<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 1999.
( ) 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)
MINNESOTA 41-1693295
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
PO BOX 2000
3905 DAKOTA STREET SW
ALEXANDRIA, MINNESOTA 56308
(320) 762-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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. YES(X) NO( )
Number of shares of common stock outstanding as of the close of business on
April 30, 1999:
CLASS A 7,822,137
CLASS B 1,198,557
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS-
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998............................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-
THREE MONTHS ENDED MARCH 31, 1999 AND 1998............................................5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
THREE MONTHS ENDED MARCH 31, 1999 AND 1998............................................6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................19
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.....................................................................21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................21
SIGNATURE PAGE.................................................................................22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 3,291 $ 2,062
Accounts receivable, less allowance of $818 and $1,555 .......... 13,257 13,796
Inventories...................................................... 1,664 2,321
Other current assets............................................. 818 813
----------- ----------
Total current assets........................................... 19,030 18,992
----------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $48,720 and
$42,538 ....................................................... 132,518 131,714
----------- ----------
LICENSES AND OTHER ASSETS:
Licenses and other intangible assets, less accumulated amortization
of $10,960 and $8,108.......................................... 317,837 309,672
Deferred debt issuance costs, less accumulated amortization of $831
and $509....................................................... 11,547 11,761
Other assets..................................................... 8,045 8,385
----------- ----------
Total licenses and other assets................................ 337,429 329,818
----------- ----------
$488,977 $480,524
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................. $ 8,943 $ 16,524
Advance billings and customer deposits........................... 3,320 3,229
Accrued interest................................................. 6,482 3,508
Dividends payable................................................ 1,933 1,880
Other accrued expenses........................................... 3,932 3,389
--------- ----------
Total current liabilities...................................... 24,610 28,530
LONG-TERM DEBT...................................................... 313,828 298,851
Total liabilities.............................................. 338,438 327,381
MINORITY INTEREST................................................... 330 1,663
EXCHANGEABLE PREFERRED STOCK........................................ 135,942 132,201
SHAREHOLDERS' EQUITY:
Class A common stock; $.01 par value; 15,000 shares authorized; 78 78
7,822 and 7,780 shares issued and outstanding..................
Class B common stock; $.01 par value; 5,000 shares authorized; 12 12
1,199 and 1,203 shares issued and outstanding.................
Additional paid-in capital....................................... 36,063 35,707
Accumulated deficit.............................................. (21,886) (16,518)
--------- ----------
Total shareholders' equity..................................... 14,267 19,279
--------- ----------
$488,977 $ 480,524
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
4
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Service ............................................ $23,642 $12,719
Roamer ............................................. 7,251 1,758
Equipment .......................................... 1,272 320
------- -------
Total revenues.................................... 32,165 14,797
------- -------
OPERATING EXPENSES:
Network costs....................................... 4,844 3,628
Cost of equipment sales............................. 2,122 884
Selling, general and administrative................. 11,753 6,590
Depreciation and amortization....................... 9,726 4,219
------- -------
Total operating expenses.......................... 28,445 15,321
------- -------
OPERATING INCOME (LOSS)................................ 3,720 (524)
------- -------
OTHER INCOME (EXPENSE):
Interest expense.................................... (6,718) (2,410)
Interest and dividend income........................ 146 279
Equity in losses of unconsolidated
affiliates........................................ (1) (149)
Minority interest................................... 1,332 738
------- -------
Other expense, net................................ (5,241) (1,542)
------- -------
LOSS BEFORE INCOME TAX AND
EXTRAORDINARY ITEM................................ (1,521) (2,066)
INCOME TAX PROVISION................................... 34 -
------- -------
NET LOSS BEFORE EXTRAORDINARY ITEM..................... (1,555) (2,066)
------- -------
EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT...... - -
------- -------
NET LOSS............................................... (1,555) (2,066)
PREFERRED STOCK DIVIDEND............................... (3,813) -
------- -------
NET LOSS APPLICABLE TO COMMON SHARES................... $(5,368) $(2,066)
------- -------
------- -------
NET LOSS PER BASIC AND DILUTED / COMMON SHARE.......... $(0.60) $(0.23)
------- -------
------- -------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
BASIC AND DILUTED................................. 9,006 8,868
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------ -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................ $(1,555) $(2,066)
