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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
California 68-0365195
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6141
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates (and on the
assumption that all shares held by registrant's employee benefit plan, directors
and officers may be deemed shares held by affiliates), was $474,456,900 as of
February 28, 1999. As of February 28, 1999, 15,815,230 shares of the
registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III hereof are portions of
the registrant's definitive proxy statement issued in connection with the annual
meeting of registrant's shareholders to be held June 18, 1999.
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1.Business 3
2.Properties 5
3.Legal Proceedings 6
4.Submission of Matters to a Vote of Security Holders 8
PART II
5.Market for Registrant's Common Equity and Related
Stockholder Matters 10
6.Selected Financial Data 10
7.Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
7A. Qualitative and Quantitative Disclosure About
Market Risk 18
8.Financial Statements and Supplementary Data 19
9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
PART III
10.Directors and Executive Officers of the Registrant 38
11.Executive Compensation 38
12.Security Ownership of Certain Beneficial Owners
and Management 38
13.Certain Relationships and Related Transactions 38
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 38
PART I
Item 1. Business
Roseville Communications Company (the "Company") was incorporated in 1995 under
the laws of the State of California as a holding company. The Company's wholly
owned subsidiaries include Roseville Telephone Company ("Roseville Telephone"),
Roseville Directory Company ("Roseville Directory"), Roseville Long Distance
Company ("Roseville Long Distance"), and Roseville PCS, Inc. ("Roseville PCS").
Additionally, the Company maintains various ownership interests in certain
wireless partnerships through its wholly-owned subsidiaries as described more
fully below.
The Company has formed various subsidiaries for the purposes of pursuing new
businesses in the communications industry. The Company generates a majority of
its revenues from rate regulated services, but expects that its proportionate
share of revenues from nonregulated businesses may be greater in future years as
a result of its entry into these businesses. The table that follows reflects
the percentage of total operating revenues of the Company contributed by various
sources.
% of Total Operating Revenues
Revenues 1998 1997 1996
------------------------ ---- ---- ----
Rate regulated revenues 80% 83% 85%
Other revenues 20% 17% 15%
---- ---- ---
Total operating revenues 100% 100% 100%
Emerging Businesses
Roseville PCS is the manager of and has an approximate 93.1% interest in West
Coast PCS LLC (d.b.a. "RCS Wireless"), which was formed together with another
entity not controlled by the Company for the purpose of providing personal
communications services ("PCS"). During 1997, RCS Wireless purchased from the
Federal Communications Commission (the "F.C.C.") licenses to offer PCS services
in four Basic Trading Areas located in central California including Sacramento,
Stockton, Modesto and Yuba City. Each license represents 10 megahertz of
broadband spectrum which offers digital wireless technology capable of providing
both voice and data transmission. RCS Wireless commenced deployment of the
network infrastructure in 1998 and expects to offer digital wireless
telecommunications services with telephone, paging and voicemail capabilities
during 1999.
In February 1997, Roseville Directory commenced operations to produce, publish
and distribute Roseville Telephone's 1998 directory including the sale of yellow
pages advertising previously provided by an unaffiliated company. Roseville
Directory is also engaged in the business of producing, publishing and
distributing directories in other Northern California communities outside of
Roseville Telephone's service area.
In January 1997, the Company formed Roseville Long Distance which commenced the
provision of long distance services to customers in September 1997.
Investment in Sacramento-Valley Limited Partnership
Roseville Telephone, with an approximate 23.5% equity interest, is a limited
partner of Sacramento-Valley Limited Partnership ("SVLP"), a California limited
partnership formed for the construction and operation of a cellular mobile
radiotelephone system. AirTouch Cellular is the sole general partner of SVLP
and is responsible for the construction, operation, maintenance and marketing of
the cellular mobile radiotelephone system. SVLP currently operates in the
following Standard Metropolitan Statistical Areas ("SMSA") in California and
Nevada:
Sacramento Reno
Stockton Yuba City - Marysville
Modesto Redding - Chico
In addition, SVLP also operates in the Tehama, Sierra and Storey (Carson City)
Rural Statistical Areas ("RSA").
In each SMSA and RSA, the F.C.C. has granted one license to provide cellular
services to a wireline carrier and one license to a non-wireline carrier. SVLP
is the wireline carrier licensee for each SMSA and RSA in which it operates and
competes with the non-wireline licensee in each of those areas.
The Company's equity in the earnings of SVLP constituted approximately 21% and
27% of income before income taxes in 1998 and 1997, respectively.
Telephone Operations
The Company's principal operating subsidiary, Roseville Telephone, is engaged in
the business of furnishing communications services, mainly local and toll
telephone service and network access services, in a territory covering
approximately 83 square miles in Placer and Sacramento Counties, California.
Toll service to points outside Roseville Telephone's service area is furnished
through connection in Roseville with facilities of Pacific Bell, AT&T and other
interexchange carriers. The City of Roseville, which is centrally located in
Roseville Telephone's service area, is 18 miles northeast of Sacramento.
During recent years, including the year ended December 31, 1998, the area served
by Roseville Telephone has experienced significant residential, commercial and
industrial development. Roseville Telephone continues to be engaged in the
expansion of its facilities and operations to meet current and anticipated
service demand increases and to maintain modern and efficient service.
Roseville Telephone's future operations will be impacted by several proceedings
pending before the F.C.C. and California Public Utilities Commission ("P.U.C.")
which are considering the manner in which certain local exchange services
presently provided solely by Roseville Telephone should be opened to
competition. See "Item 3 - Legal Proceedings" and "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion regarding the competitive environment in which Roseville
Telephone operates.
Revenues from rate regulated services, which include local service, network
access service and toll service revenues, constituted approximately 80% of the
Company's total operating revenues in 1998. Other revenues consist primarily of
directory advertising services, billing and collection services, nonregulated
sales and services and other miscellaneous revenues. Nonregulated revenues are
derived from the sale, lease and maintenance of telecommunications equipment,
payphone services and the provision of alarm monitoring services.
Substantially all of the Company's revenues are from communications and related
services. Approximately 13%, 16% and 23% of the Company's total operating
revenues in 1998, 1997 and 1996, respectively, were derived from access charges
and charges for other services to, and transition contract payments from,
Pacific Bell pursuant to certain agreements. Approximately 8%, 10% and 8% of
the Company's total operating revenues in 1998, 1997 and 1996 were derived from
access charges and charges for other services to AT&T Corp. No other customers
accounted for more than 10% of consolidated operating revenues.
Total rate regulated revenues from telephone services are affected by rates
authorized by various regulatory agencies. Intrastate service rates are subject
to regulation by the P.U.C. Roseville Telephone also has agreements with Pacific
Bell relating to extended area service settlements. With respect to intrastate
toll calls, interexchange carriers are assessed access charges based on tariffs
filed by Roseville Telephone. With respect to interstate services, Roseville
Telephone has filed its own tariff with the F.C.C. for all elements of access
services except carrier common line charges, for which Roseville Telephone
concurs with tariffs filed by the National Exchange Carrier Association.
Extensive cost separation studies are utilized to determine both the final
settlements and access charges. Additionally, as discussed in "Item 3 - Legal
Proceedings", on December 20, 1996, the P.U.C. issued a decision regarding
Roseville Telephone's authorized revenue levels. The rate case decision also
ordered the implementation of a new regulatory framework for services furnished
within the State of California and restructured Roseville Telephone's rates in a
comprehensive manner. For further discussion regarding Roseville Telephone's
rate regulated revenues, see "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations".
In addition to its regulatory authority with respect to Roseville Telephone's
rates, the P.U.C. also has the power, among other things, to establish the terms
and conditions of service, to regulate securities issues, to prescribe uniform
systems of accounts to be kept by public utilities and to regulate the
mortgaging or disposition of public utility properties.
Roseville Telephone uses public streets and highways in the conduct of its
public utility telephone business under a nonexclusive perpetual franchise
granted by Section 7901 of the California Public Utilities Code.
Recent Developments
In February 1996, Congress passed the Telecommunications Act of 1996 (the "Act")
which significantly changed the regulatory environment for telecommunications
companies. See "Item 3 Legal Proceedings" and "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion regarding the impact of the Act.
Employees
At December 31, 1998, the Company had 638 employees, none of whom is represented
by a union.
Item 2. Properties
The Company owns central office buildings and related equipment in Roseville,
Citrus Heights, Granite Bay, and other locations in Sacramento and Placer
Counties. The Company's 68,000 square foot principal business office and
administrative headquarters and 128,000 square foot operations facility are
located in Roseville. Other land is held for future expansion. The Company has
appropriate easements, rights of way and other arrangements for the
accommodation of its pole lines and underground conduits and for its aerial and
underground cables and wires.
In addition to land and structures, the Company's property consists of equipment
required in providing communication services. This includes central office
equipment, customer premises equipment and connections, radio and PCS antennas,
towers, pole lines, aerial and underground cable and wire facilities, vehicles,
furniture and fixtures and other equipment. The Company also owns certain other
communications equipment held as inventory for sale or lease.
In addition to plant and equipment that the Company wholly-owns,
the Company utilizes poles and conduit systems wholly-owned by, or jointly-owned
with, other utilities and leases space on facilities wholly or jointly-owned by
the Company to other utilities. These arrangements are in accordance with
written agreements customary in the industry.
SVLP owns certain equipment used in the provision of cellular mobile
radiotelephone services.
Item 3. Legal Proceedings
As appears in Item 1, above, Roseville Telephone is subject to regulation by the
F.C.C. and P.U.C. In the past, there have been various proceedings before these
agencies to which Roseville Telephone has been a party. Reference is made to
Item 1 for further information regarding the nature of the jurisdiction of the
F.C.C. and P.U.C. over the business and operations of Roseville Telephone.
In 1993, the P.U.C. opened an investigation and rulemaking proceeding to
establish rules necessary to provide nondiscriminatory access by competing
service providers to the network capabilities of local exchange carriers
necessary to ensure fair competition in accordance with the mandate of the
Public Utilities Code. These proceedings continue through the present and may
broaden the scope of competition in the provision of intrastate services, the
effects of which on Roseville Telephone cannot presently be determined.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California entitled "Enhancing California's Competitive Strength: A Strategy
For Telecommunications Infrastructure" in which it proposes to open markets to
competition and aggressively streamline regulation to accelerate the pace of
innovation in the telecommunications marketplace. In conjunction with these
proceedings, the P.U.C. issued an order in January 1995 to consider the goals
and definition of universal telephone service in a changing telecommunications
environment, including examination of subsidy support mechanisms and issues of
"carrier of last resort" and "franchise" obligations. In 1995, the P.U.C.
issued an order to develop and adopt rules for local exchange competition.
Roseville Telephone anticipates that additional proceedings and negotiations
will be held to refine further the rules for local service competition in its
territory, the effects of which on Roseville Telephone cannot yet be determined.
There are a number of regulatory proceedings occurring at the federal level that
may have a material impact on Roseville Telephone. These regulatory proceedings
include, but are not limited to, consideration of changes to the interstate
universal service fund, access charge reform and the regulation of local
exchange carriers. In addition, the F.C.C. periodically establishes the
authorized rate of return for interstate access services. Since 1991, the
F.C.C. has established an 11.25% rate of return for interstate access services.
However, in 1998 the F.C.C. released a notice initiating a prescription
proceeding and notice of proposed rulemaking to represcribe the authorized rate
of return for interstate access services provided by incumbent local exchange
carriers ("ILEC").
Roseville Telephone's operations may also be impacted by the Telecommunications
Act of 1996 (the "Act"). Beginning in 1996, the F.C.C.
adopted orders implementing the Act's provisions to open local exchange service
markets to competition. The F.C.C. rules outline pricing methodologies for the
states to follow when setting rates for resale, interconnection and unbundled
network elements. In 1996, the United States Court of Appeals for the Eighth
Circuit issued a stay pending appeal of portions of the F.C.C. orders. In 1997,
the Court found that the F.C.C. exceeded its jurisdiction in promulgating
pricing rules regarding local telephone service. Accordingly, the Court vacated
the F.C.C.'s rules relating to pricing of services. The Court also vacated the
F.C.C.'s "Pick and Choose" rule which allowed competing carriers to pick
individual provisions from an incumbent local exchange carrier's contracts with
other carriers, without being bound to the entire contract. Additionally, in
1997, the Court issued an order that vacated the portion of the F.C.C.'s
interconnection rules that required ILECs to combine unbundled network elements
for interconnectors. In early 1999, the United States Supreme Court reversed
the Eighth Circuit's determinations that the F.C.C. lacked authority to
implement the Act by adopting local pricing standards or to bar incumbent local
exchange carriers from separating already-combined unbundled network elements
("UNEs") before offering them to competitors. The Supreme Court also reinstated
the agency's "pick-and-choose" rules. However, the Supreme Court invalidated
the F.C.C.'s original list of UNEs, saying the F.C.C. had failed to make sure
that those elements were necessary for competitors to offer service.
Given the Act's relatively recent enactment, the Eighth Circuit's decision
vacating
portions of the F.C.C.'s interconnection orders, the Supreme Court's order
reversing much of the Eighth Circuit's decision on interconnection pricing, the
recent actions taken by the F.C.C. to promulgate rules and regulations on access
charge and universal service reform, and the various on-going legal challenges
considering the validity of these F.C.C. orders, it is not yet possible to
determine fully the impact of the Act and related F.C.C. regulations on
Roseville Telephone's operations.
In 1997, the F.C.C. adopted orders on access charge reform and a new universal
service program. The F.C.C.'s order on access charge reform generally removed
from minute-of-use access charges costs that are not incurred on a per-minute-of
use basis. The F.C.C. also adopted changes to its interstate rate structure for
transport services which are designed to move the charges for these services to
more cost-based levels. The F.C.C.'s order on universal service reformed the
existing system of universal service in a manner that will permit local
telephone markets to move to a competitive arena. The order on universal
service provides continued support to low-income consumers and will help to
connect eligible schools, libraries and rural health care providers to the
global telecommunications network. Several parties have filed cases with the
Court on various issues within these two orders.
The proceedings described above may broaden the scope of competition in the
provision of regulated services and change the rates and rate structure for
regulated services furnished by Roseville Telephone, the effects of which on
Roseville Telephone cannot yet be determined.
Commencing in July 1998, there have been a series of communications between the
partners of SVLP regarding the ownership and operation of PCS licenses in
territories served by SVLP and the allegation by its general partner AirTouch
Cellular ("AirTouch") that such ownership and operation would cause a partner of
SVLP to be in violation of the terms of SVLP's Agreement Establishing Limited
Partnership, as amended ("Partnership Agreement"). In addition to the Company's
ownership of PCS licenses, an affiliate of AirTouch and one other
limited partner also own such licenses.
Representatives of the Company and AirTouch have engaged in discussions
regarding a solution to the dispute by the execution of an amendment to the
Partnership Agreement redefining certain of the partners' rights under the
Partnership Agreement. In furtherance thereof, AirTouch prepared and
distributed a draft of such an amendment, which in its latest form is not
acceptable to the Company.
The Company strongly disagrees with the position asserted by AirTouch, and has
so advised AirTouch and the other partners of SVLP. Absent an agreement, the
Company may be required to pursue its litigation alternatives to protect its
rights as a partner of SVLP, the effects of which on the Company cannot
presently be determined.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company as of
February 28, 1999 are as follows:
Name Age Office
Robert L. Doyle 80 Chairman of the Board of Directors;President and Chief
Executive Officer (1954 to 1993)
Brian H. Strom 56 President and Chief Executive Officer
(since December 1993); Vice President and Chief
Financial Officer (1989 to 1993)
Michael D. Campbell 50 Executive Vice President and Chief Financial Officer
(since April 1996); Vice President and Chief
Financial Officer(1994 to 1996); Partner, Ernst & Young
LLP(1983 to 1994)
Jay B. Kinder 54 Vice President, Customer Services Roseville Telephone
Company (since April 1996); Director of Marketing and
Planning (1993 to 1996) and Marketing and Planning
Manager (1989 to 1993) of Roseville Telephone Company
Rulon D. Blackburn 58 Vice President, Network Services Roseville Telephone
Company(since April 1996); Director, Network Services
(1994 to 1996) and Central Office Maintenance
Administrator (1989 to 1994) of Roseville Telephone
Company
Philip D. Germond 49 Vice President, Marketing - Roseville
Telephone Company (since August 1997); Director of
Marketing and Sales (1996 to 1997); General Sales
Manager (1995 to 1996); Product and Services Manager
(1989 to 1995) of Roseville Telephone Company
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of the Company trades principally in local transactions without
the benefit of an established public trading market. As a result of the minimal
number of stock transactions, the Company's information with respect to price
per share is derived from reports provided by the Company's Retirement
Supplement Plan and disclosure, in limited circumstances, of third party
transactions. Retirement Supplement Plan transactions in the Company's common
stock were effected at approximately $25 per share from the beginning of 1997
through the beginning of the fourth quarter of 1997, and approximately $26 per
share during the fourth quarter of 1997. During 1998 transactions in the
Company's common stock were effected at approximately $28 per share during the
first quarter, $29 per share during the second quarter and $30 per share
thereafter.
The Company's approximate number of shareholders was 9,500 as of February 28,
1999.
The Company pays quarterly cash dividends on its common stock. The Company paid
cash dividends of $.15 per share for the first three quarters of 1997, $.20 per
share for the fourth quarter of 1997 and the first three quarters of 1998 and
$.25 per share for the fourth quarter of 1998.
Item 6. Selected Financial Data
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(amounts in thousands, except per share amounts)
Total operating
revenues $126,682 $114,888 $105,566 $102,661 $102,963
Net income $ 25,049 $ 22,971 $ 21,461 $ 18,507 $ 20,355
Basic and diluted
earnings per share $1.58 $1.45 $1.36 $1.17 $1.31
(1)
Cash dividends per
share of common
stock (2) $ .85 $ .63 $.57 $ .55 $ .52
Property, plant and
equipment, at cost $328,437 $297,057 $275,563 $263,210 $243,774
Total assets $315,877 $276,297 $267,881 $256,889 $246,808
Long-term debt $ 48,571 $ 22,322 $ 28,036 $ 33,750 $ 37,321
Shares of common
stock used to
calculate earnings
per share (1) 15,815 15,815 15,815 15,815 15,515
(1)Shares used in the computation of basic and diluted earnings per share are
based on the weighted average number of shares outstanding in each period
after giving retroactive effect to stock dividends.
(2)Cash dividends per share of common stock are based on the actual dividends
per share, as declared by the Company's Board of Directors, after giving
retroactive effect to stock dividends.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
Roseville Communications Company (the "Company") is a holding company with
subsidiaries operating in the communications services industry. The Company's
principal operating subsidiary, Roseville Telephone Company ("Roseville
Telephone"), provides local and toll telephone services, network access
services, billing and collection services, directory advertising services and
certain nonregulated services. Additionally, Roseville Telephone, with an
approximate 23.5% equity interest, is a limited partner of Sacramento-Valley
Limited Partnership ("SVLP"), which provides cellular telephone service
principally in California. The Company's wholly-owned subsidiary, Roseville
PCS, Inc., is the manager of and has an approximate 93.1% interest in West Coast
PCS LLC (d.b.a. "RCS Wireless"), which was formed together with another entity
not controlled by the Company for the purpose of providing personal
communications services ("PCS"). During February 1997, Roseville Directory
Company ("Roseville Directory"), a wholly-owned subsidiary of the Company,
commenced operations to produce, publish and distribute Roseville Telephone's
1998 directory including the sale of yellow pages advertising previously
provided by an unaffiliated company. Roseville Directory is also engaged in the
business of producing, publishing and distributing directories in other Northern
California communities outside of Roseville Telephone's service area. In
January 1997, the Company formed a wholly-owned subsidiary, Roseville Long
Distance Company ("Roseville Long Distance"), which commenced the provision of
long distance services in September 1997. The Company expects that the sources
of its revenues and its cost structure may be different in future years as a
result of its entry into these communications markets.
Revenues from rate regulated services, which include local service, network
access service and toll service revenues generated by Roseville Telephone,
constituted approximately 80%, 83%, and 85% of the Company's total operating
revenues in 1998, 1997, and 1996, respectively. Rate regulated revenues are
derived from various sources, including billings to business and residential
subscribers for basic exchange services, extended area service charges, P.U.C.
mandated surcharges, billings to Pacific Bell, long distance carriers,
competitive access providers and subscribers for network access services,
interstate settlement revenues from the National Exchange Carrier Association,
and support payments from the interstate Universal Service Fund and California
High Cost Fund. As discussed below, beginning February 1, 1997 the sources of
Roseville Telephone's revenues were substantially modified as a result of its
rate case.
Roseville Telephone bills Pacific Bell various charges for certain local
service, network access service and toll service revenues pursuant to agreements
(the "Pacific Bell Agreements") that arose as a result of the termination of
previous revenue sharing arrangements with Pacific Bell. Of the Company's total
revenues in 1998, 1997 and 1996, 13%, 16% and 23%, respectively, were recorded
under the Pacific Bell Agreements.
In December 1996, the P.U.C. issued a decision granting an annual revenue
increase of $470 thousand as a result of the Company's general rate proceeding
filed in 1995. The P.U.C. also authorized Roseville Telephone to implement a
new regulatory framework("NRF") for services furnished within the State of
California in order to accommodate market and regulatory movement toward
competition and greater pricing flexibility. Under NRF, Roseville Telephone is
subject to ongoing monitoring and reporting requirements, including a sharing
mechanism whereby Roseville Telephone may be required to share earnings with
customers based on its earned annual rate-of-return. All earnings up to the
benchmark rate-of-return of 11.5% are retained by the Company. Earnings between
the benchmark rate-of-return and 15% are to be shared equally between Roseville
Telephone and its customers. All earnings above 15% are to be returned to
customers. Additionally, in the event that earnings fall below a 6.75% floor,
Roseville Telephone is permitted to file for a general rate increase. As of
December 31, 1998 and 1997, Roseville Telephone had no obligation to share
earnings with
customers. Additionally, the P.U.C. ordered the elimination of various sources
of revenue, including the California High Cost Fund draw, transition payments
from Pacific Bell and a previously mandated billing surcharge. Based on
calculations by the P.U.C., the elimination of these sources of revenues was
expected to be offset by ordered increases in Roseville Telephone's local
exchange, switched access and other rates. This rate restructuring became
effective on February 1, 1997. The Company filed a Petition for Modification
and an Application for Rehearing with the P.U.C. in January 1997 which
identifies legal and factual errors with the rate case decision that the
Commission should reexamine through further hearings. The P.U.C. has not acted
on this request, the effects of which on Roseville Telephone cannot yet be
determined.
The ordered changes in the sources of the Company's rate regulated revenues
resulting from the rate case decision significantly affected the comparability
between the 1997 and 1996 periods of the related rate regulated revenue
categories in the Company's consolidated income statements, but had no
significant effect on total rate regulated revenues.
1998 versus 1997
Net income for 1998 was $25.0 million or $1.58 per share, compared with net
income of $23.0 million or $1.45 per share for 1997. The increase in net income
and earnings per share for 1998 over 1997 was due principally to the strong
economic growth in the Company's local exchange service area, the introduction
of new products and services, the results of various marketing initiatives and
operational and financial efficiencies gained from the Company's diversification
and cost containment strategies.
Operating Revenues:
Rate regulated revenues increased $5.8 million, or 6%, compared to 1997. This
increase was due to the combined effects of 1) access line growth of 7%, 2)
improved penetration in custom calling, voice mail and other enhanced network
services due to increased marketing activities, 3) the introduction of a new
national directory assistance service, and 4) increased network access revenues
due to larger minute-of-use volumes, expanded demand for special access services
and increased interstate access settlements.
Directory advertising revenues increased $4.7 million, or 68%, compared to 1997.
Prior to 1998, the Company recognized a net share of the revenues generated by
the directory, which was previously produced by a third party. Beginning in
1998, the Company's consolidated financial statements reflect all of the
revenues and the related costs associated with the directory, which is now
produced by Roseville Directory.
Other revenues increased $1.8 million, or 33% over 1997 due primarily to the
introduction of long distance services in the fourth quarter of 1997.
Operating Expenses:
Operating expenses increased $6.0 million, or 7%, compared to 1997. Cost of
services and products increased $2.6 million or 8% during 1997 due primarily to
costs associated with the production of Roseville Telephone's 1998 directory.
Depreciation expense increased $1.6 million as a result of an increased
investment in property, plant and equipment. Customer operations expense
increased $1.7 million during 1998 due primarily to increased labor costs
related to an increase in personnel and costs associated with new services.
Other Income, Net:
Other income, net, decreased $1.8 million compared to 1997 due primarily to a
decrease of $1.2 million in income attributable to the Company's interest in
SVLP. The Company's equity in the earnings of SVLP constituted approximately
21% and 27% of income before income taxes for 1998 and 1997, respectively.
Interest expense increased $300 thousand compared to 1997 primarily as a result
of an increase in the Company's long term-debt balances.
Income Taxes:
Income taxes increased $1.9 million compared to 1997 due primarily to the
increase in income subject to tax. The effective federal and state income tax
rate was 40.0% in 1998 compared to 39.2% in 1997 due to certain income tax
credits received in 1997.
