Back to GetFilings.com
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, 1997
[ ]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 $347,201,556 as of
February 28, 1998. As of February 28, 1998, 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 19, 1998.
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1.Business 3
2.Properties 6
3.Legal Proceedings 6
4.Submission of Matters to a Vote of Security Holders 11
PART II
5.Market for Registrant's Common Equity and Related
Stockholder Matters 12
6.Selected Financial Data 12
7.Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
8.Financial Statements and Supplementary Data 20
9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 39
PART III
10.Directors and Executive Officers of the Registrant 39
11.Executive Compensation 39
12.Security Ownership of Certain Beneficial Owners and
Management 39
13.Certain Relationships and Related Transactions 39
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 39
PART I
Item 1. Business.
In June 1995, the shareholders of Roseville Telephone Company ("Roseville
Telephone") approved an Agreement and Plan of Reorganization (the
"Reorganization") to create a holding company. In July 1996, the Public
Utilities Commission of the State of California (the "P.U.C.") approved the
Reorganization, which became effective on October 1, 1996. Under the terms of
the Reorganization, a new holding company, Roseville Communications Company (the
"Company"), was created as the publicly-held parent company of Roseville
Telephone and other recently formed subsidiaries to participate in other
businesses described below. The Company was incorporated under the laws of the
State of California in 1995.
The table that follows reflects the percentage of total operating revenues of
the Company contributed by various sources.
% of Total Operating Revenues
Revenues 1997 1996 1995
------------------------ ---- ---- ----
Rate regulated revenues 83% 85% 82%
Other revenues 17% 15% 18%
---- ---- ----
Total operating revenues 100% 100% 100%
The Company has recently formed various subsidiaries for the purposes of
pursuing new businesses in the communications industry. The Company 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.
New Businesses
The Company's wholly-owned subsidiary, Roseville PCS, Inc., is the manager of
and has an approximate 89% interest in West Coast PCS LLC ("West Coast"), which
was formed together with an unrelated entity for the purpose of providing
personal communications services ("PCS"). During 1997, West Coast 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. West Coast plans to commence
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 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 certain communities surrounding 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 to customers on September 23, 1997.
Roseville Cable Company ("Roseville Cable"), a wholly-owned subsidiary of the
Company, was formed for the purposes of entering the cable television business.
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 termination of Roseville Cable's proposed acquisition
of the cable television system currently owned and operated by IDS/Jones Growth
Partners 87-A, LTD.
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 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"):
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 27% of
income before income taxes for both 1997 and 1996.
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, 1997, 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 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 long distance service revenues, constituted approximately 83%
of the Company's total operating revenues in 1997. Other revenues consist
primarily of directory advertising services, billing and collection services,
nonregulated 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 16%, 23% and 24% of the Company's total operating
revenues in 1997, 1996 and 1995, respectively, were derived from access charges
and charges for other services to, and transition contract payments from Pacific
Bell pursuant to certain agreements. Approximately 10%, 8% and 7% of the
Company's total operating revenues in 1997, 1996 and 1995 were derived from
access charges and charges for other services to AT&T. 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 Decision 96-12-074
(the "Decision") authorizing an annual revenue increase of $470,000. The
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 non-exclusive 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, 1997, the Company had 551 employees, none of whom is represented
by any 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 telephone service. This includes central office
equipment, customer premises equipment and connections, radio antennas, 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.
Except for the proceedings described below, the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
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.
The P.U.C. has instituted an investigation (I.87-11-033) into the manner in
which it regulates local exchange carriers, including Roseville Telephone. It
has announced that in the course of this investigation it will consider the
manner in which certain services presently provided solely by Roseville
Telephone within its local exchange area should be opened to competition. On
September 15, 1994, the P.U.C. adopted Decision 94-09-065, its opinion in this
matter with respect to competition within each Local Access and Transport Area
("LATA") and rate design issues. The Order revised basic exchange, toll,
access, private line, and service connection rates and authorized competition
for toll and toll-like services within Roseville Telephone's LATA effective
January 1, 1995. On April 23, 1997, the P.U.C. adopted Decision 97-04-083,
which established the rules which govern the implementation of intraLATA equal
access (the ability to place toll calls within a LATA through other telephone
carriers without having to dial additional preliminary numbers) and the means by
which local exchange carriers may recover the costs of implementing intraLATA
equal access. Roseville Telephone began to offer intraLATA equal access on
September 23, 1997. Roseville Telephone expects that implementation of
intraLATA equal access will increase competition in the local toll market. The
ultimate effects on Roseville Telephone of implementing intraLATA equal access
cannot yet be determined.
On May 15, 1995, Roseville Telephone filed a rate case with the P.U.C.
requesting authority to restructure and increase rates for certain telephone
services and decrease rates for others. On December 20, 1996, the P.U.C. issued
Decision 96-12-074 (the "Decision") granting an annual revenue increase of
$470,000. The P.U.C. also ordered Roseville Telephone to implement a new
regulatory framework for services furnished within the State of California in
order to accommodate market and regulatory movement toward competition and
greater pricing flexibility. Additionally, the P.U.C. ordered the elimination
of various sources of revenues including certain settlement contract revenues
with 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 and switched access rates. This rate restructure became effective on
February 1, 1997.
Roseville Telephone believed that the Decision contained various miscalculations
as well as legal and factual errors which would result in Roseville Telephone
not realizing the ordered annual increase in revenues of $470,000. On December
3, 1997 the P.U.C. modified its decision and authorized the Company to adjust
its rates to recover the revenue deficiency effective as of February 1, 1997.
In addition to the Company's Petition for Modification, the Company filed an
Application for Rehearing with the P.U.C. in January 1997 which identifies legal
and factual errors with the 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.
On April 7, 1993, the P.U.C. opened an investigation and rulemaking proceeding
(R. 93-04-003) 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
Public Utilities Code Section 2282.5. In connection with this proceeding, the
P.U.C. issued a further order on August 5, 1993 proposing additional rules for
implementation of the open access principles proposed in its open access
proceeding. On April 26, 1995, the P.U.C. adopted Decision 95-04-073, an
interim opinion governing the provision of expanded interconnection and
restructuring of local transport rates by Pacific Bell and GTE California. On
December 6, 1995, the P.U.C. adopted Decision 95-12-016 which adopted principles
to govern the development of cost studies for the basic network functions of the
local exchange networks of Pacific Bell and GTE California. In this order, the
P.U.C. ordered Roseville Telephone to participate in the process of developing
these cost studies in anticipation of a possible order that Roseville Telephone
designate and be bound for two years by the results of the cost studies for a
comparable Pacific Bell or GTE California wire center and to develop a proposal
for how to account for shared and common costs, including overhead. Also, on
December 6, 1995, the P.U.C. adopted Decision 95-12-020 which modified the rate
structure previously adopted for local transport in order to bring it into
parity with that adopted by the F.C.C. in its own proceedings on local transport
restructuring. These proceedings 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 connection with this
report, on December 21, 1994, the P.U.C. adopted Decision 94-12-053, an initial
procedural plan to facilitate opening local exchange telecommunications markets
to competition by January 1, 1997. In this decision, the Commission expressed
its intent to implement local exchange competition, intraLATA presubscription,
open access to local exchange carrier networks based on an unbundled basis, and
reform of the new regulatory framework for local exchange carriers. In
conjunction with these proceedings, the P.U.C. adopted Rulemaking 95-01-020 and
Investigation 95-01-021 on January 24, 1995, an order instituting investigation
and rulemaking to consider the goals of 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. After reviewing comments, the P.U.C. issued Decision
95-07-050 on July 19, 1995 setting forth a set of proposed rules pertaining to
universal service responsibilities in a competitive environment. On October 25,
1996, the P.U.C. adopted Decision 96-10-066 setting forth the rules pertaining
to universal service. In this decision, the P.U.C. adopted a model for
determining universal service funding beginning February 1, 1997. The decision
establishes Roseville Telephone's annual universal service fund draw at
approximately $500,000, subject to offsetting rate reductions. In addition, the
decision allows Roseville Telephone to file its own cost study to determine its
draw from the universal service fund. Roseville Telephone is reviewing this
option. In December 1996, a number of parties filed Applications for Rehearing,
including Roseville Telephone, on various issues which may result in changes to
the rules and amount of funds Roseville Telephone is entitled to receive.
Roseville Telephone anticipates that these issues will be resolved in 1998, the
effects of which on Roseville Telephone cannot yet be determined.
On April 26, 1995, the P.U.C. adopted Rulemaking 95-04-043 and Investigation 95-
04-044, an order instituting investigation and rulemaking to develop and adopt
rules for local exchange competition. On July 24, 1995, the P.U.C. issued
Decision 95-07-054 opening Pacific Bell and GTE California territories to
competition under interim rules by facilities-based competitors on January 1,
1996 and by resale competitors on March 31, 1996. Additional interim rules
governing interconnection and related matters were adopted on December 20, 1995
in Decision 95-12-057 approving the applications of an initial group of
facilities-based local service competitors. On February 23, 1996, the P.U.C.
adopted Decision 96-02-072 approving the applications of an initial group of
resale competitors. A companion decision establishing the rates to be paid by
resale competitors for interconnection and related services was adopted on March
13, 1996 to be effective March 31, 1996. Comments on the rules for local
service competition in Roseville Telephone's territory were filed on July 31,
1996. On April 30, 1997, Electric Lightwave, Inc. filed an application with the
P.U.C. to amend its certificate of public convenience and necessity for
authority to provide competitive local exchange services to include the local
exchange service territory of Roseville Telephone. As a result, the P.U.C.
converted Electric Lightwave's application into a petition in Investigation 95-
04-044 and on June 19, 1997, requested the parties to provide further comments
concerning the adoption of rules for the entry of competitive local carriers
("CLCs")into the service territories of mid-sized local exchange carriers such
as Roseville Telephone. These comments were filed on July 15, 1997. On
September 24, 1997, the P.U.C. issued Decision 97-09-115 which extended the
coverage of its adopted rules for local exchange competition to include the
service territories of California's mid-sized incumbent local exchange carriers,
including Roseville Telephone. The P.U.C. authorized CLCs to submit petitions
for facilities-based local exchange authority within Roseville Telephone's
territory to be subject to consideration for approval by February 1, 1998 and to
submit petitions for resale-based authority to be subject to consideration for
approval by April 1, 1998. In addition, the decision authorizes Roseville
Telephone to establish a memorandum account and accrue therein actual
implementation costs for local exchange competition. There is no assurance that
the P.U.C. will allow Roseville Telephone to set its rates at levels that will
permit timely recovery of all costs incurred in implementing local service
competition. In connection with this proceeding, the P.U.C. has directed
Roseville Telephone to participate in the on-going proceeding to establish
permanent wholesale rates for resale by CLCs. Pending establishment of
permanent wholesale rates by Roseville Telephone, CLCs are directed to establish
interconnection terms and resale arrangements by mutual agreement with Roseville
Telephone, subject to resolution by the P.U.C. in cases where mutual agreement
can not be reached. In addition, the P.U.C. solicited comments on the question
of whether or not Pacific Bell and GTE California should be permitted to compete
as CLCs in Roseville Telephone's service area in light of their ability to
average their rates over a substantially larger and more diverse customer base
compared to the mid-sized LECs. On January 7, 1998, the P.U.C. issued Decision
98-09-115 stating that Pacific Bell and GTE California may request authority to
operate as CLCs in Roseville Telephone's service area subject to the same rules
and regulations applicable to all CLCs. In addition, Decision 98-09-115
required that Pacific Bell and GTE California must keep separate books and
records for their CLC operations distinct from their incumbent local exchange
operations. On January 21, 1998, the P.U.C. approved eleven CLC's requests to
begin offering local exchange services within Roseville Telephone's service
area. Roseville Telephone anticipates that additional proceedings and
negotiations will be held during 1998 to refine further the rules for local
service competition in its territory, the effects of which on Roseville
Telephone cannot yet be determined.
On January 23, 1997, Roseville Long Distance filed an application with the
P.U.C. requesting a Certificate of Public Convenience and Necessity for
authority to provide interLATA and intraLATA long distance services. On August
1, 1997, the P.U.C. approved Roseville Long Distance's application. Roseville
Long Distance began providing long distance services to customers on September
23, 1997 concurrent with Roseville Telephone's implementation of intraLATA equal
access presubscription.
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 January 1,
1991, the F.C.C. has established an 11.25% rate of return for interstate access
services.
Roseville Telephone's operations may also be impacted by the recently enacted
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. On October 15, 1996, the United States Court of Appeals for
the Eighth Circuit issued a stay pending appeal of portions of the F.C.C.
orders. On July 18, 1997, the Court issued its decision on these issues. 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, on
October 14, 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. The resolution of the issues on interconnection
and pricing which were held to be outside of the jurisdiction of the F.C.C. now
fall into the state jurisdiction, the effects of which on Roseville Telephone
cannot yet be determined. In addition, on January 26, 1998, the United States
Supreme Court granted petitions for writ of certiorari in connection with this
matter and will review the Eighth Circuit's decision on the jurisdiction of the
F.C.C. to mandate interconnection pricing rules.
On May 7, 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. Given the Act's recent
enactment, the Court's decision vacating portions of the F.C.C.'s
interconnection order, the recent actions taken by the F.C.C. to promulgate
rules and regulations on access charge and universal service reform and the
various legal challenges considering the validity of the 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.
On October 7, 1997, the F.C.C. released a Notice of Proposed Rulemaking on
reforming the jurisdictional separations process to ensure that they meet the
objectives of the Act, and to consider changes that may need to be made to the
jurisdictional separations process in light of changes in the law, technology,
and market structure of the telecommunications industry. Jurisdictional
separations is the process of apportioning regulated costs between the
intrastate and interstate jurisdictions. Comments were submitted on December
10, 1997 and replies submitted on January 26, 1998. Roseville Telephone
anticipates that these issues will be resolved in 1998, the effects of which on
Roseville Telephone cannot yet be determined.
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.
On October 14, 1996, Roseville Cable entered into an Asset Purchase Agreement
(the "Purchase Agreement") with IDS/Jones Growth Partners 87-A, LTD ("Seller")
under which Roseville Cable agreed to purchase a cable television system (the
"System") currently serving approximately 18,000 subscribers in the City of
Roseville, California and certain unincorporated areas of Placer County,
California. The consummation of the transaction contemplated by the Purchase
Agreement was subject to various conditions including 1) approval of the City of
Roseville and Placer County to the transfer of the franchises, 2) satisfaction
of requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
3) a waiver from the F.C.C. of certain provisions of the Telecommunications Act
of 1996 and 4) approval of the Board of Directors of the Company and the limited
partners of the Seller. On February 26, 1998, due to the F.C.C.'s bureaucratic
inaction for more than 15 months, the Company withdrew its waiver request
pending before the F.C.C. for approval of the acquisition. Accordingly, the
Purchase Agreement lapsed by its own terms and the proposed transaction to
acquire the System has been terminated.
Item 4. Submission of Matters to a Vote of Security Holders.
By Proxy Statement dated December 5, 1997, the Board of Directors of the Company
solicited the written consent of shareholders to approve a proposal to amend the
Bylaws of the Company to provide for a change to a variable rather than a fixed
number of Directors. The proposed amendment modified the Bylaws to provide
that the number of Directors of the Company shall be not less than five (5) nor
more than nine (9), with the exact number to be five (5) until changed as
provided in the amended Bylaws. The Bylaw amendment was approved effective
January 6, 1998. Of 12,442,771 shares voted, 11,911,021 voted for the proposal
and 531,750 voted against the proposal. On January 29, 1998 the Board of
Directors of the Company further modified the relevant Bylaw provision, as
recently amended, to increase the number of Directors to the current number of
six (6).
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company as of
February 28, 1998 are as follows:
Name Age Office
Robert L. Doyle 79 Chairman of the Board of Directors;
President and Chief Executive Officer
(1954 to 1993)
Brian H. Strom 55 President and Chief Executive Officer
(since December 1993); Vice President and
Chief Financial Officer (1989 to 1993)
Michael D. Campbell 49 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 53 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 57 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 48 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 1996
through the beginning of the fourth quarter of 1997, and approximately $26 per
share thereafter.
The Company's approximate number of shareholders was 9,600 as of February 28,
1998.
The Company pays quarterly cash dividends on its common stock. The Company paid
cash dividends of $.15 per share for each quarter during 1996 and the first
three quarters of 1997 and $.20 per share for the fourth quarter of 1997.
