All intercompany eliminations and adjustments
shall be made by the debiting or crediting the intercompany
account and debiting or crediting the corresponding
intercompany account.
(ii) Any amount payable to any Shareholder shall be
eliminated with a debit to the applicable liability account(s)
and a credit to the retained earnings.
(iii) Any amount payable to the Bank shall be
eliminated by a debit to the applicable liability account(s)
and a credit to retained earnings.
(iv) Any amount payable as a Deferred Compensation
Account shall be eliminated by a debit to the applicable
liability account(s) and a credit to retained earnings.
(v) The Indemnification Holdback (as defined in
the Valley Sale Stock Purchase Agreement) shall be eliminated
as an asset by a credit to the Indemnification Holdback
amount and a debit to retained earnings.
(vi) An amount for accrued bonuses payable in 1999
for 1998 (if any),vacation pay and sick pay, if not already
accrued on the Closing Balance Sheet, shall be accrued by a
debit to retained earnings and a credit to the applicable
current liability account(s) in the amount(s) as specified
in SCHEDULE 3.20.
(vii) Any amount for prepaid income Taxes shall be
eliminated as an asset by a credit to the applicable current
asset account and a debit to retained earnings.
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(viii) Any amount for accrued income Taxes shall be
eliminated as a liability by a debit to the accrued income
Taxes account and a credit to retained earnings.
(ix) Any amount for the Valley Sale Tax Holdback
shall be eliminated as an asset by a credit to the Valley Sale
Tax Holdback amount and a debit to retained earnings.
(x) Any amount deducted from the Purchase Price
pursuant to Section 2.2(c) shall be adjusted by a debit to
cash and a credit to retained earnings.
(e) If Purchaser concludes that any matter reported in
the Closing Certificate is not accurate, Purchaser shall, within thirty
(30) days after their receipt of the Closing Certificate (the "Response
Period"), deliver to the Shareholders a written statement setting forth
a specific description of each of its objections and each of any
discrepancies believed to exist. If no notice of any objections or
discrepancies is given within the Response Period, then the
calculations set forth in the Closing Certificate shall be controlling
for all purposes of this Agreement, and Purchaser or the Shareholders,
as the case may be, shall pay the other the amount which they are
obligated to pay in accordance with the Closing Certificate pursuant to
SECTION 2.5 (G) below.
(f) Purchaser and the Shareholders shall use good faith
efforts to jointly resolve the properly noticed objections and
discrepancies within fifteen (15) days of the receipt of the written
statement of objections and discrepancies, which resolution, if
achieved, shall be fully and completely binding upon all parties to
this Agreement and not subject to further review, appeal, or dispute.
If Purchaser and the Shareholders are unable to resolve the objections
and discrepancies to their mutual satisfaction within such fifteen (15)
day period, then the matter shall be submitted to a mutually acceptable
accounting firm of national reputation with experience in the cellular
radio telephone industry (the "Independent Accountants"). In submitting
a dispute to the Independent Accountants, each of the parties shall
concurrently furnish, at its own expense, to the Independent
Accountants and the other party such documents and information as the
Independent Accountants may request. Each party may also furnish to the
Independent Accountants such other information and documents as it
deems relevant, with the appropriate copies and notification being
concurrently given to the other party. Neither party shall have or
conduct any communication, either written or oral, with the Independent
Accountants without the other party either being present or receiving a
concurrent copy of any written communication. The Independent
Accountants may conduct a conference concerning the objections and
disagreements between the Shareholders and Purchaser, at which
conference each party shall have the right to (i) present its
documents, materials and other evidence (previously provided to the
Independent Accountants and the other party) and (ii) to have present
its or their advisors, accountants and/or counsel. The Independent
Accountants shall promptly (but not to exceed thirty (30) days from the
date of engagement of the Independent Accountants) render a decision on
the issues presented, and such decision shall be final and binding on
the parties.
(g) Within five (5) days of the earlier to occur of
(i) any failure to object to the Closing Certificate within the
Response Period, or (ii) receipt of the Independent Accountant's
decision with respect to such dispute, if Purchaser is deemed to owe
an amount to the Shareholders, Purchaser shall pay such amount to the
Shareholders, and if the Shareholders are determined to owe an amount
to Purchaser, the Shareholders shall pay such amount to Purchaser. All
amounts owed by Purchaser or the Shareholders to the other in
accordance with this SECTION 2.5 shall be paid by certified or bank
cashier's check or by wire transfer of immediately available funds with
interest computed thereon from the Date of Closing at the prime rate
charged on the date the payment becomes due by US Bank National
Association, Minneapolis, Minnesota.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Shareholders represent and
warrant to Purchaser that each and all of the following (as modified by the
Schedules to this Agreement (the "Schedules") and any Supplement delivered by
Seller
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pursuant to Section 13.22 of this Agreement) are true and correct as of the
date of this Agreement and will be true and correct as of the Date of Closing:
3.1 DUE INCORPORATION. The Company and RFC are corporations duly
organized, validly existing and in good standing under the laws of the State
of Minnesota. The Company has all requisite power and authority, corporate
and otherwise, to own, operate and lease its properties and assets and to
conduct the Business as it is now being conducted. The Company and RFC are
duly qualified to transact business as a foreign corporation and are in good
standing under the laws of every state or jurisdiction in which the nature of
their activities or of their properties owned, leased or operated makes such
qualification necessary and in which the failure to be so qualified could
reasonably be expected to have a Material Adverse Effect on the Company or
RFC.
3.2 CAPITALIZATION. The authorized capital stock of the Company
consists solely of 20,000 shares of Class A Common Voting Stock, $.01 par
value per share, 1,980,000 shares of Class B Common Nonvoting Stock, $.01 par
value per share, of which 10,000 shares of Class A Common Voting Stock and
990,000 shares of Class B Common Nonvoting Stock are issued and outstanding
on the date hereof and owned beneficially and of record as indicated in
EXHIBIT A, free and clear of all liens and encumbrances. Nothing in this
Agreement shall prevent the Shareholders from gifting the Stock among
themselves in accordance with an annual gifting program. None of the Stock
has been issued in violation of the rights of any Person. Except as set forth
on SCHEDULE 3.2 hereto, as of the date hereof, (i) there are no Convertible
Securities or Debt Securities outstanding; (ii) there are no Rights
outstanding; and (iii) there are no shareholder agreements or other
agreements, understandings or commitments relating to the rights of the
Shareholders to vote or dispose of the Stock.
3.3 DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement, including the documents, instruments and agreements to be
executed and/or delivered by the Shareholders pursuant to this Agreement, and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of the
Shareholders. This Agreement and the documents, instruments and agreements to
be executed and/or delivered by the Shareholders pursuant to this Agreement
have been or will be on or before the Date of Closing duly and validly
authorized, executed and delivered by the Shareholders and the obligations of
the Shareholders hereunder and thereunder are or will be upon such execution
and delivery valid, legally binding and enforceable against Shareholders in
accordance with their respective terms, except as such enforcement may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws presently or hereafter in effect affecting the enforcement
of creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at
law or in equity), including, among others, limitations on the availability
of equitable remedies.
3.4 NO BREACH. The Shareholders have full power and authority to
sell, assign, transfer, convey and deliver to Purchaser the Stock to be sold
hereunder and to otherwise perform their respective obligations under this
Agreement and the documents, instruments and agreements to be executed and/or
delivered by the Shareholders pursuant hereto. The execution and delivery of
this Agreement, including the documents, instruments and agreements to be
executed and/or delivered by the Shareholders pursuant to this Agreement, and
the consummation of the transactions contemplated hereby and thereby will
not: (i) violate any provision of the Articles of Incorporation or Bylaws (or
comparable governing documents or instruments) of the Company; (ii) violate
any Applicable Laws or Injunction applicable to the Company or any
Shareholder; (iii) except as provided in SCHEDULE 3.4 hereto, require any
filing with, permit from, authorization, consent or approval of, or the
giving of any notice to, any Person; (iv) except as provided in SCHEDULE 3.4
hereto, result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give another party any
rights of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit (including, but not limited to, any permits, approvals or
authorizations of the FCC or any other Governmental Body), lease or other
Contract to which the Company and/or any Shareholder is a party, or by which
they or any of their properties or assets may be bound; or (v) result in the
creation or imposition of any Encumbrance on any of the properties or assets
of the Company or any Shareholder.
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3.5 CLEAR TITLE. Except as otherwise set forth on SCHEDULE 3.5
hereto, on the Date of Closing, the Company and RFC will hold good, valid and
marketable title to all of their non-Real Estate properties and assets and a
valid leasehold interest in all Leased Real Estate and all leased non-Real
Estate properties and assets. Such properties and assets and leasehold
interests are free and clear of any and all Encumbrances of any kind, nature
and description whatsoever.
3.6 CONDITION OF ASSETS. Except as set forth in SCHEDULE 3.6 hereto,
all of the Company's and RFC's properties and assets (i) have in all material
respects been properly maintained, (ii) are in all material respects in good
operation condition and repair, subject only to ordinary wear and tear, (iii)
are usable and fit for their intended purpose, and (iv) are all the assets
used to operate the Company's Business as currently conducted.
3.7 LITIGATION. Except as described in SCHEDULE 3.7 hereto,
there is no pending Proceeding:
(a) that has been commenced by or served upon the Company or
RFC, or of which the Company or RFC have Knowledge (other than any
Proceeding which generally affects the business of all Persons
conducting business similar to the Company or RFC and in which Company
or RFC is not a named defendant); or
(b) to the Company's or RFC's Knowledge, that challenges, or
that will have, without substantial certainty, the effect of
preventing, delaying, making illegal, or otherwise interfering with,
any of the transactions contemplated hereby.
To the Knowledge of the Shareholders, no such Proceeding has been Threatened.
Except as provided in SCHEDULE 3.7 hereto, to Shareholders' Knowledge, the
Company and RFC are not parties to or subject to the provisions of any
Injunction which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company or RFC or impair
the ability of the Shareholders to consummate the transactions contemplated
hereby.
3.8 LABOR MATTERS. The Company and RFC have never been a party to
any collective bargaining agreement or other labor Contract. There has never
been, and there is not presently pending or existing, and to the
Shareholders' Knowledge there is not Threatened, (i) any strike, slowdown,
walkout, picketing, work stoppage, labor arbitration or other Proceeding in
respect of the grievance of any employee, (ii) any application or complaint
filed by any employee or union with the National Labor Relations Board, or
any comparable Governmental Body, (iii) any organizational activity or other
labor dispute against or affecting the Company or RFC, and no application for
certification of a collective bargaining agreement is pending or, to the
Shareholders' Knowledge, is Threatened. There is no lockout of any employees
by the Company and no such action is contemplated by the Company or RFC.
Except as set forth in SCHEDULE 3.8 hereto, there is no allegation, charge,
complaint or Proceeding pending or, to Shareholders' Knowledge, Threatened by
any Person against the Company or RFC or any of their current or former
officers, directors or employees relating to employment, equal employment
opportunity, discrimination, harassment, wrongful discharge, unfair labor
practices, immigration, wages, hours, benefits, collective bargaining, the
payment of social security or similar taxes, occupational safety and health
or plant closing.
3.9 TAXES. The Company, as RGI Group, Inc., has filed consolidated
federal income taxes which included Valley, RFC and Glacial DBS
(collectively, the "Consolidated Tax Entities").
(a) GENERAL TAX MATTERS. Except as set forth in Schedule 3.9,
with respect to the Company, (a) all Tax Returns and all similar
filings required to be filed before the Date of Closing by the Company
with respect to any Taxes have been timely filed with the appropriate
Governmental Body in all jurisdictions in which such Tax Returns are
required to be filed, all such Tax Returns correctly reflect the
Liability of the Company for Taxes for the periods, properties or
events covered thereby, and are correct and complete in all material
respects; (b) all Taxes shown as payable on the Tax Returns filed by
the Company prior to the Date of Closing, all Taxes due and payable by
the Company prior to the Date of Closing (whether or not shown on any
Tax Return) and all Taxes accruable with respect to events occurring
prior to the Date of Closing,
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whether disputed or not, will either have been paid in full prior to
the Date of Closing, or an adequate accrual in accordance with GAAP
will be provided with respect thereto on the Closing Balance Sheet
including, but not limited to, any and all taxes relating to the
Valley Sale; (c) no deficiency in respect of any Taxes which has
been assessed against the Company remains unpaid and there are no
unassessed Tax deficiencies or any audits or to the Shareholders'
Knowledge investigations pending Threatened against the Company with
respect to any Taxes; (d) there is in effect no extension for the
filing of any Tax Return and the Company has not extended or waived
the application of any statute of limitations of any jurisdiction
regarding the assessment or collection of any Taxes; (e) no claim
has ever been made by any tax authority in a jurisdiction in
which the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction; (f) there are no
Encumbrances for Taxes upon any asset of the Company except for
Encumbrances for current Taxes not yet due and payable; (g) to the
Shareholders' Knowledge no issues have been raised in any examination
by any Tax authority with respect to the Company which, by application
of similar principles, could with substantial certainty be expected to
result in a proposed deficiency for any other period not so examined;
(h) the Company is not a party to any Tax allocation or sharing
agreement or otherwise under any obligation to indemnify any Person
with respect to any Taxes, except for an unwritten arrangement among
the Consolidated Tax Entities; (i) there are no requests for rulings in
respect of any Taxes pending between the Company and any Tax authority;
and (j) the Company has timely made all deposits required by law to be
made with respect to sales and use Taxes and employees' withholding and
other employment Taxes.
(b) DISPUTED CLAIMS AND TAX RETURNS. SCHEDULE 3.9 lists all
material disputes or claims concerning any Tax Liability of the Company
claimed or raised by any authority as to which any Shareholder has
Knowledge. SCHEDULE 3.9 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1995; indicates those Tax
Returns that have been audited; and indicates those Tax Returns that
currently are the subject of audit; and includes a list of all federal
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since January 1, 1993,
each of which has been provided to Purchaser.
(c) S CORPORATION STATUS. None of the Consolidated Tax
Entities have ever been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code.
3.10 EMPLOYEE BENEFITS.
(a) BENEFIT PLANS. Except as described in SCHEDULE 3.10
hereto, the Company does not maintain or contribute to any Benefit
Plans. Without limiting the generality of the foregoing provision of
this Section, except as described in SCHEDULE 3.10 hereto, there are no
pension plans, welfare plans or employee benefit plans qualified under
Section 401(a) of the Code to which the Company is required to
contribute. Except for the Deferred Compensation Agreements, and as
described in SCHEDULE 3.10 hereto, the Company does not and will not
have any unfunded Liability for services rendered prior to the Date of
Closing under any Benefit Plans. The Company is not in any material
default under any Benefit Plan. Except as set forth in Schedule 3.10,
neither the Company, nor any entity now or formerly part of a
controlled group with the Company, within the meaning of Section
412(c)(11)(B)(ii) of the Code, maintains or has ever maintained a
"defined benefit plan," as defined in Section 3(35) of ERISA, that is
subject to Section 412 of the Code and Section 302 of ERISA. Except as
set forth in SCHEDULE 3.10 hereto, neither the Company nor any of its
"subsidiaries" contributes to or has any Liability (including but not
limited to withdrawal Liability) with respect to any multi-employer
plan (as defined in Section 4064(a) of ERISA or Section 4001(a)(3) of
ERISA). Other than claims for benefits in ordinary course, there are no
actions, suits, disputes, arbitrations or other material claims pending
or, to Shareholders' Knowledge, Threatened with respect to any Benefit
Plan. For purposes of this Section, "subsidiaries" shall include all
corporations and all trades or businesses (whether or not incorporated)
which may be liable for any income tax, loss of tax deduction, excise
taxes,
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penalties or other similar consequences under ERISA (as hereinafter
defined) or under the Code by reason of its ownership affiliation
with the Company.
(b) OTHER PLANS. The Shareholders and the Company have made
available to the Purchaser information relating to deferred
compensation, incentive compensation and other fringe benefit plans, if
any, sponsored or maintained by the Company. Except for (i) the
Deferred Compensation Agreements, (ii) the Retention Agreements, (iii)
as pursuant to the Benefit Plans or (iv) as otherwise set forth in
SCHEDULE 3.10, there are no present or former employees of the Company
who are entitled to (i) any pensions or other benefits to be paid after
termination of employment, including termination on account of
disability (except as otherwise required under Section 601 of ERISA) or
(ii) deferred compensation payments.
(c) DOCUMENTS. The Shareholders have made available to the
Purchaser the following documents, as they may have been amended to the
date hereof, embodying or relating to each Benefit Plan listed in
SCHEDULE 3.10 hereto: (i) all written plan documents for each such
Benefit Plan, including all amendments to each such Benefit Plan, any
related trust agreements, group annuity contracts, insurance policies
or other funding agreements or arrangements; (ii) the most recent
determination letter received from the Internal Revenue Service, if
any, as to the qualified status of any such Benefit Plan under Section
401(a) of the Code; (iii) the current summary plan description, if any,
for each such Benefit Plan; and (iv) the most recent annual
return/report on form 5500, 5500-C or 5500-R, if any, for each such
Benefit Plan.
(d) PROHIBITED TRANSACTIONS. The Company has not, nor, to the
Shareholders' Knowledge, has any other "disqualified person" or "party
in interest", as defined in Section 4975(e)(2) of the Code and Section
3(14) of ERISA, respectively, engaged in a "prohibited transaction," as
such term is defined in Section 4975 of the Code and Section 406 of
ERISA, with respect to any Benefit Plan listed on SCHEDULE 3.10 hereto
subject to ERISA, which could reasonably be expected to subject the
Company to a material tax or penalty on prohibited transactions imposed
by either Section 502(i) of ERISA or Section 4975 of the Code. The
execution and delivery by the Shareholders of this Agreement and the
consummation of the transactions contemplated hereby will not (i)
involve any prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code with respect to any Benefit Plan
listed on SCHEDULE 3.10 hereto, or (ii) accelerate the payment of any
benefits under any Benefit Plan listed on SCHEDULE 3.10 hereto.
(e) FIDUCIARY DUTY. Neither the Company, nor, to Shareholders'
Knowledge, any other fiduciary of any Benefit Plan listed on SCHEDULE
3.10 hereto engaged in any transaction with respect to such Benefit
Plan or failed to act in a manner with respect to such Benefit Plan
which could reasonably be expected to subject the Company to any
material Liability for a breach of fiduciary duty under ERISA or any
other applicable law.
(f) COBRA. The Company has complied in all material respects
with the coverage continuation requirements of Sections 601 through 609
of ERISA, Section 5980B of the Code, and the requirements of any
similar state law regarding continued insurance coverage, and the
Company has incurred no material Liability with respect to its failure
to offer or provide continued coverage in accordance with the foregoing
requirements, nor is there any suit pending, or to the Shareholders'
Knowledge, Threatened, with respect to such requirements.
(g) TRIGGERING OF OBLIGATION AND OTHER BINDING COMMITMENTS.
Except for the claims arising under the Deferred Compensation
Agreements, the Retention Agreements, or as set forth in SCHEDULE 3.10,
the consummation of the transactions described in this Agreement, in
and of themselves, will not entitle any current or former employee of
the Company to severance pay, unemployment compensation or any other
payment, or accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee or former employee.
3.11 [THIS SECTION INTENTIONALLY OMITTED]
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3.12 FINANCIAL STATEMENTS. The Shareholders have caused the Company
to furnish true and correct copies of the financial statements identified in
SCHEDULE 3.12 hereto to Purchaser. All of said financial statements,
including any notes thereto, are true and correct in all material respects
and fairly present the financial position and condition of the Company as of
their respective dates and the results of its operations for the periods
covered in accordance with GAAP applied by the Company on a consistent basis
throughout the periods covered thereby and on a basis consistent with that of
prior years and periods; provided, however, that any interim financial
statements listed on such Schedule may not include a statement of cash flows,
are subject to year-end adjustments and lack footnotes and other required
presentation items. Except for Liabilities (i) reflected or reserved against
in the balance sheet (the "Balance Sheet") of the Company as of December 31,
1997 (the "Balance Sheet Date") or in the notes thereto, (ii) incurred in the
Ordinary Course of Business since the Balance Sheet Date (none of which
resulted from, arose out of, is related to, or was caused by any breach of
Contract, breach of warranty, tort, infringement or violation of Applicable
Laws), (iii) arising under Contracts to which the Company is a party, and/or
(iv) described on SCHEDULE 3.12 hereto, the Company does not have any
Liabilities which, individually or in the aggregate, would have a Material
Adverse Effect on the Company. The reserves for doubtful accounts reflected
in the Balance Sheet are adequate and have been calculated consistent with
past practice.
3.13 ABSENCE OF CERTAIN DEVELOPMENTS. Except for the transactions
contemplated by this Agreement, the Valley Sale, or as otherwise set forth on
SCHEDULE 3.13 hereto, since the Balance Sheet Date, the Company has conducted
the Business only in the Ordinary Course of Business and has not:
(a) Except for the Valley Sale, the transfer to George M.
Revering set forth in Section 5.8 hereof, and the Company's transfer of
its interest in Switch 2000, LLC, sold, leased, assigned or otherwise
transferred any material properties or assets, or disposed of or
permitted to lapse any rights in Intellectual Property owned or used by
the Company, other than in the Ordinary Course of Business, or
organized any new business entity or acquired any equity securities,
assets, properties, or business of any Person or any equity or
ownership interest in any business or merged with or into or
consolidated with any other Person;
(b) Suffered, sustained or incurred any material loss or
waived or released any material right or claim, whether or not in the
Ordinary Course of Business;
(c) Suffered, sustained or incurred any material damage,
destruction or casualty loss to any material properties or assets,
whether or not covered by insurance;
(d) Except for the early payment of its Debt Instruments,
engaged in any transaction not in the Ordinary Course of Business;
(e) Except for cellular phones purchased for lease to
customers, made any capital expenditure (or series of related capital
expenditures) exceeding $10,000;
(f) Subjected any of its properties or assets to any Encumbrance,
whether or not in the Ordinary Course of Business;
(g) Issued any note, bond or other debt security, created,
incurred or assumed any indebtedness for borrowed money or capitalized
lease obligation
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or otherwise incurred any material Liability, except current
Liabilities incurred in the Ordinary Course of Business;
(h) Other than the early payment of its Debt Instruments, and
except as contemplated by this Agreement, discharged or satisfied any
Encumbrance, or paid any material Liability, other than current
Liabilities shown on the Company's balance sheet as of the Balance
Sheet Date, and current Liabilities incurred in the Ordinary Course of
Business since the Balance Sheet Date;
(i) Other than transactions not ordinarily or presently
characterized as dividends or distributions, such as payment of
professional fees, declared, set aside or paid a dividend or made any
other distribution with respect to any class or series of capital stock
of the Company, or directly or indirectly redeemed, purchased or
otherwise acquired any shares of any class or series of the Company's
capital stock;
(j) Increased the salary, wage or other compensation or level
of benefits payable or to become payable by the Company to any of its
officers, directors, employees or agents other than in the Ordinary
Course of Business;
(k) Loaned money to any Person or guaranteed any loan to or
Liability of any Person, whether or not in the Ordinary Course of
Business;
(l) Except as described in the Schedules hereto, amended or
terminated any of the Operating Contracts (as hereinafter defined),
except in the Ordinary Course of Business;
(m) Changed accounting methods or practices (including,
without limitation, any change in depreciation, amortization or cost
accounting policies or rates);
(n) Suffered, sustained or incurred any Material Adverse
Change in the properties, assets, Liabilities, revenues, income,
business, operations, results of operations or financial condition of
the Company;
(o) Received notice from any customer, supplier, vendor,
Governmental Body or any other Person which would, with substantial
certainty, give rise to or result in a Material Adverse Effect on the
Company;
(p) Delayed or postponed the payment of accounts payable or
other Liabilities outside of the Ordinary Course of Business;
(q) Entered into any employment Contract or collective
bargaining agreement, written or oral, or modified the terms of any
existing such Contract or agreement or adopted, amended, modified or
terminated any Benefit Plan for the benefit of any of the Company's
directors, officers and employees;
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(r) Except for the name change to RGI Group, Inc., made any
change or amendment in its articles of incorporation, bylaws, or other
governing instruments;
(s) Issued or sold any securities; acquired, directly or
indirectly, by redemption or otherwise, any securities; reclassified,
split-up or otherwise changed any such equity security; or granted or
entered into any options, warrants, calls or commitments of any kind
with respect thereto; and/or
(t) Entered into any Contract to do any of the foregoing.
3.14 INTELLECTUAL PROPERTY. SCHEDULE 3.14 hereto contains a list and
description of all material Intellectual Property owned by the Company or used
by the Company in the operation of the Business. Except as set forth in
SCHEDULES 3.14, Shareholders have no Knowledge of any asserted claim to the
effect that the operation of the Business or the possession or use in the
Business of any of the Intellectual Property listed and described on SCHEDULE
3.14 hereto, infringes the intellectual property rights of any other Person.
Except as set forth in SCHEDULES 3.14, the Shareholders have no Knowledge of any
claim that any of the Intellectual Property listed and described on SCHEDULE
3.14 is invalid; and, except as provided in SCHEDULE 3.14 hereto, the Company is
not obligated under any Contract or otherwise to pay royalties, fees or other
payments with respect to any of the Intellectual Property listed and described
on SCHEDULE 3.14 hereto. Except as set forth in SCHEDULES 3.14, the consummation
of the transactions contemplated by this Agreement will not adversely affect the
use by the Company of any of the Intellectual Property listed on SCHEDULE 3.14
hereto.
3.15 COMPLIANCE WITH LAWS. The Business has been operated and the
Company is in compliance in all material respects with the requirements of all
Applicable Laws to which the Company is subject. The Company has not received
any notice of, and the Shareholders have no Knowledge of any violation of a
material nature of any Applicable Laws respecting the Company.