1997 versus 1996
Net income for 1997 was $23.0 million or $1.45 per share, compared with net
income of $21.5 million or $1.36 per share for 1996. The increase in net income
and earnings per share for 1997 over 1996 was due principally to the strong
economic growth in the Company's local exchange service area and the results of
various marketing initiatives.
Operating Revenues:
Rate regulated revenues increased $5.8 million, or 6%, compared to 1996. These
increases were due to the combined effects of 1) access line growth of
approximately 8% and increased custom calling, voice mail and enhanced network
service revenues and 2) an increase in network access revenues due to increased
minute-ofuse volumes and demand for special access services.
Revenues from nonregulated sales and services increased by $2.7 million or 63%
compared to 1996 due partially to the effects of several large equipment sales
in 1997.
Operating Expenses:
Operating expenses in 1997 increased $8.5 million or 11% compared to 1996. Cost
of services and products increased $2.0 million or 8% during 1997 due to costs
associated with a larger customer base and software expenditures for switching
equipment. Depreciation expense increased $323 thousand in 1997. A year-toyear
increase in depreciation of $1.5 million resulting from higher average plant
levels in 1997 was partially offset by a $1.2 million reduction relating to
equipment which was retired in 1996. Customer operations expense increased $730
thousand during 1997 due primarily to increased labor costs and a larger
customer base. General and administrative expense increased $3.3 million during
1997 due to start-up and administrative costs associated with Roseville
Directory and Roseville Long Distance, increased advertising and marketing costs
and continuing improvements to the Company's information systems. The cost of
nonregulated sales and services increased $1.9 million compared to 1996 due
principally to the effects of several large equipment sales in 1997.
Other Income, Net:
Other income, net increased $951 thousand over 1996 due primarily to an increase
of $476 thousand in income attributable to the Company's interest in SVLP. The
Company's equity in the earnings of SVLP constituted approximately 27% of income
before income taxes for both 1997 and 1996. Interest expense decreased by $336
thousand due to declining long-term debt balances.
Income Taxes:
Income taxes in 1997 increased $306 thousand compared to 1996 due primarily to
the increase in income subject to tax. The effective federal and state income
tax rate was 39.2% in 1997 compared to 40.4% in 1996 due to certain income tax
credits received in 1997.
Year 2000 Matters
Year 2000 issues arise from computer programs written using two digits rather
than four to define the applicable year. Any of the Company's computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send customer bills, or engage in
similar normal business activities.
Based on ongoing assessments, the Company determined that it will be required to
modify or replace portions of its hardware and software so that its computer
systems will function properly with respect to dates in the Year 2000 and
thereafter. The Company presently believes that with software modifications and
conversions to software the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made in a timely manner, the Year 2000 issue could have
a material impact on the operations of the Company.
The Company has initiated a formal plan to address the Year 2000 issue in order
to mitigate the impact to the Company's operations and its customers. The Year
2000 Project (the "Project") consists of four phases: inventory, evaluation,
planning and implementation. The scope of the Project includes information
technology (IT) systems, such as the Company's financial and administrative
systems, as well as its operating asset systems, the most significant of which
is the Company's communications network systems. In addition to addressing the
IT and operating asset systems, the Company is also querying its significant
vendors and suppliers to ensure that they are Year 2000 compliant.
The inventory phase consists of identifying all systems potentially affected by
the Year 2000 including any related hardware, software, firmware, special stand
alone equipment, outside vendor systems, and business partners' systems. This
phase is substantially complete.
The second phase is the evaluation process whereby each of the Company's systems
is evaluated to determine Year 2000 compliance. This phase includes discussions
with vendors and manufacturers, obtaining compliance certification from
suppliers, testing systems and reviewing programming code. The initial
evaluation phase is substantially complete.
The planning phase involves developing cost estimates and timetables for
completion for the identified hardware and software modifications and
replacements. The planning phase also consists of determining the appropriate
allocations of internal and external resources to ensure the Company minimizes
the financial impact to its operations. The initial planning phase is
substantially complete.
The implementation phase is the final process and involves modifying programming
code, upgrading computer software and upgrading or replacing computer hardware
and certain operating asset systems. Once remediation efforts are complete,
extensive testing and verification procedures are performed to ensure that
changes to the hardware, software, and operating asset systems are working
properly. The implementation phase is approximately 70% complete and the
Company expects this final phase to be substantially complete by June 30, 1999.
In addition to the four phases discussed above, the Company is also in the
process of developing a contingency plan for various critical systems. This
contingency plan includes utilizing existing disaster plans, adjusting staffing
and resource requirements, developing alternative manual solutions and ongoing
assessment, planning and implementation activities through 1999 in order to
ensure Year 2000 readiness.
The Company estimates it will incur up to $1.3 million in costs to modify and
convert its systems, of which approximately $825 thousand has been spent as of
December 31, 1998. As the implementation phase is expected to utilize the
majority of the planned expenditures, there is no strict correlation between
expenditures and project completion.
The cost of the Project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guaranty that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
Pending Accounting Pronouncements
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-
1 requires companies to capitalize certain costs associated with obtaining or
developing internal use software and is effective for the Company in 1999.
Currently, the costs of computer software purchased or developed for internal
use are expensed as incurred, except for operating system and application
software initially acquired with the related equipment. Had the Company adopted
SOP 98-1 in 1998, net income would have increased by approximately $2.0 million.
The Company expects to implement SOP 98-1 in 1999, subject to the approval of
the F.C.C. A similar increase to net income is expected in 1999.
Strategic Developments
During 1997, RCS Wireless purchased from the F.C.C. licenses to offer PCS
services in four Basic Trading Areas located in central California including
Sacramento, Stockton, Modesto and Yuba City. Each license represents 10
megahertz of broadband spectrum which offers digital wireless technology capable
of providing both voice and data transmission. RCS Wireless commenced
deployment of the network infrastructure in 1998 and expects to offer digital
wireless telecommunications services with telephone, paging and voicemail
capabilities during 1999.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, net cash provided by
operating activities was $41.0 million, $27.1 million and $32.7 million in 1998,
1997 and 1996, respectively. The increase in operating cash flows for 1998 was
primarily due to an increase in income from operations and the timing of
payables and other accrued liabilities. The Company used cash flows from
operations and existing cash and cash equivalents to fund 1) capital
expenditures of $35.2 million pertaining to ongoing plant construction projects
for Roseville Telephone and RCS Wireless, 2) dividends of $13.4 million and 3)
principal payments of $4.8 million to retire long-term debt.
The Company's most significant use of funds in 1999 is expected to be for 1)
budgeted capital expenditures of approximately $33.4 million and $19.1 million
relating to Roseville Telephone and RCS Wireless, respectively, 2) scheduled
payments of long-term debt of $2.1 million and 3) net operating expenditures of
up to $8.2 million relating to RCS Wireless.
On December 9, 1998 the Company issued its Series A Senior Notes in the
aggregate amount of $40.0 million bearing interest at 6.3%. A portion of the
proceeds from the new credit arrangement was used to retire existing debt of
$12.5 million bearing interest at 8.46%. The remaining proceeds will be used
for general corporate purposes.
In addition to net cash provided by operations and existing cash, cash
equivalents and short-term investments, the Company may consider other sources
of external financing for the purposes of funding future capital expenditures
and potential investments.
Inflation
While the Company is not immune from increased costs brought on by inflation and
regulatory requirements, the impact of such items on the Company's operations
and financial condition depends partly on results of current and future rate
cases and the extent to which increased rates can be translated into improved
earnings.
Other Financial Information
The Company's consolidated financial statements have been prepared in accordance
with Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" ("SFAS No. 71"), which require companies
meeting the criteria to give effect in their financial statements to certain
actions of regulators. For example, amounts charged to operations for
depreciation expense reflect estimated lives and methods prescribed by
regulators rather than the economic lives that might otherwise apply to
nonregulated enterprises. A number of telecommunications companies, including
all of the Regional Bell Operating Companies, have determined that they no
longer meet the criteria of SFAS No. 71. However, such telecommunications
companies are significantly different from Roseville Telephone in the level and
nature of competition they experience and in the nature and mix of services they
offer. The Company believes its regulated operations continue to meet the
criteria of SFAS No. 71 due to its nature and mix of revenues, the authority of
federal and state regulators to establish rates and monitor Roseville
Telephone's earnings, the P.U.C.'s regulatory authority to set Roseville
Telephone's depreciation lives and recent legal proceedings at the federal level
which prohibit a regulatory agency from setting rates and charges at levels
which do not allow telephone companies to recover their cost of providing
telephone services, including a reasonable profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether its
regulated operations continue to meet the criteria which require the use of SFAS
No. 71. If it becomes no longer reasonable to assume that Roseville Telephone
can recover its costs of providing regulated services through rates charged to
customers, whether resulting from the effects of increased competition or
specific regulatory actions, SFAS No. 71 would no longer apply. In the future,
should the Company determine its regulated operations no longer meet the SFAS
No. 71 criteria, a material, extraordinary, noncash charge would result. The
approximate amount of Roseville Telephone's net regulatory asset at December 31,
1998 was between $8.0 million and $15.0 million, consisting principally of
property, plant and equipment. The estimate for property, plant and equipment
was calculated based upon a projection of useful lives which may be affected by
the increasing competition and rapid changes in the telecommunications industry
referred to above.
Regulatory Matters
In 1996, Congress passed the Telecommunications Act of 1996 (the "Act") which
significantly changed the regulatory environment for telecommunications
companies. Beginning in 1996, the F.C.C. adopted orders implementing the Act's
provisions to open local exchange service markets to competition. The F.C.C.
rules outline pricing methodologies for the states to follow when setting rates
for resale, interconnection and unbundled network elements. In 1996, the United
States Court of Appeals for the Eighth Circuit issued a stay pending appeal of
portions of the F.C.C. interconnection orders. In 1997, the Court found that
the F.C.C. exceeded its jurisdiction in promulgating pricing rules regarding
local telephone service. Accordingly, the Court vacated the F.C.C.'s rules
relating to pricing of services. The Court also vacated the F.C.C.'s "Pick and
Choose" rule which allowed competing carriers to pick individual provisions from
an incumbent local exchange carrier's ("ILECs") contracts with other carriers,
without being bound to the entire contract. Additionally, in 1997 the Court
issued an order that vacated the portion of the F.C.C.'s interconnection rules
that required ILECs to combine unbundled network elements for interconnectors.
In early 1999, the United States Supreme Court reversed the Eighth Circuit's
determinations that the F.C.C. lacked authority to implement the Act by adopting
local pricing standards or to bar incumbent local exchange carriers from
separating already combined unbundled network elements ("UNEs") before offering
them to competitors. The Supreme Court also reinstated the agency's "pick-and
choose" rules. However, the Supreme Court invalidated the F.C.C.'s original
list of UNEs, saying the F.C.C. had failed to make sure that those elements were
necessary for competitors to offer service.
In 1997, the F.C.C. adopted orders on access charge reform and a new universal
service program. The F.C.C.'s order on access charge reform generally removed
from minute-of-use access charges costs that are not incurred on a per-minute-of
use basis. The F.C.C. also adopted changes to its interstate rate structure for
transport services which are designed to move the charges for these services to
more cost-based levels. The F.C.C.'s order on universal service reformed the
existing system of universal service in a manner that will permit local
telephone markets to move to a competitive arena. The order on universal
service provides continued support to low-income consumers and will help to
connect eligible schools, libraries and rural health care providers to the
global telecommunications network. Several parties have filed cases with the
Court on various issues within these two orders.
The Company's financial condition and results of operations have been and will
be affected by recent and future proceedings before the P.U.C. and F.C.C.
Pending before the F.C.C. and P.U.C. are proceedings which are being considered:
The rules governing the opening of markets to
competition
The goals and definition of universal telephone service in a changing
environment, including examination of subsidy support mechanisms for
subscribers in high cost areas and issues of "carrier of last resort" and
"franchise" obligations
Rules that will provide non-discriminatory access by competing service
providers to the network capabilities of local exchange carriers
The eventual impact on the Company of the effect of all the proceedings
described above cannot presently be determined.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The Company is subject to market risk associated with interest rate movements.
However, the Company's market risk disclosure pursuant to item 7A is not
material and therefore not required.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Auditors 20
Consolidated statements of income for each of the
three years in the period ended December 31, 1998 21
Consolidated balance sheets as of December 31, 1998
and 1997 22
Consolidated statements of shareholders' equity
for each of the three years in the period ended
December 31, 1998 24
Consolidated statements of cash flows for each of
the three years in the period ended December 31,
1998 25
Notes to consolidated financial statements 27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Roseville Communications Company
We have audited the accompanying consolidated balance sheets of Roseville
Communications Company as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of Sacramento-Valley Limited
Partnership (a partnership in which the Company has an approximate 23.5%
interest) have been audited by other auditors whose report has been furnished to
us; insofar as our opinion on the consolidated financial statements relates to
data included for SacramentoValley Limited Partnership, it is based solely on
their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Roseville Communications Company at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Sacramento, California
February 17, 1999
ROSEVILLE COMMUNICATIONS COMPANY CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
(amounts in thousands, except per share amounts)
1998 1997 1996
---- ---- ----
Operating revenues:
Local service $ 62,728 $ 57,612 $ 49,287
Network access service 38,606 37,503 36,363
Other 118 490 4,175
-------- -------- -------
Total rate regulated revenues 101,452 95,605 89,825
Directory advertising 11,593 6,898 6,643
Nonregulated sales and service 6,431 6,952 4,258
Other 7,206 5,433 4,840
-------- -------- -------
Total operating revenues 126,682 114,888 105,566
Operating expenses:
Cost of services and products 35,305 32,702 28,610
Customer operations and selling 16,108 14,403 13,673
General and administrative 20,557 20,431 17,119
Depreciation 20,684 19,116 18,793
-------- -------- -------
Total operating expenses 92,654 86,652 78,195
-------- -------- -------
Income from operations 34,028 28,236 27,371
Other income (expense):
Interest income 1,282 1,537 1,394
Interest expense (2,717) (2,417) (2,753)
Equity in earnings of cellular
partnership 8,904 10,080 9,604
Allowance for funds used during
construction 498 587 498
Other, net (244) (228) (135)
-------- -------- -------
Total other income, net 7,723 9,559 8,608
-------- -------- -------
Income before income taxes 41,751 37,795 35,979
Income taxes 16,702 14,824 14,518
-------- -------- -------
Net income $ 25,049 $ 22,971 $ 21,461
======== ======== ========
Basic and diluted
earnings per share $1.58 $1.45 $1.36
===== ===== =====
Cash dividends $ .85 $ .63 $ .57
===== ===== =====
Shares of common stock used to
calculate earnings per share 15,815 15,815 15,815
======== ======== ========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(amounts in thousands)
ASSETS 1998 1997
------ ---- ----
Current assets:
Cash and cash equivalents $ 38,840 $ 15,360
Short-term investments 4,242 3,964
Refundable deposit - 1,620
Accounts receivable (less allowances
of $287 and $94 respectively) 16,851 16,173
Refundable income taxes 969 1,827
Inventories 1,828 2,077
Deferred income tax asset 1,240 937
Prepaid expenses and other current assets 107 258
-------- --------
Total current assets 64,077 42,216
Property, plant and equipment:
In service 309,601 292,502
Under construction 18,836 4,555
-------- --------
328,437 297,057
Less accumulated depreciation 126,300 109,376
-------- --------
202,137 187,681
Investments and other assets:
Cellular partnership 35,875 33,031
PCS licenses 9,000 9,000
Deferred charges and other assets 4,788 4,369
-------- --------
49,663 46,400
-------- --------
$315,877 $276,297
======== ========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1998 and 1997
(amounts in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------------------------------ ---- ----
Current liabilities:
Current portion of long-term debt $ 2,143 $ 5,714
Accounts payable and other accrued
liabilities 9,506 6,170
Payables to telecommunications entities 5,790 5,192
Advance billings and customer deposits 1,926 1,801
Accrued pension cost 3,111 3,351
Accrued compensation 3,618 2,823
-------- --------
Total current liabilities 26,094 25,051
Long-term debt 48,571 22,322
Deferred income taxes 23,629 23,775
Other liabilities and deferred credits 4,777 4,465
Minority interest in subsidiary 1,517 1,001
Shareholders' equity:
Common stock, without par value; 100,000
shares authorized, 15,815 shares issued and
outstanding 189,171 189,171
Retained earnings 22,118 10,512
-------- --------
Total shareholders' equity 211,289 199,683
-------- --------
$315,877 $276,297
======== ========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
(amounts in thousands)
Common Stock
-------------------
Number Retained
of Amount earnings Total
Shares
------ -------- ------- -------
Balance at December 31,
1995 14,915 $166,676 $ 7,717 $174,393
3% stock dividend,at
fair value:
Shares 443 11,082 (11,082) -
Cash in lieu of
fractional shares - - (104) (104)
Cash dividends - - (8,949) (8,949)
Net income - - 21,461 21,461
------ -------- ------- --------
Balance at December 31,
1996 15,358 177,758 9,043 186,801
3% stock dividend, at
fair value:
Shares 457 11,413 (11,413) -
Cash in lieu of
fractional share - - (106) (106)
Cash dividends - - (9,983) (9,983)
Net income - - 22,971 22,971
------ ------- ------- --------
Balance at December 31,
1997 15,815 189,171 10,512 199,683
Cash dividends - - (13,443) (13,443)
Net income - - 25,049 25,049
------ ------- ------- --------
Balance at December 31,
1998 15,815 $189,171 $22,118 $211,289
======= ======== ======= ========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(amounts in thousands)
1998 1997 1996
---- ---- ----
Cash flows from operating
activities:
Net income $ 25,049 $ 22,971 $ 21,461
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 20,684 19,116 18,793
Equity component of allowance
for funds used during
construction (378) (505) (409)
Provision for deferred income
taxes (650) 1,455 158
Equity in earnings of cellular
partnership (8,904) (10,080) (9,604)
Provision for doubtful accounts 942 297 185
Other, net (165) (96) (50)
Net changes in:
Accounts receivable (1,620) (1,750) (1,218)
Refundable income taxes 858 (1,955) 1,415
Deferred directory charges (299) (3,578) -
Inventories, prepaid expenses
and other current assets 400 984 (711)
Payables, accrued liabilities
and other deferred credits 5,127 196 2,643
------- ------- ------
Net cash provided by operating
activities 41,044 27,055 32,663
Cash flows from investing
activities:
Capital expenditures for property,
plant and equipment (35,209) (22,116) (24,983)
Purchase of PCS licenses - (9,000) -
Purchases of held-to-maturity
investments (7,478) (7,481) (2,735)
Maturities of held-to-maturity
investments 7,200 5,750 2,250
Investment in cellular partnership (701) (2,514) (366)
Return of investment in cellular
partnership 6,761 5,710 7,115
Return of refundable deposit 1,620 9,000 8,960
Refundable deposit - - (9,000)
Cable acquisition deposit - - (1,550)
Other, net 327 299 749
------- ------- -------
Net cash used in
investing activities (27,480) (20,352) (19,560)
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(amounts in thousands)
1998 1997 1996
---- ---- ----
Cash flows from financing
activities:
Principal payments of long-term
debt $ (4,822) $ (5,714) $ (3,571)
Proceeds of long-term debt 40,000 - -
Retirement of long-term debt (12,500) - -
Dividends paid and fractional
share amounts (13,443) (10,089) (9,053)
Return of minority partners'
investment in subsidiary - - (1,898)
Investment in subsidiary by
minority partners 681 25 1,000
-------- -------- -------
Net cash provided by (used in)
financing activities 9,916 (15,778) (13,522)
-------- -------- -------
Increase (decrease) in cash and
cash equivalents 23,480 (9,075) (419)
Cash and cash equivalents at
beginning of year 15,360 24,435 24,854
-------- -------- --------
Cash and cash equivalents at
end of year $ 38,840 $ 15,360 $ 24,435
======== ======== ========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of accounting
Roseville Communications Company (the "Company") is a holding company with
subsidiaries operating in the communications services industry. The Company's
principal operating subsidiary is Roseville Telephone Company ("Roseville
Telephone"). Roseville PCS, Inc., Roseville Directory Company ("Roseville
Directory"), and Roseville Long Distance Company ("Roseville Long Distance")
are each wholly owned subsidiaries of the Company. Roseville PCS, Inc., is the
manager of and has an approximate 93.1% interest in West Coast PCS LLC (d.b.a.
"RCS Wireless"), which was formed for the purpose of providing personal
communications services ("PCS").
The Company maintains the accounts of Roseville Telephone in accordance with the
Uniform System of Accounts prescribed for telephone companies by the Federal
Communications Commission (the "F.C.C."). The consolidated financial statements
were prepared in accordance with generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
The Company's consolidated financial statements have been prepared in
accordance with Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("SFAS No. 71"), which requires
companies meeting its criteria to give effect in their financial statements to
certain actions of regulators. For example, amounts charged to operations for
depreciation expense reflect estimated lives and methods prescribed by
regulators rather than the economic lives that might otherwise apply to
nonregulated enterprises. A number of telecommunications companies, including
all of the Regional Bell Operating Companies, have determined that they no
longer meet the criteria of SFAS No. 71. However, such telecommunications
companies are significantly different from Roseville Telephone in the level and
nature of competition they experience and in the nature and mix of services they
offer. The Company believes its regulated operations continue to meet the
criteria of SFAS No.71 due to its nature and mix of revenues, the authority of
federal and state regulators to establish rates and monitor Roseville
Telephone's earnings, the California Public Utilities Commission's ("P.U.C.")
regulatory authority to set Roseville Telephone's depreciation lives and recent
legal proceedings at the federal level which prohibit a regulatory agency from
setting rates and charges at levels which do not allow telephone companies to
recover their cost of providing telephone services, including a reasonable
profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether its
regulated operations continue to meet the criteria which require the use of SFAS
No. 71. If it becomes no longer reasonable to assume that Roseville Telephone
can recover its costs of providing regulated services through rates charged to
customers, whether resulting from the effects of increased competition or
specific regulatory actions, SFAS No. 71 would no longer apply. In the future,
should the Company determine its regulated operations no longer meet the SFAS
No. 71 criteria, a material, extraordinary, noncash charge would result. The
approximate amount of Roseville Telephone's net regulatory asset at December 31,
1998 was between $8,000 and $15,000, consisting principally of property, plant
and equipment. The estimate for property, plant and equipment was calculated
based upon a projection of useful lives which may be affected by the increasing
competition and rapid changes in the telecommunications industry referred to
above.
Principles of consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and a majorityowned limited liability company. All
significant intercompany transactions have been eliminated.
Cash equivalents and short-term investments
The Company invests its excess cash in high-quality debt instruments and certain
other investments. The Company considers highly liquid investments with
maturities of three months or less from the acquisition date of the instrument
to be cash equivalents. Short-term investments at December 31, 1998 consist of
high grade commercial paper and U.S. government and agency securities with
maturities greater than 90 days; however, none of the Company's investments have
maturities greater than one year. The Company has no investments in equity
securities.
Fair values of financial instruments
As of December 31, 1998 and 1997, the Company's financial instruments consist of
cash, cash equivalents, short-term investments and long-term debt. Management
believes that the carrying values of cash equivalents and short-term investments
at December 31, 1998 and 1997, which are at amortized cost, approximated their
fair values at such dates. The aggregate fair value of the Company's long-term
debt (including current maturities) was approximately $50,840 and $28,500 at
December 31, 1998 and 1997, respectively. Fair values for cash equivalents and
short-term investments were determined by quoted market prices and for long-term
debt by a discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar instruments.
Inventories
Telephone construction inventories consist of materials and supplies, which are
stated at average cost. Equipment and other nonregulated inventory held for
resale are stated at the lower of average cost or market.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Retirements and other
reductions of regulated telephone plant and equipment with a cost of
approximately $3,470, $1,127 and $12,787 in 1998, 1997 and 1996, respectively,
were charged against accumulated depreciation with no gain or loss recognized.
When property applicable to nonregulated operations is sold or retired, the
asset and related accumulated depreciation are removed from the accounts and the
associated gain or loss is recognized. The cost of maintenance and repairs is
charged to operating expense when incurred.
Directory Advertising
Costs of directory production and advertising sales are deferred until the
directory is published. Such costs are amortized to expense and the related
advertising revenues are recognized over the life of the related directory,
normally over the year following the issue date of the directory. Deferred
directory costs of approximately $3,900 and $3,600 as of December 31, 1998 and
1997, respectively, are included in Deferred Charges and Other Assets. The
Company did not incur significant directory costs in 1996.
Revenues
Certain of the Company's operations are subject to regulation by the F.C.C. and
the P.U.C. Pending and future regulatory actions may have a significant impact
on the Company's future operations and financial position.
Roseville Telephone bills Pacific Bell various charges for certain local
service, network access service and toll service revenues pursuant to agreements
(the "Pacific Bell Agreements") that arose as a result of the termination on
January 1, 1992 of previous revenue sharing arrangements with Pacific Bell. Of
the Company's total revenues in 1998, 1997 and 1996, 13%, 16%, and 23%,
respectively, were recorded under the Pacific Bell Agreements.