Item 6. Selected Financial Data.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share
amounts)
Total operating
revenues $114,888 $105,566 $102,661 $102,963 $ 96,780
Net income $ 22,971 $ 21,461 $ 18,507 $ 20,355 $ 22,518
Basic and fully
diluted earnings
per share (1) $1.45 $1.36 $1.17 $1.31 $1.46
Cash dividends per
share of common
stock (2) $ .63 $ .57 $ .55 $ .52 $ .50
Property, plant
and equipment, at
cost $297,057 $275,563 $263,210 $243,774 $228,927
Total assets $276,297 $267,881 $256,889 $246,808 $226,459
Long-term debt $ 22,322 $ 28,036 $ 33,750 $ 37,321 $ 40,000
Shares of common
stock used to
calculate
earnings
per share (1) 15,815,230 15,815,230 15,815,230 15,515,230 15,415,230
(1)Shares used in the computation of basic and fully 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, 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
89% interest in West Coast PCS LLC ("West Coast"), which was formed together
with an unrelated entity 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 certain communities surrounding
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 on September
23, 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 long distance service revenues generated by Roseville
Telephone, constituted approximately 83% and 85% of the Company's total
operating revenues in 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 and
transition revenues from Pacific Bell, 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 recent rate case.
Roseville Telephone bills Pacific Bell various charges for certain local
service, network access service and long distance 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 1997, 1996 and 1995, 16%, 23%
and 24%, respectively, were recorded under the Pacific Bell Agreements.
Included in such amounts were transition revenues of $685,000, $8.2 million, and
$8.2 million in 1997, 1996 and 1995, respectively. Effective February 1, 1997,
transition revenues from Pacific Bell were eliminated as a result of Roseville
Telephone's recent rate case, as discussed below.
On May 15, 1995, Roseville Telephone filed a rate case with the P.U.C.
requesting authority to restructure and increase rates for certain telephone
services and decrease rates for others. On December 20, 1996, the P.U.C. issued
Decision 96-12-074 (the "Decision") granting an annual revenue increase of
$470,000. 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 between
Roseville Telephone's benchmark rate-of-return of 11.5% and the 6.75% floor 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 the 6.75% floor, Roseville Telephone is permitted to
file for a general rate increase. As of December 31, 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.
Roseville Telephone believed that the Decision contained various miscalculations
as well as legal and factual errors which would result in Roseville Telephone
not realizing the ordered annual increase in revenues of $470,000. On December
3, 1997 the P.U.C. modified its decision and authorized the Company to adjust
its rates to recover the revenue deficiency effective as of February 1, 1997,
which resulted in an adjustment to increase revenues by $1.7 million in the
fourth quarter in 1997. In addition to the Company's Petition for Modification,
the Company filed an Application for Rehearing with the P.U.C. in January 1997
which identifies legal and factual errors with the 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 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.
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-of-use 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.
Plant operations increased $2 million or 8% during 1997 due to costs associated
with a larger customer base and software expenditures for switching equipment.
Depreciation expense increased $323,000 in 1997. A year-to-year 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 $730,000 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 $951,000 over 1996 due primarily to an increase of
$476,000 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
$336,000 due to declining long-term debt balances.
Income Taxes:
Income taxes in 1997 increased $306,000 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.
1996 versus 1995
Net income for 1996 was $21.5 million or $1.36 per share, compared with net
income of $18.5 million or $1.17 per share for 1995. The increase in net income
and net income per share from 1995 to 1996 was principally due to the strong
economic growth in the Company's local exchange service area and an increase in
the earnings from the Company's investment in SVLP.
Operating Revenues:
Rate regulated revenues increased $5.8 million, or 7%, compared to 1995. 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, which increased local service revenues by $1.9 million, and 2)
an increase in network access revenues due to increased minute-of-use volumes
and demand for special access services, and higher settlements from NECA.
Revenues from nonregulated sales and services decreased $2.7 million in 1996 due
principally to the sale of a large telephone system to a commercial customer in
1995, which did not recur in 1996.
Operating Expenses:
Operating expenses in 1996 increased $1.4 million or 2% compared to 1995. Plant
operations increased $2.1 million or 10% during 1996 due to 1) costs associated
with a larger customer base, 2) switching software expenditures and 3) normal
inflationary factors. Depreciation expense declined from 1995 due primarily to
the effect of the retirement in 1996 of certain equipment that was depreciated
over a relatively short life in anticipation of its planned replacement. The
year-to-year reduction in depreciation on the retired equipment of $2.6 million
was largely offset by a $1.8 million increase in depreciation expense resulting
from higher average plant levels in 1996. Customer operations expense increased
$882,000 during 1996 due primarily to a larger customer base. General and
administrative expense increased $1.5 million during 1996 due to costs
associated with improvements to the Company's information systems and increased
labor costs. The cost of nonregulated sales and service decreased $2.2 million
during 1996 due primarily to the sale of a large telephone system to a
commercial customer in 1995 which did not recur in 1996.
Other Income, Net:
Other income, net increased $3.4 million over 1995 which was due primarily to an
increase of $3.4 million 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 1996, as compared to slightly less than
20% in 1995. Interest expense decreased by $259,000 due to declining long-term
debt balances. Interest income decreased by $431,000 due to lower average
invested balances.
Income Taxes:
Income taxes in 1996 increased $1.9 million compared to 1995 due to the increase
in income subject to tax. The effective federal and state income tax rate was
40.4% in 1996 compared to 40.6% in 1995.
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 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 modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. The Company estimates it will
incur up to $4 million in expenses to modify and convert its systems and
anticipates completing the Year 2000 project by the quarter ending March 31,
1999. 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 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 guarantee 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.
Strategic Developments
On October 14, 1996, Roseville Cable entered into an Asset Purchase Agreement
(the "Purchase Agreement") with IDS/Jones Growth Partners 87-A, LTD ("Seller")
under which Roseville Cable agreed to purchase a cable television system (the
"System") currently serving approximately 18,000 subscribers in the City of
Roseville, California and certain unincorporated areas of Placer County,
California. The consummation of the transaction contemplated by the Purchase
Agreement was subject to various conditions including 1) approval of the City of
Roseville and Placer County to the transfer of the franchises, 2) satisfaction
of requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
3) a waiver from the Federal Communications Commission ("F.C.C.") of certain
provisions of the Telecommunications Act of 1996 and 4) approval of the Board of
Directors of the Company and the limited partners of the Seller. On February
26, 1998, due to the F.C.C.'s bureaucratic inaction for more than 15 months, the
Company withdrew its waiver request pending before the F.C.C. for approval of
the acquisition. Accordingly, the Purchase Agreement lapsed by its own terms
and the proposed transaction to acquire the System has been terminated.
During 1997, West Coast 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. West Coast plans to commence 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 $27.1 million, $32.7 million and $32.8 million in 1997,
1996 and 1995, respectively. The decrease in operating cash flows for 1997 was
primarily due to $3.6 million in expenditures by Roseville Directory for
directories to be published in 1998. The Company used cash flows from
operations and existing cash and cash equivalents to fund 1) capital
expenditures of $22.1 million pertaining to ongoing plant construction projects,
2) dividends of $10.1 million and 3) principal payments of $5.7 million to
retire long-term debt. Additionally, the Company utilized the proceeds from the
return of a refundable deposit to purchase PCS licenses for $9 million.
The Company's most significant use of funds in 1998 is expected to be for 1)
budgeted capital expenditures of approximately $26.5 million and $15.1 million
relating to Roseville Telephone and West Coast, respectively 2) scheduled
payments of long-term debt of $5.7 million and 3) start-up costs and net
operating expenditures of up to $2 million relating to West Coast.
In addition to net cash provided by operations and existing cash, cash
equivalents and short-term investments, the Company is currently considering
various sources of external financing, including short-term borrowings or long-
term debt, for the purposes of funding capital expenditures and potential
investments for 1998 and beyond.
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,
1997 was between $7 million and $14 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 February 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. On October 15,
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. On July 18,
1997, the Court issued its decision on these issues. 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, on October 14, 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. The resolution of the issues on interconnection and
pricing which were held to be outside of the jurisdiction of the F.C.C. now fall
into state jurisdiction, the effects of which on Roseville Telephone cannot yet
be determined. In addition, on January 26, 1998, the United States Supreme
Court granted petitions for writ of certiorari in connection with this matter
and will review the Eighth Circuit's decision on the jurisdiction of the F.C.C.
to mandate interconnection pricing rules.
On May 7, 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. Given the Act's recent
enactment, the Court's decision vacating portions of the F.C.C.'s
interconnection order, the recent actions taken by the F.C.C. to promulgate
rules and regulations on access charge and universal service reform and the
various legal challenges considering the validity of the 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.
The Company's financial condition and results of operations continues to be
affected by recent and future proceedings before the P.U.C. and F.C.C.
Recently, the P.U.C. approved the request of 11 competitive local carriers to
begin offering local exchange services within Roseville Telephone's service
area. In addition, pending before the F.C.C. and P.U.C. are proceedings which
are considering:
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 8. Financial Statements and Supplementary Data.
Page
Report of Independent Auditors 21
Consolidated statements of income for each of the three years in
the period ended December 31, 1997 22
Consolidated balance sheets as of December 31, 1997 and 1996
23
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1997 25
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1997 26
Notes to consolidated financial statements 28
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, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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 Sacramento-Valley 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, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Sacramento, California
March 2, 1998
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Operating revenues:
Local service $57,612,000 $49,287,000 $47,431,000
Network access service 37,503,000 36,363,000 32,438,000
Long distance service 490,000 4,175,000 4,189,000
------------ ----------- -----------
Total rate regulated revenues 95,605,000 89,825,000 84,058,000
Directory advertising 6,898,000 6,643,000 6,387,000
Nonregulated sales and service 6,952,000 4,258,000 6,987,000
Other 5,433,000 4,840,000 5,229,000
----------- ----------- -----------
Total operating revenues 114,888,000 105,566,000 102,661,000
Operating expenses:
Plant operations 26,100,000 24,114,000 21,984,000
Depreciation 19,116,000 18,793,000 19,574,000
Customer operations 14,403,000 13,673,000 12,791,000
General and administrative 20,431,000 17,119,000 15,656,000
Cost of nonregulated sales and
service 4,684,000 2,767,000 5,007,000
Property and miscellaneous
taxes 1,918,000 1,729,000 1,747,000
----------- ---------- ----------
Total operating expenses 86,652,000 78,195,000 76,759,000
----------- ---------- ----------
Income from operations 28,236,000 27,371,000 25,902,000
Other income (expense):
Interest income 1,537,000 1,394,000 1,825,000
Interest expense (2,417,000) (2,753,000) (3,012,000)
Equity in earnings of cellular
partnership 10,080,000 9,604,000 6,183,000
Allowance for funds used
during construction 587,000 498,000 399,000
Other, net (228,000) (135,000) (156,000)
---------- ---------- ----------
Total other income, net 9,559,000 8,608,000 5,239,000
---------- ---------- ----------
Income before income taxes 37,795,000 35,979,000 31,141,000
Income taxes 14,824,000 14,518,000 12,634,000
---------- ---------- ----------
Net income $22,971,000 $21,461,000 $18,507,000
=========== =========== ===========
Basic and fully diluted
earnings per share $1.45 $1.36 $1.17
===== ===== =====
Cash dividends $ .63 $ .57 $ .55
===== ===== =====
Shares of common stock used to
calculate earnings per
share 15,815,230 15,815,230 15,815,230
=========== ========== ==========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
Current assets:
Cash and cash equivalents $15,360,000 $24,435,000
Short-term investments 3,964,000 2,233,000
Refundable deposit 1,620,000 -
Accounts receivable (less allowances of
$94,000 and $65,000, respectively) 16,173,000 14,720,000
Refundable income taxes 1,827,000 -
Inventories 2,077,000 2,895,000
Deferred income tax asset 937,000 1,211,000
Prepaid expenses and other current
assets 258,000 424,000
---------- ----------
Total current assets 42,216,000 45,918,000
Property, plant and equipment:
In service 292,502,000 272,642,000
Under construction 4,555,000 2,921,000
----------- -----------
297,057,000 275,563,000
Less accumulated depreciation 109,376,000 91,381,000
----------- -----------
187,681,000 184,182,000
Investments and other assets:
Cellular partnership 33,031,000 26,147,000
PCS licenses and deposit 9,000,000 9,000,000
Deferred charges and other assets 4,369,000 2,634,000
----------- -----------
46,400,000 37,781,000
----------- -----------
$276,297,000 $267,881,000
=========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1997 and 1996
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
Current liabilities:
Current portion of long-term debt $5,714,000 5,714,000
Accounts payable and other accrued
liabilities 6,170,000 5,053,000
Payables to telecommunications entities 5,192,000 5,692,000
Advance billings and customer deposits 1,801,000 2,195,000
Accrued income taxes - 128,000
Accrued pension cost 3,351,000 3,873,000
Accrued compensation 2,823,000 3,596,000
----------- ----------
Total current liabilities 25,051,000 26,251,000
Long-term debt 22,322,000 28,036,000
Deferred income taxes 23,775,000 22,391,000
Other liabilities and deferred credits 4,465,000 3,400,000
Minority interest in subsidiary 1,001,000 1,002,000
Shareholders' equity:
Common stock, without par value;
100,000,000 shares authorized,
15,815,230 shares issued and
outstanding (15,358,720 shares in 1996)189,171,000 177,758,000
Retained earnings 10,512,000 9,043,000
----------- ----------
Total shareholders' equity 199,683,000 186,801,000
----------- -----------
$276,297,000 $267,881,000
=========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
Common Stock
------------------------
Number
of Retained
Shares Amount earnings Total
---------- ------------ ------------ ------------
Balance at December 31,
1994 14,484,953 $156,345,000 $ 8,330,000 $164,675,000
3% stock dividend,
at fair value:
Shares 430,471 10,331,000 (10,331,000) -
Cash in lieu of
fractional shares - - (98,000) (98,000)
Cash dividends - - (8,691,000) (8,691,000)
Net income - - 18,507,000 18,507,000
---------- ----------- ----------- ------------
Balance at December 31,
1995 14,915,424 166,676,000 7,717,000 174,393,000
3% stock dividend,
at fair value:
Shares 443,296 11,082,000 (11,082,000) -
Cash in lieu of
fractional shares - - (104,000) (104,000)
Cash dividends - - (8,949,000) (8,949,000)
Net income - - 21,461,000 21,461,000
---------- ----------- ----------- -----------
Balance at December 31,
1996 15,358,720 177,758,000 9,043,000 186,801,000
3% stock dividend,
at fair value:
Shares 456,510 11,413,000 (11,413,000) -
Cash in lieu of
fractional shares - - (106,000) (106,000)
Cash dividends - - (9,983,000 (9,983,000)
Net income - - 22,971,000 22,971,000
---------- ----------- ----------- -----------
Balance at December 31,
1997 15,815,230 $189,171,000 $10,512,000 $199,683,000
========== ============ =========== ============
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1997 1996 1995
---- ---- ----
Cash flows from operating
activities:
Net income $22,971,000 $21,461,000 $18,507,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 19,116,000 18,793,000 19,574,000
Equity component of allowance
for funds used during
construction (505,000) (409,000) (314,000)
Provision for deferred income
taxes 1,455,000 158,000 848,000
Equity in earnings of cellular
partnership (10,080,000) (9,604,000) (6,183,000)
Provision for doubtful accounts 297,000 185,000 183,000
Other, net (96,000) (50,000) 183,000
Net changes in:
Accounts receivable (1,750,000) (1,218,000) 1,695,000
Refundable income taxes (1,827,000) 1,287,000 (1,287,000)
Deferred directory charges (3,578,000) - -
Inventories, prepaid expenses
and other current assets 984,000 (711,000) (871,000)
Payables, accrued liabilities
and other deferred credits 196,000 2,643,000 795,000
Accrued income taxes (128,000) 128,000 (345,000)
----------- ---------- ----------
Net cash provided by operating
activities 27,055,000 32,663,000 32,785,000
Cash flows from investing
activities:
Capital expenditures for
property, plant and equipment (22,116,000) (24,983,000) (24,309,000)
Purchase of PCS licenses (9,000,000) - -
Purchases of held-to-maturity
investments (7,481,000) (2,735,000) (5,672,000)
Maturities of held-to-maturity
investments 5,750,000 2,250,000 17,613,000
Investment in cellular
partnership (2,514,000) (366,000) (2,402,000)
Return of investment in
cellular partnership 5,710,000 7,115,000 3,740,000
Return of refundable deposit 9,000,000 8,960,000 -
Refundable deposit - (9,000,000) (8,960,000)
Cable acquisition deposit - (1,550,000) -
Other, net 299,000 749,000 295,000
----------- ----------- -----------
Net cash used in investing
activities (20,352,000) (19,560,000) (19,695,000)
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1997 1996 1995
---- ---- ----
Cash flows from financing
activities:
Principal payments of long-term
debt $ (5,714,000) $ (3,571,000) $ (2,679,000)
Dividends paid and fractional
share amounts (10,089,000) (9,053,000) (8,789,000)
Return of minority partners'
investment in subsidiary - (1,898,000) -
Investment in subsidiary by
minority partners 25,000 1,000,000 1,950,000
----------- ----------- -----------
Net cash used in financing
activities (15,778,000) (13,522,000) (9,518,000)
----------- ----------- ----------
Increase (decrease) in cash and
cash equivalents (9,075,000) (419,000) 3,572,000
Cash and cash equivalents at
beginning of year 24,435,000 24,854,000 21,282,000
----------- ----------- ----------
Cash and cash equivalents at
end of year $15,360,000 $24,435,000 $24,854,000
========== ========== ==========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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, Roseville Telephone, provides
local and toll telephone services, network access services, billing and
collection services, directory advertising services and certain nonregulated
services including the sale, lease and maintenance of telecommunications
equipment, payphone services and the provision of alarm monitoring services.
