-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UjOwunJaiUWwm+BwIrqmghuFUr6NZXwCxQLqhWnu728CQzEqHX+Ed531CmFN9nMI OQzDHLeKKhQ8xw63rn+Kkw== 0000869561-98-000008.txt : 19981113 0000869561-98-000008.hdr.sgml : 19981113 ACCESSION NUMBER: 0000869561-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RURAL CELLULAR CORP CENTRAL INDEX KEY: 0000869561 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 411693295 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27416 FILM NUMBER: 98744996 BUSINESS ADDRESS: STREET 1: 3905 DAKOTA ST SW STREET 2: P O BOX 2000 CITY: ALEXANDRIA STATE: MN ZIP: 56308 BUSINESS PHONE: 3207622000 MAIL ADDRESS: STREET 1: P O BOX 2000 CITY: ALEXANDRIA STATE: MN ZIP: 56038 10-Q 1 QUARTERLY REPORT FOR RURAL CELLULAR CORPORATION 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 September 30, 1998. ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________to__________. Commission File Number 0-27416 RURAL CELLULAR CORPORATION (Exact name of registrant as specified in its charter) 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 October 30, 1998: Class A 7,777,964 Class B 1,203,358 TABLE OF CONTENTS Page Number PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets- of September 30, 1998 and December 31, 1997.....................3 Consolidated Statements of Operations- Three and nine months ended September 30, 1998 and 1997.........5 Condensed Consolidated Statements of Cash Flows- Nine months ended September 30, 1998 and 1997...................6 Notes to Condensed Consolidated Financial Statements.............7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 11 PART II. - OTHER INFORMATION Item 5. Other Information.................................................19 Item 6. Exhibits and Reports on Form 8-K..................................19 Signature page............................................................20 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RURAL CELLULAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
September 30, December 31, 1998 1997 CURRENT ASSETS: Cash................................................................ $ 9,148,559 $ 1,994,628 Accounts receivable, less allowance of $2,019,000 and $1,146,000.... 14,508,380 9,621,032 Other current assets................................................ 3,353,013 2,540,161 ------------ ------------ Total current assets.............................................. 27,009,952 14,155,821 ------------ ------------ PROPERTY AND EQUIPMENT, less accumulated depreciation of $37,067,000 and $23,874,000..................... 119,753,225 77,920,283 ------------ ------------ LICENSES AND OTHER ASSETS: Licenses and other intangible assets, less accumulated amortization of $4,444,000 AND $1,490,000...................................... 279,038,174 81,348,237 Other assets, less accumulated amortization of $1,365,000 and $178,000.......................................................... 50,031,340 8,163,727 ------------ ------------ Total licenses and other assets................................... 329,069,514 89,511,964 ------------ ------------ $ 475,832,691 $ 181,588,068 ============ ============
The accompanying notes are an integral part of these condensed consolidated balance sheets. 3 RURAL CELLULAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31, 1998 1997 CURRENT LIABILITIES: Accounts payable............................................................ $ 8,647,322 $ 7,959,778 Advance billings and customer deposits...................................... 3,162,569 2,541,015 Other accrued expenses...................................................... 12,023,905 3,141,559 ----------- ----------- Total current liabilities................................................... 23,833,796 13,642,352 LONG-TERM DEBT................................................................. 298,873,826 128,000,000 ----------- ----------- Total liabilities......................................................... 322,707,622 141,642,352 ----------- ----------- MINORITY INTEREST.............................................................. 3,089,813 6,215,480 ----------- ----------- EXCHANGEABLE PREFERRED STOCK................................................... 124,315,719 -- ----------- ----------- SHAREHOLDERS' EQUITY: Class A common stock; $.01 par value; 15,000,000 shares authorized; 7,775,964 and 7,592,628 issued and outstanding............... 77,760 75,926 Class B common stock; $.01 par value; 5,000,000 shares authorized; 1,203,358 shares issued and outstanding..................... 12,033 12,607 Additional paid-in capital.................................................. 35,672,233 34,445,849 Accumulated deficit......................................................... (10,042,489) (804,146) ----------- ----------- Total shareholders' equity................................................ 25,719,537 33,730,236 ----------- ----------- $475,832,691 $181,588,068 =========== ===========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 4 RURAL CELLULAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 REVENUES: Service........................................... $ 24,295,340 $ 12,845,494 $ 51,178,303 $ 30,437,969 Roamer............................................ 8,698,278 3,686,844 13,576,207 7,451,392 Equipment......................................... 961,458 215,029 1,669,882 506,926 ------------ ------------ ------------ ------------ Total revenues.................................. 33,955,076 16,747,367 66,424,392 38,396,287 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Network costs..................................... 5,886,612 3,508,586 13,335,375 8,507,126 Cost of equipment sales........................... 2,042,329 845,994 4,011,858 1,762,803 Selling, general and administrative............... 11,665,520 6,963,653 25,810,958 17,651,225 Depreciation and amortization..................... 8,457,837 3,647,713 17,523,023 8,537,223 ------------ ------------ ------------ ------------ Total operating expenses........................ 28,052,298 14,965,946 60,681,214 36,458,377 ------------ ------------ ------------ ------------ OPERATING INCOME..................................... 5,902,778 1,781,421 5,743,178 1,937,910 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense................................ (6,724,618) (2,194,453) (12,339,994) (3,841,368) Interest and dividend income.................... 87,364 44,401 1,318,333 144,436 Equity in earnings (losses) of unconsolidated affiliates....................... (347,692) 9,428 (645,517) 36,552 Minority interest............................... 1,182,722 979,839 3,125,667 2,105,251 ------------ ------------ ------------ ------------ Other expense, net............................ (5,802,224) (1,160,785) (8,541,511) (1,555,129) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX AND EXTRAORDINARY ITEM............................... 100,554 620,636 (2,798,333) 382,781 INCOME TAX PROVISION................................. -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................... 100,554 620,636 (2,798,333) 382,781 ------------ ------------ ------------ ------------ EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT.............................................. (1,042,422) -- (1,042,422) -- ------------ ------------ ------------ ------------ NET INCOME (LOSS).................................... (941,868) 620,636 (3,840,755) 382,781 ------------ ------------ ------------ ------------ PREFERRED STOCK DIVIDEND............................. (3,527,725) -- (5,397,588) -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON SHARES.................................... $ (4,469,593) $ 620,636 $ (9,238,343) $ 382,781 ============ ============ ============ ============ NET INCOME (LOSS) PER BASIC AND DILUTED COMMON SHARES........................ $ (0.50) $ 0.07 $ (1.04) $ 0.04 ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED....................................... 8,930,748 8,952,834 8,893,218 8,903,932 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 RURAL CELLULAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, ------------------------------- 1998 1997 OPERATING ACTIVITIES: Net income (loss) applicable to common shares............ $ (9,238,343) $ 382,781 Adjustments to reconcile to net cash provided by (used in) Operating activities: Depreciation and amortization........................ 17,523,023 8,537,223 Extraordinary item - early extinguishment of debt.... 1,042,422 -- Equity in (earnings) losses of unconsolidated affiliates......................................... 653,857 (36,552) Change in minority interest.......................... (3,125,667) (2,105,251) Dividend requirement on preferred stock.............. 1,843,589 -- Other................................................ (60,104) (32,373) Change in other operating elements: Accounts receivable............................. (1,511,954) (2,549,800) Other current assets............................ (59,731) 540,077 Accounts payable................................ 1,220,156 (1,842,598) Other current liabilities....................... 6,147,518 2,766,970 ----------- ----------- Net cash provided by operating activities....... 14,434,766 5,660,477 ----------- ----------- INVESTING ACTIVITIES: Purchases of property and equipment, net............. (23,956,351) (23,518,951) Gain on hedge rate transaction....................... 1,003,000 -- Purchases of Atlantic and Western Maine Cellular..... (269,983,779) -- Purchases of Unicel and Northern Maine............... -- (86,001,734) Other................................................ (1,620,649) 152,122 ----------- ----------- Net cash used in investing activities........... (294,557,779) (109,368,563) ----------- ----------- FINANCING ACTIVITIES: Stock options exercised.............................. 1,227,644 -- Proceeds from issuance of senior subordinated notes.. 125,000,000 -- Proceeds from issuance of preferred stock............ 125,000,000 -- Preferred stock dividends paid in kind............... 3,554,000 -- Proceeds from issuance of long-term debt............. 188,625,000 124,695,000 Repayments of long-term debt......................... (143,625,000) (18,138,067) Payments of debt issuance costs...................... (12,504,700) (1,199,483) ----------- ----------- Net cash provided by financing activities....... 287,276,944 105,357,450 ----------- ----------- NET INCREASE IN CASH...................................... 7,153,931 1,649,364 CASH, at beginning of period.............................. 1,994,628 237,499 ----------- ----------- CASH, at end of period.................................... $ 9,148,559 $ 1,886,863 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 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 September 30, 1998 and 1997 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, 1997. The results of operations for the period ended September 30, 1998 are not necessarily indicative of the operating results for the full fiscal year or for any other interim periods. 2) ACQUISITIONS: Unity Cellular System, Inc. Effective May 1, 1997, the Company completed the acquisition of the Maine wireless telephone operations and related assets of Unity Cellular System, Inc. and related cellular and microwave licenses from InterCel, Inc. In addition, the Company acquired Unity's 51% interest in Northern Maine Cellular Partnership. The Company also acquired the remaining 49% interest in Northern Maine Cellular Partnership from an unrelated third party. The acquisitions (the "MRCC Acquisitions") have been accounted for under the purchase method of accounting. The Company operates its Maine operations through a wholly owned subsidiary, MRCC, Inc. Atlantic Cellular Company, L.P. Effective July 1, 1998, the Company completed the acquisition of the Vermont, New Hampshire, New York and Massachusetts cellular telephone licenses, operations and related assets of Atlantic Cellular Company L.P. and one of its subsidiaries ("Atlantic"), an independent provider of wireless communication services in the New England region. 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 ("population served") and 74,000 customers. The cellular properties acquired from Atlantic include: (i) the entire state of Vermont (RSA 1, RSA 2, and the Burlington MSA); (ii) western New Hampshire (RSA 1); (iii) the northeastern corner of New York (RSA 2); and (iv) northwestern Massachusetts (RSA 1). In addition, the Company has acquired Atlantic's long distance business. The Company operates its Atlantic operations as RCC Atlantic, Inc. Western Maine Cellular Effective July 31, 1998, the Company completed the acquisition of the outstanding stock of Western Maine Cellular ("WMC"), a wholly-owned subsidiary of Utilities, Inc., for approximately $7.5 million in cash. WMC provides cellular service to western Maine RSA 1 which incorporates a 3,700 square-mile service area of western Maine encompassing 83,000 POPs and serves approximately 2,500 customers. Accordingly, a portion of the purchase price for Atlantic and WMC was allocated to the net assets based on their estimated fair values and the excess was recorded as goodwill and is being amortized over 39 years. These purchase price allocations have been completed on a preliminary basis, subject to adjustment should new or additional facts about the businesses become known. 7 The following unaudited pro forma information presents the consolidated results of operations as if the acquisitions of MRCC, Atlantic, and WMC had occurred as of January 1, 1997. This summary is not necessarily indicative of what the results of operations of the Company and the acquired entities would have been if they had been a single entity during such period, nor does it purport to represent results of operations for any future periods.
