SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-19179
CT COMMUNICATIONS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
North Carolina 56-1837282
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
68 Cabarrus Avenue, East, Concord, North Carolina 28025
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(704) 782-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
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None None
Securities registered pursuant to Section 12(g) of the Act:
CLASS B NONVOTING COMMON STOCK
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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 the voting stock held by
nonaffiliates of the Registrant: The Registrant's Voting Common
Stock is infrequently traded, and there is no established market
for such shares. However, using the sale price of $180 per share
on March 19, 1997 for the Class B Nonvoting Common Stock (the
last sale known to the Registrant) and not granting a premium for
voting rights, the aggregate market value of the Registrant's
Voting Common Stock held by Non-Affiliates is $21,716,640
(120,648 x $180).
As of February 28, 1997, the Registrant had outstanding 227,019
shares of Voting Common Stock and 1,258,180 shares of Class B
Nonvoting Stock.
CT COMMUNICATIONS, INC.
AND CONSOLIDATED SUBSIDIARIES
Form 10-K for the Fiscal Year ended December 31, 1996
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business........................................... 3
Item 2. Properties......................................... 13
Item 3. Legal Proceedings.................................. 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters................................ 15
Item 6. Selected Financial Data............................ 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 18
Item 8. Financial Statements and Supplementary Data........ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 27
PART III
Item 10. Directors and Executive Officers of the Registrant. 27
Item 10A. Section 16(a) Beneficial Ownership Reporting
Compliance......................................... 30
Item 11. Executive Compensation............................. 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................... 33
Item 13. Certain Relationships and Related Transactions..... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................ 38
PART I
ITEM 1. BUSINESS
GENERAL. CT Communications, Inc. (the "Registrant") is a
holding company providing telecommunications services and
communications systems and products through six wholly owned
subsidiaries: The Concord Telephone Company ("CTC"); CTC Long
Distance Services, Inc. ("CTC LDS"); Carolinas Personal
Communications, Inc. (doing business as "CT Wireless, Inc.")
("CPC"); CT Wireless Cable, Inc. ("CT Wireless Cable"); CT
Cellular, Inc. ("CT Cellular"); and CTC Exchange Services, Inc.
("CTC Exchange").
CTC provides local and toll telephone service and network
access services in a territory covering approximately 705 square
miles in Cabarrus, Stanly, Rowan Counties, North Carolina (the
"CTC Service Area"). CTC LDS provides long distance telephone
service to residential and business subscribers throughout the
CTC Service Area, as well as in various other markets surrounding
the CTC Service Area. CPC manages the Registrant's ongoing
efforts to develop, construct and operate a personal
communication service ("PCS") system. CPC also markets and sells
PCS services in a specified Major Trading Area ("MTA") on behalf
of BellSouth Carolinas PCS Limited Partnership (the "BellSouth
Partnership"). CT Wireless Cable holds the Registrant's interest
in Wireless One of North Carolina, LLC ("WONC"), a limited
liability company formed to provide wireless cable television
service in North Carolina. Similarly, CT Cellular holds the
Registrant's general partnership interests in certain
partnerships that provide cellular mobile telephone services in
two North Carolina Rural Service Areas ("RSAs"). Finally, upon
receipt of certain required state certifications, CTC Exchange
will compete as a local telephone service provider in small to
medium-sized markets beyond the CTC Service Area.
The Registrant is incorporated under the laws of North
Carolina and was organized in 1993 pursuant to the corporate
reorganization of CTC into a holding company structure. Pursuant
to the reorganization, CTC and CTC LDS each became a direct,
wholly owned subsidiary of the Registrant. CT Cellular was
organized as a wholly owned subsidiary of the Registrant in 1994,
while CPC and CT Wireless Cable were both organized as wholly
owned subsidiaries of the Registrant in 1995. CTC Exchange was
organized as a wholly owned subsidiary of the Registrant on
January 23, 1997.
At December 31, 1996, the Registrant and its subsidiaries
had total consolidated assets of $115,063,963 and had
approximately 370 employees. The Registrant has its principal
executive offices at 68 Cabarrus Avenue East, Concord, North
Carolina 28205 (telephone number: 704-782-7000).
LEGISLATIVE AND REGULATORY DEVELOPMENTS. The Registrant's
business continued to undergo significant changes during 1996.
These changes are primarily the result of the Registrant's
efforts to take advantage of fundamental statutory, regulatory
and technological developments currently taking place in the
telecommunications industry.
THE TELECOMMUNICATIONS ACT OF 1996. The Telecommunications
Act of 1996 (the "Telecom Act") was enacted on February 8, 1996.
The Telecom Act mandates significant changes in existing
regulation of the telecommunications industry to promote
competitive development of new service offerings, to expand
public availability of telecommunications services and to
streamline regulation of the industry.
The Telecom Act provides that implementing its legislative
objectives will be the task of the FCC, the state public
utilities commissions and a federal-state joint board. The FCC
released a tentative implementation schedule on February 12,
1996. Much of this implementation must be completed in numerous
virtually simultaneous proceedings with 6 to 18 month deadlines.
These proceedings address issues and proposals already before the
FCC in pending rulemaking proceedings affecting the wireless
industry as well as additional areas of telecommunications
regulation not previously addressed by the FCC and the states.
The primary purpose and effect of the new law is to open all
telecommunications markets to competition--including local
telephone service. The Telecom Act makes all state and local
barriers to competition unlawful, whether they are direct or
indirect. It directs the FCC to hold notice and comment
proceedings and to preempt all inconsistent state and local laws
and regulations.
Each state retains the power to impose "competitively
neutral" requirements that are both consistent with the Telecom
Act's universal service provision and necessary for universal
service, public safety and welfare, continued service quality and
consumer rights. While a state may not impose requirements that
effectively function as barriers to entry or create a competitive
disadvantage, the scope of state authority to maintain existing
or adopt new requirements under this section is not clearly
spelled out. In addition, before it preempts a state or local
requirement as violating the entry barrier prohibition, the FCC
must hold a notice and comment proceeding.
The FCC is required to forbear from applying any statutory
or regulatory provision that is not necessary to keep
telecommunications rates and terms reasonable or to protect
consumers. A state may not apply a statutory or regulatory
provision that the FCC decides to forbear from applying. In
addition, the FCC must review its telecommunications regulations
every two years and repeal or modify any that it deems no longer
necessary in the public interest.
The Telecom Act establishes a general duty of all
telecommunications carriers to interconnect with other carriers.
Congress has also developed a detailed list of requirements with
respect to the interconnection obligations of local exchange
carriers ("LECs"). These interconnection obligations include
resale, number portability, dialing parity, access to
rights-of-way and reciprocal compensation.
LECs designated "incumbents" have additional obligations: to
negotiate in good faith; to interconnect on terms that are
reasonable and non-discriminatory; to provide non-discriminatory
access to "facilities, equipment, features, functions and
capabilities" on an unbundled basis so that they can be combined
in a manner that a requesting telecommunications carrier sees
fit; to offer for resale at wholesale rates any service that LECs
provide on a retail basis and not subject to unreasonable or
discriminatory conditions; and to provide actual collocation of
equipment necessary for interconnection or access.
The Telecom Act establishes a framework for state
commissions to mediate and arbitrate negotiations between
incumbent LECs and carriers requesting interconnection, services
or network elements. The Telecom Act establishes deadlines,
policy guidelines for state commission decision making and
recourse to the FCC in the event a state commission fails to act.
In addition to opening up local exchange markets, the
Telecom Act contains provisions for (i) updating and expanding
telecommunications service guarantees, (ii) removing certain
restrictions relating to AT&T former operating companies
resulting from the antitrust consent decree issued by the federal
courts in 1984, (iii) the entry of telephone companies into video
services, (iv) the entry of cable television operators into other
telecommunications industries, (v) changes in the rules for
ownership of broadcasting and cable television operations, and
(vi) changes in the regulations governing cable television.
On August 8, 1996, the FCC adopted a number of
interconnection obligations that require LECs to provide physical
or virtual collocation of equipment necessary for
interconnection, as well as a technically feasible method of
interconnection requested by a competitive telephone service
provider. LECs are also obligated to enter into reciprocal
cost-based compensation arrangements with competitive service
providers for the transport and termination of "local" traffic.
If the LEC refuses to enter into such an agreement with a
competitor, the competitor may require the state government to
serve as an arbitrator. The FCC also adopted specific
methodologies to determine resale discounts and pricing for
unbundled network elements in transactions between incumbent LECs
and competing service providers.
The FCC's new interconnection rules are currently being
challenged in court by several LECs and state regulatory
authorities, and the outcome of those appeals cannot be
predicted.
Although certain interpretive issues under the Telecom Act
have not yet been resolved, it is already apparent that the
requirements of the Telecom Act will lead to increased
competition among providers of local telecommunications services
and will simplify the process of switching from incumbent local
exchange carrier services to those offered by competitive access
providers and competitive local exchange carriers. In light of
the foregoing, the Registrant continued its efforts in 1996 not
only to improve its competitive position in the local telephone
service business, but also to take advantage of opportunities
that are developing in connection with other newly emerging
telecommunications technologies.
THE CONCORD TELEPHONE COMPANY
GENERAL. CTC, the Registrant's principal subsidiary, was
originally organized in 1897 and provides local telephone and
intraLATA (Local Access and Transport Area) toll service, access
service to other carriers, as well as telephone and
equipment sales and leasing to customers who are primarily
residents of Cabarrus, Stanly and Rowan counties in North
Carolina. As of December 31, 1996, CTC served 96,547 access
lines within its Service Area. This figure represents a 5.4%
increase from December, 31, 1995.
To support the ongoing growth in the CTC Service Area, CTC
invested more than $11.3 million in circuit and switching
technology and expanded the total fiber network in 1996 to more
than 8,100 fiber miles. In addition, CTC adopted
state-of-the-art Nortel DMS digital switching equipment as its
next generation switching platform, with initial implementation
to begin in mid- 1997 and continue for approximately five years.
CTC is empowered by provisions of the North Carolina Public
Utilities Law and its Restated Articles of Incorporation to
construct and maintain its lines and is authorized by the North
Carolina Utilities Commission to operate the territory which CTC
now serves. In addition, CTC has municipal franchises for
constructing and maintaining its lines in the Cities of Concord,
Albemarle, China Grove, Landis, Mt. Pleasant, Harrisburg, New
London, Badin and Oakboro.
During 1996, CTC continued to enhance its services for
residential and business customers. These improvements included
the introduction of "Caller ID" for effective screening of
in-coming calls, expansion of voice mail options, including
community or broadcast voice mail, creation of CTC's own branded
paging service and planning for an enhanced next generation
billing system, which is expected to be fully implemented during
1997 to support new services.
REQUEST FOR NEW RATE PLAN. On November 1, 1996, CTC filed a
price regulation plan (the "Plan") with the North Carolina
Utilities Commission ("NCUC") seeking permission to become
regulated based on prices rather than traditional rate base rate
of return regulation. This Plan would expand the area in which
customers can call without paying long distance charges by
including all of CTC's exchanges in its toll-free area. The Plan
also proposes to expand CTC's metro area. Under the Plan, the
metro area, which already includes Charlotte, would be expanded
to include Matthews, Huntersville, Davidson and other surrounding
communities. The Plan proposes to offer customers 30 minutes of
free calling each month in the metro area. Furthermore, metro
calling rates would be simplified under the Plan, with calling
plans tailored to meet individual needs. Customers would be able
to select a predetermined number of minutes for a flat monthly
rate based on their needs and purchase additional minutes for as
little as $.07 each. For very heavy callers, CTC proposes to
offer unlimited metro calling packages for residential customers
only. In addition to the foregoing, the Plan proposes to
eliminate the separate charge for touch-tone calling and to
reduce charges for long-distance calls into a broader calling
zone that extends into Western North Carolina.
Under the new rate structure proposed in the Plan, CTC's
residential customers, except those in the Harrisburg exchange,
would pay $10.50 per month for basic local service, including
touch-calling. Harrisburg customers would pay a slightly higher
charge of $12.00 per month, because these customers would be able
to call more customers under that community's basic plan. Under
the current rate structure, CTC's residential customers pay
approximately $7.00 per month for basic local service, plus a
separate charge of $.50 per month for touch-calling. Although
the rate structure set forth in the Plan reflect an increase for
basic service, other changes in the Plan will offset these
increases for many customers and would initially reduce the
Registrant's revenues by approximately $696,000 per year.
A driving force behind the Registrant's new rate plan is
customer demand for expanded calling options to areas beyond
their home communities. Recent legislative developments are
helping to make it possible for the Registrant to meet this type
of customer demand. During 1995, the North Carolina General
Assembly passed H.B. 161, "An Act to Provide the Public with
Access to Low- Cost Telecommunication Service in a Changing
Competitive Environment" (the "NC Act"). Under this new
legislation which officially took effect in July 1996, telephone
companies are given greater flexibility in setting their price
structures, which is a key element in the Registrant's ability to
offer expanded services. In exchange for greater flexibility in
setting prices, however, local telephone companies must agree to
open their markets to competition for local dial tone service --
the last area of telecommunications services to be deregulated.
Although the Plan will require that CTC open its markets to
competition for local dial-tone services, management believes CTC
can compete in emerging markets by rebalancing rates and still
sustain local rates that are affordable. A public hearing was
held in Concord by the NCUC in March 1997, and a final ruling on
the Plan by the NCUC is expected in June 1997. There can be no
assurance that the NCUC will approve the Plan as proposed.
PRESENT SCHEME OF REGULATION. If the Plan is rejected by
the NCUC, CTC will continue to be regulated according to a
traditional rate base rate of return scheme of regulation as a
Rural Telephone Company as defined in the Telecom Act and the NC
Act.
The Registrant qualifies as a Rural Telephone Company under
the Telecom Act on two separate grounds (either one of which, by
itself, would be adequate to qualify as a Rural Telephone
Company). First, the Registrant provides telephone exchange
service to an "LEC study area" with fewer than 100,000 access
lines. Second, less than 15% of the Registrant's access lines
were in communities of more than 50,000 on the date of enactment
of the Telecom Act.
The Telecom Act recognizes that Rural Telephone Companies
and telephone companies serving less than 2% of the nation's
access lines (a "2% Company") may have difficulty implementing
certain aspects of the Telecom Act. As a result, the Telecom Act
provides the state regulatory commissions, such as the NCUC, with
the ability to exempt, suspend or modify implementation
requirements if such requirements are either technically or
economically infeasible. CTC qualifies as both a Rural Telephone
Company and a 2% Company.
As of the date hereof, CTC has not received a bonafide
request for interconnection from any competitive local exchange
company. Accordingly, CTC has not had a reason to request an
exemption, suspension or modification of any of the Telecom Act's
requirements from the NCUC.
The NC Act permits the NCUC to allow telecommunication
providers to compete with local telephone companies with more
than 200,000 access lines. This provision affects areas which
account for about 90% of all access lines within the state. It
also allows these larger companies to elect alternative forms of
regulation, including "price regulation," which is based on
prices rather than earnings.
Under the NC Act, smaller companies, with fewer than 200,000
access lines, including CTC, are allowed to choose whether they
want to be regulated by their prices instead of their earnings.
If these smaller LECs choose price regulation, other
telecommunication providers will be allowed to compete in the
smaller companies' local service areas. However, if such smaller
companies elect alternative forms of regulation, other than price
regulation, they could retain their regulated monopoly. As
discussed above, CTC is proposing to be regulated according to
its prices and thereby open the CTC Service Area to local
telephone service competition pursuant to CTC's currently pending
proposed rate plan.
The NC Act and the Telecom Act both operate to promote
greater competition among vendors of local telephone service.
Because regulations have not yet been adopted to implement the
provisions of the Telecom Act, it is too early to fully
understand the relationship between the state and Federal
statutes. Nevertheless, the NCUC acknowledges that the NC Act's
protection of telephone companies with fewer than 200,000 access
lines may be preempted by the Telecom Act, such that the State
would be prohibited from providing any type of regulated monopoly
protection to a local carrier who does not qualify as a Rural
Telephone Company under the Telecom Act. Nevertheless, the
Registrant has been advised by legal counsel that a company's
status as a Rural Telephone Company under the Telecom Act is
determined as of the effective date of such Act, and that the
Registrant's status as a Rural Telephone Company is therefore not
in jeopardy at this time.
COMPETITION. As CTC faces increased competition in the
local telephone service market, CTC's principal methods of
competition include its ability to provide a secure and reliable
network, high quality customer service, robust product and
service lines, simple pricing plans and wide calling areas, as
well as its long-term knowledge of and reputation within the CTC
Service Area.