3.16 OPERATING CONTRACTS. Except as disclosed in SCHEDULE 3.16, and
except with respect to contracts, commitments and agreements that have been
fully performed as of the date hereof and have no further force or effect, the
Company and RFC are not a party to any oral or written Contract. All of the
Contracts listed on SCHEDULE 3.16 hereto are referred to in this Agreement as
the "OPERATING CONTRACTS". All of the Operating Contracts were made in the
Ordinary Course of Business, and, to the Shareholders' Knowledge, are valid,
binding and currently in full force and effect. The Company is not in default in
any material respect under any of the Operating Contracts, and, to the
Shareholders' Knowledge, no event has occurred which, through the passage of
time or the giving of notice, or both, would constitute a default by the Company
or give rise to a right of termination or cancellation by another party under
any of the Operating Contracts, or cause the acceleration of any Liability of
the Company, or result in the creation of any Encumbrance upon any of the
Company's properties or assets. To the Shareholders' Knowledge, no other party
is in default under any of the Operating Contracts. Except as described on
SCHEDULE 3.16 hereto, none of the Operating Contracts have been canceled,
terminated, amended or modified. Except as provided in SCHEDULE 3.4 hereto, the
consummation of the transactions contemplated hereby will not require the
consent or approval of any Person under any of the Operating Contracts.
3.17 REAL ESTATE. Schedule 3.17 contains a list of all easements under
which the Company is the benefited party (the "Easements"). With respect to each
parcel of real estate owned by the Company (the "OWNED REAL ESTATE"), and each
parcel of real estate leased by the Company (the "LEASED REAL ESTATE"):
(a) SCHEDULE 3.17 contains a complete and accurate legal
description of each parcel of Owned Real Estate and a description of
each written or oral
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lease regarding Leased Real Estate which is not otherwise described on
SCHEDULE 3.16 hereto;
(b) Except as set forth on SCHEDULE 3.17 hereto, to the
Knowledge of Shareholders, there are no public improvements affecting
any parcel of Owned Real Estate or Leased Real Estate (collectively the
"REAL ESTATE"), including, but not limited to, water, sewer, sidewalk,
street, alley, curbing, landscaping or related improvements, which have
been commenced and/or completed and for which an assessment has not
been levied or, to Shareholders' Knowledge, which may be levied after
the date of this Agreement;
(c) Except as set forth in Schedule 3.17 hereto, there are no
deferred property Taxes or assessments with respect to the Real Estate
which may or will become due and payable as a result of the
consummation of the transaction contemplated hereby;
(d) The Company is the sole owner in fee simple title of each
parcel of Owned Real Estate and each such parcel is free and clear of
any and all Encumbrances, except (i) those Encumbrances set forth in
SCHEDULE 3.17 hereto, (ii) municipal zoning ordinances, recorded or
platted easements for public utilities and recorded building and use
restrictions and covenants, (iii) general real estate Taxes and
installments of special assessments payable in the year of Closing, and
(iv) minor survey exceptions, encumbrances, licenses, easements or
reservations of, or rights of others for, oil, gas minerals, ores or
metals, rights of way, sewers, electric lines, telegraph and telephone
lines and other similar purposes, or zoning or other restrictions on
the use of real property, minor defects in title or other similar
charges or encumbrances not interfering in any material respect with
the Ordinary Course of Business of the Company or with the use or
ownership of the Owned Real Estate (collectively the "PERMITTED
ENCUMBRANCES"). To the Shareholders' Knowledge, the Permitted
Encumbrances and those encumbrances set forth in SCHEDULES 3.17 hereto
do not individually or in the aggregate materially impair or prohibit
the Company's current use of the Owned Real Estate;
(e) Except as set forth in SCHEDULE 3.17 hereto, there are no
condemnation Proceedings pending or, to the Shareholders' Knowledge,
Threatened with respect to all or any part of any parcel of Real
Estate;
(f) To the Shareholders' Knowledge, except for the Permitted
Encumbrances and those encumbrances set forth in SCHEDULES 3.17 hereto,
there are no private restrictions, covenants, or reservations which
materially and adversely affect the use or occupancy of all or any part
of any parcel of Owned Real Estate or any of the Easements;
(g) To Shareholder's Knowledge, there are no Applicable Laws
requiring repair, alteration or correction of any existing condition on
any parcel of
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Real Estate and, to Shareholders' Knowledge, there are no conditions
that could give rise to the same;
(h) To the Shareholders' Knowledge, except as set forth in
SCHEDULE 3.17 hereto, (a) there are no structural, mechanical or other
defects of material significance in any of the buildings, improvements,
fixtures and equipment, including the roof, heating, ventilating, air
conditioning, electrical, plumbing and sanitary disposal systems,
located on any parcel of Real Estate, and (b) all such buildings,
improvements, fixtures and equipment, including the roof, heating,
ventilating, air conditioning, electrical, plumbing and sanitary
disposal systems, will be until the Date of Closing, maintained in good
repair, working order and condition, ordinary wear and tear excepted;
(i) Except as set forth in SCHEDULE 3.17 hereto, the
improvements on each parcel of Real Estate and the Company's or RFC's
use thereof comply in all material respects with any and all building,
zoning, subdivision, traffic, parking, land use, occupancy, health and
other Applicable Laws pertaining to the Real Estate or to the
development, construction, management, use and operations of the
improvements thereon;
(j) Except as set forth in SCHEDULE 3.17 hereto, to the
Knowledge of Shareholders, the improvements located on each parcel of
Real Estate, including fences, driveways and other structures occupied,
used or claimed by the Company or RFC, are wholly within the boundary
lines of such parcels of Real Estate and such improvements and the
Company's present uses thereof do not in any material respect infringe
upon the rights of any other Person;
(k) Except as set forth in SCHEDULE 3.17 hereto, to the
Knowledge of Shareholders, no buildings, fences, driveways or other
structures of any adjoining owner encroach upon any part of any parcel
of Real Estate or any of the Easements; and
(l) Except as set forth in SCHEDULE 3.17 hereto, to the
Knowledge of Shareholders, the Company and RFC have all operating
permits necessary for the operation of the Business, and all such
permits are current, except where the failure to have any such current
operating permit in good order would not have a Material Adverse Effect
on the Company or RFC. To the Knowledge of Shareholders, except as set
forth in SCHEDULE 3.17, the Company has all easements, or access
through public utility easements, on to private property, construction
permits, highway crossing licenses and permits (and other similar
licenses and permits) and right-of-way-licenses reasonably necessary to
conduct the Business, except where the failure to have any such
easement on to private property, construction permits, highway crossing
licenses and permits (and other similar licenses and permits), and
right-of-way licenses would not have a Material Adverse Effect.
Purchaser and Shareholders recognize and agree that title commitments and
surveys provided in accordance with Section 7.10 of this Agreement covering the
Real Estate listed on SCHEDULE 7.10 hereof may contain
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additional information regarding said Real Estate of which the Shareholders
do not have Knowledge as of the date of this Agreement, and that such
information will be included as appropriate in a Supplement to SCHEDULE 3.17;
provided, however, that information contained in the title commitments and
surveys shall remain subject to the provisions of Section 7.10 of this
Agreement.
3.18 ACCOUNTS RECEIVABLE. RFC has no accounts receivable or other right
to payment of money, other than an obligation of the Company to RFC which will
be satisfied at or prior to Closing. The Company's accounts receivable and other
rights to the payment of money represent, and on the Date of Closing will
represent, valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business.
3.19 BOOKS AND RECORDS; BANK ACCOUNTS. All of the Company's and RFC's
books of account and other financial and corporate records relating to the
Business have been made available to Purchaser and its representatives (or will
be so made available prior to the Date of Closing). Such books of account and
records are current, complete, true and correct in all material respects. All
such books and records are consistent with the financial statements listed on
SCHEDULE 3.12 hereto. Attached hereto as part of SCHEDULE 3.19 is a list of all
of the Company's and RFC's bank accounts, security accounts and other similar
accounts, and the names of all Persons authorized to draw thereon or have access
thereto, as well as the identification of all safety deposit boxes, and the
persons authorized to have access to those boxes.
3.20 EMPLOYEES. SCHEDULE 3.20 hereto contains a list of the names,
positions, annual salary rates, hourly wage rates, severance benefits and
accrued vacation and sick leave, as of the date hereof, of all present employees
of the Company (including those on furlough, leave or layoff of any kind).
Except for the Valley Employees and Marvin Vogelgesang, and except as set forth
in SCHEDULE 3.20, none of the employees has informed the Company or any of the
Shareholders that he/she intends to terminate employment with the Company.
SCHEDULE 3.20 also sets forth a description of any written Contract, other than
the Benefit Plans described on SCHEDULE 3.10 hereto, with respect to the
conditions of employment of any of the Company's employees. RFC has never had
any employees. All employees are employed on an "at will" basis.
3.21 LICENSES AND PERMITS. Except as set forth in SCHEDULE 3.21, the
Company has obtained all material licenses, certificates, franchises and permits
of each and every Governmental Body having jurisdiction over the Company or any
of its properties or assets to operate and carry on the Business as they are now
being conducted. All such material licenses, certificates, franchises and
permits (except for construction permits, highway crossing licenses and permits
and right of way licenses) are described on SCHEDULE 3.21 hereto and are in full
force and effect. To Shareholders' Knowledge, RFC requires no licenses,
franchises, certificates or permits, other than its certificate of
incorporation.
3.22 OTHER MATERIAL CONTRACTS AND OBLIGATIONS. Except for the Operating
Contracts and the Contracts disclosed on SCHEDULE 3.22 hereto, neither the
Company nor RFC is a party to or bound by any:
(a) Dealer, distributorship or sales agency agreements,
excluding purchase orders with respect to the purchase or sale of
products or services in the Ordinary Course of Business;
(b) Advertising Contracts;
(c) Contract for capital expenditures having a remaining
balance in excess of $10,000;
(d) Leases with respect to any property, real or personal,
whether as lessor or lessee, except for any lease having a term of one
year or less or aggregate rents payable over its life of $10,000 or
less;
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(e) Contract containing covenants by the Company or RFC not to
compete in any lines of business or with any Person;
(f) Franchise or license agreements;
(g) Except as disclosed in SCHEDULE 3.13, loan or credit
agreements, promissory notes or other evidences of indebtedness,
including all agreements or commitments for future loans, extensions of
credit or financing, excluding credit extended by the Company or RFC to
its customers;
(h) Guarantees;
(i) Contract or purchase order for the purchase of any
services, raw materials, supplies or equipment involving payments of
more than $5,000 per annum or an aggregate of more than $10,000,
excluding purchase orders for the purchase of products or services
entered into in the Ordinary Course of Business; or
(j) Contract for the sale of any properties, assets or
services involving a value estimated at more than $10,000, excluding
purchase orders for the sale of products or services in the Ordinary
Course of Business and further excluding any contract which relates to
the Valley Sale.
3.23 SUBSIDIARIES. Except as disclosed or described in this Agreement
or as set forth on SCHEDULE 3.23 hereto, the Company has no subsidiaries and
does not own any shares of stock or other securities or equity interests,
directly or indirectly, in any other Person. Except as disclosed or described in
this Agreement or as set forth on SCHEDULE 3.23 hereto, the Company is not
subject to any obligation or requirement to provide funds to, or invest in, any
such Person.
3.24 INSURANCE. The Company has maintained and will continue to
maintain until the Date of Closing the insurance described in SCHEDULE 3.24,
which insurance covers the Company's tangible real and personal property and
assets, whether owned or leased, against loss or damage by fire or other
casualty. All such insurance is in full force on the date of this Agreement and
is carried with insurers licensed in the states affected by such policies. The
Company has promptly and adequately notified the Company's insurance carriers of
any and all claims known to the Shareholders with respect to the operations,
products or services of the Company for which the Company is insured. The
Company has not been refused any insurance coverage by any insurance carrier to
which it has applied for insurance during the past three (3) years.
3.25 BROKERS. Except for the engagement of Dain Bosworth by the
Company, neither the Company nor the Shareholders has employed or engaged any
broker, finder, agent, banker or third party, nor have they otherwise dealt with
anyone purporting to act in the capacity of a finder or broker in connection
with the transactions contemplated hereby. No commissions, finder's fees or like
charges have been or will be incurred by the Company or the Shareholders in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
3.26 RELATIONSHIP WITH RELATED PERSONS. Except as set forth in SCHEDULE
3.26 hereto, the Shareholders, directors, officers, and employees of the
Company, RFC and their Related Persons do not have any interest in any of the
properties or assets of the Company or RFC and, to the Shareholders' Knowledge,
do not own, of record or as a beneficial owner, an equity interest or any other
financial or profit interest in any Person that (i) has had business dealings or
a material financial interest in any transaction with the Company or RFC or,
(ii) has engaged or is engaged in competition with the Company
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with respect to any line of products or services of the Company in any market
presently served by the Company (a "COMPETING BUSINESS") (except for less
than three percent (3%) of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the
over-the-counter market). to the Knowledge of the Shareholders, and except as
set forth on SCHEDULE 3.26 hereto, no shareholder, director or officer of the
Company or RFC and none of their Related Persons is a party to any Contract
with, or has any claim or right against, the Company or RFC, other than the
rights officer and directors of the Company and RFC have with respect to
indemnification under state law. All money owed by the Company or RFC to its
shareholders, directors or officers, or their Related Persons, (other than
for salary) are for bona fide debts and are set forth in SCHEDULE 3.26 hereto.
3.27 HAZARDOUS MATERIALS. Except as set forth in SCHEDULE 3.27 hereto,
to the Knowledge of Shareholders, the Company or RFC have never generated,
transported, stored, handled, disposed of or contracted for the disposal of any
Hazardous Materials. Except as set forth in SCHEDULE 3.27 hereto, to the
Knowledge of Shareholders, no employee of the Company has, in the course and
scope of employment with the Company, been exposed to any Hazardous Materials in
such a manner as to be harmed thereby (whether such harm is now known to exist
or will be discovered in the future). Except as set forth on SCHEDULE 3.27
hereto, the Company is not listed as a potentially responsible party under
CERCLA or any comparable or similar U.S. federal or state statute, the Company
has not received notice of such a listing and the Shareholders have no Knowledge
of any facts or circumstances which could give rise to such a listing.
3.28 OTHER ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.28 hereto, the Real
Estate has been operated by the Company and is in compliance in all
material respects with all Applicable Laws, including Environmental
Laws and all Applicable Laws relating to underground and/or above
ground petroleum storage tanks. To the Knowledge of the Shareholders,
except as set forth on SCHEDULE 3.28 hereto, the Company otherwise
complies in all material respects with all Environmental Laws. To the
Knowledge of the Shareholders, except as set forth on SCHEDULE 3.28
hereto, the Company has obtained or has taken appropriate steps, as
required by Environmental Laws and Applicable Laws, to obtain all
environmental, health and safety permits, consents, approvals, licenses
and other authorizations necessary for the ownership and operation of
the Business, and to the Knowledge of Shareholders, all of the permits
and other such authorizations are in good standing, and the Company is
in compliance in all material respects with such permits and other such
authorizations. Except as described in SCHEDULE 3.28 hereto, to the
Knowledge of Shareholders, the Real Estate is free of any and all
Hazardous Materials. The Real Estate is not subject to any "Super-Fund"
type Encumbrances by any Person arising from the release or threatened
release of any Hazardous Materials in, on, about or under the Real
Estate.
(b) To the Knowledge of Shareholders, all of the third parties
with which the Company has arranged, engaged or contracted to accept,
treat, transport, store, dispose or remove any pollutant generated or
present at the Real Estate, or which otherwise participate or have
participated in activities or conduct related to the Real Estate or the
Business, were properly permitted at the relevant time to perform the
foregoing activities or conduct.
(c) Except as described on SCHEDULE 3.28 hereto, there are not
currently and to the Knowledge of Shareholders never have been any
wells or underground and/or above ground storage tanks (whether or not
currently in use) on any parcel of Real Estate and, to the extent such
wells or tanks are described in SCHEDULE 3.28, all such wells and tanks
are, to the Knowledge of Shareholders, in sound condition and are not
leaking.
(d) Except as set forth on SCHEDULE 3.28 hereto, no part of
any parcel of Real Estate is now being used, nor, to the Knowledge of
Shareholders, has any parcel of Real Estate ever been used, as a
landfill, dump or other disposal, storage, transfer, treating or
handling area for any Hazardous Materials, or as a gasoline service
station or a facility for selling, dispensing, storing, transferring,
treating or handling Hazardous Materials.
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(e) To the Knowledge of the Shareholders, and except as set
forth in SCHEDULE 3.28 hereto, the Company is not subject to any
investigation, nor has the Company received any written notification
within the past two years of any judicial or administrative proceeding,
notice, order, judgment, decree or settlement, alleging or addressing
(i) any violation of Environmental Laws or (ii) any claims or
liabilities and costs arising from the release or threatened release of
any Hazardous Materials. To the Knowledge of Shareholders, there has
been no release of any Hazardous Materials in a reportable quantity
under Environmental Laws at, to or from the Real Estate.
(f) Except as set forth in SCHEDULE 3.28 hereto, to the
Knowledge of Shareholders, there is not constructed, placed, deposited,
stored, disposed or located on the Real Estate any asbestos in any
form.
(g) Except as set forth in SCHEDULE 3.28 hereto, to the
Knowledge of Shareholders, there is not constructed, placed, deposited,
stored, disposed nor located on the Real Estate any polychlorinated
biphenyls ("PCBs") or transformers, capacitors, ballasts, or other
equipment which contain dielectric fluid containing PCBs.
(h) Except as set forth in SCHEDULE 3.28 hereto, to the
Knowledge of Shareholders, there is not constructed, placed,
deposited, stored, disposed nor located on the Real Estate any
insulating material containing urea formaldehyde.
With respect to Sections 3.27 and 3.28 of this Agreement, Purchaser recognizes
and agrees that the environmental audits to be conducted by the Environmental
Audit Firm may contain additional information regarding the matters discussed in
such Sections hereof which the Shareholders do not have Knowledge as of the date
of this Agreement, and that such information will be included as appropriate in
a Supplement to Sections 3.27 and 3.28.
3.29 DEBT INSTRUMENTS. SCHEDULE 3.29 is a true, correct and complete
list showing the names of the parties and outstanding indebtedness as of the
respective dates set forth on SCHEDULE 3.29 under all mortgages, indentures,
notes, guarantees and other obligations for or relating to borrowed money,
purchase money debt (including conditional sales contract and capital leases) or
covenants not to compete (the "Debt Instruments") for which the Company or RFC
is primarily or secondarily obligated. The Shareholders have previously
delivered to Purchaser true, complete and correct copies of each of the Debt
Instruments. Except as described in SCHEDULE 3.29, the Company and RFC have
performed all of the material obligations required to be performed by it, and
are not in material default under any of the provisions of any of the Debt
Instruments, and there has not occurred any event which, (with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default.
3.30 DISSOLUTION OF GLCLP AND GLACIAL DBS. GLCLP and Glacial DBS have
been validly dissolved and completely wound up. All remaining assets of GLCLP
and Glacial DBS have been distributed to the Company, and all necessary real
estate deeds, bills of sale, assignments, consents and other documents have been
completed, obtained and/or filed.
3.31 YEAR 2000 COMPLIANCE. Schedule 3.31 contains a complete and
correct list of all assurances received by the Company regarding whether
software used in the Business, third party software, computer,
communications, electronic or other hardware or equipment, including any
imbedded software or firmware, used in the Business will correctly recognize,
calculate, sort, store, display and otherwise process data involving dates
prior to, during and after the Year 2000, and whether the operation and
functionality of the above-mentioned assets will be adversely affected by the
approach, occurrence or passing of the calendar date January 1, 2000. To the
Knowledge of the Shareholders, all such assurances are not incorrect.
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3.32 CUSTOMERS AND SUPPLIERS. As of September 30, 1998, the Company
served, in the aggregate, approximately 6,785 cellular telephone customers. To
the Knowledge of the Shareholders, and except in the Ordinary Course of
Business, no customer, subscriber or a group of customers or subscribers of the
Company has notified the Company on or after September 30, 1998, that the
customer intends to terminate, cancel, limit or modify the customer's business
relationship with the Company, except such terminations, cancellations,
limitations or modifications as occur in the Ordinary Course of Business of the
Company. No vendor, supplier, dealer, representative or consultant of the
Company which is material to the Company's business operations has notified the
Company after September 30, 1998, that it intends to terminate, cancel, limit or
modify its business relationship with the Company in any material respect.
3.33 CGSA. A true and complete copy of map depicting the location of
each cell site and each of the licensed Cellular Geographic Service Areas
(including Situation Information Updates) of the Company is attached hereto as
SCHEDULE 3.33. All agreements relating to the coverage areas of the Company
including, but not limited to, border extensions, are listed on SCHEDULE 3.16
OR SCHEDULE 3.17.
3.34 NETWORK. A diagram and description prepared by Purchaser of all of
the communications transmissions facilities, cell sites and other components
comprising the Company's cellular networks is attached hereto as SCHEDULE
3.34. To the Knowledge of the Shareholders, this diagram and description is
true and complete.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement for Shareholders to enter into this Agreement and
consummate the transactions contemplated hereby, Purchaser represents and
warrants to Shareholders that each and all of the following (as modified by any
Supplement delivered by Purchaser pursuant to Section 13.22 of this Agreement)
are true and correct as of the date of this Agreement and will be true and
correct as of the Date of Closing:
4.1 DUE INCORPORATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has all requisite power and authority, corporate and otherwise, to own,
operate and lease its properties and assets and to conduct its business as it is
now being conducted. Purchaser is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of every state or
jurisdiction in which the nature of its activities or of its properties owned,
leased or operated makes such qualification necessary and in which the failure
to be so qualified could reasonably be expected to have a Material Adverse
Effect on the Purchaser.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of this
Agreement, including the documents, instruments and agreements to be executed
and/or delivered by Purchaser pursuant to this Agreement, and the consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement and the documents, instruments and agreements to be executed and/or
delivered by Purchaser pursuant to this Agreement have been, or will be on or
before the Date of Closing, duly and validly authorized, executed and delivered
by Purchaser and the obligations of Purchaser hereunder and thereunder are or
will be valid, legally binding and enforceable against Purchaser in accordance
with their respective terms, except as such enforcement may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws presently or hereafter in effect affecting the enforcement of creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity), including,
among others, limitations on the availability of equitable remedies.
4.3 NO BREACH. Purchaser has full power and authority, corporate and
otherwise, to purchase the Stock being purchased hereunder and to otherwise
perform its obligations under this Agreement and the documents, instruments and
agreements to be executed by the Purchaser pursuant hereto. The execution and
delivery of this Agreement, including the documents, instruments and agreements
to be executed by the Purchaser pursuant to this Agreement, and the consummation
of the transactions contemplated hereby and thereby will not: (i) violate any
provision of the Articles of Incorporation or Bylaws (or comparable governing
documents or instruments) of Purchaser; (ii) violate any Applicable Laws or
Injunction
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applicable to the Purchaser; (iii) require any filing with, permit from,
authorization, consent or approval of, or the giving of any notice to, any
Person; (iv) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give another party
any rights of termination, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit (including, but not limited to, any permits,
appeals or authorizations of the FCC or any other Governmental Body), lease
or other Contract to which Purchaser is a party, or by which it or any of its
assets or properties.
4.4 INVESTMENT REPRESENTATIONS . The Purchaser understands that the
Stock has not been registered under the Securities Act of 1933, as amended, or
under the securities laws of any jurisdiction, by reason of reliance upon
certain exemptions.
4.5 BROKERS. Purchaser has not employed or engaged any broker, finder,
agent, investment banker or third party nor has it otherwise dealt with anyone
purporting to act in the capacity of a finder or broker, in connection with the
transactions contemplated hereby. No commissions, finder's fees or like charges
have been or will be incurred in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 5: PERFORMANCE PENDING CLOSING
The Shareholders covenant and agree that from and after the date of
this Agreement and until the earlier of the Date of Closing or the termination
of this Agreement in accordance with Article 12 hereof:
5.1 ACCESS TO INFORMATION. At the request of Purchaser, the
Shareholders shall, from time to time, give or cause to be given to Purchaser,
its officers, employees, counsel, accountants and other representatives, upon
reasonable notice to the Shareholders, full access during normal business hours,
without undue disruption to the Company's Business, the properties and assets
and all of the books, minute books, title papers, records, files, Contracts,
insurance policies, environmental records and reports, licenses and documents of
every character of the Company and RFC relating to the Business, and the
Shareholders shall furnish or cause to be furnished to Purchaser, its officers,
employees, counsel, accountants and other representatives all of the information
with respect to the Company and RFC and/or the Company and RFC's properties or
assets as any of them may reasonably request. Purchaser, its officers,
employees, counsel, accountants and other representatives shall have the
authority to interview, as reasonably necessary and without undue disruption to
the Company's Business, all employees, customers, vendors, suppliers and other
parties having relationships with the Company and/or RFC, and Shareholders shall
make such introductions as may be requested; provided, however, that access to
customers shall, if at all, be done in a commercially reasonably manner
consistent with the best interests of the Company and shall be subject to the
prior consent of the Company, which consent shall not be unreasonably withheld.
In addition, Purchaser may, subject to the conditions stated above, at its sole
cost and expense, at any time prior to the Date of Closing, through its
officers, employees, counsel, accountants and other representatives, conduct
such investigations and examinations of the Company and RFC's properties and
assets as it deems necessary or advisable, and the Shareholders will provide
reasonable cooperation to such Persons in such investigations.
5.2 CONDUCT OF BUSINESS. Shareholders shall cause the Company to carry
on the Business diligently, only in the Ordinary Course of Business and
substantially in the same manner as heretofore conducted and will keep and
maintain the Company's properties and assets in good and safe repair and
condition consistent with past practices. The Company shall not make any
regulatory filings with any Governmental Body, except in the Ordinary Course of
Business or with the prior written consent of Purchaser (which consent shall not
be unreasonably withheld, delayed or conditioned). The Shareholders will not
cause or permit any amendment of the Company's Articles of Incorporation or
Bylaws (or other governing instrument).