(in thousands except per Three months ended Three months ended Nine months ended Nine months ended share data) September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997 - ---------------------------- ------------------ ------------------- ------------------- ------------------- Total revenues $33,955 $28,708 $90,090 $74,061 Operating income 5,903 3,540 9,869 1,663 Net loss (3,427) (4,311) (18,676) (23,534) Basic and diluted net loss $(0.39) $(0.49) $(2.10) $(2.65) per share
3) LONG TERM DEBT: On May 14, 1998, the Company closed on the placement of Senior Subordinated Notes. The Senior Subordinated Notes accrue interest at 9 5/8% from May 14, 1998. Payments of interest will be made on May 15 and November 15 of each year commencing November 15, 1998. On July 1, 1998, the Company replaced its $160 million credit facility with a $300 million credit facility. The Company had the following debt outstanding at September 30, 1998 and December 31, 1997: Long Term Debt September 30, 1998 December 31, 1997 - -------------------------------- -------------------------- -------------------- Deferred gain on hedge agreement $ 873,826 $ - Credit Facility 173,000,000 128,000,000 9 5/8% Senior Subordinated Notes 125,000,000 - -------------------------- -------------------- $ 298,873,826 $ 128,000,000 ========================== ==================== 4) FINANCIAL INSTRUMENTS: The Company maintains interest rate swaps which provide protection against interest rate risk. Income and expense associated with swap transactions are accrued over the periods prescribed by the contracts. As of September 30, 1998, the Company is party to three interest rate swaps expiring August 6, 2003 with a total outstanding notional amount of $165 million. These agreements did not materially effect the Company's interest rate on the debt for the nine months ended September 30, 1998. In anticipation of the offering of the $125 million in 9 5/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes") and $125 million in exchangeable preferred stock (the "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 $1.0 million. This gain is being accreted against interest expense over the lives of the underlying debt instruments. 8 5) EXCHANGEABLE PREFERRED STOCK: On May 14, 1998, the Company completed the placement of $125 million of 11 3/8% Exchangeable Preferred Stock. The Exchangeable Preferred Stock has a liquidation preference of $1,000 per share and is recorded at fair value on the date of issuance less issuance costs. 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 all shares of Exchangeable Preferred Stock will be cumulative and accrue at 11 3/8% per annum from May 14, 1998 and may be paid, at the Company's option, on any dividend payment date occurring on or before May 15, 2003, either in cash or by the issuance of additional shares of Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. Thereafter all dividends will be payable in cash only. On August 15, 1998, the Company elected to issue 3,554 shares of preferred stock as payment against its dividend obligation. As of September 30, 1998, the Company has accrued $1.8 million in preferred stock dividends which will be distributed on November 15, 1998. 6) SUPPLEMENTAL DISCLOSURE OF CONDENSED CONSOLIDATED CASH FLOW INFORMATION: Nine months ended September 30, ----------------- --------------- 1998 1997 ----------------- --------------- Cash paid during the period for interest $ 6,887,569 $ 2,072,081 Cash paid (received) during the period for $ - $ 64,032 income taxes 7) EVENTS SUBSEQUENT TO SEPTEMBER 30, 1998: On October 15, 1998, the Company entered into an agreement with Switch 2000, LLC ("Switch") and Midwest Wireless Communications L.L.C. whereby the Company sold its membership interest in Switch to Switch, for a purchase price of $200,000 in cash plus an amount equal to 40.77 percent of the net working capital of Switch, subject to certain adjustments based upon credits arising out of independent local exchange carrier interconnection charges. On October 16, 1998, the Company entered into a definitive agreement to purchase the outstanding stock of RGI Group, Inc. dba Glacial Lakes Cellular 2000 ("Glacial") for approximately $11.9 million. Operating under the name Cellular 2000, Glacial provides cellular service to northeastern South Dakota (RSA 4), which includes eight counties and is adjacent to the Company's existing cellular operation in northern and central Minnesota. Glacial's service area encompasses 69,000 POPs and the operation serves 6,800 customers. 9 8. SEGMENT INFORMATION: The Company's consolidated financial statements consist of the business units RCC Cellular and Wireless Alliance, LLC ("Wireless Alliance"). RCC Cellular includes cellular operations in Minnesota and Maine in addition to certain service areas in New Hampshire, Vermont, Massachusetts, and New York. 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 and nine months ended September 30, 1998 and 1997 is as follows:
(Dollars in thousands) Three months ended Nine months ended September 30 September 30 1998 1997 1998 1997 STATEMENT OF OPERATIONS: Revenues RCC Cellular............................ $ 31,069 14,833 $ 58,391 $ 34,407 Wireless Alliance LLC................... 3,339 2,233 9,273 4,687 Eliminating............................. (453) (319) (1,240) (698) ------ ------ ------ ------ Total revenue........................ 33,955 16,747 66,424 38,396 Operating expenses RCC Cellular............................ 23,217 11,052 47,133 28,173 Wireless Alliance LLC................... 5,288 4,233 14,788 8,983 Eliminating............................. (453) (319) (1,240) (698) ------ ------ ------ ------ Total operating expenses............. 28,052 14,966 60,681 36,458 Operating income (loss) RCC Cellular............................ 7,852 3,781 11,258 6,234 Wireless Alliance LLC................... (1,949) (2,000) (5,515) (4,296) ------ ------ ------ ------ Total operating income.............. 5,903 1,781 5,743 1,938 Depreciation and amortization RCC Cellular............................ 7,580 3,453 15,520 8,165 Wireless Alliance LLC................... 878 195 2,003 372 ------ ------ ------ ------ Total depreciation and amortization $ 8,458 $ 3,648 $ 17,523 $ 8,537 OTHER OPERATING DATA: EBITDA RCC Cellular............................ 15,432 7,234 26,778 14,399 Wireless Alliance LLC................... (1,071) (1,805) (3,512) (3,924) ------ ------ ------ ------ Total EBITDA....................... $ 14,361 $ 5,429 $ 23,266 $ 10,475 Capital expenditures RCC Cellular............................ $ 4,931 $ 5,033 $ 15,725 $ 18,633 Wireless Alliance LLC................... 2,369 3,492 8,231 4,886 ----- ------ ------ ------ Total capital expenditures......... $ 7,300 $ 8,525 $ 23,956 $ 23,519 BALANCE SHEET DATA (END OF PERIOD): Property and equipment RCC Cellular............................ $ 139,435 $ 86,567 Wireless Alliance LLC................... 17,385 5,249 ------- ------ Total property and equipment....... $ 156,820 $ 91,816 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations As a result of the MRCC, Atlantic, and WMC acquisitions, the Company's operating results for the first, second, and third quarters of 1998 and 1997 may not be comparable or indicative of 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.
Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 REVENUES: Service................................................ 71.6% 76.7% 77.0% 79.3% Roamer................................................. 25.6 22.0 20.5 19.4 Equipment.............................................. 2.8 1.3 2.5 1.3 ----- ----- ----- ----- Total revenues............................................ 100.0 100.0 100.0 100.0 ----- ----- ----- ----- OPERATING EXPENSES: Network costs.......................................... 17.3 21.0 20.1 22.2 Cost of equipment sales................................ 6.0 5.1 6.0 4.6 Selling, general and administrative.................... 34.4 41.5 38.9 46.0 Depreciation and amortization.......................... 24.9 21.8 26.4 22.2 ----- ----- ----- ----- Total operating expenses.................................. 82.6 89.4 91.4 95.0 ----- ----- ----- ----- OPERATING INCOME......................................... 17.4 10.6 8.6 5.0 ----- ----- ----- ----- OTHER INCOME (EXPENSE): Interest expense....................................... (19.8) (13.2) (18.6) (10.0) Interest and dividend income........................... 0.3 0.3 2.0 0.4 Equity in earnings (losses)of unconsolidated affiliates (1.0) 0.1 (1.0) 0.1 Minority interest...................................... 3.5 5.9 4.7 5.5 ----- ----- ----- ----- Other expense, net........................................ (17.0) (6.9) (12.9) (4.0) ----- ----- ----- ----- INCOME (LOSS) BEFORE INCOME TAX AND EXTRAORDINARY ITEM................................ 0.4 3.7 (4.3) 1.0 INCOME TAX PROVISION...................................... -- -- -- -- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............... 0.4 3.7 (4.3) 1.0 ----- ----- ----- ----- EXTRAORDINARY ITEM RELATED TO EARLY EXTINGUISHMENT OF LONG-TERM DEBT.......................... (3.1) -- (1.6) -- ----- ----- ----- ----- NET INCOME................................................ (2.7) 3.7 (5.9) 1.0 ----- ----- ----- ----- PREFERRED STOCK DIVIDEND.................................. (10.4) -- (8.1) -- ----- ----- ----- ----- NET INCOME APPLICABLE TO COMMON SHARES.................... (13.1)% 3.7% (14.0)% 1.0% ===== ===== ====== ===== EBITDA (1)................................................ 42.3% 32.4% 35.0% 27.3% ADJUSTED EBITDA (1)....................................... 50.4% 49.9% 46.9% 42.7%
11
Other Operating Data Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 Customers at period end: ....................................... RCC Cellular............................ 175,847 79,679 175,847 79,679 Wireless Alliance LLC .................. 17,745 13,644 17,745 13,644 Other 11,469 8,553 11,469 8,553 --------- --------- --------- --------- Total customers................... 205,061 101,876 205,061 101,876 Penetration: (3) RCC Cellular............................ 7.5% 7.1% 7.5% 7.1% Wireless Alliance LLC................... 2.5% 2.6% 2.5% 2.6% Retention: (4) RCC Cellular............................ 98.5% 98.2% 98.6% 98.4% Wireless Alliance LLC................... 96.3% 98.3% 97.0% 98.8% Average monthly revenue per customer:(5) RCC Cellular............................ $57 $61 $52 $58 Wireless Alliance LLC................... $60 $61 $56 $63 Acquisition cost per customer: (6) RCC Cellular............................ $369 $436 $392 $427 Wireless Alliance LLC................... $722 $328 $525 $264 Cell sites: RCC Cellular............................ 204 117 204 117 Wireless Alliance LLC................... 40 - 40 -
12
The following chart summarizes the Company's existing wireless systems: Total Net Date of Wireless Markets and Systems: (2) Ownership POPS POPS Acquisition - ------------------------------------------- RCC Cellular Upper 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 Minnesota RSA 5......................... 100% 206,000 206,000 4/01/91 Minnesota RSA 6......................... 100% 257,000 257,000 4/01/91 --------- --------- Total Upper Midwest POPs............ 636,000 636,000 --------- --------- New England Cluster MRCC Maine, Bangor MSA....................... 100% 143,000 143,000 5/01/97 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..................... 512,000 512,000 --------- ---------- 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 --------- --------- WMC Maine RSA 1............................. 100% 83,000 83,000 7/31/98 --------- --------- Total New England POPs.............. 1,705,000 1,705,000 --------- --------- Total RCC Cellular POPs......... 2,341,000 2,341,000 --------- --------- Wireless Allinace Duluth, Minnesota/Superior, Wisconsin: Cook, Lake, St. Louis and Carlton 51% (portion) Counties in Minnesota and 270,000 138,000 4/10/97 Douglas County in Wisconsin.............. Fargo, North Dakota/Moorhead, Minnesota: Cass and Trail Counties in North 51% 175,000 89,000 4/10/97 Dakota and Clay County in Minnesota...... Grand Forks, North Dakota: Grand Forks County in North Dakota 51% 102,000 52,000 4/10/97 and Polk County in Minnesota............. Sioux Falls, South Dakota: Minnehaha and Lincoln Counties in 51% 161,000 82,000 9/30/97 South Dakota............................. --------- --------- Total PCS POPs....................... 708,000 361,000 ========= ========= Total POPs...................... 3,049,000 2,702,000 ========= =========
13 1) EBITDA is the sum of earnings before interest, taxes, depreciation and amortization and is utilized as a performance measure within the cellular industry. EBITDA is not intended to be a performance measure that should be regarded as an alternative for other performance measures and should not be considered in isolation. EBITDA is not a measurement of financial performance under generally accepted accounting principles and does not reflect all expenses of doing business (e.g., interest expense, depreciation). Accordingly, EBITDA should not be considered as having greater significance than or as an alternative to net income or operating income as an indicator of operating performance or to cash flows as a measure of liquidity. Moreover, "EBITDA," as used herein, may differ from "Operating Cash Flow." Adjusted EBITDA represents EBITDA excluding Wireless Alliance's EBITDA. 2) Source 1990 census, updated for July 1, 1997 estimates, of the U.S. Census Bureau. 3) Represents the ratio of cellular customers at the end of the period to POPs. 4) 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. 5) Determined for each periods by dividing the sum of access, airtime, roaming, long distance, features, connections, disconnection, and other revenues for such period by average cellular customers for such period (customers at the beginning of the period plus customers at the end of the period, divided by two), and dividing that result by the number of months in such period. 6) 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. THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 REVENUES Service revenues for the three months ended September 30, 1998 increased 89.1% to $24.3 million from $12.8 million in 1997. Service revenues for the nine months ended September 30, 1998 increased 68.1% to $51.2 million from $30.4 million in the comparable period of 1997. The revenue growth for the three and nine months ended September 30, 1998 reflects 76,000 additional customers added through the Atlantic and WMC acquisition and 20,000 added through increased penetration in existing markets. Offsetting the impact of the increase in customers for RCC Cellular and Wireless Alliance for the three and nine months ended September 30, 1998, was a decrease in average revenue per customer of 6.6% and 10.3% respectively for RCC Cellular and 1.6% and 11.1% respectively for Wireless Alliance, respectively. The rate at which new customers were added to existing markets for the three and nine months ended September 30, 1998 decreased to 3.7% and 14.5% respectively in 1998 from 6.9% and 24.6% in 1997. 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 September 30, 1998 increased 135.9% to $8.7 million from $3.7 million in 1997. Roamer revenues for the nine months ended September 30, 1998 increased 82.2% to $13.6 million from $7.5 million in the comparable period of 1997. Roamer revenues have increased due to the activation of additional cell sites and acquisitions of new service areas. As a percentage of cellular revenues (excluding the impact of Wireless Alliance), roaming revenues for the three months ended September 30, 1998, increased to 28.3% from 25.4% in 1997. For the nine months ended September 30, 1998, roamer revenues increased as a percentage of cellular revenues to 23.7% in 1998 from 22.1% in 1997. Although still primarily engaged in reselling cellular services, Wireless Alliance generated $24,000 in roaming revenue during the three months ended September 30, 1998 as a result of its now operational PCS network. The Company expects Wireless Alliance to generate moderate amounts of roamer revenues in the fourth quarter of 1998 and subsequent quarters thereafter. The company is now focusing primarily on increasing the number of PCS customers while decreasing its efforts reselling cellular services. 14 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 September 30, 1998, increased 67.8% to $5.9 million from $3.5 million in 1997, but decreased as a percentage of total revenues to 17.3% in 1998 from 21.0% in 1997. For the nine months ended September 30, 1998, network costs increased 56.8% to $13.3 million from $8.5 million for the comparable period of the prior year. Network costs decreased as a percentage of sales to 20.1% for the nine months ended September 30, 1998 as compared to 22.2% in 1997. The increase in network costs resulted primarily from expenses incurred by Atlantic, and Wireless Alliance, which more than offset network cost reductions in the Company's Minnesota operations. Contributing to the reduction of network costs in the Minnesota service area was the completed installation of the Company's Mobile Telephone Switching Office ("MTSO") in the third quarter of 1997, thereby reducing the Company's network costs for switching services provided by Switch 2000, Inc., an unconsolidated affiliate. Network costs for Wireless Alliance increased to $2.5 million in the three months ended September 30, 1998 as compared to $1.9 million in the comparable period of 1997. 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. 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 September 30, 1998 increased 67.5% to $11.7 million in 1998 from $7.0 million in 1997. For the nine months ended September 30, 1998, SG&A increased 46.2% to $25.8 million from $17.7 million in the comparable period of the prior year. The increase in SG&A for the three months ended September 30,1998 resulted primarily from additional costs related to Atlantic and Wireless Alliance. As a percentage of total revenues for the three and nine months ended September 30, 1998 SG&A decreased to 34.4% and 38.9%, respectively, from 41.5% and 46.0% respectively in 1997. 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 three months ended December 31, 1998 and March 31, 1999 as compared to the three months ended September 30, 1998. Depreciation and amortization expense for the three and nine months ended September 30, 1998 increased 131.9% and 105.3%, respectively, to $8.5 million and $17.5 million from $3.6 million and $8.5 million in 1997. 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 three and nine months ended September 30, 1998 increased to $6.7 million and $12.3 million, respectively, from $2.2 million and $3.8 million in 1997. The increase in interest expense was primarily a result of interest incurred on the $125 million in Senior Subordinated Notes combined with increased credit facility borrowing. The increased credit facility borrowing, together with issuance of the Senior Subordinated Notes, was primarily incurred to finance the Atlantic and WMC acquisition. Other income includes the minority interest in losses of Wireless Alliance. SEASONALITY The Company experiences seasonal fluctuations in revenues and operating results. The Company, and the wireless communications industry in general, have historically experienced significant customer growth during the fourth calendar quarter. Accordingly, during such periods the Company experiences greater losses on equipment sales and increases in sales and marketing expenses. In addition, the Company's financial performance during the first calendar quarter has been negatively affected by reduced minutes of 15 use and roamer revenues. The Company's average monthly revenue per cellular customer has historically increased during the second and third calendar quarters. This increase reflects greater usage by the Company's cellular customers and roamers who travel in the Company's cellular service area for weekend and vacation recreation or work in seasonal industries, such as agriculture and construction. Because the Company's cellular service area includes many seasonal recreational areas, the Company expects that roamer revenues will continue to fluctuate seasonally to a greater degree than service revenues. 