Additionally, Roseville Telephone, with an approximate 23.5% equity
interest, is a limited partner of Sacramento-Valley Limited Partnership
("SVLP"), a limited partnership formed for the construction and operation of
a cellular mobile radiotelephone system. The Company's wholly-owned
subsidiary, Roseville PCS, Inc., is the manager of and has an approximate
89% interest in West Coast PCS LLC ("West Coast"), which was formed together
with an unrelated entity for the purpose of providing personal
communications services ("PCS"). The minority interest of approximately
$1.0 million at December 31, 1997 represents an 11% interest of the minority
partner in the net assets of West Coast. 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 certain communities surrounding 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 on September 23, 1997.
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 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, 1997 was between $7 million and $14
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.
Principles of consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and a majority-owned 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,
1997 consist of high grade commercial paper 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, 1997 and 1996, 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, 1997 and 1996, 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 $28,500,000 and $34,000,000 at December 31, 1997 and 1996,
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 $1,127,000, $12,787,000 and $4,958,000 in 1997, 1996 and 1995,
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 $3.6 million as of December 31, 1997 are
included in Deferred Charges and Other Assets. The Company did not incur
significant directory costs in 1996 and 1995.
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 long distance 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 1997, 1996 and 1995, 16%,
23% and 24%, respectively, were recorded under the Pacific Bell Agreements.
Included in such amounts were transition revenues of $685,000, $8,200,000,
and $8,200,000 in 1997, 1996 and 1995, respectively. Effective February 1,
1997, transition revenues from Pacific Bell were eliminated as a result of
Roseville Telephone's recent rate case, as discussed below.
On May 15, 1995, Roseville Telephone filed a rate case with the P.U.C.
requesting authority to restructure and increase rates for certain telephone
services and decrease rates for others. On December 20, 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 $470,000.
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.
Roseville Telephone believed that the Decision contained various
miscalculations as well as legal and factual errors which would result in
Roseville Telephone not realizing the ordered annual increase in revenues of
$470,000. On December 3, 1997 the P.U.C. modified its decision and
authorized the Company to adjust its rates to recover the revenue deficiency
effective as of February 1, 1997, which resulted in an adjustment to
increase revenues by $1.7 million in the fourth quarter of 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 6.89%, 6.98% and 8.07% in 1997, 1996 and
1995, 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 straight-line basis.
Advertising Costs
The costs of advertising are expensed as incurred. Advertising costs were
$742,000 and $697,000 in 1997 and 1996, respectively. The Company did not
incur significant advertising costs in 1995.
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
In February 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 is effective for the Company in its annual 1997
financial statements, and requires retroactive restatement of all prior-
period earnings per share ("EPS") data presented. SFAS No. 128 simplifies
the standards for computing EPS, and replaces the presentation of primary
EPS with a presentation of basic EPS. Due to the Company's simple capital
structure and the absence of contingently issuable shares or potentially
dilutive securities, the computation of EPS data under SFAS No. 128 does not
differ from the calculations used for the Company's prior EPS data.
Basic and fully 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 1997, 1996 and 1995, the Company made payments for interest and
income taxes as follows (in thousands):
1997 1996 1995
---- ---- ----
Interest (net of amounts
capitalized) $ 2,480 $ 2,654 $ 2,915
Income taxes $15,324 $12,945 $13,441
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, 1997 and 1996, all securities are designated as held-
to-maturity as management believes it 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, 1997 and
1996 at amortized cost, which approximates fair value (in thousands):
1997 1996
---- ----
Commercial paper
$10,791 $23,261
U.S. government and agency securities 1,000 -
Repurchase agreements 211 900
Other unsecured corporate notes - 801
------ ------
$12,002 $24,962
======= =======
3. INVESTMENT IN SVLP
The Company has an approximate 23.5% interest in 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, 1997 amounted to $19,576,000.
Summarized financial information for SVLP is as follows (in thousands):
Balance sheet information as of December
31, 1997 and 1996:
1997 1996
---- ----
Current assets $52,196 $33,981
Noncurrent assets, primarily cellular plant $144,826 $122,419
Current liabilities $56,130 $44,861
Noncurrent liabilities $155 $136
Income statement information for
the years ended December 31,
1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Net revenues $154,167 $141,125 $124,393
Costs and expenses, net 111,224 100,212 98,048
-------- -------- --------
Net income $ 42,943 $ 40,913 $ 26,345
======== ======== ========
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1997 and 1996 consisted of the
following:
(In thousands)
1997 1996
---- ----
Unsecured term loan with a bank, with
interest payable quarterly at rates
increasing from 8.26% to 8.46% during the
remaining period of the loan; principal
payments are due in equal quarterly
installments of approximately $893,000
through April 2002. $15,179 $ 18,750
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 $536,000, commencing in
March 1997, and ending in December 2003. 12,857 15,000
-------- --------
28,036 33,750
Less current portion 5,714 5,714
-------- --------
$22,322 $28,036
======== ========
At December 31, 1997, the aggregate maturity requirements for the years 1998
through 2001 are $5,714,000 in each year and $3,036,000 in the year 2002.
4. LONG-TERM DEBT (CONTINUED)
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, 1997 was unrestricted.
5. INCOME TAXES
The income tax provisions consist of the following components (in
thousands):
1997 1996 1995
---- ---- -----
Current expense:
Federal $ 10,273 $ 10,900 $ 8,979
State 3,096 3,460 2,807
--------- --------- ---------
13,369 14,360 11,786
Deferred expense:
Federal 1,442 319 792
State 13 (161) 56
--------- --------- ---------
1,455 158 848
--------- --------- ---------
$ 14,824 $ 14,518 $ 12,634
========== ========== =========
The income tax provisions differ from those computed by using the statutory
federal tax rate (35% in all years presented) for the following reasons (in
thousands):
1997 1996 1995
---- ---- ----
Computed at statutory rates $ 13,228 $ 12,593 $ 10,899
Increase (decrease):
State taxes, net of federal benefit 2,021 2,144 1,861
Other, net (425) (219) (126)
-------- ------- --------
Income tax provision $ 14,824 $ 14,518 $ 12,634
======== ======== ========
Effective federal and state tax rate 39.2% 40.4% 40.6%
===== ===== =====
5. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31, 1997 and 1996 (in thousands):
Deferred Income Taxes
----------------------
1997 1996
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Property, plant and
equipment - primarily
due to depreciation
differences $ - $ 23,140 $ - $22,300
Differences in the timing
of recognition of
revenues 2,402 - 2,428 -
Cellular partnership - 5,349 - 4,678
State franchise taxes 937 - 1,211 -
Other, net 2,731 419 2,678 519
------- -------- ------- --------
Total 6,070 28,908 6,317 27,497
Less current portion 937 - 1,211 -
-------- -------- -------- --------
$ 5,133 $ 28,908 $ 5,106 $ 27,497
======== ======= ======== ========
Net long-term deferred
income tax liability $ 23,775 $22,391
======== ========
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 1997, 1996 and 1995 includes the following
components (in thousands):
1997 1996 1995
---- ---- ----
Service cost-benefits earned
during the period $ 2,915 $ 2,939 $ 2,416
Interest cost on projected 4,599 4,263 3,830
benefit obligation
Actual return on plan assets (8,787) (6,548) (7,741)
Net amortization and deferral 4,711 3,533 5,664
------- ------- -------
Net pension cost $ 3,438 $ 4,187 $ 4,169
======= ======= =======
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the consolidated balance sheets as of December 31,
1997 and 1996 (in thousands):
1997 1996
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligation $ 36,761 $ 31,808
Nonvested benefit obligation 10,091 7,929
-------- --------
Accumulated benefit obligation $ 46,852 $ 39,737
======== ========
Plan assets at fair value $ 60,928 $ 50,087
Less projected benefit obligation (67,033) (59,420)
-------- --------
Projected benefit obligation in excess of plan
assets (6,105) (9,333)
Unrecognized net loss 577 3,016
Unrecognized transition obligation 2,177 2,444
-------- --------
Accrued pension cost $ (3,351) $ (3,873)
======== ========
The discount rates used in determining the projected benefit obligation at
December 31, 1997 and 1996 were 7% and 7.5%, respectively. The assumed rate
of increase in future compensation levels used to measure the projected
benefit obligation was 5.5% and 6% at December 31, 1997 and 1996,
respectively.
The expected long-term rate of return on plan assets used in determining net
pension cost was 8.5% in 1997, 1996 and 1995. An increase in the discount
rate at December 31, 1996 decreased pension cost $514,000 for 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 $1,340,000, $1,226,000 and $1,137,000 in 1997, 1996 and 1995,
respectively. At December 31, 1997, 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 $482,000, $412,000 and $394,000 in
1997, 1996 and 1995, respectively.
At December 31, 1997, the aggregate minimum rental commitments under
noncancellable operating lease obligations are not significant.
Other commitments
The budgeted capital expenditures for Roseville Telephone's and West Coast's
operations for the year ending December 31, 1998 approximate $27 and $15
million, respectively. Binding commitments for such planned expenditures at
December 31, 1997 are not significant. Budgeted capital expenditure for
Roseville Directory and Roseville Long Distance for the year ending December
31, 1998 are not significant.
The Company periodically contributes capital to SVLP to maintain its
existing partnership interest. As of December 31, 1997, the known
commitment for future capital funding to the partnership was $701,000.
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 AND SIGNIFICANT CUSTOMERS
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 16%, 23% and 24% of the
Company's consolidated operating revenues in 1997, 1996, and 1995,
respectively, were derived from access charges and other charges to, and
transition contract payments from Pacific Bell pursuant to the Pacific Bell
Agreements. Approximately 10%, 8% and 7% of the Company's consolidated
operating revenues in 1997, 1996 and 1995, respectively were derived from
access charges and other charges to AT&T. No other customers accounted for
more than 10% of consolidated operating revenues.
10. TERMINATION OF PROPOSED ACQUISITION
On February 26, 1998, due to the F.C.C.'s bureaucratic inaction of over 15
months, the Company withdrew its waiver request pending before the F.C.C.
for approval of the Company's acquisition of the cable television system
currently owned and operated by IDS/Jones Growth Partners 87-A, LTD.
Accordingly, the proposed acquisition lapsed by its own terms and the
transaction has been terminated.
11. PENDING ACCOUNTING STANDARDS
In June 1997, the FASB issued two new standards, SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Both standards are effective for
periods beginning after December 31, 1997. SFAS No. 130 establishes
standards for reporting income and its components in a full set of general-
purpose financial statements. It does not change the computation or
presentation of net income. SFAS No. 131 establishes the manner in which
entities report information about operating segments in their annual
financial statements and requires the entities to report selected
information about operating segments in their interim financial reports to
shareholders. The Company does not expect the pending adoption of SFAS No.
130 to have a material impact on its financial statements. The Company has
not yet fully evaluated the impact on its financial statements of the
pending adoption of SFAS No. 131.
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 19, 1998.
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 19, 1998.
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 19, 1998.
Item 13. Certain Relationships and Related Transactions.
None.
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 1997.
(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
Consolidated Balance Sheets at
December 31, 1997 and 1996
Consolidated Statements of Income
for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Partners'
Capital for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial
Statements
Schedule II - Valuation and Qualifying
Account for the years ended December 31,1997
1996 and 1995
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO FINANCIAL STATEMENTS
(Item 14(a) 1 and 2)
PAGE
Report of Independent Auditors
Consolidated statements of income for each of the three years in
the period ended December 31, 1997
Consolidated balance sheets as of December 31, 1997 and 1996
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1997
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1997
Notes to consolidated financial statements
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, of partners' capital and of 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 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/PRICE WATERHOUSE LLP
Sacramento, California
March 2, 1998
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
DECEMBER 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash $ 18 $ 16
Accounts receivable, net of allowance for
doubtful accounts of $1,964 and $1,305 24,204 23,593
Due from general partner 16,270 5,173
Inventories 8,863 3,244
Other current assets 2,841 1,955
-------- --------
Total current assets 52,196 33,981
Property, plant and equipment, net 133,348 110,727
FCC licenses, net 10,522 10,840
Other assets 956 852
-------- --------
$197,022 $156,400
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - trade $ 40,013 $ 33,706
Deferred revenue 2,934 1,864
Accrued commissions 3,265 3,895
Accrued employee benefits 2,654 2,589
Accrued taxes 6,208 1,747
Other current liabilities 1,056 1,060
------- -------
Total current liabilities 56,130 44,861
------- -------
Commitments and contingencies (Note 3)
Minority interest in consolidated subsidiary 155 136
------- -------
Partners' capital:
General partner 70,191 55,560
Limited partners 70,546 55,843
-------- -------
140,737 111,403
-------- --------
$197,022 $156,400
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands)
For the Year Ended
December 31,
1997 1996 1995
---- ---- ----
Operating revenues $154,167 $141,125 $124,393
-------- ------- -------
Operating expenses:
Cost of revenues 16,031 14,903 14,045
Selling, general and administrative:
General partner and affiliates 8,162 6,489 7,539
Other 68,265 63,321 63,758
Depreciation and amortization 19,084 15,818 12,831
-------- ------- -------
Total operating expenses 111,542 100,531 98,173
-------- ------- -------
Operating income 42,625 40,594 26,220
Interest income on amounts due from general
partner 371 363 156
Minority interest in net income of consolidated
subsidiary (53) (44) (31)
-------- ------- -------
Net income $ 42,943 $ 40,913 $ 26,345
======= ======= =======
Allocation of net income:
General partner $ 21,418 $ 20,407 $ 13,140
Limited partners 21,525 20,506 13,205
-------- ------- -------
$ 42,943 $ 40,913 $ 26,345
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(amounts in thousands)
General
Partner Limited Partners
-------- ----------------------------------------
Centennial
Cellular Roseville Evans GTE
AirTouch Telephone Telephone Cellular, Wireless,
Cellular Company Company Inc. Inc. Total
-------- ---------- --------- --------- -------- -------
Partners' capital,
December 31, 1994 $ 39,204 $ 18,451 $ 18,451 $ 1,728 $ 771 $ 78,605
Contributions 5,103 2,401 2,401 225 100 10,230
Distributions (7,949) (3,740) (3,740) (351) (154) (15,934)
Net income 13,140 6,184 6,184 580 257 26,345
-------- -------- -------- ------- ------- --------
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
======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the Year Ended
December 31,
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $42,943 $40,913 $26,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net income of
consolidated subsidiary 53 44 31
Depreciation and amortization 19,179 15,818 12,831
Loss (gain) on sale of equipment 113 68 (24)
Changes in operating assets and liabilities:
Accounts receivable (611) (3,190) (5,047)
Due from general partner (11,097) 817 (5,198)
Inventories (5,619) (853) (1,497)
Other current assets (886) (569) 150
Other assets (104) (39) (21)
Accounts payable - trade 3,294 4,962 2,064
Deferred revenue 1,070 313 375
Accrued commissions (630) (1,007) (871)
Accrued employee benefits 65 801 (129)
Accrued taxes 4,461 272 1,074
Other current liabilities (4) 319 410
------- ------- -------
Net cash provided by operating
activities 52,227 58,669 30,493
------- ------- -------
Cash flows from investing activities:
Acquisitions of property, plant and
equipment (38,665) (29,920) (24,829)
Proceeds from sale of equipment 83 46 64
------- ------- -------
Net cash used in investing
activities (38,582) (29,874) (24,765)
------- ------- -------
Cash flows from financing activities:
Contributions from partners 10,712 1,557 10,230
Distributions to partners (24,321) (30,313) (15,934)
Distributions to minority interest in
consolidated subsidiary (34) (27) (23)
------- ------- -------
Net cash used in financing
activities (13,643) (28,783) (5,727)
------- ------- -------
Increase in cash 2 12 1
Cash at beginning of year 16 4 3
------- ------- -------
Cash at end of year $ 18 $ 16 $ 4
======= ======= =======
Supplemental disclosure of non-cash
transactions:
Acquisitions of property and equipment
included in accounts payable-trade at
year end $15,147 $12,134 $ 4,113
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. SUMMARY OF PARTNERSHIP AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sacramento-Valley Limited Partnership (the Partnership) was formed under the
laws of the State of California as the owner of a cellular mobile telephone
system. The majority of the Partnership's business is located in Northern
California. Partnership 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 conformity with
generally accepted accounting principles. Generally accepted accounting
principles require management to make 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 held for sale are valued at lower of cost or market. Costs are
based on the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the following estimated useful lives:
Buildings 15 years
Equipment 5-10 years
Furniture, office equipment and vehicles 3-5 years
Maintenance and repairs are charged to expense as incurred. Construction in
progress consists primarily of costs incurred to construct cell sites.