In December 1996, the P.U.C. issued Decision 96-12-074 (the "Decision") with
respect to Roseville Telephone's application granting an annual revenue increase
of $470 as a result of the Company's general rate proceeding filed in 1995. The
P.U.C. also ordered Roseville Telephone to implement a new regulatory framework
("NRF") for services furnished within the State of California in order to
accommodate market and regulatory movement toward competition and greater
pricing flexibility. Under NRF, Roseville Telephone is subject to ongoing
monitoring and reporting requirements, including a sharing mechanism whereby
Roseville Telephone may be required to share earnings with customers based on
its earned annual rate-of-return. Additionally, the P.U.C. ordered the
elimination of various sources of revenue including the transition payments from
Pacific Bell and a previously mandated billing surcharge. Based on calculations
by the P.U.C., the elimination of these sources of revenues were expected to be
offset by ordered increases in Roseville Telephone's local exchange and switched
access rates. This rate restructure became effective on February 1, 1997.
Depreciation
Depreciation of regulated telephone plant and equipment is computed on a
straight-line basis using rates approved by the P.U.C. Average annual composite
depreciation rates were 6.85%, 6.89%, and 6.98% in 1998, 1997 and 1996,
respectively.
The cost of property, plant and equipment used in nonregulated activities is
depreciated over their estimated useful lives, which range from 5 to 10 years,
on a straightline basis.
Advertising Costs
The costs of advertising are expensed as incurred. Advertising costs were $887,
$742 and $697 in 1998, 1997 and 1996, respectively.
Allowance for funds used during construction
The F.C.C. and the P.U.C. allow Roseville Telephone to capitalize an allowance
for funds used during construction, which includes both an interest and return
on equity component. Such amounts are reflected as a cost of constructing
certain plant assets and as an element of "Other income."
Income taxes
The Company accounts for income taxes using the liability method, which requires
deferred tax assets and liabilities to be recorded for the expected future tax
consequences of events that have been included in the financial statements and
tax returns. Additionally, the liability method requires adjustments of
deferred tax assets and liabilities for changes in tax laws or rates and
requires recognition of a regulatory asset or liability when it is probable that
deferred taxes would be reflected in future rates of regulated companies.
Per share amounts
Basic and diluted earnings per share of common stock is based on the weighted
average number of shares outstanding each year after giving retroactive effect
to stock dividends. Cash dividends per share is based on the actual dividends
per share, as declared
by the Company's board of directors, after giving retroactive effect to stock
dividends.
Statements of cash flows information
During 1998, 1997 and 1996, the Company made payments for interest and
income taxes as follows (in thousands):
1998 1997 1996
---- ---- ----
Interest (net of amounts capitalized $ 2,536 $ 2,480 $ 2,654
Income Taxes $16,494 $15,324 $12,945
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date. At
December 31, 1998 and 1997, all securities are designated as held-to-maturity as
management has the positive intent and ability to hold the securities until
maturity. Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion, as well as any interest on the securities, is
included in interest income.
Following is a summary of the Company's investments (included in cash and cash
equivalents and short-term investments) as of December 31, 1998 and 1997 at
amortized cost, which approximates fair value (in thousands):
1998 1997
---- ---
Commercial paper $31,329 $10,791
U.S. government and agency securities 2,754 1,000
Repurchase agreements 50 211
Other unsecured corporate notes 500 -
------ -----
$34,633 $12,002
======= =======
3. INVESTMENT IN SACRAMENTO-VALLEY LIMITED PARTNERSHIP
The Company has an approximate 23.5% interest in Sacramento-Valley Limited
Partnership ("SVLP"), which is accounted
for using the equity method. SVLP operates a cellular mobile radiotelephone
system principally in California. The Company's portion of undistributed
earnings of SVLP included in consolidated shareholders' equity at December
31, 1998 amounted to $24,938.
Summarized financial information for SVLP is as follows (in
thousands):
Balance sheet information as of December
31, 1998 and 1997:
1998 1997
---- ----
Current assets $ 39,564 $ 52,196
Noncurrent assets, primarily cellular plant $152,404 $144,826
Current liabilities $ 40,080 $ 56,130
Noncurrent liabilities $ 178 $ 155
Income statement information for
the years ended December 31, 1998,
1997 and 1996:
1998 1997 1996
---- ---- ----
Net revenues $195,624 $173,616 $157,809
Costs and expenses, net 158,829 130,673 116,896
-------- -------- -------
Net income $ 36,795 $ 42,943 $ 40,913
======== ======== ========
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1998 and 1997 consisted of the
following (in thousands):
1998 1997
---- ----
Unsecured Series A Senior Notes, with interest
payable semiannually at a fixed rate of 6.3%;
principal payments are due in equal annual
installments of approximately $3,636, commencing
in December 2003 and ending in December 2013 $ 40,000 $ -
Unsecured term loan with a bank, with interest
payable quarterly at a fixed rate of 6.22%;
principal payments are due in equal quarterly
installments of approximately $536, through
December 2003 10,714 12,857
Unsecured term loan with a bank, retired in 1998 - 15,179
------- --------
50,714 28,036
Less current portion 2,143 5,714
------- --------
$ 48,571 $ 22,322
======== ========
On December 9, 1998 the Company entered into a private placement of Series A
Senior Notes for $40,000. Proceeds from the new credit arrangement were used
for the retirement of debt and general corporate purposes. The costs related to
the retirement of debt were not significant.
At December 31, 1998, the aggregate maturity requirements for the years 1999
through 2002 are $2,143 in each year and $5,779 in the year 2003.
Certain of the aforementioned credit arrangements contain various positive and
negative covenants with respect to cash flow coverage, tangible net worth and
leverage ratio. These provisions could restrict the payment of dividends in
certain circumstances; however, the entire amount of retained earnings at
December 31, 1998 was unrestricted.
5. INCOME TAXES
The income tax provisions consist of the following components (in thousands):
1998 1997 1996
---- ---- ----
Current expense:
Federal $ 13,400 $ 10,273 $ 10,900
State 3,952 3,096 3,460
-------- -------- --------
17,352 13,369 14,360
Deferred expense:
Federal (271) 1,442 319
State (379) 13 (161)
-------- -------- --------
(650) 1,455 158
-------- -------- --------
$ 16,702 $14,824 $ 14,518
======== ======== ========
The income tax provisions differ from those computed by using the statutory
federal tax rate (35% in all years presented) due to the following (in
thousands):
1998 1997 1996
---- ---- ----
Computed at statutory rates $ 14,613 $ 13,228 $ 12,593
Increase (decrease):
State taxes, net of federal
benefit 2,322 2,021 2,144
Other, net (233) (425) (219)
-------- --- ---- --------
Income tax provision $ 16,702 $ 14,824 $ 14,518
======== ======== ========
Effective federal and state
tax rate 40.0% 39.2% 40.4%
===== ===== =====
The significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31, 1998 and 1997 (in thousands):
Deferred Income Taxes
---------------------
1998 1997
---- ----
Assets Liabilities Assets Liabilities
------ -------- ----- ----------
Property, plant and
equipment - primarily due
to depreciation differences $ - $ 23,429 $ - $ 23,140
Differences in the timing of
recognition of revenues 2,403 - 2,402 -
Cellular partnership - 5,875 - 5,349
State franchise taxes 1,240 - 937 -
Other, net 3,591 319 2,731 419
-------- -------- ------ --------
Total 7,234 29,623 6,070 28,908
Less current portion 1,240 - 937 -
--------- -------- -------- ---------
$ 5,994 $ 29,623 $ 5,133 $ 28,908
========= ======== ======== =========
Net long-term deferred
income tax liability $ 23,629 $ 23,775
======== =========
6. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a noncontributory defined benefit pension plan covering
substantially all employees. Benefits are based on years of service and the
employee's average compensation during the five highest consecutive years of
the last ten years of credited service. The Company's funding policy is to
contribute annually an actuarially determined amount consistent with applicable
federal income tax regulations. Contributions are intended to provide for
benefits attributed to service to date. Plan assets are primarily invested in
collective trust accounts, government and government agency obligations,
publicly traded stocks and bonds and mortgage-related securities.
Net periodic pension cost for 1998, 1997 and 1996 includes
the following components (in thousands):
1998 1997 1996
---- ---- ----
Service cost-benefits earned $ 3,248 $ 2,915 $ 2,939
during the period
Interest cost on projected benefit 4,850 4,599 4,263
obligation
Expected return on plan assets (5,216) (4,341) (3,596)
Amortization of transition 265 265 265
obligation
Recognized net actuarial loss - - 316
-------- -------- --------
Net pension cost $ 3,147 $ 3,438 $ 4,187
======== ======== =======
The following table sets forth the change in benefit obligation, change in plan
assets and funded status as of December 31, 1998 and 1997 (in thousands):
1998 1997
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 67,033 $ 59,420
Service cost 3,248 2,915
Interest cost 4,850 4,599
Actuarial losses 2,824 1,996
Benefits paid (2,141) (1,897)
-------- -------
Benefit obligation at end of year $ 75,814 $ 67,033
======== ========
Change in plan assets:
Fair value of plan assets at beginning of $ 60,937 $ 50,087
year
Actual return on plan assets 9,040 8,787
Company contribution 3,388 3,960
Benefits paid (2,141) (1,897)
-------- -------
Fair value of plan assets at end of year $ 71,224 $ 60,937
======== ========
Funded status:
Funded status of plan at end of year end $ (4,590)$ (6,096)
Unrecognized actuarial loss (gain) (404) 597
Unrecognized prior service cost (26) (29)
Unrecognized net transition obligation 1,909 2,177
-------- -------
Accrued benefit cost $ (3,111)$ (3,351)
======== ========
The discount rates used in determining the projected benefit obligation at
December 31, 1998 and 1997 were 6.75% and 7%, respectively. The assumed rate of
increase in future compensation levels used to measure the projected benefit
obligation was 5.5% at December 31, 1998 and 1997. The expected long-term rate
of return on plan assets used in determining net pension cost was 8.5% in
1998, 1997 and 1996. Changes in the discount rate and the rate of increase in
future compensation at December 31, 1996 increased pension cost $84 in 1997.
The Company also maintains a retirement supplement plan providing both a
retirement and savings feature for substantially all employees. The retirement
feature allows for tax deferred contributions by employees under Section 401(k)
of the Internal Revenue Code. Subject to certain limitations, one-half of all
employee contributions made to the retirement supplement plan are matched by the
Company. Such matching contributions amounted to $1,417, $1,340 and $1,226 in
1998, 1997 and 1996, respectively. At December 31, 1998, 11% of the Company's
outstanding shares of common stock were held by the retirement supplement plan.
The Company provides certain postretirement benefits other than pensions to
substantially all employees, including life insurance benefits and a stated
reimbursement for Medicare supplemental insurance. The benefit obligations and
annual postretirement benefits costs relating to these benefits are not
significant to the Company's consolidated financial position and results of
operations.
7.SHAREHOLDER RIGHTS PLAN
In March 1998, the Board of Directors of the Company adopted a Shareholder
Rights Plan (the "Plan") wherein shareholders of the Company received rights to
purchase the Company's common stock, or an acquirer's common stock, at a
discount in certain events involving an acquisition of 20% or more of the
Company's common stock by any person or group in a transaction not approved by
the Board. The rights expire in March 2008.
8. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment used in its operations and
reflects lease payments as rental expense for the periods to which they relate.
Total rent expense amounted to $496, $482, and $412 in 1998, 1997 and 1996,
respectively.
At December 31, 1998, the aggregate minimum rental commitments under
noncancellable operating lease obligations are not significant.
Other commitments
The budgeted capital expenditures for Roseville Telephone's and RCS Wireless's
operations for the year ending December 31, 1999 approximate $33,400 and
$19,100, respectively. Binding commitments for such planned expenditures at
December 31, 1998 approximate $12,000. Budgeted capital expenditures for
Roseville Directory and Roseville Long Distance for the year ending December 31,
1999 are not significant.
Litigation
The Company is subject to certain legal proceedings and claims arising in the
ordinary course of its business. In the opinion of management, any liability
which may ultimately be incurred with respect to these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
9. CONCENTRATIONS OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENTS
Substantially all of the Company's revenues were from communications and
related services provided in the Northern California area. The Company
performs ongoing credit evaluations of its customers' financial condition
and management believes that an adequate allowance for doubtful accounts has
been provided.
As discussed in Note 1 - Revenues, approximately 13%, 16%, and 23% of the
Company's consolidated operating revenues in 1998, 1997, and 1996,
respectively, were derived from access charges and other charges to, and
transition contract payments from Pacific Bell pursuant to the Pacific Bell
Agreements. Approximately 8%, 10%, and 8% of the Company's consolidated
operating revenues in 1998, 1997 and 1996, respectively, were derived from
access charges and other charges to AT&T. No other customers accounted for
more than 10% of consolidated operating revenues.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131), which establishes standards
for the way that public business enterprises report information about
operating segments in quarterly and annual financial statements. SFAS 131
changes segment reporting from an industry segment basis to an operating
segment basis defined based on how the business is managed. As the Company
operates substantially in one segment, telecommunications services, SFAS 131
reporting is not applicable.
10. PENDING ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
companies to capitalize certain costs associated with obtaining or developing
internal-use software and is effective for the Company in 1999. Currently, the
costs of computer software purchased or developed for internal use are expensed
as incurred, except for operating system and application software initially
acquired with the related equipment. Had the Company adopted SOP 98-1 in 1998,
net income would have increased by approximately $2,000. The Company expects to
implement SOP 98-1 in 1999, subject to the approval of the F.C.C. A
similar increase to net income is expected in 1999.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information regarding the executive officers of the Company, see "Executive
Officers of the Registrant" at the end of Part I of this report. Other
information required by this item is incorporated herein by reference from the
proxy statement for the annual meeting of the Company's shareholders to be held
on June 18, 1999.
Item 11. Executive Compensation.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 18, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 18, 1999.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 18, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1 and 2. Financial Statements
The financial statements listed in the accompanying
Index to Financial Statements are filed as part of this
annual report.
3. Exhibits
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth
quarter of 1998.
(c) Separate Financial Statements of
Subsidiaries Not Consolidated and Fifty Percent or Less
Owned Persons
The financial statements of a 50% or less owned
unconsolidated company are submitted inasmuch as the
registrant's equity in the income before income taxes of
such company exceeds 20% of the total consolidated income
before income taxes of the registrant:
1. Financial Statements and Financial Statement Schedule
of Sacramento-Valley Limited Partnership are included
herewith beginning on page 42:
Page
----
Report of Independent Accountants 41
Consolidated Balance Sheets at
December 31, 1998 and 1997 42
Consolidated Statements of Income
for the Years Ended December 31, 1998,
1997 and 1996 43
Consolidated Statements of Partners'
Capital for the Years Ended December 31,
1998, 1997 and 1996 44
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998,
1997 and 1996 45
Notes to Consolidated Financial Statements 46
Schedule II - Valuation and Qualifying
December 31, 1998, 1997 and 1996 50
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO FINANCIAL STATEMENTS
(Item 14 (a) 1 and 2)
Page
----
Report of Independent Auditors 20
Consolidated statements of income for each of the three years
in the period ended December 31, 1998 21
Consolidated balance sheets as of December 31, 1998 and 1997 22
Consolidated statements of shareholders' equity for
each of the three years in the period ended December 31, 1998 24
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 1998 25
Notes to consolidated financial statements 27
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
Report of Independent Accountants
To the Partners of Sacramento-Valley Limited Partnership
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, partners' capital and cash flows and the
financial statement schedule II valuation and qualifying account present fairly,
in all material respects, the financial position of Sacramento-Valley Limited
Partnership and its subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
March 1, 1999
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
DECEMBER 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash $ 36 $ 18
Accounts receivable, net of allowance for
doubtful accounts of $1,823 and $1,964,
respectfully 21,658 24,204
Due from general partner 7,362 16,270
Inventories 9,361 8,863
Other current assets 1,147 2,841
------- -------
Total current assets 39,564 52,196
Property, plant and equipment, net 141,109 133,348
FCC licenses, net 10,204 10,522
Other noncurrent 1,091 956
------- --------
$191,968 $197,022
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable, trade $ 27,702 $ 40,013
Deferred revenue 3,833 2,934
Accrued commissions 3,109 3,265
Accrued employee benefits 1,988 2,654
Accrued taxes 2,289 6,208
Other current liabilities 1,159 1,056
------- -------
Total current liabilities 40,080 56,130
------- -------
Commitments and contingencies (Note 3)
Minority interest in consolidated subsidiary 178 155
------- ------
Partners' capital:
General partner 75,663 70,191
Limited partners 76,047 70,546
------- --------
151,710 140,737
------- --------
$191,968 $197,022
======== ========
The accompanying notes are an integral part of these financial statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY CONSOLIDATED
STATEMENTS OF INCOME
(amounts in thousands)
For the Year Ended
December 31,
1998 1997 1996
---- ---- ----
Operating revenues $195,624 $173,616 $157,809
-------- -------- --------
Operating expenses:
Cost of revenues 47,801 35,385 31,587
Selling, general and administrative:
General partner and affiliates 10,371 8,162 6,489
Other 75,670 68,265 63,321
Depreciation and amortization 25,522 19,179 15,818
-------- ------- -------
Total operating expenses 159,364 130,991 117,215
-------- ------- ------
Operating income 36,260 42,625 40,594
Interest income on amounts due from general
partner 615 371 363
Minority interest in net income of consolidated
subsidiary (80) (53) (44)
------- -------- --------
Net income $ 36,795 $ 42,943 $ 40,913
======== ======== ========
Allocation of net income:
General partner $ 18,352 $ 21,418 $ 20,407
Limited partners 18,443 21,525 20,506
-------- -------- --------
$ 36,795 $ 42,943 $ 40,913
======== ======== ========
The accompanying notes are an integral part of these financial statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(amounts in thousands)
General
Partner Limited Partners
-------- ---------------------------------------
Centennial
Cellular
Telephone
Company of Roseville Evans GTE
AirTouch Sacramento Telephone Cellular Wireless,
Cellular Valley Company Inc. Inc. Total
-------- ----------- --------- ------ ------- -----
Partners' capital,
December 31, 1995 $ 49,498 $ 23,296 $ 23,296 $ 2,182 $ 974 $ 99,246
Contributions 776 366 366 34 15 1,557
Distributions (15,121) (7,115) (7,115) (666) (296) (30,313)
Net income 20,407 9,603 9,603 900 400 40,913
-------- ------- ------ ----- ---- -------
Partners' capital,
December 31, 1996 55,560 26,150 26,150 2,450 1,093 111,403
Contributions 5,343 2,514 2,514 236 105 10,712
Distributions (12,130) (5,709) (5,709) (535) (238) (24,321)
Net income 21,418 10,080 10,080 945 420 42,943
-------- -------- -------- ------- ------ --------
Partners' capital,
December 31, 1997 70,191 33,035 33,035 3,096 1,380 140,737
Contributions 1,489 701 701 66 29 2,986
Distributions (14,369) (6,761) (6,761) (635) (282) (28,808)
Net income 18,352 8,636 8,636 811 360 36,795
-------- -------- -------- ------- ------ --------
Partners' capital,
December 31, 1998 $ 75,663 $ 35,611 $ 35,611 $ 3,338 $1,487 $151,710
======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the Year Ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income $36,795 $42,943 $40,913
Adjustments to reconcile net income for
items currently not affecting operating
cash flows:
Depreciation and amortization 25,522 19,179 15,818
Minority interest in net income of
consolidated subsidiary 80 53 44
Loss on sale of equipment 975 113 68
Changes in assets and liabilities:
Accounts receivable, net 2,546 (611) (3,190)
Inventories (498) (5,619) (853)
Other current assets 1,694 (886) (569)
Other noncurrent assets (135) (104) (39)
Accounts payable - trade (5,110) 3,294 4,962
Deferred revenue 899 1,070 313
Accrued commissions (156) (630) (1,007)
Accrued employee benefits (666) 65 801
Accrued taxes (3,919) 4,461 272
Other current liabilities 103 (4) 319
------- ------- -------
Cash flows from operating activities 58,130 63,324 57,852
------- ------- -------
Cash flows from investing activities:
Acquisitions of property, plant and
equipment (41,245)(38,665)(29,920)
Proceeds from sale of equipment 104 83 46
Change in due from general partner 8,908 (11,097) 817
------- ------ ------
Cash flows from investing activities (32,233)(49,679)(29,057)
------- ------- ------
Cash flows from financing activities:
Contributions from partners 2,986 10,712 1,557
Distributions to partners (28,808)(24,321)(30,313)
Distributions to minority interest in
consolidated subsidiary (57) (34) (27)
------- ------- ------
Cash flows from financing activities (25,879)(13,643)(28,783)
------ ------ ------
Net change in cash 18 2 12
Beginning cash 18 16 4
------- ------- ------
Ending cash $ 36 $ 18 $ 16
======= ======= =======
Supplemental disclosure of non-cash
transactions:
Acquisitions of property and equipment
included in accounts payable-trade at
year end $ 7,946 $15,147 $12,134
======= ======= =======
The accompanying notes are an integral part of these financial statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. DESCRIPTION OF PARTNERSHIP AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization
Sacramento-Valley Limited Partnership (Partnership) was formed on April 2,
1984 under the laws of the State of California and provides wireless
telecommunications services in the Northern California area. The
Partnership's ownership interests are as follows:
General Partner:
AirTouch Cellular, wholly-owned by a subsidiary
of AirTouch Communications, Inc. 49.878%
Limited Partners:
Centennial Cellular Telephone Company
of Sacramento Valley 23.472%
Roseville Telephone Company 23.472%
Evans Cellular,Inc. 2.200%
GTE Wireless, Inc. .978%
Profits and losses are allocated based on respective partnership interests.
Capital calls and distributions are made quarterly, at the discretion of the
General Partner.
Financial statement presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). Conformity with GAAP
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of the Redding MSA
Limited Partnership (RMLP) and the Partnership. The Partnership owns a 97.1%
interest in RMLP. All significant intercompany transactions have been
eliminated.
Inventories
Inventories are stated at cost or the lower of cost or market. Cost is
determined using either the first-in, first-out or average method. Market is
determined using replacement cost in acordance with industry standards.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful life of the asset.
Land is not depreciated. Gains and losses on disposals are included in income
at amounts equal to the difference between the net book value of the disposed
assets and the proceeds received upon disposal. Expenditures for replacements
and improvements are capitalized, while expenditures for maintenance and repairs
are charged against earnings as incurred. Assets under construction are not
depreciated until placed into service.
FCC licenses
The Federal Communications Commission (FCC) issues cellular licenses that enable
U.S. cellular carriers to provide service in specific Cellular Geographic
Service Areas. A cellular license is issued conditionally for ten years.
Historically, the FCC has routinely granted license renewals providing the
licensees have complied with applicable rules, policies, and the Communications
Act of 1934, as amended. The Partnership records FCC licenses at cost and
believes it has complied and intends to continue to comply with applicable
standards and is amortizing the related costs using the straight-line method
over 40 years. Accumulated amortization of FCC licenses totaled $2,509 and
$2,191 at December 31, 1998 and 1997. Related amortization expenses are $318,
$321, and $321 in 1998, 1997, and 1996, respectively.
Valuation of long-lived assets
The Partnership periodically reviews long-lived assets and certain identifiable
intangible assets, including FCC licenses, for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss would be recognized whenever the review
demonstrates that the carrying value of a long-lived asset is not recoverable.
Revenue recognition
Operating revenues primarily consist of charges to customers for monthly
access charges, cellular airtime usage, and roamer charges. Revenues are
recognized as services are provided.
Unbilled revenues, resulting from cellular service provided from the billing
cycle date to the end of each period and from other cellular carriers'
customers using the Partnership's cellular systems for the last half of each
period, are estimated and recorded as receivables.
Unearned monthly access charges relating to periods after
period end are deferred.
Concentration of credit risk
Due to the diversity and large number of customers within the Partnership's
service area, concentrations of credit risk with respect to trade receivables
are limited. The Partnership performs ongoing credit evaluations of its
customers and in certain circumstances obtains refundable deposits. The
Partnership maintains reserves for potential credit losses and, historically,
such losses have been within management's expectations.
Income taxes
No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.
Advertising costs
The Partnership expenses advertising costs as incurred. Advertising expense
was $9,484 in 1998, $9,652 in 1997, and $7,372 in 1996.
Reclassifications
Certain reclassifications of the 1997 and 1996 financial
statements have been made to conform to the 1998 presentation. The
reclassifications have not affected previously reported net income or
Partners' capital.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
DEPRECIABLE DECEMBER 31,
Lives 1998 1997
(Years) ---- ----
Land - $ 37 $ 37
Buildings and leasehold improvements 5-18 33,322 31,188
Cellular plant and equipment 5-10 183,215 165,820
Other equipment and furniture 2-5 22,356 20,661
Construction in progress - 15,885 8,408
-------- --------
Total 254,815 226,114
Less accumulated depreciation 113,706 92,766
-------- ------
Net property, plant and equipment $141,109 $133,348
======== ========
Related depreciation expense was $25,204, $18,858, and
$15,497 in 1998, 1997, and 1996, respectively.
3. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Partnership leases various facilities and equipment
under noncancellable lease arrangements. Most leases
contain renewal options for varying periods. Related rent expense under all
operating leases was $4,760, $4,334, and $3,657 in 1998, 1997, and 1996,
respectively.
Future minimum lease payments required under noncancellable operating leases
with an initial term of one year or more at December 31, 1998 were:
1999 $ 5,504
2000 5,379
2001 5,224
2002 4,333
2003 2,790
Thereafter 19,909
-------
Total minimum lease payments $43,139
=======
Contingencies
The Partnership is subject to state regulation of the "terms and conditions"
of cellular service other than rates
and FCC regulation of cellular rates and market entry and party to various
legal proceedings in the ordinary course of business. Management of the
Partnership believes that the ultimate outcome of these matters will not have
a material adverse impact on its financial position or results of operations.
4. RELATED PARTY TRANSACTIONS
The General Partner is reimbursed for all Partnership expenditures made as
General Partner. As provided in the
Partnership agreement, certain system operations and selling, general and
administrative expenses incurred by the General Partner on behalf of the
Partnership are passed through to the Partnership.
The Partnership participates in a centralized cash management arrangement
with the General Partner. The General Partner pays or charges the
Partnership monthly interest, computed using the General Partner 's average
borrowing rate (5.63% and 5.53% at December 31, 1998 and 1997, respectively)
on the amounts due to or from the Partnership.
5. MAJOR SUPPLIER
The Partnership purchases substantially all of its network
equipment from one supplier.
6. SUBSEQUENT EVENT
On January 15, 1999, the General Partner's parent company, AirTouch
Communications, Inc. (AirTouch), and Vodafone Group Plc (Vodafone) announced
a definitive agreement to merge the two companies (the Merger). The Merger
is subject to the approval of the stockholders of Vodafone and AirTouch,
customary government and regulatory authority approvals, and the receipt of
opinions from tax counsel that the stock portion of the Merger consideration
will be tax free to the U.S. holders of AirTouch common stock. The Merger
is expected to close in the second half of 1999.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
(amounts in thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- ---------- ---------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1998 $ 1,964 $ 4,289 $(4,430)(a) $ 1,823
Year ended December 31, 1997 $ 1,305 $ 3,247 $(2,588)(a) $ 1,964
Year ended December 31, 1996 $ 1,061 $ 3,171 $(2,927)(a) $ 1,305
(a) Amounts reflect items written-off, net of recoveries.
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit No. Description of Filing Page
- --------- ----------- --------- ----
3(a) Articles of Incorporation of the Incorporated --
Company, together with by reference
Certificate of Amendment of
Articles of Incorporation dated
January 25, 1996 and Certificate
of Amendment of Articles of
Incorporation dated June 21, 1996
(Filed as Exhibit 3(a) to Form 10Q
Quarterly Report for the quarter
ended September 30, 1996)
3(b) Bylaws of the Company Filed 55
herewith
4(a) Shareholder Rights Plan (Filed as Incorporated
Exhibit 2.1 to Form 8-A by reference
Registration Statement under the
Securities Act of 1934)
10(a) Sacramento-Valley Limited Incorporated -
Partnership Agreement, dated by reference
April 4, 1984 (Filed as
Exhibit I reference to Form 10-Q
Quarterly Report of Roseville
Telephone Company for the quarter
ended March 31, 1984)
10(b) Credit Agreement of Roseville Incorporated -
Telephone Company with Bank of by reference
America National Trust and
Savings Association, dated
March 27, 1992, with respect
to $25,000,000 term loan.
(Filed as Exhibit 10(a) to
Form 10-Q Quarterly Report of
Roseville Telephone Company
for the quarter ended March 31, 1992)
10(c) Note Purchase Agreement for Filed 82
Series A Senior Notes in the herewith
aggregate amount of $40,000,000
dated December 9, 1998
10(d) Operating Agreement of West Coast Incorporated
PCS LLC (Filed as Exhibit 10 (d) by reference
to Form 10-K Annual Report of
Roseville Communications Company
for the year ended December 31,
1997.
10(e) 1999 Restricted Stock Bonus Plan Filed 159
herewith
21(a) List of subsidiaries Incorporated --
by reference
27 Financial Data Schedule Filed
herewith --
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEVILLE COMMUNICATIONS COMPANY
(Registrant)
Date: March 18, 1999 By: /s/ Brian H. Strom
------------------
President and Chief
Executive Officer
Date: March 18, 1999 By: /s/ Michael D. Campbell
-----------------------
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 18, 1999 /s/ Robert L. Doyle
-------------------
Robert L. Doyle,
Chairman of the Board
Date: March 18, 1999 /s/ Brian H. Strom
------------------
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 18, 1999 /s/ Michael D. Campbell
-----------------------
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 18, 1999 /s/ Thomas E. Doyle
-------------------
Thomas E. Doyle,
Director
Date: March 18, 1999 /s/ Ralph E. Hoeper
-------------------
Ralph E. Hoeper,
Director
Date: March 18, 1999 /s/ John R. Roberts III
-----------------------
John R. Roberts III,
Director
Date: March 18, 1999 /s/ Chris Branscum
------------------
Chris Branscum,
Director
Date: March 18, 1999 /s/ Neil Doerhoff
-----------------
Neil Doerhoff,
Director
These Bylaws reflect the amendments to Section 3.02 effective January , 1999
BYLAWS
OF
ROSEVILLE COMMUNICATIONS COMPANY TABLE OF CONTENTS
PAGE ARTICLE 1.
Offices 1
1.01 Principal Office 1
1.02 Other Offices1
ARTICLE 2. Meetings of Shareholders 1
2.01 Place 1
2.02 Annual Meeting 1
2.03 Special Meetings 2
2.04 Notice of Meetings3
2.05 Manner of Giving Notice; Affidavit of Notice 4
2.06 Quorum 5
2.07 Adjourned Meetings and Notice Thereof 5
2.08 Consent of Absentees 6
2.09 Voting 7
2.10 Shareholder Action by Written Consent Without a
Meeting 9
2.11 Record Date for Shareholders 10
2.12 Proxies 12
ARTICLE 3. Directors 13
3.01 Powers 13
3.02 Number and Qualification of Directors 13
3.03 Election and Term of Office 14
3.04 Vacancies 14
3.05 Place of Meetings and Meetings by Telephone 15
3.06 Annual Meeting 16
3.07 Other Regular Meetings 16
3.08 Special Meetings -- Call and Notice 16
3.09 Waiver of Notice 17
3.10 Quorum 17
3.11 Action Without Meeting 18
3.12 Adjournment -- Notice 18
3.13 Fees and Compensation 18
3.15 Committees of Directors 26
3.16 Meetings And Action of Committees 27
ARTICLE 4. Officers 27
4.01 Number and Titles 27
4.02 Election 28
4.03 Removal, Resignation and Disqualification 28
4.04 Vacancies 29
4.05 President 29
4.06 Vice President 29
4.07 Secretary 30
4.08 Chief Financial Officer 31
4.09 Salaries 31
ARTICLE 5. Corporate Records and Reports 32
5.01 Maintenance and Inspection of the Record of
Shareholders 32
5.02 Maintenance and Inspection of Bylaws 32
5.03 Maintenance and Inspection of Other Corporate
Records 33
5.04 Inspection by Directors 34
5.05 Annual Report to Shareholders 34
5.06 Financial Statements 34
5.07 Annual Statement of General Information 35
ARTICLE 6. General Corporate Matters 36
6.01 Checks, Drafts and Evidences of Indebtedness 36
6.02 Corporate Contracts and Instruments; How Executed 36
6.03 Certificates for Shares 37
6.04 Lost Certificates 37
6.05 Representation of Shares of Other Corporations 38
ARTICLE 7. Construction and Definitions 38
7.01 Construction and Definitions 38
ARTICLE 8. Amendments 39
8.01 Power of Shareholders 39
8.02 Power of Directors 39
BYLAWS
OF
ROSEVILLE COMMUNICATIONS COMPANY
ARTICLE 1.
OFFICES
1.01 PRINCIPAL OFFICE. The principal
executive office of the corporation shall be
located in the City of Roseville, County of Placer, State of California. The
board of directors shall have the power and authority to change the principal
office from one location to another in said County.
1.02 OTHER OFFICES. Branch or
subordinate offices may be established at any time by the board of directors at
any place or places where the corporation is qualified to do business.
ARTICLE 2. MEETINGS OF SHAREHOLDERS
2.01 PLACE. Meetings of
shareholders, whether annual or special, shall be held either at the principal
executive office or at any other place within or without the State of California
which may be designated either by the board of directors in writing or by the
written consent of all shareholders entitled to vote thereat, which consent may
be given either before or after the meeting and filed with the secretary of the
corporation.
2.02 ANNUAL MEETING. The annual
meeting of shareholders shall be held on the third Friday of June of each year
at a time designated by the board of directors. At each annual meeting
directors shall be elected and
any other proper business may be transacted.
2.03 SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or
purposes whatsoever, may be called at any time by the board of directors, the
president, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than ten percent (10%) of the votes at that meeting.
(b) If a special meeting is called by any person other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the president, any vice president, or the
secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.04 and 2.05 hereof, that a meeting will be
held at the time requested by the person or persons calling the meeting, not
less than thirty (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of
the request, the person or persons requesting the meeting may give the notice.
Nothing contained in this Section 2.03 shall be construed as limiting, fixing,
or affecting the time when a meeting of shareholders called by action of the
board of directors may be held.
2.04 NOTICE OF MEETINGS.
(a) All notices of meetings of shareholders shall be sent or
otherwise given in accordance with Section 2.05 hereof not less than ten (10)
nor more than sixty (60) days before the date of the meeting. Such notice shall
state the place, date and hour of the meeting and (1) in the case of a special
meeting, the general nature of the business to be transacted, and no other
business may be transacted, or (2) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, the board of directors intends to present for
election.
(b) If action is proposed to be taken at any meeting for
approval of (1) a contract or transaction in which a director has a direct or
indirect financial interest pursuant to Section 310 of the Corporations Code of
California, (2) an amendment of the articles of incorporation pursuant to
Section 902 of that Code, (3) a reorganization of the corporation pursuant to
Section 1201 of that Code, (4) a voluntary dissolution of the corporation
pursuant to Section 1900 of that Code or (5) a distribution in dissolution other
than in accordance with the rights of outstanding
preferred shares pursuant to Section 2007 of that Code, the notice shall also
state the general nature of that proposal.
2.05 MANNER OF GIVING NOTICE;
AFFIDAVIT OF NOTICE.
(a) Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written communication,
charges prepaid, addressed to each shareholder entitled to vote thereat at the
address of that shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is so given, notice shall be
deemed to have been given if it is sent to that shareholder by first-class mail
or telegraphic or other written communication to the corporation's principal
executive office or is published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
(b) If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given to that shareholder without further mailing if they shall be available to
the shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one year from the date of the giving
of the notice to all other shareholders.
(c) An affidavit of the mailing or other means of giving any
notice of any shareholders' meeting may be executed by the secretary, assistant
secretary or any transfer agent of the corporation giving the notice, and filed
and maintained in the minute book of the corporation.
2.06 QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business at such meeting. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
2.07 ADJOURNED MEETINGS AND NOTICE THEREOF.
(a) Any shareholders' meeting, annual or special, whether or not
a quorum is present, may be adjourned from time to time by
the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum no other business may be
transacted except as provided in Section 2.06.
(b) When a shareholders' meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
forty-five (45) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting, in accordance with
Sections 2.04 and 2.05 hereof.
2.08 CONSENT OF ABSENTEES.
(a) The transactions of any meeting of shareholders, either
annual or special, however called and noticed, and wherever held, are as valid
as though had at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Such waiver, consent or approval
need not specify either the business to be transacted or the purpose of any
annual or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any of those matters specified in Section
2.04(b) hereof, such waiver, consent or approval shall state the general nature
of the proposal. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
(b) Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
law to be included in the notice of the meeting but not so included, if that
objection is expressly made at the meeting.
2.09 VOTING.
(a) The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section
2.11 hereof, subject to the provisions of Sections 702 to 704, inclusive, of the
Corporations Code of California (relating to voting shares held by a fiduciary
and others, in the name of a corporation or in joint ownership). Except as
provided in subsection (b) of this Section 2.09, each outstanding share
shall be entitled to one vote on each matter submitted to a vote of the
shareholders. The shareholders' vote may be by voice vote or by ballot;
provided, however, that any election of directors must be by ballot if demanded
by any shareholder at the meeting and before the voting has begun. On any
matter other than elections to office, any shareholder may vote part of his or
her shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares that the shareholder is entitled to vote. If a quorum is present,
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting (which shares voting affirmatively also shall constitute at
least a majority of the required quorum) shall be the act of the shareholders
(other than in respect of the election of directors), unless the vote of a
greater number or voting by classes is required by California General
Corporation Law or by the articles of incorporation.
(b) No shareholder shall be entitled to cumulate votes (I.E.,
cast for any one candidate a number of votes greater than the number of votes
which such shareholder normally is entitled to cast) unless such candidate or
candidates' names have been placed in nomination prior to commencement of the
voting and a shareholder has given notice at the meeting prior to commencement
of the voting of the shareholder's intention to cumulate his or her votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate his or her votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
entitled or distribute the shareholder's votes on the same principle among any
or all of the candidates. The candidates receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
(a) Any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and voted. In the case
of an election of directors, such a consent shall be effective only if signed by
the holders of all outstanding shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any time to
fill a vacancy on the board of directors that has not been filled by the
directors, if such vacancy was created other than by removal, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the shareholder or
their respective proxy holders may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary,
but may not do so thereafter.
(b) If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written consent of all such
shareholders has not been received, the secretary shall give prompt notice of
the corporate action approved by the shareholders without a meeting to those
shareholders entitled to vote who have not consented in writing. This notice
shall be given in the manner specified in Section 2.05 hereof. In the case of
approval of
(1) contracts or transactions in which a director has a direct or indirect
financial interest pursuant to Section 310 of the Corporations Code of
California,
(2) indemnification of agents of the corporation pursuant to Section 317 of that
Code, (3) a reorganization of the corporation pursuant to Section 1201 of that
Code or (4) a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares pursuant to Section 2007 of that Code,
the notice shall be given at least (10) ten days before the consummation of any
action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDERS. (a) For purposes of determining
the shareholders entitled to notice of any meeting or to vote or entitled to
receive payment of any dividend or other distribution or allotment of any rights
or entitled to exercise any rights in respect of any other lawful action, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten days before the date of any such meeting
nor more than sixty (60) days before any other action.
(b) If the board of directors
does not fix a record date, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(c) If the board of directors does not fix a record date, the
record date for
determining shareholders entitled to give consent to corporate action in writing
without a meeting, when no prior action by the board has been taken, shall be
the day on which the first written consent is given.
(d) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the board adopts
the resolution relating thereto or the sixtieth (60th) day before the date of
such other action, whichever is later.
(e) Only shareholders of record
at the close of business on the record date shall be entitled to notice and to
vote or to receive the dividend distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the California General Corporation Law.
2.12 PROXIES.
(a) Every person entitled to vote shares shall have the right to
do so either in person or by one or more agents authorized by a written proxy
signed by the person and filed with the secretary of the corporation. A proxy
shall be deemed signed if the shareholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney in fact.
(b) A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (1) revoked by the
person executing it, before the vote pursuant to that proxy, by (i) a writing
delivered to the corporation stating that the proxy is revoked, (ii) by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting or (iii) as to any meeting, by attendance at such meeting and
voting in person by the person executing the proxy, or (2) written notice of the
death or incapacity of the maker of that proxy is received by the corporation
before the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months from the date of
the proxy, unless otherwise provided in the proxy.
(c) The revocability of a proxy that states on its face that it
is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f)
of the Corporations Code of California.
ARTICLE 3.
DIRECTORS
3.01 POWERS. Subject to limitations of the articles of
incorporation, these bylaws and the California General Corporation Law as to
action to be authorized or approved by shareholders, and subject to the duties
of directors as prescribed by these bylaws, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board
of directors.
3.02 NUMBER AND QUALIFICATION OF DIRECTORS. The number of directors
of the corporation shall be not less than five (5) nor more than nine (9). The
exact number of directors shall be seven (7) until changed, within the limits
specified above, by an amendment of this Section 3.02, duly adopted by the board
of directors or by the shareholders. The indefinite number of directors may be
changed, or a definite number may be fixed without provision for an indefinite
number, by a duly adopted amendment to the articles of incorporation or by an
amendment to this bylaw duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the fixed number or the minimum number of directors
to a number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two thirds percent (16 2/3%)
of the outstanding shares entitled to vote thereon.
3.03 ELECTION AND TERM OF OFFICE. At each annual meeting of the
shareholders, directors shall be elected to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
3.04 VACANCIES.
(a) A vacancy on the board of directors shall be deemed to exist
when any authorized position of director is not filled by a duly elected
director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.
(b) The board of directors may remove for cause any director who
has been declared of unsound mind by an order of court or convicted of a felony.
(c) Any or all of the directors may be removed without cause if
such removal is approved by the affirmative vote of a majority of the
outstanding shares entitled to vote, subject to the provisions of Section 303 of
the Corporations Code of California.
(d) Vacancies on the board of directors may be filled by a
majority of the directors then in office, or, if the number of directors then in
office is less than a quorum, by (1) the unanimous written consent of directors
then in office, (2) the affirmative vote of a majority of directors then in
office at a meeting complying with Section 307 of the Corporation Code of
California, or (3) a sole remaining director, except that a vacancy created by
the removal of a director may be filled only by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote.
(e) Each director elected to fill a vacancy shall hold office
until the next
annual meeting of the shareholders and until a successor has been elected and
qualified.
(f) The shareholders may elect a director at any time to fill
any vacancy not filled by the board of directors. Any such election by written
consent shall require the consent of the holders of a majority of the
outstanding shares entitled to vote.
(g) Any director may resign effective on giving written notice
to the president, the secretary or the board of directors. The notice may
specify that the resignation is effective at a later time, in which case a
successor may be elected to take office when the resignation becomes effective.
(h) Reduction of the authorized
number of directors shall not have the effect of removing any director prior to
the expiration of the director's term of office.
3.05 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
(a) Regular meetings of the board of directors may be held at
any place within or without the State of California that has been designated
from time to time by resolution of the board of directors. In the absence of
such a designation, regular meetings shall be held at the principal executive
office of the corporation.
(b) Special meetings of the board of directors shall be held at
any place within or without the State of California that has been designated in
the notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the corporation.
(c) Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another. All such directors shall be
deemed to be present in person at the meeting.
3.06 ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting shall not be required.
3.07 OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors may be held without notice at such time as shall from time to time be
fixed by the board of directors.
3.08 SPECIAL MEETINGS -- CALL AND NOTICE.
(a) Special meetings of the board for any purpose or purposes may be called
at any time by the president, any vice president, the secretary or any two (2)
directors.
(b) Notice of the time and place of special meetings shall be (1) delivered
personally or by telephone or telegraph at least forty-eight (48) hours in
advance of the meeting or (2) sent by first-class mail, postage prepaid, at
least four days in advance of the meeting. The notice or waiver of notice need
not specify the purpose of the meeting.
3.09 WAIVER OF NOTICE. The transactions of any meeting of the board of
directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present, and if, either before or after the meeting, each of the directors not
present signs a written waiver of the notice, a consent to holding such meeting
or an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to that director.
3.10 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.12 hereof. Every act or decision by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, unless a greater number is
required by law or by the articles of incorporation. Business may continue to
be transacted at a meeting at which a quorum is initially present
notwithstanding the withdrawal of directors, provided that any action taken is
approved by at least a majority of the required quorum for such meeting.
3.11 ACTION WITHOUT MEETING. Any action required or permitted to be taken by
the board of directors may be taken without a meeting if all members of the
board of directors individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the board of directors. Action by written consent shall have the
same force and effect as the unanimous vote of the board of directors.
3.12 ADJOURNMENT -- NOTICE. A majority of the directors present, whether or
not a quorum is present, may adjourn any directors' meeting to another time and
place. If the meeting is adjourned for more than twenty-four (24) hours, notice
of any adjournment to another time or place shall be given prior to the time of
the adjourned meeting to all directors not present at the time of the
adjournment.
3.13 FEES AND COMPENSATION. Directors shall not receive any stated salary
for their services as directors,but, by resolution of the board of directors, a
fixed fee, with or without expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation therefor.
3.14 INDEMNIFICATION.
(a) For the purpose of this Section 3.14, "agent" means any person who is or
was a director, officer, employee, or other agent of this corporation, or is or
was serving at the request of this corporation as a director,officer, employee,
or agent of another foreign or domestic corporation, partnership,joint venture,
trust or other enterprise, or was a director, officer, employee, or agent of a
foreign or domestic corporation which was a predecessor corporation of this
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section (d) or Section(e)(iii) of
this Section 3.14.
(b) This corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any proceeding (other than an action by or in
the right of this corporation to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of this corporation, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of this corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
(c) This corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened,pending or completed action by
or in the right of this corporation to procure a judgment in its favor by reason
of the fact that such person is or was an agent of this corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of this corporation. No
indemnification shall be made under this Section 3.14(c) for any of the
following:
(i) In respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to this corporation and its shareholders,unless
and only to the extent that the court in which such proceeding is or was pending
shall determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for the
expenses which the court shall determine; or
(ii) Of amounts paid in settling or otherwise disposing of a pending action
without court approval; or
(iii) Of expenses incurred in defending a pending action which is settled
or otherwise disposed of without court approval.
(d) To the extent that an agent of this corporation has been successful on
the merits in defense of any proceeding referred to in Section (b) or (c) of
this Section 3.14 or in defense of any claim, issue, or matter therein, the
agent shall be indemnified against expenses actually and reasonably incurred by
the agent in connection therewith.
(e) Except as provided in Section (d) of this Section 3.14, any
indemnification under this Section shall be made by this corporation only if
authorized in the specific case upon a determination that indemnification of the
agent is proper in the circumstances because the agent has met the applicable
standard of conduct set forth in Sections (b) and (c) of this Section 3.14, by
any of the following:
(i) A majority vote of a quorum consisting of directors who are not parties
to such proceeding; or
(ii) If such a quorum of directors is not obtainable, by independent legal
counsel in a written opinion; or
(iii) Approval of the shareholders, with the shares owned by the person to
be indemnified not being entitled to vote thereon. For the purposes of this
subsection, "approval of the shareholders" means approved or ratified by the
affirmative vote of a majority of the shares of this corporation represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively shall also constitute at least a majority of the required quorum)
or by the written consent signed by the holders of a majority of the
outstanding shares entitled to vote, which written consent shall be
procedurally procured in the manner provided by law; or
(iv) The court in which the proceeding is or was pending upon application
made by this corporation or the agent of the attorney or other person rendering
services in connection with the defense, whether or not such application by the
agent, attorney, or other person is opposed by this corporation.
(f) Expenses incurred in defending any proceeding shall be advanced by this
corporation before the final disposition of the proceedings on receipt of an
undertaking by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is entitled to be
indemnified as authorized in this Section 3.14.
(g) The indemnification provided by this Section 3.14 shall not be exclusive
of any other rights to which those seeking indemnification may be entitled under
any bylaw, agreement, vote of shareholders, or vote of disinterested directors
or otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office, to the extent such additional rights
to indemnification are authorized in the Articles of Incorporation of this
corporation. Nothing contained in this Section 3.14 shall affect any right to
indemnification to which persons other than directors and officers of this
corporation or any subsidiary hereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section 3.14,
except as provided in Section (d) or Section (e)(iii), in any circumstance
where it appears:
(i) That it would be inconsistent with a provision of the articles, bylaws,
a resolution of the shareholders, or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(ii) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
(i) Upon and in the event of a determination by the board of directors of
this corporation to purchase such insurance, this corporation shall purchase
and maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not this corporation would have the
power to indemnify the agent against that liability under the provisions of this
Section 3.14.
(j) This Section 3.14 does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though that person may also be an agent of the
corporation as defined in Section (a) of this Section 3.14. Nothing contained
in this Section 3.14 shall limit any right to indemnification to which such a
trustee, investment manager, or other fiduciary may be entitled by contract or
otherwise, which shall be enforceable to the extent permitted by applicable law
other than this Section 3.14.
(k) The rights to indemnity provided for in this Section 3.14 shall continue
as to a person who has ceased to be a director, office, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of the
person.
(l) If a claim under this Section 3.14 is not paid in full by the corporation
within sixty days after a written claim has been received by the corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against this corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any suit or in a suit brought by
this corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit. The indemnitee's failure to meet any
applicable standard of conduct set forth in the General Corporation Law of the
State of California shall (i) be a defense in any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) and (ii)
entitle this corporation to recover expenses advanced pursuant to an undertaking
that this corporation shall be entitled to recover such expenses upon a final
adjudication that the indemnitee failed to meet applicable standards of conduct.