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 September 30, 1998, the Company had $173 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 $14.4 million for the nine months period ended September 30, 1998. Adjustments to the $9.2 million net loss to reconcile to net cash used in operating activities included $17.5 million in depreciation and amortization and a $6.1 million decrease in other current liabilities. Net cash used in investing activities for the nine months ended September 30, 1998 was $294.6 million. The principal uses of cash included the Company's $270.0 million acquisition of Atlantic and Western Maine, and purchases of property and equipment of $24.0 million, of which $8.2 million was attributable to Wireless Alliance capital expenditures. These purchases reflect the construction and launch of Wireless Alliance's PCS network, expansion of existing coverage in RCC Cellular, and the continued upgrading of existing cell sites and switching equipment. Capital expenditures (including $7.8 million for Wireless Alliance) are expected to be approximately $15.8 million in the remaining quarter of 1998. Capital expenditures and debt service are expected to be funded through internally generated cash flows and, if necessary, borrowings under the credit facility. Net cash provided by financing activities was $287.3 million for the nine months ended September 30, 1998. Financing activities for such period consisted primarily of the placement on May 14, 1998 of $125 million of 9 5/8% Senior Subordinated Notes due May 15, 2008 and $125 million of 11 3/8% Exchangeable Preferred Stock. The net proceeds from the sale of the Exchangeable Preferred Stock were used to repay a portion of indebtedness under the credit facility. The net proceeds from the sale of the Senior Subordinated Notes together with the New Credit Facility were used to finance the acquisitions of Atlantic and WMC. In the ordinary course of business, the Company continues to evaluate acquisition opportunities and other potential business transactions. Such acquisitions, joint ventures and business transactions may be material. Such transactions may also require the Company to seek additional sources of funding through the issuance of additional debt and/or additional equity. There can be no assurance that such funds will be available to the Company on acceptable or favorable terms. YEAR 2000 ISSUE The Year 2000 issue exists because many computer systems and applications currently use two-digit fields to designate a year. As the century date occurs, date sensitive systems may recognize the year 2000 as 1900 or not at all. This inability to recognize or properly treat the Year 2000 may cause systems to process critical financial and operational information incorrectly. The Company has completed an initial assessment of Year 2000 compliance for its critical operating and application systems. Through this assessment, it was concluded that some billing and all switching systems were not Year 2000 compliant. System modifications continue to be evaluated and, in stages, implemented. The Company plans to complete its Year 2000 compliance system modifications by October 30, 1999. Including Year 2000 16 compliance costs from Atlantic, the cost associated with the assessment and modifications is estimated to be $3.5 million. The failure of the Company to upgrade its billing and switching systems into Year 2000 compliance may result in the Company being unable to continue operations. The Company expects to assess its need for contingency plans during 1999. The wireless and landline providers have switching equipment that is interconnected. As a result, the impact of the Year 2000 issue on the Company is also dependent on the actions taken by these providers. The most likely worst case scenario would be that another wireless or landline provider does not adequately address issues related to its own Year 2000 compliance situation. As a result, calls initiated from the Company's customer, which would require the functionality of another company's switching system, could either not be originated or not be disconnected by the Company's switching systems resulting in the disruption of service to the customer. The potential impact of the Year 2000 will also depend on the way in which the Year 2000 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 Year 2000 issue and to evaluate any likely impact on the Company. The Company has requested commitment dates from the various parties as to their Year 2000 readiness and delivery of compliant software and other products. The Year 2000 efforts of third parties are not within the Company's control, however their failure to respond to Year 2000 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. The foregoing discussion regarding the Year 2000 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 too, the availability of key Year 2000 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 Year 2000 complications. Such material differences could result in, among other things, business disruption, operational problems, financial loss, legal liability and similar risks. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Company adopted FASB Statement No. 130, "Reporting Comprehensive Income", effective January 1, 1998. Statement No. 130 establishes standards for reporting and display of comprehensive earnings and its components in financial statements; however, the adoption of this Statement had no impact on the Company's net earnings or shareholders' equity. Statement No. 130 requires minimum pension liability adjustments, unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive earnings. There were no material differences between net earnings and comprehensive earnings for any periods presented in the accompanying financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" ("SFAS 133"). This Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. SFAS 133 requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999, and cannot be applied retroactively. The Company has not yet quantified the impacts of adopting SFAS 133 on its financial statements; however, SFAS 133 could increase the volatility of reported earnings and other comprehensive income once adopted. 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 17 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. 18 Part II. OTHER INFORMATION Item 5. OTHER INFORMATION The proxy rules of the Securities and Exchange Commission permit shareholders of a company, after timely notice to the company, to present proposals for shareholder consideration for inclusion in the company's proxy statement unless such proposals can be properly omitted by the company in accordance with the proxy rules. The Rural Cellular Corporation 1999 Annual Meeting of Shareholders is expected to be held on or about May 20, 1999, and proxy materials in connection with that meeting are expected to be mailed on or about April 7, 1999. In order to be included in the Company's proxy materials for the 1999 Annual Meeting, shareholder proposals prepared in accordance with the proxy rules must be received by the Company on or before December 15, 1998. In addition, pursuant to a recent amendment to Commission Rule 14a-4, a shareholder must give notice to the Company prior to February 28, 1999, of any proposal which such shareholder intends to raise at the 1999 Annual Meeting. If the Company receives notice of such proposal on or after February 28, 1999, under Rule 14a-4, the persons named in the proxy solicited by the Company's Board of Directors for the 1999 Annual Meeting may exercise discretionary voting power with respect to such proposal. Further, under the Company's Bylaws, for business to be properly brought before the 1999 Annual Meeting, a shareholder must give notice in writing to the Secretary of the Company no later than March 31, 1999. Any proposal not submitted by such date will not be considered at the 1999 Annual Meeting. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.2 (a) Amended and Restated Bylaws of Rural Cellular Corporation 3.2 (b) Amendment to Bylaws of Rural Cellular Corporation 27 Financial Data Schedule (b) Reports on Form 8-K A Report on Form 8-K dated July 15, 1998, was filed during the third quarter ended September 30, 1998, reporting under Item 2 that the registrant completed the acquisition of the Vermont, New Hampshire, New York and Massachusetts cellular telephone licenses, operations and related assets of Atlantic Cellular Company L.P. and one of its subsidiaries, an independent provider of wireless communications services in the New England region. An amendment to the Report on Form 8-K discussed above referencing required financial statements and exhibits was filed on July 24, 1998. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. RURAL CELLULAR CORPORATION (Registrant) Dated: November 12, 1998 /s/ Richard P. Ekstrand ------------------------------------------------------ Richard P. Ekstrand President and Chief Executive Officer Dated: November 12, 1998 /s/ Wesley E. Schultz ------------------------------------------------------ Wesley E. Schultz Vice President and Chief Financial Officer (Principal Financial Officer) 20 EX-3.(II)BY-LAWS 2 EX-3.(II) BY-LAWS Exhibit 3.2(a) AMENDED AND RESTATED BYLAWS OF RURAL CELLULAR CORPORATION TABLE OF CONTENTS Page ARTICLE I. OFFICES, CORPORATE SEAL AND SHAREHOLDER CONTROL AGREEMENT...............................23 1.01 Registered and Other Offices................................23 1.02 Corporate Seal..............................................23 1.03 Shareholder Control Agreement...............................23 ARTICLE II. MEETINGS OF SHAREHOLDERS....................................23 2.01 Regular Meetings............................................23 2.02 Special Meetings............................................23 2.03 Time and Place of Meetings..................................24 2.04 Voting Rights...............................................24 2.05 Notice of Meetings..........................................24 2.06 Waiver of Notice............................................24 2.07 Quorum......................................................25 2.08 Record Date.................................................25 2.09. Action Without a Meeting....................................25 2.10 Proxies.....................................................25 2.11 Action by the Shareholders..................................25 2.12 Business Proposed by Shareholders...........................25 ARTICLE III. DIRECTORS...................................................26 3.01 General Purposes............................................26 3.02. Number and Terms of Directors...............................26 3.03. Nominations and Qualifications..............................26 3.04. Board Meetings; Time, Place and Notice......................27 3.05. Waiver of Notice............................................27 3.06. Quorum......................................................27 3.07. Absent Directors............................................27 3.08. Action Without a Meeting....................................27 3.09. Action by the Board.........................................27 3.10. Electronic Communications...................................28 3.11. Committees..................................................28 3.12. Presumption of Assent.......................................28 3.13. Resignation.................................................28 3.14. Removal.....................................................28 3.15. Vacancies...................................................28 3.16. Compensation of Directors...................................28 21 3.17. Chairman of the Board.......................................28 ARTICLE IV. OFFICERS....................................................29 4.01. Required Officers...........................................29 4.02. Other Officers..............................................29 4.03. Election and Term of Office.................................29 4.04. Chief Executive Officer.....................................29 4.05. Chief Financial Officer.....................................30 4.06. Multiple Offices............................................30 4.07. Officers Deemed Elected.....................................30 4.08. Contract Rights.............................................30 4.09. Delegation of Authority.....................................30 4.10. Reimbursement by Officers...................................30 4.11. Compensation of Officers....................................31 4.12. Resignation.................................................31 4.13. Removal.....................................................31 4.14. Vacancy.....................................................31 ARTICLE V. SHARES AND THEIR TRANSFER...................................31 5.01. Certificates for Shares.....................................31 5.02. Transfer of Shares..........................................31 5.03. Lost Certificates...........................................31 5.04. Fractional Shares...........................................32 5.05. Facsimile Signature.........................................32 5.06. Transfer Agent and Registrar................................32 5.07. Conversion of Class B Common Stock..........................32 ARTICLE VI. CORPORATE BOOKS AND RECORDS.................................33 6.01. Share Register..............................................33 6.02. Other Required