Depreciation commences when an asset is completed and placed in service.
Costs and related accumulated depreciation of assets sold or otherwise
disposed of are eliminated from the accounts and the related gains or losses
are included in operations.
1. SUMMARY OF PARTNERSHIP AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FCC LICENSES
The Federal Communications Commission (FCC) issues cellular licenses that
enable domestic 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 $2,191 and $1,873 at December 31, 1997 and 1996.
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 book value of
an asset may not be recoverable. An impairment loss would be recognized
whenever the review demonstrates that the book value of a long-lived asset
is not recoverable.
REVENUE RECOGNITION
Revenues from operations 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
Advertising costs, which totaled $9,652, $7,372 and $7,045 for the years
ended December 31, 1997, 1996 and 1995, are expensed when incurred and are
included in selling, general and administrative expenses.
RECLASSIFICATIONS
Certain reclassifications of the 1996 and 1995 financial statements have
been made to conform to the 1997 presentation. The reclassifications have
not affected previously reported net income or Partners' capital.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
DECEMBER 31,
1997 1996
---- ----
Land $ 37 $ 37
Buildings 31,188 23,783
Equipment 165,820 129,955
Furniture, equipment and vehicles 20,661 17,949
-------- ---------
Construction in progress 8,408 13,611
185,335 226,114
Less accumulated depreciation 92,766 74,608
--------- ---------
$133,348 $110,727
========= =========
3. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under operating leases for real
estate and equipment that have initial or remaining noncancellable lease
terms in excess of one year as of December 31, 1997, are as follows:
1998 $ 4,844
1999 4,514
2000 4,171
2001 3,931
2002 3,019
Thereafter 14,148
------
$34,627
======
The lease terms range from two to twenty years. The majority of these
leases have initial terms of twenty years and generally provide a minimum of
two renewal options for five years each and for rental escalation. Rent
expense amounted to approximately $4,334, $3,657 and $3,409 for the years
ended December 31, 1997, 1996, and 1995.
In the normal course of business, 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 is a
defendant in various claims. Management does not expect such regulation or
the resolution of such claims to have a material adverse effect on the
results of operations or financial position of the Partnership.
4. RELATED PARTY TRANSACTIONS
The general partner is reimbursed for all Partnership expenditures made as a
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.
4. RELATED PARTY TRANSACTIONS (CONTINUED)
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 (5.53% and 5.39% at December 31, 1997 and 1996) on the
amounts due to or from the Partnership.
5. MAJOR SUPPLIER
The Partnership purchases substantially all of its network equipment from
one supplier.
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND ITS SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
(amounts in thousands)
BALANCE AT BALANCE AT
BEGINNING CHARGE- END
OF PERIOD PROVISIONS OFFS OF PERIOD
---------- ---------- -------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1995 $ 534 $ 5,771 $(5,244) $ 1,061
Year ended December 31, 1996 1,061 3,171 (2,927) 1,305
Year ended December 31, 1997 1,305 3,247 (2,588) 1,964
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit Description of Filing Page
No.
- - --------- ----------- --------- ----
--
3(a) Articles of Incorporation of the Incorporat -
Company, together with ed by
Certificate of Amendment of reference
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 10-
Q Quarterly Report for the
quarter ended September 30, 1996)
3(b) Bylaws of the Company. Filed 54
herewith
10(a) Sacramento-Valley Limited Incorporat -
Partnership Agreement, dated ed by
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 Incorporat -
Telephone Company with Bank of ed by
America National Trust and reference
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) Credit Agreement of Roseville Incorporat -
Telephone Company with Bank of ed by
America National Trust and reference
Savings Association, dated
January 4, 1994, with respect to
$15,000,000 term loan (Filed as
Exhibit 10(c) to Form 10-K Annual
Report of Roseville Telephone
Company for the year ended
December 31, 1993)
10(d) Operating Agreement of West Coast Filed 77
PCS LLC herewith
21(a) List of subsidiaries Incorporat -
ed 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, 1998 By: /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
Date: March 18, 1998 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, 1998 /s/ Robert L. Doyle
Robert L. Doyle,
Chairman of the Board
Date: March 18, 1998 /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 18, 1998 /s/ Michael D. Campbell
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 18, 1998 /s/ Thomas E. Doyle
Thomas E. Doyle,
Director
Date: March 18, 1998 /s/ Ralph E. Hoeper
Ralph E. Hoeper,
Director
Date: March 18, 1998 /s/ John R. Roberts III
John R. Roberts III,
Director
Date: March 18, 1998 /s/ Jon S. Kelly
Jon S. Kelly,
Director
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, 1998 By:
Brian H. Strom,
President and Chief
Executive Officer
Date: March 18, 1998 By:
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, 1998
Robert L. Doyle,
Chairman of the Board
Date: March 18, 1998
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 18, 1998
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 18, 1998
Thomas E. Doyle,
Director
Date: March 18, 1998
Ralph E. Hoeper,
Director
Date: March 18, 1998
John R. Roberts III,
Director
Date: March 18, 1998
Jon S. Kelly,
Director
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 six (6) 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
OPERATING AGREEMENT
OF
WEST COAST PCS LLC
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
1.1 Certain Definitions 1
ARTICLE II FORMATION OF COMPANY 4
2.1 Formation 4
2.2 Name 4
2.3 Principal Place of Business 4
2.4 Registered Office and Registered Agent 4
2.5 Term 4
ARTICLE III BUSINESS OF COMPANY 5
3.1 Permitted Businesses 5
ARTICLE IV MANAGEMENT OF THE COMPANY 5
4.1 The Manager 5
4.2 Tenure 5
4.3 Certain Powers of the Manager 6
4.4 Limitation on Actions by the Manager 7
4.5 Liability for Certain Acts 8
4.6 Officers 9
4.7 Manager Has No Exclusive Duty to Company 9
4.8 Resignation 9
4.9 Expenses 9
4.10 Budgets 9
4.11 Reports 10
4.12 Quarterly Meetings 10
ARTICLE V INDEMNIFICATION OF MANAGER, MEMBERS AND OFFICERS 10
5.1 Right to Indemnification 10
5.2 Right of Indemnitee to Bring Suit 11
5.3 Non-Exclusivity of Rights 12
5.4 Insurance 12
ARTICLE VI RIGHTS AND OBLIGATIONS OF MEMBERS 12
6.1 Limitation of Liability 12
6.2 Company Debt Liability 12
6.3 Priority and Return of Capital 12
6.4 Withdrawals and Interest 13
6.5 Put Option 13
ARTICLE VII MEETINGS OF MEMBERS 14
7.1 Meetings 14
7.2 Place and Manner of Meetings 14
7.3 Notice of Meetings 14
7.4 Meeting of all Members 15
7.5 Record Date 15
7.6 Quorum 15
7.7 Manner of Acting 15
7.8 Proxies 15
7.9 Action by Members Without a Meeting 16
7.10 Waiver of Notice 16
ARTICLE VIII CONTRIBUTIONS TO THE COMPANY
AND CAPITAL ACCOUNTS 16
8.1 Members, Capital Contributions 16
8.2 Capital Accounts 16
8.3 Withdrawal or Reduction of Members and Contributions to
Capital 17
8.4 Additional Contributions 17
8.5 Enforcement of Initial Commitments 18
ARTICLE IX ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS 18
9.1 Allocations of Profits and Losses from Operations 18
9.2 Distributions 21
9.3 Limitation Upon Distributions 21
9.4 Accounting Principles 21
9.5 Interest on and Return of Capital Contributions 21
9.6 Loans to Company 21
9.7 Records and Reports 21
9.8 Returns and Other Elections 22
9.9 Tax Matters Member 22
ARTICLE X RESTRICTIONS ON TRANSFER OF INTERESTS 22
10.1 No Transfers or Pledges 22
10.2 Permitted Transfers 22
10.3 Acts Constituting a Transfer 23
10.4 Restrictions on Transferability 23
ARTICLE XI RIGHT OF FIRST REFUSAL 23
11.1 Right of First Refusal 23
11.2 Offering Procedure 23
11.3 No Purchase of Fewer Than All Offered Interest 24
11.4 Payment of Purchase Price 25
11.5 Proposed Transfer for Property Other Than Cash 25
ARTICLE XII BUY-SELL AGREEMENT 25
12.1 Events Giving Rise to Options to Purchase Interests 25
12.2 Options to Purchase Interest 25
12.3 Purchase Price 27
ARTICLE XIII ADDITIONAL AND SUBSTITUTE MEMBERS 28
13.1 Admission of New Members 28
13.2 Allocations to New Members 28
ARTICLE XIV DISSOLUTION AND TERMINATION 29
14.1 Dissolution 29
14.2 Distribution of Assets Upon Dissolution 29
14.3 Certificate of Cancellation 30
14.4 Filing of Certificates of Cancellation 30
14.5 Winding Up 30
ARTICLE XV DISPUTE RESOLUTION 30
15.1 Arbitration 30
15.2 Notice of Arbitration 31
15.3 Procedure 31
15.4 Additional Parties 32
15.5 Enforceability 32
15.6 Venue 32
15.7 Continuance of Contract Performance 32
15.8 Cost 32
15.9 Exception 32
ARTICLE XVI MISCELLANEOUS PROVISIONS 32
16.1 Notices 32
16.2 Books of Account and Records 33
16.3 Application of California Law 33
16.4 Waiver of Action for Partition 33
16.5 Amendments 33
16.6 Execution of Additional Instruments 33
16.7 Construction 33
16.8 Headings 34
16.9 Waivers 34
16.10 Rights and Remedies Cumulative 34
16.11 Severability 34
16.12 Successors and Assigns 34
16.13 Creditors 34
16.14 Counterparts 34
ARTICLE I
DEFINITIONSI DEFINITIONS
I.1 CERTAIN DEFINITIONSI.1 CERTAIN DEFINITIONS. The following
terms used in this Operating Agreement shall have the following meanings (unless
otherwise expressly provided herein);
(a) "ADDITIONAL MEMBER" shall mean any Person who is admitted to the
Company as an Additional Member pursuant to Article XIII hereof.
(b) "AFFILIATE" shall mean any Entity which directly or indirectly
Controls, is Controlled by or is under common Control with another Entity.
(c) "BASE RATE" shall mean the rate of interest announced publicly by
Bank of America, NT&SA in San Francisco, California, from time to time as its
base rate.
(d) "CALIFORNIA ACT" shall mean the Beverly-Killea Limited Liability
Company Act at Title 2.5 of the California Corporations Code 17000 ET SEQ., as
amended.
(e) "CAPITAL ACCOUNT" as of any given date shall mean the Capital
Contribution to the Company by a Member as adjusted up to the date in question
pursuant to Article VIII.
(f) "CAPITAL CONTRIBUTION" shall mean any contribution to the capital
of the Company in cash or property by a Member whenever made.
(g) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(h) "COMPANY" shall refer to West Coast PCS LLC.
(i) "CONTROL" shall mean (i) the ownership of a majority of the
voting power of all classes of voting stock of a corporation, (ii) the trustees
holding a majority of the voting power of a trust, or (iii) the ownership of a
majority of the beneficial interest in income and capital of any other Entity.
(j) "DISTRIBUTABLE CASH" shall mean all cash, receipts and funds
received by the Company from Company operations, less the sum of the following
to the extent paid or set aside by the Company: (i) all principal and interest
payments on indebtedness of the Company and all other sums paid to lenders;
(ii) all cash expenditures incurred incident to the normal operation of the
Company's business; and (iii) Reserves.
(k) "ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association.
(l) "FAIR MARKET VALUE" shall mean the product of:
(i) the fair market value of the Company as a going business in a
sale on an arm's length basis between an informed and willing buyer and an
informed and willing seller under no compulsion to buy or sell, taking into
account all the facts and circumstances then prevailing; multiplied by
(ii) the Interest in the Company being transferred; and if the
transfer of the Member's Interest does not result in a change in Control of
the Company multiplied by
(iii) eighty percent (80%).
The fair market value of the Company shall be determined by an
independent investment banking firm nationally recognized as qualified to
appraise businesses in the Company's industry selected by agreement between the
Manager and the transferring Member. If the Manager and the transferring Member
cannot agree on a single appraiser then the Manager and the transferring Member
shall each choose an independent appraiser to appraise the fair market value of
the Company. In the event that such appraisals (the "Initial Appraisals") as
determined by both independent appraisers are within ten percent (10%) of one
another, then the fair market value of the Company shall be an average of the
Initial Appraisals. In the event that the Initial Appraisals are not within ten
percent (10%) of one another, then the two independent appraisers shall select a
third independent appraiser to appraise the fair market value of the Company.
Following such appraisal by the third independent appraiser, the fair market
value shall be the average of (i) the third appraisal, and (ii) the Initial
Appraisal which is closer to the third appraisal, except that if the third
appraisal is within ten percent (10%) of the average of the two Initial
Appraisals (and not below the lesser, nor greater than the larger, of the
Initial Appraisals), the fair market value shall be the third appraisal. The
determination of the firm or firms selected by the Manager and the transferring
Member as to the fair market value of the Company shall be binding and
conclusive on all Members and the Company for purposes of this Operating
Agreement. The cost of any appraiser selected by the Manager shall be borne by
the Company. The cost of a single appraiser and any appraiser selected by the
transferring Member shall be borne by the transferring Member. The cost of any
appraiser jointly selected by the initial appraisers shall be borne equally by
the Company and the transferring Member.
(m) "FISCAL YEAR" shall mean the Company's fiscal year, which shall
be the calendar year.
(n) "INITIAL CAPITAL CONTRIBUTION" shall mean the Members' initial
Capital Contributions to the Company pursuant to this Operating Agreement.
(o) "INITIAL MEMBERS" shall mean the initial Members of the Company
whose names and signatures appear on the signature page hereof.
(p) "INTEREST" shall mean the proportion that a Member's Capital
Account bears to the aggregate Capital Accounts of all Members.
(q) "MEMBER" shall mean each of the Initial Members, Additional
Members and Substitute Members who are, as of a given time, a member of the
Company.
(r) "NET LOSSES" shall mean, for each Fiscal Year, the losses and
deductions of the Company as reported, separately or in the aggregate, as
appropriate, on the Company's information tax return filed for federal income
tax purposes, plus any expenditures not deductible in computing its taxable
income and not properly chargeable to Capital Accounts under the Code.
(s) "NET PROFITS" shall mean, for each Fiscal Year, the income and
gains of the Company as reported, separately or in the aggregate, as
appropriate, on the Company's information tax return filed for federal income
tax purposes plus any income exempt from federal income tax under the Code.
(t) "OPERATING AGREEMENT" shall mean this Operating Agreement as
originally executed and as amended from time to time.
(u) "ORGANIZATION EXPENSES" shall mean those expenses incurred in
connection with the formation of the Company.
(v) "PERSON" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
"PERSON" where the context so permits.
(w) "PCS" shall mean the broadband radio communications service
authorized under the rules for personal communications services set forth in
Part 24 of the Federal Communication Commission's rules in effect on the date
hereof, or any revision thereto or successor thereof, which may be in effect
from time to time, including the networking, marketing, distribution, sales,
customer interface and operations functions relating thereto.
(x) "REGULATORY ALLOCATIONS" shall mean the allocations pursuant to
Article IX of this Operating Agreement.