Adjustments to reconcile to net cash provided by operating
activities
Depreciation and amortization..................... 9,726 4,219
Equity in losses of unconsolidated affiliates 1 157
Change in minority interest....................... (1,332) (738)
Other............................................. 211 (105)
Change in other operating elements:
Accounts receivable............................. 434 1,117
Inventories..................................... 657 271
Other current assets............................ 2 149
Accounts payable................................ (7,582) 122
Advance billings and customer deposits.......... 83 48
Other accrued expenses.......................... 3,070 261
------- -------
Net cash provided by operating activities. 3,715 3,435
------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment, net............. (5,694) (8,969)
Purchase of Glacial Lakes Cellular.................. (11,140) -
Other............................................... (900) (299)
------- -------
Net cash used in investing activities..... (17,734) (9,268)
------- -------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options............. 356 193
Proceeds from issuance of long-term debt............ 17,000 7,000
Repayments of long-term debt........................ (2,000) -
Payment of debt issuance costs..................... (108) (50)
------- -------
Net cash provided by financing activities. 15,248 7,143
------- -------
NET INCREASE IN CASH................................... 1,229 1,310
CASH, at beginning of period........................... 2,062 1,995
------- -------
CASH, at end of period................................. $3,291 $3,305
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements for the periods
ended March 31, 1999 and 1998 have been prepared by Rural Cellular Corporation
and subsidiaries (the "Company") without audit. In the opinion of management,
normal recurring adjustments necessary to present fairly the financial position,
results of operations, and cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Report on
Form 10-K for the year ended December 31, 1998. The results of operations for
the period ended March 31, 1999 are not necessarily indicative of the operating
results for the full fiscal year or for any other interim periods.
2) ACQUISITIONS:
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
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.
GLACIAL LAKES CELLULAR 2000
Effective February 1, 1999, the Company acquired RGI, Inc. d/b/a Glacial
Lakes Cellular 2000 ("Glacial") for approximately $11.1 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 6,800 customers.
ACCOUNTING TREATMENT
The purchase price for Atlantic, WMC and Glacial 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, WMC and Glacial have been completed on a
preliminary basis, subject to adjustment should new or additional facts about
the businesses become known. All of the above
7
<PAGE>
acquisitions have been accounted for under the purchase method of accounting;
accordingly, operating results have been included from the date of
acquisition.
The following unaudited pro forma information presents the consolidated
results of operations as if the acquisitions of Atlantic, WMC and Glacial had
occurred as of January 1, 1998. 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>
(In thousands except for per share data)
THREE MONTHS ENDED MARCH 31,
1999 1998
----------------------------------------
<S> <C> <C>
Total revenues........................ $32,518 $27,463
Operating income...................... 3,750 3,533
Net loss.............................. $(5,440) $(6,710)
----------------------------------------
----------------------------------------
Basic and diluted net loss per share $(0.60) $(0.76)
----------------------------------------
----------------------------------------
</TABLE>
3) LONG TERM DEBT:
The Company had the following long-term debt outstanding at:
<TABLE>
<CAPTION>
(IN THOUSANDS)
MARCH 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------------
<S> <C> <C>
$300 million credit facility $188,000 $173,000
Deferred gain on hedge agreement 828 851
9 5/8% Senior Subordinated Notes 125,000 125,000
----------------------------------------------------------------------------
Long-term debt $313,828 $298,851
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</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 at 104.813% of the
principal amount declining annually to 100% of the principal amount on and after
May 15, 2006. 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 "qualifying event" at a price equal to
109.625% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption; provided that at least $90
million in aggregate principal amount of Senior Subordinated Notes remains
outstanding immediately after such redemption. A "qualifying 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).
$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 (1.50% as
of March 31, 1999) 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 March 31, 1999, the effective rate of
interest on the Credit
8
<PAGE>
Facility, excluding the impact of the hedge agreements, was 6.47%. 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 March 31, 1999, the Company was in compliance with all covenants under the
Credit Facility.
The Credit Facility is to be reduced in equal quarterly amounts as follows:
<TABLE>
<CAPTION>
(In thousands)
-------------------------------------
YEAR AMOUNT
-------------------------------------
<S> <C>
1999 $ -
2000 -
2001 14,100
2002 18,800
2003 28,200
2004 37,600
Thereafter 89,300
-------------------------------------
Total $ 188,000
-------------------------------------
</TABLE>
4) 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 March 31, 1999,
the Company is party to three interest rate swaps expiring August 6, 2003,
with a total outstanding notional amount of $165 million and a negative fair
market value of $1.4 million.