Documents....................................33 6.03. Financial Statements........................................33 6.04. Right to Inspect............................................33 ARTICLE VII. NOTICE......................................................34 7.01. Notice......................................................34 ARTICLE VIII.INDEMNIFICATION.............................................34 8.01. Indemnification.............................................34 ARTICLE IX. AMENDMENT OF BYLAWS.........................................34 9.01. Amendment of Bylaws.........................................34 22 BYLAWS OF RURAL CELLULAR CORPORATION ARTICLE I. OFFICES, CORPORATE SEAL AND SHAREHOLDER CONTROL AGREEMENT Section 1.01. Registered and Other Offices. The registered office of the corporation in the State of Minnesota shall be that set forth in the Articles of Incorporation or in the most recent amendment of the Articles of Incorporation or statement of the Board of Directors filed with the Minnesota Secretary of State changing the registered office in the manner prescribed by law. The corporation may have such other offices, including its principal place of business or its principal executive office, either within or without the State of Minnesota, as the Board of Directors may designate or as the business of the corporation may require from time to time. Section 1.02. Corporate Seal. If so directed by the Board of Directors, the corporation may use a corporate seal. The failure to use such seal, however, shall not affect the validity, recordability or enforceability of any document executed on behalf of the corporation or any act. The seal need only include the word "seal," but it may also include, at the discretion of the Board of Directors, such additional wording as is permitted by law. Section 1.03. Shareholder Control Agreement. In the event of any conflict or inconsistency between these Bylaws, or any amendment thereto, and any shareholder control agreement, whenever adopted, such shareholder control agreement shall govern. A copy of any such shareholder control agreement shall be filed with the corporation at its principal executive office. ARTICLE II. MEETINGS OF SHAREHOLDERS Section 2.01. Regular Meetings. Regular meetings of the shareholders of the corporation shall be called by the Chief Executive Officer or the Board of Directors. Regular meetings of the shareholders may be held no more frequently than once per year and may be held on any other less frequent periodic basis. Regular meetings of the shareholders need not be held, except that if a regular meeting of the shareholders has not been held during the immediately preceding fifteen (15) months, a shareholder or shareholders holding three percent (3%) or more of the voting power of all shares of this corporation entitled to vote may demand that a regular meeting of the shareholders be held by giving written notice to the Chief Executive Officer or the Chief Financial Officer of the corporation. Within thirty (30) days after receipt of the demand by the Chief Executive Officer or Chief Financial Officer, the Board of Directors shall cause a regular meeting of the shareholders to be called and held on notice no later than ninety (90) days after receipt of the demand, all at the expense of the corporation. If the Board of Directors fails to cause a regular meeting of the shareholders to be called and held as required by this section of the Bylaws, the shareholder or shareholders making the demand may call the regular meeting by giving notice as required by Section 2.05 of these Bylaws, all at the expense of the corporation. At each regular meeting of the shareholders there shall be an election of qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six (6) months after the date of the meeting. No other particular business is required to be transacted at a regular meeting. Any business appropriate for action by the shareholders may be transacted at a regular meeting. No meeting shall be considered a regular meeting unless specifically designated as such in the notice of meeting or unless all of the shareholders are present in person or by proxy and none of them objects to such designation. Section 2.02. Special Meetings. Special meetings of the shareholders of the corporation may be called for any purpose or purposes at any time by the Chief Executive Officer, the Chief Financial Officer or by two or more directors. In addition, except as provided by the Minnesota Business Corporation Act with respect to a "business combination," a shareholder or shareholders holding ten percent (10%) or more of the voting power of all shares of the corporation entitled to vote may demand that a special meeting of the shareholders be held by giving written notice containing the purpose or purposes of the meeting to the Chief Executive Officer or Chief Financial Officer of the corporation. Within thirty (30) days after receipt of the demand by such officer, the Board of Directors shall cause a special meeting of shareholders to be called and held on notice no later than ninety (90) days after receipt of the demand, all at the expense of the corporation. If the Board of Directors fails to cause a special meeting of the shareholders to be called and held as required by this Section of the Bylaws, the shareholder or shareholders making the demand may call the meeting by giving notice as required by Section 2.05 of these Bylaws, all at the expense of the corporation. 23 Section 2.03. Time and Place of Meetings. Regular or special meetings of the shareholders of the corporation, if any, shall be held on the day or date and at the time and place fixed by the Chief Executive Officer or the Board of Directors, except that a regular or special meeting called by, or at the demand of, a shareholder or shareholders pursuant to Sections 2.01 or 2.02 of these Bylaws shall be held in the county where the principal executive office of the corporation is located. Section 2.04. Voting Rights. At each meeting of the shareholders of the corporation, every shareholder having the right to vote shall be entitled to vote either in person or by proxy. Unless otherwise provided by the Articles of Incorporation or a resolution of the Board of Directors filed with the Secretary of State pursuant to Minn. Stat. 302A.401, each shareholder shall have one (1) vote for each voting share of Class A stock and ten (10) votes for each voting share of Class B stock held of record by that shareholder. Upon demand of any shareholder, the vote upon any question before the meeting shall be by ballot. Voting shares owned by two or more shareholders may be voted by any one of them unless the corporation receives written notice from any one of them denying the authority of that person to vote those shares. Unless the corporation receives such a written notice from a joint owner, a holder of voting shares may vote any portion of the shares in any way the shareholder chooses. If a shareholder votes without designating the proportion or number of shares voted in a particular way, the shareholder shall be deemed to have voted all of the shares in that way. The Board of Directors may, by a resolution approved by the affirmative vote of a majority of the directors present, establish a procedure whereby a shareholder may certify in writing to the corporation that all or a portion of the shares registered in the name of the shareholder are held for the account of one or more beneficial owners. Upon receipt by the corporation of the writing, the persons specified as beneficial owners, rather than the actual shareholder, shall be deemed the shareholders for the purpose specified in the writing. There shall be no cumulative voting. Section 2.05. Notice of Meetings. Notice of all meetings of shareholders shall be given to every holder of voting shares of record, except where the meeting is an adjourned meeting and the day or date, time and place of the meeting were announced at the time of adjournment. The notice shall be given at least ten (10), but not more than sixty (60), days before the date of the meeting, except that written notice of a meeting at which a plan of merger or exchange is to be considered shall be given to all shareholders, whether entitled to vote or not, at least fourteen (14) days prior thereto. The notice of any regular or special meeting of shareholders shall contain the day or date, time and place of the meeting and any other information deemed necessary or desirable by the person or persons calling the meeting. Every notice of any special meeting shall state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings shall be confined to the purpose or purposes stated in the notice, unless all of the shareholders of the corporation are present in person or by proxy and none of them objects to consideration of a particular item of business. In the event the purpose of the meeting is to consider a plan of merger or exchange, a copy or short description of the plan of merger or exchange shall be included in or enclosed with the notice. Section 2.06. Waiver of Notice. A shareholder may waive notice of any meeting of shareholders. A waiver of notice by a shareholder entitled to notice is effective whether given before, at or after the meeting and whether given in writing, orally or by attendance. Attendance by a shareholder at a meeting is a waiver of notice of that meeting, except where the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. 24 Section 2.07. Quorum. The holders of a majority of the voting power of the shares outstanding and entitled to vote at a meeting of the shareholders, present either in person or by proxy, shall constitute a quorum for the transaction of business at that meeting. If a quorum is present when a duly called or held meeting is convened, the shareholders present at such meeting may continue to transact business until adjournment, even though the withdrawal of one or more shareholders originally present leaves less than the proportion or number otherwise required for a quorum. In the event a quorum is not attained for a meeting, those shareholders present in person or by proxy shall have the power to adjourn the meeting from time to time, to such day or date and time and place as they shall, by majority vote, agree upon. Any business may be transacted at such reconvened meeting which might have been transacted at the meeting which was adjourned. If a quorum is present in person or by proxy when a duly called or held meeting is convened, the meeting may be adjourned from time to time without notice, other than announcement at the meeting. Section 2.08. Record Date. The Board of Directors may fix, in the resolution calling for a regular or special meeting of the shareholders, a date not more than sixty (60) days before the day of the meeting of the shareholders as the record date for the determination of the shareholders entitled to notice of and to vote at the meeting, notwithstanding any transfer of shares on the books of the corporation after any record date so fixed. When a record date is so fixed, only shareholders on that date are entitled to receive notice of and to vote at that meeting of shareholders and any adjournment thereof. The Board of Directors may close the books of the corporation against the transfer during the whole or any part of such period. If the Board of Directors fails to fix a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of the shareholders, the record date shall be the twentieth (20th) day preceding the date of such meeting. Section 2.09. Action Without a Meeting. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting or notice thereof by written action signed by all of the shareholders entitled to vote on that action. The written action is effective on the date on which the last signature is placed on such writing, unless a different effective time is provided in the written action. Such written action may be taken by counterparts. Section 2.10. Proxies. At all meetings of shareholders, a shareholder may cast or authorize the casting of a vote by filing a written appointment of a proxy with an officer of the corporation at or before the meeting at which the appointment is to be effective. An appointment of a proxy for shares held jointly by two or more shareholders is valid if signed by any one of them, unless the corporation receives from any one of those shareholders written notice either denying the authority of that person to appoint a proxy or appointing a different proxy. The appointment of a proxy is valid for eleven (11) months, unless a longer period is expressly provided in the appointment. No appointment is irrevocable unless the appointment is coupled with an interest in the shares or in the corporation. An appointment may be terminated at will, unless the appointment is coupled with an interest, in which case it shall not be terminated except in accordance with the terms of an agreement, if any, between the parties to the appointment. Termination may be made by filing written notice of the termination of the appointment with an officer of the corporation, or by filing a new written appointment of a proxy with an officer of the corporation. Termination in either manner revokes all prior proxy appointments and is effective when filed with an officer of the corporation. Section 2.11. Action by the Shareholders. At any duly called or held meeting of the shareholders at which a quorum is present, the shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote who are present in person or by proxy, except where a larger proportion or number is required by the Articles of Incorporation or by applicable law. In any case where a class or series of shares is entitled by the Minnesota Business Corporations Act, the Articles of Incorporation, or the terms of the shares to vote as a class or series, the matter being voted upon must also receive the affirmative vote of the holders of a majority of the voting power of the shares of that class or series who are present in person or by proxy, except where a larger proportion or number is required by the Articles of Incorporation or applicable law. Section 2.12. Business Proposed by Shareholders. At any regular or special meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) 25 by or at the direction of the Board of Directors or (b) by any shareholder of the corporation who complies with the notice procedures set forth in this Section 2.12. For business to be properly brought before any regular or special meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days prior to the meeting, provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the regular or special meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the regular or special meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any regular or special meeting except in accordance with the procedures set forth in this Section 2.12. The chairperson of the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section 2.12 and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE III. DIRECTORS Section 3.01. General Purposes. Except as authorized by the shareholders pursuant to a shareholder control agreement or unanimous affirmative vote of the holders of all of the shares entitled to vote for the election of the directors of the corporation, the business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. Section 3.02. Number and Terms of Directors. The directors shall be divided into three (3) classes, designated Class I, Class II, and Class III, and each class shall be as nearly equal in number as possible. Each class shall be elected to three-year terms. with one class to be elected each year. At each regular meeting of the shareholders, directors shall be elected for a full term of three years to succeed those whose terms expire. When the number of directors is changed, any increase or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class. In no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the regular meeting for the year in which the director's term expires and until a successor shall be elected and qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Section 3.03. Nominations and Qualifications. Only persons who are nominated in accordance with the procedures set forth in this Section 3.03 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article 3.03. Nominations by shareholders shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, all information relating to such person that is required (or would be required if the corporation were subject to Regulation 14A under the Securities Exchange Act of 26 1934, as amended) to be disclosed in solicitations of proxies or otherwise pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as nominee and to serving as a director if elected); and (b) as to the shareholder giving notice (i) the name and address, as they appear on the corporation's books, of such shareholder and (ii) the class and number of shares of the corporation which are beneficially owned by such shareholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 3.03. The chairperson of the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed in this Section 3.03 and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.04. Board Meetings; Time, Place and Notice. Meetings of the Board of Directors may be held from time to time at any place within or without the State of Minnesota that the Board of Directors may designate. In the absence of designation by the Board of Directors in the notice of the meeting or otherwise, meetings of the Board of Directors shall be held at the principal executive office of the corporation, except as may be otherwise unanimously agreed orally or in writing or by attendance. The Chairman, Chief Executive Officer or any two directors may call a Board of Directors meeting by giving two (2) days' notice to all directors of the day or date, time and place of the meeting. Notice of a meeting called by two directors other than the Chairman of the Board or Chief Executive Officer shall state the purpose of the meeting. Notice may be given by mail, telephone, telegram or in person. If a meeting schedule is adopted by the Board of Directors, or if the day or date, time and place of a Board of Directors meeting has been announced at a previous meeting, no additional notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken. Section 3.05. Waiver of Notice. A director may waive notice of a meeting of the Board of Directors. A waiver of notice by a director entitled to notice is effective, whether given before, at or after the meeting and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, except where the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting. Section 3.06. Quorum. A majority of the directors currently holding office shall be a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of directors originally present leaves less than the proportion or number otherwise required for a quorum. Section 3.07. Absent Directors. A director who is unable to attend a meeting of the Board of Directors may give advance written consent or opposition to a proposal to be acted on at the meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 3.08. Action Without a Meeting. Any action requiring shareholder approval required or permitted to be taken at a meeting of the Board of Directors of this corporation may be taken without a meeting and notice thereof by written action signed by all of the directors. The written action is effective when signed by all of the directors, unless a different effective time is provided in the written action. Such written action may be taken by counterparts. Section 3.09. Action by the Board. The Board of Directors shall take action by the affirmative vote of a majority of the directors present at a duly held meeting except where a larger proportion or number is required by the Articles of Incorporation or applicable law. 27 Section 3.10. Electronic Communications. A conference among directors by any means of communication through which the directors may simultaneously hear each other during the conference constitutes a board meeting if the same notice is given of the conference as would be required by Section 3.06 of these Bylaws for a meeting and if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting under Section 3.06 of these Bylaws. A director may also participate in a meeting of the Board of Directors by any means of communication through which the director, other directors so participating, and all directors physically present at the meeting may simultaneously hear each other during the meeting. Participation in a meeting of the Board of Directors pursuant to the provisions of this section of the Bylaws constitutes presence in person at the meeting. Section 3.11. Committees. The Board of Directors may, by resolution approved by the affirmative vote of a majority of its members, establish one or more committees, including an executive committee and a committee of disinterested persons, which shall have the authority of the Board of Directors in the management of the business and affairs of the corporation to the extent provided in the resolution, as amended from time to time. A committee shall consist of one or more natural persons, who need not be directors, appointed by the affirmative vote of a majority of the directors present. Each committee shall keep minutes of its acts and proceedings and make such minutes available upon request to members of the committee and to any director. Committees shall at all times be subject to the direction and control of the board, except as otherwise provided herein or by applicable law. Sections 3.04 through 3.10 of these Bylaws shall apply to committees and members of committees to the same extent as those sections apply to the Board of Directors and to members of the Board of Directors. Section 3.12. Presumption of Assent. A director who is present at a meeting of the Board of Directors when an action is approved by the affirmative vote of a majority of the directors present is presumed to have assented to the action approved, unless the director (i) objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting, in which case the director shall not be considered to be present at the meeting for purposes of determining whether a quorum is present; (ii) votes against the action at the meeting; or (iii) is prohibited by applicable law, due to a conflict of interest, from voting on the action. Section 3.13. Resignation. A director may resign from the Board of Directors at any time by giving written notice to the corporation at its principal executive office. The resignation is effective without acceptance when the notice is given to the corporation, unless a later effective time is specified in the notice. Section 3.14. Removal. Any director, including a director named by the Board of Directors to fill a vacancy or newly created directorship, may be removed at any time, with or without cause, by the affirmative vote of the holders of two-thirds (2/3) of the voting power of the shares outstanding and entitled to vote for the election of directors. New directors may be elected at a meeting at which directors are removed. Section 3.15. Vacancies. Vacancies on the Board of Directors resulting from the death, disqualification, resignation, retirement or removal of a director or by newly created directorships may be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum. Any director elected by the Board of Directors under this Section to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of such director's predecessor. Section 3.16. Compensation of Directors. The members of the Board of Directors and any committee may be reimbursed for their expenses, if any, of attendance at each meeting of the Board of Directors or any committee; and the Board of Directors may fix by resolution the compensation of directors and of the members of any committee of the Board of Directors. No such payment shall preclude any director or committee member from serving the corporation in any other capacity and receiving compensation for his or her services in such capacity. Section 3.17. Chairman of the Board. The Board of Directors may elect one of its members to be Chairman of the Board of Directors. In the event a Chairman of the Board of Directors is 28 elected, he or she shall preside at all meetings of the Board of Directors. The Chairman of the Board of Directors is subject to the control of the Board of Directors and may be removed by the Board. The Chairman of the Board of Directors shall have supervisory authority over the general policy and business of the corporation and shall perform the duties that are assigned by the Board of Directors. ARTICLE IV. OFFICERS Section 4.01. Required Officers. The corporation shall have one or more natural persons exercising the functions of the offices, however designated, of Chief Executive Officer and Chief Financial Officer. Section 4.02. Other Officers. In lieu of or in addition to appointing a Chief Executive Officer and a Chief Financial Officer, the Board of Directors may appoint, in a resolution approved by the affirmative vote of a majority of the directors present, any other officers, assistant officers or agents the Board of Directors deems necessary or appropriate for the operation and management of the corporation, each of whom shall have the powers, rights, duties, responsibilities and terms in office determined by the Board of Directors from time to time. If elected, the following officers shall have the following roles: (a) Chairman of the Board. A Chairman of the Board, if one is elected, shall preside at all meetings of the shareholders and directors and shall have such other duties as may be prescribed from time to time by the Board of Directors. (b) President. The President, if elected in lieu of a Chief Executive Officer, shall exercise the functions of the Chief Executive Officer. (c) Vice President. Each Vice President, if elected, shall have such powers and shall perform such duties as may be specified in the Bylaws or prescribed by the Board of Directors or by the President. In the event of absence or disability of the President, Vice Presidents shall succeed to his power and duties in the order designated by the Board of Directors. (d) Secretary. A Secretary, if elected, shall maintain records of the corporation and together with the President or Chief Executive Officer, certify the proceedings of the Board of Directors and the shareholders. The Secretary shall perform such other