(y) "RESERVES" shall mean, with respect to any fiscal period, funds
set aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Manager for working capital and
to pay taxes, insurance, debt service or other costs or expenses incident to the
ownership or operation of the Company's business.
(z) "SUBSTITUTE MEMBER" shall mean any Person or Entity who or which
is admitted to the Company as a Member pursuant to this Operating Agreement.
(aa) "SUPER MAJORITY" shall mean seventy-five percent (75%) of the
Interests.
(bb) "TREASURY REGULATIONS" shall mean the Income Tax Regulations,
including temporary regulations, promulgated under the Code, as amended from
time to time.
ARTICLE II
FORMATION OF COMPANY ARTICLE II FORMATION OF COMPANY
II.1 FORMATION.1 FORMATION. On June 13, 1995, the Initial Members
caused the Company to be organized as a California limited liability company
under and pursuant to the California Act and agree that the rights and liability
of the Members shall be as provided in the California Act, except as herein
otherwise expressly provided.
II.2 NAMEII.2 NAME. The name of the Company is West Coast PCS LLC.
II.3 PRINCIPAL PLACE OF BUSINESSII.3 PRINCIPAL PLACE OF BUSINESS.
The location of the Company's principal place of business is at 211 Lincoln
Street, Roseville, California. The Company may locate its places of business
and registered office at such place or places within the State of California as
the Manager may, from time to time, deem advisable.
II.4 REGISTERED OFFICE AND REGISTERED AGENT.4 REGISTERED OFFICE
AND REGISTERED AGENT. The Company's registered office shall be at the office of
its registered agent at 211 Lincoln Street, Roseville, California and the name
of its initial registered agent at such address shall be Michael D. Campbell.
II.5 TERMII.5 TERM. The term of the Company shall be thirty (30)
years from the date of filing of the Articles of Organization with the Secretary
of State of the State of California, unless the Company is earlier dissolved in
accordance with either the provisions of this Operating Agreement or the
California Act.
ARTICLE III
BUSINESS OF COMPANYIII BUSINESS OF COMPANY
III.1 PERMITTED BUSINESSES.1 PERMITTED BUSINESSES. The business
of the Company shall be:
(a) To carry on any lawful business, purpose or activity, with the
exception of the banking, insurance or trust company business, which shall at
any time appear conducive to or expedient for the protection or benefit of the
Company and its assets;
(b) Notwithstanding the foregoing Section 3.1(a), the Members
acknowledge that the Company was formed for the express purpose of directly or
indirectly providing PCS, to provide services to or assets used by any Entity
providing PCS or to own equity interests in any Entity providing PCS or such
services or assets, and that the Company may not engage in any other business
except upon the affirmative vote of Members holding a Super Majority of the
Interests;
(c) To exercise all powers and privileges necessary to or convenient
to the conduct, promotion or attainment of the Company's business, purposes or
activities which may be legally exercised by limited liability companies under
the California Act; and
(d) To engage in all activities necessary, customary, convenient or
incident to any of the foregoing.
ARTICLE IV
MANAGEMENT OF THE COMPANYARTICLE IV MANAGEMENT OF THE COMPANY
IV.1 THE MANAGER.1 THE MANAGER. The business and affairs of the
Company shall be managed by a single Manager who shall at all time be a Member
of the Company. Roseville PCS Inc. is hereby appointed as the Manager of the
Company. Except as expressly provided for in this Operating Agreement, the
Manager may take any action on behalf of the Company necessary or desirable to
accomplish the Company's business and shall be responsible for administering the
terms of this Agreement.
IV.2 TENURE.2 TENURE. The Manager shall hold office until removed by
an affirmative vote of Members holding at least a Super Majority and its
successor shall have been elected and qualified; provided, however, that the
Manager may not be removed if such removal would have a material negative impact
on the Company under the rules and regulations of the Federal Communication
Commission with respect to PCS or would cause a change in control not permitted
under applicable rules and regulations. A successor Manager shall be elected by
the affirmative vote of Members holding at least a Super Majority in the
Company. Roseville PCS, Inc. as the initial Manager, shall have the right to
transfer its rights, obligations and duties to any Affiliate to act as the
Manager; provided that, concurrently with such transfer, it transfers its entire
Interest to the Affiliate.
IV.3 CERTAIN POWERS OF THE MANAGER.3 CERTAIN POWERS OF THE
MANAGER.
(a) Without limiting the generality of Section 4.1, the Manager shall
have power and authority on behalf of the Company:
(i) To acquire property from any Person as the Manager may
determine (The fact that a Member or the Manager is directly or
indirectly affiliated or connected with any such Person shall not
prohibit the Manager from dealing with that Person in the ordinary
course of business on terms that could have been obtained in an arm's
length transaction with an unaffiliated Person);
(ii) To borrow money for the Company from banks, other lending
institutions, the Members or Affiliates of the Members on such terms
as they deem appropriate, and in connection therewith, to hypothecate,
encumber and grant security interests in the assets of the Company to
secure repayment of the borrowed sums;
(iii) To purchase liability and other insurance to protect the
Company's property and business;
(iv) To hold and own any Company real or personal properties in
the name of the Company;
(v) To invest any Company funds temporarily (by way of example
but not limitation) in time deposits, short-term governmental
obligations, commercial paper or other investments;
(vi) To execute on behalf of the Company all instruments and
documents, including, without limitation, checks, drafts, notes and
other negotiable instruments, mortgages or deeds of trusts, security
agreements, financing statements, documents providing for the
acquisition, mortgage or disposition of the Company's property,
assignments, bills of sale, leases, partnership agreements and any
other instruments or documents necessary, in the opinion of the
Manager, to the business of the Company;
(vii) To employ accountants, legal counsel, managing agents or
other experts to perform services for the Company and to compensate
them from Company funds;
(viii) To enter into any and all other agreements on behalf of the
Company, with any other Person for any purpose, in such forms as the
Manager may approve (The fact that a Member or the Manager is directly
or indirectly affiliated or connected with any such Person shall not
prohibit the Manager from dealing with that Person in the ordinary
course of business on terms that could have been obtained in an arm's
length transaction with an unaffiliated Person); and
(ix) To do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's business.
(b) Unless expressly authorized to do so by this Operating Agreement
or by the Manager, no Member, agent or employee of the Company shall have any
power or authority to bind the Company in any way, to pledge its credit or to
render it liable pecuniarily for any purpose.
IV.4 LIMITATION ON ACTIONS BY THE MANAGER.4 LIMITATION ON ACTIONS BY
THE MANAGER. Notwithstanding any other provision contained herein, the
affirmative vote of Members holding a Super Majority shall be required in order
for the Company to do any of the following actions:
(i) the merger or consolidation of, or the entry into any
agreement to merge or consolidate, the Company with or into any
corporation, limited liability company or Entity other than a wholly-
owned subsidiary of the Company;
(ii) the reorganization or recapitalization of the Company or the
reclassification of any of its Interests, or the adoption of any plan
to do any of the foregoing;
(iii) the amendment of this Operating Agreement, or the adoption
of any resolution proposing an amendment to the Articles of
Organization of the Company;
(iv) the expansion of the Company's business into any area not
related to or supportive of the ownership, operation or investment in
PCS, whether such expansion be by acquisition, start up or otherwise;
provided, however, that no vote shall be required for any expansion
which is incidental in size and scope;
(v) the sale or disposition of all or substantially all of the
assets of the Company as part of a single transaction or plan;
(vi) the authorization, issuance or sale of any Interest, or any
option or right to purchase any Interest, and agreement as to the
terms of such issuance or sale;
(vii) the acceptance of any Capital Contribution or the making of
any distribution other than in cash;
(viii) the acquisition of property from, or the entry into any
agreement on behalf of the Company with, an Affiliate of the Manager
or any Member with a value, or requiring payments by the Company at
the time of acquisition or in the aggregate with respect to such
property, in excess of five hundred thousand dollars ($500,000); and
(ix) the settlement or compromise of any claim for, or against,
the Company, whether pursuant to litigation or otherwise, in an
amount, or requiring payments to or by the Company at the time of
settlement or in the aggregate with respect to such settlement, in
excess of one million dollars ($1,000,000).
IV.5 LIABILITY FOR CERTAIN ACTS.5 LIABILITY FOR CERTAIN ACTS. The
Manager and each officer of the Company shall perform their respective duties in
good faith, in a manner such Person believes to be in the best interests of the
Company and its Members, and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. The Manager and the Company's officers shall each be entitled to
rely on information, opinions, reports or statements, including financial
statements and other financial data, prepared or presented by counsel,
independent accountants or other Persons as to matters which the Manager or
officer believes to be within such Person's professional or expert competence,
so long as the Manager or officer, in each such case, acts in good faith, after
reasonable inquiry when the need therefor is indicated by the circumstances and
without knowledge that would cause such reliance to be unwarranted. Provided
that a Manager or officer perform their duties in accordance with the foregoing,
such Person shall have no liability based upon any alleged failure to discharge
their respective obligations to the Company and its Members. The parties intend
that this provision shall be interpreted to apply to the Manager and the
Company's officers in the same manner similar provisions of California
Corporations Code 309 and decisions thereunder have been interpreted to apply
to corporate directors in cases arising thereunder.
IV.6 OFFICERS.6 OFFICERS. The Manager may appoint individuals as
officers of the Company which may include, but shall not be limited to:
(1) president; (2) vice president; (3) secretary and (4) treasurer. The Manager
may delegate a portion of its day-to-day management responsibilities to any such
officers, as determined by the Manager from time to time, and such officers
shall have the authority to contract for, negotiate on behalf of and otherwise
represent the interests of the Company as so authorized by the Manager.
IV.7 MANAGER HAS NO EXCLUSIVE DUTY TO COMPANY.7 MANAGER HAS NO
EXCLUSIVE DUTY TO COMPANY. The Manager and its Affiliates shall not be required
to manage the Company as their sole and exclusive function and the Manager and
its Affiliates may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company
nor any Member shall have any right, by virtue of this Operating Agreement, to
share or participate in such other investments or activities of the Manager and
its Affiliates or to the income or proceeds derived therefrom.
IV.8 RESIGNATION.8 RESIGNATION. The Manager of the Company may
resign at any time by giving sixty (60) days written notice to the Members of
the Company. The resignation of the Manager shall take effect upon any date
after such sixty (60) day period as is specified in such notice; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective; provided, however, that the Manager may not
resign if such resignation would have a material negative impact on the Company
under the rules and regulations of the Federal Communication Commission with
respect to PCS or would cause a change in control not permitted under applicable
rules and regulations.
IV.9 EXPENSES.9 EXPENSES. The Company shall reimburse the Manager
and its Affiliates for the actual cost of all services, goods and materials used
or incurred for or by the Company or which are properly allocable to the
Company. The Company shall also pay or reimburse the Manager or its Affiliates
for all Organizational Expenses.
IV.10 BUDGETS.10 BUDGETS. The Manager shall prepare an
operating plan and budget (the "Budget") for the Company for each Fiscal Year.
The Budget shall set forth in reasonable detail estimated revenues and expenses,
proposed capital expenditures, the expected source of funds for any revenue
shortfalls, including, without limitation, any expected capital calls or
borrowing of funds, and distributions expected to be made. The Manager shall
not incur any expenses on behalf of the Company materially in excess of those
set forth in an approved Budget or any amendments thereto. The Manager shall
submit the Budget, and any amendments thereto, to the Members for approval of
Members holding a Super Majority. For each Fiscal Year commencing Fiscal Year
1996, the Budget for the forthcoming Fiscal Year shall be submitted by the
Manager to the Members for approval not later than forty-five (45) days prior to
the commencement of such Fiscal Year. Proposed amendments to the Budget may be
submitted by the Manager to the Members for approval from time to time as
required. Until a Budget for a Fiscal Year is approved, the Budget for the
prior shall govern the operation of the Company, except for any increased
expenses not within the control of the Manager. The Manager shall not expend
any funds authorized by a proposed amendment until such amendment has been
approved by Members holding a Super Majority.
IV.11 REPORTS IV.11 REPORTS. Within thirty (30) days after
the close of each fiscal quarter, the Manager shall prepare and submit to the
Members a quarterly summary of the significant events and circumstances of the
Company, together with financial reports for the fiscal quarter just conducted.
Within ninety (90) days after the close of each Fiscal Year, the Manager shall
cause to be prepared and submitted to the Members an audited annual report of
the Company's operations.
IV.12 QUARTERLY MEETINGS.12 QUARTERLY MEETINGS. The Manager
shall call regular meetings of the Members, approximately once per fiscal
quarter, for the purpose of discussing the proposed Budget, any amendments
thereto, the reports prepared by the Manager and any other appropriate items
with respect to the Company.
ARTICLE V
INDEMNIFICATION OF MANAGER, MEMBERS AND OFFICERSARTICLE V INDEMNIFICATION
OF MANAGER, MEMBERS AND OFFICERS
V.1 RIGHT TO INDEMNIFICATION.1 RIGHT TO INDEMNIFICATION. Each
Person who was or is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such Person is or was a Manager, a Member expressly authorized to act
on behalf of the Company (an "authorized Member") or an officer of the Company
or is or was serving at the request of the Company as a Manager or officer of
another Entity, (an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a Manager, authorized Member or
officer or in any other capacity while serving as a Manager, authorized Member
or officer, shall be indemnified and held harmless by the Company to the fullest
extent authorized by California Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
such law permitted the Company to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a Manager, authorized
Member or officer and shall inure to the benefit of the indemnitee's heirs,
executors, administrators, successors and assigns; PROVIDED, HOWEVER, that,
except as provided in Section 5.2 hereof with respect to proceedings to enforce
rights to indemnification, the Company shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Manager or the
Members of the Company. The right to indemnification conferred in this Section
5.1 shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of its
final disposition (an "advancement of expenses"); PROVIDED, HOWEVER, that, an
advancement of expenses incurred by an indemnitee in the indemnitee's capacity
as the Manager, authorized Member or an officer (and not in any other capacity
in which service was or is rendered by such indemnitee) shall be made only upon
delivery to the Company of an undertaking (an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (a "final adjudication") that such indemnitee is not entitled to be
indemnified for such expenses under this Section 5.1 or otherwise.
V.2 RIGHT OF INDEMNITEE TO BRING SUIT.2 RIGHT OF INDEMNITEE TO
BRING SUIT. If a claim under Section 5.1 is not paid in full by the Company
within sixty (60) days after a written claim has been received by the Company,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In any suit (i) 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) it shall be a
defense that, and in any suit (ii) by the Company to recover an advancement of
expenses pursuant to the terms of an undertaking, the Company shall be entitled
to recover such expenses upon a final adjudication that, the indemnitee has not
met the applicable standard of conduct set forth in Section 4.5. Neither the
failure of the Company 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 the applicable standard of conduct, nor an actual
determination by the Company that the indemnitee has not met 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 to indemnification or to an advancement of expenses hereunder,
or by the Company 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 Article V or
otherwise shall be on the Company.
V.3 NON-EXCLUSIVITY OF RIGHTSV.3 NON-EXCLUSIVITY OF RIGHTS. The
rights to indemnification and to the advancement of expenses conferred in this
Article V shall not be exclusive of any other right which any Person may have or
hereafter acquire under any statute, the Company's Articles of Organization,
this Operating Agreement, any agreement, any vote of disinterested Members or
otherwise.
V.4 INSURANCE.4 INSURANCE. The Company may maintain insurance, at
its expense, to protect itself and the Manager, any authorized Member or any
officer of the Company or another Entity against any expense, liability or loss,
whether or not the Company would have the power to indemnify such Person against
such expense, liability or loss under California law.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERSARTICLE VI RIGHTS AND OBLIGATIONS OF
MEMBERS
VI.1 LIMITATION OF LIABILITY.1 LIMITATION OF LIABILITY. Each
Member's liability shall be limited as set forth in the California Act and other
applicable law.
VI.2 COMPANY DEBT LIABILITY.2 COMPANY DEBT LIABILITY. A Member will
not be liable for any debts or losses of the Company beyond the Member's Capital
Contribution, except as required by law.
VI.3 PRIORITY AND RETURN OF CAPITAL.3 PRIORITY AND RETURN OF
CAPITAL. No Member shall have priority over any other Member, either as to the
return of Capital Contributions or as to Net Profits, Net Losses or
distributions; provided that this Section 6.3 shall not apply to loans (as
distinguished from Capital Contributions) which a Member has made to the
Company.