Neither the failure of this corporation (including the Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met any applicable
standard of conduct set forth in the General Corporation Law of the State of
California, nor an actual determination by this corporation (including the Board
of Directors, independent legal counsel, or its shareholders) that the
indemnitee has not met any such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right hereunder, or by
this corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified or to such advancement of expenses under this Section 3.14 or
otherwise shall be on the corporation.
(m) The Board of Directors may, without shareholder approval, authorize the
corporation to enter into agreements, including any amendments or modifications
thereto, with any of its directors, officers or other persons described in
paragraph (a) providing for indemnification of such persons to the maximum
extent permitted under applicable law and the corporation's Articles of
Incorporation and Bylaws.
3.15 COMMITTEES OF DIRECTORS. The board of directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the board. The board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any such committee, to the extent provided in the resolution of the board, shall
have all the authority of the board, except with respect to:
(a) the approval of any action which, under the General Corporation Law of
California, also requires shareholders' approval or approval of the outstanding
shares;
(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board or
on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors which
by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate
or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors or the
members thereof.
3.16 MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these bylaws, Sections 3.05 (place of meetings), 3.06 and 3.07
(regular meetings), 3.08 (special meetings and notice), 3.09 (waiver of notice),
3.10 (quorum), 3.11 (action without meeting), and 3.12 (adjournment and notice),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members, except
that the time of regular meetings of committees may be determined by resolution
of the board of directors as well as by resolution of the committee; special
meetings of committees may also be called by resolution of the board of
directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE 4.
OFFICERS
4.01 NUMBER AND TITLES. The officers of the corporation shall be a
president, a vice president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more additional vice presidents, one or more
assistant secretaries, one or more assistant treasurers and such other officers
as may be appointed by the board of directors, each of whom shall hold office
for such period, have such authority and perform such duties as the board of
directors may from time to time determine. Officers other than the chairman of
the board need not be directors. Any number of offices may be held by the same
person.
4.02 ELECTION. The officers of the corporation shall be chosen by and serve
at the pleasure of the board of directors, subject to the rights, if any, of an
officer under any contract of employment. Each officer of the corporation shall
hold office until such person resigns or is removed or until a successor is
elected and has qualified or until such person becomes disqualified to serve.
4.03 REMOVAL, RESIGNATION AND DISQUALIFICATION.
(a) Subject to the rights, if any, of an officer under a contract of
employment, any officer may be removed, either with or without cause, by the
board of directors or, except in the case of an officer chosen by the board of
directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
(b) Any officer may resign at any time by giving written notice to the board
of directors, president, or secretary of the corporation. Any such resignation
shall take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Any such
resignation shall be without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party.
4.04 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointments to such office.
4.05 PRESIDENT. The president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and officers of the
corporation. In the absence or disability of the chairman of the board, the
president shall preside at all meetings of the shareholders and at all meetings
of the board of directors. The president shall have the general powers and
duties of management usually vested in the office of president of a corporation
and shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
4.06 VICE PRESIDENT. In the absence or disability of the president, the vice
presidents in order of their rank as fixed by the board of directors, or if not
ranked, the vice president designated by the board of directors, shall perform
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors
or these bylaws.
4.07 SECRETARY.
(a) The secretary shall keep, or cause to be kept at the principal executive
office or such other place as the board of directors may order, a book of
minutes of all meetings and actions of directors and shareholders, with the time
and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at directors'
meetings, the number of shares present or represented at shareholders' meetings
and the proceedings thereof.
(b) The secretary shall keep or cause to be kept at the principal executive
office a record of shareholders or a duplicate record of shareholders, showing
the names of the shareholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued for the same and
the number and date of cancellation of every certificate surrendered for
cancellation.
(c) The secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the board of directors required by these
bylaws to be given and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or these bylaws.
4.08 CHIEF FINANCIAL OFFICER.
(a) The chief financial officer (who may also use the title of treasurer)
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of account of the properties and business transactions
of the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all times be open to inspection by any director.
(b) The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. Such person shall disburse the funds
of the corporation as may be ordered by the board of directors, shall render to
the president and directors, whenever they request it, an account of all of his
or her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
4.09 SALARIES. The salaries of the officers shall be fixed from time to time
by the board of directors, and no officer shall be prevented from receiving such
salary by reason of the fact that such person is also a director of the
corporation.
ARTICLE 5.
CORPORATE RECORDS AND REPORTS
5.01 MAINTENANCE AND INSPECTION OF THE RECORD OF SHAREHOLDERS.
(a) The corporation shall keep at its principal executive office a record of
its shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each shareholder.
(b) A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days' prior
written demand upon the corporation.
(c) The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
(d) Any inspection and copying under this Section 5.01 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
5.02 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its
principal executive office, or, if its principal executive office is not in the
State of California, at its principal business office in this state, the
original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
5.03 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
(a) The accounting books and records and minutes of proceedings of the
shareholders and the board of directors shall be kept at such place or places
designated by the board of directors, or, in the absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept in
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
(b) The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interest as a shareholder or as the holder of
a voting trust certificate. The inspection may be made in person or by an agent
or attorney and shall include the right to copy and make extracts. These rights
of inspection shall extend to the records of each subsidiary corporation of the
corporation.
5.04 INSPECTION BY DIRECTORS. Every director shall have the absolute right
at any reasonable time to inspect and copy all books, records and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.
5.05 ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders
referred to in Section 1501 of the Corporations Code of California is expressly
dispensed with, but nothing herein shall be interpreted as prohibiting the board
of directors from issuing annual or other periodic reports to the shareholders
of the corporation as they consider appropriate.
5.06 FINANCIAL STATEMENTS.
(a) A copy of any annual, semi-annual or quarterly income statements and any
accompanying balance sheets that have been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
(b) If no annual report for the last fiscal year has been sent to
shareholders, the corporation shall, upon the written request of any shareholder
made more than one hundred twenty (120) days after the close of such fiscal
year, deliver or mail the annual report to the person making the request within
thirty (30) days thereafter. A shareholder or shareholders holding at least
five percent (5%) of the outstanding shares of any class of stock of the
corporation may make a written request to the corporation for an income
statement of the corporation for the three-month, six-month or nine-month period
of the then current fiscal year ended more than thirty (30) days before the date
of the request, a balance sheet of the corporation as of the end of that period
and an annual report for the last fiscal year if none has been sent to
shareholders. The chief financial officer shall deliver personally or mail the
statement or statements requested to the person making the request within thirty
(30) days after the receipt of the request.
(c) The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
5.07 ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall file with
the Secretary of State of the State of California, on the prescribed form, a
statement setting forth the authorized number of directors, the names and
complete business or residence addresses of all incumbent directors, the names
and complete business or residence addresses of the chief executive officer,
secretary and chief financial officer, the street address of its principal
executive office or principal business office in this state and the general type
of business constituting the principal business activity of the corporation,
together with a designation of the agent of the corporation for the purpose of
service of process, all in compliance with Section 1502 of the Corporations Code
of California.
ARTICLE 6.
GENERAL CORPORATE MATTERS
6.01 CHECKS, DRAFTS AND EVIDENCES OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidence of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
6.02 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
6.03 CERTIFICATES FOR SHARES.
(a) A certificate or certificates for shares of the capital stock of the
corporation shall be issued to each shareholder when such shares are fully paid,
and the board of directors may authorize the issuance of certificates or shares
as partly paid provided that these certificates shall state the amount of the
consideration to be paid for them and the amount paid.
(b) All certificates shall be signed in the name of the corporation by the
president or vice president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on a certificate shall cease to be that officer, transfer agent or
registrar before that certificate is issued, it may be issued by the corporation
with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue.
6.04 LOST CERTIFICATES. Except as provided in this section, no new
certificate for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is alleged to have been lost, stolen or destroyed, authorize the
issuance of a replacement certificate on such terms and conditions as the board
may require, including provision for indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
liability on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president, any vice
president or any other person authorized by resolution of the board of directors
or by any of the foregoing designated officers is authorized to vote on behalf
of the corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any of these officers in person or by any person authorized
to do so by a proxy duly executed by these officers.
ARTICLE 7.
CONSTRUCTION AND DEFINITIONS
7.01 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction and definitions in the California
General Corporation Law shall govern the construction of these bylaws. Without
limiting the generality of this provision, the singular number includes the
plural, the plural number includes the singular and the term "person" includes
both a corporation and a natural person.
ARTICLE 8.
AMENDMENTS
8.01 POWER OF SHAREHOLDERS. New bylaws may be adopted or these bylaws may be
amended or repealed by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote.
8.02 POWER OF DIRECTORS. Subject to the right of shareholders as provided in
Section 8.01 to adopt, amend, or repeal bylaws, bylaws other than a bylaw or
amendment thereof changing the authorized number of directors may be adopted,
amended or repealed by the board of directors.
CERTIFICATION
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Roseville Communications
Company; and
2. That the foregoing bylaws comprising 39 pages constitute the bylaws of said
corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name on January 28, 1998.
/s/THOMAS E. DOYLE
Secretary
ROSEVILLE COMMUNICATIONS COMPANY $40,000,000
6.30% Series A Senior Notes due December 9, 2013
NOTE PURCHASE AGREEMENT
Dated December 9, 1998
1. AUTHORIZATION OF NOTES 1
2. SALE AND PURCHASE OF NOTES 1
2.1 Series A Notes 1
2.2 Additional Series of Notes 2
3. CLOSING 3
4. CONDITIONS TO CLOSING 3
4.1 Representations and Warranties 3
4.2 Performance; No Default 3
4.3 Compliance Certificates 3
4.4 Opinions of Counsel 4
4.5 Purchase Permitted By Applicable Law, etc. 4
4.6 Sale of Other Notes 4
4.7 Payment of Special Counsel Fees 4
4.8 Private Placement Number 4
4.9 Changes in Corporate Structure 4
4.10 Funding Instructions 5
4.11 Proceedings and Documents 5
4.12 Conditions to Issuance of Additional Notes 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6
5.1 Organization; Power and Authority 6
5.2 Authorization, etc. 6
5.3 Disclosure 6
5.4 Organization and Ownership of Shares of
Subsidiaries 6
5.5 Financial Statements 7
5.6 Compliance with Laws, Other Instruments, etc. 7
5.7 Governmental Authorizations, etc. 8
5.8 Litigation; Observance of Statutes and Orders 8
5.9 Taxes 8
5.10 Title to Property; Leases 8
5.11 Licenses, Permits, etc. 9
5.12 Compliance with ERISA 9
5.13 Private Offering by the Company 10
5.14 Use of Proceeds; Margin Regulations 10
5.15 Existing Indebtedness 10
5.16 Foreign Assets Control Regulations, etc. 10
5.17 Status under Certain Statutes 11
5.18 Year 2000 11
6. REPRESENTATIONS OF THE PURCHASER 11
6.1 Purchase for Investment 11
6.2 Source of Funds 11
7. INFORMATION AS TO COMPANY 12
7.1 Financial and Business Information 12
7.2 Officer's Certificate 14
7.3 Inspection 15
8. PREPAYMENT OF THE NOTES 15
8.1 Required Prepayments 15
8.2 Optional Prepayments with Make-Whole Amount 16
8.3 Allocation of Partial Prepayments 16
8.4 Maturity; Surrender, etc. 16
8.5 Purchase of Notes 16
8.6 Make-Whole Amount 17
9. AFFIRMATIVE COVENANTS 18
9.1 Compliance with Law 18
9.2 Insurance 19
9.3 Maintenance of Properties 19
9.4 Payment of Taxes 19
9.5 Corporate Existence, etc. 19
10. NEGATIVE COVENANTS 19
10.1 Transactions with Affiliates 20
10.2 Merger, Consolidation, Sale of Assets, etc. 20
10.3 Liens 22
10.4 Minimum Adjusted Consolidated Net Worth 23
10.5 Limitation on Total Indebtedness 23
10.6 Nature of Business 24
11. EVENTS OF DEFAULT 24
12. REMEDIES ON DEFAULT, ETC. 26
12.1 Acceleration 26
12.2 Other Remedies 26
12.3 Rescission 27
12.4 No Waivers or Election of Remedies, Expenses, etc. 27 13. REGISTRATION;
EXCHANGE; SUBSTITUTION OF NOTES 27
13.1 Registration of Notes 27
13.2 Transfer and Exchange of Notes 27
13.3 Replacement of Notes 28
14. PAYMENTS ON NOTES 28
14.1 Place of Payment 28
14.2 Home Office Payment 29
15. EXPENSES, ETC. 29
15.1 Transaction Expenses 29
15.2 Survival 29
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 30 17.
AMENDMENT AND WAIVER 30
17.1 Requirements 30
17.2 Solicitation of Holders of Notes 30
17.3 Binding Effect, etc. 31
17.4 Notes held by Company, etc. 31
18. NOTICES 31
19. REPRODUCTION OF DOCUMENTS 32
20. CONFIDENTIAL INFORMATION 32
21. SUBSTITUTION OF PURCHASER 33
22. MISCELLANEOUS 33
22.1 Successors and Assigns 33
22.2 Payments Due on Non-Business Days 34
22.3 Severability 34
22.4 Construction 34
22.5 Counterparts 34
22.6 Governing Law 34
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.3 -- Liens
EXHIBIT 1 -- Form of 6.30% Series A Senior Note
EXHIBIT 4.4(a) -- Form of Opinion of Counsel to the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel to the
Purchasers
EXHIBIT S -- Form of Supplement to Note Purchase
Agreements
ROSEVILLE COMMUNICATIONS COMPANY
211 Lincoln Street
Roseville, California 95678
6.30% Series A Senior Notes due December 9, 2013
December 9, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Roseville Communications Company, a California corporation (the
"Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $40,000,000 aggregate
principal amount of its 6.30% Series A Senior Notes due December 9, 2013 (the
"Series A Notes", such term to include any such notes issued in substitution
therefor pursuant to Section 13 of this Agreement or the Other Agreements (as
hereinafter defined)) The Series A Notes shall be substantially in the form set
out in Exhibit 1,with such changes therefrom, if any, as may be approved by you
and the Company. Certain capitalized terms used in this Agreement are defined
in Schedule B;references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
2.1 Series A Notes.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Series A Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof. Contemporaneously with entering into this Agreement, the
Company is entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other purchasers
named in Schedule A (the "Other Purchasers"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount
specified opposite its name in Schedule A. Your obligation hereunder and the
obligations of the Other Purchasers under the Other Agreements are several and
not joint obligations and you shall have no obligation under any Other Agreement
and no liability to any Person for the performance or non-performance by any
Other Purchaser thereunder.
2.2 Additional Series of Notes.
The Company may from time to time, in its sole discretion but subject to the
terms hereof, issue and sell one or more additional Series of its unsecured
promissory notes under the provisions of this Agreement and the Other Agreements
(collectively, the "Agreements") pursuant to a supplement (a "Supplement")
substantially in the form of Exhibit S. Each additional Series of Notes (the
"Additional Notes") issued pursuant to a Supplement shall be subject to the
following terms and conditions:
(a) each Series of Additional Notes, when so issued, shall be
differentiated from all previous series by sequential alphabetical designation
inscribed
thereon;
(b) Additional Notes of the same Series may consist of more than one
different and separate tranches and may differ with respect to outstanding
principal
amounts, maturity dates, interest rates and premiums, if any, and price and
terms of redemption or payment prior to maturity, but all such different and
separate tranches of the same Series shall vote as a single class and constitute
one Series;
(c) each Series of Additional Notes shall be dated the date of issue, bear
interest at such rate or rates mature on such date or dates, be subject to such
mandatory and optional prepayment on the dates and at the premiums,if any, have
such additional or different conditions precedent to closing, such
representations and warranties and such additional covenants as shall be
specified in the Supplement under which such Additional Notes are issued,
provided, that any such additional covenants shall inure to the benefit of all
holders of Notes so long as any Additional Notes issued pursuant to such
Supplement remain outstanding;
(d) each reference to "you"in the Agreements shall be deemed to be a reference
to each Additional Purchaser, unless otherwise specified in the applicable
Supplement or unless the context otherwise requires;
(e) each Series of Additional Notes issued under the Agreements shall be in
substantially the form of Exhibit 1 to Exhibit S hereto with such variations,
omissions and insertions as are necessary or permitted hereunder;
(f) the minimum principal amount of any Note issued under a Supplement shall be
$500,000, except as may be necessary to evidence the outstanding amount of any
Note originally issued in a denomination of $500,000 or more;
(g) all Additional Notes shall constitute senior Indebtedness of the Company
and shall rank pari passu with all other outstanding Notes; and
(h) no Additional Notes shall be issued hereunder if at the time of issuance
thereof and after giving effect to such issuance and the application of the
proceeds thereof, there exists or would exist any Default or Event of Default.
3. CLOSING.
The sale and purchase of the Series A Notes to be purchased by you and the
Other Purchasers shall occur at the offices of O'Melveny & Myers LLP, 400 South
Hope Street,Los Angeles, California 90071, at 8:00 a.m., Pacific Standard time,
at a closing (the "Closing") on December 9, 1998 or on such other Business Day
thereafter on or prior to December 11,1998 as may be agreed upon by the Company
and you and the Other Purchasers. At the Closing the Company will deliver to
you the Series A Notes to be purchased by you in the form of a single Series A
Note (or such greater number of Series A Notes in denomination of at least
$500,000 as you may request) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Company to account number 1233722696 at Bank of America, North
American Division Corporate Services, P.O. Box 27128, Concord, CA 94520, ABA
number 121000358. If at the Closing the Company shall fail to tender such
Series A Notes to you as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Series A Notes to be sold to you
at the Closing is subject to the fulfillment to your satisfaction, prior to or
at the Closing, of the following conditions:
4.1 Representations and Warranties.
The representations and warranties of the Company in this Agreement shall be
correct when made and at the time of the Closing.
4.2 Performance; No Default.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Series A Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.14) no Default or Event of Default shall have
occurred and be continuing.
4.3 Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to you an
Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to you a
certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Series A Notes and the Agreements.
4.4 Opinions of Counsel.
You shall have received opinions in form and substance satisfactory to you,
dated the date of the Closing (a) from Cooper, White & Cooper, counsel for the
Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company hereby instructs its counsel to
deliver such opinion to you) and (b) from O'Melveny & Myers LLP, your special
counsel in connection with such transactions, substantially in the form set
forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.
4.5 Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Series A Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment,(ii) not
violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6 Sale of Other Notes.
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Series A Notes to be
purchased by them at the Closing as specified in Schedule A.
4.7 Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8 Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National Association of
Insurance Commissioners) shall have been obtained for the Series A Notes.
4.9 Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not have changed its
jurisdiction of incorporation or been a party to any merger or consolidation and
shall not have succeeded to all or any substantial part of the liabilities of
any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
4.10 Funding Instructions.
At least three Business Days prior to the date of the Closing, you shall
have received written instructions executed by a Responsible Officer of the
Company directing the manner of the payment of funds and setting forth (a) the
name and address of the transferee bank, (b) such transferee bank's ABA number,
(c) the account name and number into which the purchase price for the Series A
Notes is to be deposited, and (d) the name and telephone number of the account
representative responsible for verifying receipt of such funds.
4.11 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel,and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
4.12 Conditions to Issuance of Additional Notes.
The obligations of the Additional Purchasers to purchase Additional Notes
pursuant to Section 2.2 shall be subject to the following conditions precedent,
in addition to the conditions specified in the Supplement pursuant to which such
Additional Notes may be issued:
(a) Conditions in Agreements. All conditions precedent set forth in
Sections 4.1 through 4.11 shall have been satisfied with respect to such
Additional
Notes
(with the applicable Series of such Additional Notes being deemed substituted
for "Series A" in such Sections), with such modifications to such Sections, if
any, as may be set forth in the Supplement with respect to such Additional
Notes.
(b) Compliance Certificate. A duly authorized Senior Financial Officer shall
execute and deliver to each Additional Purchaser an Officer's Certificate dated
the date of issue of such Series of Additional Notes stating that such officer
has reviewed the provisions of the Agreements (including any Supplements
thereto) and setting forth the information and computations (in sufficient
detail)required in order to establish whether the Company is in compliance with
the requirements of Sections 10.3, 10.4 and 10.5 on such date.
(c) Execution and Delivery of Supplement. The Company and each such Additional
Purchaser shall execute and deliver a Supplement substantially in the form of
Exhibit S hereto.
(d) Representations of Additional Purchasers. Each Additional Purchaser shall
have confirmed in the Supplement that the representations set forth in Section 6
are true with respect to such Additional Purchaser on and as of the date of
issue of the Additional Notes.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1 Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
5.2 Authorization, etc.
This Agreement, the Other Agreements and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy,insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.3 Disclosure.
The Company, through its agent, NationsBanc Montgomery Securities LLC, has
delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated October 1998 (the "Memorandum"), relating to the transactions
contemplated hereby. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents,certificates or other writings identified in Schedule
5.3 and the financial statements listed in Schedule 5.5, taken as a whole, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. Except as disclosed in the
Memorandum or as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5,since December 31, 1997, there has
been no change in the financial condition,operations, business or properties of
the Company or any of its Subsidiaries except changes that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
5.4 Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 5.4 is (except as noted therein) a complete and correct list of
the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary and whether such Subsidiary is a
Restricted Subsidiary or an Unrestricted Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity interests
of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its
Subsidiaries have been validly issued, are fully paid and nonassessable and are
owned by the Company or another Subsidiary free and clear of any Lien except for
any Permitted Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and is duly qualified as a foreign corporation
or other legal entity and is in good standing in each jurisdiction in which such
qualification is required by law,other than those jurisdictions as to which the
failure to be so qualified or in good standing would not,individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each such
Subsidiary has the corporate or other power and authority to own or hold under
lease the properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact.
5.5 Financial Statements.
The Company has delivered to each Purchaser copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject,in the case of any interim financial
statements, to normal year-end adjustments).
5.6 Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this Agreement and
the Notes will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Subsidiary under, any indenture, mortgage, deed of trust,
loan,purchase or credit agreement, lease, corporate charter or by-laws, or any
other Material agreement or instrument to which the Company or any Subsidiary is
bound or by which the Company or any Subsidiary or any of their respective
properties may be bound or affected,(ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (iii)violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to the Company or
any Subsidiary.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or
declaration with,any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
5.8 Litigation; Observance of Statutes and Orders.
(a) Except as disclosed in the Company's filings with the Securities and
Exchange Commission, there are no actions, suits or proceedings pending or, to
the knowledge of the Company,threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any order,
judgment,decree or ruling of any court, arbitrator or Governmental Authority or
is in violation of any applicable law, ordinance, rule or regulation (including
without limitation Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
5.9 Taxes.
The Company and its Subsidiaries have filed all income tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments
payable by them, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established adequate
reserves in accordance with GAAP or have been determined by the Company and,to
the best of the Company's knowledge, are beyond the applicable limitations
period for audit by the Internal Revenue Service. The Federal income tax
liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1994.
5.10 Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient title to their
respective Material properties,including all such properties reflected in the
most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business), in each case
free and clear of Liens prohibited by this Agreement, except for those defects
in title and Liens that, individually or in the aggregate, would not have a
Material Adverse Effect. All Material leases are valid and subsisting and are
in full force and effect in all material respects.
5.11 Licenses, Permits, etc.
Except as disclosed in Schedule 5.11, the Company and its Subsidiaries own or
possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
are Material,without known conflict with the rights of others, except for any
failure to own or possess that,individually or in the aggregate, would not have
a Material Adverse Effect.
5.12 Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and administered each
Plan in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that would reasonably be expected to result in the incurrence
of any such liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights,properties or assets of the Company
or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to
such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each of the
Plans (other than Multiemployer Plans), determined as of the end of such Plan's
most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities, or such deficit, if any, did not exceed
5% of Adjusted Consolidated Net Worth. The term "benefit liabilities" has the
meaning specified in section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as of the last
day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material or has otherwise
been disclosed in the most recent audited consolidated financial statements of
the Company and its Subsidiaries.
(e) The execution and delivery of this Agreement and the issuance and sale of
the Notes hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e)is made in reliance
upon and subject to the accuracy of your representationin Section 6.2 as to the
sources of the funds to be used to pay the purchase price of the Notes to be
purchased by you.
5.13 Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered the Notes or
any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
person other than you, the Other Purchasers and not more than 51 other
Institutional Investors,each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.14 Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as set forth in
Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder
will be used,directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning ofRegulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221),or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224)or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 5% of the value of the consolidated assets
of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 5% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said Regulation
U.
5.15 Existing Indebtedness.
Except as described therein, Schedule 5.15 sets forth a complete and
correct list of all outstanding Indebtedness of the Company and its Restricted
Subsidiaries as of September 30, 1998, since which date there has been no
Material change in the amounts, interest rates, sinking funds, instalment
payments or maturities of the Indebtedness of the Company or its Restricted
Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default
and no waiver of default is currently in effect, in the payment of any principal
or interest on any Indebtedness of the Company or such Restricted Subsidiary and
no event or condition exists with respect to any Indebtedness of the Company or
anyRestricted Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
5.16 Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use of the
proceedsthereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17 Status under Certain Statutes.