CTC accounted for approximately 90.3% of the Registrant's
operating revenues and approximately 98.6% of the Registrant's
operating profit in 1996. Despite the anticipated growth of
other products offered by the Registrant, as described below, the
Registrant anticipates that CTC will continue to account for a
significant portion of the Registrant's earnings in the coming
year.
CTC LONG DISTANCE SERVICES, INC.
Organized in 1992, CTC LDS is engaged in the business of
purchasing long distance capacity in bulk from interexchange
carriers and reselling it to subscribers on a discounted retail
basis.
On April 3, 1993, CTC offered its customers equal access to
the interexchange (long distance) carriers who elected to market
their services in the CTC Service Area. This enables customers
to preselect their carrier and to use this carrier by dialing 1.
CTC LDS received the largest number of selections in the
balloting process and has retained over 60% of CTC's customers.
However, these customers are the smaller toll users, and CTC LDS
only bills 25% of the total originating minutes of long distance used by
customers in the CTC Service Area. CTC LDS is actively seeking
new methods to increase its market share and make new products
available to its customers including expanding service outside
its traditional service area. CTC LDS was successful in these
efforts in 1996, as it added more than 7,000 new customers for a
total of 62,223. Management expects the easy-to-understand,
competitively-priced, long-distance plans offered by CTC LDS will
continue to attract new customers to CTC LDS in 1997. During
1996, CTC LDS successfully introduced the new CTC Calling Card,
which the Registrant believes will enhance CTC LDS's ongoing
efforts to market and sell long distance services.
During 1996, CTC LDS purchased and installed a Nortel DMS
500 switch at a cost of $2.2 million. This switch is located in
the downtown area of Charlotte and its purchase is indicative of
the Registrant's commitment to increase market presence by
offering services outside of its traditional market area. The
addition of the Nortel DMS 500 switch makes CTC LDS a facilities
based interexchange carrier in North Carolina.
At the end of 1996, the CTC LDS had applied for
certification to market long distance telephone service in the
surrounding states of South Carolina, Georgia, Tennessee and
Virginia. To date, CTC LDS has received approval to market long
distance services in South Carolina and Virginia. It is
expected that the Registrant will begin marketing long distance
services in the above mentioned states during 1997, including
Georgia and Tennessee upon approval.
The Telecom Act is not expected to have an immediate impact
on CTC LDS since it addresses competition in the local service
area of operations. In the future, however, an interexchange
carrier or a Regional Bell Operating Company may be able to offer
long distance service to CTC LDS customers. This effectively
exposes the long distance service to additional competitive
pressures. CTC LDS' principal methods of responding to
competitive pressures in the long distance telephone service
market include its ability to maintain aggressive marketing
initiatives and its ability to provide simple pricing plans, high
quality customer service, robust product and service lines, easy
to understand pricing and accurate billing systems.
CTC EXCHANGE SERVICES, INC.
The Registrant's newest subsidiary, CTC Exchange Services,
was organized on January 23, 1997 and is expected to begin
operations later in 1997 upon receipt of certain NCUC approvals.
This new business unit was created to enable CTC to offer local
telephone service to markets beyond the CTC Service Area. If
granted regulatory approval, the new company will target small to
medium-sized markets in the Carolinas and other contiguous states
for expansion of local telephone service.
CT CELLULAR
CT Cellular's principal operations consist of owning two
general partnership interests in partnerships providing cellular
mobile telephone services. CT Cellular owns 24.5% of Rural
Service Area ("RSA") 4/5, with Ellerbe Telephone and Alltel
Mobile owning the remainder. RSA 4/5 is comprised of Anson,
Lincoln, Montgomery and Richmond Counties in North Carolina. CT
Cellular also owns 50% of RSA 15, with Alltel Mobile owning the
remainder. RSA 15 is comprised of Cabarrus, Stanly and parts of
Iredell and Rowan Counties in North Carolina. The initial
construction of the cellular mobile telephone systems was completed
and became operational in 1991. Growth in cellular mobile services
has been good, but it is expected that competition from the PCS
technology (see below) may slow this growth. During 1996, RSA 15
experienced growth in customers and revenues. RSA 4/5, however,
experienced slower growth in its operations, which was expected
given the more rural nature of the area it serves. Both partnerships
were profitable in 1996. RSA 4/5 returned profits for the second
consecutive year during 1996.
CAROLINAS PERSONAL COMMUNICATIONS, INC.
In 1994, the Registrant purchased a limited partnership
interest in BellSouth Carolinas PCS Limited Partnership. The
BellSouth Partnership's business is to acquire a license, design,
develop, construct and operate a personal communication system in
a specified Major Trading Area ("MTA") and to market and provide
personal communication service ("PCS") services in the MTA. The
Registrant's ownership in the BellSouth Partnership is 1.95%.
PCS is a digital wireless telecommunications service. New
PCS devices incorporate various communications methods in a
single device, including voice, data interface and paging. With
PCS, a user will be able to customize their telecommunications
service to best suit their particular requirements.
The cost of this new service to the customer is expected to
be competitive with cellular technology. However, like cellular
telephone service, capital requirements will be substantial and
aggressive marketing will be needed.
On March 31, 1995, the BellSouth Partnership received a 30
Mhz PCS license from the FCC covering North Carolina and South
Carolina (MTA 006). AT&T Wireless purchased a second 30 Mhz PCS
license for the same MTA in the March 1995 FCC auction. It is
anticipated that AT&T Wireless will begin offering PCS services
in major markets, including MTA 006, during 1997. In addition,
the FCC has continued to auction licenses for PCS services
through 1996. This continued sale of spectrum to additional PCS
providers, combined with competition from cellular providers,
could result in competition from up to six wireless competitors
in a particular market. In the face of such competitive
pressures, CPC's principal methods of competition will include
its ability to provide high quality technology and service,
competitive pricing, as well as CPC's ability to capitalize on
the strength of customers' loyalty to other well-known partners
in the BellSouth Partnership, such as BellSouth, Duke Power and
Carolina Power and Light.
Funding of the BellSouth Partnership's operations began in
the second quarter of 1995, and during 1995 the Registrant
invested approximately $4.9 million in the BellSouth Partnership.
During 1996, the Registrant invested an additional $2.8 million
in this venture. Its 1997 commitments are approximately $1.3
million and its 1998 commitments are approximately $400,000. As
a limited partner, the Registrant's investment includes the
Registrant's pro rata share of the license fee and expenditures
to construct the system. Construction of towers and transmitters
began during 1996, and PCS service was first offered to the
public in July 1996. The Registrant experienced losses in 1996
of $1.8 million due to expected start-up costs. Losses
associated with such start-up costs are currently projected to
continue through 2001. Such projections are based on estimates
of how long it will take to attract enough customers to cover
start-up and operating expenses associated with the PCS network.
Notwithstanding such losses, the Registrant believes the
long-term outlook for PCS is positive.
Once the Local Access Transport Area ("LATA") restrictions
are lifted from the BellSouth Partnership, which is expected to
occur in the first quarter of fiscal 1998, each telephone company
limited partner in the Partnership has the option to partition
its pre-defined service area. The Registrant's service area
consists of Cabarrus, Stanly, Rowan and parts of Iredell Counties
in North Carolina (the "PCS Service Area"). Partitioning will
involve CTC (the current holder of the partition option)
purchasing the license for the PCS Service Area and any assets in
place within that area at a purchase price expected to be between
$8 million and $12 million, payable in full on the date of partition.
Following partition, CPC would operate as a stand- alone provider
of PCS products and services within the PCS Service Area. CTC
will be required to make its election as to whether or not to
partition the PCS Service Area by the end of 1997. At the time
of partitioning, CPC's PCS network will be substantially built
out throughout the PCS Service Area.
FCC regulations would prohibit the Registrant from holding a
PCS license in the partitioned area while concurrently holding a
general partnership interest in the RSA 15 Cellular Partnership
through CT Cellular. Accordingly, if the Registrant decides to
partition its interest in the BellSouth Partnership, the
Registrant will at such time eliminate its general partnership
interest in the RSA 15 Cellular Partnership by means of a spin-
off, sale or merge-and-dilute transaction or otherwise.
During 1996, CPC opened retail outlets to sell PCS phones in
Concord and Statesville, and a third store began operations in
Salisbury, North Carolina during the first quarter of 1997.
These new phones are also being marketed and sold through CTC's
offices.
CT WIRELESS CABLE, INC.
On October 9, 1995, the Registrant organized CT Wireless as
a wholly owned subsidiary to participate in the Wireless Cable TV
market in North Carolina. CT Wireless owns 48% of Wireless One
of North Carolina L.L.C. ("WONC"). WONC was formed to develop
and launch wireless cable systems in North Carolina. In October
1995, WONC entered into contracts with approximately 45 community
colleges in North Carolina for leases which were filed by the
schools with the FCC pertaining to certain educational channel rights
within North Carolina. WONC later participated as a bidder in the Multi
Channel Multiport Distribution Service ("MMDS") auction in 1996,
and was awarded MMDS channels in several markets throughout North
Carolina.
During January 1997, WONC and the University of North Carolina
("UNC") Center for Public Television entered into a contract granting
WONC the exclusive rights to lease UNC's 40 granted channel frequencies,
as well as frequencies to be granted pursuant to UNC's pending applications
with the FCC (the "UNC Lease Agreement"). In consideration for
the UNC channel leasing rights, WONC paid UNC $2.5 million upon
execution of the UNC Lease Agreement, as well as a $500,000
advance on future royalty payments to be paid to UNC. Royalty
payments are based on fees developed for the various markets
served and applied to subscriber counts. The UNC Lease Agreement
is a key component of WONC's efforts to implement
a statewide system of wireless cable television programming, and
this contract improves WONC's competitive position in the North
Carolina wireless cable television market. Wireless One, Inc.
has estimated that the channel frequencies represented by all of the
channel rights controlled by WONC, including the UNC channel rights,
enable WONC to reach a total of 2 million line of
site households in 11 markets throughout North Carolina.
Wireless cable uses microwave technology to deliver line of
sight transmission from a central broadcast tower to a receiver
at the customer's premise. It is expected to be a lower cost
competitor to traditional hardwired cable systems. With respect
to direct broadcast satellite services that are currently being
marketed to consumers, wireless cable with digitalization will
offer a comparable number of channels and digital audio and
picture quality, and will also have the advantage of offering
local programming. There can be no assurance, however, that
consumers will choose to subscribe for wireless cable service
instead of hardwired cable or direct broadcast satellite
television services.
Contingent on FCC approval, WONC could begin construction of
wireless cable systems in late 1997, with the first systems
expected to be in operation during the first half of 1998.
Complete build out of the system is expected to take five years
or longer. The Registrant's capital requirements in 1996 in
connection with its WONC investment were $1.4 million.
Additional capital requirements associated with the WONC network
are expected to be between $3 million and $5 million in 1997.
RECENT INVESTMENTS
US TELECOM HOLDINGS. CTC is indirectly participating in the
growth in international demand for telecommunications services
through its investment in US Telecom Holdings. US Telecom has
interests in local telephone operations in Hungary and a local
operation license in the Czech Republic. US Telecom recently
expanded into Mexico, as described below, and also owns and
operates a software development company, TELEMAX-U.
Early in 1997, a US Telecom joint venture with a
Mexican-based company, Grupo Radio, was granted the first
telecommunications license that will lead to the creation of a
new competitive telecommunications company in Mexico. This new
venture will provide domestic and international long-distance
services, as well as local telephone services in 111 communities
representing approximately 25 percent of Mexico's population,
border to border along the Gulf coast and Mexico City.
In providing telecommunications services in Mexico, the new
joint venture company -- Amaritel -- will use a wide spectrum of
technology, ranging from wireless to wired fiber distribution
networks. Build-out of the system is expected to exceed
1,000,000 lines over a ten-year period.
There are no ongoing capital requirements associated with
the Registrant's investment in US Telecom, and the Registrant
does not expect its investment in US Telecom to have a material
impact on the Registrant's revenues in 1997.
ITEM 2. PROPERTIES
The properties of the Registrant consist of land, buildings,
central office equipment, exchange and toll switches, data
transmission equipment, underground conduits and cable, aerial
cable, poles, wires, telephone instruments, and other equipment.
The Registrant's principal operations are conducted in a building
owned by the Registrant at 68 Cabarrus Avenue East, Concord,
North Carolina 28025. This headquarters facility was built in
1956 and expanded in 1967. More recently, in 1991 the Registrant
made substantial interior renovations to the Cabarrus Avenue
facility. This headquarters building has approximately 53,000
square feet of floor space.
The Registrant's general warehouse is also owned by the
Registrant and is located in Concord. This facility was
completely renovated in 1991 and has approximately 12,300 square
feet of floor space. The Registrant has enlarged its warehouse
storage facilities by the addition of approximately 9,760 square
feet of warehouse space in 1995. Approximately 3,800 square feet
of warehouse space that was renovated in 1995 is currently
occupied by the Registrant's outside plant engineering group.
During 1994, the Registrant acquired 14.7 acres of property
north of Concord adjoining Interstate 85 for use as a future
campus-style business office center. The Registrant purchased an
additional acre of property at this site during 1996. The first
of several buildings to be constructed at this site was completed
in the fourth quarter of fiscal 1996. This new building is
currently occupied by the Registrant's customer service personnel
and has approximately 12,000 square feet of floor space (the
"Customer Care Center"). There is significant room on this
property for construction of additional facilities as needed in
the future.
In addition, during 1996, the Registrant renovated
approximately 3,000 square feet of owned office space in
Kannapolis, North Carolina. The CTC LDS telemarketing group moved into
this newly-renovated space during the fourth quarter of 1996.
Both the addition of the Customer Care Center and the relocation
of the CTC LDS telemarketing group to the Kannapolis office have freed up
additional office space at the Cabarrus Avenue headquarters
facility.
In the three years ended December 31, 1996, the Registrant
has acquired property and built remote switching units in its
exchange areas. During 1996, the Registrant installed a new
Nortel DMS 500 digital switch in downtown Charlotte, North
Carolina at a cost of $2.2 million. The new switch was placed in
service in October 1996, and is intended to expand the array of
service offerings available from CTC LDS and reduce CTC LDS's
monthly operating expenses. All of the Registrant's central office
switching equipment is digital. Beginning in mid-1997,
the Registrant will begin the process of replacing CTC's digital
switching platform by changing from AG switches to
state-of-the-art Nortel DMS switches. This replacement process
is expected to last approximately five years. The Registrant
also plans in 1997 to replace the DOTS operator workstations used
by CTC with TOPS workstations from Nortel.
In connection with CPC's operations as a partner in the
BellSouth Partnership and the launch of the Partnership's PCS
network in the third quarter of 1996, the Registrant entered into
two real property leases in 1996 for space to house CPC's retail
outlets in Concord and Statesville, North Carolina. The
Registrant plans to lease space for a third retail outlet in
Salisbury, North Carolina during 1997. The Concord and
Statesville leases are for terms of five years and three years,
respectively, with annual rent obligations of $28,344 in Concord
and $14,112 in Statesville.
As of December 31, 1996, 32% of the Registrant's telephone
plant in service was represented by land, buildings and general
equipment; 22% by central office equipment; and 46% by wires,
cables, conduits, poles and related equipment. The connecting
lines, poles, wires, cables and conduits and related equipment
referred to above are located on streets and public highways
owned by persons other than the Registrant, pursuant to consents
of various governmental bodies or to leases, permits, easements,
agreements, or licenses, express or implied through use without
objection by the owners.
In addition to the foregoing, the Registrant uses 122 motor
vehicles in its operations.
During 1996, a portion of the Registrant's physical property
was subject to a certain Indenture of Mortgage and Deed of Trust
dated August 1, 1958, as supplemented and amended, securing the
Registrant's First Mortgage Bonds, of which $1,440,000 principal
amount, including current maturities of $1,440,000 were
outstanding as of December 31, 1996. This debt was retired March
1, 1997 and the related liens were released.
ITEM 3. LEGAL PROCEEDINGS
In December 1992, the Registrant was notified that it was a
potentially responsible party ("PRP") by the Environmental
Protection Agency ("EPA") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") in the
groundwater contamination at the Bypass 601 Groundwater
Contamination Superfund Site (the "Site") in Concord, North
Carolina. Previous investigations indicated that the Martin
Scrap Recycling ("MSR") facility, which operated as a battery
salvage and recycling facility from approximately 1966 to 1986,
is one of the major sources of contamination. The MSR facility
dealt in the recovery of scrap metal (mostly lead) which was
recovered from scrap vehicle batteries. The Registrant was named
by the EPA as a PRP because it disposed old batteries and cable
at the MSR facility.
The Registrant, along with approximately 70 other companies,
has entered into a Consent Decree with the United States to clean
up the Site. The companies also have agreed to reimburse the
EPA for approximately $4 million in costs that have been incurred
thus far at the Site.