5.3 ENCUMBRANCES. Shareholders shall not, directly or indirectly,
perform or fail to perform any act which would, with substantial certainty, in
the creation or imposition of any Encumbrance on any
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of the properties or assets of the Company or otherwise adversely affect the
marketability of the Company's title to any of its properties or assets,
outside of the Ordinary Course of Business.
5.4 PAY INCREASES. Except for payments pursuant to the Retention
Agreements, and normal increases in the Ordinary Course of Business, the
Shareholders shall not, without the prior written consent of Purchaser, permit
the Company to grant any increase in the salaries or rate of pay to any of its
employees, grant any increase in any benefits or establish, adopt, enter into,
make any new grants or awards under, or amend any collective bargaining
agreement, employment agreement or Benefit Plan for the benefit of any of its
employees.
5.5 RESTRICTIONS ON NEW CONTRACTS. Except with the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld,
delayed or conditioned, the Shareholders shall not permit the Company to enter
into any Contract, incur any Liability, assume, guarantee or otherwise become
liable or responsible for any Liability of any other Person, make any loans,
advances or capital contributions to any other Person (except for extensions of
credit to its customers in the Ordinary Course of Business), or waive any right
or enter into any other transaction, in each case other than in the Ordinary
Course of Business and consistent with the Company's normal business practices.
Without limiting the foregoing, for the purposes of this Agreement, any Contract
involving the sum of $20,000 or more shall be deemed to be outside the Ordinary
Course of Business.
5.6 PRESERVATION OF BUSINESS. The Shareholders shall use reasonable
efforts to preserve the Company's business organization intact, to keep
available to Purchaser the present employees of the Company and to preserve for
Purchaser the present goodwill and relationship of the Company with its vendors,
suppliers, customers and others having business relationships with the Company.
5.7 PAYMENT AND PERFORMANCE OF OBLIGATIONS. The Shareholders will cause
the Company to timely pay and discharge all invoices, bills and other monetary
Liabilities.
5.8 RESTRICTIONS ON SALE OF ASSETS. The Shareholders shall not permit
the Company to sell, assign, transfer, lease, sublease, pledge or otherwise
encumber or dispose of any of its properties or assets, except for the sale of
inventory in the Ordinary Course of Business and at regular prices, except for
(i) the Valley Sale, (ii) the transfer of a building located in Parkers Prairie,
Minnesota to George M. Revering at a purchase price equal to the depreciated
(net book value) cost of the building, and (iii) the Company's interest in
Switch 2000, LLC.
5.9 PROMPT NOTICE. The Shareholders shall promptly notify Purchaser in
writing upon becoming aware of any of the following: (i) any claim, demand or
other Proceeding that may be brought, Threatened, asserted or commenced against
the Company, its officers or directors; (ii) any changes in the accuracy of the
representations and warranties made by Shareholders in this Agreement; (iii) any
Injunction or any complaint praying for an Injunction restraining or enjoining
the consummation of the transactions contemplated hereby; or (iv) any notice
from any Person of its intention to institute an investigation into, or
institute a Proceeding to restrain or enjoin the consummation of the
transactions contemplated hereby or to nullify or render ineffective this
Agreement or such transactions if consummated.
5.10 CONSENTS. As soon as reasonably practicable and in any event on or
before the Date of Closing, the Shareholders will use reasonable efforts to
obtain or cause to be obtained all of the consents and approvals of all Persons
necessary for the Shareholders to consummate the transactions contemplated
hereby, including the consents and approvals listed on SCHEDULE 3.4 hereto.
5.11 COPIES OF DOCUMENTS. The Shareholders agree that as soon as
reasonably possible following the execution hereof, they shall furnish or make
available to Purchaser a true, complete and accurate copy of each Operating
Contract and any additional Contract listed on SCHEDULE 3.22 hereto.
5.12 NO SOLICITATION OF OTHER OFFERS. The Shareholders will not, and
will not permit their respective representatives, investment bankers, agents and
Affiliates to, directly or indirectly, (i) solicit or
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encourage submission of or any inquiries, proposals or offers by, (ii)
participate in any negotiations with, (iii) afford any access to the
properties, books or records of the Company to, (iv) accept or approve, or
(v) otherwise assist, facilitate or encourage, or enter into any Contract
with, any Person or group (other than Purchaser and its Affiliates, agents
and representatives), in connection with any Acquisition Proposal. In
addition, the Shareholders will not, and will not permit their respective
representatives, investment bankers, agents and Affiliates to, directly or
indirectly, make or authorize any statement, recommendation or solicitation
in support of any Acquisition Proposal made by any Person or group (other
than Purchaser). In addition, Shareholders will immediately cease any and all
existing activities, discussions or negotiations with any parties with
respect to any of the foregoing.
5.13 ACCOUNTS RECEIVABLE AND PAYABLE. Shareholders shall not cause the
Company to accelerate the collection of its accounts receivable or delay the
payments of its accounts payable or other Liabilities, in each case arising out
of the operation of the Business in a manner which would be inconsistent with
past practice.
5.14 INVENTORY. Shareholders shall cause the Company to maintain the
levels of inventory, materials and supplies used in the Business consistent with
past practice.
5.15 INSURANCE. Shareholders shall cause the Company to maintain in
full force and effect all insurance coverages for the Company's properties and
assets substantially comparable to coverages existing on the date hereof.
5.16 FILING REPORTS AND MAKING PAYMENTS. Shareholders shall cause the
Company to timely file all required reports and notices with each and every
applicable Governmental Body and timely make all payments due and owing to each
such Governmental Body, including, but not by way of limitation, any filings,
notices and/or payments required by reason of the transactions contemplated by
this Agreement.
5.17 CAPITAL EXPENDITURES. Except for stock phones to be leased to
customers, the Shareholders shall not permit the Company to make any capital
expenditures in excess of $10,000 individually or $25,000 in the aggregate
without the Purchaser's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned.
5.18 MONTHLY FINANCIALS. Within sixty (60) days of the close of each
month after the execution of this Agreement by all parties hereto, the
Shareholders shall deliver to Purchaser a consolidated balance sheet and income
statement for the Company, RFC and Valley (until the Valley Sale is consummated
by a Closing) disclosing the financial position and results of operations of the
Company for the preceding month and year-to-date which shall be prepared on a
basis consistent with the financial statements identified on SCHEDULE 3.12
hereof and consistent with the prior months and year-to-date financial
statements.
5.19 TITLE REVIEW. As of the Date of Closing, the Purchaser shall have,
and in proceeding to close has, reviewed and approved, except for its reasonable
objections thereto described in SCHEDULE 5.19 hereof, which shall be prepared at
or prior to the Closing and after the execution date of this Agreement, the
title commitments and surveys with respect to the condition and status of the
parcels of Real Estate listed on SCHEDULE 7.10 hereof. Shareholders shall cure
and/or indemnify to the reasonable satisfaction of Purchaser, in accordance with
the provisions of Section 7.10 of this Agreement, such reasonable objections to
title which Purchaser has designated for such cure under Section 7.10 of this
Agreement.
5.20 LITIGATION. From the date hereof and through the Date of Closing,
the Shareholders will notify the Purchaser in writing of any actions or
proceedings of the type required to be described in Section 3.7 of this
Agreement, that, from the time hereof, are, to the Shareholders' Knowledge,
Threatened or commenced against the Company or against any officer, director or
employee of the Company relating to the Business or the Company.
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5.21 NOTIFICATION OF INACCURACY. Each Shareholder agrees to promptly
notify the Purchaser in writing of any material inaccuracy made by any
Shareholder in this Agreement of which such Shareholder becomes aware prior to
the Date of Closing and which could result in a Material Adverse Effect with
respect to the Company. The Purchaser agrees to promptly notify the Shareholders
in writing of any material inaccuracy made by the Purchaser in this Agreement of
which the Purchaser becomes aware prior to the Date of Closing and which could
result in a Material Adverse Effect with respect to the Purchaser. The foregoing
shall not limit the ability of the Shareholders to Supplement the Schedules.
5.22 VALLEY SALE.
(a) The Shareholders shall use reasonable
commercial efforts to cause the Company to consummate the Valley
Sale by a closing on or prior to the Date of Closing, subject to
the rights of the Company to terminate the Valley Sale Stock
Purchase Agreement in accordance with the terms thereof and the
Company's rights thereunder. The Shareholders shall cause the
Company to provide Purchaser with each and every agreement,
document, item of due diligence material and all other information
regarding the Valley Sale (collectively the "Valley Sale
Documents") promptly after each Valley Sale Document is received or
delivered by the Company. Upon the Valley Sale Closing Date, those
Shareholders who are bound to provide indemnification pursuant to
Section 9.1 of this Agreement shall execute an agreement with the
purchaser of the stock of Valley substantially in the form of the
Agreement Regarding Indemnification attached to the Valley Sale
Stock Purchase Agreement as Exhibit C, which Agreement Regarding
Indemnification shall not be materially modified prior to or after
execution thereof without the prior consent of Purchaser, said
consent not to be unreasonably withheld, delayed or conditioned.
(b) If the Closing and the Valley Sale Closing Date occur in
the same calendar year, the Shareholders shall cause the Company to
take reasonable commercial efforts at the Shareholders' sole expense to
renegotiate the Valley Sale; provided, however, that Shareholders and
the Company shall not be required to reorganize the Company to achieve
said renegotiation.
(c) On or prior to the consummation of the Valley Sale by a
Closing, the Company shall collect from Valley the unpaid portion of
the management fee customarily paid by Valley to the Company (the
"Management Fee") for the period from January 1, 1998, through the
Valley Sale Closing Date. The Management Fee paid for calendar year
1998 (and calendar year 1999 if the Valley Sale Closing Date occurs in
1999) shall not exceed $560,000, prorated on an annualized basis to the
Valley Sale Closing Date. The Management Fee for all periods prior to
January 1, 1998, has been paid in full. All services provided by the
Company to Valley shall cease on the Valley Sale Closing Date except as
continued by written agreement approved by Purchaser.
(d) The following employees of the Company shall
voluntarily terminate their employment with the Company as of the
Valley Sale Closing Date (the "Valley Employees"): Marlys
Randall and Tim Jensen. The Valley Employees shall resign their
employment with the Company in writing. Such resignation shall
not affect such Valley Employees' status as a Qualified
Employee under Section 11.9 hereof or the applicable Retention
Agreement, if the applicable Valley Employee remains employed
by Valley or the purchaser of the Valley Stock for the period
required by said Valley Employee's Retention Agreement.
Marlys Randall's resignation may be on a part time basis.
Shareholders shall be solely liable for any Liability to the Valley
Employees, whether related to the period before or after the Valley
Sale Closing Date.
(e) Prior to the Closing, and prior to any payment of
long term debt of the Company with Valley Sale Proceeds, the
Company shall use any Valley Sale Proceeds to pay the obligations
pursuant to the Deferred Compensation Agreements and the Company's
note payable to George M. Revering; provided, however, that the
obligation set forth in this Section 5.22(e) shall be limited by
the amount of the Company's available Valley Sale Proceeds.
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5.23 EMPLOYMENT MATTERS. The Shareholders shall cause the Company to
amend its employee handbook prior to the Closing to delete any references which
indicate or suggest that the Company's employees may be terminated only for
cause, and to confirm that all its employees are employees at will. The amended
handbook shall be provided to Purchaser for its prior approval, which approval
shall not be unreasonably withheld, delayed or conditioned.
5.24 AMENDMENT OF COMPANY 401(k) PLAN. The Company may take the steps
necessary to complete, prior to the Closing, an amendment of its 401(k) plan to
eliminate the amounts paid pursuant to the Deferred Compensation Agreements and
the Retention Agreements from the amounts which are considered when determining
the Company's obligation to contribute to the 401(k) plan. If the Company does
not so amend its 401(k) plan, the adjustments to the Purchase Price for the
Employee Retention Amount and the Deferred Compensation Amount shall be
increased by the amount the Company is required to contribute to its 401(k) plan
in respect of the Employee Retention Amount and the Deferred Compensation
Amount, respectively.
ARTICLE 6: MUTUAL COVENANTS AND CONDITIONS PRECEDENT TO OBLIGATIONS
Unless waived in writing by the parties, each and every obligation of
Purchaser and Shareholders to be performed at the Closing shall be subject to
the satisfaction at or prior thereto of each and all of the following conditions
precedent:
6.1 PROCEEDINGS. There being no (i) Proceedings which have been
brought, asserted, commenced or Threatened against the Purchaser, the Company
and/or the Shareholders by any Person involving or affecting in any way the
Purchaser's, the Company's or, the Shareholders' consummation of the
transactions contemplated hereby, or (ii) Applicable Laws restraining or
enjoining or which may reasonably be expected to nullify or render ineffective
this Agreement or the consummation of the transactions contemplated hereby or
which otherwise could reasonably be expected to have a Material Adverse Effect
on the Company.
6.2 CONSENTS AND APPROVALS. Purchaser and the Shareholders shall have
received evidence, in form and substance reasonably satisfactory to counsel for
Purchaser and the Shareholders, that all material consents, waivers, releases,
authorizations, approvals, licenses, certificates, permits and franchises of all
Persons (including each and every Governmental Authority) as may be necessary to
consummate the transactions contemplated by this Agreement and for the Purchaser
to carry on and continue the operations of the Company as they are now conducted
have been obtained. All consents of the FCC shall be by Final Order; provided,
however, that if Purchaser and the Shareholders waive the condition of FCC
consent by Final Order, the parties shall consider FCC consent without Final
Order sufficient to proceed to Closing according to the other terms of this
Agreement. "FINAL ORDER" means an action or decision of the FCC as to which (i)
no request for a stay is pending, no stay is in effect, and any deadline for
filing such request that may be designated by statute or regulation has passed,
(ii) no petition for rehearing or reconsideration or application for review is
pending and the time for the filing of such petition or application has passed,
(iii) the FCC does not have the action or decision under reconsideration on its
own motion and the time within which it may effect such reconsideration has
passed and (iv) no judicial appeal is pending or in effect and any deadline for
filing any such appeal that may be designated by statute or rule has passed.
6.3 VALLEY SALE. The closing of the Valley Sale shall have been
consummated by a closing.
ARTICLE 7: CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Unless waived by Purchaser in writing, or deemed waived pursuant to the
terms of Section 7.9 and/or 7.10, each and every obligation of Purchaser to be
performed at the Closing shall be subject to the satisfaction at or prior
thereto of each and all of the following conditions precedent:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Shareholders in this Agreement, including the documents,
instruments and agreements to be
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executed and/or delivered by Shareholders pursuant to this Agreement, shall
be true and correct in all material respects at and as of the Closing with
the same force and effect as though such representations and warranties had
been made or given at and as of the Closing.
7.2 COMPLIANCE WITH COVENANTS AND AGREEMENTS. The
Shareholders shall have performed and complied with all of their
covenants, agreements and obligations under this Agreement which
are to be performed or complied with by them at or prior to the
Closing, including the execution and/or delivery of the documents,
instruments and agreements specified in Section 10.2 hereof or in
such documents, instruments and agreements, all of which shall be
reasonably satisfactory in form and substance to counsel for
Purchaser.
7.3 NO MATERIAL ADVERSE CHANGE. As of the Date of Closing, nothing
shall have occurred which, in the reasonable judgment of Purchaser could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
7.4 APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required of Shareholders to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal matters shall
have been reasonably satisfactory to and approved by counsel for Purchaser, and
such counsel shall have been furnished with such certified copies of actions and
proceedings and such other instruments and documents as they shall have
reasonably requested.
7.5 LEGAL OPINION. The Purchaser shall have received one or more
opinions from the counsel for the Shareholders and the Company, dated as of the
Date of Closing, in form and substance satisfactory to the Purchaser in
Purchaser's reasonable commercial discretion.
7.6 RESIGNATION OF DIRECTORS AND OFFICERS. All directors and officers
of the Company whose resignations have been requested by the Purchaser shall
have been submitted or shall have been removed effective as of the Date of
Closing.
7.7 CORPORATE ACTION. Purchaser shall have received (a) a certificate
of the Secretary of the Company as to the incumbency and signatures of the
officers and directors, and (b) a good standing certificate of existence from
the State of Minnesota for the Company.
7.8 [THIS SECTION INTENTIONALLY OMITTED.]
7.9 ENVIRONMENTAL AUDIT. Subject to the other provisions contained in
this Section, the Shareholders shall permit Purchaser or any reasonably
qualified environmental consultant designated by Purchaser (the "ENVIRONMENTAL
AUDIT FIRM") to conduct a Phase I environmental audit, and, if reasonably
determined by the Purchaser to be necessary, a Phase II environmental audit
(collectively, the "AUDIT") of the Real Estate prior to Closing. Beginning
immediately after the execution hereof, the Environmental Audit Firm shall have
full and free access to the Real Estate during normal business hours, upon
reasonable notice; provided, however, that neither Purchaser nor the
Environmental Audit Firm shall unreasonably interfere with the normal business
operations of the Company. The Audit shall be completed as soon as practicable
and Purchaser shall, promptly upon receipt, furnish the Shareholders with a copy
of all written reports relating to the Audit provided by the Environmental Audit
Firm. In the event a written report is not requested or the report is given
orally, the Company shall have the right to request and receive a written report
and to obtain an oral report from the Environmental Audit Firm. Purchaser shall
pay all fees and expenses of the Environmental Audit Firm. The Purchaser shall
indemnify and hold the Company harmless from, against and in respect of any and
all property damage caused by the Environmental Audit Firm. Purchaser shall be
allowed twenty (20) days after receipt of the final written or oral report
related to the Audit for the examination thereof and the making and delivery of
any written objections to the condition of the Real Estate to the Shareholders
in accordance with the notice provisions of this Agreement; provided, however,
that any such objections may be made only if the Audit discloses facts or
conditions (i) that purportedly violate any Applicable Laws in any material
respect, (ii) which could reasonably be expected to have a Material Adverse
Effect on the Company, or (iii) that are inconsistent in any material respect
with the representations and warranties of Shareholders set forth herein. If no
such written objections are made
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by the Purchaser within such twenty (20) day period, the Audit in its
entirety, shall be incorporated to the Schedules and Purchaser shall accept
any conditions disclosed in the Audit "as-is." If any such written objections
are made by Purchaser within said twenty (20) day period, Shareholders shall
use commercially reasonable efforts, at their sole cost and expense, to cure
said objections on or before December 31, 1998; provided, however, that
Shareholders shall have no obligation to cure or attempt to cure (i) the
objections as to any one (1) parcel of Real Estate if the cost of the cure as
to that parcel exceeds $50,000 or (ii) any objections whatsoever if the
aggregate cost of cure for all Real Estate exceeds $200,000, all as
reasonably estimated by the Environmental Audit Firm. If the objections are
not cured or curable within said period, the parties shall attempt to
negotiate a mutually acceptable arrangement regarding the cure of the
objections to the conditions of the Real Estate for a period of twenty (20)
days after December 31, 1998. If the objections to the condition of the Real
Estate are not cured, or curable, or reasonable arrangements made with regard
to such cure, on or before January 20, 1999, then Purchaser shall have the
right for a period of ten (10) business days after January 20, 1999 to
terminate this Agreement by giving written notice of termination to
Shareholders. In the event Purchaser elects to terminate this Agreement
pursuant to this Section 7.9, such termination shall be without liability or
any further obligation of the Shareholders to Purchaser unless Shareholders
have made a deliberately false or misleading warranty or representation with
respect to one or more of the conditions to which Purchaser objected. If
Purchaser does not exercise its right to terminate pursuant to this Section
7.9, the Audit in its entirety, shall be incorporated to the Schedules and
Purchaser shall accept such conditions "as-is."
7.10 TITLE MATTERS; SURVEYS.
(a) As soon as practicable following the execution hereof,
Shareholders shall provide to Purchaser A.L.T.A. Form 1992 title
insurance commitments from a title insurance company reasonably
acceptable to Purchaser for each parcel of Real Estate listed on
SCHEDULE 7.10 agreeing to insure title of owner or tenant, as the case
may be, in amounts reasonably satisfactory to Purchaser for each such
parcel with standard exceptions waived, together with copies of all
documents mentioned in said title insurance commitments. In each case,
the amounts purchased shall be increased as necessary to comply with
co-insurance provisions of the policies or to qualify for waivers or
"agreed-amount" endorsements. Shareholders also agree to procure for
Purchaser Owner's or Leasehold Owner's policies of title insurance, as
applicable, on A.L.T.A. Form 1992 for each parcel of Real Estate listed
on SCHEDULE 7.10. Shareholders shall bear the cost of obtaining the
title insurance commitments and Purchaser shall pay the cost of the
title insurance policies. The policies shall include waivers of the
co-insurance clause reasonably acceptable to Purchaser. Purchaser shall
be allowed twenty (20) days after receipt of complete commitments
(including copies of documents mentioned therein and surveys relating
thereto, if applicable) for the examination thereof and the making and
delivering of any written objections to the marketability of title. Any
such written objection shall be listed on SCHEDULE 5.19 prepared by
Purchaser at or prior to Closing. If no title objections are made
within such period, such objections shall be deemed to have been waived
by Purchaser. If any written objections to the marketability of title
to any parcel of Real Estate listed on SCHEDULE 7.10 are made by
Purchaser within said twenty (20) day period, Shareholders shall use
commercially reasonable efforts, at their sole cost and expense, to
cure said marketable title objections within thirty (30) days after
said objections have been raised. If title to the Real Estate is not
made marketable to Purchaser's reasonable satisfaction within such
thirty (30) day period then Purchaser shall have the right for a period
of ten (10) business days to terminate this Agreement by giving written
notice of termination to Shareholders. If the Purchaser does not
exercise its right to terminate, Purchaser shall be deemed to have
waived uncured objections to the marketability of title disclosed by
the title insurance commitments.
(b) Shareholders shall provide, at their expense, as-built
surveys of each parcel of Real Estate listed in SCHEDULE 7.10 in
accordance with requirements previously delivered to counsel for the
Shareholders. Purchaser shall have the right to make written objections
to title based upon any such survey within twenty (20) days after
delivery of a copy of the survey to Purchaser, and any such objections
to title shall be treated in the same manner as objections to title
pursuant to Section 7.10(a) of this Agreement.
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7.11 PENDING FCC APPLICATION. The FCC shall have approved by Final
Order the Company's currently pending Phase 2 Cellular Application to serve
unserved areas in South Dakota, RSA 4.
7.12 DUE DILIGENCE. Purchaser shall be reasonably satisfied with its
investigation of the Company and the Business. This condition precedent shall be
deemed to be waived by Purchaser unless Purchaser provides to the Shareholders a
written notice terminating this Agreement due to Purchaser's reasonable
objections to the condition of the Company or the Business on or before November
1, 1998.
ARTICLE 8: CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS
Unless waived by Shareholders in writing, each and every obligation of
Shareholders to be performed at the Closing shall be subject to the satisfaction
at or prior thereto of each and all of the following conditions precedent:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Purchaser in this Agreement, including the documents,
instruments and agreements to be executed and/or delivered by Purchaser pursuant
to this Agreement, shall be true and correct in all material respects at and as
of the Closing with the same force and effect as though such representations and
warranties had been made or given at and as of the Closing.
8.2 COMPLIANCE WITH COVENANTS AND AGREEMENTS. Purchaser shall have
performed and complied with all of its covenants, agreements and obligations
under this Agreement which are to be performed or complied with by it at or
prior to the Closing, including the execution and/or delivery of the documents,
instruments and agreements specified in Section 10.3 hereof or in such
documents, instruments and agreements, all of which shall be reasonably
satisfactory in form and substance to counsel for Shareholders.
8.3 APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required of Purchaser to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal matters shall
have been reasonably satisfactory to and approved by counsel for Shareholders,
and such counsel shall have been furnished with such certified copies of actions
and proceedings and such other instruments and documents as they shall have
reasonably requested.
8.4 LEGAL OPINION. The Shareholders shall have received an opinion from
the counsel for the Purchaser, dated as of the Date of Closing, in form and
substance satisfactory to the Shareholders in the Shareholders' reasonable
commercial discretion.
8.5 DELIVERY OF PURCHASE PRICE AND OTHER CONSIDERATION. Purchaser shall
have delivered to the Shareholders, against receipt of the certificates for the
Stock, the Purchase Price to be paid on the date of Closing determined in
accordance with Section 2.3.
8.6 PENDING FCC APPLICATION. The FCC shall have approved by Final Order
the matters described in Section 7.11 hereof.