Neither the Company nor any Restricted Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the ICC Termination Act,
as amended, or the Federal Power Act, as amended.
5.18 Year 2000.
The Company and its Restricted Subsidiaries have implemented measures to
have all critical business systems year-2000 compliant in a timely manner and
the advent of the year 2000 and its impact on such business systems is not
expected to have a Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1 Purchase for Investment.
You represent that you are an Institutional Investor and that you are
purchasing the Series A Notes for your own account or for one or more separate
accounts maintained by you or for the account of one or more pension or trust
funds and not with a view to the distribution thereof, provided that the
disposition of your or theirproperty shall at all times be within your or their
control. You understand that the Series A Notes have not been registered under
the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required to
register the Series A Notes.
6.2 Source of Funds.
You represent that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by you to pay
the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" within the meaning
of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued
July
12, 1995) and there is no employee benefit plan, treating as a single plan, all
plans maintained by the same employer or employee organization, with respect to
which the amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceed ten percent (10%) of the
total reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual Statement
filed with your state of domicile; or
(b) the Source is either (i) an insurance company pooled separate account,
within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued
January 29, 1990),or (ii) a bank collective investment fund, within the meaning
of the PTE 91-38(issued July 12, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the meaning
of Part V of the QPAM Exemption) managed by a "qualified professional asset
manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no
employee benefit plan's assets that are included in such investment fund, when
combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity of
such QPAM and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate account or
trust fund comprised of one or more employee benefit plans, each of which has
been identified to the Company in writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit plan, other than
a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 Financial and Business Information.
The Company shall deliver to each holder of Notes:
(a) Quarterly Statements - within 60 days after the end of each quarterly
fiscal period in each fiscal year of the Company (other than the last quarterly
fiscal period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such quarter, and
(ii) consolidated statements of income, changes in shareholders' equity and cash
flows of the Company and its Subsidiaries, for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal year ending with
such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer as fairly
presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements - within 105 days after the end of each fiscal year of
the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries, as at
the end of such year, and
(ii) consolidated statements of income, changes in shareholders' equity and cash
flows of the Company and its Subsidiaries, for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of the
companies being reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances,provided that
the delivery within the time period specified above of the Company's Annual
Report on Form 10-K for such fiscal year (together with the Company's annual
report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act to be delivered within 120 days after the end of each fiscal year
of the Company) prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission and accompanied by the opinion of
independent certified public accountants of recognized national standing
referenced above shall be deemed to satisfy the requirements of this Section
7.1(b);
(c) SEC and Other Reports - promptly upon their becoming available, one copy
of (i) each financial statement, report, notice or proxy statement filed by
the
Company with the Securities and Exchange Commission, and (ii) any press release
of the Company generally made available concerning a Material development;
(d) Notice of Default or Event of Default - promptly, and in any event within
five days after a Responsible Officer becoming aware of the existence of any
Default or Event of Default, a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes to take
with respect thereto;
(e) ERISA Matters - promptly, and in any event within five days after a
Responsible Officer becoming aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Company or an
ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in section
4043(b) of ERISA and the regulations thereunder, for which notice thereof has
not been waived pursuant to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the threatening by the
PBGC of the institution of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the
incurrence of any liability by the Company or any ERISA Affiliate pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of any Lien on any of
the rights, properties or assets of the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such liabilities or Liens then
existing, would reasonably be expected to have a Material Adverse Effect; and
(f) Additional Reporting Requirement - in the event that Unrestricted
Subsidiaries account for more than 10% of the consolidated total assets of the
Company and its Subsidiaries, or more than 10% of the consolidated revenue of
the Company and its Subsidiaries, then each set of financial information
delivered pursuant to Sections 7.1(a) and (b) shall be accompanied by unaudited
financial statements for all Unrestricted Subsidiaries of the Company taken as a
group, together with consolidating statements reflecting eliminations or
adjustments required to reconcile such group statements to the consolidated
financial statements of the Company and its Subsidiaries;
(g) Supplements - in the event that any series of Additional Notes is issued
under Section 2.2, within ten (10) Business Days after execution and delivery, a
copy of the Supplement executed with such issuance; and
(h) Requested Information - with reasonable promptness, such other data and
information relating to the business, operations, affairs, financial condition,
assets or properties of the Company or any of its Subsidiaries or relating to
the ability of the Company to perform its obligations hereunder and under the
Notes as from time to time may be reasonably requested by any such holder of
Notes, including without limitation, such information as is required by Rule
144A under the Securities Act to be delivered to a prospective transferee of the
Notes.
7.2 Officer's Certificate.
Each set of financial statements delivered to a holder of Notes pursuant to
Section 7.1 hereof shall be accompanied by a certificate of a Senior Financial
Officer setting forth:
(a) Covenant Compliance - the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.2(c), 10.3(j), 10.4 and 10.5,
during the quarterly
or annual period covered by the statements then being furnished (including with
respect to each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissible under
the terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and
(b) Event of Default - a statement that such officer has reviewed the relevant
terms hereof and has made,or caused to be made, under his or her supervision, a
review of the transactions and conditions of the Company and its Subsidiaries
from the beginning of the quarterly or annual period covered by the statements
then being furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition or event
that constitutes a Default or an Event of Default or, if any such condition or
event existed or exists (including, without limitation, any such event or
condition resulting from the failure of the Company or any Subsidiary to comply
with any Environmental Law), specifying the nature and period of existence
thereof and what action the Company shall have taken or proposes to take with
respect thereto.
7.3 Inspection.
The Company shall permit the representatives of each holder of Notes that is
an Institutional Investor:
(a) No Default - if no Default or Event of Default then exists, at the
expense of such holder and upon reasonable prior notice to the Company, to
visit the principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Restricted Subsidiaries with
the Company's officers,and, with the consent of the Company (which consent
will not be unreasonably withheld) to visit the other offices and properties
of the Company
and each Restricted Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing; and
(b) Default - if a Default or Event of Default then exists, at the expense of
the Company to visit and inspect any ofthe offices or properties of the Company
or any Subsidiary, to examine all their respective books of account, records,
reports and other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective officers
and independent public accountants(and by this provision the Company authorizes
said accountants to discuss the affairs, finances and accounts of the Company
and its Subsidiaries), all at such times and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1 Required Prepayments.
On December 9, 2003 and on each December 9 thereafter to and including
December 9, 2012 the Company will prepay $3,636,363.63 principal amount (or such
lesser principal amount as shall then be outstanding) of the Notes at par and
without payment of the Make-Whole Amount or any premium, provided that upon any
partial prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes
permitted by Section8.5 the principal amount of each required prepayment of the
Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes is reduced as a result of such prepayment
or purchase.
8.2 Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below, prepay at any
time all, or from time to time any part of, the Notes of any Series, in an
amount not less than $1,000,000 of the aggregate principal amount of the Notes
of any Series then outstanding in the case of a partial prepayment, at 100% of
the principal amount so prepaid, plus the Make-Whole Amount determined for the
prepayment date with respect to such principal amount. The Company will give
each holder of Notes of the Series to be prepaid written notice of each optional
prepayment under this Section 8.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Notes of such Seriesto
be prepaid on such date, the principal amount of each Note held by such holder
to be prepaid (determined in accordance with Section 8.3), and the interest to
be paid on the prepayment date with respect to such principal amount being
prepaid,and shall be accompanied by a certificate of a Senior Financial Officer
as to the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to such
prepayment,the Company shall deliver to each holder of Notes of the Series to
be prepaid a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3 Allocation of Partial Prepayments.
In the case of each partial prepayment of any Series of the Notes, the
principal amount of the Notes of such Series to be prepaid shall be allocated
among all of the Notes of such Series at the time outstanding in proportion,as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment. All regularly scheduled partial prepayments
made with respect to any Additional Series of Notes pursuant to any Supplement
shall be allocated as therein provided.
8.4 Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued,and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.5 Purchase of Notes.
The Company will not and will not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Notes except(a) upon the payment or prepayment of the Notes in accordance with
the terms of this Agreement (including any Supplement) and the Notes or
(b) pursuant to an offer to purchase made by the Company or an Affiliate pro
rata to the holders of all Notes at the time outstanding upon the same terms and
conditions. Any such offer shall provide each holder with sufficient
information to enable it to make an informed decision with respect to such
offer, and shall remain open for at least 30 Business Days. If the holders of
more than 10% of the principal amount of the Notes then outstanding accept such
offer,the Company shall promptly notify the remaining holders of such fact and
the expiration date for the acceptance by holders of Notes of such offer shall
be extended by the number of days necessary to give each such remaining holder
at least 30 Business Days from its receipt of such notice to accept such offer.
The Company will promptly cancel all Notes acquired by it or any Affiliate
pursuant to any payment, prepayment or purchase of Notes pursuant to any
provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
8.6 Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on
the display designated as "Page PX1" of the Bloomberg Financial Markets
Services Screen (or such other display as may replace Page PX1 on the
Bloomberg Financial Markets Services Screen) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date. Such
implied yield will be determined, if necessary, by (a) converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with the
duration closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal, the
number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number of
years (calculated to the nearest one-twelfth year) that will elapse between
the Settlement Date with respect to such Called Principal and the scheduled
due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called Principal
of any Note, all payments of such Called Principal and interest thereon
that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is not a date on
which interest payments are due to be made under the terms of the Notes, then
the amount of the next succeeding scheduled interest payment will be reduced by
the amount of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal of any Note,
the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1 Compliance with Law.
The Company will and will cause each of its Subsidiaries to comply with all
laws, ordinances or governmental rules or regulations to which each of them is
subject,including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses,in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
9.2 Insurance.
The Company will and will cause each of its Restricted Subsidiaries to
maintain, with financially sound and reputable insurers,insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3 Maintenance of Properties.
The Company will and will cause each of its Restricted Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair,working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in
the conduct of its business and would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.4 Payment of Taxes.
The Company will and will cause each of its Subsidiaries to file all income tax
or similar tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all
other taxes, assessments, governmental charges, or levies payable by any of
them, to the extent such taxes and assessments have become due and payable and
before they have become delinquent, provided that neither the Company nor any
Subsidiary need pay any such tax or assessment if (i) the amount, applicability
or validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary or (ii)the nonfiling or nonpayment,
as the case may be, of all such taxes and assessmentsin the aggregate would not
reasonably be expected to have a Material Adverse Effect.
9.5 Corporate Existence, etc.
The Company will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 10.2, the Company will at all times
preserve and keep in full force and effect the corporate existence of each of
its Restricted Subsidiaries (unless merged into the Company or a Restricted
Subsidiary) and all rights and franchises of the Company and its Restricted
Subsidiaries unless the termination of or failure to preserve and keep in full
force and effect such corporate existence, right or franchise would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1 Transactions with Affiliates.
The Company will not and will not permit any Restricted Subsidiary to enter
into directly or indirectly any Material transaction or Material group of
related transactions(including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except
pursuant to the reasonable requirements of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
10.2 Merger, Consolidation, Sale of Assets, etc.
(a) The Company will not and will not permit any Restricted Subsidiary to
consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction
or series of transactions to any Person, provided that:
(i) any Restricted Subsidiary may (x) merge or consolidate with or into, or
convey, transfer or lease substantially all of its assets in a single
transaction or series of transactions to, the Company, another Restricted
Subsidiary or, in the case of a consolidation or merger, any other Person
so long as the surviving or continuing corporation is a Restricted Subsidiary
(provided that the Company or a Wholly-Owned Restricted Subsidiary retains at
least the same ownership interest in the surviving Restricted Subsidiary as it
held in the disappearing Restricted Subsidiary) so long as in any merger
or consolidation involving the Company, either (1) the Company shall be the
surviving or continuing corporation or (2) the merger or
consolidation is permitted by clause (ii) of this Section 10.2(a) and
(y) convey, transfer or lease all or substantially all of its assets to any
Person in compliance with the provisions of Section 10.2(b); and
(ii) the Company may consolidate or merge with or into, or convey, transfer
or lease substantially all of its assets to, any other corporation if,
(A) in the case of a consolidation or merger, the surviving or continuing
corporation is the Company, or
(B) the successor corporation which results from such consolidation or
merger or the corporation to which all or
substantially all of the Company's assets have been conveyed,
transferred or leased (the "surviving corporation") (x) shall be a solvent
corporation organized and existing under the laws of the United States of
America or any state thereof or the District of Columbia, and (y) shall have
executed and delivered to each holder of the Notes its assumption of the due
and punctual payment of the
principal of and premium,if any, and interest on all of the Notes, according
to their tenor, and the due and punctual performance and observation of all
of the covenants in the Notes, this Agreement and the Other Agreements to be
performed or observed by the Company and shall furnish to such holders an
opinion of counsel reasonably satisfactory to the holders of at least 51% in
principal amount of the Notes of all Series, taken collectively, to the
effect that the instrument of assumption has been duly authorized,
executed and delivered and constitutes the legal, valid and binding contract
and agreement of the surviving corporation enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles, and
(C) immediately after giving effect to any transaction described in
clauses (A) or (B) above, (x) no Default or Event of Default would exist,
and (y) the surviving entity would be able to incur at least $1.00 of
Indebtedness under Section 10.5.
No such conveyance,transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner prescribed in
this Section 10.2 from its liability under this Agreement or the Notes.
(b) Subject to Section 10.2(a), the Company will not,and will not permit any
Restricted Subsidiary to, sell, lease (as lessor), transfer, abandon or
otherwise dispose of assets to any Person; provided that the foregoing
restrictions do not apply to:
(i) the sale, lease, transfer or other disposition of assets of the Company
to a Restricted Subsidiary or of a Restricted Subsidiary to
the Company or another Restricted Subsidiary;
(ii) the sale in the ordinary course of business of (1) inventory held for
sale, or (2) equipment, fixtures, supplies or materials no longer required in
the operation of the business of the Company or any of its Restricted
Subsidiaries or that is obsolete;
(iii) the sale by the Company or any Restricted Subsidiary of
property and the subsequent lease, as lessee, of the same property, within
180 days following the acquisition or construction of such property;
(iv) the sale of assets which were sold for Fair Market Value, as long as the
proceeds from such sale in excess of a substantial part of the assets of the
Company and its Restricted Subsidiaries are (i) applied within 180 days of the
date of sale of such assets to the acquisition of fixed assets or other
property useful and intended to be used in the operation of the business
of the Company or its Restricted Subsidiaries, and/or (ii) used to repay
any Indebtedness of the Company or its Restricted Subsidiaries (other than
Subordinated Debt, Indebtedness owing to the Company, any of its Restricted
Subsidiaries or any Affiliate and Indebtedness in respect of any revolving
credit or similar credit facility providing the Company or any of its
Restricted Subsidiaries with the right to obtain loans or other
extensions of credit from time to time, except to the extent that in
connection with such payment of Indebtedness the availability of credit
under such credit facility is permanently reduced by an amount not less than
the amount of such proceeds applied to the payment of such Indebtedness); or
(v) the sale of assets for cash or other property to a Person or Persons
(other than an Affiliate) if all of the following conditions are met:
(1) such assets (valued at net book value) do not constitute a
"substantial part" of the assets of the Company and its Restricted
Subsidiaries;
(2) in the opinion of a Responsible Officer of the Company, the sale is
for fair value and is in the best interests of the Company; and
(3) immediately after the consummation of the transaction and after giving
effect thereto, no Default or Event of Default would exist.
(c) For purposes of Section 10.2(b), a sale of assets will be deemed to
involve a "substantial part" of the assets of the Company and its
Restricted Subsidiaries if the book value of such assets, together with all
other assets
sold during the immediately preceding 12-calendar month period (except those
assets sold pursuant to clauses (i) or (ii) of Section 10.2(b)) exceeds 10% of
the Consolidated Net Assets of the Company and its Restricted Subsidiaries
determined as of the end of the immediately preceding fiscal year.
10.3 Liens.
The Company will not and will not permit any of its Restricted Subsidiaries
to directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including,without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or any such Restricted
Subsidiary, whether now owned or hereafter acquired, or any income or profits
therefrom,or assign or otherwise convey any right to receive income or profits,
except for the following (which are collectively referred to as "Permitted
Liens"):
(a) Liens for taxes, assessments or other governmental charges which
are not yet due and payable or that are being contested in good faith;
(b) Liens incidental to the conduct of business or the ownership of
properties and assets (including landlords', carriers',
warehousemen's, mechanics' materialmen's and other similar Liens) and Liens to
secure the performance of bids, tenders, leases, or trade contracts, or to
secure statutory obligations (including obligations under workers
compensation, unemployment insurance and other social security legislation),
surety or appeal bonds or other Liens incurred
in the ordinary course of business and not in connection with the borrowing
of money;
(c) Liens resulting from judgments, unless such judgments are not,
within 60 days, discharge or stayed pending appeal, or shall not have been
discharged within 60 days after the expiration of any such stay;
(d) Liens securing Indebtedness of a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(e) Liens in existence at Closing and reflected in Schedule 10.3
hereto;
(f) minor survey exceptions and the like which do not Materially
detract from the value of such property;
(g) leases, subleases, easements, rights-of-way, restrictions and
other similar charges or encumbrances incidental to the ownership of property
or assets or the ordinary conduct of the Company or any of its Restricted
Subsidiaries' businesses, provided that the aggregate of such Liens do not
Materially detract from the value of such property;
(h) Liens (i) existing on property at the time of its acquisition or
construction by the Company or a Restricted Subsidiary and not created in
contemplation thereof; (ii) on property created contemporaneously with its
acquisition or within 270 days of the acquisition or completion or
construction or improvement thereof to secure the purchase price or cost
of construction or improvement thereof; or (iii) existing on property of a
Person at the time such Person is
consolidated with or merged with the Company or a Restricted
Subsidiary and not created in contemplation thereof; provided that such
Liens shall attach solely to the property acquired or constructed and the
principal amount of the Indebtedness secured by the Lien shall not exceed the
lesser of the cost of acquisition or construction or fair market value of such
property (as determined in good faith);
(i) any Liens renewing, extending or replacing Liens permitted by Sections
10.3(d), (e), and (h), provided that (i) the principal amount of the
Indebtedness secured is not increased or the maturity thereof reduced, (ii)
such Lien is not extended to any other property, and (iii) immediately after
such extension, or refunding, no Default or Event of Default would exist; and
(j) other Liens securing Priority Debt of the Company or any
Restricted Subsidiary not otherwise permitted by paragraphs (a) through
(i) of this Section 10.3, provided that Priority Debt incurred after the
Closing does not exceed an amount equal to 15% of Consolidated Net
Worth as of the then most recently ended fiscal quarter of the Company.
10.4 Minimum Adjusted Consolidated Net Worth.
The Company will not permit Adjusted Consolidated Net Worth to be at any
time less than $160,000,000.
10.5 Limitation on Total Indebtedness.
The Company will not permit (a) the ratio of Total Debt to Total
Capitalization to be greater than 0.55 to 1.00 at any time, and (b) any
Restricted Subsidiary to incur any Indebtedness if after giving effect thereto
and the application of proceeds therefrom, Priority Debt incurred after the
Closing would exceed 15% of Consolidated Net Worth as of the then most recently
ended fiscal quarter of the Company.
10.6 Nature of Business.
The Company will not, and will not permit any Restricted Subsidiary, to
engage in any business if, as a result, the general nature of the business of
the Company and its Restricted Subsidiaries, taken on a consolidated basis,
which would then be engaged in by the Company and its Restricted Subsidiaries
would be substantially changed from the general nature of the business engaged
in by the Company and its Restricted Subsidiaries, taken on a consolidated
basis, on the date of the Closing.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether at
maturity
or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note for more
than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any term
contained in Section 10; or
(d) the Company defaults in the performance of or compliance with any term
contained herein(other than those referred to in paragraphs (a), (b) and (c) of
this Section 11) and such default is not remedied within 30 days after the
earlier of (i) a Responsible Officer obtaining actual knowledge of such default
and (ii)the Company receiving written notice of such default from any holder of
a Note(any such written notice to be identified as a "notice of default" and to
refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on behalf of the
Company or by any officer of the Company in this Agreement or in any writing
furnished in connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which made;or
(f) (i) the Company or any Restricted Subsidiary is in default (as principalor
as guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $5,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Restricted Subsidiary
is in default in the performance of or compliance with any term of any evidence
of any Indebtedness in an aggregate outstanding principal amount of at least
$5,000,000 or of any mortgage, indenture or other agreement relating thereto or
any other condition exists, and as a consequence of such default or condition
such Indebtedness has become, or has been declared due and payable before its
stated maturity or before its regularly scheduled dates of payment; or
(g) the Company or any Restricted Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,(iii) makes
an assignment for the benefit of its creditors, (iv)consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated,or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters an order
appointing, without consent by the Company or any of its Restricted
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property,or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries,or any such petition shall be filed against the Company
or any of its Restricted Subsidiaries and such petition shall not be dismissed
within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating in
excess of$10,000,000 are outstanding at any one time against one or more of the
Company and its Restricted Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding standards of
ERISA or the Code for any plan year or part thereof or a waiver of such
standards or extension of any amortization period is sought or granted under
section 412 of the Code, (ii) a notice of intent to terminate any Plan shall
have been or is reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the Company or
any ERISA Affiliate that a Plan may become a subject of any such proceedings,
(iii)the aggregate "amount of unfunded benefit liabilities" (within the meaning
of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed an amount equal to 5% of Adjusted Consolidated
Net Worth, (iv) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer
Plan, or (vi) the Company or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in a manner
that would increase the liability of the Company or any Subsidiary thereunder;
and any such event or events described in clauses (i) through (vi) above,either
individually or together with any other such event or events, would reasonably
be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan"shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1 Acceleration.
(a) If an Event of Default with respect to the Company described in
paragraph (g) or (h)of Section 11 (other than an Event of Default described in
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause(i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.
(b) If any other Event of Default has occurred and is continuing, any holder or
holders of at least 51% in principal amount of the Notes of all Series, taken
collectively, at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of Section 11 has
occurred and is continuing, any holder or holders of Notes of any Series at the
time outstanding affected by such Event of Default may at any time, at its or
their option,by notice or notices to the Company, declare all the Notes of such
Series held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether
automatically or by declaration,such Notes will forthwith mature and the entire
unpaid principal amount of such Notes,plus (x) all accrued and unpaid interest
thereon and (y) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable,in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note,or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3 Rescission.
At any time after any Notes of any Series have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the holders of at least
51% in principal amount of the Notes of all Series, taken collectively, then
outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and Make-Whole Amount, if any, on any
Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any Note in
exercising any right,power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1 Registration of Notes.
The Company shall keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes,each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
anyNote shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.
13.2 Transfer and Exchange of Notes.
Upon surrender of any Note at the principalexecutive office of the Company for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof),the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the holder thereof)in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shallbe
substantially in the form of Exhibit 1. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations ofless than
$500,000,provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes,one Note may be in a denomination of less
than $500,000. Any transferee shall be an Institutional Investor and, by its
acceptance of a Note registered in its name (or the name of its nominee),shall
be deemed to have made the representation set forth in Section 6.2.
13.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be,in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it(provided that if the holder of such Note is, or is a nominee
for, an original Purchaser or another holder of a Note with a minimum net worth
of at least $50,000,000, such Person's own unsecured agreement of indemnity
shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
the Company at its own expense shall execute and deliver,in lieu thereof, a new
Note,dated and bearing interest from the date to which interest shall have been
paid on such lost,stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.1 Place of Payment.
Subject to Section 14.2, payments of principal,Make-Whole Amount, if any, and
interest becoming due and payable on the Notes shall be made in the State of
California at the principal office of the Company in such jurisdiction. The
Company may at any time, by notice to each holder of a Note, change the placeof
payment of the Notes so long as such place of payment shall be either the
principal office of the Company in such jurisdiction or the principal office of
a bank or trust company in such jurisdiction.
14.2 Home Office Payment.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary,the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation,reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company inexchange
for a new Note or Notes pursuant to Section 13.2. The Company will afford the
benefits of this Section 14.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 14.2.
15. EXPENSES, ETC.
15.1 Transaction Expenses.
Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
a special counsel and, if reasonably required, local or other counsel)incurred
by you, each Additional Purchaser and each Other Purchaser or holder of a Note
in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend)any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process orinformal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or any Subsidiary or in connection with any work
out or restructuring of the transactions contemplated hereby and by the Notes.
The Company will pay, and will save you and each other holder of a Note harmless
from, all claims in respect of any fees, costs or expenses if any, of brokers
and finders (other than those retained by you).
15.2 Survival.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement,any Supplement or the Notes, and the termination of
this Agreement or any Supplement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or in any Supplement
shall survive the execution and delivery of this Agreement, such Supplement and
the Notes, the purchase or transfer by you or any Additional Purchaser of any
Note or portion thereof or interest therein and the payment of any Note,and may
be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any Additional
Purchaser or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement or any Supplement shall be deemed representationsand
warranties of the Company under this Agreement. Subject to the preceding
sentence, this Agreement (including every Supplement)and the Notes embody the
entire agreement and understanding between you, the Other Purchasers, the
Additional Purchasers and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1 Requirements.