On February 2, 1999, the Company entered into two swap transactions with TD
Bank Financial Group, which, together, effectively lower the interest rate 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 semi annual 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. As of
March 31, 1999, the positive fair market value of the swap transactions was
$315,000.
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.
5) EXCHANGEABLE PREFERRED STOCK:
On May 14, 1998, the Company completed the placement of 125,000 shares of
11 3/8% Exchangeable Preferred Stock ("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
9
<PAGE>
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 March 31, 1999,
the Company has accrued $1.9 million in preferred stock dividends for
distribution on May 17, 1999.
6) SUPPLEMENTAL DISCLOSURE OF CONDENSED CONSOLIDATED CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998
----------------- -------------
<S> <C> <C>
Cash paid during the period for interest $3,362 $2,372
Cash paid during the period for income taxes 34 -
</TABLE>
10
<PAGE>
7) 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 three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
--------------------------
STATEMENT OF OPERATIONS: 1999 1998
--------------------------
<S> <C> <C>
Revenues
RCC Cellular......................................... $30,091 $ 12,382
Wireless Alliance LLC ............................... 2,214 2,745
Eliminating ......................................... (140) (330)
-------- --------
Total revenue............................... 32,165 14,797
-------- --------
Operating expenses
RCC Cellular......................................... 24,319 11,459
Wireless Alliance LLC ............................... 4,266 4,192
Eliminating ......................................... (140) (330)
-------- --------
Total operating expenses.................... 28,445 15,321
Operating income (loss)
RCC Cellular ........................................ 5,772 923
Wireless Alliance LLC................................ (2,052) (1,447)
-------- --------
Total operating income ..................... 3,720 (524)
-------- --------
Depreciation and amortization
RCC Cellular ........................................ 8,450 3,849
Wireless Alliance LLC ............................... 1,276 370
-------- --------
Total depreciation and amortization ....... 9,726 4,219
Interest expense
RCC Cellular ........................................ 6,718 2,553
Wireless Alliance LLC ............................... 674 59
Eliminating ......................................... (674) (202)
-------- --------
Total interest expense .................... 6,718 2,410
OTHER OPERATING DATA:
EBITDA (*)
RCC Cellular............................................ 14,222 4,772
Wireless Alliance LLC .................................. (776) (1,077)
-------- --------
Total EBITDA.............................. 13,446 3,695
Capital expenditures
RCC Cellular ........................................... 3,919 5,833
Wireless Alliance LLC .................................. 1,775 3,137
-------- --------
Total capital expenditures ............... 5,694 8,970
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
---------------------------------
<S> <C> <C>
BALANCE SHEET DATA:
Property and equipment
RCC Cellular ........................................... 157,353 151,227
Wireless Alliance LLC .................................. 23,885 23,025
--------- ---------
Total property and equipment.............. 181,238 174,252
Total assets
RCC Cellular ........................................... 492,669 480,251
Wireless Alliance LLC .................................. 34,909 34,870
Eliminating ............................................ (38,601) (30,597)
--------- ---------
Total assets ............................. $ 488,977 $ 480,524
</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.
11
<PAGE>
ITEM 2. 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.