VI.4 WITHDRAWALS AND INTEREST.4 WITHDRAWALS AND INTEREST. Except
as expressly provided herein, no Member shall have the right to:
(i) withdraw any or all of its Capital Contribution;
(ii) receive any return or interest on any portion of its
Capital Contribution; or
(iii) withdraw from the Company except by transfer of its Interest
in accordance with this Operating Agreement or upon dissolution of the
Company or except withdrawal for the reasons set forth in
Section 17252(a)(2) of the California Act and in the manner set forth
in Section 17252.
VI.5 PUT OPTION.5 PUT OPTION.
(a) Beginning with the calendar year immediately following the end of
the calendar year in which occurs the sixth anniversary of the date on which the
Company begins providing PCS to customers, any Member which holds an Interest of
twelve percent (12%) or less (an "Eligible Member"), at its option, may require
the Company to acquire an Interest of five percent (5%) or less (a "Put
Interest") held by such Eligible Member for an amount equal to the Fair Market
Value of the Put Interest in accordance with this Section 6.5. During every
second calendar year thereafter, an Eligible Member may require the Company to
acquire a Put Interest in accordance with this Section 6.5. For the purpose of
determining if a Member qualifies as an Eligible Member, Interests held by
Affiliates of the Member shall be attributed to such Member.
(b) An Eligible Member may require the Company to acquire a Put
Interest by giving the Company written notice (a "Put Notice") setting forth the
amount of the Put Interest not less than thirty (30) days prior to the end of
the calendar year. The Company shall promptly provide a copy of each such
notice to the Members. Once an Eligible Member has delivered a Put Notice to
the Company it may not rescind, alter or amend such Put Notice except in the
event another Eligible Member has delivered a Put Notice in which case the
amount of the Put Interest may be increased, to a maximum of five percent (5%),
no later than the end of the calendar year. If the total Put Interest in a
calendar year exceeds five percent (5%) of the Company, each electing Eligible
Member shall have the right to require the Company to acquire such proportion of
that Eligible Member's Put Interest as such Eligible Member's Put Interest bears
to the total Put Interest in that calendar year.
(c) The Fair Market Value of a Put Interest shall be determined as of
the end of the calendar year in which an Eligible Member exercises its rights
under this Section 6.5. The Fair Market Value of any Put Interest acquired
pursuant to this Section 6.5 shall be paid by the Company as follows:
(i) sixteen and two-thirds percent (16_%) within one hundred
twenty (120) days after the date on which the Fair Market Value of a
Put Interest is finally determined in accordance with Section 1.1(l);
and
(ii) the balance pursuant to a promissory note (the "Put Note")
providing for payment of principal in five (5) equal annual
installments, payable on the anniversary of the initial payment. The
Put Note shall provide that prepayment of the remaining principal
balance may be made at any time without penalty or bonus. Any prepaid
sums shall be applied against the installments thereafter falling due
in inverse order of their maturity, or against all the remaining
installments equally, at the option of the holders of the Put Note.
The Put Note shall further provide for acceleration upon default in
the payment of principal when due and for the payment of all expenses,
including reasonable attorney's fees, incurred by the holder in
connection with collection on the Put Note.
ARTICLE VII
MEETINGS OF MEMBERSVII MEETINGS OF MEMBERS
VII.1 MEETINGS.1 MEETINGS. Meetings of the Members, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Manager or any Member or Members holding, in the aggregate, at least ten
percent (10%) of the Interests.
VII.2 PLACE AND MANNER OF MEETINGS.2 PLACE AND MANNER OF MEETINGS.
The Manager may designate any place, either within or outside the State of
California, as the place of meeting for any meeting of the Members. If no
designation is made the place of meeting shall be the principal executive office
of the Company. Any meeting of the Members may be held by conference telephone
or similar communication equipment, so long as all Members participating in the
meeting can hear one another. All such Members shall be deemed to be present in
person at the meeting.
VII.3 NOTICE OF MEETINGS.3 NOTICE OF MEETINGS. Except as provided
in Section 7.4, written notice stating the place, day and hour of the meeting
and the purpose or purposes for which the meeting is called shall be delivered
not less than ten (10) nor more than fifty (50) days before the date of the
meeting, in any manner provided in Section 16.1.
VII.4 MEETING OF ALL MEMBERS.4 MEETING OF ALL MEMBERS. If all of the
Members shall meet at any time and place, either within or outside of the State
of California, and consent to the holding of a meeting at such time and place,
such meeting shall be valid without call or notice, and at such meeting lawful
action may be taken.
VII.5 RECORD DATE.5 RECORD DATE. For the purpose of determining
Members entitled to notice of or to vote at any meeting of Members or any
adjournment thereof, or Members entitled to receive payment of any distribution,
or in order to make a determination of Members for any other purpose, the date
on which notice of the meeting is mailed or the date on which the resolution
declaring such distribution is adopted, as the case may be, shall be the record
date for such determination of Members. When a determination of Members
entitled to vote at any meeting of Members has been made as provided in this
Section 7.5, such determination shall apply to any adjournment thereof.
VII.6 QUORUM.6 QUORUM. Members holding a majority of the Interests in
the Company, represented in person or by proxy, shall constitute a quorum at any
meeting of Members. In the absence of a quorum at any such meeting, a majority
of the Interests so represented may adjourn the meeting from time to time for a
period not to exceed thirty (30) days without further notice. However, if the
adjournment is for more than thirty (30) 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 Member of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The Members present at a duly organized
meeting may not continue to transact business until adjournment, after the
withdrawal during such meeting of that number of Interests whose absence would
cause less than a quorum.
VII.7 MANNER OF ACTING.7 MANNER OF ACTING. If a quorum is present,
the affirmative vote of Members holding a majority of the Interests and entitled
to vote on the subject matter shall be the act of the Members, unless the vote
of a greater or lesser proportion or number is otherwise required by the
California Act, by the Articles of Organization or by this Operating Agreement.
VII.8 PROXIES.8 PROXIES. At all meetings of Members, a Member may vote
in person or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Company before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy. Except as expressly
provided otherwise in this Section 7.8, the use of proxies will be governed in
the same manner as is the case of corporations formed under the California
General Corporation Law.
VII.9 ACTION BY MEMBERS WITHOUT A MEETING.9 ACTION BY MEMBERS WITHOUT
A MEETING. Action required or permitted to be taken at a meeting of Members may
be taken without a meeting if the action is evidenced by one or more written
consents describing the action taken, signed by each Member entitled to vote and
delivered to the Company for inclusion in the minutes or for filing with the
Company records. Action taken under this Section 7.9 is effective when all
Members entitled to vote have signed the consent, unless the consent specifies a
different effective date.
The record date for determining Members entitled to take action
without a meeting shall be the date the first Member signs a written consent.
VII.10 WAIVER OF NOTICE.10 WAIVER OF NOTICE. When any notice is
required to be given to any Member, a waiver thereof in writing signed by the
person entitled to such notice, whether before, at, or after the time stated
therein, shall be equivalent to the giving of such notice.
ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY
AND CAPITAL ACCOUNTSVIII CONTRIBUTIONS TO THE COMPANY AND
CAPITAL ACCOUNTS
VIII.1 MEMBERS, CAPITAL CONTRIBUTIONS.1 MEMBERS, CAPITAL
CONTRIBUTIONS. Each Initial Member shall make Initial Capital Contributions to
the Company in the amounts and at the times specified on Schedule A. Each
Additional Member or existing Member purchasing an additional Interest, shall
make the Capital Contribution agreed upon with respect to the sale of such
additional Interest.
VIII.2 CAPITAL ACCOUNTS.2 CAPITAL ACCOUNTS.
(a) A separate Capital Account will be maintained for each Member.
Each Member's Capital Account will be increased by (1) the amount of money
contributed by such Member to the Company; (2) the fair market value of property
contributed by such Member to the Company (net of liabilities secured by such
contributed property that the Company is considered to assume or take subject to
under Section 752 of the Code); and (3) the amount of Net Profits allocated to
such Member. Each Member's Capital Account will be decreased by (1) the amount
of money distributed to such Member by the Company; (2) the fair market value of
property distributed to such Member by the Company (net of liabilities secured
by such distributed property that such Member is considered to assume or take
subject to under Section 752 of the Code); and (3) the amount of Net Losses
allocated to such Member.
(b) In the event of a permitted sale or exchange of an Interest in
the Company, the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the transferred Interest.
(c) The manner in which Capital Accounts are to be maintained
pursuant to this Section 8.2 is intended, and shall be construed so as, to
comply with the requirements of Code Section 704(b) and the Treasury Regulations
promulgated thereunder.
(d) Upon liquidation of the Company (or any Member's interest),
liquidating distributions will be made in accordance with the positive Capital
Account balances of the Members, as determined after taking into account all
Capital Account adjustments for the Company's taxable year during which the
liquidation occurs. Liquidation proceeds will be paid within sixty (60) days of
the end of the taxable year (or, if later, within ninety (90) days after the
date of the liquidation).
VIII.3 WITHDRAWAL OR REDUCTION OF MEMBERS AND CONTRIBUTIONS TO
CAPITALVIII.3 WITHDRAWAL OR REDUCTION OF MEMBERS AND CONTRIBUTIONS TO CAPITAL.
(a) A Member shall not receive out of the Company's property any part
of its contributions to capital until all liabilities of the Company, except
liabilities to Members on account of their contributions to capital, have been
paid or there remains property of the Company sufficient to pay them.
(b) A Member shall not be entitled to demand or receive from the
Company the liquidation of its interest in the Company until Company is
dissolved in accordance with the provisions hereof or other applicable
provisions of the California Act.
VIII.4 ADDITIONAL CONTRIBUTIONSVIII.4 ADDITIONAL CONTRIBUTIONS.
(a) In addition to the Initial Capital Contributions, the Manager in
accordance with the Budget may determine, from time to time, that additional
capital contributions ("Additional Capital Contributions") are needed to enable
the Company to conduct its business. Upon making such a determination, the
Manager shall give all Members written notice at least thirty (30) days prior to
the date on which such Additional Capital Contribution is due. Such notice
shall set forth the amount of the Additional Capital Contribution needed, the
purpose for which the Additional Capital Contribution is needed, and the date by
which the Members should contribute. Each Member shall be entitled to
contribute a proportionate share of such Additional Capital Contribution.
Except to the extent of a Member's unpaid commitment to make its Initial Capital
Contributions, no Member shall be obligated to make any such Additional Capital
Contribution. In the event any one or more Members do not make their Additional
Capital Contribution, the other Members shall be given the opportunity to make
the Additional Capital Contribution.
(b) If a Member fails to make an Additional Capital Contribution, the
Company may by the affirmative vote of Members holding a Super Majority elect to
purchase up to five percent (5%), in the aggregate, of the Interests in the
Company from Members which fail to make such Additional Capital Contribution.
The Company shall exercise this right by delivering a notice to the Members from
which the Interests are being purchased within sixty (60) days of the date of
the Additional Capital Contribution. The purchase price for each Interest
purchased shall be the Fair Market Value of the Interest determined as of the
date of the Additional Capital Contribution. The Fair Market Value of any
Interest acquired pursuant to this Section 8.4 may be paid by the Company in the
manner set forth in Section 6.5(c).
VIII.5 ENFORCEMENT OF INITIAL COMMITMENTSVIII.5 ENFORCEMENT OF
INITIAL COMMITMENTS. In the event any Member fails to perform such Member's
commitment to make all or any portion of its Initial Capital Contribution, the
Manager shall give such Member a notice of the failure to meet the commitment.
If the Member fails to perform the commitment (including, without limitation,
paying any costs associated with the failure to comply with the commitment and
interest, from the date such contribution was due, at the rate of the Base Rate
plus five percent (5.0%) on such obligation) within five (5) business days of
the giving of notice the Company or the non-defaulting Members may purchase the
defaulting Member's entire Interest at a purchase price equal to eighty percent
(80%) of the balance of such Member's Capital Account and otherwise in
accordance with Article XII. In the event any one or more Members do not make
their Initial Capital Contribution, or any part thereof, the other Members shall
be given the opportunity to make the contribution.
ARTICLE IX
ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTSIX ALLOCATIONS, INCOME
TAX, ELECTIONS AND REPORTS
IX.1 ALLOCATIONS OF PROFITS AND LOSSES FROM OPERATIONS.1
ALLOCATIONS OF PROFITS AND LOSSES FROM OPERATIONS.
(a) The Net Profits and Net Losses of the Company for each Fiscal
Year shall be allocated among the Members in proportion to their Interests. Any
credit available for income tax purposes shall be allocated among the Members in
like fashion.
(b) Notwithstanding paragraph (a) above, no loss shall be allocated
to a Member if such allocation would cause such Member's Capital Account to
become negative or to increase the negative balance thereof.
(c) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Treasury Regulations, items of Company income and gain shall be
specially allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the deficit
balance of the Capital Account of such Member as soon as possible, provided that
an allocation pursuant to this Section 9.1(c) shall only be made if and to the
extent such Member would have a deficit balance in its Capital Account after all
other allocations provided for in this Section 9.1 have been made as if this
Section 9.1(c) were not in the Operating Agreement.
(d) In the event any Member has a deficit Capital Account at the end
of any Fiscal Year which is in excess of the sum of (i) the amount such Member
is obligated to restore pursuant to any provision of this Operating Agreement,
if any, and (ii) the amount such Member is deemed to be obligated to restore
pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c) each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 9.1(d) shall be made only if and to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 9.1 have been made as if Section 9.1(c) hereof and
this Section 9.1(d) were not in this Operating Agreement.
(e) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury
Regulations.
(f) In order to comply with the "minimum gain chargeback"
requirements of Treasury Regulation Sections 1.704-2(f)(1) and 1.704-2(i)(4),
and notwithstanding any other provision of this Operating Agreement to the
contrary, in the event there is a net decrease in a Member's share of minimum
gain, member nonrecourse debt minimum gain or both during a Fiscal Year, such
Member shall be allocated items of income and gain for that Fiscal Year (and if
necessary, other Fiscal Years) as required by and in accordance with Treasury
Regulation Sections 1.704-2(f)(1) and 1.704-2(i)(4) before any other allocation
is made. It is the intent of the parties hereto that any allocation pursuant to
this Section 8.1(f) shall constitute a "minimum gain chargeback" under Treasury
Regulation Section 1.704-2(f) and 1.704-2(i)(4).
(g) Any item of income, gain, loss and deduction with respect to any
property (other than cash) that has been contributed by a Member to the capital
of the Company, or which has been revalued for Capital Account purposes pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv), and which is required or
permitted to be allocated to such Member for income tax purposes under
Section 704(c) of the Code so as to take into account the variation between the
tax basis of such property and its fair market value at the time of its
contribution, shall be allocated solely for income tax purposes in the manner so
required or permitted under Code Section 704(c) using the "traditional method"
described in Treasury Regulations Section 1.704-3(b), provided, however, that
curative allocations consisting of the special allocation of gain or loss upon
the sale or other disposition of the contributed property shall be made in
accordance with Treasury Regulations Section 1.704-3(c) to the extent necessary
to eliminate any disparity, to the extent possible, between the Members' book
and tax Capital Accounts attributable to such property; further provided,
however, that any other method allowable under applicable Treasury Regulations
may be used for any contribution of property as to which there is agreement
between the contributing Member and the Manager.
(h) Notwithstanding any other provision of this Operating Agreement,
the Regulatory Allocations shall be taken into account in allocating items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Regulatory
Allocations to each Member shall be equal to the net amount that would have been
allocated to each such Member if the Regulatory Allocations had not occurred.
For purposes of applying the foregoing sentence, allocations pursuant to this
Section 9.1(h) shall only be made with respect to allocations pursuant to
Section 9.1(e) hereof to the extent the Manager reasonably determines that such
allocations will otherwise be inconsistent with the economic agreement among the
parties to this Operating Agreement.
(i) The Manager shall have reasonable discretion, with respect to
each Fiscal Year, to (i) apply the provisions of Section 9.1(h) hereof in
whatever order is likely to minimize the economic distortions that might
otherwise result front the Regulatory Allocations, and (ii) divide all
allocations pursuant to Section 9.1(h) hereof among the Members in a manner that
is likely to minimize such economic distortions.
IX.2 DISTRIBUTIONS.2 DISTRIBUTIONS. All distributions of cash or
other property shall be made to the Members pro rata in proportion to the
respective Interests of the Members on the record date of such distribution.
All distributions of cash and property shall be made at such time and in such
amounts as determined by the Manager. All amounts withheld pursuant to the Code
or any provisions of state or local tax law with respect to any payment or
distribution to the Members from the Company shall be treated as amounts
distributed to the relevant Member or Members pursuant to this Section 9.2.