ARTICLE 9: INDEMNIFICATION
9.1 INDEMNIFICATION BY CERTAIN SHAREHOLDERS. George M. Revering, Joyce
Revering and the George M. Revering Irrevocable Trust U/A dated July 22, 1996
jointly and severally covenant and agree to indemnify and hold Purchaser, its
officers, directors, employees, affiliates, shareholders and agents, and each of
their respective heirs, personal representatives, successors and assigns,
harmless from, against and in respect of any and all losses, costs, expenses
(including without limitation, reasonable attorneys' fees and disbursements of
counsel), Liabilities, damages, fines, penalties, charges, assessments,
judgments, settlements, claims, causes of action and other obligations of any
nature whatsoever excluding from the foregoing, however, incidental or
consequential (including lost profits) or special damages of such
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Persons incurred directly, as opposed to such damages arising from a
third-party claim (individually a "Loss" and collectively "LOSSES") that any
of them may at any time, directly or indirectly, suffer, sustain, incur or
become subject to, arising out of, based upon or resulting from or on account
of each of the following:
(a) the breach or falsity of any representation or warranty
made by Shareholders in this Agreement, including the documents,
instruments and agreements to be executed and/or delivered by
Shareholders pursuant hereto and thereto; provided, however, that
Shareholders shall not be required to provide such indemnification for
the breach or falsity of any such representation or warranty (other
than representations or warranties contained in Sections 3.2, 3.5 or
3.9 hereof) unless and until Purchaser, its officers, directors,
employees, affiliates and shareholders shall have sustained cumulative
Losses as a result of one or more such breaches or falsities of at
least One Hundred Twenty-five Thousand and 00/100 Dollars ($125,000.00)
(the "Basket Amount"). Once the aggregate of Losses exceeds the Basket
Amount, Shareholders shall provide indemnification for all Losses
sustained as a result of such breach(es) or falsity(ies) in excess of
the Basket Amount; or
(b) the breach of any covenant or agreement made by
Shareholders in this Agreement, including the documents, instruments
and agreements to be executed and/or delivered by Shareholders pursuant
hereto or thereto; or
(c) any Loss which is related in any way to Valley, the
operation of Valley's business or to the Valley Sale; or
(d) any Loss which relates to a claim by an employee of the
Company (i) that their employment was wrongfully terminated without
cause, whether before, on or after the Date of Closing, and said claim
is based, in whole or in part, on the Company's employee handbook as it
existed on the date of this Agreement (provided, that the loss so
indemnified shall be only to the extent determined to have been
incurred as a result of the contents of the employee handbook); (ii)
for matters arising out of acts or omissions of the Company or the
Shareholders occurring prior to the Date of Closing; (iii) or for any
claim pursuant to a Retention Agreement, which exceeds the retention
bonus paid to such employee pursuant to their Retention Agreement.
9.2 INDEMNIFICATION BY PURCHASER. Purchaser covenants and agrees to
defend, indemnify and hold Shareholders, and each of their respective heirs,
personal representatives, successors and assigns, harmless from, against and in
respect of any and all Losses that any of them may at any time, directly or
indirectly, suffer, sustain, incur or become subject to, arising out of, based
upon or resulting from or on account of each or both of the following:
(a) the breach or falsity of any representation or warranty
made by Purchaser in this Agreement, including the documents,
instruments and agreements to be executed and/or delivered by Purchaser
pursuant hereto and thereto; or
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(b) the breach of any covenant or agreement made by Purchaser in this
Agreement, including the documents, instruments and agreements to be
executed and/or delivered by Purchaser pursuant hereto or thereto; or
(c) any Loss arising from the performance of the Audit described
in Section 7.9 hereof.
9.3 PROCEDURE FOR INDEMNIFICATION. In the event a party intends to seek
indemnification pursuant to the provisions of Sections 9.1 or 9.2 hereof (the
"INDEMNIFIED PARTY"), the Indemnified Party shall promptly give notice hereunder
to the other party (the "INDEMNIFYING PARTY") after obtaining written notice of
any claim, investigation, or the service of a summons or other initial or
continuing legal or administrative process or Proceeding in any action
instituted against the Indemnified Party as to which recovery or other action
may be sought against the Indemnified Party because of the indemnification
provided for in Section 9.1 or 9.2 hereof, and, if such indemnity shall arise
from the claim of a third party, the Indemnified Party shall permit the
Indemnifying Party to assume the defense of any such claim and any litigation
resulting from such claim; PROVIDED, HOWEVER, that the Indemnified Party shall
not be required to permit such an assumption of the defense of any claim or
Proceeding which, if not first paid, discharged or otherwise complied with,
would with substantial certainty result in a material interruption or disruption
of the business of the Indemnified Party, taken as a whole, or any material part
thereof. Notwithstanding the foregoing, the right to indemnification hereunder
shall not be affected by any failure of the Indemnified Party to give such
notice (or by delay by the Indemnified Party in giving such notice) unless, and
then only to the extent that, the rights and remedies of the Indemnifying Party
shall have been prejudiced as a result of the failure to give, or delay in
giving, such notice. Failure by the Indemnifying Party to notify the Indemnified
Party of its election to defend any such claim or action by a third party within
twenty (20) days after notice thereof shall have been given to the Indemnifying
Party shall be deemed a waiver by the Indemnifying Party of its right to defend
such claim or action.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the obligations of the
Indemnifying Party hereunder as to such claim, investigation or Proceeding shall
include taking all steps necessary in the defense or settlement of such claim,
investigation or Proceeding and holding the Indemnified Party harmless from and
against any and all damages caused by or arising out of any settlement approved
by the Indemnifying Party or any judgment entered in connection with such claim,
investigation or Proceeding, except where, and only to the extent that, the
Indemnifying Party has been prejudiced by the actions or omissions of the
Indemnified Party. The Indemnifying Party shall not, in the defense of such
claim or any Proceeding resulting therefrom, consent to entry of any judgment
(other than a judgment of dismissal on the merits without costs) except with the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld, delayed or conditioned) or enter into any settlement
(except with the written consent of the Indemnified Party)(which consent shall
not be unreasonably withheld, delayed or conditioned) unless (i) there is no
finding or admission of any violation of law and no material effect on any
claims that could reasonably be expected to be made against the Indemnified
Party (ii) the sole relief provided is monetary damages that are paid in full
for Losses which are applied against the BASKET AMOUNT and (iii) the settlement
shall include the giving by the claimant or the plaintiff to the Indemnified
Party a release from all Liability in respect to such claim or litigation.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the Indemnified Party shall be
entitled to participate in the defense of the claim, but solely by observation
and comment to the Indemnifying Party, and the counsel selected by the
Indemnified Party shall not appear on its behalf in any Proceeding arising
hereunder. The Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it to participate in its defense unless any of
the following shall apply: (i) the employment of such counsel shall have been
authorized in writing by the Indemnifying Party; or (ii) the Indemnifying
Party's legal counsel shall advise the Indemnifying Party in writing, with a
copy to the Indemnified Party, that there is a conflict of interest that would
make it inappropriate under applicable standards of professional conduct to have
common counsel. If clause (i) or (ii) in the immediately preceding sentence is
applicable, then the Indemnified Party may employ separate
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counsel at the expense of the Indemnifying Party to represent the Indemnified
Party, but in no event shall the Indemnifying Party be obligated to pay the
costs and expenses of more than one such separate counsel for any one
complaint, claim, action or Proceeding in any one jurisdiction.
If the Indemnifying Party does not assume the defense of any such claim
by a third party or litigation resulting therefrom after receipt of notice from
the Indemnified Party, the Indemnified Party may defend against such claim or
litigation in such manner as it reasonably deems appropriate, and unless the
Indemnifying Party shall deposit with the Indemnified Party a sum equivalent to
the total amount demanded in such claim or litigation plus the Indemnified
Party's estimate of the cost (including attorneys' fees) of defending the same,
the Indemnified Party may settle such claim or Proceeding on such terms as it
may reasonably deem appropriate and the Indemnifying Party shall, subject to its
defenses and the applicability of any remaining threshold loss amount provided
for in Section 9.1(a) hereof, promptly reimburse the Indemnified Party for the
amount of such settlement and for all reasonable costs (including attorneys'
fees), expenses and damages incurred by the Indemnified Party in connection with
the defense against or settlement of such claim, investigation or litigation, or
if any such claim or litigation is not so settled, the Indemnifying Party shall,
subject to its defenses and the applicability of any remaining BASKET AMOUNT
provided for in Section 9.1(a) hereof, promptly reimburse the Indemnified Party
for the amount of any final nonappealable judgment rendered with respect to any
claim by a third party in such litigation and for all costs (including
attorneys' fees), expenses and damage incurred by the Indemnified Party in
connection with the defense against such claim or litigation, whether or not
resulting from, arising out of, or incurred with respect to, the act of a third
party.
Any Loss under this Article 9: (a) shall be computed net of (x) any
actual income tax benefit resulting therefrom to the Indemnified Party and (y)
any insurance coverage with respect thereto, (b) shall be increased to the
extent necessary to indemnify and hold harmless the Indemnified Party from any
actual amount of Liability for Taxes incurred and paid which is attributable to
a previous income tax deduction which is disallowed or the receipt of the
indemnity payment with respect to such claim; provided, further, that, in all
cases, the timing of the receipt or realization of any insurance proceeds or
income tax benefits shall be taken into account in determining the amount of
reduction of claims, (c) shall be based upon the actual dollar amount of the
proposed Loss, without use of any multiplier, and (d) except for Losses related
to title to the Stock or to Taxes shall be limited to and shall not exceed in
the aggregate for all Losses, one-half (1/2) of the Purchase Price.
Each party shall cooperate in good faith and in all respects with each
Indemnifying Party and its representatives (including without limitation its
counsel) in the investigation, negotiation, settlement, trial and/or defense of
any Proceedings (and any appeal arising therefrom) or any claim. The parties
shall cooperate with the other in any notifications to and information requests
of any insurers. No individual representative of any Person, or their respective
Affiliates shall be personally liable for any Loss under this Agreement, except
as specifically agreed to by said individual representative.
9.4 DISPUTE RESOLUTION In the event a dispute arises under this
Agreement, except with respect TO SECTION 2.5, such disputes shall be resolved
in the manner set forth in this SECTION 9.4.
(a) If a dispute arises under this Agreement, including any
question regarding the existence, validity, interpretation or
termination hereof, which is not described as an exception in this
SECTION 9.4, Purchaser and the Shareholders may invoke the dispute
resolution procedure set forth in this SECTION 9.4 by giving written
notice to the other party. The parties shall enter into discussions
concerning this dispute. If the dispute is not resolved as a result of
such discussion in ten (10) days, an attempt will be made to resolve
the matter by a formal nonbinding mediation with an independent neutral
mediator agreed to by the parties. If the parties cannot agree on a
mediator within a period of ten (10) days after expiration of the ten
(10) day period for resolution by discussion, then either party may
apply to any court of competent jurisdiction for appointment of a
mediator, which appointment shall be binding and nonappealable. Upon
commencement of the mediation process, the parties shall promptly
communicate with respect to a procedure and schedule for the conduct of
the proceeding and for the exchange of documents and other
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information related to the dispute. The mediation process shall be
deemed ended if the dispute has not been resolved within thirty (30)
days after appointment of the mediator.
(b) All claims, disputes or other matters in question between
the parties to this Agreement arising out of or relating to this
Agreement which are not resolved by mediation in accordance with
SECTION 9.4(a) within thirty (30) days after appointment of mediator
shall be submitted for, subject to and decided by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association currently in effect as of the date of this
Agreement ("AAA Rules"), except to the extent those rules are
inconsistent with this SECTION 9.4. Any arbitration must be held in
Minneapolis, Minnesota by a single arbitrator mutually selected by the
parties hereto or, if the parties hereto cannot agree on the
appointment of such arbitrator within ten (10) days following the date
notice of the dispute is given by a party to the adverse party, an
arbitrator selected according to the AAA Rules. The arbitrator's award
shall be final, conclusive and binding upon all parties to this
Agreement, and judgment may be entered upon it in accordance with the
Federal Arbitration Act any court of general jurisdiction in Minnesota,
or in any United States District Court having jurisdiction in
Minnesota. The arbitrator shall be required to provide in writing to
the parties the basis for the award or order of such arbitrator, and a
court reporter shall record all hearings (unless otherwise agreed to by
the parties), with such record constituting the official transcript of
such proceedings. Shareholders and Purchaser specifically desire this
Arbitration clause to be governed by the United States Federal
Arbitration Act, and not by the arbitration laws of any state.
(c) Shareholders and Purchaser agree and consent that any
legal action, suit or proceeding seeking to enforce this Section 9.4 or
to confirm or contest any arbitration award shall be instituted and
adjudicated solely and exclusively in any court of general jurisdiction
in Minnesota, or in the United States District Court having
jurisdiction in Minnesota and Shareholders and Purchaser agree that
venue will be proper in such courts and waive any objection which they
may have now or hereafter to the venue of any such suit, action or
proceeding in such courts, and irrevocably consents and agrees to the
jurisdiction of said courts in any such suit, action or proceeding.
Shareholders and Purchaser further agree to accept and acknowledge
service of any and all process which may be served in any such suit,
action or proceeding in said courts, and also agree that service of
process or notice upon them shall be deemed in every respect effective
service of process or notice upon them, in any suit, action, proceeding
or arbitration demand, if given or made: (i) according to applicable
law; (ii) according to the AAA Rules; (iii) by a person over the age of
eighteen who personally serves such notice or service of process on
Shareholders or Purchaser, as the case may be; or (iv) by certified
mail, return receipt requested, mailed to Shareholders or Purchaser, as
the case may be, at their respective addresses set forth in this
Agreement.
(d) In the event of arbitration filed or instituted between
the parties pursuant to this Section 9.4, the prevailing party will be
entitled to receive from the adverse party all costs, damages and
expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether
or not the controversy is reduced to judgment or award. The prevailing
party will be that party who is determined by the arbitrator to have
prevailed on the major disputed issues.
ARTICLE 10: CLOSING
10.1 DATE OF CLOSING. Subject to the satisfaction or waiver of the
conditions precedent contained in Articles 6, 7 and 8 hereof, the closing of the
transactions contemplated by this Agreement (the "CLOSING") shall be held at a
mutually agreed upon time on the first day of the month which is at least ten
(10) business days after (i) all consents and approvals required to consummate
the transactions contemplated hereby have been received from the FCC and (ii)
all other conditions to the Closing have been duly satisfied or waived in
writing, at the offices of Moss & Barnett, A Professional Association, 4800
Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota, 55402, and
shall be as of the opening of business on such day. Such date is referred to in
this Agreement as the "DATE OF CLOSING."
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10.2 DOCUMENTS TO BE DELIVERED BY SHAREHOLDERS. At the Closing,
Shareholders shall execute, where necessary or appropriate, and deliver to
Purchaser each and all of the following:
(a) A certificate in the form of Exhibit C hereto signed by
Shareholders, and dated as of the Date of Closing, to the effect that
the representations and warranties made by Shareholders in this
Agreement (as modified by the Schedules and any Supplements) and in any
document, instrument and/or agreement to be executed and/or delivered
by Shareholders pursuant to this Agreement are true and correct in all
material respects at and as of the Closing and Shareholders have
performed and complied with all of their covenants, agreements and
obligations under this Agreement which are to be performed and complied
with by Shareholders at or prior to the Closing;
(b) The certificates evidencing the Stock duly endorsed by the
Shareholders in blank or accompanied by assignments separate from
certificate duly endorsed in blank;
(c) The minute book and stock book for the Company, RFC, GLCLP
and Glacial DBS;
(d) If there have been any improvements constructed or repairs
of existing improvements made with respect to any parcel of Real Estate
within the last six months, or if any work has been done or labor or
materials furnished with respect to any parcel of Real Estate, the
Shareholders agree to deliver, and to cause the Company to deliver, to
Purchaser on or prior to the Date of Closing such affidavits and other
documents, including lien waivers for any such work in a form
sufficient to permit the title company issuing the title insurance
policy called for hereunder to delete all mechanic's liens exceptions;
(e) The Company's Affidavits for each parcel of Real Estate in
a form sufficient to permit the title insurance company to delete the
exceptions to title relating to parties in possession;
(f) Any other document or certificate that the title insurance
company may reasonably require to issue the title insurance policies on
the Real Estate in the form required by Section 7.10(a) hereof;
(g) Duly executed written opinion letters by Briggs and
Morgan, Professional Association, counsel for Shareholders and the
Company, and by the Company's counsel for FCC matters dated as of the
Date of Closing, addressed to Purchaser and its lenders, as
contemplated by Section 7.5 of this Agreement;
(h) Duly executed resignations of all of the officers and
directors of the Company, and the resignations as employees of George
M. Revering and Joyce C. Revering, all effective as of the Date of
Closing;
(i) A Mutual Release in the form of Exhibit D hereto
duly executed by the Shareholders (the "Release");
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(i) [THIS SUBSECTION INTENTIONALLY OMITTED.]
(k) A Satisfaction of Debt in the form of Exhibit E to this
Agreement executed by each of Jim Jung, C. Max Tite, Susan Tite,
William O. Chase and Bill Randall with respect to their respective
Deferred Compensation Agreements.
(l) Assignment, Assumption and Consent Agreements in the form
of Exhibit F regarding the Company's debts to Jim Jung and the Jung
Girls Partnership, whereby George M. Revering assumes the Company's
debts to Jim Jung and the Jung Girls Partnership and the Company is
released from any Liability with respect to such debts;
(m) Such other documents and items as are reasonably necessary
or appropriate to effect the consummation of the transactions
contemplated hereby or which may be customary under local law; and
(n) [THIS SUBSECTION INTENTIONALLY OMITTED.]
(o) A certificate of the trustee(s) of the George M. Revering
Irrevocable Trust in the form of Exhibit G to this Agreement.
10.3 DOCUMENTS TO BE DELIVERED BY PURCHASER. At the Closing, Purchaser
shall execute, where necessary or appropriate, and deliver to Shareholders each
and all of the following:
(a) Payment of the Purchase Price by the method and
determined in accordance with Section 2.3 hereof;
(b) A certificate in the form of Exhibit H hereto signed by a
duly authorized officer of Purchaser, and dated as of the Date of
Closing, to the effect that the representations and warranties made by
Purchaser in this Agreement and in any document, instrument and/or
agreement to be executed and/or delivered by Purchaser pursuant to this
Agreement are true and correct in all material respects at and as of
the Closing and the Purchaser has performed and complied with all of
its covenants, agreements and obligations under this Agreement which
are to be performed and complied with by Purchaser on or prior to the
Closing;
(c) A copy certified by the Secretary of Purchaser of the duly
adopted resolutions of the Board of Directors of Purchaser approving
this Agreement and authorizing the execution and delivery of this
Agreement, including the documents, instruments and agreements to be
executed and/or delivered by the Purchaser pursuant hereto, and the
consummation of the transactions contemplated hereby and thereby;
(d) A duly executed written opinion letter by Moss & Barnett,
a Professional Association, counsel for Purchaser, dated as of the Date
of Closing, addressed to the Shareholders, as contemplated by Section
8.4 of this Agreement;
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(e) The Release duly executed by the Purchaser and the Company;
and
(f) Such other documents and items as are reasonably necessary
or appropriate to effect the consummation of the transactions
contemplated hereby or which may be customary under local law.
ARTICLE 11: PERFORMANCE FOLLOWING THE DATE OF CLOSING
The following covenants and agreements are to be performed after the
Closing by the parties and shall continue in effect for the periods
respectively indicated or, where no indication is made, until performed:
11.1 FURTHER ACTS AND ASSURANCES. The parties agree that, at any
time and from time to time, on and after the Date of Closing, upon the
reasonable request of the other party, they will do or cause to be done all
such further acts and things and execute, acknowledge and deliver, or cause
to be executed, acknowledged and delivered any and all papers, documents,
instruments, agreements, assignments, transfers, assurances and conveyances
as may be necessary or desirable to carry out and give effect to the
provisions and intent of this Agreement. In addition, from and after the Date
of Closing, the Purchaser will afford to the Shareholders and their
attorneys, accountants and other representatives access, during normal
business hours, to such personnel, books and records relating to the Company
as may reasonably be required in connection with the preparation of financial
information or the filing of Tax Returns and will cooperate in all reasonable
respects in connection with claims and Proceeding asserted by or against
third parties, relating to or arising from the transactions contemplated
hereby.
11.2 NON-COMPETITION AGREEMENT. During the period of thirty-six
months (36) months from and after the Date of Closing, George M. Revering
covenants and agrees that he will not, without the Purchaser's prior written
consent, directly or indirectly, or individually or collectively within the
States of Minnesota and South Dakota lend any material credit, advice or
assistance, or engage in any activity or act in any manner, including but not
limited to, as an individual, owner, sole proprietor, founder, associate,
promoter, partner, joint venturer, shareholder other than as a less than five
percent (5%) shareholder of a publicly traded corporation, officer, director
(other than as a director of Purchaser, Midwest Telephone and other Persons
with whom Mr. Revering is presently affiliated), trustee, manager, employer,
employee, licensor, licensee, principal, agent, salesman, broker,
representative, consultant, advisor, investor or otherwise for the purpose of
establishing, operating or managing any business or entity that is engaged in
activities competitive with the present Business of the Company.
11.3 NON-SOLICITATION AGREEMENT. During the period of thirty-six
(36) months from and after the Date of Closing, George M. Revering covenants
and agrees that he will not, whether for his own account or for the account
of any other Person, directly or indirectly interfere with the Company's
relationship with or endeavor to divert or entice away from the Company any
Person who or which at any time during the term of the Shareholders' prior
employment by or affiliation with the Company is an employee, vendor,
supplier or customer of the Company. The foregoing shall not apply to (i)
employees, vendors, suppliers or customers who do not, at the time of any
solicitation, have a relationship with the Company in such capacity; (ii) the
services of William O. Chase for the purpose of providing financial and
accounting services on behalf of the Shareholders or Payment Agent in
connection with the preparation of the Closing Balance Sheet or other
requirements of this Agreement; or (iii) any Revering family member.
11.4 CONFIDENTIAL INFORMATION. The Shareholders understand and
agree that the Business of the Company is based upon specialized work and
that as officers, directors, employees or shareholders of the Company they
received, had access to and/or contributed to Confidential Information.
Except as may be necessary or desirable (i) for defense of a Loss or
conducting or participating in a proceeding in accordance with Sections 9.1,
9.3 or 9.4 hereof, (ii) in enforcing a Shareholder's rights under this
Agreement, (iii) for the purpose of filing any report with any Governmental
Body, (iv) in connection with advice sought from an attorney, accountant or
similar professional, or (v) in connection with their continued individual
employment by the Company or employment by or position with Purchaser, the
Shareholders agree that at
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all times from and after the Date of Closing, they shall keep secret all such
Confidential Information and that they will not directly or indirectly Use or
Disclose the same to any Person without first obtaining the written consent
of the Purchaser. At any time the Purchaser may so request, the Shareholders
shall turn over to the Purchaser all Confidential Information compiled by or
delivered to the Shareholders, including copies thereof, in their possession,
it being agreed that the same and all information contained therein are at
all times the exclusive property of the Company.
11.5 REASONABLENESS OF COVENANTS. The Shareholders acknowledge and
agree that the geographic scope and period of duration of the restrictive
covenants contained in Sections 11.2, 11.3 and 11.4 of this Agreement are
both fair and reasonable and that the interests sought to be protected by the
Purchaser and Company are legitimate business interests entitled to be
protected. The Shareholders further acknowledge and agree that the Purchaser
would not have purchased the Shareholders' Stock in the Company pursuant to
this Agreement unless the Shareholders agreed to the covenants contained in
such Sections.
11.6 INJUNCTIVE RELIEF. The parties agree that the remedy of
damages at law for the breach by any party of any of the covenants contained
in Sections 11.2, 11.3, 11.4 or 11.9 is an inadequate remedy. In recognition
of the irreparable harm that a violation by the Company or either party of
any of the covenants, agreements or obligations arising under Sections 11.2,
11.3, 11.4 or 11.9 would cause the Company or the other party, each party
agrees that in addition to any other remedies or relief afforded by law, an
Injunction against an actual or threatened violation or violations may be
issued against them and every other Person concerned thereby, it being the
understanding of the parties that both damages and Injunction shall be proper
modes of relief and are not to be considered alternative remedies.
11.7 BLUE PENCIL DOCTRINE. In the event that any of the restrictive
covenants contained in this Article shall be found by a court of competent
jurisdiction to be unreasonable by reason of its extending for too great a
period of time or over too great a geographic area or by reason of its being
too extensive in any other respect, then such restrictive covenant shall be
deemed modified to the minimum extent necessary to make it reasonable and
enforceable under the circumstances.
11.8 NAME OF COMPANY. The Shareholders, their successors and
assigns, have the right to use the name, "Revering Group."
11.9 EMPLOYEE RETENTION.
(a) The Purchaser shall employ, or cause the Company to
continue the employment of all employees of the Company who are listed
on SCHEDULE 11.9 of this Agreement who continue to be employees of the
Company as of the Date of Closing (other than George M. Revering, Joyce
C. Revering or Marvin Vogelgesang) without interruption after the Date
of Closing until three (3) months to the day after the Date of Closing
(the "Transition Period").
(b) Marvin Vogelgesang and any other employee of the Company
listed on SCHEDULE 11.9 who meets the requirements set forth in their
applicable retention/transition letter (the "Retention Agreements")
executed with the Company (a "Qualified Employee") shall be paid a
retention bonus in accordance and in the amount provided by with the
terms of the applicable Retention Agreement. Whether such requirements
are met shall be determined in the reasonable discretion of the
Shareholders, based on the terms of the Retention Agreements. The
employee retention amount (the "Employee Retention Amount") is equal
to all
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amounts paid by the Company pursuant to the Retention Agreements
for the nine (9) month retention payment obligation and all of
the Company's other expenses related to said payments as set forth
in SCHEDULE 11.9. The portion, if any, of the Employee
Retention Amount not paid by the Company to Qualified Employees
shall be paid to the Shareholders by Purchaser after the liability
for Employee Retention Amount payments has been finally determined.
(c) Notwithstanding the foregoing, the Company from and after
the Date of Closing, and without triggering an obligation pursuant to
any Retention Agreement, may terminate the employment of Company
employees for objective occurrences constituting "cause," according to
the normal employment policies and practices of Purchaser or the
Company for all employees similarly situated. Notwithstanding any
provision in this Agreement to the contrary, all Company employees
shall remain at-will employees of the Company. Except for reasonable
changes in duties, all Company employees, except for Marvin Vogelgesang
and the Valley Employees, shall continue to be employed by the Company
during the Transition Period on substantially the same terms and
conditions as they are employed by the Company as of the Date of
Closing. Purchaser shall cause the Company to provide the Company's
employees the Benefit Plans and other employee benefits that are
provided to Purchaser's employees from time to time; provided, however,
that Purchaser may choose to continue the Company's 401(k) plan, as
amended, after the Closing in lieu of providing Purchaser's 401(k) plan
to the Company's employees. Purchaser shall credit all Company
employees, for the purpose of medical, dental, health and life
insurance, Purchaser's 401(k) plan, and paid time off with all of their
prior service/employment time with the Company. Nothing in this Section
11.9 is intended to create, or shall create or confer, any rights or
remedies upon any Person other than the Purchaser or the Shareholders
and their respective successors and assigns, nor shall this Section
11.9 create any right of employment for any employee of the Company.