The EPA's original preferred remedy included stabilization
of lead- contaminated soils and extraction and treatment of
contaminated groundwater. The remedy was estimated to cost
approximately $40 million and should take at least 10 years to
complete. Recent data indicate that a modification to the remedy
is necessary because groundwater contamination does not appear to
be as extensive as previously thought. The EPA has proposed to
modify the preferred remedy to eliminate groundwater extraction
and to alter the soil remedy, but no final action has been taken.
If the proposed changes are finalized, the total estimated cost
of this remedy will be reduced to less than $20 million.
The EPA has agreed to pay approximately 30% of the cleanup
costs, up to a maximum of $10 million, out of the federal
"Superfund." Also, the federal government contributed another
$4.75 million, reflecting the amount of batteries it sent to the
Site. Therefore, if the proposed modification is finalized and
the EPA's estimate of cleanup costs is correct, the remaining
cleanup costs to be borne by the companies that signed the
Consent Decree would be approximately $15 million.
The companies that entered into the Consent Decree have
formed a group (the "PRP Group") to implement the remedy. The
PRP Group has filed civil actions for contribution against more
than 100 other parties that allegedly arranged to send
lead-bearing materials to the site. That litigation is at a
preliminary stage.
The PRP Group has decided to allocate the remaining costs of
the cleanup among its members primarily in proportion to their
respective contributions of batteries to the Site. According to
the EPA's records, the Registrant sent a total of 446,412 pounds
of batteries, wire and other waste material to the Site.
Therefore, the Registrant's "nominal" share -- the portion it
would pay if every member pays its full amount -- is 0.405%.
Based on the estimated costs outlined above, the Registrant's
nominal share would be $60,750.00. A number of members are not
financially strong enough to pay their nominal shares, however.
The PRP Group anticipates that the amounts to be paid by those
members that are financially able to pay may exceed their nominal
shares by two or three times. The amount that the Registrant
will ultimately be required to pay to extinguish its liability in
connection with the Site is undeterminable.
Except as set forth above, the Registrant is not aware of
any pending or threatened material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Both the Voting Common Stock and the Class B Nonvoting
Common Stock (the "Class B Stock") of the Registrant trade
principally in local transactions without the benefit of an
established public trading market. The heirs of L.D. Coltrane,
Sr., the founder of the Company, collectively hold a controlling
interest in the Voting Common Stock.
On April 25, 1996, the Board of Directors of the Registrant
declared a stock split in the form of a two-for-one stock
dividend payable May 30, 1996 to holders of record on May 3,
1996. All stock related figures set forth herein have been
retroactively restated to reflect this change.
Although there is no established trading market for the
shares, a Charlotte-based brokerage firm is currently making a
market as shares of the Registrant's Class B Stock are offered
for sale. During 1996, a known range of selling prices was $107
to $170 per share. The Registrant is aware of a sale by an
individual on March 19, 1997 of 200 shares of Class B Stock at
$180 per share.
Dividends per share were declared quarterly and paid on both
Voting Common Stock and Class B Stock for the two previous years
as follows:
1996 1995
QUARTER DIVIDEND DIVIDEND
------- -------- --------
First $0.68 $0.67
Second 0.70 0.67
Third 0.70 0.68
Fourth 0.70 0.68
----- -----
$2.78 $2.70
===== =====
The approximate numbers of holders of each class of common
equity of the Registrant as of February 28, 1997, are as follows:
TITLE OF CLASS OF STOCK NUMBER OF RECORD HOLDERS
------------------------------ ------------------------
Voting Common Stock 278
Class B Nonvoting Common Stock 1172
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
Condensed Statements of Income:
Operating revenues $ 67,054,006 $ 60,417,351 $ 55,129,895
Operating expenses 51,349,967 43,201,065 43,760,298
------------ ------------ ------------
Net Operating
Revenue 15,704,039 17,216,286 11,369,597
Other income 1,341,053 2,561,081 1,663,687
Income taxes (6,583,671) (6,760,624) (4,688,936)
------------ ------------ ------------
Net income 10,461,421 13,016,743 8,344,348
Dividends on
preferred stock 92,535 93,135 93,948
------------ ------------ ------------
Earnings for
common stock $ 10,368,886 $ 12,923,608 $ 8,250,400
============ ============ ============
Common Stock Data: (1)
Shares of common stock
Year end 1,485,376 1,483,020 1,475,787
Weighted average 1,484,789 1,478,922 1,475,523
Per share of common stock
Earnings $ 6.98 $ 8.74 $ 5.59
Dividends $ 2.78 $ 2.70 $ 2.64
Book value - year end $ 53.83 $ 50.29 $ 43.68
Total Assets $115,063,963 $107,765,477 $ 99,886,639
Long-Term Debt
(excluding
current maturities) $ 2,014,000 $ 4,074,000 $ 4,714,000
Redeemable Preferred
Stock with
Sinking Fund
Requirements $ 162,500 $ 175,000 $ 187,500
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992
------------- ------------
Condensed Statements of Income:
Operating revenues $ 43,875,543 $ 40,150,097
Operating expenses 31,811,372 28,220,231
------------- ------------
Income before
other income 12,064,171 11,929,866
Other income 176,919 165,705
Operating taxes (4,282,180) (4,355,470)
------------- ------------
Net income 7,958,910 7,740,101
Dividends on
preferred stock 93,562 95,335
------------- ------------
Earnings for
common stock $ 7,865,348 $ 7,644,766
============ ============
Common Stock Data: (1)
Shares of common stock
Year end 1,476,263 1,476,037
Weighted average 1,476,120 1,475,721
Per share of common stock
Earnings $ 5.33 $ 5.18
Dividends $ 2.59 $ 2.50
Book value - year end $ 40.37 $ 37.61
Total Assets $ 91,938,360 $ 87,171,323
Long-Term Debt
(excluding
current maturities) $ 6,331,000 $ 6,469,000
Redeemable Preferred
Stock with
Sinking Fund
Requirements $ 200,000 $ 212,500
(1) Per share data is based on the weighted average number of
shares outstanding (including both Voting Common Stock and Class
B Stock) during the respective periods after giving retroactive
effect to the 25% stock distributions granted July 1, 1992 and on
September 1, 1994 and the 2 for 1 split May 3, 1996. Dividends
declared per common share have been restated to give retroactive
effect to the above mentioned stock distributions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of the
Registrant and the notes thereto included elsewhere in this
report.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant had net cash provided by its operating
activities of $22.4 million, $20.3 million and $24.1 million in
1996, 1995 and 1994, respectively. In 1996, the Registrant used
cash flows from operations and existing cash, cash equivalents
and short-term investments to fund (i) capital expenditures of
$24.1 million pertaining to ongoing plant construction projects,
(ii) purchases of investments in affiliates of $4.3 million,
(iii) purchases of investment securities of $1.1 million, (iv)
dividends of $4.2 million and (v) principal payments of $640,000
to retire long-term debt. Capital expenditures by the Registrant
in 1996 included the addition of a new 12,000 square-foot
customer service center, an investment of more than $10 million
in circuit and switching technology, including the installation
of a new Nortel DMS switch in downtown Charlotte, North Carolina
to enhance CTC LDS's long-distance service capabilities, as well
as further additions to the Registrant's fiber optic networks.
The Registrant has significant cash requirements due to growth
in its service area and the need to modernize its existing plant and
equipment. The Registrant's planned construction expenditures in 1997 are
approximately $15 million. Of this amount, approximately $5.7
million is for improvements in CTC's switching facilities,
including the replacement of certain elements of CTC's switching platform
with a new Nortel DMS switching platform. This replacement
process is expected to begin in mid-1997 and continue over a
period of approximately five years. Switching expenditures also
include the replacement of CTC's operator workstations.
Approximately $6.0 million of the Registrant's planned
construction expenditures is for outside plant and circuit
additions and improvements to include the placement of six Nortel
remote switching nodes, and another $3.3 million is for other
telecommunications assets. Actual expenditures were $24.1
million in 1996, $16.1 million in 1995 and $12.2 million in 1994.
Other anticipated uses of cash in 1997 include additional
investments in affiliates. In addition, the Registrant expects
to spend between $3 million and $5 million in 1997 for wireless cable
investments and plant and equipment associated with CT Wireless
Cable and the WONC wireless cable television network. Most of
the Registrant's planned investment in CT Wireless Cable in 1997
will be to enable WONC to acquire the rights to lease certain
channel frequencies from the University of North Carolina ("UNC")
pursuant to WONC's agreement with UNC.
In the event CTC elects during 1997 to exercise its right to
partition out certain territories for which the Registrant has
invested in the Bell South Carolinas PCS Limited Partnership, the
resulting cost in the first quarter of 1998 is expected to be
between $8 million and $12 million.
During 1996, the Registrant generated $22.4 million in cash
from operations. During the same period, approximately $20.1
million was utilized for plant additions and other investment
activities and $4.9 million was used for the payment of dividends
and other financing activities, resulting in negative working
capital of $2.5 million at fiscal year-end. As of December 31,
1996, the Registrant had cash and cash equivalents of $2.16
million, short-term investments of $316,158, and two unsecured
available lines of credit totaling $13.5 million. One of the
Registrant's lines of credit is in the amount of $10 million from
Rural Telephone Finance Corporation ("RFTC") and the remaining
$3.5 million line of credit is from First Charter National Bank.
None of the line of credit amounts were used during 1996 and none
was outstanding at December 31, 1996. However, the Registrant
drew on the line of credit from RFTC on January 17, 1997 in the
amount of $2 million at a variable interest rate which has ranged
from 6.9 to 7.0% per annum since that date. Depending primarily
upon the Registrant's level of purchases of investments in
affiliates, its growth in local business and expansion of its
long distance and competitive local exchange carrier businesses
in 1997, management may seek additional bank financing in 1997 to
fund such activities.
As of December 31, 1996, the Registrant carried $2,014,000
as long-term debt. First mortgage bonds which matured and were
retired on March 1, 1997, comprised $1,440,000 of this amount.
The balance of long-term debt is held by a North Carolina bank
at 7.25% interest with equal quarterly installments of principal
and interest until 2001. Annual maturities of the long-term debt
outstanding for the five-year periods subsequent to December 31,
1996, are as follows: $2,060,000 in 1997; $620,000 in 1998, 1999
and 2000; and $154,000 thereafter.
At December 31, 1996, the Registrant held $2,756,158 in
state, county and municipal debt securities, of which $2,440,000
is classified as long-term. In addition, the Registrant held
$877,205 in other equity securities. Investment securities in
the amount of $4.6 million were sold during 1996. Most of this
amount was applied toward purchases of investments in affiliates
and capital expenditures in telephone plant.
As referenced above, the Registrant is a limited partner of
BellSouth Carolina's PCS Limited Partnership. As a limited
partner of the BellSouth Partnership, the Registrant has
committed to make certain payments to the Partnership for its pro
rata share of PCS license fee and network expenditures for the
purpose of constructing and operating PCS Services. The
Registrant estimates that its total obligations in this regard
will be approximately $9.1 million over the four-year period
ending in 1998. During 1996, the Registrant expended
approximately $2.8 million in connection with its limited partner
status in the BellSouth Partnership. The Registrant's 1997
commitments are approximately $1.3 million.
On March 14, 1994, the Registrant entered into a consent
decree known as the MSR Site Remediation Agreement with the
United States EPA and other PRP's, all as described in ITEM 3,
above. A Trust has been established and amounts will be paid
periodically to this fund for disbursement as the need for moneys
arises. The Registrant expects this amount will not be material.
The Registrant anticipates that all of the capital
requirements in 1997 associated with its construction program,
payments associated with long-term debt and investments as
summarized above will be provided by cash flows from operations,
existing cash, cash equivalents and short-term investments and
currently available lines of credit. If additional funds are
required during 1997, management expects that such funds will be
raised by through additional bank borrowings.
RESULTS OF OPERATIONS
During 1996, the Registrant reclassified access and
settlement charges from an offsetting revenue account to an
expense category on its 1996 consolidated statement of income.
Amounts previously reported in the 1995 and 1994 consolidated
statements of income have been reclassified to conform with the
1996 consolidated statement of income in this regard. Such
reclassification has no effect on net income as previously
reported.
1996 COMPARED TO 1995
TOTAL OPERATING REVENUES
Operating revenues increased $6,636,655 or nearly 11% for
the year ending December 31, 1996, compared to 1995. This
increase is primarily attributable to local service revenues from
CTC operations and toll revenues from CTC LDS operations.
Local service revenues are derived from providing telephone
exchange services. Local service revenues increased $3,484,431
or 16.4% during 1996, compared to 1995. This growth is
attributable to increased demand for local service due to growth
in the CTC Service Area and a metro calling plan which allocates
more revenues to local service. Nearly 5,000 new access lines were
connected to the network in 1996, bringing the total number of local
access lines in CTC's three-county service area to more than 96,000. The
Registrant anticipates that its local customer base will continue
to expand in 1997 at a similar rate.
Long distance service revenues are derived principally from
providing long distance services within designated areas.
Network access service revenues are derived from other
carriers for their use of the Registrant's local network to complete
long distance calls. Access and toll revenues increased $1,681,633
or 5.6% during 1996, compared to 1995. This increase is a result of
increased marketing and sales efforts by CTC LDS and increased calling
volumes by the inter-exchange carriers.
CTC LDS's marketing and sales efforts in 1996 led to the
addition of more than 7,000 new customers. The installation of
CTC LDS's new Nortel DMS 500 switch in the fourth quarter of 1996
enabled CTC LDS to begin marketing and selling long distance
service to new markets beyond CTC's core three- county service
area. These efforts commenced in Mecklenburg County in 1996 and
are expected to continue throughout North Carolina in 1997. In
addition, CTC LDS received approval in the first quarter of
fiscal 1997 to market long distance services in South Carolina
and Virginia. Similar applications are pending in Georgia and
Tennessee, and CTC LDS plans additional expansion, targeting
small to medium-sized markets.
The 1996 toll and access service revenue increases discussed
above were offset in part by a $1,124,033 decrease in revenues
from the National Exchange Carrier Association ("NECA") related
to a settlement adjustment recorded in 1995. Management does
not expect revenues from NECA settlements to change significantly in
1997. The Registrant's decision to file its own interstate tariffs
and thereby forego certain NECA toll pool revenues is intended to
make Concord a more attractive place for interconnection by long
distance companies.
Toll and access service revenues were further offset in 1996
by a $1,029,594 decrease in Bell settlement access revenues from
1995. This decrease was due to Bell's implementation of its own
defined radius calling plans, primarily during the first quarter
of 1996. Management does not expect revenues from Bell access
settlement charges to change significantly in 1997.
Access charge reforms are currently being reviewed by the
FCC, and the FCC is expected to rule on these reforms in the
second quarter of 1997. It is anticipated that these proceedings
will result in a reduction in the access charge rates which local
telephone companies can charge long distance carriers. Such a
reduction in permitted access charge rates would have a negative
impact upon future CTC access revenues, but this impact would be
at least partially offset by corresponding CTC LDS cost savings
attributable to lower access charges.
Other and unregulated operating revenues increased
$1,457,708 or 15.3% during 1996, compared to 1995. This
increase is primarily due to larger amounts of non-regulated
revenues, including a $984,000 increase in equipment sales, and
increased billing and collection revenues which were up $130,000,
a 7% increase from a year ago. The Registrant is placing more
emphasis on the non-regulated area of operations and it is
expected that non-regulated income will increase in 1997.
OPERATING EXPENSES
Operating expenses, exclusive of depreciation, increased
$10,012,190 or 32% during 1996, compared to 1995. Plant specific
expenditures increased $4,398,163. This increase results from
the reclassification of access and toll settlement charges from
an offsetting revenue account to an expense account in the amount
of $2,382,954; increased maintenance expenditures in the outside
plant operations of $906,762 due to extensive construction work
on cable and pole line facilities; and increased access expense
of $1,468,518 due to increased toll volumes generated by long
distance sales by CTC LDS. Also the non-regulated expense
component of plant specific expenditures increased by $335,661
primarily relating to the cost of equipment sold. The remainder
of such operating expenses primarily relates to the development
of an internal management information system.
Corporate and customer operations expense increased
$5,614,027 or 36% for 1996 when compared to 1995. Approximately
$1,006,284 or 18% of this amount relates to product management
and advertising. Another $973,415 of this amount relates to
additional efforts being placed in customer service operations.