(a) Requirements. This Agreement (including any Supplement hereto) and the
Notes may be amended, and the observance of any term hereof or of the Notes may
be waived (either retroactively or prospectively), with (and only with) the
written consent of the Company and the holders of at least 51% in principal
amount of the Notes of all Series, taken collectively, except that (a) no
amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21
hereof, or any defined term (as it is used therein),will be effective as to you
unless consented to by you in writing, and (b) no such amendment or waiver may,
without the written consent of the holder of each Note at the time outstanding
affected thereby, (i) subject to the provisions of Section 12 relating to
acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest or of the Make-Whole Amount on,the Notes,
(ii) change the percentage of the principal amount of the Notes the holders of
which are required to consent to any such amendment or waiver, or (iii)amend
any of Sections 8, 11(a), 11(b), 12, 17 or 20.
(b) Supplements. Notwithstanding anything to the contrary contained herein,
the Company may enter into any Supplement providing for the issuance of one or
more Series of Additional Notes pursuant to and in compliance with Sections 2.2
and 4.12 hereof without obtaining the consent of any holder of any Notes of any
other Series.
17.2 Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required,to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise,or grant any security, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes or any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms,ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver or amendment.
17.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17 applies
equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon the Company without regard to whether such Note has
been marked to indicate such amendment or waiver. No such amendment or waiver
will extend to or affect any obligation, covenant, agreement, Default or Event
of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall operate
as a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement"and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
17.4 Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in writing and
sent (a) by telecopy if the sender on the same day sends a confirming copy of
such notice by a recognized overnight delivery service (charges prepaid),or(b)
by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address specified for such
communications in Schedule A, or at such other address as you or it shall have
specified to the Company in writing,
(ii) if to any Additional Purchaser or its nominee, to such Additional Purchaser
or nominee at the address specified for such communications in the applicable
Supplement, or at such other address that such Additional Purchaser or nominee
shall have specified to the Company in writing,
(iii) if to any other holder of any Note, to such holder at such address as
such other holder shall have specified to the Company in writing, or
(iv)if to the Company, to the Company at its address set forth at the beginning
hereof to the attention of the President, or at such other address as the
Company shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic,photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original,or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you,provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
affiliates, (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes),(ii) your financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note,(iv) any Institutional Investor
to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this
Section 20),(v) any Person from which you offer to purchase any security of the
Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization,or any nationally recognized rating agency that requires access to
information about your investment portfolio,or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law,rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process,(y) in connection with any
litigation to which you are a party or (z)if an Event of Default has occurred
and is continuing,to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. Without limiting the generality of the
foregoing,no holder of the Notes shall disclose the Confidential Information to
any Affiliate of such holder of the Notes that is engaged in a business
competitive with that of the Company or its Subsidiaries. On reasonable request
by the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement(other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this
Section 21),such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
22. MISCELLANEOUS.
22.1 Successors and Assigns.
All covenants and other agreements contained in this Agreement(including any
Supplement) by or on behalf of any of the parties hereto bind and inure to the
benefit of their respective successors and assigns (including, without
limitation, any subsequent holder of a Note) whether so expressed or not.
22.2 Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal of or Make-whole Amount orinterest on any Note thatis due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
22.3 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall,as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4 Construction.
Each covenant contained herein shall be construed (absent express provision to
the contrary) as being independent of each other covenant contained herein,so
that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person,or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.
22.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
Each counterpart may consist of a number of copies hereof, each signed by less
than all, but together signed by all, of the parties hereto.
22.6 Governing Law.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of California
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
* * * * *
Ifyou are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this
Agreement and return it to the Company, whereupon the foregoing
shall become a binding agreement between you and the Company.
Very truly yours,
ROSEVILLE COMMUNICATIONS COMPANY
By: /s/ Brian H. Strom
Brian H. Strom
President and Chief Executive Officer
The foregoing is hereby
agreed to as of the
date thereof.
LUTHERAN BROTHERHOOD
By: /s/ Mark O. Swenson Name: Mark O. Swenson Title: Assistant Vice
President
The foregoing is hereby
agreed to as of the
date thereof.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY By: Hartford Investment Sevices,
Inc.,
Its Agent and Attorney-in-Fact
By: /s/ Betsy R. Roberts Name: Betsy R. Roberts Title: Senior Vice
President
The foregoing is hereby
agreed to as of the
date thereof.
HARTFORD LIFE INSURANCE COMPANY
By: Hartford Investment Sevices, Inc., Its Agent and Attorney-in-Fact
By: /s/ Betsy R. Roberts
Name: Betsy R. Roberts Title: Senior Vice President
The foregoing is hereby
agreed to as of the
date thereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By: /s/ Marcia Haydel
Name:Marcia Haydel
Title:Investment Officer
The foregoing is hereby
agreed to as of the
date thereof.
RGA REINSURANCE COMPANY
By: Conning Asset Management Company
By: /s/ Laura R. Caro Name:Laura R. Caro Title:Senior Vice President
The foregoing is hereby
agreed to as of the
date thereof.
WASHINGTON UNIVERSITY
By: Conning Asset Management Company
By: /s/ Laura R. Caro Name:Laura R. Caro Title:Senior Vice President
The foregoing is hereby
agreed to as of the
date thereof.
GENERAL AMERICAN LIFE INSURANCE COMPANY, SEPARATE ACCOUNT 42A
By: Conning Asset Management Company
By: /s/ Laura R. Caro Name:Laura R. Caro Title:Senior Vice President
The foregoing is hereby
agreed to as of the
date thereof.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
By: /s/ James D. Kestner
Name:James D. Kestner
Title:Vice President
The foregoing is hereby
agreed to as of the
date thereof.
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
By: /s/ James D. Kestner
Name:James D. Kestner
Title:Vice President
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
Lutheran Brotherhood $7,000,000
Attn: Investment Division
625 Fourth Avenue South Minneapolis, MN 55415 Telecopier: (612) 340-5776
(1) All payments by wire transfer of
immediately available funds to: Norwest Bank Minnesota, N.A.
ABA #091000019
For Credit to Trust Clearing Account #08-40-245 Attn: Sarah Corcoran
For Credit to: Lutheran Brotherhood
Acct. No.: 12651300
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers to: Lutheran Brotherhood
Attn: Investment Accounting/Trading Administrator 625 Fourth Avenue South 10th
Floor
Minneapolis, MN 55415
(3) All other communications to:
Lutheran Brotherhood
Attn: Investment Division
625 Fourth Avenue South
Minneapolis, MN 55415 Telecopier: (612) 340-5776
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
Hartford Life and Annuity Insurance Company $5,000,000 Tax Identification
No.: 39-1052598
(1) All payments by wire transfer of
immediately available funds to:
CHASE NYC/CUST
ABA #021 000 021
A/C #900-9-000200 for F/C/T Hartford Acct G06586 ITT Attn: Bond
Interest/Principal - Roseville Communications Co., Sr. Notes
Ref: PPN #777877 A* 2 Prin: $_______________ Int: $___________ with
sufficient information to identify the
source and application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers to: The Hartford Investment Management
Company c/o Portfolio Support, 9th Floor
P.O. Box 1744
Hartford, CT 06144-1744
Fax Number: (860) 297-8876
(3) All other communications to:
The Hartford Investment Management Company c/o Investment Department, 10th Floor
Private Placements
P.O. Box 1744
Hartford, CT 06144-1744
Fax Number: (860) 297-8884
(4) Physical delivery of notes to:
Chase Manhattan Bank
North American Insurance
3 Metro Tech Center, 6th Floor Brooklyn, New York 11245 Attn: Bettye
Carrera
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
Hartford Life Insurance Company $3,000,000
Tax Identification No.: 06-0974148
(1) All payments by wire transfer of
immediately available funds to: CHASE NYC/CUST
ABA #021 000 021
A/C #900-9-000200 for F/C/T Hartford Acct G06641 CRC Attn: Bond
Interest/Principal - Roseville Communications Co., Sr. Notes
Ref: PPN #777877 A* 2 Prin: $_______________ Int: $___________
with sufficient information to identify the
source and application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers to: The Hartford Investment Management
Company c/o Portfolio Support, 9th Floor
P.O. Box 1744
Hartford, CT 06144-1744
Fax Number: (860) 297-8876
(3) All other communications to:
The Hartford Investment Management Company c/o Investment Department,10th Floor
Private Placements
P.O. Box 1744
Hartford, CT 06144-1744
Fax Number: (860) 297-8884
(4) Physical delivery of notes to:
Chase Manhattan Bank
North American Insurance
3 Metro Tech Center, 6th Floor Brooklyn, New York 11245 Attn: Bettye
Carrera
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be
Purchased
The Equitable Life Assurance Society of the United States
$12,000,000
1290 Avenue of the Americas
New York, New York 10104
(1) All payments by wire transfer of
immediately available funds to:
The Equitable Life Assurance Society of the United States ABA No. 021000021
Account No. 037-2-409417
The Chase Manhattan Bank, N.A. 1251 Avenue of the Americas New York, New York
10020
with sufficient information to identify the source and application of
such funds.
(2) All notices of payments and written
confirmations of such wire transfers to:
The Equitable Life Assurance Society of the United States c/o Alliance Capital
Management L.P.
500 Plaza Drive
Secaucus, New Jersey 07094
Attn: Insurance Accounting
(3) All other communications to:
The Equitable Life Assurance Society of the United States c/o Alliance Capital
Management L.P.
1345 Avenue of the Americas
38th Floor
New York, New York 10105
Attn: Fixed Income Research Group
(4) Please deliver Notes to:
The Equitable Life Assurance Society of the United States 1290 Avenue of the
Americas, 12th Floor
New York, New York 10104
Attn: Cheryl J. Weitman
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
RGA Reinsurance Company $4,500,000
c/o Conning Asset Management
700 Market Street
St. Louis, MO 63101
(1) All payments by wire transfer of
immediately available funds to:
General American Life Insurance Company c/o The Bank of New York ABA #021000018
BNF: IOC566 Attn: P & I Department
with sufficient information to identify the source and application of such
funds.
(2) All notices of payments and written
confirmations of such wire transfers to: Conning Asset Management
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO 63166
and
General American Life Insurance Company c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(3) All other communications to:
Conning Asset Management Attn: Securities Division P.O. Box 396 St. Louis, MO
63166
and
General American Life Insurance Company c/o The Bank of New York P.O. Box 19266
Newark, NJ 07195
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
Washington University $3,000,000
c/o Conning Asset Management
700 Market Street St. Louis, MO 63101
(1) All payments by wire transfer of
immediately available funds to: Bankers Trust Company
ABA 221 001 033
For Account 99-401-399
Reference: 777877 A* 2, Washington University, for Account 190146 Attn:
Veatrice Parker/Asset Collection
with sufficient information to identify the source and application of such
funds.
(2) All notices of payments and written
confirmations of such wire transfers to: Conning Asset Management
Attn: Investment Accounting P.O. Box 418
St. Louis, MO 63166
and
Joel Collier
BT Services Tennessee, Inc. 648 Grassmere Park Rd. Nashville, TN 37211
(3) All other communications to:
Conning Asset Management
Attn: Securities Division P.O. Box 396
St. Louis, MO 63166
and
Joel Collier
BT Services Tennessee, Inc. 648 Grassmere Park Road Nashville, TN 37211 (4)
Name of Nominee in which Notes are to be issued: Pitt
& Co.
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
General American Life Insurance Company, $1,000,000 Separate Account
42A
c/o Conning Asset Management 700 Market Street
St. Louis, MO 63101
(1) All payments by wire transfer of
immediately available funds to:
General American Life Insurance Company c/o The Bank of New York ABA #021000018
BNF: IOC566 Attn: P & I Department
with sufficient information to identify the source and application of such
funds.
(2) All notices of payments and written
confirmations of such wire transfers to: Conning Asset Management
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO 63166
and
General American Life Insurance Company c/o The Bank of New York
P.O. Box 19266 Newark, NJ 07195
(3) All other communications to:
Conning Asset Management
Attn: Securities Division
P.O. Box 396
St. Louis, MO 63166
and
General American Life Insurance Company c/o The Bank of New York P.O. Box 19266
Newark, NJ 07195
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased
Provident Mutual Life Insurance Company $2,000,000
P.O. Box 1717
Valley Forge, Pennsylvania 19482-1717
Attention: Securities Investment Department Telefacsimile: (610) 407-1322
(1) All payments by wire transfer of
immediately available funds to:
PNC Bank
Broad and Chestnut Streets Philadelphia, Pennsylvania 19101
ABA #031-000-053
for credit to:
Provident Mutual Life Insurance Company Account #85-4084-2176
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers to:
Provident Mutual Life Insurance Company
1205 Westlakes Drive
Berwyn, Pennsylvania 19312-2405
Attention: Treasurer
(3) All other communications to:
Provident Mutual Life Insurance Company
1205 Westlakes Drive
Berwyn, Pennsylvania 19312-2405
Attention: Treasurer
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be
Purchased
Providentmutual Life and Annuity Company of America
$2,500,000
P.O. Box 1717
Valley Forge, Pennsylvania 19482-1717 Attention: Securities Investment
Department Telefacsimile: (610) 407-1322
(1) All payments by wire transfer of
immediately available funds to:
PNC Bank
Broad and Chestnut Streets Philadelphia, Pennsylvania 19101
ABA #031-000-053
for credit to:
Providentmutual Life and Annuity Company of America Account #85-5075-4911
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers to:
Providentmutual Life and Annuity Company of America 1205 Westlakes Drive Berwyn,
Pennsylvania 19312-2405
Attention: Treasurer
(3) All other communications to:
Providentmutual Life and Annuity Company of America 1205 Westlakes Drive
Berwyn, Pennsylvania 19312-2405
Attention: Treasurer
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof
following such term:
"Additional Notes" is defined in Section 2.2.
"Additional Purchasers" means the purchasers of a Series of
Additional Notes as set forth in the applicable Supplement for
such Additional Notes.
"Adjusted Consolidated Net Worth" means, as of any date of
determination, the sum of (i) Consolidated Net Worth, as of such
date of determination, less (ii) the sum of Restricted
Investments incurred after Closing in excess of 10% of
Consolidated Net Worth, as of such date of determination.
"Affiliate" means, at any time, and with respect to any
Person, any other Person (other than a Restricted Subsidiary)
that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person. As used in this definition,
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Company.
"Agreements" is defined in Section 2.2.
"Business Day" means (a) for the purposes of Section 8.6
only, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City are required or authorized to
be closed, and (b) for the purposes of any other provision of
this Agreement, any day other than a Saturday, a Sunday or a day
on which commercial banks in New York, New York or San Francisco,
California are required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the
acquisition of an asset and the incurrence of a liability in
accordance with GAAP.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated
thereunder from time to time.
"Company" means Roseville Communications Company, a
California corporation.
"Confidential Information" is defined in Section 20.
"Consolidated Net Assets" means, on a consolidated basis for
the Company and its Restricted Subsidiaries, total assets less
Restricted Investments less current liabilities, all determined
in accordance with GAAP.
"Consolidated Net Income" means, for any period, the after
tax net income of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP,
excluding (i) extraordinary items and (ii) unremitted net income
and net losses of any business entity (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has
an ownership interest.
"Consolidated Net Worth" means the consolidated
stockholders' equity of the Company and its Restricted
Subsidiaries, as defined according to GAAP.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of
notice or both, become an Event of Default.
"Default Rate" means that rate of interest that is the
greater of (i) 2% per annum above the rate of interest stated in
clause (a) of the first paragraph of the Notes or (ii) 2% over
the rate of interest publicly announced by Bank of America in San
Francisco, California as its "base" or "prime" rate.
"Environmental Laws" means any and all Federal, state,
local, and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions
relating to pollution and the protection of the environment or
the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes,
air emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the rules and
regulations promulgated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) that is treated as a single employer together
with the Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles,
including specific accounting principles related to utility
companies, as in effect from time to time in the United States of
America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any
State or other political subdivision thereof, or
(ii) any jurisdiction in which the Company or
any Subsidiary conducts all or any part of its
business, or which asserts jurisdiction over any
properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or
pertaining to, any such government.
"Guaranty" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of
business of negotiable instruments for deposit or collection) of
such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in
any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent
or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such indebtedness or obligation, or (ii) to
maintain any working capital or other balance sheet
condition or any income statement condition of any
other Person or otherwise to advance or make available
funds for the purchase or payment of such indebtedness
or obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the
owner of such indebtedness or obligation of the ability
of any other Person to make payment of the indebtedness
or obligation; or
(d) otherwise to assure the owner of such indebtedness
or obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty,the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"holder" means, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by
the Company pursuant to Section 13.1.
"Indebtedness" with respect to any Person means, at any
time, without duplication,
(a) its liabilities for borrowed money and its
redemption obligations in respect of mandatorily
redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts
payable and other accrued liabilities arising in the
ordinary course of business but including all
liabilities created or arising under any conditional
sale or other title retention agreement with respect to
any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any
Lien with respect to any property owned by such Person
(whether or not it has assumed or otherwise become
liable for such liabilities); and
(e) any Guaranty of such Person with respect to
liabilities of a type described in any of clauses (a)
through (d) hereof.
"Institutional Investor" means (a) any original purchaser of
a Note, and (b) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer,
or any other similar financial institution or entity, regardless
of legal form.
"Investment" means any investment, made in cash or by
delivery of property, by the Company or any of its Restricted
Subsidiaries (i) in any Person, whether by acquisition of stock,
Indebtedness or other obligations or security, or by loan,
guaranty, advance, capital contribution or otherwise, or (ii) in
any property.
"Lien" means, with respect to any Person, any mortgage,
lien, pledge, charge, security interest or other encumbrance, or
any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or
other title retention agreement or Capital Lease, upon or with
respect to any property or asset of such Person (including in the
case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Make-Whole Amount" is defined in Section 8.6.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, or properties
of the Company and its Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, affairs, financial condition,
assets or properties of the Company and its Restricted
Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the
Notes.
"Materially" means materially in relation to the business,
operations, affairs, financial condition, assets, or properties
of the Company and its Restricted Subsidiaries taken as a whole.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Notes" means the Series A Notes and any Additional Notes
issued pursuant to Section 2.2, together with any such notes
issued in substitution therefor pursuant to Section 13 of the
Agreements.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such
certificate.
"Other Agreements" is defined in Section 2.
"Other Purchasers" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA or any successor thereto.
"Permitted Lien" is defined in Section 10.3.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
"Plan" means an "employee benefit plan" (as defined in
section 3(3) of ERISA) that is or, within the preceding five
years, has been established or maintained, or to which
contributions are or, within the preceding five years, have been
made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA
Affiliate may have any liability.
"Preferred Stock" means any class of capital stock of a
corporation that is preferred over any other class of capital
stock of such corporation as to the payment of dividends or the
payment of any amount upon liquidation or dissolution of such
corporation.
"Priority Debt" means (without duplication) the sum of (a)
unsecured Indebtedness of Restricted Subsidiaries other than (x)
Indebtedness owing to the Company or any other Restricted
Subsidiary and (y) Indebtedness outstanding when such Person
became a Restricted Subsidiary and (b) Indebtedness of the
Company and its Restricted Subsidiaries secured by a Lien
permitted by Section 10.3(i).
"property" or "properties" means, unless otherwise
specifically limited, real or personal property of any kind,
tangible or intangible, choate or inchoate.
"QPAM Exemption" means Prohibited Transaction Class
Exemption 84-14 issued by the United States Department of Labor.
"Responsible Officer" means any Senior Financial Officer
and
any other officer of the Company with responsibility for
the
administration of the relevant portion of this agreement.
"Restricted Investment" means all Investments except
(i)
property to be used in the ordinary course of business; (ii)
current assets arising from the sale of goods and services in the
ordinary course of business; (iii) Investments in one or
more
Restricted Subsidiaries or any Person that concurrently becomes
a
Restricted Subsidiary; (iv) Investments existing at the date
of
Closing; (v) Investments in obligations, maturing within
one
year, issued by or guaranteed by the United States of America
or
an agency thereof; (vi) Investments in municipal
securities,
maturing within one year, which are rated in one of the top two
ratings classifications by at least one national rating agency;
(vii) Investments in certificates of deposit or
banker's
acceptances issued by Bank of America or other commercial banks
which are rated in one of the top two rating classifications
by
at least one national rating agency; (viii) Investments
in
commercial paper, maturing within 270 days, rating in one of
the
top two rating classifications by at least one national rating
agency; and (ix) Investments in money market instrument programs
which are classified as current assets in accordance with GAAP.
"Restricted Subsidiary" means any Subsidiary of the
Company
or of any of its Wholly-Owned Restricted Subsidiaries which
is
not designated as an Unrestricted Subsidiary. The Company
may
designate in writing to each of the holders of the Notes
any
Unrestricted Subsidiary as a Restricted Subsidiary and
may
designate in writing to each of the holders of the Notes
any
Restricted Subsidiary as an Unrestricted Subsidiary;
provided
that (i) no such designation of an Unrestricted Subsidiary as a
Restricted Subsidiary shall be effective unless immediately after
giving effect thereto such Subsidiary could incur an
additional
$1.00 of Indebtedness under clause (b) of Section 10.5; (ii)
no
such designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be effective unless (x) such designation
is
treated as a transfer under Section 10.2 and such designation
is
permitted by Section 10.2 and (y) such Subsidiary does not own
any stock, other equity interest or Indebtedness of the Company
or a Restricted Subsidiary; and (iii) no such designation of a
Restricted Subsidiary as an Unrestricted Subsidiary or of
an
Unrestricted Subsidiary as a Restricted Subsidiary shall
be
effective unless, immediately after giving effect thereto (A) the
Restricted Subsidiaries could incur at least $1.00 of
additional
Indebtedness under Section 10.5(b), and no Default or Event
of
Default would exist; provided, further, that any Subsidiary that
has been redesignated as a Restricted Subsidiary or Unrestricted
Subsidiary as provided in the foregoing sentence of
this
definition may not thereafter be designated or redesignated as a
Restricted Subsidiary or an Unrestricted Subsidiary, as the
case
may be.
"Securities Act" means the Securities Act of 1933,
as
amended from time to time.
"Senior Financial Officer" means the chief
financial
officer, principal accounting officer, treasurer or
comptroller
of the Company.
"Series" means each series of Notes issued pursuant
to
Section 2, including the Series A Notes and each series of
Additional Notes.
"Series A Notes" is defined in Section 1.
"Subordinated Debt" means any Indebtedness that is in any
manner subordinated in right of payment or security in any
respect to Indebtedness evidenced by the Notes.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one
or more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable
it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership
or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries
(unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one
or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a "Subsidiary" is a reference
to a Subsidiary of the Company.
"Supplement" is defined in Section 2.2.
"Total Capitalization" means, as of any date of
determination, the sum of (i) Consolidated Net Worth and (ii)
Total Debt.
"Total Debt" means, as of any date of determination, the
total of all Indebtedness of the Company and its Restricted
Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Unrestricted Subsidiary" means any Subsidiary which is
designated as an Unrestricted Subsidiary on Schedule 5.4 attached
hereto or is designated as such in writing by the Company to each
of the holders of the Notes pursuant to the definition of
"Restricted Subsidiary".
"Wholly-Owned Restricted Subsidiary" means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the
equity interests (except directors' qualifying shares) and voting
interests of which are owned by any one or more of the Company
and the Company's other Wholly-Owned Restricted Subsidiaries at
such time.
EXHIBIT 1
[FORM OF SERIES A NOTE]
ROSEVILLE COMMUNICATIONS COMPANY
6.30% SENIOR NOTE DUE DECEMBER 9, 2013
No. [_____]
[Date]
$[_______] PPN
777877 A* 2
FOR VALUE RECEIVED, the undersigned,
ROSEVILLE
COMMUNICATIONS COMPANY (herein called the
"Company"), a
corporation organized and existing under the laws of the
State of
California, hereby promises to
pay to
[___________________________], or registered
assigns, the
principal sum of [___________________________]
DOLLARS on
December 9, 2013, with interest (computed on the basis of a
360-
day year of twelve 30-day months) (a) on the
unpaid balance
thereof at the rate of 6.30% per annum from the date
hereof,
payable semiannually, on the 9th day of June and December in
each
year, commencing with the June or December next
succeeding the
date hereof, until the principal hereof shall have become
due and
payable, and (b) to the extent permitted by law on any
overdue
payment (including any overdue prepayment) of
principal, any
overdue payment of interest and any overdue payment of
any Make-
Whole Amount (as defined in the Note Purchase Agreements
referred
to below), payable semiannually as aforesaid (or, at the
option
of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 8.30% or
(ii) 2%
over the rate of interest publicly announced from time to time
by
Bank of America in San Francisco, California as its
"base" or
"prime" rate.
Payments of principal of, interest on and any Make-
Whole
Amount with respect to this Note are to be made in
lawful money
of the United States of America at the principal place
of
business of the Company in the State of California
or at such
other place as the Company shall have designated by
written
notice to the holder of this Note as provided
in the Note
Purchase Agreements referred to below.