The Shareholders shall have the right to seek an Injunction, without
the necessity of posting bond, to cause the Company and the Purchaser
to comply with the provisions of this Section.
11.10 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between the Purchaser and each Shareholder
for certain tax matters following the Date of Closing:
(a) TAX PERIODS BEGINNING BEFORE AND ENDING ON OR BEFORE THE
DATE OF CLOSING. The Shareholders shall prepare or cause to be prepared
and file or cause to be filed any federal or state income Tax Returns
of the Company for Tax periods which begin before the Date of Closing
and end on or before the Date of Closing. The Shareholders shall permit
the Purchaser to review and comment upon each such Tax Return described
in the preceding sentence prior to filing. Purchaser shall cause a
Company officer to sign the Tax Returns prepared by the Shareholders.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE DATE OF
CLOSING. The Purchaser shall prepare or cause to be prepared and file
or cause to be filed any federal or state Tax Returns of the Company
for Tax periods which begin before the Date of Closing and end after
the Date of Closing. The Purchaser shall permit the Shareholders to
review and comment upon each such Tax Return described in the preceding
sentence prior to filing. For purposes of this Section 11.10(b) and
Section 11.10(a), in the case of any Taxes that are imposed on a
periodic basis and are payable for a taxable period that includes the
Date of Closing, the portion of such Tax which relates to the portion
of such taxable period ending on the day immediately prior to the Date
of Closing shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the
numerator of which is the number of days in the taxable period ending
on the day immediately prior to the Date of Closing and the denominator
of which is the number of days in the entire taxable period, and (y) in
the case of any Tax based upon or related to income
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or receipts be deemed equal to the amount which would be payable if the
relevant taxable period ended on the Date of Closing. Any credits
relating to a taxable period that begins before and ends after the day
immediately prior to the Date of Closing shall be taken into account as
though the relevant taxable period ended on the Date of Closing. All
determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practice of the
Company.
(c) COOPERATION ON TAX MATTERS.
(i) The Purchaser, the Company and each Shareholder
shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of
Tax Returns pursuant to this Section and any Proceeding with
respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records
and information which are reasonably necessary to any such
Proceeding and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. The Purchaser
shall cause the Company to agree, and each Shareholder agrees
(A) to retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable
period beginning before the Date of Closing until the
expiration of the statute of limitations (and, to the extent
notified by the Purchaser or any Shareholder, any extensions
thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests,
the Company or the Shareholder, as the case may be, shall
allow the other party to take possession of such books and
records.
(ii) The Purchaser and each Shareholder further
agree, upon request, to use reasonable efforts to obtain any
certificate or other document from any Governmental Body or
any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not
limited to, Tax with respect to the transactions contemplated
hereby).
(d) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any
penalties and interest) payable to the State of Minnesota or the State
of South Dakota which are incurred by Shareholders in connection with
this Agreement shall be paid by the Shareholders when due, and the
Shareholders will, at their own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, the Purchaser will, and will cause its
Affiliates to, join in the execution of any such Tax Returns and other
documentation.
ARTICLE 12: TERMINATION
12.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned after the date of this
Agreement, but not later than the Closing:
(a) by mutual written consent of all parties hereto;
(b) by Purchaser or Shareholders if any of the conditions
provided for in Article 6 of this Agreement have not been met and have
not been waived in writing by the party seeking to terminate on or
before the Date of Closing;
(c) by Purchaser if any of the conditions provided for in
Article 7 of this Agreement have not been met and have not been waived
or deemed waived in
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accordance with the provisions of this Agreement in writing by
Purchaser on or before the Date of Closing;
(d) by Shareholders if any of the conditions provided for in
Article 8 of this Agreement have not been met and have not been waived
in writing by Shareholders on or before the Date of Closing;
(e) by either Purchaser or Shareholders if the Closing shall
not have occurred on or before March 31, 1999; and
(f) by a party who objects to a Supplement pursuant to SECTION
13.22.
In the event of termination or abandonment by any party as provided in this
Section 12.1, written notice shall forthwith be given to the other party and,
except as otherwise provided herein, each party shall pay its own expenses
incident to preparation or consummation of this Agreement and the
transactions contemplated hereunder and neither party shall have any
Liability to the other hereunder except such Liability as may arise as a
result of a breach hereof.
12.2 RETURN OF DOCUMENTS AND NONDISCLOSURE. If this Agreement is
terminated for any reason pursuant to Section 12.1 hereto, each party and its
counsel shall return all documents and materials which shall have been
furnished by or on behalf of the other party, and all copies thereof, and
each party hereby covenants that it will not Use or Disclose to any Person
any Confidential Information about the other party or any information about
the transactions contemplated hereby, except insofar as may be necessary to
comply with the requirements of any Governmental Body or Order or to assert
its rights hereunder.
ARTICLE 13: MISCELLANEOUS
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the parties contained in this Agreement and
in any Exhibit, Schedule, certificate, instrument or document delivered by or
on behalf of any of the parties hereto pursuant to this Agreement and the
transactions contemplated hereby shall survive the Closing of the
transactions contemplated hereby and any investigation made by the parties or
their agents for a period of two (2) years after the Closing, after which no
claim for indemnification for any misrepresentation, or for the breach of any
representation or warranty under this Agreement, may be brought, and no
action with respect thereto may be commenced, and no party shall have any
Liability or obligation with respect thereto, unless (i) the Indemnified
Party gave written notice to the Indemnifying Party specifying with
particularity the misrepresentation or a breach of representation or warranty
claimed on or before the expiration of such period; (ii) the claim relates to
a breach of any representation or warranty contained in Section 3.9, in which
case the right to indemnification shall survive until the expiration of the
applicable statute of limitations for each and any of the Taxes; or (iii) the
claim relates to any representation or warranty in SECTIONS 3.2 OR 3.5.
13.2 PRESERVATION OF AND ACCESS TO RECORDS. The Purchaser shall
preserve or cause the Company to preserve all books and records of the
Company for a period of six (6) years after the Date of Closing; provided,
however, Purchaser may destroy any part or parts of such records upon
obtaining written consent of Shareholders for such destruction, which consent
shall not be unreasonably withheld. Such records shall be made available to
Shareholders and their representatives at all reasonable times during normal
business hours of the Company during said six-year period with the right at
their expense to make abstracts from and copies thereof.
13.3 COOPERATION. The parties hereto shall cooperate with each
other in all respects, including using commercially reasonable efforts to
assist each other in satisfying the conditions precedent to their respective
obligations under this Agreement, to the end that the transactions
contemplated hereby will be consummated.
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13.4 PUBLIC ANNOUNCEMENTS. The timing and content of all public
announcements relating to the execution of this Agreement and the
consummation of the transactions contemplated hereby shall be approved by
both Purchaser and Shareholders prior to the release of such public
announcements, and each party agrees to cooperate with the other party as
appropriate to comply with all Applicable Laws. Subsequent to the date of
receipt of all consents and approvals of each Governmental Body necessary to
consummate this transaction, Purchaser may make such announcements and/or
advertisements as Purchaser, in its sole discretion, deems necessary.
13.5 NOTICES. All notices, demands and other communications
provided for hereunder shall be in writing and shall be given by personal
delivery, via facsimile transmission (receipt telephonically confirmed), by
nationally recognized overnight courier (prepaid), or by certified or
registered first class mail, postage prepaid, return receipt requested, sent
to each party, at its/his address as set forth below or at such other address
or in such other manner as may be designated by such party in written notice
to each of the other parties. All such notices, demands and communications
shall be effective when personally delivered, one (1) business day after
delivery to the overnight courier, upon telephone confirmation of facsimile
transmission or upon receipt after dispatch by mail to the party to whom the
same is so given or made:
If to Purchaser: Rural Cellular Corporation
P. O. Box 2000
Alexandria, MN 56308
Attn.: Richard Ekstrand, CEO
With a copy to: Ann K. Newhall, Esq.
Moss & Barnett, A Professional Association
4800 Norwest Center, 90 South Seventh Street
Minneapolis, MN 55402
If to Shareholders: George M. Revering
P.O. Box 27
South Highway 29
Parkers Prairie, MN 56361
With a copy to: Michael J. Grimes, Esq.
Briggs and Morgan, Professional Association
2400 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
13.6 ENTIRE AGREEMENT. This Agreement, including the documents,
instruments, and agreements to be executed by the parties pursuant hereto,
contains the entire agreement of the parties hereto and supersedes all prior
or contemporaneous agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof.
13.7 REMEDIES. The respective indemnification obligations of the
parties set forth in Article 9 of this Agreement are the exclusive remedies
of the parties and their successors, assigns, heirs, beneficiaries or others
seeking to claim by, through, or on behalf of a party, under this Agreement,
and no other remedy or remedies, whether arising under any Applicable Law,
common law or otherwise, may be used, asserted or prosecuted in connection
with this Agreement and any transaction, occurrence, or omission arising
from, in connection with or otherwise based upon this Agreement; provided,
however, that all equitable remedies, except rescission, shall remain
available.
13.8 AMENDMENTS. No purported amendment, modification or waiver of
any provision of this Agreement or any of the documents, instruments or
agreements to be executed by the parties pursuant
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hereto shall be effective unless in a writing specifically referring to this
Agreement and signed by all of the parties hereto.
13.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns, but except as
hereinafter provided in this Section, nothing in this Agreement is to be
construed as an authorization or right of any party to assign its rights or
delegate its duties under this Agreement without the prior written consent of
the other parties hereto. In their sole discretion (i) Purchaser may assign
its rights in and/or delegate its duties under this Agreement to an Affiliate
of the Purchaser and (ii) at or after the Closing, Shareholders may assign
their rights and duties to the Payment Agent. In the event of such an
assignment of rights and/or delegation of duties, all references to the
Purchaser or any Shareholder, as applicable to the assignment in this
Agreement shall also be deemed to be references to the Person to which this
Agreement is assigned; provided that no such assignment and/or delegation
shall relieve the assignor of any of its duties or obligations hereunder.
13.10 COSTS. Except as otherwise provided in this Agreement, each
party hereto shall pay their own costs and expenses incurred in connection
with negotiating and preparing this Agreement and consummating the
transactions contemplated hereby, including but not limited to fees and
disbursements of their attorneys, accountants and investment bankers.
13.11 GOVERNING LAW. This Agreement, including the documents,
instruments and agreements to be executed and/or delivered by the parties
pursuant hereto, shall be construed, governed by and enforced in accordance
with the internal laws of the State of Minnesota, without giving effect to
the principles of comity or conflicts of laws thereof.
13.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Agreement.
13.13 HEADINGS. The headings of the articles, sections and
subsections of this Agreement are intended for the convenience of the parties
only and shall in no way be held to explain, modify, construe, limit, amplify
or aid in the interpretation of the provisions hereof. The terms "this
Agreement," "hereof," "herein," "hereunder," "hereto" and similar expressions
refer to this Agreement as a whole and not to any particular article,
section, subsection or other portion hereof and include the Schedules and
Exhibits hereto and any document, instrument or agreement executed and/or
delivered by the parties pursuant hereto.
13.14 SCOPE OF AGREEMENT. Unless the context otherwise requires,
all references in this Agreement or in any Schedule or Exhibit hereto, to the
assets, properties, operations, business, financial statements, employees,
books and records, accounts receivable, accounts payable, Contracts or other
attributes of the business of the Company shall mean such items or attributes
as they are used in, apply to, or relate to the Business of the Company.
13.15 NUMBER AND GENDER. Unless the context otherwise requires,
words importing the singular number shall include the plural and vice versa
and words importing the use of any gender shall include all genders.
13.16 SEVERABILITY. In the event that any provision of this
Agreement is declared or held by any court of competent jurisdiction to be
invalid or unenforceable, such provision shall be severable from, and such
invalidity or unenforceability shall not be construed to have any effect on,
the remaining provisions of this Agreement, unless such invalid or
unenforceable provision goes to the essence of this Agreement, in which case
the entire Agreement may be declared invalid and not binding upon any of the
parties.
13.17 PARTIES IN INTEREST. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer any rights or remedies
under or by reason of this Agreement upon any Person other than Purchaser and
Shareholders and their respective heirs, personal representatives, successors
and
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permitted assigns. Nothing in this Agreement is intended to relieve or
discharge the Liabilities of any third Person to Purchaser or Shareholders.
13.18 WAIVER. The terms, conditions, warranties, representations and
indemnities contained in this Agreement, including the documents, instruments
and agreements executed and/or delivered by the parties pursuant hereto, may
be waived only by a written instrument executed by the party waiving
compliance. Any such waiver shall only be effective in the specific instance
and for the specific purpose for which it was given and shall not be deemed a
waiver of any other provision hereof or of the same breach or default upon
any recurrence thereof. No failure on the part of a party hereto to exercise
and no delay in exercising any right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
13.19 FORUM AND JURISDICTION. Except as required by Section 9.4
hereof, the parties agree that the forum for any controversy arising under
this Agreement shall be in the federal and state courts of the State of
Minnesota and all parties consent to the personal jurisdiction of the federal
and state courts of the State of Minnesota for such purposes.
13.20 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. The word "including"
shall mean including without limitation. The parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty or covenant.
13.21 PAYMENT AGENT. Payment Agent is hereby appointed by and for
each Shareholder as their sole authorized agent with authority, without
limitation, (i) to receive and remit the Purchase Price under this Agreement;
(ii) to pursue, defend, compromise or otherwise make all decisions regarding
indemnification pursuant to Article 9 of this Agreement; (iii) to calculate
amounts due to and from Shareholders pursuant to this Agreement; (iv) to make
or consent to all estimates for Tax Liabilities, holdbacks from amounts to be
paid at Closing or otherwise required by this Agreement to be made by the
parties; and (v) to otherwise take such acts or actions, or omit to take
action, or make each and every decision which may be taken or made by any
Shareholder pursuant to or arising from or in connection with this Agreement.
Any action or failure to act taken (or not taken) by the Payment Agent shall
constitute a decision of each Shareholder and shall be final, binding and
conclusive upon them. Purchaser may rely upon any decision, act, consent or
instruction of the Payment Agent as being the decision, act, consent or
instruction of each and all of the Shareholders. Purchaser is hereby relieved
from any Liability to any person for any acts done by Purchaser in accordance
with any decision, act, consent or instruction of the Payment Agent. Payment
Agent agrees to indemnify and hold harmless Purchaser from and against any
Liabilities Purchaser may incur as a result.
13.22 SUPPLEMENTATION OF SCHEDULES. Shareholders or Purchaser may
elect to deliver a supplement ("Supplement") to one or more of the Schedules
and previously delivered to the other in accordance with the procedures set
forth in this Section 13.22 as follows:
(a) Prior to the Date of Closing, any and all Supplements must
be in writing and must be delivered to the other party before the date
that is five (5) business days prior to the scheduled Date of Closing.
The other party shall be given the opportunity during the five (5)
business days following the delivery of the proposed Supplement to
consider that Supplement. If the recipient does not object to the
contents of the Supplement within such period, the Schedule in question
shall be deemed amended by the Supplement. If the recipient objects to
a proposed Supplement, the sole remedy of such objecting party shall be
termination of this Agreement in
49
<PAGE>
accordance SECTION 12.1(f) of this Agreement, provided that this
limitation of remedies shall only apply if the Supplement was prepared
in connection with Sections 3.17, 3.28, 5.19, 7.9 or 7.10 of this
Agreement, or was made necessary by a change in circumstance from the
date of this Agreement to the date of the proposed Supplement; and
(b) Any and all Supplements within five (5) business days prior
to the scheduled Date of Closing must be in writing and delivered to
the other party pursuant to SECTION 13.5 of this Agreement, and will
only be deemed to amend a Schedule with the written consent of the
recipient of the Supplement.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by duly authorized representations as of the day, month and year
first above written.
PURCHASER:
RURAL CELLULAR
CORPORATION
By
--------------------------------
Its
-----------------------------
BY SIGNING THIS AGREEMENT, SHAREHOLDERS ACKNOWLEDGE THAT THEY HAVE READ SECTION
13.21 OF THIS AGREEMENT, AND THAT THEY HAVE APPOINTED REVERING SHAREHOLDER
REPRESENTATIVE CORPORATION AS THEIR SOLE AUTHORIZED AGENT WITH AUTHORITY
AS SET FORTH IN SECTION 13.21.
SHAREHOLDERS:
-----------------------------------
GEORGE M. REVERING
-----------------------------------
JOYCE C. REVERING
-----------------------------------
GEORGE D. REVERING
-----------------------------------
DAN J. REVERING
-----------------------------------
DEREK V. REVERING
GEORGE M. REVERING IRREVOCABLE TRUST
U/A DATED JULY 22, 1996
BY
---------------------------------
JOYCE C. REVERING, SOLE TRUSTEE
51
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
RURAL CELLULAR CORPORATION
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
RURAL CELLULAR CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES, CORPORATE SEAL AND SHAREHOLDER CONTROL
AGREEMENT.............................................1
1.01 Registered and Other Offices..........................1
1.02 Corporate Seal........................................1
1.03 Shareholder Control Agreement.........................1
ARTICLE II. MEETINGS OF SHAREHOLDERS..................................1
2.01 Regular Meetings......................................1
2.02 Special Meetings......................................2
2.03 Time and Place of Meetings............................2
2.04 Voting Rights.........................................2
2.05 Notice of Meetings....................................3
2.06 Waiver of Notice......................................3
2.07 Quorum................................................3
2.08 Record Date...........................................3
2.09 Action Without a Meeting..............................4
2.10 Proxies...............................................4
2.11 Action by the Shareholders............................4
2.12 Business Proposed by Shareholders.....................4
ARTICLE III. DIRECTORS................................................5
3.01 General Purposes......................................5
3.02. Number and Terms of Directors.........................5
3.03. Nominations and Qualifications........................5
3.04. Board Meetings; Time, Place and Notice................6
3.05. Waiver of Notice......................................6
3.06. Quorum................................................7
3.07. Absent Directors......................................7
3.08. Action Without a Meeting..............................7
3.09. Action by the Board...................................7
3.10. Electronic Communications.............................7
3.11. Committees............................................7
3.12. Presumption of Assent.................................8
3.13. Resignation...........................................8
3.14. Removal...............................................8
3.15. Vacancies.............................................8
3.16. Compensation of Directors.............................8
3.17. Chairman of the Board.................................8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. OFFICERS..................................................9
4.01. Required Officers.....................................9
4.02. Other Officers........................................9
4.03. Election and Term of Office...........................9
4.04. Chief Executive Officer..............................10
4.05. Chief Financial Officer..............................10
4.06. Multiple Offices.....................................10
4.07. Officers Deemed Elected..............................10
4.08. Contract Rights......................................10
4.09. Delegation of Authority..............................11
4.10. [Deleted]............................................11
4.11. Compensation of Officers.............................11
4.12. Resignation..........................................11
4.13. Removal..............................................11
4.14. Vacancy..............................................11
ARTICLE V. SHARES AND THEIR TRANSFER.................................11
5.01. Certificates for Shares..............................11
5.02. Transfer of Shares...................................12
5.03. Lost Certificates....................................12
5.04. Fractional Shares....................................12
5.05. Facsimile Signature..................................12
5.06. Transfer Agent and Registrar.........................12
5.07. Conversion of Class B Common Stock...................12
ARTICLE VI. CORPORATE BOOKS AND RECORDS..............................13
6.01. Share Register.......................................13
6.02. Other Required Documents.............................14
6.03. Financial Statements.................................14
6.04. Right to Inspect.....................................14
ARTICLE VII. NOTICE..................................................15
7.01. Notice...............................................15
ARTICLE VIII. INDEMNIFICATION........................................15
8.01. Indemnification......................................15
ARTICLE IX. AMENDMENT OF BYLAWS......................................16
9.01. Amendment of Bylaws..................................16
</TABLE>
ii
<PAGE>
BYLAWS
OF
RURAL CELLULAR CORPORATION
ARTICLE I.
OFFICES, CORPORATE SEAL
AND SHAREHOLDER CONTROL AGREEMENT
Section 1.01. REGISTERED AND OTHER OFFICES. The registered office of
the corporation in the State of Minnesota shall be that set forth in the
Articles of Incorporation or in the most recent amendment of the Articles of
Incorporation or statement of the Board of Directors filed with the Minnesota
Secretary of State changing the registered office in the manner prescribed by
law. The corporation may have such other offices, including its principal
place of business or its principal executive office, either within or without
the State of Minnesota, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
Section 1.02. CORPORATE SEAL. If so directed by the Board of
Directors, the corporation may use a corporate seal. The failure to use such
seal, however, shall not affect the validity, recordability or enforceability
of any document executed on behalf of the corporation or any act. The seal
need only include the word "seal," but it may also include, at the discretion
of the Board of Directors, such additional wording as is permitted by law.
Section 1.03. SHAREHOLDER CONTROL AGREEMENT. In the event of any
conflict or inconsistency between these Bylaws, or any amendment thereto, and
any shareholder control agreement, whenever adopted, such shareholder control
agreement shall govern. A copy of any such shareholder control agreement
shall be filed with the corporation at its principal executive office.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. REGULAR MEETINGS. Regular meetings of the shareholders
of the corporation shall be called by the Chief Executive Officer or the
Board of Directors. Regular meetings of the shareholders may be held no more
frequently than once per year and may be held on any other less frequent
periodic basis. Regular meetings of the shareholders need not be held, except
that if a regular meeting of the shareholders has not been held during the
immediately preceding fifteen (15) months, a shareholder or shareholders
holding three percent (3%) or more of the voting power of all shares of this
corporation entitled to vote may demand that a regular meeting of the
shareholders be held by giving written notice to the Chief Executive Officer
or the Chief Financial Officer of the corporation. Within thirty (30) days
after receipt of the demand by the Chief Executive Officer or Chief Financial
Officer, the Board of Directors shall cause a regular meeting of the
shareholders to be called and held on notice no later than ninety (90) days
after receipt of the demand, all at the expense of the corporation. If the
Board of Directors fails to cause a regular meeting of the shareholders to be
called and held as required by this section of the Bylaws, the shareholder or
shareholders making the demand may call the regular meeting by giving notice
as required by Section 2.05 of these Bylaws, all at the expense of the
corporation. At each regular meeting of the shareholders there shall be an
election of qualified successors for
<PAGE>
directors who serve for an indefinite term or whose terms have expired or are
due to expire within six (6) months after the date of the meeting. No other
particular business is required to be transacted at a regular meeting. Any
business appropriate for action by the shareholders may be transacted at a
regular meeting. No meeting shall be considered a regular meeting unless
specifically designated as such in the notice of meeting or unless all of the
shareholders are present in person or by proxy and none of them objects to
such designation.
Section 2.02. SPECIAL MEETINGS. Special meetings of the shareholders
of the corporation may be called for any purpose or purposes at any time by
the Chief Executive Officer, the Chief Financial Officer or by two or more
directors. In addition, except as provided by the Minnesota Business
Corporation Act with respect to a "business combination," a shareholder or
shareholders holding ten percent (10%) or more of the voting power of all
shares of the corporation entitled to vote may demand that a special meeting
of the shareholders be held by giving written notice containing the purpose
or purposes of the meeting to the Chief Executive Officer or Chief Financial
Officer of the corporation. Within thirty (30) days after receipt of the
demand by such officer, the Board of Directors shall cause a special meeting
of shareholders to be called and held on notice no later than ninety (90)
days after receipt of the demand, all at the expense of the corporation. If
the Board of Directors fails to cause a special meeting of the shareholders
to be called and held as required by this Section of the Bylaws, the
shareholder or shareholders making the demand may call the meeting by giving
notice as required by Section 2.05 of these Bylaws, all at the expense of the
corporation.
Section 2.03. TIME AND PLACE OF MEETINGS. Regular or special
meetings of the shareholders of the corporation, if any, shall be held on the
day or date and at the time and place fixed by the Chief Executive Officer or
the Board of Directors, except that a regular or special meeting called by,
or at the demand of, a shareholder or shareholders pursuant to Sections 2.01
or 2.02 of these Bylaws shall be held in the county where the principal
executive office of the corporation is located.
Section 2.04. VOTING RIGHTS. At each meeting of the shareholders of
the corporation, every shareholder having the right to vote shall be entitled
to vote either in person or by proxy. Unless otherwise provided by the
Articles of Incorporation or a resolution of the Board of Directors filed
with the Secretary of State pursuant to Minn. Stat. Section 302A.401, each
shareholder shall have one (1) vote for each voting share of Class A stock
and ten (10) votes for each voting share of Class B stock held of record by
that shareholder. Upon demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. Voting shares owned by two or more
shareholders may be voted by any one of them unless the corporation receives
written notice from any one of them denying the authority of that person to
vote those shares. Unless the corporation receives such a written notice from
a joint owner, a holder of voting shares may vote any portion of the shares
in any way the shareholder chooses. If a shareholder votes without
designating the proportion or number of shares voted in a particular way, the
shareholder shall be deemed to have voted all of the shares in that way. The
Board of Directors may, by a resolution approved by the affirmative vote of a
majority of the directors present, establish a procedure whereby a
shareholder may certify in writing to the corporation that all or a portion
of the shares registered in the name of the shareholder are held for the
account of one or more beneficial owners. Upon receipt by the corporation of
the writing, the persons specified as beneficial
2
<PAGE>
owners, rather than the actual shareholder, shall be deemed the shareholders
for the purpose specified in the writing. There shall be no cumulative voting.