Approximately $700,000 of the increase in corporate and customer
operations expense relates to consulting fees for work process
re-engineering and software implementation for a new accounting
system. The remainder of such amount primarily relates to the
implementation of a new long-term executive incentive
compensation plan and a management incentive compensation plan,
as well as an adjustment to reconcile customer accounts
receivable. Management plans to continue in 1997 its emphasis
on development of product identity through increased advertising
and to continue to commit expenditures in work process
re-engineering and advanced internal information processing.
In January 1997, the Registrant offered an early retirement
program to 29 CTC employees. Twenty-eight of the eligible
employees accepted the early retirement package, and the
Registrant expects to book an additional operating expense of
approximately $1,050,000 in 1997 in connection with its
obligations under the early retirement program.
Depreciation expense decreased $1,863,288 or 15.6% during
1996, compared to 1995. This amount includes a special
amortization of $574,363 recorded under authority of the North
Carolina Utilities Commission (the "NCUC") as additional
amortization relating to certain telephone plant accounts.
During 1995, a special amortization was recorded in the amount of
$3,708,000. Without the special amortizations recorded to
depreciation expense in 1996 and 1995, depreciation and
amortization would have increased $1,270,349 in 1996, which is a
result of an increased depreciable asset base.
OTHER INCOME
Other income decreased $1,220,028 or 47.6% in 1996, compared
to 1995. This decrease is primarily attributable to the
Registrant's pro rata share of the BellSouth Partnership's losses
experienced in connection with start-up costs associated with the
PCS network which became operational during the third quarter of
1996. These losses were partially offset by higher income in
1996 over 1995 as a result of an increase in the value of the
Registrant's investment in the Alltel Mobile Partnership
providing cellular communications services in North Carolina RSAs
4/5 and 15. Losses associated with start-up costs in connection
with the BellSouth Partnership PCS network are currently
projected to continue through 2001. Such losses in 1997 are
expected to approximate losses experienced in 1996; however, if
actual PCS sales exceed the Partnership's forecasted sales,
losses could be higher. Management expects losses associated
with the BellSouth Partnership to begin to decline in 1998.
The decrease in other income in 1996 is also attributable to
decreased interest income, dividend income and gain on sale of
investments of $694,926, and an increase in other expenses of
$123,348. Interest income decreased due to smaller amounts
invested in interest earning assets and lower earning rates.
NET INCOME
For the reasons set forth above, the Registrant's net income
in 1996 decreased $2,555,322 million or 19.6% compared to 1995.
Given the rapid pace of change in the telecommunications industry
caused by deregulation and advancing technology, management
expects operating expenses to continue to increase in 1997 as the
Registrant continues to invest in telephone plant construction,
start-up costs associated with recently established business
ventures, and increased marketing and advertising efforts.
Management believes these expenditures are necessary to enable
the Registrant to enjoy long-term profitability and growth.
1995 COMPARED TO 1994
TOTAL OPERATING REVENUES
Operating revenues increased $5,287,456 or 9.6% for the year
ending December 31, 1995, compared to 1994. This increase is
primarily attributable to local service and long distance service
revenues from CTC and CTC LDS operations.
Local service revenues increased $2,412,789 or 12.8% during
1995, compared to 1994. This growth is attributable to increased
demand for service due to growth in the CTC Service Area and a metro
calling plan which allocates more revenues to local service. Nearly
4,228 new access lines were connected to the network in 1995, bringing the
total number of local access lines in CTC's three-county service
area to 91,602.
Access and toll service revenues, net of toll settlement,
increased 2.4% during 1995, compared to 1994, primarily due to an
increase in toll volume. The increase was offset substantially
by the reduction in toll revenues caused by the Registrant's
notification of NECA that the registrant would begin filing most
of its own interstate tariffs effective July 1, 1994. The
Registrant also filed a request with the NCUC to expand CTC's
metro calling plans to allow customers to share in the savings
resulting from the termination of the old plan in which revenue
for toll calls within the local area were pooled among all
telephone companies. Management believes that these actions
resulted in a stronger competitive position with the present
customer base. This plan was made effective May 1994 and
resulted in a transfer of revenues of $3,290,000 from toll
service revenues to local service revenues.
During 1994, the Registrant ceased participation in certain
revenue pools with other telephone companies for certain
interstate toll revenues and intrastate toll revenues and began
instead to bill and keep earned revenues. Revenue earned
through the various pooling processes is initially recorded based
on estimates. In light of the Registrant's withdrawal from the
aforementioned revenue pools, adjustments were recorded to
reconcile prior years' estimates with actual toll pool
settlements based on cost studies. Because local and toll service
and access charges are recognized when earned regardless of the period
in which they are billed, the resulting prior period toll pool settlements
increased revenues by $1,351,000 in 1995 and decreased revenues
by $283,000 in 1994. All toll and access revenues are finalized
through 1994.
Other and unregulated revenues increased $2,291,549 or 31.6%
during 1995, compared to 1994. This increase is primarily due to
earnings from investments available for sale and non-regulated
revenues. Non-regulated revenues increased 17.4% during 1995,
compared to 1994.
OPERATING EXPENSES
Operating expenses, exclusive of depreciation, increased
$1,899,306 or 6.5% during 1995, compared to 1994. The majority
of this increase, 53.8% or $1,021,641, was attributable to the
corporate operations area of operating expenses due to
expenditures in 1995 to accrue for the expected premature
replacement of poles determined to be decaying at a faster than
normal rate. Corporate operations expenses increased 12.9% or
$957,138 during 1995. Most of this increase was a result of
general and administrative expenses attributable to the
Registrant's customer service operations.
Depreciation expense decreased $2,458,539 or 17% during
1995, compared 1994. This amount includes a special amortization
of $3,708,000 recorded to depreciation expense in anticipation of
earnings in excess of the maximum rate of return authorized by
the NCUC. During 1994, a special amortization was recorded in
the amount of $7,010,000, as authorized by the NCUC.
OTHER INCOME
Total other income increased $897,394 or 53.9% during 1995,
compared to 1994. This increase is primarily due to income of
affiliates, the largest component of which in 1995 was income
from CT Cellular operations. CT Cellular's increased income in
1995 is primarily attributable to its investment in RSA 15, which
experienced growth in cellular customers and revenues in 1995.
NET INCOME
As a result of increases in operating revenues with
relatively constant operating expenses, registrant's net income
in 1995 increased $4,672,395 or 56% compared to 1994.
OTHER EVENTS
REQUEST FOR A NEW RATE PLAN
On November 1, 1996, the Registrant asked the NCUC to
approve a new rate plan which will substantially expand the area
in which customers of the Registrant can call without paying long
distance charges. Although the Registrant's proposed rate
structure reflects an increase for the cost of basic service,
other changes in the plan offset these increases for many
customers, and overall the plan will initially reduce the
Registrant's revenues by approximately $696,000 per year. A
public hearing was held by the NCUC in Concord during March,
1997, and the NCUC is expected to rule on the Registrant's
request in June 1997.
By submitting its price regulation filing, the Registrant is
agreeing to open up its markets to competition for local dial
tone service, on the condition that the Registrant is allowed to
"rebalance" or adjust its rates at the same time. Although the
competitive pressures of opening its markets to competition from
other local telephone service providers may lead to reductions in
the Registrant's future local service revenues, management
believes that by rebalancing its local service rates, it can
compete in emerging markets and continue to sustain local rates
at levels that are affordable for customers.
1996 TELECOMMUNICATIONS ACT
On February 8, 1996, the Telecom Act was enacted into law.
This comprehensive federal legislation will affect every sector
of the telecommunications industry. Among its numerous other
effects, the Telecom Act opens local telephone markets to
competition. Although the precise impact of the Telecom Act will
not be known until additional progress is made by the FCC in its
ongoing rulemaking efforts, it is clear that the Registrant will
encounter increasing competition in virtually all of its markets,
including local dial tone and long distance service through the
remainder of the 1990s. By submitting its price regulation
filing to the NCUC in November 1996, the Registrant has taken a
proactive step towards opening its markets to competition for
local dial tone service. While there can be no assurances that
the Registrant will be able to maintain its present levels of
profitability in this emerging competitive environment,
management believes that its ongoing investments in its network,
including the installation of digital switches and other
equipment, combined with greater flexibility in setting prices,
will enable the Registrant to compete more effectively by
providing enhanced services at affordable rates.
ACCOUNTING CONSIDERATIONS
The Registrant's regulated telephone operations are subject
to the provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types
of Regulation." Under SFAS 71, CTC is required to account for
the economic effects of the rate-making process, including the
recognition of depreciation and amortization of plant and
equipment over lives approved by the regulators. As discussed
elsewhere herein, the Registrant filed a price regulation
proposal with the NCUC during 1996, pursuant to which the
Registrant seeks to become regulated based on prices rather than
traditional rate base rate of return regulation. If approved,
this new plan would rebalance the Registrant's local telephone
service rates. A ruling on this proposal is expected in May 1997.
The ongoing applicability of SFAS 71 to CTC's regulated
telephone operations is being constantly monitored due to
changing regulatory environment and to increasing competition.
SFAS 71 may, at some future date, be deemed inapplicable due to
changes in the regulatory, competitive and legislative
environments and/or a decision by the Registrant to accelerate
the deployment of new technology. Should the regulated
operations of CTC no longer qualify for the application of SFAS
71 at some future date, the required accounting impact could
result in a material, non-cash charges against and/or credits to
earnings. The Registrant believes its regulated operations
continue to meet the criteria for SFAS No. 71 and that the
carrying value of its property, plant and equipment is
recoverable in accordance with established rate-making practices.
In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and Long- lived Assets to Be Disposed Of."
SFAS 121 was made effective for fiscal years beginning after
December 15, 1995, and requires long-lived assets to be evaluated
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Registrant's adoption of the provisions of SFAS
121 during 1996 did not have a material effect on the
Registrant's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock- based Compensation." As a result of this statement,
the Registrant provided additional disclosures relating to its
stock-based compensation plans, such as stock option and stock
purchase plans, in its 1996 financial statements. Adoption of
SFAS 123 did not have a material effect on the Registrant's
financial position or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains forward-looking statements
about the Registrant's financial condition and results of
operations, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
reflected in the forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgment only as of the
date hereof. The Registrant undertakes no obligation to publicly
revise these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
Factors that may cause actual results to differ materially
from these forward-looking statements are (1) the Registrant's
ability to respond effectively to the sweeping changes in
industry conditions created by the Telecom Act, and related state
and federal legislation and regulations, (2) whether the North
Carolina Utilities Commission grants the Registrant's proposed
rate plan and, if granted, the Registrant's ability to implement
the plan, (3) the Registrant's ability to recover the substantial
costs to be incurred in connection with the implementation of
its PCS business, (4) the Registrant's ability to retain its
existing customer base against local and long distance service
competition, and to market such services to new customers, (5)
the Registrant's ability to effectively manage rapid changes in
technology and (6) whether the Registrant can effectively respond
to the actions of its competitors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A document, which includes independent auditors' (KPMG Peat
Marwick LLP) report dated February 28, 1997 entitled:
ITEM 8
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
SCHEDULE AND AUDITORS' OPINION
ANNEXED TO ANNUAL REPORT FORM 10-K
FOR THE THREE YEARS
ENDED DECEMBER 31, 1996
OF
CT COMMUNICATIONS, INC.
is attached hereto and is filed as a part of this report.
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
L. D. Coltrane, III - Age 78 - Chairman of the Board. Mr.
Coltrane served as President of First Charter National Bank for
more than five years. He has served as a Director since 1965.
In 1973, he was elected Assistant Secretary and Assistant
Treasurer and in 1974, Assistant to the President. At the
February 27, 1986 Board of Directors meeting, Mr. L. D. Coltrane
III was elected to President of the Registrant to succeed his
father, L. D. Coltrane, Jr., who died on December 16, 1985. He
is the father of Michael R. Coltrane.
Michael R. Coltrane - Age 50 - President, Chief Executive
Officer, Director. Mr. Coltrane is the son of Mr. L. D. Coltrane
III. Prior to joining the Company on February 1, 1988, Mr.
Coltrane had served as Executive Vice President of First Charter
National Bank for more than six years and Vice President of a
large regional bank for more than ten years. Mr. Coltrane is a
director of U.S. Telecom Holdings, Hilton Head Island, South
Carolina, Access/On Multimedia, Concord, North Carolina, and
First Charter Corporation, Concord, North Carolina. He was
elected a director of the Registrant April 28, 1988.
Jerry H. McClellan - Age 65 - Director. Retired as
Executive Vice President and General Plant Manager on February 1,
1996, he continues to serve as director. Served with the
Registrant since 1949, Director since 1984. Mr. McClellan was
elected Executive Vice President in 1985.
Phil W. Widenhouse - Age 71 - Director. Mr. Widenhouse
retired as Executive Vice President of the Registrant on July 1,
1992, although he continues to serve the Registrant as a
director. He has served with the Registrant since 1949 and as a
Director since 1952. Mr. Widenhouse was elected Executive Vice
President in 1971 and served as Treasurer from 1973 to 1990. He
is Chairman of the Audit Review Committee and a member of the
Board Committee on Compensation. Mr. Widenhouse is a director of
Carolina First Bancshares, Inc., Lincolnton, North Carolina, and
Cabarrus Savings Bank, Concord, North Carolina.
Mr. John R. Boger, Jr. - Age 67. Director. Mr. Boger was
elected a director April 27, 1978. General Counsel for the
Registrant, Mr. Boger is a practicing attorney with the firm of
Williams, Boger, Grady, Davis and Tuttle and has been so employed
for more than five years. He is Chairman of the Board Committee
on Compensation and a member of the Audit Review Committee. Mr.
Boger is a director of Carolina First Bancshares, Inc., Concord,
North Carolina.
Mrs. Betty Gay Bivens - Age 80. Director Emeritus. Mrs.
Bivens was elected a director by action of the Board of Directors
on January 23, 1986. Mrs. Bivens is the daughter of Mr. L.D.
Coltrane, Jr., the sister of L.D. Coltrane III and the aunt of
Michael R. Coltrane. Mrs. Bivens retired from the Board of
Directors on August 22, 1996. Prior to retiring, she served as a
member of the Board Committee on Compensation and the Audit
Review Committee. Mrs. Bivens is a private investor.
Mr. Ben F. Mynatt - Age 64. Director. Mr. Mynatt was
elected a director by action of the Board of Directors on August
23, 1994. Mr. Mynatt is a member of the Board Committee on
Compensation. He is owner of Ben Mynatt Chevrolet Inc. in
Concord, North Carolina and has been so employed for more than
five years. Mr. Mynatt serves as a trustee of Rowan-Cabarrus
Community College, Salisbury, North Carolina and Wingate
University, Wingate, North Carolina.
Mr. O. Charlie Chewning - Age 61. Director. Mr. Chewning
was elected a director by action of the Board of Directors on
August 22, 1996. Mr. Chewning was the Senior Partner of the
Carolinas Offices from June 1993 to December 1994 for the
accounting firm of Deloitte & Touche LLP, Charlotte, North
Carolina. Prior to that, he was the Office Managing Partner for
the Charlotte office of Deloitte & Touche LLP. He is a member of
the Board Audit Review Committee.
Mr. Samuel E. Leftwich - Age 66. Director. Mr. Leftwich
was elected a director by action of the Board of Directors on
August 22, 1996. He is the retired Chairman of the Board of
Centel Corporation, a telecommunications company located in
Chicago, Illinois. Mr. Leftwich served as Chairman of Centel
Corporation from January 1990 until December 1992. He is a
member of the Board Committee on Compensation.
Mr. Thomas A. Norman - Age 56 - Senior Vice President. Mr.
Norman was employed by the Registrant in September 1995. He was
formerly employed by Sprint/Centel of Illinois, Des Plains,
Illinois. He was Vice President/General Manager at Sprint/Centel
prior to joining the Registrant, having served in various
capacities during his 30 year telephone career. He was elected
to Senior Vice President of Operations and Engineering and
Assistant Corporate Secretary by action of the Board of Directors
on December 14, 1995.
Mr. Nicholas L. Kottyan - Age 42 - Senior Vice President.
Mr. Kottyan was employed by the Registrant in December 1994 to
serve as President-Chief Operating Officer of Carolinas PCS Inc.
He was formerly President of Teledial America of North Carolina,
Inc. since 1991; and President of Phone America of Carolina Inc.,
1987-1991. Mr. Kottyan was named Vice President of Marketing and
Customer Operations on May 15, 1995. He was elected to Senior
Vice President of Marketing and Customer Operations and Assistant
Corporate Secretary by action of the Board of Directors on
December 14, 1995.
Mr. Barry R. Rubens - Age 37 - Senior Vice President. Mr.