IX.3 LIMITATION UPON DISTRIBUTIONS.3 LIMITATION UPON DISTRIBUTIONS.
No distribution shall be declared and paid if, after the distribution is made:
(1) the Company would be unable to pay its debts as they become due in the usual
course of business; or (2) the Company's total assets would be less than the sum
of its total liabilities.
IX.4 ACCOUNTING PRINCIPLES.4 ACCOUNTING PRINCIPLES. The profits and
losses of the Company shall be determined in accordance with generally accepted
accounting principles using a method of accounting consistently applied from
year to year.
IX.5 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONSIX.5 INTEREST
ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be entitled to interest
on its Capital Contribution or to return of its Capital Contribution, except as
otherwise specifically provided for herein.
IX.6 LOANS TO COMPANY.6 LOANS TO COMPANY. Nothing in this Operating
Agreement shall prevent any Member from making secured or unsecured loans to the
Company by agreement with the Company.
IX.7 RECORDS AND REPORTS.7 RECORDS AND REPORTS. At the expense of
the Company, the Manager shall maintain records and accounts of all operations
and expenditures of the Company. At a minimum the Company shall keep at its
principal place of business the following records:
(a) A current list of the full name and last known business address
of each Member and the Manager;
(b) A copy of the Articles of Organization of the Company and all
amendments thereto;
(c) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the six most recent years;
(d) Copies of the Company's currently effective written Operating
Agreement; and
(e) Copies of any financial statements of the Company for the six
most recent years.
The Company's books shall be kept and its financial statements
shall be prepared under the method of accounting described in Section 9.4.
IX.8 RETURNS AND OTHER ELECTIONS.8 RETURNS AND OTHER ELECTIONS. The
Company shall cause the preparation and timely filing of all tax returns
required to be filed by the Company pursuant to the Code and all other tax
returns deemed necessary and required in each jurisdiction in which the Company
does business. Copies of such returns, or pertinent information therefrom,
shall be furnished to the Members within a reasonable time after the end of the
Company's Fiscal Year.
IX.9 TAX MATTERS MEMBER.9 TAX MATTERS MEMBER. The Manager is
hereby designated the Tax Matters Member of Company for purposes of Chapter 63
of the Code and the Treasury Regulations thereunder.
All elections permitted to be made by the Company under federal or
state laws shall be made by the Tax Matters Member in its sole discretion.
ARTICLE X
RESTRICTIONS ON TRANSFER OF INTERESTSX RESTRICTIONS ON TRANSFER
OF INTERESTS
X.1 NO TRANSFERS OR PLEDGES.1 NO TRANSFERS OR PLEDGES. Except as
expressly provided in Section 10.2, no Interest nor any part thereof or right or
interest therein, shall be sold, transferred, assigned, pledged, encumbered or
in any other way alienated, whether voluntarily or by operation of law, or by
gift or otherwise, except in a transfer which meets the requirements of this
Operating Agreement. Any purported transfer in violation of any provision of
this Operating Agreement shall be void and ineffectual, shall not operate to
transfer any title or interest to the purported transferee, and shall give the
Company and the Remaining Members an option to purchase the Interest involved in
any such attempted transfer in the manner and on the terms and conditions
provided for in Article XII of this Operating Agreement.
X.2 PERMITTED TRANSFERS.2 PERMITTED TRANSFERS. Subject to
compliance with Section 10.4, a Member may transfer all or a part of an
Interest, if such Member offers the Interest to the other Members in accordance
with the provisions of Article XI. The transfer of all or a part of an
Interest, or any interest therein, (i) by any Member to any Affiliate of such
Member, or (ii) by any Member to another Member when the aggregate of the
Interests held by both such Members is less than twenty percent (20%), is
specifically exempted from the restrictions on transfer set forth in Article XI
of this Operating Agreement.
X.3 ACTS CONSTITUTING A TRANSFER.3 ACTS CONSTITUTING A TRANSFER.
For purposes of this Operating Agreement a transfer shall be deemed to include,
but shall not be limited to, any sale, transfer, assignment, pledge, encumbrance
or other alienation, whether voluntarily or by operation of law, or by gift or
otherwise, in a single or series of transactions, of any interest in a Member if
the result of such transfer would be a change in the Control of the Member, but
shall not include the transfer of any interest in an Entity which Controls a
Member if such transfer was consummated for a purpose other than avoiding the
restrictions contained in this Article X.
X.4 RESTRICTIONS ON TRANSFERABILITY.4 RESTRICTIONS ON
TRANSFERABILITY. Notwithstanding anything contained herein to the contrary, if
the Manager, or a majority of the nontransferring Members if the Manager is the
transferee, does not approve of the proposed sale or assignment of a
transferring Member's Interest, the proposed purchaser, transferee or assignee
of the transferring Member's Interest shall have no right to participate in the
management of the business and affairs of the Company or to become a Substitute
Member. The purchaser, transferee or assignee shall be entitled only to receive
the transferring Member's economic interest (as such term is defined in the
California Act) of income and the return of contributions to which that
purchaser, transferee or assignee would otherwise be entitled.
ARTICLE XI
RIGHT OF FIRST REFUSALARTICLE XI RIGHT OF FIRST REFUSAL
XI.1 RIGHT OF FIRST REFUSAL.1 RIGHT OF FIRST REFUSAL. Any Member who
desires to sell, transfer, or encumber all or a part of such Member's Interest
or any interest therein (an "Offering Member"), shall first offer such Interest
(the Offering Member's Interest referred to as, the "Offered Interest") to the
Company and then to the other Members (the "Other Members"), in accordance with
this Article XI.
XI.2 OFFERING PROCEDURE.2 OFFERING PROCEDURE. An Offering Member
shall deliver a written notice to the Manager stating such Member's intention to
sell or transfer, the identity of the proposed transferee, the percentage
Interest to be sold or transferred and the price, terms and conditions contained
in any bona fide offer. The Company shall have the prior right to purchase all
or any amount of the Offered Interest at the price (the "Purchase Price") and on
the terms and conditions contained in the Offering Member's notice to the
Manager for a period of forty-five (45) days following receipt by the Manager of
such notice. If the Company elects to purchase all or a portion of the Offered
Interest within such forty-five (45) day period, the Manager shall give written
notice of that fact to the Offering Member. The Manager shall be entitled to
make the election on behalf of the Company with respect to the Company's
purchase of the Offered Interest, unless the Manager is the Offering Member, in
which event Members holding a majority of the Interests not held by the Manager
shall be entitled to make the election on behalf of the Company.
If, at the expiration of the forty-five (45) day period, the
Company does not elect to purchase all of the Offered Interest, or if the
Company decides prior thereto to purchase none or only a portion of the Offered
Interest, the Manager shall deliver a written notice to the Other Members within
five (5) days stating that all or a portion of the Offered Interest (the
"Remaining Interest") is offered for sale at the Purchase Price and on the terms
and conditions contained in the Offering Member's notice. The Other Members
shall have the right to purchase all or any portion of the Remaining Interest at
the Purchase Price by delivering a written election to purchase to the Manager
within twenty (20) days of receipt of the notice of the availability of the
Remaining Interest. If the total amount of Interest specified in the Other
Members' elections exceeds the amount of the Remaining Interest, each electing
Other Member shall have the right to purchase, up to the amount of Interest
specified in such Other Member's notice of election, such proportion of the
Remaining Interest as the Interest of such Other Member bears to the total
amount of Interests owned by all Other Members electing to purchase.
XI.3 NO PURCHASE OF FEWER THAN ALL OFFERED INTEREST.3 NO PURCHASE OF
FEWER THAN ALL OFFERED INTEREST. Notwithstanding anything to the contrary
herein, if less than all of the Offered Interest is subscribed to by the Company
and the Other Members together within the total time periods set forth in
Section 11.2 above, the Offering Member shall not be required to honor any of
the acceptances made under this Article XI, and may upon the expiration of these
time periods sell or transfer all of the Offered Interest to the Person or
Persons specified in the notice to the Manager under Section 11.2 above;
PROVIDED, HOWEVER, that the Offered Interest shall not be sold or transferred at
a lower price or upon more favorable terms than those specified in the notice to
the Manager. Any transfer of the Offered Interest shall be subject to the
transferee's agreement to be bound by the provisions of this Operating
Agreement. If the Offered Interest is not so sold or transferred within sixty
(60) days after the expiration of the time periods specified in Section 11.2
above, the Offered Interest may not be transferred without again complying with
all of the provisions of this Article XI.
XI.4 PAYMENT OF PURCHASE PRICE.4 PAYMENT OF PURCHASE PRICE. The
Purchase Price shall be paid by the appropriate party or parties to the Offering
Member in the manner described in the notice delivered to the Manager pursuant
to Section 11.2 above, but in no event shall payment be required any earlier
than the later of seventy (70) days after the date of that notice.
XI.5 PROPOSED TRANSFER FOR PROPERTY OTHER THAN CASH.5 PROPOSED
TRANSFER FOR PROPERTY OTHER THAN CASH. Notwithstanding anything to the contrary
herein, if the proposed sale or transfer of an Interest is in exchange for
property other than cash, the Purchase Price of such Interest shall be an amount
in cash equal to the fair market value of the property proposed to be received
in exchange for such Interest.
ARTICLE XII
BUY-SELL AGREEMENTARTICLE XII BUY-SELL AGREEMENT
XII.1 EVENTS GIVING RISE TO OPTIONS TO PURCHASE INTERESTS.1 EVENTS
GIVING RISE TO OPTIONS TO PURCHASE INTERESTS. The following events (the "Option
Events") shall give the Company and the Members not involved in such event (the
"Remaining Members") the right to purchase the Interest of a Member (the
"Selling Member") upon the terms and conditions provided herein:
(i) The adjudication of any Member as bankrupt (whether
voluntary or involuntary) or the making by any Member of an assignment
for the benefit of creditors;
(ii) The making by any Member of a purported transfer of any
Interest in violation of the provisions of this Operating Agreement;
(iii) The taking of any Member's Interest by legal process or any
other involuntary transfer; or
(iv) The death, expulsion or dissolution of any Member.
Upon the occurrence of any of the Option Events, the Selling Member
or any other Member becoming aware of such occurrence shall promptly give
written notice thereof to the Manager which shall promptly notify all of the
Remaining Members.
XII.2 OPTIONS TO PURCHASE INTEREST.2 OPTIONS TO PURCHASE INTEREST.
(a) Upon the occurrence of any of the Option Events, the Company
shall have the prior right to purchase all or a portion of the Interest of the
Selling Member (the "Buyout Interest"), by giving written notice to the Selling
Member or such Selling Member's personal representative and to the Remaining
Members of its election to purchase and of the amount of the Interest it intends
to purchase, within forty-five (45) days after the Manager receives notice of
the occurrence of an Option Event as provided in Section 12.1 above. If the
Company elects to purchase less than all of the Buyout Interest, or fails to
give notice of its election to purchase within the forty-five (45) day period,
the Manager shall, as soon as possible, and in no event later than sixty (60)
days after receiving notice of the occurrence of an Option Event, give written
notice of this fact to the Remaining Members. The Manager shall be entitled to
make the election on behalf of the Company with respect to the Company's
purchase of the Buyout Interest.
(b) If the Company has elected to purchase none or less than all of
the Buyout Interest pursuant to Section 12.2(a), the Remaining Members shall
have the right to purchase all or any lesser amount of the Buyout Interest not
purchased by the Company (the "Available Interest") by giving written notice to
the Selling Member or such Selling Member's personal representative, of their
election to purchase and of the amount of the Selling Member's Interest they
intend to purchase, within thirty (30) days after receiving notice of their
option to purchase from the Manager.
If the total amount of Interest specified in the elections by the
Remaining Members exceeds the amount of the Available Interest, each electing
Remaining Member shall have the right to purchase, up to the amount of Interest
specified in such Remaining Member's notice of election, such proportion of the
Available Interest as such Remaining Member's Interest bears to the total amount
of Interests owned by all of the Remaining Members electing to purchase.
(c) In the event that the Company and the Remaining Members do not
elect to purchase all of the Buyout Interest pursuant to Section 12.2 within the
time periods in which they may do so, the Selling Member or such Selling
Member's personal representative shall not be required to accept any of the
offers made under this Article XII and may hold all of the Buyout Interest free
and clear of all of the provisions of this Article XII as to the particular
Option Event giving rise to the provisions of this Article XII.
(d) If any Interest is subject to a bona fide purchase offer and
notice of such offer has been delivered to the Manager pursuant to Section 11.1
the various option and purchase periods provided in this Article XII shall be
tolled until all of the option and transfer periods provided for in Section 11.2
shall have expired.
XII.3 PURCHASE PRICE.3 PURCHASE PRICE.
(a) The purchase price for the Buyout Interest purchased pursuant to
Section 12.2 shall be equal to the Fair Market Value of the Buyout Interest.
(b) The purchase price of any Interest purchased pursuant to Article
XII shall be paid by each purchaser either in cash or, at the option of such
purchaser, as follows:
(i) twenty-five percent (25%) within thirty (30) days of the
exercise of the option to purchase such Interest; and
(ii) the balance pursuant to a promissory note (the "Buyout
Note") providing for payment of principal in three (3) equal annual
installments, with interest on the unpaid balance at a rate of
interest per annum equal to the Base Rate in effect on the date the
Option Event occurs. The Buyout Note shall provide that prepayment of
the remaining principal balance may be made at any time without
penalty or bonus. Any prepaid sums shall be applied against the
installments thereafter falling due in inverse order of their
maturity, or against all the remaining installments equally, at the
option of the holders of the Buyout Note. The Buyout Note shall
further provide for acceleration upon default in the payment of
principal or interest when due and for the payment of all expenses,
including reasonable attorney's fees, incurred by the holder in
connection with collection on the Buyout Note. To the extent an
Interest is being purchased by a Remaining Member, payment on the
Buyout Note shall be secured only by a pledge of the Interest being
purchased (with no other recourse against the purchaser thereof),
which Interest shall be registered in the name of such Remaining
Member with a record of the pledge being made in the books and records
of the Company. As long as no default occurs in payments on the
Buyout Note, the Remaining Member pledging such Interest shall be
entitled to vote the pledged Interest. However, distributions with
respect to the pledged Interest shall be paid to the holder of the
Buyout Note as a payment on the balance thereof. Each such Remaining
Member shall expressly waive demand, notice of default, and notice of
sale and all rights of first refusal under this Operating Agreement,
and shall consent to public or private sale of the pledged Interest in
the event of default, with the Interest to be sold in one sale or in
several lots at the option of the Selling Member; provided, however,
that prior to any such sale the Company and the other Members by
assuming the defaulting Member's obligations under the Buyout Note
shall be entitled to purchase pro rata portions of the portion of the
pledged Interest which is represented by the balance due on the Buyout
Note. Notwithstanding the above, any Remaining Member and the Selling
Member, or its personal representative, may agree to such other or
different terms for the payment of the purchase price.
ARTICLE XIII
ADDITIONAL AND SUBSTITUTE MEMBERSXIII ADDITIONAL AND SUBSTITUTE
MEMBERS
XIII.1 ADMISSION OF NEW MEMBERS.1 ADMISSION OF NEW MEMBERS. From the
date of the formation of the Company, any Person may, subject to the terms and
conditions of this Operating Agreement become an Additional Member in this
Company by the sale of additional Interests. Prior to selling an additional
Interest to any Person, the Company shall first offer such Interest to all of
the Members. The Manager shall provide each Member with notice of its intent to
offer an additional Interest to one or more Persons stating the percentage
Interest to be sold and the price, terms and conditions on which the Interest is
to be sold. Each Member shall have the right to purchase all or any portion of
the additional Interest, at the price contained in the notice, by delivering a
written election to purchase to the Manager within twenty (20) days of receipt
of the notice. If the total amount of Interest specified in the Members'
elections exceeds the amount of the additional Interest, each electing Member
shall have the right to purchase, up to the amount of Interest specified in such
Member's notice of election, such proportion of the additional Interest as the
Interest of such Member bears to the total amount of Interests owned by all
Members electing to purchase. If the Members elect to purchase less than all of
the additional Interest, then the Manager may proceed with a sale of the
remaining additional Interest on the price, terms and conditions contained in
the notice given pursuant to this Section 13.1. Any sale of an Interest
pursuant to this Section 13.1 to a Member or any other Person is subject to
compliance with Section 4.4(vi).