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations data
as a percentage of total revenues as well as other financial and operating data
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-----------------------------
<S> <C> <C>
REVENUES:
Service ........................... 73.5% 86.0%
Roamer ............................ 22.5 11.9
Equipment ......................... 4.0 2.1
----- -----
Total revenues .................. 100.0 100.0
----- -----
OPERATING EXPENSES:
Network costs ..................... 15.1 24.5
Cost of equipment sales ........... 6.6 6.0
Selling, general and administrative 36.5 44.5
Depreciation and amortization ..... 30.2 28.5
----- -----
Total operating expenses ........ 88.4 103.5
----- -----
OPERATING INCOME (LOSS) .............. 11.6 (3.5)
----- -----
OTHER INCOME (EXPENSE):
Interest expense .................. (20.9) (16.3)
Interest and dividend income ...... 0.5 1.9
Equity in losses of unconsolidated
affiliates ...................... (0.0) (1.0)
Minority interest ................. 4.1 5.0
----- -----
Other expense, net .............. (16.3) (10.4)
----- -----
LOSS BEFORE INCOME TAX AND
EXTRAORDINARY ITEM .............. (4.7) (13.9)
INCOME TAX PROVISION ................. 0.1 --
----- -----
NET LOSS BEFORE EXTRAORDINARY ITEM ... (4.8) (13.9)
----- -----
EXTRAORDINARY ITEM-EARLY
EXTINGUISHMENT OF DEBT .......... -- --
----- -----
NET LOSS ............................ (4.8) (13.9)
----- -----
PREFERRED STOCK DIVIDEND ............. (11.9) --
----- -----
NET LOSS APPLICABLE TO COMMON SHARES (16.7)% (13.9)%
----- -----
----- -----
EBITDA (5) ........................... 41.8% 25.0%
ADJUSTED EBITDA (5) .................. 47.3% 39.6%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31,
(IN THOUSANDS) MARCH 31, 1999 1998
----------------- --------------
<S> <C> <C>
Working capital (deficit).......... $ (5,580) $ (9,538)
Net property and equipment......... 132,518 131,714
Total assets....................... 488,977 480,524
Total debt......................... 313,828 298,851
Total shareholders' equity......... 14,267 19,279
</TABLE>
<TABLE>
<CAPTION>
OTHER OPERATING DATA: THREE MONTHS ENDED MARCH 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Customers at period end:
RCC Cellular 199,935 86,850
Wireless Alliance - Cellular 4,082 17,863
Wireless Alliance - PCS 7,727 136
Other 11,698 9,487
---------------- ----------------
Total customers 223,442 114,336
Penetration: (1)
RCC Cellular 8.3% 7.6%
Wireless Alliance - PCS 1.1% n/a
Retention: (2)
RCC Cellular 98.3% 98.5%
Wireless Alliance - PCS 99.1% n/a
Average monthly revenue per
customer: (3)
RCC Cellular $47 $46
Wireless Alliance - PCS $51 n/a
Acquisition cost per customer: (4)
RCC Cellular $382 $444
Wireless Alliance - PCS $359 n/a
Cell sites / Base stations:
RCC Cellular 236 133
Wireless Alliance - PCS 57 n/a
</TABLE>
- -------------------------------------------------------------------------------
1. Represents the ratio of cellular customers at the end of the period to
total 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, connection, disconnection, and other revenues for
such period by average cellular customers for such period (customers at the
beginning of the period plus customers at the end of the period, divided by
two), and dividing that result by the number of months in such period.
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.
5. 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
13
<PAGE>
should be regarded as an alternative for other performance measures and
should not be considered in isolation. EBITDA is not a measurement of
financial performance under generally accepted accounting principles and
does not reflect all expenses of doing business (e.g., interest expense,
depreciation). Accordingly, EBITDA should not be considered as having
greater significance than or as an alternative to net income or operating
income as an indicator of operating performance or to cash flows as a
measure of liquidity. Adjusted EBITDA represents EBITDA excluding Wireless
Alliance's EBITDA.
The following chart summarizes the Company's existing wireless systems:
<TABLE>
<CAPTION>
PERCENTAGE DATE OF
OWNERSHIP TOTAL POPS NET POPS ACQUISITION
- -------------------------------------------- ------------ -------------- -------------- -------------------
<S> <C> <C> <C> <C>
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
-------------- -------------
Wireless Alliance (PCS)
Duluth, Minnesota/Superior, Wisconsin:
Cook, Lake, St. Louis and Carlton
(portion) Counties in Minnesota and
Douglas County in Wisconsin............. 51% 270,000 138,000 4/10/97
Fargo, North Dakota/Moorhead, Minnesota:
Cass and Trail Counties in North
Dakota and Clay County in Minnesota..... 51% 175,000 89,000 4/10/97
Grand Forks, North Dakota:
Grand Forks County in North Dakota
and Polk County in Minnesota............ 51% 102,000 52,000 4/10/97
Sioux Falls, South Dakota:
Minnehaha and Lincoln Counties in
South Dakota............................ 51% 161,000 82,000 9/30/97
-------------- --------------
Total PCS POPs...................... 708,000 361,000
-------------- --------------
Total POPs..................... 3,118,000 2,771,000
-------------- --------------
-------------- --------------
</TABLE>
- Source: Updated for July 1, 1997 estimates, 1990
U. S. Census Bureau Official Statistics.
14
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUES
Service revenues for the three months ended March 31, 1999 increased 85.9% to
$23.6 million from $12.7 million in 1998. The revenue growth for the three
months ended March 31, 1999 reflects 83,000 additional customers added
through the Atlantic, WMC and Glacial acquisitions and increased penetration
in existing markets. Contributing to the impact of the increase in customers
for RCC Cellular and Wireless Alliance for the three months ended March 31,
1999, was an increase in average revenue per customer of 2.2% for RCC
Cellular. The rate at which new RCC Cellular customers were added to existing
markets for the three months ended March 31, 1999 increased to 3.2% in 1999
from 2.7% in 1998. Service revenues are expected to increase in the future
primarily as a result of future acquisitions, further anticipated
industry-wide growth in subscribers and expansion of the Company's coverage.
Roamer revenues for the three months ended March 31, 1999 increased 312.5% to
$7.3 million from $1.8 million in 1998. Roamer revenues have increased due to
the activation of additional cell sites and acquisitions of new service
areas. Reflecting the Atlantic acquisition and its greater percentage of
roamer revenue when compared to MRCC and the Company's original service areas
in northern Minnesota ("RCC Midwest"), roamer revenues as a percentage of
cellular revenues (excluding the impact of Wireless Alliance), for the three
months ended March 31, 1999 increased to 24.3% from 16.9% in 1998. Wireless
Alliance generated $75,000 in PCS roaming revenue during the three months
ended March 31, 1999. The Company expects Wireless Alliance to generate
moderate amounts of roamer revenues in subsequent quarters.
Equipment revenues for the three months ended March 31, 1999 increased 297.5%
to $1.3 million from $320,000 in 1998. This growth was primarily due to an
increase in customers acquired through the Atlantic acquisition that utilize
a direct phone sales program as opposed 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 cost for the three months ended March
31, 1999, increased 33.5% to $4.8 million from $3.6 million in 1998. The
increase in network costs resulted primarily from expenses incurred by RCC
Atlantic, which more than offset Wireless Alliance network cost reductions
resulting from its scale back of its cellular reselling program. However, as
a percentage of total revenues, network costs decreased to 15.1% in 1999 from
24.5% in 1998. Network costs for Wireless Alliance decreased to $1.3 million
in the three months ended March 31, 1999 as compared to $2.1 million in the
comparable period of 1998. The Company expects consolidated network costs to
continue to decline as a percentage of revenues as revenues continue to
outpace the fixed components of network costs.
Cost of equipment sales for the three months ended March 31, 1999 increased
140.0% to $2.1 million from $884,000 in 1998. This growth was primarily due
to the cost of phones sold to Atlantic customers which utilize a direct phone
sales program as opposed to an equipment rental program currently popular in
the Company's Midwest markets.
Selling, general, and administrative ("SG&A") expenses include salaries,
benefits, and operating expenses such as marketing, commissions, customer
support, accounting, administration, and billing. SG&A expenses for the three
months ended March 31, 1999 increased 78.3% to $11.8 million from $6.6
million in the comparable period of 1998. The increase in SG&A resulted
primarily from additional costs related to RCC Atlantic. As a percentage of
total revenues for the three months ended March 31, 1999 and 1998,
respectively, SG&A decreased to 36.5% from 44.5%. Due to the relatively fixed
nature of SG&A spending and the seasonality of the Company's revenue stream,
the Company expects SG&A as a percentage of total revenues to be higher in
both the first and fourth quarters of its fiscal year.
15
<PAGE>
Depreciation and amortization expense for the three months ended March 31,
1999 increased 130.5% to $9.7 million from $4.2 million in the comparable
period of 1998. The increase reflects the depreciable assets acquired as part
of the Atlantic acquisition, the Company's continued construction and
acquisition efforts and its investments in network facilities, including the
Company's launch of PCS services through Wireless Alliance, and rental
equipment.