Rubens was employed by the Registrant in October 1993 as
Regulatory Affairs Manager. He formerly was a management
consultant with the accounting firm of Ernst & Young, Washington,
D.C. Mr. Rubens served for eleven years in that capacity. He
was elected to Senior Vice President of Finance and Assistant
Corporate Secretary by action of the Board of Directors December
14, 1995, and was subsequently made Corporate Secretary in
February 1996.
Mr. Kenneth R. Argo - Age 63 - Vice President, Chief
Information Officer. Mr. Argo was employed by the Registrant in
April 1983 as Vice President - Controller. He was elected Vice
President, Chief Information Officer by action of the Board of
Directors on October 26, 1995.
Ms. Catherine A. Duda - Age 44 - Senior Vice President. Ms.
Duda was employed by the Registrant in January 1996 as Vice
President - Marketing. Prior to joining the Registrant, Ms. Duda
was Vice President - Communications from April 1994 to September
1995, and Vice President - Staff Group from February 1993 to
April 1994, for Frontier Corporation, a telecommunications
company in Rochester, New York. Prior thereto, Ms. Duda was
President from August 1988 to February 1993 for Vista Telephone,
a telecommunications company in Burnsville, Minnesota. Ms. Duda
was elected to Senior Vice President of the Registrant's Services
Group by action of the Board of Directors on October 16, 1996.
Except for Messrs. Chewning and Leftwich who were elected by
action of the Board of Directors on August 22, 1996, the present
directors of the Registrant were elected at the annual
stockholders' meeting held on April 25, 1996 and will serve until
the next election scheduled for April 24, 1997.
Outside directors receive $5,000 as an annual retainer and
$500 per meeting. The Chair receives $5,500 as an annual
retainer and $550 per meeting. Committee chairmen will receive
$300 per meeting and committee members $250. Meeting by
telephone conference call board members will receive $100 and
committee members $50.
The 1996 Director Compensation Plan (the "1996 Plan") was
adopted by the holders of Voting Common Stock at the annual
stockholders' meeting held on April 25, 1996. The 1996 Plan
reserves 7,500 shares of Class B Common Stock for issuance to
non-employee Directors who elect to receive part or all of their
compensation (including regular meeting, committee meeting and
annual retainer fees) in Class B Stock instead of cash.
Pursuant to the 1996 Plan, dollar values for the retainer and any
accumulated meeting fees are added together, and this amount is
converted to a number of shares based on fair market value at the
time of meetings. Payments in Class B Stock are made annually
following the election of directors. Any fractional shares will
be rounded up to whole shares when issued.
ITEM 10A. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Exchange Act, directors and
executive officers of the Registrant are required to file reports
with the Securities and Exchange Commission indicating their
holdings of and transactions in the Common Stock. The Registrant
is aware of one late filing of Form 4, promulgated under Section
16, by Mr. Ben F. Mynatt with regard to beneficial ownership of
shares as a result of a purchase of 200 shares of the
Registrant's Class B Nonvoting Common Stock by Mr. Mynatt during
the second quarter of 1996. In addition, the Registrant is aware
of an amendment to Form 3, promulgated under Section 16, by Ms.
Catherine A. Duda with regard to beneficial ownership of 53
shares of the Registrant's Voting Common Stock which Ms. Duda
inadvertently omitted from her Form 3 filing during the fourth
quarter of 1996. To the Registrant's knowledge, based solely on
its review of the copies of such reports furnished to the
Registrant and written representations that no other reports were
required, the directors and executive officers of the Registrant
complied with all other filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table indicates for the
past three years the compensation of the Chief Executive Officer
and the four additional most highly compensated executive
officers (other than the chief executive officer) of the
Registrant in 1996 (the "named executive officers").
ANNUAL COMPENSATION
-------------------------------
OTHER
ANNUAL
NAME AND SALARY BONUS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3)
- -------------------------- ---- -------- -------- ------------
Michael R. Coltrane 1996 $200,000 $ 34,538 $ 18,634
President and Chief 1995 164,777 25,000 15,790
Executive Officer 1994 146,685 15,000 2,000
Barry R. Rubens 1996 130,000 62,178 0
Senior Vice President (7) 1995 125,142 5,268 0
1994 82,386 7,700 0
Nicholas L. Kottyan 1996 135,000 33,405 0
Senior Vice President (6) 1995 127,402 0 0
1994 0 0 0
Thomas A. Norman 1996 119,000 16,885 0
Senior Vice President (7) 1995 62,505 0 0
1994 N/A N/A N/A
Kenneth R. Argo 1996 89,000 20,912 0
Vice President 1995 84,683 3,400 796
1994 88,196 6,850 0
LONG TERM
COMPENSATION
------------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING
PRINCIPAL POSITION YEAR AWARDS (4) OPTIONS/SARS
- -------------------------- ---- ---------- ------------
Michael R. Coltrane 1996 $ 21,828 0
President and Chief 1995 0 3,000
Executive Officer 1994 0 375
Barry R. Rubens 1996 10,272 0
Senior Vice President (7) 1995 0 1,500
1994 0 600
Nicholas L. Kottyan 1996 10,593 0
Senior Vice President (6) 1995 0 1,500
1994 0 600
Thomas A. Norman 1996 3,531 0
Senior Vice President (7) 1995 21,060 700
1994 N/A N/A
Kenneth R. Argo 1996 7,062 0
Vice President 1995 0 0
1994 0 60
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION YEAR ($)(5)
- -------------------------- ---- ------------
Michael R. Coltrane 1996 $ 5,627
President and Chief 1995 9,149
Executive Officer 1994 8,092
Barry R. Rubens 1996 2,265
Senior Vice President (7) 1995 4,052
1994 3,207
Nicholas L. Kottyan 1996 4,603
Senior Vice President (6) 1995 0
1994 0
Thomas A. Norman 1996 1,116
Senior Vice President (7) 1995 92
1994 N/A
Kenneth R. Argo 1996 4,576
Vice President 1995 5,233
1994 4,816
(1) Amounts shown include cash and non cash compensation
received by the executive officer.
(2) An annual bonus has been a long standing tradition of the
Registrant. However, approval to pay this bonus is required from
the Board of Directors each year. Upon reaching certain economic
goals, the Board may award additional amounts at its discretion.
(3) Gain from the exercise of stock options.
(4) Represents the value of shares of restricted stock granted
under the Registrant's 1995 Restricted Stock Award Program (the
"RSAP"). Pursuant to the RSAP, these shares remain subject to
certain transferability restrictions for a period of ten years
(the "Restricted Period"). Recipients of restricted stock under
the RSAP are entitled to receive any cash dividends made with
respect to such shares of restricted stock prior to the end of
the Restricted Period. The number and value of the aggregate
restricted stock holdings of the named executive officers as of
December 31, 1996 were as follows: Michael R. Coltrane -- 204
shares ($21,828); Barry R. Rubens -- 216 shares ($20,192);
Nicholas L. Kottyan -- 99 shares ($10,593); Thomas A. Norman --
267 shares ($24,591); and Kenneth R. Argo -- 66 shares ($7,062).
(5) Amounts represent Registrant's matching contributions to the
Employee's Savings Plan as well as contributions by the
Registrant with respect to term life insurance.
(6) Mr. Kottyan was employed by the Registrant on December 31,
1994.
(7) Mr. Norman was employed by the Registrant on September 1,
1995.
STOCK OPTION PLANS
The Registrant has in effect the Comprehensive Stock Option
Plan (the "Comprehensive Plan") pursuant to which the Registrant
may grant stock options to certain key employees of the
Registrant and its subsidiaries. At December 31, 1996, 5,700
shares of Class B Stock were reserved for issuance but ungranted
under the Comprehensive Plan. During 1996, no options were
granted under the Comprehensive Plan. The Registrant also has in
effect the 1989 Executive Stock Option Plan (the "1989 Plan"),
the 1995 Employee Stock Purchase Plan (the "1995 ESPP") and the
RSAP. Pursuant to the 1989 Plan, no additional options may be
granted, and options outstanding at year-end are exercisable in
1997. During 1996, the Registrant did not sell any additional
shares of Class B Stock to employees under the 1995 ESPP. A
total of 1,475 restricted shares of Class B Stock with a weighted
average fair value of $107 were granted in 1996 pursuant to the
RSAP. In accordance with the terms of the RSAP, such restricted
shares were granted to key employees and subsidiary employees of
the Registrant who achieved certain performance goals.
Options to acquire 579 shares of Class B Stock were
exercised during 1996 under the terms of the Registrant's
Executive Stock Option Plan. Shares acquired pursuant to the
exercise of such options were purchased at the following prices:
$58.67 (531 shares); and $69.33 (48 shares).
No option grants were made to the named executive officers
under the Registrant's stock option plans during fiscal year
1996.
The following table sets forth a summary of certain
information with respect to the exercise of stock options during
1996 by the named executive officers and the value of such
executive's unexercised stock options held at fiscal year end
(including options outstanding under the Comprehensive Stock
Option Plan and options outstanding under the 1989 Plan).
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
SHARES
ACQUIRED ON VALUE
EXERCISE REALIZED
NAME (#) ($)(1)
- -------------------- ----------- --------
Michael R. Coltrane 363 $ 18,634
Barry R. Rubens 0 $ 0
Nicholas L. Kottyan 0 $ 0
Thomas A. Norman 0 $ 0
Kenneth R. Argo 0 $ 0
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS
AT FISCAL YEAR-END (#)(2)
--------------------------
NAME EXERCISABLE UNEXERCISABLE
- -------------------- ----------- --------------
Michael R. Coltrane 3,750 0
Barry R. Rubens 2,175 0
Nicholas L. Kottyan 2,100 0
Thomas A. Norman 2,100 0
Kenneth R. Argo 30 0
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END ($)
--------------------------
NAME EXERCISABLE UNEXERCISABLE
- -------------------- ----------- -------------
Michael R. Coltrane $260,003 $ 0
Barry R. Rubens $154,451 $ 0
Nicholas L. Kottyan $147,702 $ 0
Thomas A. Norman $142,500 $ 0
Kenneth R. Argo $ 3,020 $ 0
(1) Based on market value at time of exercise.
(2) Based on the last known selling price of $170 at December
31, 1996.
PENSION PLAN
The Registrant has in effect a non-contributory pension plan
which applies to all employees including officers who have
completed one year of service and attained age 21. The amount of
annual benefit to be paid in monthly installments for life, based
on service to normal retirement date and straight life annuity,
is the sum of: (i) 1.1 percent of average compensation multiplied
by creditable service not in excess of 40 years; plus (ii) .65
percent of average compensation in excess of covered compensation
multiplied by creditable service not in excess of 35 years.
Covered compensation is determined from Internal Revenue
Service tables published annually. Payments under the Pension
Plan are not offset by Social Security.
Contributions for officers to the Registrant's Pension Plan
fund are not included since they cannot be readily calculated by
the regular actuary for the Plan.
PENSION PLAN TABLE*
ESTIMATED ANNUAL BENEFITS PAYABLE UPON
5 YEAR RETIREMENT WITH YEARS OF CREDITABLE SERVICE INDICATED
AVERAGE -----------------------------------------------------
ANNUAL PAY 15 20 25 30 35 40
- ---------- ------- ------- ------- ------- ------- -------
$ 50,000 $10,434 $13,912 $17,390 $20,868 $24,346 $27,096
75,000 16,997 22,662 28,328 33,993 39,659 43,783
100,000 23,859 31,412 39,265 47,118 54,971 60,471
125,000 30,122 40,162 50,203 60,243 70,274 77,158
150,000 36,975 48,912 61,286 73,368 85,801 93,846
175,000 43,334 57,779 72,224 86,669 101,113 110,738
200,000 49,897 66,529 83,161 99,794 116,426 127,426
225,000 56,459 75,279 94,099 112,919 131,738 144,113
250,000 62,934 83,912 104,890 125,868 146,846 160,596
*Assuming a normal retirement date of 12/31/96.
As of December 31, 1996, the credited years of service and
compensation covered by the Pension Plan, for each named
executive officer, were approximately as follows: Mr. Coltrane
- -- 9 years ($52,200), Mr. Kottyan -- 2 years ($59,400), Mr.
Rubens -- 4 years ($62,400), Mr. Norman -- 1 year ($43,800) and
Mr. Argo -- 14 years ($32,400). Under the terms of the Pension
Plan, Messrs. Kottyan, Rubens and Norman will not have any vested
benefit until each of them attains 5 years of service with the
Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table presents information as of January 31,
1996 regarding the beneficial ownership of the equity securities
of the Registrant of (i) all current directors and nominees for
director, (ii) each executive officer of the Corporation named in
the Summary Compensation Table contained elsewhere herein and
(iii) all directors, nominees for director and executive officers
as a group. The table also sets forth the beneficial ownership
of any person owning more than 5% of the Voting Common Stock.
A. VOTING COMMON
SHARES
BENEFICIALLY OWNED (1)
------------------------
PERCENT OF
NAME AND ADDRESS NUMBER CLASS
-------------------------- ----------- ----------
L. D. Coltrane III 34,414 (2) 15.2%
P.O. Box 227
Concord, NC 28026-0227
Betty Gay Bivens 28,726 12.7%
400 Avinger Lane
Davidson, NC 28036
Michael R. Coltrane 28,424 (3) 12.5%
P.O. Box 227
Concord, NC 28026-0227
Ramark & Co. 19,668 8.7%
(Nominee Name of First Charter
National Bank Trust Department)
P.O. Box 228
Concord, NC 28026-0228
Mrs. Mariam C. Schramm 15,525 6.8%
(Mrs. T. M. Schramm)
400 Avinger Lane
Davidson, NC 28036
World Div. Bd. of Global Min. 15,096 6.6%
U. M. Church
475 Riverside Drive
15th Floor
New York, NY 10027
Phil W. Widenhouse 2,434 (4) 1.0%
P.O. Box 227
Concord, NC 28026-0227
Jerry H. McClellan 463 (5) *
P.O. Box 227
Concord, NC 28026-0227
Ben F. Mynatt 343 *
1980 Hwy. 73 E.
Concord, NC 28025
John R. Boger 80 *
147 Union St. S.
Concord, NC 28025
Kenneth R. Argo 46 *
P.O. Box 227
Concord, NC 28026-0227
Nicholas L. Kottyan 30 *
P.O. Box 227
Concord, NC 28026-0227
Barry R. Rubens 18 *
P.O. Box 227
Concord, NC 28026-0227
Thomas A. Norman 15 *
P.O. Box 227
Concord, NC 28026-0227
B. NONVOTING CLASS B COMMON
Mrs. Mariam C. Schramm 72,207 5.7%
(Mrs. T. M. Schramm)
400 Avinger Lane
Davidson, NC 28036
Michael R. Coltrane 25,860 (6) 2.1%
P.O. Box 227
Concord, NC 28026-0227
Phil W. Widenhouse 15,747 (7) 1.3%
P.O. Box 227
Concord, NC 28026-0227
Betty Gay Bivens 7,548 *
400 Avinger Lane
Davidson, NC 28036
Jerry H. McClellan 4,542 (8) *
P.O. Box 227
Concord, NC 28026-0227
Kenneth R. Argo 2,481 (9) *
P.O. Box 227
Concord, NC 28026-0227
Barry R. Rubens 2,583 (11) *
P.O. Box 227
Concord, NC 28026-0227
Nicholas L. Kottyan 2,559 (12) *
P.O. Box 227
Concord, NC 28026-0227
Thomas A. Norman 2,502 (13) *
P.O. Box 227
Concord, NC 28026-0227
Ben F. Mynatt 1,553 *
1980 Hwy. 73 E.
Concord, NC 28025
L. D. Coltrane III 1,269 (10) *
P.O. Box 227
Concord, NC 28026-0227
John R. Boger, Jr. 369 *
147 Union St. S.
Concord, NC 28025
C. 5% PREFERRED
Phil W. Widenhouse 57 *
P.O. Box 227
Concord, NC 28026-0227
Michael R. Coltrane 24 *
P.O. Box 227
Concord, NC 28026-0227
D. 4-1/2% PREFERRED
Michael R. Coltrane 15 *
P.O. Box 227
Concord, NC 28026-0227
E. All directors, Voting Common 106,571 46.9%
nominees and Class B Stock 127,885 10.2%
executive officers 5% Pref. 81 *
of the Registrant 4-1/2% Pref. 15 *
as a group
(15 persons) (14)
_______________
*Less than 1%.
(1) Unless otherwise noted, all shares of Voting Common Stock
and Class B Nonvoting Common Stock set forth in the table are
directly owned, with sole voting and investment power, by such
shareholder.
(2) Includes 4,434 shares owned by spouse.
(3) Includes 14,529 shares held by trusts for which Mr. Coltrane
is a co- trustee with Phyllis C. Ausband, his sister, with whom
he shares voting and investment power, and 626 shares owned by
spouse.