duties as may from time to time be prescribed by the Board of Directors or by the President. (e) Treasurer. The Treasurer, if elected, shall exercise the functions of the Chief Financial Officer, if there is no other person who has been appointed Chief Financial Officer, and shall perform such other duties as may from time to time be prescribed by the Board of Directors or by the President. If specific persons have not been elected as President or Secretary, the Chief Executive Officer may execute instruments or documents in those capacities. If a specific person has not been elected to the office of Treasurer, the Chief Financial Officer of the corporation may sign instruments or documents in that capacity. Section 4.03. Election and Term of Office. At its first regular meeting after the regular meeting of the shareholders each year, the Board of Directors shall elect or appoint a Chief Executive Officer and a Chief Financial Officer and/or such other officers, assistant officers or agents the Board of Directors deems necessary. Such officers shall hold their offices until their successors are elected and have qualified; provided, however, that any officer may be removed in the manner provided in Section 4.13 of these Bylaws. Section 4.04. Chief Executive Officer. Unless a resolution adopted by the Board of Directors provides otherwise, the Chief Executive Officer shall have the duties specified in this section. When present, the Chief Executive Officer shall call to order and preside over all meetings of the shareholders and all meetings of the Board of Directors unless a Chairman of the Board of Directors is 29 elected who shall preside at all meetings of the Board of Directors. The Chief Executive Officer shall have responsibility for the active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall also sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation as may be prescribed from time to time by the Board of Directors, maintain records of and, whenever necessary, certify all proceedings of the Board of Directors and the shareholders. In addition, the Chief Executive Officer shall, in general, perform all duties usually incident to the position of Chief Executive Officer and such other duties as may from time to time be prescribed by the Board of Directors. Section 4.05. Chief Financial Officer. Unless a resolution adopted by the Board of Directors provides otherwise, the Chief Financial Officer shall have the duties specified in this section. The Chief Financial Officer shall keep accurate financial records of the corporation; deposit all money, drafts, and checks in the name of and to the credit of the corporation in the banks and depositories designated by the Board of Directors; endorse for deposit all notes, checks and drafts received by the corporation as ordered by the Board of Directors, making proper vouchers therefor, except to the extent that some other person or persons may be specifically authorized by the Board of Directors to do so; disburse corporate funds and issue checks and drafts in the name of the corporation as authorized by the Board of Directors; render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of all transactions by the Chief Financial Officer and of the financial condition of the corporation; and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time. Section 4.06. Multiple Offices. Any number of offices or functions of those offices may be held or exercised by the same person, except that if a President and Vice President shall be elected, the offices shall not be held by the same person. If a document must be signed by persons holding different offices or functions and a person holds or exercises more than one of those offices or functions, that person may sign the document in more than one capacity, but only if the document indicates each capacity in which the person signs. Section 4.07. Officers Deemed Elected. In the absence of an election or appointment of officers by the Board of Directors, the person or persons exercising the principal functions of the Chief Executive Officer or the Chief Financial Officer are deemed to have been elected to those offices. Section 4.08. Contract Rights. The election or appointment of a person as an officer or agent of the corporation shall not, of itself, create contract rights. The corporation may enter into an employment contract with an officer or agent for a period of time if, in the judgment of the Board of Directors, the contract would be in the best interests of the corporation. The fact that the contract may be for a term longer than the terms of the directors who authorized or approved the contract shall not make the contract void or voidable. Section 4.09. Delegation of Authority. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present at a duly called meeting of the Board of Directors, an officer elected or appointed by the Board of Directors may, without the approval of the Board of Directors, delegate some or all of the duties or powers of his or her office to other persons, provided that such delegation is in writing. An officer who delegates the duties or powers of an office remains subject to the standard of conduct for an officer with respect to the discharge of all duties and powers so delegated. Section 4.10. Reimbursement by Officers. It shall be required of every officer and key employee of the corporation that an agreement be entered into with the corporation providing that any payments made to, or on behalf of, the officer or key employee, including, but not limited to, salary, commission, bonus, interest, rent, reimbursement or travel and entertainment expense incurred by him or her, which shall be finally disallowed by the Internal Revenue Service in whole or in part as an expense deductible by this corporation shall be repaid by such officer or key employee to the corporation to the full extent of such disallowance. This amount shall be repaid to the corporation by the officer or key employee within thirty (30) days from the date of the final disallowance of the deduction by payment in cash, or in such other manner as may be determined by the Board of Directors. The final disallowance of a deduction 30 shall be deemed to occur upon the agreement between the corporation and the Internal Revenue Service with regard to the disallowance or upon final court decision, including appeal thereof, establishing said disallowance. It shall be the duty of the Board of Directors of this corporation, as a Board, to enforce the repayment of all disallowed amounts by any officer or key employee hereof. Section 4.11. Compensation of Officers. The salaries of all officers of the corporation shall be fixed from time to time by the Board of Directors or an executive committee. The Board of Directors or an executive committee may authorize and empower the Chief Executive Officer, President or any Vice President to fix the salaries of all officers of the corporation who are not directors of the corporation. No officer shall be prevented from receiving a salary by reason of the fact that he or she is also a director of the corporation. Section 4.12. Resignation. An officer may resign at any time by giving written notice to the corporation at its principal executive office. The resignation is effective without acceptance when the notice is given to the corporation, unless a later effective date is specified in the notice. Section 4.13. Removal. Subject to the provisions of any shareholder control agreement, an officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present at a duly called meeting of the Board of Directors. Any such removal shall be without prejudice to any contractual rights of the officer. Section 4.14. Vacancy. A vacancy in an office because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the office of Chief Executive Officer or Chief Financial Officer shall, be filled by the Board of Directors for the unexpired portion of the term, or for such term and on such conditions as shall be determined by the Board of Directors. ARTICLE V. SHARES AND THEIR TRANSFER Section 5.01. Certificates for Shares. Every shareholder of this corporation shall be entitled to a certificate, to be in such form as prescribed by law and adopted by the Board of Directors, certifying the number of shares of the corporation owned by him or her. The certificates for such shares shall be numbered in the order in which they are issued and shall be signed in the name of the corporation by the Chief Executive Officer or the Chief Financial Officer or any other proper officers of the corporation authorized by the Board of Directors and shall have typed or printed thereon such legend as may be required by law or any shareholder control agreement. Every certificate surrendered to the corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 5.03 of these Bylaws. Section 5.02. Transfer of Shares. Transfer of shares on the books of the corporation may be authorized only by the shareholder named in the certificate, or the shareholder's legal representative or duly authorized attorney in fact, and is effective upon surrender for cancellation of the properly endorsed certificate or certificates for such shares to the corporation or its transfer agent. The corporation may treat as the absolute owner for all purposes of shares of the corporation the person or persons in whose name or names the shares are registered on the books of the corporation and may not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof. Section 5.03. Lost Certificates. Any shareholder claiming that a certificate for shares has been lost, destroyed or stolen shall make an affidavit of that fact in such form as the Board of Directors may require and shall, if the Board of Directors so requires, give the corporation a sufficient agreement of indemnity or indemnity bond, in form, in an amount, and with one or more sureties satisfactory to the Board of Directors, to indemnify the corporation against any claims which may be made against it on account of the reissue of such certificate. A new certificate shall then be issued to said shareholder for the same number of shares as the one alleged to have been destroyed, lost or stolen. 31 Section 5.04. Fractional Shares. The corporation may issue fractions of a share originally or upon transfer. Except as otherwise provided by applicable law, if the Board of Directors decides not to issue fractions of a share in connection with an original issuance of shares, the Board of Directors must (i) arrange for the disposition of fractional interests by persons entitled to them, (ii) pay in money the fair value of fractions of a share as of the time when persons entitled to receive the fractions are determined, or (iii) issue scrip or warrants in registered or bearer form that entitle the holder to receive a certificate for a full share on the surrender of scrip or warrants aggregating a full share. Section 5.05. Facsimile Signature. Where any certificate is manually signed by a transfer agent, a transfer clerk or by a registrar appointed by the Board of Directors to perform such duties, a facsimile or engraved signature of the Chief Executive Officer and Chief Financial Officer or any other proper officers of the corporation authorized by the Board of Directors may be inscribed on the certificate in lieu of the actual signature of such officer. The fact that a certificate bears the facsimile signature of an officer who has ceased to hold office shall not affect the validity of such certificate if otherwise validly issued. Section 5.06. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars and may require all certificates for shares to bear the signature or signatures of any of them. Section 5.07. Conversion of Class B Common Stock. (a) Conversion Procedure. In the event of any conversion of shares of Class B Common Stock pursuant to Section 2.02(c) of the Articles of Incorporation, the holder of such shares of Class B Common Stock shall promptly surrender the certificate or certificates therefor, duly endorsed in blank or accompanied by proper instruments of transfer, at the office of the corporation, or of any transfer agent for such shares, and shall give written notice to the corporation (the "Notice"), at such office: (1) stating that shares of Class B Common Stock have been converted into Class A Common Stock as provided in this Section 5.07; (2) specifying how the conversion occurred; (3) identifying the number of shares of Class B Common Stock being converted; and (4) setting out the name or names (with addresses) and denominations in which the certificate or certificates for shares of Class A Common Stock shall be issued, with instructions for delivery thereof. Delivery of such notice together with the certificates representing the shares of Class B Common Stock shall obligate the corporation to issue such shares of Class A Common Stock. Thereupon the corporation or its agent shall promptly issue and deliver to such holder a certificate or certificates representing the shares to which such holder is entitled, registered in the name of such holder or designee as specified in the Notice. The corporation shall take any and all steps necessary to effect a conversion pursuant to Section 2.02(c) of the Articles of Incorporation, notwithstanding any failure by the holder to deliver to the corporation the Notice or the certificates representing the shares subject to such conversion. (b) Effect of Automatic Conversion. To the extent permitted by law, conversion shall be deemed to have been effected as of the date on which conversion was first permitted or required under Section 2.02(c) of the Articles of Incorporation (such date being the "Conversion Time"). The person entitled to receive shares issuable upon such conversion shall be treated for all purposes as the record holder of such class of shares at and as of the Conversion Time, and the right of such person as a holder of the shares held prior to such conversion shall cease and terminate at and as of the Conversion Time, in each case notwithstanding any failure by the holder to deliver to the corporation the Notice or the certificates representing the shares subject to conversion, or the corporation's failure to issue to the holder certificates representing the shares to be held after the conversion has been effected (c) Reservation. The corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued shares of capital stock, for the purposes of effecting conversions, such number of duly authorized shares of capital stock as shall from time to time be sufficient to effect the conversion of the Class B Common Stock contemplated herein. All such shares so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable, 32 and free from liens and charges with respect to the issue. The corporation will take all such action as may be necessary to ensure that all such shares may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange or The Nasdaq Stock Market upon which such shares may be listed or traded. ARTICLE VI. CORPORATE BOOKS AND RECORDS Section 6.01. Share Register. The corporation shall keep at its principal executive office or at such other place or places within the United States as determined by the Board of Directors, a share register not more than one year old, containing the names and addresses of the shareholders, the number and classes of shares held by each shareholder, the dates on which the certificates therefor were issued, and, in the case of cancellation, the date of cancellation. Section 6.02. Other Required Documents. The corporation shall keep at its principal executive office, or, if its principal executive office is not located within the State of Minnesota, shall make available at its registered office within ten (10) days after receipt by an officer of the corporation of a written demand from a person described in Section 6.04 of these Bylaws, either the originals or copies of the following: a.Records of all proceedings of the shareholders and the Board of Directors of the Corporation for at least the last three years; b. The Articles of Incorporation of the corporation and all amendments thereto; c. These Bylaws and all amendments thereto currently in effect; d. Reports made to shareholders generally within the last three years; e. A statement of the names and usual business addresses of the corporation's directors and principal officers; f. Any shareholder control agreements and voting trust agreements; and g. The financial statements required by Section 6.03 of these Bylaws and the financial statement for the most recent interim period prepared in the course of the operations of the corporation for distribution to the shareholders or to a governmental agency as a matter of public record. Section 6.03. Financial Statements. The corporation shall keep appropriate and complete financial records and shall, upon written request by a shareholder, furnish annual financial statements, including at least a balance sheet as of the end of each fiscal year and a statement of income for the fiscal year, which shall be prepared on the basis of accounting methods reasonable in the circumstances and may be consolidated statements of the corporation and one or more of its subsidiaries, if any. In the case of statements audited by a public accountant, each copy shall be accompanied by a report setting forth the opinion of the accountant on the statements; in other cases, each copy shall be accompanied by a statement of the Chief Financial Officer or other person in charge of the corporation's financial records stating the reasonable belief of the person that the financial statements were prepared in accordance with accounting methods reasonable in the circumstances, describing the basis of presentation and describing any respects in which the financial statements were not prepared on a basis consistent with those prepared for the previous year. Section 6.04. Right to Inspect. So long as this corporation is publicly held, any shareholder of the corporation, beneficial owner of shares of the corporation or holder of a voting trust certificate relating to the shares of the corporation has, upon written demand stating the purpose and acknowledged or verified as required by law, a right to examine and copy, at any reasonable time, the share register required by Section 6.01 of these Bylaws and other corporate documents reasonably related to the 33 stated purpose. For purpose of these Bylaws, a "proper purpose" is any purpose reasonably related to the person's interest as a shareholder, beneficial owner of shares or holder of a voting trust certificate of the corporation. ARTICLE VII. NOTICE Section 7.01. Notice. Whenever under the provisions of these Bylaws notice is required to be given to the corporation or an officer of the corporation, such notice shall be in writing and is deemed to have been given when mailed or delivered to the corporation or the officer at the registered office or principal executive office of the corporation. Whenever under the provisions of these Bylaws notice is required to be given to any shareholder, director or member of a committee of the Board of Directors of the corporation, such notice is deemed to have been given when mailed to the person at an address designated by the person or at the last known address of the person, or when communicated to the person orally, or when handed to the person, or when left at the office of the person with a clerk or other person in charge of the office, or if there is no one in charge, when left in a conspicuous place in the office, or if the office is closed or the person to be notified has no office, when left at the dwelling house or usual place of abode of the person with some person of suitable age and discretion then residing therein. Notice by mail is given when deposited in the United States mail with sufficient postage affixed. Notice is deemed received when it is given. ARTICLE VIII. INDEMNIFICATION Section 8.01. Indemnification. The corporation shall indemnify each former and present officer, director, or employee of the corporation, and each person who serves or may have served at the request of the corporation as a director, officer, employee or agent of another corporation or employee benefit plan, and their respective heirs, administrators and executors, who are made a party to a threatened, pending or completed civil, criminal, administrative, arbitration, or investigative proceeding by reason of the former or present official capacity of the person against judgments, penalties, fines, including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding in accordance with, and to the fullest extent permissible under, the provisions of Chapter 302A of the Minnesota Statutes, as it may from time to time be amended. In the event a former or present officer, director, or employee of the corporation is made or threatened to be made a party to a civil, criminal, administrative, arbitration or investigative proceeding by reason of the former or present official capacity of the person, the person shall be entitled, upon written request to the corporation, to payment or reimbursement by the corporation of reasonable expenses, including attorneys' fees and disbursements, incurred by the person in advance of the final disposition of the proceeding, as provided in Minnesota Statutes Chapter 302A. ARTICLE IX. AMENDMENT OF BYLAWS Section 9.01. Amendment of Bylaws. Unless reserved by the Articles of Incorporation to the shareholders, the Board of Directors may, from time to time by the affirmative vote of the majority of its members present at a duly called meeting, adopt, amend or repeal all or any of the Bylaws of the corporation subject, however, to the power of the shareholders, exercisable in the manner provided by law, to adopt, amend or repeal Bylaws adopted, amended or repealed by the Board of Directors. Notwithstanding any other provisions of these Bylaws to the contrary (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, the Articles of Incorporation or these Bylaws), the affirmative vote of the holders of not less than two-thirds (2/3) of the voting power of all shares outstanding and entitled to vote, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with Sections 2.12, 3.02, 3.03, 3.04, 3.06, 3.14, 3.15 or 9.01 of these Bylaws. 34 CERTIFICATION OF BYLAWS The undersigned, being the duly elected Secretary of Rural Cellular Corporation, a Minnesota corporation, does hereby certify that the foregoing Bylaws have been duly adopted to be the Bylaws of the corporation and to supersede all previously existing Bylaws by action of the shareholders taken the 15th day of September, 1995. /s/ Don Swenson ----------------------------------- Don Swenson 35 EX-3.(II)BY-LAWS 3 EX-3.(II) BY-LAWS Exhibit 3.2(b) AMENDMENT TO BYLAWS OF RURAL CELLULAR CORPORATION By vote of the shareholders at a meeting held May 21, 1998, the Bylaws of Rural Cellular Corporation were amended by revising Section 3.02 of Article III to read as follows: Section 3.02. Number and Terms of Directors. The aggregate number of directors as of the date this amendment to the Bylaws is adopted shall be six, two in each class. Thereafter, the number of directors in each class shall be the number last elected by the shareholders, provided that the aggregate number of directors in the three classes shall not be less than three nor more than nine. The number of directors in any class may be increased by the Board of Directors from the number of directors last elected by the shareholders and the resulting vacancy may be filled pursuant to Section 3.15 hereof; provided, however, that the Board of Directors may not increase the aggregate number of directors in the three classes to more than nine, and, further provided, that the persons appointed by the Board to fill any such resulting vacancy shall hold office until a qualified successor is elected by the shareholders at the next meeting of the shareholders at which directors are elected. Vacancies occurring on the Board of Directors resulting from the death, resignation, removal or disqualification of a director or as a result of the expiration of a director's term need not be filled by the Board or shareholders, provided that the Board continues to have at least the minimum number of members required by the Articles of Incorporation. Notwithstanding the foregoing, whenever the holders of any one or more classes of capital stock (other than common stock) issued by the corporation shall have the right, voting separately by class or series, to elect directors at a regular or special meeting of shareholders, pursuant to the applicable terms of the certificate of designation or other instrument creating such class or series of stock as provided in the last paragraph of Section 3.01 of the Articles of Incorporation, any directors so elected shall be in addition to the aggregate number of directors determined in the manner set forth in the preceding paragraph and shall increase the maximum number of directors permitted pursuant to the provisions of the preceding paragraph. Any directors so elected shall not be divided into classes as provided in the following paragraph unless expressly provided by the applicable terms of the certificate of designation or other such instrument. 36 The directors shall be divided into three (3) classes, designated Class I, Class II, and Class III, and each class shall be as nearly equal in number as possible. Each class shall be elected to three-year terms, with one class to be elected each year. At each regular meeting of the shareholders, directors shall be elected for a full term of three years to succeed those whose terms expire. When the number of directors is changed, any increase or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class. In no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the regular meeting for the year in which the director's term expires and until a successor shall be elected and qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. 37 EX-27 4 FDS-- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from the Company's financial statements for the six months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1998 SEP-30-1998 9,148,559 0 16,527,705 2,019,325 1,866,523 27,009,952 156,820,173 (37,066,948) 475,832,691 23,833,796 0 0 124,315,719 89,793 25,629,745 475,832,691 1,669,882 66,424,392 4,011,858 17,347,233 43,333,981 1,381,931 12,339,994 (2,798,333) 0 (2,798,333) 0 (1,042,422 0 (9,238,343) (1.04) (1.04)
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