OTHER INCOME (EXPENSE)
Interest expense for the period ended March 31, 1999 increased 178.8% to $6.7
million from $2.4 million in 1998. The increase in interest expense was a
result of higher average borrowings under the Credit Facility, interest
related to the 9 5/8% Senior Subordinated Notes ("Senior Subordinated Notes")
used to finance the acquisitions of Atlantic and WMC, the continued build out
of additional cell sites and other growth initiatives. Other income also
includes a 80.5% increase in the minority partner's absorption of Wireless
Alliance losses to $1.3 million for the period ended March 31, 1999 as
compared to $738,000 in 1998.
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
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. As of March 31, 1999, the Company had
$188 million outstanding under its $300 million 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 $3.7 million for the three
months ended March 31, 1999. Adjustments to the $1.6 million net loss to
reconcile to net cash used in operating activities included $9.7 million in
depreciation and amortization and a $7.6 million decrease in accounts payable.
Net cash used in investing activities for the three months ended March 31,
1999 was $17.7 million. The principal uses of cash included the Company's
$11.1 million acquisition of Glacial and purchases of property and equipment
of $5.7 million, of which $1.8 million was attributable to Wireless Alliance
capital expenditures. These purchases reflect the continued expansion of
existing coverage in RCC Cellular and the continued upgrading of existing
cell sites and switching equipment. Capital expenditures (including $3.9
million for Wireless Alliance) are expected to be approximately $24.8 million
in the remaining quarters of 1999. Capital expenditures and debt service are
expected to be funded through internally generated cash flow and, if
necessary, borrowings under the Credit Facility.
Net cash provided by financing activities was $15.2 million for the three
months ended March 31,1999. Financing activities for such period consisted
primarily of additional borrowing through the Credit Facility, which was
used towards the purchase of Glacial.
16
<PAGE>
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.
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 business and
operational 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
- - interconnectivity between RCC's cellular service with local and long
distance telecommunications networks
- - clearinghouse arrangements to allow verification and billing of roaming
traffic
- - the Company's wide area and local area computer networks and 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
systems
With respect to internal matters, the project team has completed the
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 continues to
process 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 has identified the issues regarding Y2K compliance
in its billing systems and is now working to resolve them. The Company has
also upgraded the MTSO software for two of its three switches 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 September 1999 and will conduct system testing
throughout the third and fourth quarters of 1999.
17
<PAGE>
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, some network equipment suppliers have been
unwilling or unable 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 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 that any litigation involving the
Company 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 approximately
$2.0 million to cover costs associated with Y2K assessments, modifications,
and associated upgrades of which $900,000 has been spent towards upgrades on
switching equipment.
THIRD PARTY PROVIDERS
The potential impact of the Y2K problem 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.
18
<PAGE>
FORWARD LOOKING STATEMENTS
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To finance the Company's operations and acquisition activity, the Company has
issued Exchangeable Preferred Stock and Senior Subordinated Notes and has
entered into a bank credit facility. 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 March 31, 1999. 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 March 31, 1999. 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 March 31, 1999. 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
March 31, 1999. 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 March 31, 1999 as interest rates are reset periodically; and
(iii) estimates obtained from dealers to settle interest rate swaps and
interest rate protection agreements. Notes 3, 4 and 5 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.