(4) Includes 126 shares owned by spouse.
(5) Includes 135 shares owned by spouse.
(6) Includes 18,747 shares held by trusts for which Mr. Coltrane
is a co- trustee with Phyllis C. Ausband, his sister, with whom
he shares voting and investment power, 150 shares owned by
spouse, and 3,750 shares represented by currently exercisable
options.
(7) Includes 8,418 shares owned by spouse.
(8) Includes 897 shares owned by spouse and 1,350 shares
represented by currently exercisable options.
(9) Includes 30 shares represented by currently exercisable
options.
(10) Includes 9 shares owned by spouse and 375 shares represented
by currently exercisable options.
(11) Includes 2,175 shares represented by currently exercisable
options.
(12) Includes 2,100 shares represented by currently exercisable
options.
(13) Includes 2,100 shares represented by currently exercisable
options.
(14) Does not include 19,743 shares of Voting Common Stock,
60,640 shares of Nonvoting Common Stock, 70 shares of 4-1/2%
Preferred Stock and 394 shares of 5% Preferred Stock held by
First Charter National Bank. Mr. L. D. Coltrane III and Mr.
Michael R Coltrane are shareholders and Mr. Michael R. Coltrane
is a director of First Charter Corporation, the parent
corporation of First Charter National Bank
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant may from time to time have short-term loans
outstanding with First Charter National Bank, Concord, North
Carolina ("FCNB"). With respect to FCNB, Mr. L.D. Coltrane III
is a member of the Advisory Board and a stockholder and Mr.
Michael R. Coltrane is a director. As of December 31, 1996, the
Registrant had no outstanding loans with FCNB. The Registrant
also has an available line of credit totaling $3.5 million at
FCNB. None of this amount was outstanding at December 31, 1996
and none was used during fiscal 1996.
FCNB is the Trustee of the Registrant's Employee Stock
Ownership Plan, the Employee Savings Plus Plan and the Employees
Pension Plan of the Concord Telephone Company. CTC paid FCNB a
fee of $159,750 for such services in 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements: The following financial
statements, together with reports thereon of independent auditors
are included in response to Item 8:
(A) Consolidated Financial Statements
* Independent Auditors' Report F-2
* Consolidated balance sheets as of December
31, 1996 and 1995 F-3
* Consolidated statements of income for the
years ended
December 31, 1996, 1995, and 1994 F-5
* Consolidated statements of stockholders'
equity for the years ended
December 31, 1996, 1995, and 1994 F-6
* Consolidated statements of cash flows
for the years ended December 31,
1996, 1995, and 1994 F-7
* Notes to consolidated financial
statements for the years ended
December 31, 1996, 1995, and 1994 F-8
(B) Consolidated Financial Statement Schedules
The following financial statement schedule is
included:
* Schedule II - Valuation and Qualifying
Accounts F-39
Other schedules are omitted because the required
information is included in the financial statements
or is not applicable.
(C) Financial Statements of North Carolina RSA 15
Cellular Partnership (to be filed as an amendment to this
Annual Report on Form 10-K within 90 days pursuant to
Rule 3-09(b) of Regulation S-X) F-40
(2) Exhibits: The following exhibits are filed with this
report or, as noted, incorporated by reference herein:
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------
2 The Reorganization and Share Exchange Agreement by
and between The Concord Telephone Company and CT Communications,
Inc. dated as of August 1, 1993. (Incorporated by reference to
Exhibit 2.1 of registrant's current report on Form 8-K filed
November 8, 1993.)
3.1 Articles of Incorporation of the Registrant
effective October 25, 1993. (Incorporated by reference to
Exhibit of the Registrant's Annual Report Form 10-K dated March
29, 1994.)
3.2 Bylaws of the Registrant effective October 25,
1993. (Incorporated by reference to Exhibit of the Registrant's
Annual Report Form 10-K dated March 29, 1994.)
10.1 Partnership Agreement between Alltel Mobile
Communications of the Carolinas, Inc. (Alltel) and The Concord
Telephone Company dated September 15, 1989. (Incorporated by
reference to Exhibit 10(a) to Registrant's Annual Report Form
10-K dated March 28, 1991.)
10.2 Partnership Agreement between Alltel Mobile
Communications of the Carolinas, Inc. (Alltel) and The
Ellerbe-Concord Cellular Company dated September 20, 1989.
(Incorporated by reference to Exhibit 10(b) to Registrant's
Annual Report Form 10-K dated March 28, 1991.)
10.3 BellSouth Carolinas PCS Limited Partnership
Agreement dated December 8, 1994. (Incorporated by reference to
Exhibit 10(h) to Registrant's Amendment No. 1 to Annual Report
Form 10-K/A dated July 14, 1995.)
10.4 Limited Liability Company Agreement of Wireless
One of North Carolina, L.L.C. dated October 10, 1995 by and among
CT Wireless Cable, Inc., Wireless One, Inc. and O. Gene Gabbard.
10.5 North Carolina Utilities Commission order
approving the issuance and sale of Class B Nonvoting common stock
for use in an Executive Stock Option Plan dated March 12, 1990
effective April 27, 1989. (Incorporated by reference to Exhibit
10(c) to Registrant's Annual Report Form 10-K dated March 31,
1993.)*
10.6 1989 Executive Stock Option Plan dated April 26,
1989. (Incorporated by reference to Exhibit 10(d) to
Registrant's Annual Report Form 10-K dated March 29, 1994.)*
10.7 Comprehensive Stock Option Plan dated April 27,
1995. (Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59645) dated May 26,
1995.)*
10.8 Employee Stock Purchase Plan dated April 27, 1995.
(Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59643) dated May 26,
1995.)*
10.9 Restricted Stock Award Program dated April 27,
1995. (Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59641) dated May 26,
1995.)*
11 Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
_________________________
* Indicates management contract or compensatory plan required
to be filed as an Exhibit.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the three months ended December 31, 1996.
(c) The following exhibits are filed herewith and follow the
signature pages:
10.4 Limited Liability Company Agreement of Wireless
One of North Carolina, L.L.C. dated October 10,
1995 by and among CT Wireless Cable, Inc., Wireless
One, Inc. and O. Gene Gabbard
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(d) The financial statement schedule listed in Item 14(a)(1)
above begins on page F-39.
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.
CT COMMUNICATIONS, INC.
By: /s/ MICHAEL R. COLTRANE
Michael R. Coltrane
President and Chief
Executive Officer
Date: March 31, 1997
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 in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ MICHAEL R. COLTRANE President, March 31, 1997
Michael R. Coltrane Chief Executive Officer
and Director
(Principal Executive Officer)
/S/ L.L. COLTRANE III Chairman of the Board March 31, 1997
L.D. Coltrane III and Director
/S/ BARRY R. RUBENS Senior Vice President March 31, 1997
Barry R. Rubens (Principal Financial
and Principal Accounting
Officer)
/S/ JOHN R. BOGER, JR. Director March 31, 1997
John R. Boger, Jr.
________________________ Director March __, 1997
O. Charlie Chewning
________________________ Director March __, 1997
Samuel E. Leftwich
/S/ JERRY H. MCCLELLAN Director March 31, 1997
Jerry H. McClellan
/S/ BEN F. MYNATT Director March 31, 1997
Ben F. Mynatt
/S/ PHIL W. WIDENHOUSE Director March 31, 1997
Phil W. Widenhouse
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1996, 1995, and 1994
(With Independent Auditors' Report Thereon)
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements Index
December 31, 1996, 1995 and 1994
(1) Consolidated Financial Statements
The following financial statements, together with
independent auditors' report thereon, are included:
* Independent Auditors' Report F - 2
* Consolidated balance sheets as of
December 31, 1996 and 1995 F - 3 and F - 4
* Consolidated statements of income for the
years ended December 31, 1996, 1995 , and
1994 F - 5
* Consolidated statements of stockholders'
equity for the years ended December 31,
1996, 1995 , and 1994 F - 6
* Consolidated statements of cash flows for the
years ended December 31, 1996, 1995 , and
1994 F - 7
* Notes to consolidated financial statements
for the years ended December 31, 1996, 1995 ,
and 1994 F - 8 to F - 25
(2) Consolidated Financial Statement Schedules
The following financial statement schedule is included:
* Schedule II - Valuation and Qualifying Accounts F - 26
Other schedules are omitted because the required information
is included in the financial statements or is not
applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CT Communications, Inc.:
We have audited the consolidated financial statements of CT
Communications, Inc. and subsidiaries as listed in the
accompanying index. In connection with our audits of these
consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of CT Communications, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
Charlotte, North Carolina
February 28, 1997
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
ASSETS 1996 1995
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 2,162,698 4,751,204
Short-term investments (note 2) 316,158 2,711,699
Accounts receivable, net of
allowance for doubtful accounts
of $100,000 in 1996 and 1995 7,614,737 8,878,698
Refundable income taxes 14,736 176,228
Materials and supplies 2,860,114 1,803,419
Deferred income taxes (note 11) 103,399 71,324
Prepaid expenses and other assets 476,774 533,385
----------- -----------
Total current assets 13,548,616 18,925,957
----------- -----------
Investment securities (note 2) 3,637,445 9,074,888
Investments in affiliates (note 3) 25,888,315 21,788,955
Property, plant, and equipment:
Telephone plant in service (note 1c):
Land, buildings, and general
equipment 22,146,226 17,400,228
Central office equipment 58,691,229 47,037,535
Poles, wires, cables and conduit 72,466,757 65,849,055
Construction in progress - 14,483
----------- -----------
153,304,212 130,301,301
Less accumulated depreciation 81,314,625 72,325,624
----------- -----------
Net property, plant,
and equipment 71,989,587 57,975,677
----------- -----------
$ 115,063,963 107,765,477
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
Liabilities and Stockholders' Equity 1996 1995
- ------------------------------------ ----------- -----------
Current liabilities:
Current portion of long-term
debt and redeemable
preferred stock (notes 5 and 6) $ 2,072,500 652,500
Accounts payable 9,962,149 8,852,272
Customer deposits and advance
billings 1,271,562 1,080,773
Accrued payroll 1,250,396 468,390
Accrued pension cost (note 10) 1,043,974 1,143,033
Other accrued liabilities 469,492 500,654
----------- -----------
Total current liabilities 16,070,073 12,697,622
Long-term debt (note 5) 2,014,000 4,074,000
----------- -----------
Deferred credits and other liabilities:
Deferred income taxes (note 11) 1,106,910 1,568,455
Investment tax credits (note 11) 1,033,965 1,148,850
Regulatory liability (note 1 g) 2,507,029 2,633,285
Postretirement benefits other than
pension (note 10) 9,422,573 8,104,965
Other 1,103,098 1,103,098
----------- -----------
15,173,575 14,558,653
----------- -----------
Redeemable preferred stock:
4.8% series; authorized 5,000 shares;
issued and outstanding 1,625
and 1,750 shares in 1996 and 1995,
respectively (note 6) 150,000 162,500
----------- -----------
Total liabilities 33,407,648 31,492,775
Stockholders' equity:
Preferred stock not subject to
mandatory redemption (note 7):
5% series, $100 par value;
15,087 shares outstanding 1,508,700 1,508,700
4.5% series, $100 par value;
2,000 shares outstanding 200,000 200,000
Discount on 5% preferred stock (16,059) (16,059)
Common stock (note 7):
Voting; 227,019 shares outstanding 4,021,094 4,021,094
Nonvoting; 1,258,357 and
1,256,001 shares outstanding
in 1996 and 1995, respectively 23,377,120 23,114,777
Other capital 298,083 298,083
Unearned compensation (note 8) (188,055) (60,752)
Unrealized gain on securities
available-for-sale 195,419 1,196,766
Retained earnings 52,260,013 46,010,093
----------- -----------
Total stockholders' equity 81,656,315 76,272,702
Contingency (note 13)
----------- -----------
$ 115,063,963 107,765,477
=========== ===========
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994
----------- ----------- -----------
Operating revenues:
Local service $ 24,715,038 21,230,607 18,817,818
Access and toll service 31,653,259 29,971,626 29,273,624
Other and unregulated 11,008,784 9,551,076 7,259,527
Less: provision for
uncollectible accounts (323,075) (335,958) (221,074)
----------- ----------- -----------
Total operating
revenues 67,054,006 60,417,351 55,129,895
----------- ----------- -----------
Operating expenses (note 1c):
Plant specific 20,026,094 15,627,931 15,707,404
Depreciation and
amortization 10,104,802 11,968,090 14,426,629
Customer operations 11,224,067 8,348,246 7,391,108
Corporate operations 9,995,004 7,256,798 6,235,157
----------- ----------- -----------
Total operating
expenses 51,349,967 43,201,065 43,760,298
----------- ----------- -----------
Net operating
revenues 15,704,039 17,216,286 11,369,597
----------- ----------- -----------
Other income (expenses):
Equity in income of
affiliates, net (note 3) 1,801,952 2,203,706 1,295,975
Interest, dividend
income and gain on
sale of investments 244,213 939,139 1,053,658
Other expenses,
principally interest (705,112) (581,764) (685,946)
----------- ----------- -----------
Total other income 1,341,053 2,561,081 1,663,687
----------- ----------- -----------
Income before
income taxes 17,045,092 19,777,367 13,033,284
----------- ----------- -----------
Income taxes (note 11) 6,583,671 6,760,624 4,688,936
----------- ----------- -----------
Net income 10,461,421 13,016,743 8,344,348
Dividends on
preferred stock 92,535 93,135 93,948
----------- ----------- -----------
Earnings for common
stock $ 10,368,886 12,923,608 8,250,400
=========== =========== ===========
Earnings per common
share $ 6.98 8.74 5.59
=========== =========== ===========
See accompanying notes to consolidated financial statements.
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 10,461,421 13,016,743
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,104,802 11,968,090
Postretirement benefits 1,317,608 1,811,771
Loss (gain) on sale of
investment securities 75,667 5,745
Undistributed income of affiliates (1,801,952) (1,079,323)
Decrease (increase) in accounts
receivable 1,263,961 (1,833,729)
Increase in materials and supplies (1,056,695) (381,013)
Decrease (increase) in other
current assets 56,611 (294,806)
Increase in accounts payable 1,109,877 710,595
Increase in customer deposits
and advance billings 190,789 90,963
Increase (decrease) in deferred
income taxes and tax credits 31,700 (2,532,397)
Increase in accrued liabilities 525,529 203,657
Decrease (increase) in refundable
income taxes 161,492 (1,350,587)
----------- -----------
Net cash provided by
operating activities 22,440,810 20,335,709
----------- -----------
Cash flows from investing activities:
Capital expenditures - telephone plant(24,150,030) (16,129,492)
Salvage value - telephone plant retired 31,318 26,148
Purchases of investments in affiliates (4,263,200) (8,665,390)
Purchases of investment securities (1,067,060) (9,787,257)
Proceeds from sale of investment
securities 4,606,652 10,316,461
Maturities of investment securities 2,751,739 4,681,351
Partnership capital distribution 1,965,792 713,761
----------- -----------
Net cash used in
investing activities (20,124,789) (18,844,418)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (640,000) (1,527,500)
Proceeds from new debt - -
Redemption of preferred stock (12,500) (12,500)
Dividends paid (4,225,627) (4,087,558)
Proceeds from common stock issuance 109,869 586,675
Other (136,269) (45,439)
----------- -----------
Net cash used in
financing activities (4,904,527) (5,086,322)
----------- -----------
Net (decrease) increase in cash
and cash equivalents (2,588,506) (3,595,031)
Cash and cash equivalents -
beginning of year 4,751,204 8,346,235
----------- -----------
Cash and cash equivalents -
end of year $ 2,162,698 4,751,204
=========== ===========
Supplemental cash flow information:
Cash paid for income taxes $ 6,474,267 10,589,211
Cash paid for interest 310,099 398,376
=========== ===========
See accompanying notes to consolidated financial statements.