Section 2.05. NOTICE OF MEETINGS. Notice of all meetings of
shareholders shall be given to every holder of voting shares of record,
except where the meeting is an adjourned meeting and the day or date, time
and place of the meeting were announced at the time of adjournment. The
notice shall be given at least ten (10), but not more than sixty (60), days
before the date of the meeting, except that written notice of a meeting at
which a plan of merger or exchange is to be considered shall be given to all
shareholders, whether entitled to vote or not, at least fourteen (14) days
prior thereto. The notice of any regular or special meeting of shareholders
shall contain the day or date, time and place of the meeting and any other
information deemed necessary or desirable by the person or persons calling
the meeting. Every notice of any special meeting shall state the purpose or
purposes for which the meeting has been called, and the business transacted
at all special meetings shall be confined to the purpose or purposes stated
in the notice, unless all of the shareholders of the corporation are present
in person or by proxy and none of them objects to consideration of a
particular item of business. In the event the purpose of the meeting is to
consider a plan of merger or exchange, a copy or short description of the
plan of merger or exchange shall be included in or enclosed with the notice.
Section 2.06. WAIVER OF NOTICE. A shareholder may waive notice of
any meeting of shareholders. A waiver of notice by a shareholder entitled to
notice is effective whether given before, at or after the meeting and whether
given in writing, orally or by attendance. Attendance by a shareholder at a
meeting is a waiver of notice of that meeting, except where the shareholder
objects at the beginning of the meeting to the transaction of business
because the meeting is not lawfully called or convened, or objects before a
vote on an item of business because the item may not lawfully be considered
at that meeting and does not participate in the consideration of the item at
that meeting.
Section 2.07. QUORUM. The holders of a majority of the voting power
of the shares outstanding and entitled to vote at a meeting of the
shareholders, present either in person or by proxy, shall constitute a quorum
for the transaction of business at that meeting. If a quorum is present when
a duly called or held meeting is convened, the shareholders present at such
meeting may continue to transact business until adjournment, even though the
withdrawal of one or more shareholders originally present leaves less than
the proportion or number otherwise required for a quorum. In the event a
quorum is not attained for a meeting, those shareholders present in person or
by proxy shall have the power to adjourn the meeting from time to time, to
such day or date and time and place as they shall, by majority vote, agree
upon. Any business may be transacted at such reconvened meeting which might
have been transacted at the meeting which was adjourned. If a quorum is
present in person or by proxy when a duly called or held meeting is convened,
the meeting may be adjourned from time to time without notice, other than
announcement at the meeting.
Section 2.08. RECORD DATE. The Board of Directors may fix, in the
resolution calling for a regular or special meeting of the shareholders, a date
not more than sixty (60) days before the day of the meeting of the shareholders
as the record date for the determination of the shareholders entitled to notice
of and to vote at the meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. When a record date is
so
3
<PAGE>
fixed, only shareholders on that date are entitled to receive notice of and
to vote at that meeting of shareholders and any adjournment thereof. The
Board of Directors may close the books of the corporation against the
transfer during the whole or any part of such period. If the Board of
Directors fails to fix a record date for the determination of the
shareholders entitled to notice of and to vote at any meeting of the
shareholders, the record date shall be the twentieth (20th) day preceding the
date of such meeting.
Section 2.09. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting or notice thereof by written action signed by all of the shareholders
entitled to vote on that action. The written action is effective on the date
on which the last signature is placed on such writing, unless a different
effective time is provided in the written action. Such written action may be
taken by counterparts.
Section 2.10. PROXIES. At all meetings of shareholders, a
shareholder may cast or authorize the casting of a vote by filing a written
appointment of a proxy with an officer of the corporation at or before the
meeting at which the appointment is to be effective. An appointment of a
proxy for shares held jointly by two or more shareholders is valid if signed
by any one of them, unless the corporation receives from any one of those
shareholders written notice either denying the authority of that person to
appoint a proxy or appointing a different proxy. The appointment of a proxy
is valid for eleven (11) months, unless a longer period is expressly provided
in the appointment. No appointment is irrevocable unless the appointment is
coupled with an interest in the shares or in the corporation. An appointment
may be terminated at will, unless the appointment is coupled with an
interest, in which case it shall not be terminated except in accordance with
the terms of an agreement, if any, between the parties to the appointment.
Termination may be made by filing written notice of the termination of the
appointment with an officer of the corporation, or by filing a new written
appointment of a proxy with an officer of the corporation. Termination in
either manner revokes all prior proxy appointments and is effective when
filed with an officer of the corporation.
Section 2.11. ACTION BY THE SHAREHOLDERS. At any duly called or held
meeting of the shareholders at which a quorum is present, the shareholders
shall take action by the affirmative vote of the holders of a majority of the
voting power of the shares entitled to vote who are present in person or by
proxy, except where a larger proportion or number is required by the Articles
of Incorporation or by applicable law. In any case where a class or series of
shares is entitled by the Minnesota Business Corporations Act, the Articles
of Incorporation, or the terms of the shares to vote as a class or series,
the matter being voted upon must also receive the affirmative vote of the
holders of a majority of the voting power of the shares of that class or
series who are present in person or by proxy, except where a larger
proportion or number is required by the Articles of Incorporation or
applicable law.
Section 2.12. BUSINESS PROPOSED BY SHAREHOLDERS. At any regular or
special meeting of the shareholders, only such business shall be conducted as
shall have been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any shareholder of the corporation who complies
with the notice procedures set forth in this Section 2.12. For business to be
properly brought before any regular or special meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be
4
<PAGE>
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than 50 days
prior to the meeting, provided, however, that in the event that less than 60
days' notice or prior public disclosure of the date of the meeting is given
or made to the shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the 10th day following the
day on which such notice of the date of the regular or special meeting was
mailed or such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the regular or special meeting (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business, (c) the
class and number of shares of the corporation which are beneficially owned by
the shareholder, and (d) any material interest of the shareholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any regular or special meeting except in
accordance with the procedures set forth in this Section 2.12. The
chairperson of the meeting shall, if the facts warrant, determine that
business was not properly brought before the meeting in accordance with the
provisions of this Section 2.12 and, if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
ARTICLE III.
DIRECTORS
Section 3.01. GENERAL PURPOSES. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote of the holders of all of the shares entitled to vote for the
election of the directors of the corporation, the business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
Section 3.02. NUMBER AND TERMS OF DIRECTORS. 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.
Section 3.03. NOMINATIONS AND QUALIFICATIONS. Only persons who are
nominated in accordance with the procedures set forth in this Section 3.03 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the corporation may be made at a meeting of
shareholders (a) by or at the direction of the Board of Directors or (b) by any
shareholder of the corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Article
3.03. Nominations by
5
<PAGE>
shareholders shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 50 days prior to the meeting; provided, however,
that in the event that less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director,
all information relating to such person that is required (or would be
required if the corporation were subject to Regulation 14A under the
Securities Exchange Act of 1934, as amended) to be disclosed in solicitations
of proxies or otherwise pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as nominee and to serving as a director if
elected); and (b) as to the shareholder giving notice (i) the name and
address, as they appear on the corporation's books, of such shareholder and
(ii) the class and number of shares of the corporation which are beneficially
owned by such shareholder. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the corporation that information required to be
set forth in a shareholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this Section 3.03. The chairperson of the meeting shall, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed in this Section 3.03 and, if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 3.04. BOARD MEETINGS; TIME, PLACE AND NOTICE. Meetings of
the Board of Directors may be held from time to time at any place within or
without the State of Minnesota that the Board of Directors may designate. In
the absence of designation by the Board of Directors in the notice of the
meeting or otherwise, meetings of the Board of Directors shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally or in writing or by attendance. The Chairman, Chief
Executive Officer or any two directors may call a Board of Directors meeting
by giving two (2) days' notice to all directors of the day or date, time and
place of the meeting. Notice of a meeting called by two directors other than
the Chairman of the Board or Chief Executive Officer shall state the purpose
of the meeting. Notice may be given by mail, telephone, telegram or in
person. If a meeting schedule is adopted by the Board of Directors, or if the
day or date, time and place of a Board of Directors meeting has been
announced at a previous meeting, no additional notice is required. Notice of
an adjourned meeting need not be given other than by announcement at the
meeting at which adjournment is taken.
Section 3.05. WAIVER OF NOTICE. A director may waive notice of a
meeting of the Board of Directors. A waiver of notice by a director entitled
to notice is effective, whether given before, at or after the meeting and
whether given in writing, orally or by attendance. Attendance by a director
at a meeting is a waiver of notice of that meeting, except where the director
objects at the beginning of the meeting to the transaction of business
because the meeting is not lawfully called or convened and does not
participate thereafter in the meeting.
6
<PAGE>
Section 3.06. QUORUM. A majority of the directors currently holding
office shall be a quorum for the transaction of business. In the absence of a
quorum, a majority of the directors present may adjourn a meeting from time
to time until a quorum is present. If a quorum is present when a duly called
or held meeting is convened, the directors present may continue to transact
business until adjournment, even though the withdrawal of a number of
directors originally present leaves less than the proportion or number
otherwise required for a quorum.
Section 3.07. ABSENT DIRECTORS. A director who is unable to attend a
meeting of the Board of Directors may give advance written consent or
opposition to a proposal to be acted on at the meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum,
but consent or opposition shall be counted as a vote in favor of or against
the proposal and shall be entered in the minutes or other record of action at
the meeting, if the proposal acted on at the meeting is substantially the
same or has substantially the same effect as the proposal to which the
director has consented or objected.
Section 3.08. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the Board of Directors of this
corporation may be taken without a meeting and notice thereof by written
action signed by the number of directors that would be required to take the
same action at a meeting of the Board of Directors at which all the directors
were present, provided that the proposed action need not be approved by the
shareholders and that the Articles of Incorporation so provide. The written
action is effective when signed by the necessary number of directors, unless
a different effective time is provided in the written action. Such written
action may be taken by counterparts.
Section 3.09. ACTION BY THE BOARD. The Board of Directors shall take
action by the affirmative vote of a majority of the directors present at a
duly held meeting except where a larger proportion or number is required by
the Articles of Incorporation or applicable law.
Section 3.10. ELECTRONIC COMMUNICATIONS. A conference among
directors by any means of communication through which the directors may
simultaneously hear each other during the conference constitutes a board
meeting if the same notice is given of the conference as would be required by
Section 3.04 of these Bylaws for a meeting and if the number of directors
participating in the conference would be sufficient to constitute a quorum at
a meeting under Section 3.06 of these Bylaws. A director may also participate
in a meeting of the Board of Directors by any means of communication through
which the director, other directors so participating, and all directors
physically present at the meeting may simultaneously hear each other during
the meeting. Participation in a meeting of the Board of Directors pursuant to
the provisions of this section of the Bylaws constitutes presence in person
at the meeting.
Section 3.11. COMMITTEES. The Board of Directors may, by resolution
approved by the affirmative vote of a majority of its members, establish one or
more committees, including an executive committee and a committee of
disinterested persons, which shall have the authority of the Board of Directors
in the management of the business and affairs of the corporation to the extent
provided in the resolution, as amended from time to time. A committee shall
consist of one or more natural persons, who need not be directors, appointed by
the affirmative vote of a majority of the directors present. Each committee
shall keep minutes of its acts and proceedings
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and make such minutes available upon request to members of the committee and
to any director. Committees shall at all times be subject to the direction
and control of the board, except as otherwise provided herein or by
applicable law. Sections 3.04 through 3.10 of these Bylaws shall apply to
committees and members of committees to the same extent as those sections
apply to the Board of Directors and to members of the Board of Directors.
Section 3.12. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors when an action is approved by the
affirmative vote of a majority of the directors present is presumed to have
assented to the action approved, unless the director (i) objects at the
beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened and does not participate thereafter in the
meeting, in which case the director shall not be considered to be present at
the meeting for purposes of determining whether a quorum is present; (ii)
votes against the action at the meeting; or (iii) is prohibited by applicable
law, due to a conflict of interest, from voting on the action.
Section 3.13. RESIGNATION. A director may resign from the Board of
Directors at any time by giving written notice to the corporation at its
principal executive office. The resignation is effective without acceptance
when the notice is given to the corporation, unless a later effective time is
specified in the notice.
Section 3.14. REMOVAL. Any director, including a director named by
the Board of Directors to fill a vacancy or newly created directorship, may
be removed at any time, with or without cause, by the affirmative vote of the
holders of two-thirds (2/3) of the voting power of the shares outstanding and
entitled to vote for the election of directors. New directors may be elected
at a meeting at which directors are removed.
Section 3.15. VACANCIES. Vacancies on the Board of Directors
resulting from the death, disqualification, resignation, retirement or
removal of a director or by newly created directorships may be filled by the
affirmative vote of a majority of the remaining directors, even though less
than a quorum. Any director elected by the Board of Directors under this
Section to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of such director's
predecessor.
Section 3.16. COMPENSATION OF DIRECTORS. The members of the Board of
Directors and any committee may be reimbursed for their expenses, if any, of
attendance at each meeting of the Board of Directors or any committee; and
the Board of Directors may fix by resolution the compensation of directors
and of the members of any committee of the Board of Directors. No such
payment shall preclude any director or committee member from serving the
corporation in any other capacity and receiving compensation for his or her
services in such capacity.
Section 3.17. CHAIRMAN OF THE BOARD. The Board of Directors may
elect one of its members to be Chairman of the Board of Directors. In the
event a Chairman of the Board of Directors is elected, he or she shall
preside at all meetings of the Board of Directors. The Chairman of the Board
of Directors is subject to the control of the Board of Directors and may be
removed by the Board. The Chairman of the Board of Directors shall have
supervisory authority over the general policy and business of the corporation
and shall perform the duties that are assigned by the Board of Directors.
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ARTICLE IV.
OFFICERS
Section 4.01. REQUIRED OFFICERS. The corporation shall have one or
more natural persons exercising the functions of the offices, however
designated, of Chief Executive Officer and Chief Financial Officer.
Section 4.02. OTHER OFFICERS. In lieu of or in addition to
appointing a Chief Executive Officer and a Chief Financial Officer, the Board
of Directors may appoint, in a resolution approved by the affirmative vote of
a majority of the directors present, any other officers, assistant officers
or agents the Board of Directors deems necessary or appropriate for the
operation and management of the corporation, each of whom shall have the
powers, rights, duties, responsibilities and terms in office determined by
the Board of Directors from time to time. If elected, the following officers
shall have the following roles:
(a) CHAIRMAN OF THE BOARD. A Chairman of the Board, if one is
elected, shall preside at all meetings of the directors and shall have
such other duties as may be prescribed from time to time by the Board
of Directors.
(b) PRESIDENT. The President, if elected in lieu of a Chief
Executive Officer, shall exercise the functions of the Chief Executive
Officer.
(c) VICE PRESIDENT. Each Vice President, if elected, shall
have such powers and shall perform such duties as may be specified in
the Bylaws or prescribed by the Board of Directors or by the President.
In the event of absence or disability of the President, Vice Presidents
shall succeed to his power and duties in the order designated by the
Board of Directors.
(d) SECRETARY. A Secretary, if elected, shall maintain records
of the corporation and together with the President or Chief Executive
Officer, certify the proceedings of the Board of Directors and the
shareholders. The Secretary shall perform such other duties as may from
time to time be prescribed by the Board of Directors or by the
President.
(e) TREASURER. The Treasurer, if elected, shall exercise the
functions of the Chief Financial Officer, if there is no other person
who has been appointed Chief Financial Officer, and shall perform such
other duties as may from time to time be prescribed by the Board of
Directors or by the President.
If specific persons have not been elected as President or Secretary,
the Chief Executive Officer may execute instruments or documents in those
capacities. If a specific person has not been elected to the office of
Treasurer, the Chief Financial Officer of the corporation may sign
instruments or documents in that capacity.
Section 4.03. ELECTION AND TERM OF OFFICE. At its first regular meeting
after the regular meeting of the shareholders each year, the Board of Directors
shall elect or appoint a Chief Executive Officer and a Chief Financial Officer
and/or such other officers, assistant officers or agents the Board of Directors
deems necessary. Such officers shall hold their offices until their
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successors are elected and have qualified; provided, however, that any
officer may be removed in the manner provided in Section 4.13 of these Bylaws.
Section 4.04. CHIEF EXECUTIVE OFFICER. Unless a resolution adopted
by the Board of Directors provides otherwise, the Chief Executive Officer
shall have the duties specified in this section. When present, the Chief
Executive Officer shall call to order and preside over all meetings of the
shareholders and all meetings of the Board of Directors unless a Chairman of
the Board of Directors is elected who shall preside at all meetings of the
Board of Directors. The Chief Executive Officer shall have responsibility for
the active management of the business of the corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The Chief Executive Officer shall also sign and deliver in the name of the
corporation any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the corporation as may be prescribed from time
to time by the Board of Directors, maintain records of and, whenever
necessary, certify all proceedings of the Board of Directors and the
shareholders. In addition, the Chief Executive Officer shall, in general,
perform all duties usually incident to the position of Chief Executive
Officer and such other duties as may from time to time be prescribed by the
Board of Directors.
Section 4.05. CHIEF FINANCIAL OFFICER. Unless a resolution adopted
by the Board of Directors provides otherwise, the Chief Financial Officer
shall have the duties specified in this section. The Chief Financial Officer
shall keep accurate financial records of the corporation; deposit all money,
drafts, and checks in the name of and to the credit of the corporation in the
banks and depositories designated by the Board of Directors; endorse for
deposit all notes, checks and drafts received by the corporation as ordered
by the Board of Directors, making proper vouchers therefor, except to the
extent that some other person or persons may be specifically authorized by
the Board of Directors to do so; disburse corporate funds and issue checks
and drafts in the name of the corporation as authorized by the Board of
Directors; render to the Chief Executive Officer and the Board of Directors,
whenever requested, an account of all transactions by the Chief Financial
Officer and of the financial condition of the corporation; and shall perform
such other duties as may be prescribed by the Board of Directors or the Chief
Executive Officer from time to time.
Section 4.06. MULTIPLE OFFICES. Any number of offices or functions
of those offices may be held or exercised by the same person, except that if
a President and Vice President shall be elected, the offices shall not be
held by the same person. If a document must be signed by persons holding
different offices or functions and a person holds or exercises more than one
of those offices or functions, that person may sign the document in more than
one capacity, but only if the document indicates each capacity in which the
person signs.
Section 4.07. OFFICERS DEEMED ELECTED. In the absence of an election
or appointment of officers by the Board of Directors, the person or persons
exercising the principal functions of the Chief Executive Officer or the
Chief Financial Officer are deemed to have been elected to those offices.
Section 4.08. CONTRACT RIGHTS. The election or appointment of a person
as an officer or agent of the corporation shall not, of itself, create contract
rights. The corporation may enter into an employment contract with an officer or
agent for a period of time if, in the judgment of the
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Board of Directors, the contract would be in the best interests of the
corporation. The fact that the contract may be for a term longer than the
terms of the directors who authorized or approved the contract shall not make
the contract void or voidable.
Section 4.09. DELEGATION OF AUTHORITY. Unless prohibited by a
resolution approved by the affirmative vote of a majority of the directors
present at a duly called meeting of the Board of Directors, an officer
elected or appointed by the Board of Directors may, without the approval of
the Board of Directors, delegate some or all of the duties or powers of his
or her office to other persons, provided that such delegation is in writing.
An officer who delegates the duties or powers of an office remains subject to
the standard of conduct for an officer with respect to the discharge of all
duties and powers so delegated.
Section 4.10. [Deleted]
Section 4.11. COMPENSATION OF OFFICERS. The salaries of all officers
of the corporation shall be fixed from time to time by the Board of Directors
or a committee appointed by the Board. The Board of Directors or a duly
appointed committee may authorize and empower the Chief Executive Officer,
President or any Vice President to fix the salaries of all officers of the
corporation who are not directors of the corporation. No officer shall be
prevented from receiving a salary by reason of the fact that he or she is
also a director of the corporation.
Section 4.12. RESIGNATION. An officer may resign at any time by
giving written notice to the corporation at its principal executive office.
The resignation is effective without acceptance when the notice is given to
the corporation, unless a later effective date is specified in the notice.
Section 4.13. REMOVAL. Subject to the provisions of any shareholder
control agreement, an officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly called meeting of the Board of Directors. Any
such removal shall be without prejudice to any contractual rights of the
officer.
Section 4.14. VACANCY. A vacancy in an office because of death,
resignation, removal, disqualification or other cause may, or in the case of
a vacancy in the office of Chief Executive Officer or Chief Financial Officer
shall, be filled by the Board of Directors for the unexpired portion of the
term, or for such term and on such conditions as shall be determined by the
Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. CERTIFICATES FOR SHARES. Every shareholder of this
corporation shall be entitled to a certificate, to be in such form as prescribed
by law and adopted by the Board of Directors, certifying the number of shares of
the corporation owned by him or her. The certificates for such shares shall be
numbered in the order in which they are issued and shall be signed in the name
of the corporation by the Chief Executive Officer or the Chief Financial Officer
or any other proper officers of the corporation authorized by the Board of
Directors and shall have typed or printed thereon such legend as may be required
by law or any shareholder control agreement. Every certificate surrendered to
the corporation for exchange or transfer shall be cancelled, and no new
certificate or certificates shall be issued in exchange for any existing
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certificate until such existing certificate shall have been so cancelled,
except in cases provided for in Section 5.03 of these Bylaws.
Section 5.02. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative or duly authorized
attorney in fact, and is effective upon surrender for cancellation of the
properly endorsed certificate or certificates for such shares to the
corporation or its transfer agent. The corporation may treat as the absolute
owner for all purposes of shares of the corporation the person or persons in
whose name or names the shares are registered on the books of the corporation
and may not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it shall have
express or other notice thereof.
Section 5.03. LOST CERTIFICATES. Any shareholder claiming that a
certificate for shares has been lost, destroyed or stolen shall make an
affidavit of that fact in such form as the Board of Directors may require and
shall, if the Board of Directors so requires, give the corporation a
sufficient agreement of indemnity or indemnity bond, in form, in an amount,
and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claims which may be made against it on
account of the reissue of such certificate. A new certificate shall then be
issued to said shareholder for the same number of shares as the one alleged
to have been destroyed, lost or stolen.
Section 5.04. FRACTIONAL SHARES. The corporation may issue fractions
of a share originally or upon transfer. Except as otherwise provided by
applicable law, if the Board of Directors decides not to issue fractions of a
share in connection with an original issuance of shares, the Board of
Directors must (i) arrange for the disposition of fractional interests by
persons entitled to them, (ii) pay in money the fair value of fractions of a
share as of the time when persons entitled to receive the fractions are
determined, or (iii) issue scrip or warrants in registered or bearer form
that entitle the holder to receive a certificate for a full share on the
surrender of scrip or warrants aggregating a full share.
Section 5.05. FACSIMILE SIGNATURE. Where any certificate is manually
signed by a transfer agent, a transfer clerk or by a registrar appointed by
the Board of Directors to perform such duties, a facsimile or engraved
signature of the Chief Executive Officer and Chief Financial Officer or any
other proper officers of the corporation authorized by the Board of Directors
may be inscribed on the certificate in lieu of the actual signature of such
officer. The fact that a certificate bears the facsimile signature of an
officer who has ceased to hold office shall not affect the validity of such
certificate if otherwise validly issued.
Section 5.06. TRANSFER AGENT AND REGISTRAR. The Board of Directors
may appoint one or more transfer agents or transfer clerks, and one or more
registrars and may require all certificates for shares to bear the signature
or signatures of any of them.
Section 5.07. CONVERSION OF CLASS B COMMON STOCK.
(a) CONVERSION PROCEDURE. In the event of any conversion of
shares of Class B Common Stock pursuant to Section 2.02(c) of the
Articles of Incorporation, the holder
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of such shares of Class B Common Stock shall promptly surrender the
certificate or certificates therefor, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the
corporation, or of any transfer agent for such shares, and shall
give written notice to the corporation (the "Notice"), at such
office: (1) stating that shares of Class B Common Stock have been
converted into Class A Common Stock as provided in this Section 5.07;
(2) specifying how the conversion occurred; (3) identifying the
number of shares of Class B Common Stock being converted; and
(4) setting out the name or names (with addresses) and denominations
in which the certificate or certificates for shares of Class A Common
Stock shall be issued, with instructions for delivery thereof.
Delivery of such notice together with the certificates representing
the shares of Class B Common Stock shall obligate the corporation to
issue such shares of Class A Common Stock. Thereupon the corporation
or its agent shall promptly issue and deliver to such holder a
certificate or certificates representing the shares to which such
holder is entitled, registered in the name of such holder or designee
as specified in the Notice. The corporation shall take any and all
steps necessary to effect a conversion pursuant to Section 2.02(c)
of the Articles of Incorporation, notwithstanding any failure by the
holder to deliver to the corporation the Notice or the certificates
representing the shares subject to such conversion.
(b) EFFECT OF AUTOMATIC CONVERSION. To the extent permitted by
law, conversion shall be deemed to have been effected as of the date on
which conversion was first permitted or required under Section 2.02(c)
of the Articles of Incorporation (such date being the "Conversion
Time"). The person entitled to receive shares issuable upon such
conversion shall be treated for all purposes as the record holder of
such class of shares at and as of the Conversion Time, and the right of
such person as a holder of the shares held prior to such conversion
shall cease and terminate at and as of the Conversion Time, in each
case notwithstanding any failure by the holder to deliver to the
corporation the Notice or the certificates representing the shares
subject to conversion, or the corporation's failure to issue to the
holder certificates representing the shares to be held after the
conversion has been effected.