XIII.2 ALLOCATIONS TO NEW MEMBERS.2 ALLOCATIONS TO NEW MEMBERS. No
Additional or Substitute Member shall be entitled to any retroactive allocation
of losses, income or expense deductions incurred by the Company. The Manager
may, at its option, at the time an Additional or Substitute Member is admitted,
close the Company books (as though the Company's tax year had ended) or make pro
rata allocations of loss, income and expense deductions to an Additional or
Substitute Member for that portion of the Company's Fiscal Year in which an
Additional or Substitute Member was admitted, in accordance with the provisions
of Section 706(d) of the Code and the Treasury Regulations promulgated
thereunder.
ARTICLE XIV
DISSOLUTION AND TERMINATIONXIV DISSOLUTION AND TERMINATION
XIV.1 DISSOLUTION.1 DISSOLUTION.
(a) The Company shall be dissolved only upon the occurrence of any of
the following events:
(i) when the period fixed for the duration of the Company shall
expire;
(ii) by the unanimous written agreement of all Members; or
(iii) upon the death, insanity, bankruptcy, retirement,
resignation, expulsion or dissolution of the Manager or occurrence of
any other event, except assignment of the Manager's Interest in
accordance with the terms of this Operating Agreement, that terminates
the continued membership of the Manager in the Company.
(b) Upon the occurrence of any of the events in Section 14.1(a), if
the business of the Company is continued by an affirmative vote of a majority in
interest the remaining Members within ninety (90) days of such event, then the
Company shall not be dissolved but shall be continued.
(c) As soon as possible following the occurrence of any of the events
specified in this Section 14.1 effecting the dissolution of the Company, the
Manager, or if the Company is being dissolved as a result of any event set forth
in clause 14.1(a)(iii) the appointed representative of the Company, shall file a
Certificate of Dissolution with the California Secretary of State. Upon the
filing of a Certificate of Dissolution the Company shall cease to carry on its
business, except insofar as may be necessary for the winding up of its business,
but its separate existence shall continue until a Certificate of Cancellation
has been filed with the Secretary of State or until a decree dissolving the
Company has been entered by a court of competent jurisdiction.
XIV.2 DISTRIBUTION OF ASSETS UPON DISSOLUTION.2 DISTRIBUTION OF
ASSETS UPON DISSOLUTION. In settling accounts after dissolution, the
liabilities of the Company shall be entitled to payment in the following order:
(a) those to creditors, in the order of priority as provided by law,
except those to Members of the Company on account of their Capital
Contributions; and
(b) those to Members of the Company with respect to their Capital
Accounts in accordance with Section 8.2(d).
XIV.3 CERTIFICATE OF CANCELLATION.3 CERTIFICATE OF CANCELLATION. When
all debts, liabilities and obligations have been paid and discharged or adequate
provisions have been made therefor and all of the remaining property and assets
have been distributed to the Members, a Certificate of Cancellation shall be
filed with the Secretary of State setting forth the information required by the
California Act.
XIV.4 FILING OF CERTIFICATES OF CANCELLATION.4 FILING OF
CERTIFICATES OF CANCELLATION. Upon the filing of the Certificate of
Cancellation, the existence of the Company shall cease, except for the purpose
of suits, other proceedings and appropriate action as provided in the California
Act.
XIV.5 WINDING UP.5 WINDING UP. Except as provided by law, upon
dissolution, each Member shall look solely to the assets of the Company for the
return of its Capital Contribution. If the Company property remaining after the
payment or discharge of the debts and liabilities of the Company is insufficient
to return the Capital Contribution of each Member, such Member shall have no
recourse against any other Member. The winding up of the affairs of the Company
and the distribution of its assets shall be conducted exclusively by the
Manager, who is hereby authorized to take all actions necessary to accomplish
such distribution, including without limitation, selling any Company assets the
Manager deems necessary or appropriate to sell.
ARTICLE XV
DISPUTE RESOLUTIONXV DISPUTE RESOLUTION
XV.1 ARBITRATION.1 ARBITRATION. The Company and each Member agree to
make a diligent, good faith attempt to resolve by informal negotiation all
disputes relating to or arising out of this Operating Agreement, but if they are
unable to resolve any disputes, claims or controversies arising out of or
relating to this Operating Agreement, the Interests or any alleged violation of
the terms and conditions of this Operating Agreement, within fifteen (15) days
after notice from Members holding twenty percent (20%) of the Interests
("Requesting Members") to the other Members and the Company that such dispute
may be subject to this Article XV, then, subject to Section 15.9, the Requesting
Members may submit the same to arbitration by notice given in accordance with
Section 16.1 and thereupon binding arbitration shall be the sole means of
resolving the dispute. Notwithstanding the foregoing, the Company and the
Members retain the right to apply to a court of competent jurisdiction for a
Temporary Restraining Order and other injunctive relief to preserve the status
quo or to prevent irreparable harm, provided the applicant immediately files
demand for arbitration.
XV.2 NOTICE OF ARBITRATION.2 NOTICE OF ARBITRATION. The Requesting
Members desiring to submit a dispute to arbitration shall serve notice to the
other Members and the Company (the "Arbitration Notice"), stating that the
Requesting Members desire the matter to be arbitrated, setting forth a detailed
description of the nature and subject matter of the dispute, and a statement of
the amount involved, if the dispute involves sums of money, the position on such
issues of the party requesting arbitration and the remedy sought by it, and the
name of one independent arbitrator. Within twenty (20) days after receipt of
the Arbitration Notice, the party receiving the same shall send a notice to the
Requesting Members containing (i) a detailed response to the claim, giving the
responding party's position on the matter and the remedy sought by it, if any,
and (ii) an acceptance of the arbitrator designated in the Arbitration Notice or
a designation of a second arbitrator. If the parties agree to a single
arbitrator, the arbitration shall be decided by such arbitrator, but if the
parties designate separate arbitrators, the arbitrators designated by the
parties shall designate a third arbitrator, independent of both of them and of
the parties to the dispute, within ten (10) days after the date of the notice in
response to the Arbitration Notice. If the two arbitrators cannot or do not
select a third independent arbitrator within ten (10) days of such second
notice, either party may apply to the American Arbitration Association for the
purpose of appointing any person listed with such Association as the third
independent arbitrator.
XV.3 PROCEDURE.3 PROCEDURE. A hearing shall be held by the
arbitrators and a decision of the matter submitted shall be rendered within
thirty (30) days after the hearing or as soon as practicable thereafter. If the
matter is heard by three (3) arbitrators, they shall act by the vote of a
majority if they cannot unanimously agree. The arbitration shall be conducted
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association or such other additional procedures as may be agreed upon by the
parties or determined by the arbitrators. No party may present a position or
make any argument at the hearing that is not provided to the other party in
writing before the hearing, unless the arbitrators determines that such position
or argument could not reasonably have been prepared in advance of such hearing.
In any dispute arbitrated under this Agreement, the parties shall have the right
to use any procedures for discovery provided for under the laws of the State of
California; provided, however, the arbitrators shall have the right to
disapprove or to limit any discovery that the arbitrators determines to be for
purposes of delay or otherwise unnecessarily burdensome or oppressive.
XV.4 ADDITIONAL PARTIES.4 ADDITIONAL PARTIES. Any arbitration may
include any other person substantially involved in a common question of fact or
law whose presence is required if complete relief is to be accorded in
arbitration, provided that such other person has agreed to be bound by such
arbitration.
XV.5 ENFORCEABILITY.5 ENFORCEABILITY. The decision of the
arbitrators appointed and acting as provided in this Article XV shall be final,
binding, and conclusive upon the parties and may be confirmed or embodied in any
order or judgment of any court having jurisdiction. The foregoing agreement to
arbitrate shall be specifically enforceable and the award rendered by the
arbitrators shall be final and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof.
XV.6 VENUE.6 VENUE. The venue of any arbitration pursuant to this
Article XV shall be in Sacramento, California.
XV.7 CONTINUANCE OF CONTRACT PERFORMANCE.7 CONTINUANCE OF CONTRACT
PERFORMANCE. Unless otherwise provided herein or otherwise agreed in writing,
the parties shall continue to perform under the terms and conditions of this
Agreement during the pendency of any proceeding to resolve a dispute pursuant to
this Article XV.
XV.8 COST.8 COST. The entire cost of any arbitration pursuant to
this Article XV, not including the parties' attorneys' fees, shall be allocated
by the arbitrators in the judgment of the arbitrators.
XV.9 EXCEPTION.9 EXCEPTION. The provisions of this Article XV
requiring arbitration of disputes shall not be applicable to a dispute based on
a claim asserted in an action in a state or federal court by a Person who is
under no obligation to arbitrate such claim with any party hereunder.
ARTICLE XVI
MISCELLANEOUS PROVISIONSXVI MISCELLANEOUS PROVISIONS
XVI.1 NOTICES.1 NOTICES. Any notice, demand, or communication required
or permitted to be given by any provision of this Operating Agreement shall be
deemed to have been sufficiently given or served for all purposes if delivered
personally to the party or to an executive officer of the party to whom the same
is directed or, if sent by registered or certified mail, postage and charges
prepaid, by telefacsimile or overnight delivery service, with receipt confirmed,
addressed to the party's address as it appears in the Company's records. Any
notice given in accordance with this Section 16.1 shall be deemed to be given
upon confirmed receipt or, if mailed, five business days after the date on which
the same was deposited in a regularly maintained receptacle for the deposit of
United States mail.
XVI.2 BOOKS OF ACCOUNT AND RECORDS.2 BOOKS OF ACCOUNT AND RECORDS.
Proper and complete records and books of account shall be kept or shall be
caused to be kept by the Company in which shall be entered fully and accurately
all transactions and other matters relating to the Company's business in such
detail and completeness as is customary and usual for businesses of the type
engaged in by the Company. Such books and records shall be maintained in
accordance with generally accepted accounting principles as provided in
Section 9.4. The books and records shall at all times be maintained at the
principal executive office of the Company and shall be open to the reasonable
inspection and examination of the Members or their duly authorized
representatives during reasonable business hours.
XVI.3 APPLICATION OF CALIFORNIA LAW.3 APPLICATION OF CALIFORNIA LAW.
This Operating Agreement, and the application of interpretation hereof, shall be
governed exclusively by its terms and by the laws of the State of California,
and specifically the California Act.
XVI.4 WAIVER OF ACTION FOR PARTITION.4 WAIVER OF ACTION FOR
PARTITION. Each Member irrevocably waives during the term of the Company any
right that it may have to maintain any action for partition with respect to the
property of the Company.
XVI.5 AMENDMENTS.5 AMENDMENTS. Any amendment to this Operating
Agreement may be proposed to the Members by Members holding not less than a
majority of the Interests in the Company. A vote on an amendment to this
Operating Agreement shall be taken within thirty (30) days after notice thereof
has been given to the Members unless such period is otherwise extended by
applicable laws, regulations, or agreement of the Members. A proposed amendment
shall become effective at such time as it has been approved by the Members in
accordance with Section 4.4(iii).
XVI.6 EXECUTION OF ADDITIONAL INSTRUMENTS.6 EXECUTION OF ADDITIONAL
INSTRUMENTS. Each Member hereby agrees to execute such other and further
statements of interest and holdings, designations, powers of attorney and other
instruments necessary to comply with any laws, rules or regulations.
XVI.7 CONSTRUCTION.7 CONSTRUCTION. Whenever the singular number is
used in this Operating Agreement and when required by the context, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders and vice versa.
XVI.8 HEADINGS.8 HEADINGS. Title headings in this Operating
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Operating Agreement or any provision hereof.
XVI.9 WAIVERS.9 WAIVERS. The failure of any party to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Operating Agreement shall not prevent a subsequent act, which
would have originally constituted a violation, from having the effect of an
original violation.
XVI.10 RIGHTS AND REMEDIES CUMULATIVE.10 RIGHTS AND REMEDIES
CUMULATIVE. The rights and remedies provided by this Operating Agreement are
cumulative and the use of any one right or remedy by any party shall not
preclude or waive the right to use any or all other remedies. Said rights and
remedies are given in addition to any other rights the parties may have by law,
statute, ordinance or otherwise.
XVI.11 SEVERABILITY.11 SEVERABILITY. If any provision of this
Operating Agreement or the application thereof to any person or circumstance
shall be invalid, illegal or unenforceable to any extent, the remainder of this
Operating Agreement and the application thereof shall not be affected and shall
be enforceable to the fullest extent permitted by law.
XVI.12 SUCCESSORS AND ASSIGNS.12 SUCCESSORS AND ASSIGNS. Each
and all of the covenants, terms, provisions and agreements herein contained
shall be binding upon and inure to the benefit of the parties hereto and, to the
extent permitted by this Operating Agreement, their respective successors and
assigns.
XVI.13 CREDITORS.13 CREDITORS. None of the provisions of this
Operating Agreement shall be for the benefit of or enforceable by any creditor
of the Company.
XVI.14 COUNTERPARTS.14 COUNTERPARTS. This Operating Agreement
may be executed in counterparts, each of which shall be deemed an original but
all of which shall constitute one and the same instrument.
The undersigned hereby adopt the foregoing Operating Agreement, consisting
of 34 pages, as the Operating Agreement of West Coast PCS LLC as of July 25,
1995.
ROSEVILLE PCS, INC.
By: /s/ BRIAN H. STROM
President
/s/ JON S. KELLY
JON S. KELLY
FORESTHILL TELEPHONE COMPANY
/s/ RALPH E. HOEPER
President
SCHEDULE A
Initial
Capital Initial
Contribution Percentage
Member Commitment Interest
- - ------ ------------ -----------
ROSEVILLE PCS, INC. $11,826,474 79.77%
JON S. KELLY 2,000,000 13.49
FORESTHILL TELEPHONE COMPANY 1,000,000 6.74
---------- -----
$14,826,474 100.00%
=========== =======
INITIAL CAPITAL CONTRIBUTION SCHEDULE
Each Initial Member shall become obligated to make Initial Capital
Contributions to the Company in accordance with the following schedule:
PERCENTAGE OF INITIAL
DATE CAPITAL CONTRIBUTION
- - ---- ---------------------
August 10, 1995 60.42%
June 1, 1996 39.58%
AMENDMENT NO. 1
TO
OPERATING AGREEMENT
OF
WEST COAST PCS LLC
This Amendment No. 1 to Operating Agreement of West Coast PCS LLC (this
"AMENDMENT") is made and entered into as of July 31, 1996 by and between
Roseville PCS, Inc., Jon S. Kelly ("KELLY") and Foresthill Telephone Company as
members (the "MEMBERS") of West Coast PCS LLC (the "COMPANY").
RECITALS:
A. The Members adopted an Operating Agreement of the Company dated as of
July 25, 1995 (the "OPERATING AGREEMENT") whereby each became a Member of the
Company.
B. Kelly desires to withdraw as a Member of the Company and the other
Members desire to permit him to withdraw as a Member of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals, the Members
agree as follows:
1. Effective as of the date of this Amendment, Kelly is no longer a
Member of the Company and has no further rights or obligations with respect
thereto.
2. Promptly after the execution of this Amendment, the Company shall pay
to Kelly the value of his Capital Account, adjusted as of the date hereof as if
such date were the end of the Company's Fiscal Year.
3. Schedule A to the Operating Agreement is deleted in its entirety and
replaced by Schedule A hereto.
4. Capitalized terms used but not defined herein have the meaning given
to them in the Operating Agreement.
5. Except as expressly amended by this Amendment, the Operating Agreement
remains in full force and effect. References to the Operating Agreement are
deemed to mean the Operating Agreement as amended by this Amendment.
6. The parties shall execute, acknowledge, deliver, file, record and
publish such further certificates, amendments of certificates, instruments or
documents, and do all such further acts and things, as may be required by law,
or as may reasonably be necessary or advisable to carry out the intent and
purposes of this Amendment.
7. This Amendment may be executed in counterparts, all of which when
taken together constitute one and the same instrument.
8. This Amendment is governed by and must be interpreted and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Members have executed this Amendment as of the date
first above written.
ROSEVILLE PCS, INC.
By: /s/BRIAN H. STROM
President
/s/ JON S. KELLY
JON S. KELLY
FORESTHILL TELEPHONE COMPANY
By: /s/ RALPH E. HOEPER
President
SCHEDULE A
Initial
Capital Initial
Contribution Percentage
Member Commitment Interest
- - ------ ------------ ----------
ROSEVILLE PCS, INC. $8,000,000 88.89
FORESTHILL TELEPHONE COMPANY 1,000,000 11.11
--------- ------
$9,000,000 100.00
========== ======
INITIAL CAPITAL CONTRIBUTION SCHEDULE
Each Initial Member will become obligated to make Initial Capital
Contributions to the Company in accordance with a to be agreed upon schedule.