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended December 31, 1996, 1995, and 1994
1994
-----------
Cash flows from operating activities:
Net income $ 8,344,348
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,426,629
Postretirement benefits 1,691,934
Loss (gain) on sale of
investment securities (270,296)
Undistributed income of affiliates (1,295,975)
Decrease (increase) in accounts
receivable (447,232)
Increase in materials and supplies (39,152)
Decrease (increase) in other
current assets (22,838)
Increase in accounts payable 3,565,484
Increase in customer deposits
and advance billings 129,998
Increase (decrease) in deferred
income taxes and tax credits (3,637,966)
Increase in accrued liabilities 259,110
Decrease (increase) in refundable
income taxes 1,367,327
-----------
Net cash provided by
operating activities 24,071,371
-----------
Cash flows from investing activities:
Capital expenditures - telephone plant (12,235,699)
Salvage value - telephone plant retired 70,719
Purchases of investments in affiliates (9,245,045)
Purchases of investment securities (219,855)
Proceeds from sale of investment
securities 324,746
Maturities of investment securities 7,192,217
Partnership capital distribution -
-----------
Net cash used in
investing activities (14,112,917)
-----------
Cash flows from financing activities:
Repayment of long-term debt (4,256,500)
Proceeds from new debt 4,029,000
Redemption of preferred stock (12,500)
Dividends paid (4,101,929)
Proceeds from common stock issuance 46,300
Other 22,211
-----------
Net cash used in
financing activities (4,273,418)
-----------
Net (decrease) increase in cash
and cash equivalents 5,685,036
Cash and cash equivalents -
beginning of year 2,661,199
-----------
Cash and cash equivalents -
end of year $ 8,346,235
===========
Supplemental cash flow information:
Cash paid for income taxes $ 5,504,103
Cash paid for interest 497,592
===========
See accompanying notes to consolidated financial statements.
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
These consolidated financial statements include the
accounts of CT Communications, Inc. (the Company), a
holding company, and its wholly-owned subsidiaries, The
Concord Telephone Company (Concord Telephone), CTC Long
Distance Services (CTC LDS), CT Cellular, Carolinas PCS
(dba CTC Wireless) and CT Wireless Cable. All
significant intercompany accounts and transactions have
been eliminated in consolidation.
CT Communications, Inc. and subsidiaries operate
entirely in the communications industry. Concord
Telephone, the Company's principal subsidiary, provides
local telephone service as well as telephone and
equipment rental to customers who are primarily
residents of Cabarrus, Stanly and Rowan counties in
North Carolina. The Company also provides long
distance service via CTC LDS. CT Cellular owns and
accounts for investments in two general partnerships
which provide cellular mobile telephone services to
various counties in North Carolina. CTC Wireless,
which began operations in 1996, accounts for the retail
operations and services provided in relation to
personal communications services, a new wireless
telecommunications system which includes voice, data
interface and paging. CT wireless Cable, which was
established in 1996, accounts for an investment in
Wireless One of North Carolina, LLC, which participates
in the wireless cable television market in North
Carolina.
The Company's regulated operations are subject to the
provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation." The Company is under the
jurisdiction of the North Carolina Utilities
Commission.
(b) RECLASSIFICATIONS
In certain instances, amounts previously reported in
the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the 1996
consolidated financial statement presentation. Such
reclassifications have no effect on net income or
retained earnings as previously reported.
(c) PROPERTY, PLANT AND EQUIPMENT
Telephone plant in service is stated at original cost
and includes certain indirect costs consisting of
payroll taxes, pension and other fringe benefits,
administrative, and general cost.
Depreciation on telephone plant in service is provided
on a straight-line basis using composite rates
acceptable to the regulatory authorities. During 1996,
1995 and 1994, under authority of the North Carolina
Utilities Commission (the Commission), the Company
recorded additional amortization relating to certain
telephone plant accounts. Such "special amortization",
as approved by the Commission, increased the Company's
total depreciation and amortization expense and related
accumulated depreciation by $574,363 in 1996,
$3,708,000 in 1995 and, $7,010,000 in 1994. The
provisions for depreciation for the years 1996, 1995,
and 1994 were 7.77%, 10.51% and 14.06%, respectively,
of the gross investment in depreciable telephone plant
in service at the beginning of each year.
Maintenance, repairs, and minor renewals are primarily
charged to maintenance expense accounts. Additions,
renewals, and betterments are charged to telephone
plant accounts. The original cost of depreciable
property retired is removed from telephone plant
accounts and charged to accumulated depreciation, which
is credited with the salvage less removal cost. Under
this method, no profit or loss is calculated on
ordinary retirements of depreciable property.
(d) INVESTMENT SECURITIES
Investment securities at December 31, 1996 consist of
state, county and municipal debt securities, and
corporate equity securities. The Company classifies
its debt and equity securities in one of three
categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and
held principally for the purpose of selling them in the
near term. Held-to-maturity securities are those
securities in which the Company has the ability and
intent to hold until maturity. All other securities
not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded
at fair value. Held-to-maturity securities are
recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading
securities are included in earnings. Unrealized
holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component
of stockholders equity until realized. Realized gains
and losses from the sale of available-for-sale
securities are determined on a specific identification
basis.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the
security established. Premiums and discounts are
amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield
using the effective interest method. Dividend and
interest income are recognized when earned.
At December 31, 1996, all of the Company's securities
are classified as available-for-sale securities.
(e) INVESTMENTS IN AFFILIATED COMPANIES
The Company has interests in several partnerships and
corporations which operate in the communications
industry. Investments in affiliates over which the
Company has the ability to exercise significant
influence are accounted for by the equity method.
(f) MATERIALS AND SUPPLIES
Materials and supplies are valued principally at the
lower of average cost (first-in, first-out method) or
market.
(g) INCOME TAXES
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.
Due to the reduction in corporate federal income tax
rates as a result of the Tax Reform Act of 1986, there
exists excess deferred income taxes. Pursuant to SFAS
No. 71, "Accounting for the Effects of Certain Types of
Regulation," a regulatory liability and a corresponding
reduction in net deferred income taxes payable were
recorded relative to the excess deferred income taxes,
and the regulatory impact thereof. The regulatory
liability and the related tax impact will be amortized
as a reduction of federal income tax expense over the
estimated remaining lives of the assets which generated
the deferred taxes.
Investment tax credits related to telephone plant have
been deferred and amortized as a reduction of federal
income tax expense over the estimated useful lives of
the assets giving rise to the credits. Unamortized
deferred investment tax credits are treated as
temporary differences.
(h) REVENUE RECOGNITION
Local and toll service and access charges are
recognized when earned regardless of the period in
which they are billed.
(i) EARNINGS PER SHARE
Earnings per common share are based on the weighted
average number of common shares outstanding each year
and are presented with adjustment for subsequent stock
dividends and stock splits. The difference between
primary and fully diluted earnings per share is
immaterial.
(j) CASH EQUIVALENTS
For purposes of the statement of cash flows, the
Company considers all short-term investments with
original maturities at the date of purchase of three
months or less to be cash equivalents.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
(l) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS
TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1,
1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are
considered to be impaired, the impairment to be
recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement did not have
a material impact on the Company's financial position,
results of operations, or liquidity.
(m) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of
Accounting Principles Board ( APB ) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would
be recorded on the date of grant only if the current
market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as
expense over the vesting period the fair value of all
stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants
made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
(2) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for the Company's
investments by major security type and class of security at
December 31, 1996 and 1995, were as follows:
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
At December 31, 1996
Available-for-sale:
State, county and
municipal debt
securities $ 2,756,158 169,230 (168,109) 2,757,279
Equity securities 877,205 2,238,449 (1,919,330) 1,196,324
---------- --------- --------- ----------
$ 3,633,363 2,407,679 (2,087,439) 3,953,603
========== ========= ========= ==========
At December 31, 1995
Available-for-sale:
State, county and
municipal debt
securities $ 8,981,192 119,275 (9,554) 9,090,913
Equity securities 843,505 2,215,949 (363,780) 2,695,674
---------- --------- --------- ----------
$ 9,824,697 2,335,224 (373,334) 11,786,587
========== ========= ========= ==========
On December 31, 1995, the Company reclassified all of its
held-to-maturity securities to available-for-sale securities
based on the additional information provided in the FASB
Special Report, "Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity
Securities". In connection with this reclassification, the
Company recorded a fair value adjustment of $109,721, which
is disclosed net of the tax effect of $43,932 in the
consolidated statement of stockholders' equity.
Maturities of debt securities were as follows at December
31, 1996:
AMORTIZED FAIR
COST VALUE
---------- ---------
Currently due $ 316,158 316,158
Due after one year through
five years 1,940,000 1,940,931
Due after five years through
ten years 500,000 500,190
--------- ---------
$ 2,756,158 2,757,279
(3) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of the
following:
OWNERSHIP
PERCENTAGE 1996 1995
---------- --------- ---------
Equity Method:
RSA 15 Partnership 50.00% $ 6,516,008 4,844,472
BellSouth Carolinas PCS, LP 1.95% 5,581,051 4,597,756
U.S. Telecom Holdings 27.70% 3,556,294 3,520,833
Wireless One of
North Carolina, LLC 48.00% 1,371,000 240,000
Ellerbe-Concord Partnership 49.00% 1,188,967 898,959
Access On 19.58% 199,095 271,035
Other various - 63,747
Cost Method:
ITC Associates Partnership 22.48% $ 5,519,832 5,519,832
USTN Holdings, Inc. 4.00% 1,068,624 -
ITC Holding Company .3% 658,354 658,354
ITN Charter - - 789,347
U.S. Intelco - - 279,277
Other various 229,090 105,343
---------- ----------
$25,888,315 21,788,955
========== ==========
The purpose of the ITC Associates partnership is to acquire,
own or hold, manage and sell ITC Holding Company common
stock. ITC Holding Company operates entirely in the
communications industry, primarily providing local, long
distance and wireless service to customers.
The Partnership has an 18.33% interest in ITC Holding
Company, and therefore, the Company's indirect ownership in
ITC Holding Company is 4.1%. The Company's direct ownership
in ITC Holding Company is .3%, for a total ownership of
4.4%. The substance of the investment in ITC Associates
Partnership is an ownership in ITC Holding Company, and
since this ownership is less than 20%, the investment has
been accounted for under the cost method. Had the Company
recorded this investment under the equity method, the
Company's share of earnings from affiliates would have been
$960,000.
The RSA 15 Partnership is a partnership with Alltel which is
in the business of providing cellular service in Cabarrus,
Stanly and parts of Iredell and Rowan counties of North
Carolina.
BellSouth Carolinas PCS, L.P. is in the business of
providing personal communications services which is a new
wireless communications service that will compete with
cellular phone service. Due to the company's significant
influence over this partnership's operating and financial
policies, this investment is accounted for under the equity
method.
U.S. Telecom Holdings is in the business of investing
directly or indirectly in regional operating telephone
companies in Hungary, Mexico and other developing countries.
The Company also develops and sells operating software
systems for the telecommunications industry.
The purpose of Wireless One of North Carolina, LLC is to
develop and deploy wireless cable in North Carolina.
Ellerbe-Concord Partnership has a 50% partnership with
Alltel Mobile which is in the business of providing cellular
service in Anson, Lincoln, Montgomery and Richmond counties
of North Carolina.
Access On was formed in cooperation with the Company and
thirteen other North Carolina independent telephone
companies. Access On was formed to build and operate a
broadband backbone telecommunications network throughout
much of North Carolina. Due to the Company's significant
influence over this company's operating and financial
policies, this investment is accounted for under the equity
method.
During 1996, ITN Charter and U.S. Intelco merged to form
USTN Holdings, Inc.
Included in the Company's share of earnings from affiliates
accounted for under the equity method were total losses of
$2,125,385 and total income of $3,927,337. Over 86% of the
losses and 90% of the income was attributable to Bell South
Carolinas PCS and the RSA 15 Partnership, respectively.
Summarized unaudited combined financial position information
for these two entities as of December 31, 1996 and 1995 is
as follows: current assets-$16,182,000 and $47,754,000;
property and other non-current assets-$372,325,000 and
$157,812,000; current liabilities-$108,475,000 and $488,000;
equity-$280,507,000 and $205,078,000. Summarized unaudited
combined results of operations for these two entities for
the years ended December 31, 1996, 1995 and 1994,
respectively, is as follows: revenues-$27,176,000,
$16,680,000 and $11,003,000; operating income
(loss)-($81,861,000), ($14,982,000), and $2,463,000; and net
income (loss)-($86,351,000), ($14,381,000) and $2,505,000.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of the company's financial instruments:
Cash and cash equivalents, short-term investments,
accounts receivable, other assets, accounts payable and
accrued expenses - the carrying amount approximates
fair value because of the short maturity of these
instruments.
Investment Securities - debt and equity securities are
carried at market value.
Investments in Affiliates - since there are no quoted
market prices for the Company's investments in
affiliates, a reasonable estimate of fair value could
not be made without incurring excessive costs.
Long-term debt - the fair value of the Company's
long-term debt is estimated by discounting the
scheduled payment streams to present value based on
current rates for similar instruments of comparable
maturities.
Based on the methods and assumptions noted above, the
estimated fair values of the Company's financial instruments
for which carrying value does not approximate fair value at
December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- ---------
Financial assets
Investment in
affiliates $ 25,888,315 N/A 21,788,955 N/A
========== === ========== ====
Financial liabilities
Long-term debt
and redeemable
preferred stock,
including current
maturities $ 4,236,500 4,154,645 4,889,000 4,558,339
========== ========= ========== =========
(5) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995, consists of
the following:
1996 1995
---- ----
6.25% Series F first mortgage bonds,
due March 1, 1997 $ 1,440,000 1,440,000
Note payable to a bank (at 7.25%),
due in installments until 2001 2,634,000 3,274,000
--------- ---------
Total long-term debt 4,074,000 4,714,000
Less: current installments 2,060,000 640,000
--------- ---------
Long-term debt, excluding
current installments $ 2,014,000 4,074,000
========= =========
Annual maturities of the long-term debt outstanding for the
five-year periods subsequent to December 31, 1996, are as
follows: $2,060,000 in 1997; $620,000 in 1998, 1999 and
2000, and $154,000 thereafter.
The indenture of the first mortgage bonds contains
provisions which restrict the amount of cash the Company may
disburse for dividends and repurchases of capital stock if
the Company's retained earnings are less than a defined
amount. At December 31, 1996, retained earnings exceeded
the defined amount and accordingly, retained earnings is
unrestricted.
The Company has available lines of credit totaling
$13,500,000, none of which was outstanding at December 31,
1996 or used during 1996.
(6) REDEEMABLE PREFERRED STOCK
The 4.8% redeemable preferred stock is callable at a
redemption price of $100 a share plus accumulated dividends.
Sinking fund requirements in the next five years are $12,500
annually.
There have been no changes in the 4.8% series preferred
stock in the three years ended December 31, 1996, other than
the annual sinking fund requirement of $12,500.
(7) COMMON STOCK AND PREFERRED STOCK NOT SUBJECT TO MANDATORY
REDEMPTION
Common stock is comprised of Voting and Nonvoting Class B
stock. There are 3,000,000 shares of Voting Common Stock
authorized. There are 15,000,000 shares of Nonvoting Common
Stock authorized.
The weighted average number of common shares outstanding (as
adjusted) are 1,484,789 in 1996, 1,478,922 in 1995, and
1,475,523 in 1994. In August 1994, the Company issued a
one-for-four stock dividend to stockholders of record at
September 1, 1994. In April 1996, the company effected a
three-for-one stock split in the form of a two-for-one stock
dividend to stockholders of record at May 3, 1996. Earnings
per share, dividends per share and weighted average shares
outstanding have been retroactively restated for all years
presented.
Cash dividends per share of common stock are as follows:
$2.78 in 1996; $2.70 in 1995; and $2.64 in 1994.
Preferred stock is comprised of cumulative $100 par value 5%
and 4.5% series stock. There are 17,000 shares of the 5%
series stock authorized. There are 2,000 shares of the 4.5%
series stock authorized. These preferred stocks are
callable in whole or in part at the option of the Company at
$100 per share plus accumulated dividends.
(8) STOCK COMPENSATION PLANS
At December 31, 1996, the Company has four stock-based
compensation plans, which are described below. The Company
applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its
stock purchase plan. Had compensation cost for the
Company's stock-based compensation plans been determined
consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1996 1995
---- ----
Net Income As Reported $10,461,421 $13,016,743
Pro forma $10,120,715 $12,948,602
Earnings per
common share As Reported $ 6.98 $ 8.74
Pro forma $ 6.75 $ 8.69
The Company has an Executive Stock Option Plan (the Plan) to
allow key employees to increase their holdings of the
Company's common stock. 7,500 shares of Nonvoting Class B
common stock were reserved for issuance under the Plan. At
December 31, 1996, all shares reserved for issuance have
been granted. Options are granted at prices determined by
the board of directors, generally the most recent sales
price at the date of grant, and must be exercised within
five years of the date of grant. Options are exercisable
immediately when granted. Activity under the Plan for each
of the years in the three-year period ended December 31,
1996, is as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
Options outstanding and exercisable
at January 1, 1994 3,711 $ 68
Options granted 3,051 72
Options exercised (843) 55
------ ----
Options outstanding and exercisable
at December 31, 1994 5,919 75
Options granted - -
Options exercised (1,779) 74
------ ----
Options outstanding and exercisable
at December 31, 1995 4,140 77
Options granted - -
Options exercised (579) 60
------ ----
Options outstanding and exercisable
at December 31, 1996 3,561 $ 78
------ ----
As of December 31, 1996, the 3,561 options outstanding and
exercisable have exercise prices between $65 and $85 and a
weighted-average remaining contractual life of 3 years.