(c) RESERVATION. The corporation hereby reserves and shall at
all times reserve and keep available, out of its authorized and
unissued shares of capital stock, for the purposes of effecting
conversions, such number of duly authorized shares of capital stock as
shall from time to time be sufficient to effect the conversion of the
Class B Common Stock contemplated herein. All such shares so issuable
shall, when so issued, be duly and validly issued, fully paid and
non-assessable, and free from liens and charges with respect to the
issue. The corporation will take all such action as may be necessary to
ensure that all such shares may be so issued without violation of any
applicable law or regulation, or of any requirements of any national
securities exchange or The Nasdaq Stock Market upon which such shares
may be listed or traded.
ARTICLE VI.
CORPORATE BOOKS AND RECORDS
Section 6.01. SHARE REGISTER. The corporation shall keep at its
principal executive office or at such other place or places within the United
States as determined by the Board of Directors,
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a share register not more than one year old, containing the names and
addresses of the shareholders, the number and classes of shares held by each
shareholder, the dates on which the certificates therefor were issued, and,
in the case of cancellation, the date of cancellation.
Section 6.02. OTHER REQUIRED DOCUMENTS. The corporation shall keep
at its principal executive office, or, if its principal executive office is
not located within the State of Minnesota, shall make available at its
registered office within ten (10) days after receipt by an officer of the
corporation of a written demand from a person described in Section 6.04 of
these Bylaws, either the originals or copies of the following:
a. Records of all proceedings of the shareholders and the
Board of Directors of the Corporation for at least the last three
years;
b. The Articles of Incorporation of the corporation and
all amendments thereto;
c. These Bylaws and all amendments thereto currently in
effect;
d. Reports made to shareholders generally within the last
three years;
e. A statement of the names and usual business addresses of
the corporation's directors and principal officers;
f. Any shareholder control agreements and voting trust
agreements; and
g. The financial statements required by Section 6.03 of these
Bylaws and the financial statement for the most recent interim period
prepared in the course of the operations of the corporation for
distribution to the shareholders or to a governmental agency as a
matter of public record.
Section 6.03. FINANCIAL STATEMENTS. The corporation shall keep
appropriate and complete financial records and shall, upon written request by
a shareholder, furnish annual financial statements, including at least a
balance sheet as of the end of each fiscal year and a statement of income for
the fiscal year, which shall be prepared on the basis of accounting methods
reasonable in the circumstances and may be consolidated statements of the
corporation and one or more of its subsidiaries, if any. In the case of
statements audited by a public accountant, each copy shall be accompanied by
a report setting forth the opinion of the accountant on the statements; in
other cases, each copy shall be accompanied by a statement of the Chief
Financial Officer or other person in charge of the corporation's financial
records stating the reasonable belief of the person that the financial
statements were prepared in accordance with accounting methods reasonable in
the circumstances, describing the basis of presentation and describing any
respects in which the financial statements were not prepared on a basis
consistent with those prepared for the previous year.
Section 6.04. RIGHT TO INSPECT. So long as this corporation is publicly
held, any shareholder of the corporation, beneficial owner of shares of the
corporation or holder of a voting trust certificate relating to the shares of
the corporation has, upon written demand stating the purpose and acknowledged or
verified as required by law, a right to examine and copy, at any
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reasonable time, the share register required by Section 6.01 of these Bylaws
and other corporate documents reasonably related to the stated purpose. For
purpose of these Bylaws, a "proper purpose" is any purpose reasonably related
to the person's interest as a shareholder, beneficial owner of shares or
holder of a voting trust certificate of the corporation.
ARTICLE VII.
NOTICE
Section 7.01. NOTICE. Whenever under the provisions of these Bylaws
notice is required to be given to the corporation or an officer of the
corporation, such notice shall be in writing and is deemed to have been given
when mailed or delivered to the corporation or the officer at the registered
office or principal executive office of the corporation. Whenever under the
provisions of these Bylaws notice is required to be given to any shareholder,
director or member of a committee of the Board of Directors of the
corporation, such notice is deemed to have been given when mailed to the
person at an address designated by the person or at the last known address of
the person, or when communicated to the person orally, or when handed to the
person, or when left at the office of the person with a clerk or other person
in charge of the office, or if there is no one in charge, when left in a
conspicuous place in the office, or if the office is closed or the person to
be notified has no office, when left at the dwelling house or usual place of
abode of the person with some person of suitable age and discretion then
residing therein. Notice by mail is given when deposited in the United States
mail with sufficient postage affixed. Notice is deemed received when it is
given.
ARTICLE VIII.
INDEMNIFICATION
Section 8.01. INDEMNIFICATION. The corporation shall indemnify each
former and present officer, director, or employee of the corporation, and
each person who serves or may have served at the request of the corporation
as a director, officer, employee or agent of another corporation or employee
benefit plan, and their respective heirs, administrators and executors, who
are made a party to a threatened, pending or completed civil, criminal,
administrative, arbitration, or investigative proceeding by reason of the
former or present official capacity of the person against judgments,
penalties, fines, including, without limitation, excise taxes assessed
against the person with respect to an employee benefit plan, including
attorneys' fees and disbursements, incurred by the person in connection with
the proceeding in accordance with, and to the fullest extent permissible
under, the provisions of Chapter 302A of the Minnesota Statutes, as it may
from time to time be amended. In the event a former or present officer,
director, or employee of the corporation is made or threatened to be made a
party to a civil, criminal, administrative, arbitration or investigative
proceeding by reason of the former or present official capacity of the
person, the person shall be entitled, upon written request to the
corporation, to payment or reimbursement by the corporation of reasonable
expenses, including attorneys' fees and disbursements, incurred by the person
in advance of the final disposition of the proceeding, as provided in
Minnesota Statutes Chapter 302A.
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ARTICLE IX.
AMENDMENT OF BYLAWS
Section 9.01. AMENDMENT OF BYLAWS. Unless reserved by the Articles
of Incorporation to the shareholders, the Board of Directors may, from time
to time by the affirmative vote of the majority of its members present at a
duly called meeting, adopt, amend or repeal all or any of the Bylaws of the
corporation subject, however, to the power of the shareholders, exercisable
in the manner provided by law, to adopt, amend or repeal Bylaws adopted,
amended or repealed by the Board of Directors. Notwithstanding any other
provisions of these Bylaws to the contrary (and notwithstanding the fact that
a lesser percentage or separate class vote may be specified by law, the
Articles of Incorporation or these Bylaws), 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, shall be
required to amend or repeal, or adopt any provisions inconsistent with
Sections 2.12, 3.02, 3.03, 3.04, 3.06, 3.14, 3.15 or 9.01 of these Bylaws.
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CERTIFICATION OF BYLAWS
The undersigned, being the duly elected Secretary of Rural Cellular
Corporation, a Minnesota corporation, does hereby certify that the foregoing
Bylaws have been duly adopted to be the Bylaws of the corporation and to
supersede all previously existing Bylaws by action of the Board of Directors
taken the 22nd day of January, 1999.
/s/ Don Swenson
-----------------------------
Don Swenson
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of the 22nd day of January, 1999
("Effective Date"), by and between Rural Cellular Corporation ("RCC" or
"Company") and Richard P. Ekstrand (the "Employee").
WHEREAS, Employee has heretofore been employed by RCC in the
position of President and Chief Executive Officer and is experienced in the
business of RCC; and
WHEREAS, Employee desires to continue to be employed by RCC in the
same position; and
WHEREAS, the parties desire by this writing to set forth the
employment relationship of RCC and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT.
(a) TITLE/DUTIES. The Employee is employed in the capacity of
President and Chief Executive Officer for RCC, to perform the duties
customarily performed by persons situated in a similar executive
capacity. The Employee shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of RCC.
The Employee's other duties shall be such as the Board of Directors
may from time to time reasonably direct.
(b) LOCATION. The Employee's principal place of employment shall
be at the Company's offices in Alexandria, Minnesota.
2. BASE COMPENSATION. RCC agrees to pay the Employee during the
term of this Agreement a salary which shall be at the initial rate of Three
Hundred sixty-two thousand Dollars ($362,000) per annum beginning on the
Effective Date, payable not less frequently than every two weeks; PROVIDED,
that the rate of such salary shall be reviewed not less often than annually,
and Employee shall be entitled to receive an increase at such percentage or
in such an amount, if any, as may be determined from time to time. The
Employee's salary may not be decreased below the rate in effect on any date
during the term of this Agreement, except that, in the event that the
salaries of other senior management employees have been generally reduced,
Employee's salary may be reduced in a similar manner, except that any such
reduction following a "Change in Control" (as defined in Appendix A hereto)
shall be subject to the provisions of Section 11(b) hereof.
3. DISCRETIONARY AND INCENTIVE BONUS; STOCK OPTIONS. The Employee
shall be entitled to participate in an equitable manner with all other senior
management
<PAGE>
employees of RCC in discretionary and incentive bonuses, including, but not
limited to stock option and restricted stock awards and other cash and
non-cash compensation plans that may be authorized and declared by the Board
of Directors to its senior management employees from time to time.
4. OTHER BENEFITS.
(a) PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Employee shall
be entitled to participate in any plan of RCC relating to compensation,
profit sharing, retirement, medical coverage or other employee benefits
as RCC may adopt for the benefit of its senior management employees.
(b) FRINGE BENEFITS; EXPENSES. The Employee shall be eligible
to participate in any fringe benefits which may be or may become
applicable to RCC's senior management employees, including by example,
participation in any stock option or incentive plans adopted by the
Board of Directors, and any other benefits adopted by RCC. RCC shall
reimburse Employee for all reasonable out-of-pocket expenses which
Employee shall incur in connection with his service for RCC which are
documented in accordance with RCC's policies as set forth from time to
time.
(c) CAR ALLOWANCE. The Employee shall be required to have and
maintain a personal automobile for use in the performance of his duties
under this Agreement and a valid drivers license to operate RCC
vehicles. RCC shall pay the Employee an allowance at an initial rate of
$8,000 per year to compensate him for all expenses incurred by him in
complying with these requirements. In addition, RCC shall reimburse the
Employee at current IRS allowable mileage rates for the use of his
personal automobile on RCC business.
5. TERM. The term of employment of Employee under this Agreement
shall be for the period commencing on the Effective Date and ending December
31, 2001; PROVIDED, that commencing on December 31, 1999, and on each
December 31 thereafter, the term of Employee's employment shall automatically
be extended for one additional year, so that the remaining term of his
employment shall never be less than two years, unless either party gives
written notice to the other of its intention not to so extend the term of the
Employee's employment.
6. LOYALTY; NONCOMPETITION.
(a) The Employee shall devote his full business time and
attention to the performance of his employment under this Agreement.
During the term of Employee's employment under this Agreement, the
Employee shall not engage in any business or activity contrary to the
business affairs or interests of RCC.
(b) Nothing contained in this Section 6 shall be deemed to
prevent or limit the right of Employee to invest in the capital stock
or other securities of any
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business dissimilar from that of RCC or, solely as a passive or
minority investor, in any business.
7. STANDARDS. The Employee shall perform his duties under this
Agreement in accordance with the reasonable standards customarily expected of
employees with comparable positions in comparable organizations, or in
accordance with such other standards as may reasonably be established from
time to time by the Board of Directors.
8. PAID TIME OFF. The Employee shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of the duties of his
employment under this Agreement, with all such voluntary absences to count as
paid time off, in accordance with the following:
(a) Employee shall be entitled to not less than nineteen (19)
days per calendar year of paid time off for vacation, personal illness,
emergency situations such as family illness, and for any other reason
that time off must be taken during a regular scheduled work day that is
not covered by other Company policies (such as jury duty). Such paid
time off shall be taken in accordance with then current Company
policies.
(b) The Employee shall take at least five consecutive business
days of vacation in each calendar year.
(c) The Employee shall not be entitled to receive any additional
compensation from RCC on account of his failure to take paid time off,
and Employee shall be entitled to accumulate unused paid time off in
accordance with then current Company policy (as of the end of 1999 only
120 hours of paid time off can be carried over into the following
year).
(d) In addition to the aforesaid paid time off, the Employee
shall be entitled, without loss of pay, to absent himself voluntarily
from the performance of his employment with RCC for such additional
periods of time and for such other valid and legitimate reasons as the
Board of Directors in its discretion may determine.
(e) The Employee shall also be entitled to any other paid or
unpaid time off as may be provided by Company policies. Further, the
Board of Directors shall be entitled to grant to the Employee a leave
or leaves of absence with or without pay at such time or times and upon
such terms and conditions as the Board of Directors in is discretion
may determine.
(f) The Employee is encouraged to participate in related
industry and professional organizations and activities provided that
the assumption of any significant responsibilities for such outside
activities or organizational participation shall be approved in advance
by the Board of Directors.
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9. TERMINATION AND TERMINATION PAY. The Employee's employment
under this Agreement may be terminated upon any of the following occurrences:
(a) The death of the Employee during the term of this Agreement,
in which event the Employee's estate shall be entitled to receive the
compensation due the Employee through the last day of the calendar
month in which Employee's death shall have occurred, plus all accrued
but unused paid time off for such calendar year, and PRO RATA payment
of all bonuses or incentive payments earned or to be awarded for such
calendar year.
(b) The Board of Directors may terminate the Employee's
employment at any time, but any termination by the Board of Directors
other than termination for Just Cause, as defined below, shall not
prejudice the Employee's right to compensation or other benefits under
this Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for
Just Cause, except to the extent specifically provided under the terms
of any benefit plan or program of RCC or as may otherwise be required
by law. Termination shall be for "Just Cause" if the Employee
(i) has been convicted of a felony or
(ii) has intentionally engaged in conduct that is
demonstrably and materially injurious to the
Company, monetarily or otherwise;
PROVIDED, HOWEVER, that no termination of Employee's
employment shall be for Just Cause as set forth in clause (ii)
above until
(a) there shall have been delivered to the Employee
a copy of a written notice setting forth that the
Employee was guilty of the conduct set forth in
clause (ii) and specifying the particulars
thereof in detail;
(b) the Employee shall have been provided an
opportunity to be heard by the Board of
Directors (with the assistance of the
Employee's counsel if the Employee so desires);
and
(c) such conduct is not discontinued within a
reasonable period of time after receipt of the
written notice provided in clause (A).
No act or failure to act on the Employee's part shall be considered
"intentional" unless he has acted or failed to act with an absence of
good faith and without a reasonable belief that his action or failure
to act was in the best interest of the Company. Notwithstanding
anything contained in this Agreement to the contrary,
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no failure to perform by the Employee after notice of termination has
been given by the Employee will constitute Just Cause for purposes of
this Agreement.
(c) Except as provided pursuant to Section 11 herein, in the
event Employee's employment under this Agreement is terminated by the
Board of Directors without Just Cause, RCC shall be obligated to
continue to pay the Employee the salary provided pursuant to Section 2
herein, up to the date of termination of the term (including any
extension of the term pursuant to Section 5 above) of this Agreement.
Notwithstanding the foregoing, in no event shall payments to be made in
accordance with this Section 9(c) be for a period of less than 12
months following the date of termination of employment.
(d) The voluntary termination by the Employee during the term
of this Agreement with the delivery of no less than 60 days written
notice to the Board of Directors (other than pursuant to Section
11(b)), in which case the Employee shall be entitled to receive
compensation, vested rights, and all employee benefits only up to the
date of such termination except as specifically provided below or as
required by law.
10. DISABILITY. If the Employee shall become disabled or
incapacitated to the extent that he is unable to perform his duties
hereunder, by reason of medically determinable physical or mental impairment,
as determined by a doctor mutually acceptable to the Board of Directors and
the Employee and retained by RCC, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this
Agreement as follows: 100% of such compensation and benefits for a period of
six months, but not exceeding the remaining term of the Agreement, and 65%
thereafter for the remainder of the term of the Agreement. Such benefits
noted herein shall be reduced by any benefits otherwise provided to the
Employee during such period under the provisions of disability insurance
coverage in effect for RCC employees. Thereafter, Employee shall be eligible
to receive benefits provided by RCC under the provisions of disability
insurance coverage in effect for RCC employees. Upon returning to active
full-time employment, the Employee's full compensation as set forth in this
Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Employee returns to active employment on
other than a full-time basis, then his compensation (as set forth in Section
2 of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
11. CHANGE IN CONTROL.
(a) TERMINATION BY COMPANY. Notwithstanding any provision herein
to the contrary, in the event the Company terminates Employee's employment
under this Agreement, absent Just Cause, in connection with, or within 24
months after, any Change in Control (as defined in Appendix A hereto) of RCC,
Employee shall be paid an amount equal to the product of 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and
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regulations promulgated thereunder. Said sum shall be
paid to the Employee in one lump sum within five (5) days of such termination.
Such payment shall be in lieu of any other future payments which the Employee
would be otherwise entitled to receive under Section 9 of this Agreement.
(b) TERMINATION FOR "GOOD REASON." Notwithstanding any
other provision of this Agreement to the contrary, if Employee voluntarily
terminates his employment under this Agreement within 24 months following a
Change in Control of RCC for "Good Reason" (as defined herein), Employee
shall be entitled to receive the payment described in Section 11(a) of this
Agreement within five (5) days of such termination. "Good Reason" for
purposes of this Agreement shall be the occurrence of any of the following
events, which have not been consented to in advance by the Employee in
writing: (i) if at the time of a Change in Control of the Company, Employee's
employed at the Company's principal executive offices, a relocation of such
principal executive offices to a location more than fifty miles from such
location or requiring the Employee to be based anywhere other than the
Company's principal executive offices at the time of a Change in Control, or
if Employee is not employed at the Company's principal executive offices at
the time of a Change in Control, Employee's relocation to any place other
than the location at which the Employee principally performed Employee's
duties prior to the Change in Control, or requiring travel by Employee on the
Company's business to an extent substantially greater than Employee's
business travel obligations at the time of the Change in Control; (ii) if in
the organizational structure of RCC Employee would be required to report to a
person or persons other than the Board of Directors; (iii) if RCC should fail
to maintain Employee's base compensation in effect as of the date of the
Change in Control and the existing material fringe benefit, performance
incentive and employee benefit plans; (iv) if Employee would be assigned
duties and responsibilities other than those normally associated with his
position as referenced at Section 1 herein; or (v) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced.
(c) EXCISE TAX PAYMENTS.
(i) In the event that any payment or benefit (within
the meaning of Section 280G(b)(2) of the Code), paid or
payable to the Employee or for his benefit or distributed
or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his
employment with the Company or a Change in Control of the
Company (a "Payment" or "Payments"), would be subject
to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee will
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee
of all taxes (including any interest or penalties, other
than interest and penalties imposed by reason of the
Employee's failure to file timely a tax return or pay taxes
shown as due on
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his return, imposed with respect to such taxes and the
Excise Tax), including any Excise Tax imposed upon the
Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(ii) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount
of such Gross-Up Payment shall be made at the Company's
expense by an accounting firm selected by the Company and
reasonably acceptable to the Employee which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide
its determination (the "Determination"), together with
detailed supporting calculations and documentation, to the
Company and the Employee within five days of the date of
termination of the Employee's employment, if applicable, or
such other time as requested by the Company or the Employee
(provided the Employee reasonably believes that any of the
Payments may be subject to the Excise Tax). If the Accounting
Firm determines that no Excise Tax is payable by the Employee
with respect to a Payment or Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee
that no Excise Tax will be imposed with respect to any such
Payment or Payments. Within ten days of the delivery of the
Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The
Gross-Up Payment, if any, as determined pursuant to this
Section 11(c) shall be paid by the Company to the Employee
within five days of the receipt of the Determination. The
existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance
with the Determination. Upon the final resolution of a
Dispute, the Company shall promptly pay to the Employee any
additional amount required by such resolution, or, if it is
determined that the Excise Tax is lower than originally
determined, the Employee shall repay to the Company the excess
amount of the Gross-Up Payment. If there is no Dispute, the
Determination shall be binding, final and conclusive upon the
Company and the Employee subject to the application of Section
11 (c)(iii) below.
(iii) Notwithstanding anything contained in this
Agreement to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Company shall pay to the applicable government
taxing authorities as Excise Tax withholding, the amount of
the Excise Tax that the Company has actually withheld from the
Payment or Payments.
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12. NON-COMPETITION AGREEMENT.
(a) TERM. During the term of the Employee's employment pursuant to this
Agreement and for the period ending twelve (12) months after the voluntary or
involuntary termination of such employment, Employee agrees that he will not,
without RCC's prior written consent, directly or indirectly, within the service
areas served by RCC at the time of termination, lend his credit, advice or
assistance, or engage in any activity or act in any manner, including but not
limited to, as an individual, owner, sole proprietor, founder, associate,
promoter, partner, joint venturer, shareholder other than as a less than five
percent shareholder of a publicly traded corporation, officer, director,
trustee, manager, employer, employee, licensor, licensee, principal, agent,
salesman, broker, representative, consultant, adviser, investor or otherwise,
for the purpose of establishing, operating or managing any business or entity
that is engaged in activities competitive with the business of the Company as
carried on as of the date of termination.
(b) NON-SOLICITATION AGREEMENT. As used in this Agreement, the term
"Person" means any individual, corporation, joint venture, general or limited
partnership, association or other entity. During the period of one year from
and after the date of termination of his employment pursuant to this
Agreement, Employee agrees that he will not, whether for his own account or
for the account of any other Person, directly or indirectly interfere with
the Company's relationship with or endeavor to divert or entice away from the
Company any Person who or which at any time during the term of Employee's
employment by RCC is or was an employee or customer of or in the habit of
dealing with RCC.
(c) REASONABLENESS OF COVENANTS. Employee acknowledges and agrees
that the geographic scope and period of duration of the restrictive
covenants contained in this Agreement are both fair and reasonable and that
the interests sought to be protected by the Company are legitimate business
interests entitled to be protected. It is the intention of the parties
that the provisions of this Section 12 shall be enforceable to the
fullest extent permissible under applicable law; however, if any
restriction contained in this Section is held to be unenforceable because
of the duration of such restriction or the geographical area covered
thereby, the parties agree that the court making such determination
shall have the power to reduce the duration and/or geographical area of
such restriction and, in its reduced form, said restriction shall then be
enforceable.
(d) INJUNCTIVE RELIEF; ATTORNEYS' FEES. The parties agree that the
remedy of damages at law for the breach by Employee of any of the covenants
contained in this Section 12 is an inadequate remedy. In recognition of
the irreparable harm that a violation by Employee of any of the
covenants, agreements or obligations arising under this Agreement would
cause RCC, Employee agrees that in addition to any other remedies or relief
afforded by law, an injunction against an actual or threatened violation
or violations may be issued against him and every other Person concerned
thereby, it being the understanding of the parties that both damages and an
injunction shall be proper modes of relief and are not to be considered
alternative remedies. In the event of any such an actual or threatened
violation, Employee agrees to pay the costs, expenses and
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reasonable attorneys' fees incurred by the Company in pursuing any of its
rights with respect to such actual or threatened violation, in addition to
the actual damages sustained by the Company as a result thereof. Such costs,
expenses, fees and damages shall not be payable by the Employee until a final
judgment, from which no further appeal may be taken, has been entered in
favor of the Company by a court of competent jurisdiction. If no such
judgment is entered, the Employee shall not be liable for any such costs,
expenses, fees or damages, and the Company shall reimburse the Employee for
any costs, expenses and reasonable attorneys' fees incurred by him in
defending against the Company's allegations.
(e) COMPENSATION. In the event that Employee's employment has
terminated and Employee is not entitled to receive payment under Section 9
or 11 of this Agreement, to compensate Employee for the restrictive covenants
contained in this Agreement, RCC agrees to pay Employee an amount equal to
50% of the Employee's final compensation. One-half of this amount is payable
in equal monthly payments commencing on the last day of the month following
termination and continuing thereafter on the last day of each and every month
until the end of the period stated in Section 12(a) and one-half at the end
of the period stated in Section 12(a). For the purposes of this paragraph,
the Employee's "final compensation" means the Employee's annual rate of
salary in effect on the date his employment terminates, plus his bonus and/or
incentive payment(s) for the year immediately preceding the year in which his
employment terminates.
In the event that Employee shall breach any of his covenants,
agreements or obligations arising under this Agreement, RCC shall have the
right to discontinue making the payments to Employee provided for herein
unless and until Employee has cured any such existing breaches.
(f) WAIVER OF RESTRICTIONS. RCC may waive the restrictions on Employee
imposed in Section 12 at any time. In the event of such waiver: (i) RCC shall
not be obligated to make any further monthly payments pursuant to Section
12(e); and (ii) any payment due pursuant to Section 12(e) at the expiration
of the period stated in Section 12(a) shall be prorated and paid at the time
of the waiver.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporation or other successor of RCC which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the business, assets or stock of RCC.
(b) Since RCC is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
RCC.
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14. AMENDMENTS. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. APPLICABLE LAW. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, by
the laws of the State of Minnesota, except to the extent that Federal law
shall be deemed to apply.
16. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. ARBITRATION. Subject to RCC's right to seek injunctive relief
from a court of competent jurisdiction pursuant to Section 12(d), any
controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in accordance with the rules
then in effect of the district office of the American Arbitration Association
("AAA") nearest to the home office of RCC, and judgment upon the award
rendered may be entered in any court having jurisdiction thereof, except to
the extent that the parties may otherwise reach a mutual settlement of such
issue. RCC shall incur the cost of all fees and expenses associated with
filing a request for arbitration with the AAA, whether such filing is made on
behalf of RCC or the Employee, and the costs and administrative fees
associated with employing the arbitrator and related administrative expenses
assessed by the AAA. If the parties cannot mutually agree on an arbitrator,
each party shall select an arbitrator and those two arbitrators shall select
a third arbitrator and the third arbitrator shall conduct the arbitration.
Otherwise, each party shall pay its own costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or
actions, notwithstanding the ultimate outcome thereof, upon delivery of a
final judgment or settlement of the dispute.
18. REPRESENTATION BY COUNSEL. Employee acknowledges that he has read
this Agreement and that he fully understands his rights, privileges, and
duties hereunder. He further acknowledges that he has had the opportunity to
consult and has consulted with attorneys of his choice to review and explain
the terms of this Agreement and the consequences of signing it.