19
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK TABLE
<TABLE>
<CAPTION>
THERE TOTAL FAIR
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 2003 -AFTER PAID VALUE
- ------------------------------- ---------- --------- --------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVITY:
SENIOR SUBORDINATED NOTES: $130,312
Interest Amount $12,031 $12,031 $12,031 $12,031 $12,031 $52,771 $112,926
Average Interest Rate 9.63% 9.63% 9.63% 9.63% 9.63% 9.63% 9.63%
EXCHANGEABLE PREFERRED STOCK: $122,500
Dividend Amount $15,711 $17,553 $19,637 $22,133 $24,640 $119,495 $219,169
Average Interest Rate 11.38% 11.38% 11.38% 11.38% 11.38% 11.38% 11.38%
CREDIT FACILITY: $188,000
Interest Amount $12,558 $13,141 $12,973 $11,980 $10,521 $16,252 $77,425
Average Interest Rate 6.68% 6.99% 7.10% 7.18% 7.28% 7.40% 7.18%
INTEREST RATE SWAPS:
FIXED TO VARIABLE INTEREST
RATE SWAP TRANSACTION
-SENIOR SUBORDINATED
NOTES $315
Interest Received $(1,249) $(1,363) $(1,363) $(1,363) $(566) - $(5,904)
Interest Paid - - - - $1,097 $7,186 $8,283
Average Receive Rate 1.09% 1.09% 1.09% 1.09% 1.09% - 1.09%
Average Pay Rate - - - - 1.51% 1.35% 1.37%
VARIABLE TO FIXED INTEREST
RATE SWAP TRANSACTION
- CREDIT FACILITY ($1,347)
Interest Received - - - - $(38) - $(38)
Interest Paid $783 $387 $206 $74 - - $1,450
Average Receive Rate - - - - 0.056% - 0.056%
Average Pay Rate 0.475% 0.235% 0.125% 0.045% - - 0.194%
</TABLE>
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As reported in the Registrant's Report on Form 8-K filed on filed on May 5,
1999, on April 30, 1999 the Company's Board of Directors adopted shareholder
rights plans for each of its Class A Common Stock and Class B Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
*2.2 Stock Purchase Agreement among the shareholders of RGI
Group, Inc. and the Company as of February 13, 1999
*3.2 Bylaws, as amended and restated to date
*10.6 Employment Agreement with Richard P. Ekstrand effective
January 22, 1999
*10.7 Employment Agreement with Wesley E. Schultz effective
January 22, 1999
10.8 Employment Agreement with Ann K. Newhall effective February 6, 1999
27 Financial Data Schedule
</TABLE>
- ---------
* Filed as an exhibit to Report on Form 10-K for the year ended December 31,
1998 and incorporated herein by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March 31,
1999.
21
<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
(Registrant)
Dated: May 14, 1998 /s/ Richard P. Ekstrand
---------------------------------------------
Richard P. Ekstrand
President and Chief Executive Officer
Dated: May 14, 1998 /s/ Wesley E. Schultz
---------------------------------------------
Wesley E. Schultz
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
22
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of the 6th day of February 1999 ("Effective
Date"), by and between Rural Cellular Corporation ("RCC" or "Company") and Ann
K. Newhall (the "Employee").
WHEREAS, Employee has demonstrated expertise as an attorney and familiarity
with RCC's legal affairs, and RCC desires to employ Employee as its Senior Vice
President - General Counsel; and
WHEREAS, Employee desires to be employed by RCC; 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 Senior
Vice President - General Counsel 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;
PROVIDED, that the Employee shall not be required to engage in any activity
that is contrary to the principles of legal ethics. The Employee shall
report to the President/CEO, except in such instances as she determines
that any applicable law, regulation or ethical rule requires her to report
directly to the Board of Directors.
(b) LOCATION. The Employee's principal place of employment shall be
at a location to be selected by mutual agreement of the parties within 50
miles of Minneapolis, Minnesota; PROVIDED, that the Employee may be
required to spend not more than two days per week at RCC's offices in
Alexandria, Minnesota; and, PROVIDED FURTHER, that the Employee may be
required to travel to other locations from time to time to the extent
necessary to perform her duties under this Agreement.
1. 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
Forty-Nine Thousand Dollars ($249,000.00) per annum beginning on the
Effective Date,
<PAGE>
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.
2. 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. Specifically,
but not in limitation of the foregoing, the Employee shall be granted an option
or options to purchase 85,000 shares of RCC's Class A Common Stock pursuant to
the 1995 Stock Compensation Plan. Such option or options shall be granted as of
the Effective Date and shall be upon terms and conditions similar to those of
options granted to other senior management employees.
3. 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 her service for RCC which are documented in accordance with RCC's
policies as set forth from time to time. Such out-of-pocket expenses shall
include, but shall not be limited to:
(i) the reasonable cost of continued coverage under the
lawyers' professional liability insurance policy maintained by the
Employee's prior law firm;
(ii) the reasonable cost of attending continuing legal education
seminars to the extent required to maintain the Employee's license to
practice law;
<PAGE>
(iii) the annual cost of renewing the Employee's license to
practice law; and
(iv) the annual cost of the Employee's membership in national,
state, and/or local bar associations.
(a) CAR ALLOWANCE. The Employee shall be required to have and
maintain a personal automobile for use in the performance of her 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 per
year to compensate her for all expenses incurred by her in complying with
these requirements. In addition, RCC shall reimburse the Employee at
current IRS allowable mileage rates for the use of her personal automobile
on RCC business.
1. 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 her 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.