This Note is one of a series of Series A
Senior Notes
(herein called the "Notes") issued pursuant to
separate Note
Purchase Agreements, dated as of December 9, 1998 (as from
time
to time amended, the "Note Purchase Agreements"),
between the
Company and the respective Purchasers named therein
and is
entitled to the benefits thereof. Each holder of this Note
will
be deemed, by its acceptance hereof, (i) to have agreed
to the
confidentiality provisions set forth in Section 20
of the Note
Purchase Agreements and (ii) to have made the representation
set
forth in Section 6.2 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in
the Note
Purchase Agreements, upon surrender of this Note for
registration
of transfer, duly endorsed, or accompanied by
a written
instrument of transfer duly executed, by the registered
holder
hereof or such holder's attorney duly authorized
in writing, a
new Note for a like principal amount will be issued
to, and
registered in the name of, the transferee. Prior
to due
presentment for registration of transfer, the Company may treat
the person in whose name this Note is registered as
the owner
hereof for the purpose of receiving payment and for all other
purposes, and the Company will not be affected by any
notice to
the contrary.
The Company will make required prepayments of
principal on
the dates and in the amounts specified in the
Note Purchase
Agreements. This Note is also subject to optional
prepayment, in
whole or from time to time in part, at the times and on the
terms
specified in the Note Purchase Agreements, but not otherwise.
If an Event of Default, as defined in the
Note Purchase
Agreements, occurs and is continuing, the principal of
this Note
may be declared or otherwise become due and payable in
the
manner, at the price (including any applicable Make-Whole
Amount)
and with the effect provided in the Note Purchase Agreements.
This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law
of the State of California excluding choice-of-law principles of
the law of such State that would require the application of the
laws of a jurisdiction other than such State.
ROSEVILLE COMMUNICATIONS COMPANY By_________________________
Name:
Title:
EXHIBIT 4.4(a)
FORM OF OPINION OF COUNSEL
TO THE COMPANY
[SEE ATTACHED] EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS
December 9, 1998
TO EACH OF THE PURCHASERS
LISTED ON SCHEDULE A HERETO
Re: Roseville Communications Company $40,000,000 Series A Senior Notes
Ladies and Gentlemen:
We have acted as your special counsel in connection with the Note Purchase
Agreements dated December 9, 1998 by and between Roseville Communications
Company, a California corporation (the "Company"), and each of you,
respectively (collectively, the "Note Purchase Agreements"), pursuant to
which the Company is issuing $40,000,000 aggregate principal amount of
its 6.30% Series A Senior Notes due December 9, 2013, (collectively, the
"Notes"). We are providing this opinion to you pursuant to Section 4.4(b)
of the Note Purchase Agreements. Except as
otherwise indicated, capitalized terms used in this opinion and defined in
the Note Purchase Agreements will have the meanings given in the Note Purchase
Agreements.
In our capacity as special counsel, we have participated in the preparation
and negotiation of the Note Purchase Agreements and the Notes (collectively,
the "Note Documents") and have
examined, among other things, originals or copies thereof, as well as the
legal opinion of Cooper, White & Cooper, special counsel for the Company (the
"Other Counsel Opinion"). We have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with originals of all documents submitted to us as copies. As to
relevant factual matters, we have obtained and relied upon those certificates
of officers of the Company and certificates of public officials that we
considered appropriate.
On the basis of such examination, our reliance upon the assumptions
contained herein and our consideration of those questions of law we
considered relevant, and subject to the limitations and qualifications in
this opinion, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of California.
2. The Company has the corporate power to execute and deliver
the Note Purchase Agreements, to issue and sell the Notes and to perform its
obligations set forth in each of the Note Documents. 3. The execution,
delivery and performance of each of the Note
Documents has been duly authorized by all necessary corporate action on the part
of the Company, and each of the Note Documents has been duly executed and
delivered by the Company.
4. The Note Documents constitute the legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including without limitation, fraudulent conveyance laws) and
by general principles of equity including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
5. Assuming the accuracy of (i) the Company's representations
in the first sentence of Section 5.13 of the Note Purchase Agreements and (ii)
your representations in Section 6.1 of the Note Purchase Agreements, it is not
necessary in connection with the execution and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreements to register the Notes
under the Securities Act of 1933, as amended, or to qualify an indenture in
respect thereof under the Trust Indenture Act of 1939, as amended.
6. Neither the extension of credit nor the use of proceeds
provided in the Note Purchase Agreements will violate Regulations T, U or X of
the Board of Governors of the Federal Reserve System.
The Other Counsel Opinion is satisfactory in scope and form to us, and
we believe you are justified in relying on such opinion.
We express no opinion as to the effect of non-compliance by you with any
state or federal laws or regulations applicable to the transactions
contemplated by the Note Purchase Agreements because of the nature of your
business.
Our opinion in paragraph (4) above as to the enforceability of the Note
Documents is subject to (i) the unenforceability under certain circumstances
of waivers of rights granted by law where the waivers are against public policy
or prohibited by law, and (ii) public policy considerations, statutes or
court decisions that may limit the rights of a party to obtain
indemnification against its own negligence, willful misconduct or unlawful
conduct.
We express no opinion with respect to your ability to collect attorneys'
fees and costs in an action involving the Note Documents if you are not the
prevailing party in that action (we call your attention to the effect of
Section 1717 of the California Civil Code, which provides that where a
contract permits one party thereto to recover attorneys' fees, the
prevailing party in any action to enforce any provision of the contract shall
be entitled to recover its reasonable attorneys' fees).
We express no opinion as to any provision of the Note Documents
requiring written amendments or waivers of the Note Documents insofar as
it suggests that oral or other modifications, amendments or waivers
could not be effectively agreed upon by the parties or that the doctrine
of promissory estoppel might not apply.
We express no opinion concerning (i) federal or state securities
laws or regulations (except for the opinion in paragraph (5)), (ii)
pension and employee benefit laws and regulations, (iii) federal or state
antitrust, unfair competition or trade practice laws or regulations or (iv)
compliance with fiduciary requirements.
The law covered by this opinion is limited to the present federal law of the
United States and the present law of the State of California. We express no
opinion as to the laws of any other jurisdiction and no opinion
regarding the statutes,
administrative decisions, rules or regulations of any county, municipality
or special political subdivision or other local authority.
This opinion is furnished by us as your special counsel and may be relied upon
by you only in connection with the issuance by the Company to you of the Notes.
It may not be used or relied upon by you for any other purpose or by any other
person, nor may copies be delivered to any other person, without in each
instance our prior written consent; provided, that you may deliver copies
of this opinion to regulatory authorities having jurisdiction over you. You
may deliver a copy of this opinion to permitted transferees of the Notes in
connection with such transfer, and such transferees may rely on this opinion
as if it were addressed and had been delivered to them on the date of this
opinion.
Respectfully submitted,
SCHEDULE A
Lutheran Brotherhood
Attn: Investment Division
625 Fourth Avenue South
Minneapolis, MN 55415
Hartford Life and Annuity Insurance Company c/o The Hartford Investment
Management Company 55 Farmington Avenue
Hartford, Connecticut 06105
Hartford Life Insurance Company
c/o The Hartford Investment Management Company 55 Farmington Avenue Hartford,
Connecticut 06105
The Equitable Life Assurance Society of the United States 1290 Avenue of the
Americas
New York, New York 10104
RGA Reinsurance Company
c/o Conning Asset Management 700 Market Street
St. Louis, MO 63101
Washington University
c/o Conning Asset Management 700 Market Street
St. Louis, MO 63101
General American Life Insurance Company, Separate Account 42A
c/o Conning Asset Management 700 Market Street
St. Louis, MO 63101
Provident Mutual Life Insurance Company
P.O. Box 1717
Valley Forge, Pennsylvania 19482-1717
Providentmutual Life and Annuity Company of America
P.O. Box 1717
Valley Forge, Pennsylvania 19482-1717
ROSEVILLE COMMUNICATIONS COMPANY
SUPPLEMENT TO NOTE PURCHASE AGREEMENTS
Dated as of _______________
Re: $__________ _____% Series __ Senior Notes DUE _______________
EXHIBIT S
(to Note Purchase Agreement) SUPPLEMENT TO NOTE PURCHASE AGREEMENTS
Dated as of _______________
To each of the Purchasers named in
Schedule A hereto which is
a signatory of this Agreement
Ladies and Gentlemen:
This [Number] Supplement to Note Purchase Agreements (the "Supplement") is
between Roseville Communications Company (the "Company") whose address is
____________________ and the institutional investors named on Schedule A
attached hereto (the "Additional Purchasers").
Reference is hereby made to those certain Note Purchase Agreements dated as
of December 9, 1998 (the "Note Agreements") between the Company and the
purchasers listed on Schedule A thereto. All capitalized terms not
otherwise defined herein shall have the same meaning as specified in the Note
Agreements. Reference is further made to Section 4.12 thereof which requires
that, prior to the delivery of any Additional Notes, the Company and each
Additional Purchaser shall execute and deliver a Supplement.
The Company hereby agrees with you as follows:
1. The Company has authorized the issue and sale of $__________
aggregate principal amount of its _____% Series ___ Senior Notes due
__________, ____ (the "Series ___ Notes"). The
Series ___ Notes, together with the Series A Notes initially issued
pursuant to the Note Agreement and each Series of Additional Notes
which may from time to time be issued pursuant to the provisions of Section
2.2 of the Note Agreement, are collectively referred to as the "Notes" (such
term shall also include any such notes issued in substitution therefor
pursuant to Section 13 of the Note Agreement). The Series ___ Notes shall be
substantially in the form set out in Exhibit 1 hereto with such changes
therefrom, if any, as may be approved by you and the Company.
2. Subject to the terms and conditions hereof and as set forth in
the Note Agreement and on the basis of the
representations and warranties hereinafter set forth, the Company agrees to
issue and sell to you, and you agree to purchase from the Company, Series ___
Notes in the principal amount set forth opposite your name on Schedule A hereto
at a price of 100% of the principal amount thereof on the closing date hereafter
mentioned.
3. Delivery of the $__________ in aggregate principal amount of
the Series ___ Notes will be made at the offices of
______________________________, ______________________________,
______________________________, against payment therefor in Federal
Reserve or other funds current and immediately available at the principal
office of [COMPANY BANK] in the amount of the purchase price at 11:00 A.M.,
[BANK CITY] time, on __________, ____ or such later date not later than
__________ as shall mutually be agreed upon by the Company and the
Additional Purchasers of the Series ___ Notes (the "Closing").
4. [Here insert prepayment provisions, additional closing conditions
and representations and warranties applicable to Series ___ Notes,
including incorporation by reference, if applicable of representations and
warranties contained in the Note Agreements].
5. The Additional Purchaser represents and warrants that the
representations and warranties set forth in Section 6 of the Note Agreement
are true and correct on the date hereof with respect to the Series ___
Notes.
6. The Company and you agree to be bound by and comply with the terms
and provisions of the Note Agreements, as supplemented by this
Supplement, as if you were an original signatory to the Note Agreement.
The execution hereof shall constitute a contract between us for the uses
and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
ROSEVILLE COMMUNICATIONS COMPANY
By __________________________
Name:
Title:
Accepted as of ____________, ____
[ADDITIONAL PURCHASER]
By __________________________
Name:
Title: Schedule A to Supplement to Note Purchase Agreement
INFORMATION RELATING TO PURCHASERS
Principal Amount
of Series ___ Notes Name and Address of Purchaser to be
Purchased
______________________________
______________________________
______________________________
______________________________
Payments
All Payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Roseville Communications Company, _____% Senior Notes due ________________,
PPN_______ , principal or interest") to:
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each payment, to be addressed as follows:
Name of Nominee in which Notes are to be issued:
Tax ID No.: __________
[FORM OF NOTE]
ROSEVILLE COMMUNICATIONS COMPANY
_____% SERIES __ SENIOR NOTE DUE _______________
No. [____] ____________, ____
$[______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, ROSEVILLE COMMUNICATIONS
COMPANY (herein called the "Company"), a California corporation,
hereby promises to pay to [______________], or registered assigns,
the principal sum of [____________] DOLLARS on ____________, 20__, with
interest (computed on the basis of a 360-day year of twelve 30-day months) (a)
on the unpaid balance thereof at the rate of _____% per annum from the date
hereof, payable semiannually, on the _____ day of __________ and __________
in each year, commencing with the __________ or __________ next succeeding
the date hereof, until the principal hereof shall have become due and payable,
and (b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreements referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) _____% or (ii) 2% over the rate
of interest publicly announced from time to time by Bank of America in San
Francisco, California as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of the Company in the State of [_____________]
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Series __ Senior Notes (herein called the
"Notes") issued pursuant to a Supplement dated as of _____________________ to
separate Note Purchase Agreements, dated as of __________, 1998 (as so
supplemented and as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Additional Purchasers
named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and
(ii) to have made the
representations set forth in Sections 6.1 and 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
such holder's attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other
purposes, and the Company will not be affected by any notice to the contrary.
This Note is subject to [mandatory and] optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of
[_______________] excluding choice-of-law
principles of the law of such State that would require the application of
the laws of a jurisdiction other than such State.
ROSEVILLE COMMUNICATIONS COMPANY By:________________________
Name:
Title:
ROSEVILLE COMMUNICATIONS COMPANY
1999 RESTRICTED STOCK BONUS PLAN
1. Name and Purpose.
1.1 The name of this plan is the Roseville Communications Company 1999
Restricted Stock Bonus Plan ("Plan"). The Plan is created, adopted and will be
maintained by Roseville Communications Company (the "Company") to further the
growth, success and interests of the Company and its Affiliates (as defined in
Section 3.1) and the shareholders of the Company by enabling employees of the
Company and its Affiliates who receive an Incentive Bonus,as defined in Section
3.3 below, to acquire shares of common stock of the Company("Shares") under the
terms and conditions of and in accordance with this Plan, thereby increasing
their direct involvement in the success of the Company.
2. Administration of the Plan.
2.1 This Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company which shall consist of at
least three directors,each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and any successor to such rule ("Rule 16b-3"). The
Committee may, from time to time, designate one or more persons or agents to
carry out any or all of its administrative duties hereunder; provided that none
of the duties required to be performed by the Committee under Rule 16b-3 or
Section 2.2 of the Plan may be delegated to any other person.
2.2 The Committee shall have the exclusive right in its sole discretion to
determine the number of Shares awarded to each participant, to determine the
price or prices at which Shares shall be awarded to each participant, to
determine the time or times when Shares may be awarded,the time or times within
which the Shares may be subject to or release from forfeiture, all other
conditions of an award, and to prescribe the form, which shall be consistent
with this Plan, of the instruments evidencing any award and issuance under this
Plan and the legend, if any, to be affixed to the certificates representing
Shares issued under this Plan. The Committee shall interpret the Plan, and to
the extent and in the manner contemplated herein, it shall exercise the
discretion granted to it. The Committee shall issue from time to time such
rules and interpretations as in its judgment are necessary in order to
administer the Plan effectively. Each determination or other action made or
taken pursuant to the Plan, including interpretation of the Plan and the
specific terms and conditions of any awards under the Plan shall be final and
conclusive for all purposes and upon all persons including without limitation
the Company and its Affiliates, the Committee, the Board of Directors and the
affected participants and their respective successors in interest.
3. Eligible Employees and Participation.
3.1 Any officer and key employee of the Company and its Affiliates shall be
eligible to participate in the Plan if he or she has been awarded an Incentive
Bonus, as defined in Section 3.3. The term "Affiliate" shall mean any
corporation or other business organization in which the Company owns, directly
or indirectly, 50% or more of the voting stock or capital at the time of the
granting of an award.
3.2No member of the Board of Directors of the Company, unless he or she is also
an employee of the Company,and no member of the Committee, shall be eligible to
participate in the Plan.
3.3 The words "Incentive Bonus" shall mean an Award to an officer or key
employee either under theIncentive Compensation Program as adopted and operated
by the Committee and as such program may be amended from time to time, or in
accordance with the terms and conditions set forth in an agreement between the
Company and a participant. The Incentive Compensation Program and each such
agreement shall contain such individual corporate and performance goals,
restrictions, terms and conditions as the Committee may require.
4. Stock Portion of Incentive Bonus.
4.1 The number of Shares that shall be awarded to a participant shall be
determined by dividing a Participant's Incentive Bonus by the Adjusted Purchase
Price of one Share.
4.2The Adjusted Purchase Price for one Share shall be determined by calculating
the average closing price of one Share on the last day of the month for the
__________ (_____) day period ending on the last day of the month preceding the
date of the determination of the amount of the Incentive Bonus.
4.3No fractional Shares shall be awarded under the Plan. In the event that the
determination of the number of Shares that a participant is entitled to under
the Plan results in a fractional Share, such participant shall be entitled to
the number of whole Shares that results from rounding up such determination to
the next larger whole Share.
5. Shares Subject to the Plan.
5.1 The Shares which may be awarded and issued to employees under this Plan
shall be made available, at the discretion of the Board of Directors, either
from authorized and unissued Shares of the Company or from Shares reacquired by
the Company.
5.2 Shares issued to employees under this Plan shall be subject to the terms,
conditions and restrictions specified in Section 6 and to such other terms,
conditions and restrictions as the Committee in its discretion may provide.
5.3 Subject to the provisions of the succeeding paragraphs of this Section 5,
the aggregate number of Shares which may be issued under this Plan shall not
exceed 200,000 Shares.
5.4If Shares issued under this Plan shall be reacquired by the Company pursuant
to the provisions of Section 6 hereof, such Shares shall again become available
for issue under this Plan.
5.5In the event that the outstanding Shares shall be changed by reason of share
splits or combinations, recapitalization or reorganizations, or share dividends,
the number of Shares and the class or classes of securities which may thereafter
be issued under this Plan may be appropriately adjusted as determined by the
Committee so as to reflect such change.
6. Transfer Restrictions.
All Shares issued to participants under this Plan shall be subject to the
following restrictions:
6.1The Shares shall not be sold, transferred or otherwise disposed of and shall
not be pledged or otherwise hypothecated (and any such sale, transfer or other
disposition, pledge or other hypothecation being hereinafter referred to as "to
dispose of" or a "disposition")as long as the Company has the right to a return
of the Shares as hereinafter provided in this Section 6.
6.2 The obligation not to dispose of Shares acquired under this Plan and the
right of the Company to a return of such Shares pursuant to this Section 6 (such
obligation and right being hereinafter in this Section referred to collectively
as the "restrictions") shall lapse as to all Shares issued at any one time on
the earliest of (a) the second (2nd) anniversary immediately following the end
of the Plan year for which such Shares were awarded; (b) a change in control
that occurs with respect to the Company; (c) the termination of the Plan; (d)
the expiration of the Company's right to a return of such Shares; or (e) the
retirement of the participant assuming the participant's attainment of age
______ (__).
6.3 In the event that a participant's employment with the Company shall
terminate for any reason other than death, total disability, involuntary
termination, or retirement of the participant (assuming the participant's
attainment of age __) prior to the earliest of (a) the second (2nd) anniversary
immediately following the end of the plan year for which such Shares were
awarded;(b) a change in control that occurs with respect to the Company; or (c)
the termination of the Plan,the participant shall immediately forfeit any right
hereunder to receive Shares for which the restrictions imposed hereunder have
not lapsed.
6.4 In the event that a participant's employment with the Company shall
terminate by reason of death, total disability, involuntary termination, or
retirement of the participant (assuming the participant's attainment of age __)
prior to the earliest of (a) the second (2nd) anniversary immediately following
the end of the plan year for which such Shares were awarded; (b) a change in
control that occurs with respect to the Company; or (c) the termination of the
Plan,then the restrictions imposed on such Shares by this Section 6 shall lapse
and be of no further force and effect.
6.5A change in control shall be deemed to have occurred if (A) any "person" (as
such term is used in Section 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing Twenty percent (20%) or more of the combined voting power of the
Company's then outstanding voting securities; (B) there is a merger or
consolidation of the Company in which the Company does not survive as an
independent public company;or (C) the business or businesses of the Company for
which a participant's services are principally performed are disposed of by the
Company pursuant to a partial or complete liquidation of the Company, a sale of
assets (including stock of a subsidiary) of the Company, or otherwise. If the
Committee shall decide, in its sole discretion, that a change in control has
occurred it shall issue written notice to participants of such fact and shall
issue all Shares which have become unrestricted to participants as soon as
possible after such notice.
6.6 The Committee may require any employee to whom Shares are issued to execute
and deliver to the Company a stock power in blank with respect to the Shares
issued and may require that the Company retain possession of the certificates
for Shares with respect to which the restrictions have not lapsed.
Notwithstanding retention of certificates by the Company, the employee in whose
name certificates are issued shall have all rights (including dividend and
voting rights) with respect to the Shares represented by such certificates,
subject to the terms conditions and restrictions specified under this Plan, and
the Shares represented by such certificates shall be considered as issued and
outstanding for all purposes.
7. Other Restrictions.
7.1 The Committee may impose such other restrictions on any Shares awarded
pursuant to the Plan as it may deem advisable, including, without limitation,
restrictions under the Securities Act of 1933, as amended, under the
requirements of any stock exchange upon which such Shares are then listed and
under any state blue sky or securities laws applicable to such Shares.
8. Escrow or Legend.
8.1 In order to enforce the restrictions imposed upon Shares issued hereunder,
the Committee also may require any participant to enter into an Escrow Agreement
providing that the certificates representing Shares issued pursuant to this Plan
shall remain in the physical custody of any escrow holder until any or all of
the restrictions imposed pursuant to this Plan have terminated. In addition,
the Committee may cause a legend or legends to be placed on any certificates
representing Shares issued pursuant to this Plan, which legend or legends shall
make appropriate reference to the various restrictions imposed hereunder.
9. Amendments.
9.1 This Plan may be amended at any time by the Board of Directors of the
Company, provided, that if this Plan shall have been approved by the
shareholders of the Company,no such amendment shall increase the maximum number
of Shares that may be issued pursuant to this Plan,except pursuant to Section 5
hereof, without the further approval of such shareholders;and provided further,
that no amendment to this Plan shall modify or impair the rights of participants
who have been awarded Shares, or who have been granted the right to an award of
Shares hereunder prior to any such amendment.
10. Duration.
10.1 This Plan shall become effective upon its adoption by the Board of
Directors for the Plan Year ended December 31, 1998 and shall terminate on
December 31, 2008 or such earlier date as may be determined by the Board of
Directors; provided, however, that the Plan shall terminate and all awards of
Shares under the Plan shall be revoked if, within 12 months of the date of its
adoption by the Board of Directors, the Plan does not receive the approval of a
majority of the outstanding Shares present in person or by proxy and entitled to
vote at a meeting of shareholders of the Company. Notwithstanding the foregoing
sentence, the Committee's right to award any new Shares shall terminate
immediately after the last award of Shares with respect to the fiscal year
ending December 31, 2006.
11. Taxes.
11.1 If any officer or employee properly elects within 30 days of the date on
which an award is granted to include in gross income for federal income tax
purposes an amount equal to the fair market value (on the date of grant of the
award) of the Shares subject to the award, such person shall make arrangements
satisfactory to the Committee to pay to the Company in the year of such Award
any federal, state or local taxes required to be withheld with respect to such
Shares. If such person shall fail to make such tax payments as are required,
the Company and its Affiliates shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to the officer or
employee any federal, state or local income taxes of any kind required by law to
be withheld with respect to the Shares subject to such award.
11.2 Each officer or employee who does not make the election described in
Section 11.1 shall,no later than the date as of which the restrictions referred
to in Section 6 and such other restrictions as may have been imposed as a
condition of the award shall lapse, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld with respect to the Shares
subject to such award, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct from any payment of any kind
otherwise due to the officer or employee any federal, state or local taxes of
any kind required by law to be withheld with respect to the Shares subject to
such award. The Committee may, in its sole discretion and on terms it shall
determine, approve or disapprove the election of an officer or employee for the
Company to withhold Shares as the deemed cash settlement to satisfy the
Company's withholding tax obligations, in whole or in part, relating to the
award. The approval or disapproval of the Committee may be given at any time
after the election to which it relates.
12. Beneficiary Designation.
12.1 Unless a participant has designated a beneficiary in accordance with the
provisions of the following sentence, any Shares that become unrestricted and
payable on account of the death of a participant shall be paid to the person or
persons in the first of the following classes in which there are any survivors
of such employee:
(a) his or her spouse at the time of death;
(b) his or her issue per stirpes;
(c) his or her parents; and
(d) the executor or administrator of his or her estate.
Instead of having any Shares that become payable on account of a participant's
death paid as determined above, an employee may sign a document designating a
beneficiary or beneficiaries to receive such Shares and filing such designation
with the Company.
13. Right to Terminate Employment.
13.1 The Plan shall not impose any obligation on the Company or an Affiliate to
continue the employment of any participant employee selected to participate in
the Plan. The Plan does not impose any obligation on the part of the
participant to remain in the employ of the Company or an Affiliate.