19. ENTIRE AGREEMENT. This Agreement, together with any understanding
or modifications thereof as agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto, and shall
supersede all prior understandings in writing or otherwise between the
parties, including the Employment Agreement by and between Employee and the
Company dated December 1, 1995, as amended effective December 18, 1996 and
December 18, 1997.
* * * * *
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RURAL CELLULAR CORPORATION
ATTEST:
------------------------------------
By: Don C. Swenson
Secretary
- ------------------------------------
WITNESS:
- ------------------------------------- -----------------------------------
Richard P. Ekstrand
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APPENDIX A
TO EMPLOYMENT AGREEMENT BETWEEN
RURAL CELLULAR CORPORATION AND RICHARD P. EKSTRAND
For the purposes of the Employment Agreement to which this Appendix is attached,
a "Change in Control" means the happening of any of the following:
(1) A majority of the directors of RCC 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,
(2) 30% or more of the outstanding voting stock of RCC is
acquired or beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, or any successor rule thereto) by any
person (other than RCC or a subsidiary of RCC) or group of persons
acting in concert (other than the acquisition and beneficial 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 RCC as a result of a merger which complies with
paragraph (3)(a)(ii) hereof in all respects), or
(3) The shareholders of RCC approve a definitive agreement or plan to:
(a) merge or consolidate RCC with or into another corporation
other than
(i) a merger or consolidation with a subsidiary of RCC, or
(ii) a merger in which:
(A) RCC is the surviving corporation,
(B) no outstanding voting stock of RCC
(other than fractional shares) held by
shareholders immediately prior to the merger
is converted into cash, securities, or other
property (except: (1) 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 RCC
immediately after the merger; and (2) cash
upon the exercise by holders of voting stock
of RCC of statutory dissenters' rights),
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(C) the persons who were the beneficial
owners, respectively, of the outstanding
common stock and outstanding voting stock of
RCC 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
RCC in the merger, all holders of any class
or series of voting stock of RCC immediately
prior to the merger have the right to
receive substantially the same per share
consideration in exchange for their voting
stock of RCC as all other holders of such
class or series,
(b) exchange, pursuant to a statutory exchange of shares of voting
stock of RCC held by shareholders of RCC immediately prior to the
exchange, shares of one or more classes or series of voting stock of RCC
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.
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of the 22nd day of January, 1999
("Effective Date"), by and between Rural Cellular Corporation ("RCC" or
"Company") and Wesley E. Schultz (the "Employee").
WHEREAS, Employee has heretofore been employed by RCC in the position
of Sr. Vice President, Finance and Administration and Chief Financial Officer
and is experienced in the business of RCC; and
WHEREAS, Employee desires to continue to be employed by RCC in the same
position; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of RCC and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT.
(a) TITLE/DUTIES. The Employee is employed in the capacity of
Sr. Vice President, Finance and Administration and Chief Financial
Officer for RCC, to perform the duties customarily performed by
persons situated in a similar executive capacity. The Employee shall
also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of RCC. The Employee's other duties
shall be such as the President/CEO may from time to time reasonably
direct.
(b) LOCATION. The Employee's principal place of employment shall
be at the Company's offices in Alexandria, Minnesota.
2. BASE COMPENSATION. RCC agrees to pay the Employee during the term
of this Agreement a salary which shall be at the initial rate of Two Hundred
Fifty-Four Thousand Dollars ($254,000.00) per annum beginning on the
Effective Date, payable not less frequently than every two weeks; PROVIDED,
that the rate of such salary shall be reviewed not less often than annually,
and Employee shall be entitled to receive an increase at such percentage or
in such an amount, if any, as may be determined from time to time. The
Employee's salary may not be decreased below the rate in effect on any date
during the term of this Agreement, except that, in the event that the
salaries of other senior management employees have been generally reduced,
Employee's salary may be reduced in a similar manner, except that any such
reduction following a "Change in Control" (as defined in Appendix A hereto)
shall be subject to the provisions of Section 11(b) hereof.
<PAGE>
3. DISCRETIONARY AND INCENTIVE BONUS; STOCK OPTIONS. The Employee
shall be entitled to participate in an equitable manner with all other senior
management employees of RCC in discretionary and incentive bonuses,
including, but not limited to stock option and restricted stock awards and
other cash and non-cash compensation plans that may be authorized and
declared by the Board of Directors to its senior management employees from
time to time.
4. OTHER BENEFITS.
(a) PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Employee shall
be entitled to participate in any plan of RCC relating to compensation,
profit sharing, retirement, medical coverage or other employee benefits
as RCC may adopt for the benefit of its senior management employees.
(b) FRINGE BENEFITS; EXPENSES. The Employee shall be eligible to
participate in any fringe benefits which may be or may become
applicable to RCC's senior management employees, including by example,
participation in any stock option or incentive plans adopted by the
Board of Directors, and any other benefits adopted by RCC. RCC shall
reimburse Employee for all reasonable out-of-pocket expenses which
Employee shall incur in connection with his service for RCC which are
documented in accordance with RCC's policies as set forth from time to
time.
(c) CAR ALLOWANCE. The Employee shall be required to have and
maintain a personal automobile for use in the performance of his duties
under this Agreement and a valid drivers license to operate RCC
vehicles. RCC shall pay the Employee an allowance at an initial rate
of $6,000.00 per year to compensate him for all expenses incurred by
him in complying with these requirements. In addition, RCC shall
reimburse the Employee at current IRS allowable mileage rates for the
use of his personal automobile on RCC business.
5. TERM. The term of employment of Employee under this Agreement
shall be for the period commencing on the Effective Date and ending December
31, 2001; PROVIDED, that commencing on December 31, 1999, and on each
December 31 thereafter, the term of Employee's employment shall automatically
be extended for one additional year, so that the remaining term of his
employment shall never be less than two years, unless either party gives
written notice to the other of its intention not to so extend the term of the
Employee's employment.
6. LOYALTY; NONCOMPETITION.
(a) The Employee shall devote his full business time and attention
to the performance of his employment under this Agreement. During the
term of Employee's employment under this Agreement, the Employee shall
not engage in any business or activity contrary to the business affairs
or interests of RCC.
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(b) Nothing contained in this Section 6 shall be deemed to prevent
or limit the right of Employee to invest in the capital stock or other
securities of any business dissimilar from that of RCC or, solely as a
passive or minority investor, in any business.
7. STANDARDS. The Employee shall perform his duties under this
Agreement in accordance with the reasonable standards customarily expected of
employees with comparable positions in comparable organizations, or in
accordance with such other standards as may reasonably be established from
time to time by the President/CEO or the Board of Directors.
8. PAID TIME OFF. The Employee shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of the duties of his
employment under this Agreement, with all such voluntary absences to count as
paid time off, in accordance with the following:
(a) The Employee shall be entitled to not less than nineteen (19)
days per calendar year of paid time off for vacation, personal illness,
emergency situations such as family illness, and for any other reason
that time off must be taken during a regular scheduled work day that is
not covered by other Company policies (such as jury duty). Such paid
time off shall be taken in accordance with then current Company
policies.
(b) The Employee shall take at least five consecutive business days
of vacation in each calendar year.
(c) The Employee shall not be entitled to receive any additional
compensation from RCC on account of his failure to take paid time off,
and Employee shall be entitled to accumulate unused paid time off in
accordance with then current Company policy (as of the end of 1999 only
120 hours of paid time off can be carried over into the following
year).
(d) In addition to the aforesaid paid time off, the Employee shall
be entitled, without loss of pay, to absent himself voluntarily from
the performance of his employment with RCC for such additional periods
of time and for such other valid and legitimate reasons as the Board of
Directors in its discretion may determine.
(e) The Employee shall also be entitled to any other paid or unpaid
time off as may be provided by Company policies. Further, the Board of
Directors shall be entitled to grant to the Employee a leave or leaves
of absence with or without pay at such time or times and upon such
terms and conditions as the Board of Directors in is discretion may
determine.
(f) The Employee is encouraged to participate in related industry
and professional organizations and activities provided that the
assumption of any
3
<PAGE>
significant responsibilities for such outside activities or
organizational participation shall be approved in advance by the
President/CEO.
9. TERMINATION AND TERMINATION PAY. The Employee's employment under
this Agreement may be terminated upon any of the following occurrences:
(a) The death of the Employee during the term of this Agreement,
in which event the Employee's estate shall be entitled to receive the
compensation due the Employee through the last day of the calendar
month in which Employee's death shall have occurred, plus all accrued
but unused paid time off for such calendar year, and PRO RATA payment
of all bonuses or incentive payments earned or to be awarded for such
calendar year.
(b) The Board of Directors may terminate the Employee's employment
at any time, but any termination by the Board of Directors other than
termination for Just Cause, as defined below, shall not prejudice the
Employee's right to compensation or other benefits under this
Agreement. The Employee shall have no right to receive compensation or
other benefits for any period after termination for Just Cause, except
to the extent specifically provided under the terms of any benefit plan
or program of RCC or as may otherwise be required by law. Termination
shall be for "Just Cause" if the Employee
(i) has been convicted of a felony or
(ii) has intentionally engaged in conduct that is
demonstrably and materially injurious to the Company, monetarily or
otherwise;
PROVIDED, HOWEVER, that no termination of Employee's
employment shall be for Just Cause as set forth in clause (ii)
above until
(A) there shall have been delivered to the Employee a copy
of a written notice setting forth that the Employee was
guilty of the conduct set forth in clause (ii) and
specifying the particulars thereof in detail;
(B) the Employee shall have been provided an opportunity to
be heard by the Board of Directors (with the assistance
of the Employee's counsel if the Employee so desires);
and
(C) such conduct is not discontinued within a reasonable
period of time after receipt of the written notice
provided in clause (A).
No act or failure to act on the Employee's part shall be considered
"intentional" unless he has acted or failed to act with an absence of
good faith and without a
4
<PAGE>
reasonable belief that his action or failure to act was in the best
interest of the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the Employee
after notice of termination has been given by the Employee will
constitute Just Cause for purposes of this Agreement.
(c) Except as provided pursuant to Section 11 herein, in the event
Employee's employment under this Agreement is terminated by the Board
of Directors without Just Cause, RCC shall be obligated to continue to
pay the Employee the salary provided pursuant to Section 2 herein, up
to the date of termination of the term (including any extension of the
term pursuant to Section 5 above) of this Agreement. Notwithstanding
the foregoing, in no event shall payments to be made in accordance with
this Section 9(c) be for a period of less than 12 months following the
date of termination of employment.
(d) The voluntary termination by the Employee during the term of
this Agreement with the delivery of no less than 60 days written notice
to the Board of Directors (other than pursuant to Section 11(b)), in
which case the Employee shall be entitled to receive compensation,
vested rights, and all employee benefits only up to the date of such
termination except as specifically provided below or as required by
law.
10. DISABILITY. If the Employee shall become disabled or
incapacitated to the extent that he is unable to perform his duties
hereunder, by reason of medically determinable physical or mental impairment,
as determined by a doctor mutually acceptable to the Board of Directors and
the Employee and retained by RCC, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this
Agreement as follows: 100% of such compensation and benefits for a period of
six months, but not exceeding the remaining term of the Agreement, and 65%
thereafter for the remainder of the term of the Agreement. Such benefits
noted herein shall be reduced by any benefits otherwise provided to the
Employee during such period under the provisions of disability insurance
coverage in effect for RCC employees. Thereafter, Employee shall be eligible
to receive benefits provided by RCC under the provisions of disability
insurance coverage in effect for RCC employees. Upon returning to active
full-time employment, the Employee's full compensation as set forth in this
Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Employee returns to active employment on
other than a full-time basis, then his compensation (as set forth in Section
2 of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
11. CHANGE IN CONTROL.
(a) TERMINATION BY COMPANY. Notwithstanding any provision herein
to the contrary, in the event the Company terminates Employee's employment
under this Agreement, absent Just Cause, in connection with, or within 24
months after, any Change in Control (as defined in Appendix A hereto) of RCC,
Employee shall be paid an amount
5
<PAGE>
equal to the product of 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations promulgated thereunder. Said sum shall be paid to the
Employee in one lump sum within five (5) days of such termination. Such
payment shall be in lieu of any other future payments which the Employee
would be otherwise entitled to receive under Section 9 of this Agreement.
(b) TERMINATION FOR "GOOD REASON." Notwithstanding any other
provision of this Agreement to the contrary, if Employee voluntarily
terminates his employment under this Agreement within 24 months following a
Change in Control of RCC for "Good Reason" (as defined herein), Employee
shall be entitled to receive the payment described in Section 11(a) of this
Agreement within five (5) days of such termination. "Good Reason" for
purposes of this Agreement shall be the occurrence of any of the following
events, which have not been consented to in advance by the Employee in
writing: (i) if at the time of a Change in Control of the Company, Employee's
employed at the Company's principal executive offices, a relocation of such
principal executive offices to a location more than fifty miles from such
location or requiring the Employee to be based anywhere other than the
Company's principal executive offices at the time of a Change in Control, or
if Employee is not employed at the Company's principal executive offices at
the time of a Change in Control, Employee's relocation to any place other
than the location at which the Employee principally performed Employee's
duties prior to the Change in Control, or requiring travel by Employee on the
Company's business to an extent substantially greater than Employee's
business travel obligations at the time of the Change in Control; (ii) if in
the organizational structure of RCC Employee would be required to report to a
person or persons other than the President/CEO; (iii) if RCC should fail to
maintain Employee's base compensation in effect as of the date of the Change
in Control and the existing material fringe benefit, performance incentive
and employee benefit plans; (iv) if Employee would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1 herein; or (v) if Employee's responsibilities or
authority have in any way been materially diminished or reduced.
(c) EXCISE TAX PAYMENTS.
(i) In the event that any payment or benefit (within
the meaning of Section 280G(b)(2) of the Code), paid or payable
to the Employee or for his benefit or distributed or
distributable pursuant to the terms of this Agreement or otherwise
in connection with, or arising out of, his employment with the
Company or a Change in Control of the Company (a "Payment" or
"Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
the Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or
6
<PAGE>
penalties, other than interest and penalties imposed by reason
of the Employee's failure to file timely a tax return or pay
taxes shown as due on his return, imposed with respect to such
taxes and the Excise Tax), including any Excise Tax imposed
upon the Gross-Up Payment, the Employee retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(ii) An initial determination as to whether a
Gross-Up Payment is required pursuant to this Agreement and the
amount of such Gross-Up Payment shall be made at the Company's
expense by an accounting firm selected by the Company and
reasonably acceptable to the Employee which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation, to the Company and
the Employee within five days of the date of termination of the
Employee's employment, if applicable, or such other time as
requested by the Company or the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to
the Excise Tax). If the Accounting Firm determines that no
Excise Tax is payable by the Employee with respect to a Payment or
Payments, it shall furnish the Employee with an opinion
reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten
days of the delivery of the Determination to the Employee, the
Employee shall have the right to dispute the Determination (the
"Dispute"). The Gross-Up Payment, if any, as determined pursuant
to this Section 11(c) shall be paid by the Company to the
Employee within five days of the receipt of the
Determination. The existence of the Dispute shall not in any
way affect the Employee's right to receive the Gross-Up
Payment in accordance with the Determination. Upon the final
resolution of a Dispute, the Company shall promptly pay to
the Employee any additional amount required by such
resolution, or, if it is determined that the Excise Tax is
lower than originally determined, the Employee shall repay to
the Company the excess amount of the Gross-Up Payment. If there
is no Dispute, the Determination shall be binding, final and
conclusive upon the Company and the Employee subject to the
application of Section 11 (c)(iii) below.
(iii) Notwithstanding anything contained in this
Agreement to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax
that the Company has actually withheld from the Payment or Payments.
7
<PAGE>
12. NON-COMPETITION AGREEMENT.
(a) TERM. During the term of the Employee's employment pursuant to
this Agreement and for the period ending six (6) months after the voluntary
or involuntary termination of such employment, Employee agrees that he will
not, without RCC's prior written consent, directly or indirectly, within the
service areas served by RCC at the time of termination, lend his credit,
advice or assistance, or engage in any activity or act in any manner,
including but not limited to, as an individual, owner, sole proprietor,
founder, associate, promoter, partner, joint venturer, shareholder other than
as a less than five percent shareholder of a publicly traded corporation,
officer, director, trustee, manager, employer, employee, licensor, licensee,
principal, agent, salesman, broker, representative, consultant, adviser,
investor or otherwise, for the purpose of establishing, operating or managing
any business or entity that is engaged in activities competitive with the
business of the Company as carried on as of the date of termination.
(b) NON-SOLICITATION AGREEMENT. As used in this Agreement, the
term "Person" means any individual, corporation, joint venture, general or
limited partnership, association or other entity. During the period of six
(6) months from and after the date of termination of his employment pursuant
to this Agreement, Employee agrees that he will not, whether for his own
account or for the account of any other Person, directly or indirectly
interfere with the Company's relationship with or endeavor to divert or
entice away from the Company any Person who or which at any time during the
term of Employee's employment by RCC is or was an employee or customer of or
in the habit of dealing with RCC.
(c) REASONABLENESS OF COVENANTS. Employee acknowledges and
agrees that the geographic scope and period of duration of the restrictive
covenants contained in this Agreement are both fair and reasonable and that
the interests sought to be protected by the Company are legitimate business
interests entitled to be protected. It is the intention of the parties that
the provisions of this Section 12 shall be enforceable to the fullest extent
permissible under applicable law; however, if any restriction contained in
this Section is held to be unenforceable because of the duration of such
restriction or the geographical area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the
duration and/or geographical area of such restriction and, in its reduced
form, said restriction shall then be enforceable.
(d) INJUNCTIVE RELIEF; ATTORNEYS' FEES. The parties agree that
the remedy of damages at law for the breach by Employee of any of the
covenants contained in this Section 12 is an inadequate remedy. In
recognition of the irreparable harm that a violation by Employee of any of
the covenants, agreements or obligations arising under this Agreement would
cause RCC, Employee agrees that in addition to any other remedies or relief
afforded by law, an injunction against an actual or threatened violation or
violations may be issued against him and every other Person concerned
thereby, it being the understanding of the parties that both damages and an
injunction shall be proper modes of relief and are not to be considered
alternative remedies. In the event of any such an actual or threatened
violation, Employee agrees to pay the costs, expenses and
8
<PAGE>
reasonable attorneys' fees incurred by the Company in pursuing any of its
rights with respect to such actual or threatened violation, in addition to
the actual damages sustained by the Company as a result thereof. Such costs,
expenses, fees and damages shall not be payable by the Employee until a final
judgment, from which no further appeal may be taken, has been entered in
favor of the Company by a court of competent jurisdiction. If no such
judgment is entered, the Employee shall not be liable for any such costs,
expenses, fees or damages, and the Company shall reimburse the Employee for
any costs, expenses and reasonable attorneys' fees incurred by him in
defending against the Company's allegations.
(e) COMPENSATION. In the event that Employee's employment has
terminated and Employee is not entitled to receive payment under Section 9
or 11 of this Agreement, to compensate Employee for the restrictive covenants
contained in this Agreement, RCC agrees to pay Employee an amount equal to
25% of the Employee's final compensation. One-half of this amount is payable
in equal monthly payments commencing on the last day of the month following
termination and continuing thereafter on the last day of each and every month
until the end of the period stated in Section 12(a) and one-half at the end
of the period stated in Section 12(a). For the purposes of this paragraph,
the Employee's "final compensation" means the Employee's annual rate of
salary in effect on the date his employment terminates, plus his bonus and/or
incentive payment(s) for the year immediately preceding the year in which his
employment terminates.
In the event that Employee shall breach any of his covenants,
agreements or obligations arising under this Agreement, RCC shall have the
right to discontinue making the payments to Employee provided for herein
unless and until Employee has cured any such existing breaches.
(f) WAIVER OF RESTRICTIONS. RCC may waive the restrictions on
Employee imposed in Section 12 at any time. In the event of such waiver: (i)
RCC shall not be obligated to make any further monthly payments pursuant to
Section 12(e); and (ii) any payment due pursuant to Section 12(e) at the
expiration of the period stated in Section 12(a) shall be prorated and paid
at the time of the waiver.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporation or other successor of RCC which shall acquire, directly
or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the business, assets or stock of RCC.
(b) Since RCC is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
RCC.
9
<PAGE>
14. AMENDMENTS. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. APPLICABLE LAW. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, by
the laws of the State of Minnesota, except to the extent that Federal law
shall be deemed to apply.
16. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. ARBITRATION. Subject to RCC's right to seek injunctive relief from
a court of competent jurisdiction pursuant to Section 12(d), any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration in accordance with the rules then in effect
of the district office of the American Arbitration Association ("AAA")
nearest to the home office of RCC, and judgment upon the award rendered may
be entered in any court having jurisdiction thereof, except to the extent
that the parties may otherwise reach a mutual settlement of such issue. RCC
shall incur the cost of all fees and expenses associated with filing a
request for arbitration with the AAA, whether such filing is made on behalf
of RCC or the Employee, and the costs and administrative fees associated with
employing the arbitrator and related administrative expenses assessed by the
AAA. If the parties cannot mutually agree on an arbitrator, each party shall
select an arbitrator and those two arbitrators shall select a third
arbitrator and the third arbitrator shall conduct the arbitration. Otherwise,
each party shall pay its own costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions,
notwithstanding the ultimate outcome thereof, upon delivery of a final
judgment or settlement of the dispute.
18. REPRESENTATION BY COUNSEL. Employee acknowledges that he has read
this Agreement and that he fully understands his rights, privileges, and
duties hereunder. He further acknowledges that he has had the opportunity to
consult and has consulted with attorneys of his choice to review and explain
the terms of this Agreement and the consequences of signing it.
19. ENTIRE AGREEMENT. This Agreement, together with any understanding
or modifications thereof as agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto, and shall
supersede all prior understandings in writing or otherwise between the
parties, including the Employment Agreement by and between Employee and the
Company dated May 14, 1996, as amended effective December 18, 1996 and
December 18, 1997.
* * * * *
10
<PAGE>
RURAL CELLULAR CORPORATION
ATTEST:
----------------------------------------
By: Richard P. Ekstrand
President and Chief Executive Officer
- ---------------------
WITNESS:
- -------------------- -----------------------------------------------
Wesley E. Schultz
11
<PAGE>
APPENDIX A
TO EMPLOYMENT AGREEMENT BETWEEN
RURAL CELLULAR CORPORATION AND WESLEY E. SCHULTZ
For the purposes of the Employment Agreement to which this Appendix is attached,
a "Change in Control" means the happening of any of the following:
(1) A majority of the directors of RCC 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,
(2) 30% or more of the outstanding voting stock of RCC is acquired or
beneficially owned (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, or any successor rule thereto) by any person (other than RCC
or a subsidiary of RCC) or group of persons acting in concert (other than
the acquisition and beneficial 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 RCC as a result
of a merger which complies with paragraph (3)(a)(ii) hereof in all
respects), or
(3) The shareholders of RCC approve a definitive agreement or plan
to:
(a) merge or consolidate RCC with or into another corporation
other than
(i) a merger or consolidation with a subsidiary of RCC, or
(ii) a merger in which:
(A) RCC is the surviving corporation,
(B) no outstanding voting stock of RCC (other than
fractional shares) held by shareholders immediately
prior to the merger is converted into cash,
securities, or other property (except: (1) 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 RCC immediately after the merger; and (2) cash
upon the exercise by holders of voting stock of RCC
of statutory dissenters' rights),
A-1
<PAGE>
(C) the persons who were the beneficial owners,
respectively, of the outstanding common stock and
outstanding voting stock of RCC 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 RCC in the merger, all
holders of any class or series of voting stock of RCC
immediately prior to the merger have the right to
receive substantially the same per share consideration
in exchange for their voting stock of RCC as all other
holders of such class or series,
(b) exchange, pursuant to a statutory exchange of shares of voting
stock of RCC held by shareholders of RCC immediately prior to the exchange,
shares of one or more classes or series of voting stock of RCC 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.
A-2
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Note: Unless otherwise noted, the Registrant owns 100% of the equity interest
in each of the subsidiaries.
Incorporated or organized in Minnesota
- --------------------------------------
RCC Atlantic, Inc.
RCC Atlantic Long Distance, Inc.
RCC Minnesota, Inc.
RCC Network, Inc.
RCC Paging, Inc.
Wireless Alliance, LLC (Registrant has a 51% interest in this entity)
TLA Spectrum, LLC 5
RGI Group, Inc.
Revering Finance Corporation, wholly-owned subsidiary of RGI Group, Inc.
Incorporated in Maine
- ---------------------
MRCC, Inc.
Western Maine Cellular, Inc., wholly-owned subsidiary of MRCC, Inc.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS:
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into Rural Cellular Corporation's previously
filed Registration Statements on Form S-8 (File Numbers 333-10815, 333-10817 and
333-57653).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 30, 1999
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<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2062
<SECURITIES> 0
<RECEIVABLES> 15,351
<ALLOWANCES> (1,555)
<INVENTORY> 2,321
<CURRENT-ASSETS> 18,992
<PP&E> 174,252
<DEPRECIATION> (42,538)
<TOTAL-ASSETS> 480,524
<CURRENT-LIABILITIES> 28,530
<BONDS> 0
0
132,201
<COMMON> 90
<OTHER-SE> 19,189
<TOTAL-LIABILITY-AND-EQUITY> 480,524
<SALES> 2,700
<TOTAL-REVENUES> 98,532
<CGS> 5,968
<TOTAL-COSTS> 24,845
<OTHER-EXPENSES> 65,688
<LOSS-PROVISION> 2,843
<INTEREST-EXPENSE> 19,060
<INCOME-PRETAX> (5,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,042
<CHANGES> 0
<NET-INCOME> (6,624)
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