2. LOYALTY; NONCOMPETITION.
(a) The Employee shall devote her full business time and attention to
the performance of her 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 business dissimilar from that of RCC or, solely as a
passive or minority investor, in any business.
1. STANDARDS. The Employee shall perform her 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.
2. PAID TIME OFF. The Employee shall be entitled, without loss of pay,
to absent herself voluntarily from the performance of the duties of her
employment under this Agreement, with all such voluntary absences to count as
paid time off, in accordance with the following:
<PAGE>
(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 her 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 herself voluntarily from the
performance of her employment with RCC for such additional periods of time
as may be necessary for the Employee to attend continuing legal education
seminars that are required to maintain the Employee's license to practice
law, 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
President/CEO.
1. 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.
<PAGE>
(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 she has acted or failed to act with an absence of good
faith and without a reasonable belief that her 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.
(a) Except as provided pursuant to Section 11 herein, in the event
Employee's employment under this Agreement is terminated by the
<PAGE>
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.
(b) 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.
1. DISABILITY. If the Employee shall become disabled or incapacitated to
the extent that she is unable to perform her 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 her 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.
2. 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 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
<PAGE>
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 her 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 her 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 her benefit or distributed or distributable pursuant
to the terms of this Agreement or otherwise in connection with, or
arising out of, her 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
<PAGE>
pay taxes shown as due on her 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.
<PAGE>
1. NON-COMPETITION AGREEMENT.
(a) TERM. During the term of the Employee's employment pursuant to
this Agreement and for the period ending six months after the voluntary or
involuntary termination of such employment, Employee agrees that she will not,
without RCC's prior written consent, directly or indirectly, within the service
areas served by RCC at the time of termination, lend her 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 months from
and after the date of termination of her employment pursuant to this Agreement,
Employee agrees that she will not, whether for her 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
<PAGE>
violation or violations may be issued against her 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
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 her 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 her employment terminates, plus her bonus and/or
incentive payment(s) for the year immediately preceding the year in which her
employment terminates.
In the event that Employee shall breach any of her 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.
(a) 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.
1. 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.
<PAGE>
(b) Since RCC is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating her
rights or duties hereunder without first obtaining the written consent of RCC.
1. 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.
2. 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.
3. 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.
4. ARBITRATION. Subject to RCC's right to seek injunctive relief from
a court of competent jurisdiction pursuant to Section 12(e), 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.
5. REPRESENTATION BY COUNSEL. Employee acknowledges that she has read
this Agreement and that she fully understands her rights, privileges, and
duties hereunder. She further acknowledges that she has had the opportunity
to consult and has consulted with attorneys of her choice to review and
explain the terms of this Agreement and the consequences of signing it.
6. 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.
<PAGE>
* * * * *
RURAL CELLULAR CORPORATION
ATTEST:
------------------------------------------
By: Richard P. Ekstrand
President and Chief Executive Officer
- --------------------------------
Secretary
WITNESS:
- -------------------------------- -------------------------------------------
Ann K. Newhall
<PAGE>
APPENDIX A
TO EMPLOYMENT AGREEMENT BETWEEN
RURAL CELLULAR CORPORATION AND ANN K. NEWHALL
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),
(C) the persons who were the beneficial owners,
respectively, of the outstanding common stock and
A-1
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the three months ended March 31, 1999 and is
qualified by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,291
<SECURITIES> 0
<RECEIVABLES> 14,075
<ALLOWANCES> 818
<INVENTORY> 1,664
<CURRENT-ASSETS> 19,030
<PP&E> 181,238
<DEPRECIATION> (48,720)
<TOTAL-ASSETS> 488,977
<CURRENT-LIABILITIES> 24,610
<BONDS> 0
0
135,942
<COMMON> 90
<OTHER-SE> 14,177
<TOTAL-LIABILITY-AND-EQUITY> 488,977
<SALES> 1,272
<TOTAL-REVENUES> 32,165
<CGS> 2,122
<TOTAL-COSTS> 6,966
<OTHER-EXPENSES> 21,479
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 6,718
<INCOME-PRETAX> (1,521)
<INCOME-TAX> (34)
<INCOME-CONTINUING> (1,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,368)
<EPS-PRIMARY> ($0.60)
<EPS-DILUTED> ($0.60)
</TABLE>