During 1995, the Company approved a comprehensive Stock
option plan (the Plan) to allow key employees to increase
their holdings of the Company's stock. There are 15,000
shares of nonvoting class B Common Stock reserved for
issuance under the Plan. At December 31, 1996, the number
of nonvoting Class B common stock reserved for issuance but
ungranted was 5,700 shares. Options are granted at prices
determined by the board of directors, generally the most
recent sales price at the date of grant, and must be
exercised within ten years of the date of grant. Options
are exercisable 6 months after the grant date. During 1995,
the Company granted 9,300 shares with a weighted-average
exercise price of $106, a weighted-average fair value of $32
and exercise prices ranging from $90 - 107 and at December
31, 1996, a weighted-average remaining life of 9 years. As
of December 31, 1996, no additional options had been
granted, and no options had been exercised.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions: dividend yield
of 2.5%; expected volatility of 20%; risk-free interest rate
of 6%, and expected lives of 10 years.
During 1995, the Company approved a Restricted Stock Award
Program (the Program) to provide deferred compensation and
additional equity participation to certain executive
management and key employees. The aggregate amount of Class
B common stock that may be awarded to participants under the
Program is 15,000 shares. The Company will record deferred
compensation in the amount of the fair market value of the
stock granted and will amortize this amount on a straight
line basis over the vesting period, 10 years. In 1996 and
1995 respectively, the Company granted 1,475 and 726 shares
to participants with a weighted-average fair value of $107
and $90. Deferred Compensation at December 31, 1996 and
1995, respectively was $188,055 and $65,008, which is
disclosed net of amortization of $29,428 and $4,256, in the
consolidated statement of stockholders' equity.
In April 1996, the Company approved a Director Compensation
Plan (the Plan) to provide each member of the Board of
Directors the right to receive the Director's compensation
in shares of Class B common stock or cash, at the Director's
discretion. An aggregate of 7,500 shares have been reserved
for issuance under the Plan. All compensation for a
Director who elects to receive shares of stock in lieu of
cash will be converted to shares of stock based upon the
fair market value of the Class B stock on the grant date.
The initial grant date is the first day that is six months
and one day following the Directors election. All
subsequent compensation shall be converted to shares of
Class B stock based upon the fair market value of the Class
B stock on the date such compensation is paid or made
available to the Director. During 1996, the Company granted
352 shares with a fair market value of $170.
(9) EMPLOYEE STOCK PURCHASE PLAN
In 1995, the Company approved an Employee Stock Purchase
Plan (the Plan) which authorized 7,500 shares of Class B
Non-Voting shares to be offered to all employees eligible to
buy shares. Purchase price of shares is 100% of fair market
value with the option to finance up to 100% of purchase by
payroll deduction over a period of up to 24 months at 6%
interest. A total of 4,728 shares have been issued under
the Plan at a purchase price of $83 per share.
(10) EMPLOYEE BENEFIT PLANS
(a) PENSION PLAN AND SAVINGS PLAN
The Company has a trusteed, defined benefit,
noncontributory pension plan covering substantially all
of its employees. The benefits are based on years of
service and the employee's highest five consecutive
plan years of compensation. Contributions to the plan
are based upon the Entry Age Normal Method with Frozen
Initial Liability and comply with the funding
requirements of the Employee Retirement Income Security
Act. Since the plan is adequately funded, there have
been no contributions made in 1996 or 1995. Plan
assets are invested primarily in common stocks,
long-term bonds and U.S. treasury notes.
The following table sets forth the funded status of the
Company's pension plan and amounts recognized in the
Company's financial statements at December 31, 1996 and
1995.
1996 1995
---- ----
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$20,657,133 in 1996
$19,340,283 in 1995, respectively $ 20,950,012 19,662,643
=========== ===========
Projected benefit obligation (26,375,271) (24,713,042)
Plan assets at fair value 32,848,100 30,286,583
----------- -----------
Excess of plan assets over the
projected benefit obligation 6,472,829 5,573,541
Unrecognized net gain deferred (7,078,443) (6,208,654)
Unrecognized prior service cost (41,989) (45,488)
Unrecognized net asset being amortized
over 16 years from January 1, 1987 (396,371) (462,432)
---------- -----------
Net accrued pension cost $ (1,043,974) (1,143,033)
========== ==========
Net pension cost for 1996, 1995, and 1994 included the
following:
1996 1995 1994
---- ---- ----
Service cost, benefits
earned during the period $ 651,591 571,935 628,473
Interest cost on projected
benefit obligation 1,724,700 1,610,208 1,644,350
Actual return on
plan assets (3,784,646) (6,013,024) (341,371)
Net amortization
and deferral 1,309,296 4,006,215 (1,693,615)
---------- ---------- ----------
Net periodic pension cost $ (99,059) 175,334 237,837
========== ========== ==========
The weighted average discount rate of 7% in 1996 and
1995, and 7.5% in 1994 and the rate of increase in
future compensation levels of 5% in 1996 and 1995 and
6% in 1994 were used in determining the actuarial
present value of the projected benefit obligations at
the end of the year. The assumed long-term rate of
return on pension plan assets was 7.5% in 1996, 1995
and 1994.
(b) EMPLOYEE SAVINGS PLAN
The Company has a 401(k) salary savings plan which
provides that employees may contribute a portion of
their salary to the plan on a tax deferred basis. The
Company matches a portion of the employee's
contribution. The Company's matching contribution
totaled $229,500, $322,867, and $308,515 in 1996, 1995,
and 1994, respectively.
(c) EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan of The Concord
Telephone Company (the Plan) was originally a defined
contribution plan sponsored by the Company. The
Company was responsible for all contributions to the
Plan. Contributions were in the form of Company stock
or cash used to purchase Company stock. Prior to the
Tax Reform Act of 1986 (the Act), the Company was
eligible for certain tax credits as a result of the
Plan contributions. Subsequent to the Act, these tax
credits were no longer available. As a result, the
Company has frozen the plan. As of January 1, 1987, no
more contributions can be made into the plan and no
employee may become eligible to participate.
(d) POSTRETIREMENT BENEFITS
In addition to the Company's defined benefit pension
plan, the Company sponsors a health care plan that
provides postretirement medical benefits and life
insurance coverage to full-time employees who meet
minimum age and service requirements. The plan is
contributory with respect to coverage for
beneficiaries. The Company's policy is to fund the
cost of medical benefits on a cash basis.
The Company has adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," and
has elected to amortize the transition liability over
15 years. The Statement requires the accrual, during
the years that an employee renders the necessary
service, of the expected cost of providing those
benefits to the employee and employee's beneficiaries
and covered dependents. Previously, the Company
recognized the cost of providing these benefits by
expensing such costs as they were incurred.
The following table presents the plan's accumulated
postretirement benefit obligation reconciled with
amounts recognized in the Company's balance sheets at
December 31, 1996 and 1995:
1996 1995
---- ----
Accumulated postretirement benefit
obligation:
Retirees $ 5,198,219 5,690,627
Fully eligible active
plan participants 3,046,889 3,998,522
Other active plan participants 4,544,602 4,868,044
---------- ----------
12,789,710 14,557,193
Unrecognized net gain (loss) 2,139,040 (334,253)
Unrecognized transition obligation (5,506,177) (6,117,975)
---------- ----------
Accrued postretirement benefit cost $ 9,422,573 8,104,965
Net periodic postretirement benefit cost for 1996, 1995
and 1994 includes the following components:
1996 1995 1994
---- ---- ----
Service cost $ 321,990 331,470 341,469
Interest cost 828,192 931,037 941,801
Amortization of transition
obligation over 15 years 611,798 611,798 611,798
Amortization of gain (72,216) - -
--------- --------- ---------
Net periodic postretirement
benefit cost $ 1,689,764 1,874,305 1,895,068
========= ========= =========
For measurement purposes, a 13.5% percent annual rate
of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) was assumed for
1995 and the rate was assumed to decrease annually to
6.5% by the year 2002 and to remain level thereafter.
The health care cost trend rate assumption has a
significant effect on the amounts reported. For
example, increasing the assumed health care cost trend
rates by one percentage point in each year would
increase the accumulated postretirement benefit
obligation as of December 31, 1996, to approximately
$14,245,179 and the aggregate of the service and
interest cost components of net periodic post
retirement benefit cost for the year ended December 31,
1996 by approximately $1,289,643.
The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was
7% in 1996 and 1995, and 7.5% in 1994.
(11) INCOME TAXES
Income tax expense (benefit) for the years ended December
31, 1996, 1995, and 1994, consists of:
1996 1995 1994
---- ---- ----
Current:
Federal $ 5,385,969 7,500,277 6,697,320
North Carolina 1,292,799 1,792,744 1,629,582
--------- --------- ---------
6,678,768 9,293,021 8,326,902
--------- --------- ---------
Deferred:
Federal, net of investment
tax credit amortization (111,920) (2,166,780) (2,953,712)
North Carolina 16,823 (365,617) (684,254)
--------- --------- ---------
(95,097) (2,532,397) (3,637,966)
--------- --------- ---------
Total $ 6,583,671 6,760,624 4,688,936
========= ========= =========
Total income tax expense differs from the amounts computed
by applying the U.S. federal income tax rate of 35 percent
to income before income taxes as a result of the following:
1996 1995 1994
---- ---- ----
Amount computed at
statutory rate $ 5,965,782 6,922,078 4,561,650
State income taxes, net of
federal income tax benefit 851,254 927,633 640,727
Nontaxable interest income (104,315) (263,375) (274,177)
Amortization of federal
investment tax credit (114,885) (248,538) (256,129)
Amortization of deferred
regulatory liability (126,256) (69,356) (72,346)
Other, net 112,091 (507,818) 89,211
--------- --------- ---------
Income tax expense $ 6,583,671 6,760,624 4,688,936
========= ========= =========
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities as of December 31, 1996 and 1995 were as
follows:
1996 1995
---- ----
Deferred tax assets:
Accrued postretirement
and pension benefits $ 4,190,884 3,702,898
Regulatory liability 971,646 1,018,624
Deferred investment tax credits 351,548 390,609
Environmental remediation costs 142,425 144,781
Accrued incentive 237,442 -
Other 210,263 222,011
--------- ---------
Total gross deferred tax assets 6,104,208 5,478,923
--------- ---------
Deferred tax liabilities:
Property, plant and equipment,
primarily related to
depreciation differences 6,772,715 6,210,910
Unrealized gain on securities 124,941 765,144
Other 210,063 -
--------- ---------
Total gross deferred
tax liabilities 7,107,719 6,976,054
--------- ---------
Net deferred tax liability $ 1,003,511 1,497,131
There was no valuation allowance for deferred tax assets as
of December 31, 1996, 1995 or 1994. Based upon the level of
historical taxable income and the expected reversal of
future taxable temporary differences, management believes it
is more likely than not that the Company will realize the
benefits of these deductible differences at December 31,
1996.
(12) ACCOUNTING FOR THE EFFECTS OF REGULATION
The Company's regulated operations are subject to the
provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain
Types of Regulation." Actions of a regulator can provide
reasonable assurance of the existence of an asset, reduce or
eliminate the value of an asset and impose a liability on a
regulated enterprise. SFAS 71 requires that, if a conflict
exists between the application of SFAS 71 and another
authoritative pronouncement, SFAS 71 is to be followed
because other authoritative pronouncements do not consider
the economic effects of the rate-making process. Therefore,
regulatory assets and liabilities established by the actions
of a regulator are required to be recorded, and,
accordingly, reflected in the balance sheet of an entity
subject to SFAS 71.
The Company's consolidated balance sheet as of December 31,
1996 included a regulatory liability of approximately $2.5
million which was recorded to offset deferred income taxes
[see note 1(g)].
During 1996, the Company filed a price regulation proposal
with its state regulators seeking permission to become
regulated based on prices rather than traditional rate base
rate of return regulation. This plan would expand the area
in which customers can call without paying long distance
charges by including all company exchanges in its toll-free
area. The plan also proposes to expand the metro area to
include Matthews, Huntersville, Davidson and other
surrounding communities, to eliminate the separate charge
for touch-tone calling, and to reduce charges for
long-distance calls into a broader calling zone that extends
into Western North Carolina. In exchange for the greater
flexibility in setting prices, the Company is agreeing to
open up its markets for competition for local dial-tone
services. By rebalancing rates, management believes the
Company can compete in emerging markets and still sustain
local rates that are affordable. A ruling on this proposal
is expected by June 1997.
The Company continuously monitors the applicability of SFAS
71 to its regulated operations. SFAS 71 may, at some future
date, be deemed inapplicable due to changes in the
regulatory, competitive and legislative environments and/or
a decision by the Company to accelerate deployment of new
technology. If the Company were to discontinue the
application of SFAS 71 to its regulated operations, the
Company would be required to write off its regulatory
liabilities and would be required to adjust the carrying
amount of any property, plant and equipment that would be
deemed not recoverable. The Company believes its regulated
operations continue to meet the criteria for SFAS 71 and
that the carrying value of its property, plant and equipment
is recoverable in accordance with established rate-making
practices.
(13) ENVIRONMENTAL REMEDIATION COSTS
The Company, along with approximately 70 other companies,
has entered into a Consent Decree with the United States to
clean up the Bypass 601 Groundwater Contamination Site (the
Site) in Concord, North Carolina. The companies also have
agreed to reimburse the U.S. Environmental Protection Agency
(EPA) for approximately $4 million in costs that have been
incurred thus far at the Site. The Site includes the former
Martin Scrap Recycling, Inc. facility, which operated a
battery salvage and recycling operation.
EPA has chosen a preferred remedy, which includes
stabilization of lead-contaminated soils and extraction and
treatment of contaminated groundwater. The remedy is
estimated to cost approximately $40 million and should take
at least 10 years to complete. Recent data indicate that a
modification to the remedy may be necessary because
groundwater contamination does not appear to be as extensive
as previously thought which would reduce the remedy to less
than $20 million.
EPA has agreed to pay approximately 30% of the cleanup
costs, up to a maximum of $10 million, out of the federal
"Superfund". Also, the federal government has tentatively
agreed to contribute another $4.75 million, reflecting the
amount of batteries it sent to the Site. If EPA's estimate
of cleanup costs is correct and the proposed modification is
finalized, the remaining cleanup costs to be borne by the
companies that signed the Consent Decree would be $15
million.
The companies that entered into the Consent Decree have
formed a group (the PRP Group) to implement the remedy. The
PRP Group has filed civil actions for contribution against
more than 100 other parties that allegedly arranged to send
lead-bearing materials to the site. That litigation is at a
very preliminary state.
The PRP Group has decided to allocate the remaining costs of
the cleanup among its members primarily in proportion to
their respective contributions of batteries to the Site.
According to EPA's records, the Company sent a total of
466,412 pounds of batteries, wire and other waste material
to the Site. Therefore, the Company's "nominal" share --
the portion it would pay if every member pays its full
amount -- is 0.405%. Based on the estimated costs outlined
above, the Company's nominal share would be $60,750. A
number of members are not financially strong enough to pay
their nominal shares, however. The PRP Group anticipates
that the amounts to be paid by those members that are
financially able to pay may exceed their nominal shares by
two or three times. At December 31, 1996, the Company has
accrued $355,700 for the share of the liability plus legal
fees.
In the opinion of management, the Company has adequately
accrued for its proportionate share of the estimated
liability at December 31, 1996.
(14) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income statement information for the
years ended December 31, 1996 and 1995, follows:
1996 QUARTERS ENDED
---------------------
MARCH 31 JUNE 30
---------- ----------
Operating revenues $ 15,473,079 15,576,999
Income before other income
(expenses) and income taxes 4,636,108 2,667,390
Net income 3,332,600 2,087,412
Earnings per common share $ 2.25 1.41
========== ==========
1995 QUARTERS ENDED
----------------------
MARCH 31 JUNE 30
---------- ----------
Operating revenues $ 13,369,020 15,209,825
Income before other income
(expenses) and income taxes 2,398,357 4,953,217
Net income 3,243,147 3,857,138
Earnings per common share $ 2.18 2.60
========== ==========
1996 QUARTERS ENDED
---------------------
SEPT. 30 DEC. 31
---------- ----------
Operating revenues $ 17,688,002 18,315,926
Income before other income
(expenses) and income taxes 3,891,375 4,509,166
Net income 2,561,567 2,479,842
Earnings per common share $ 1.72 1.67
========== ==========
1995 QUARTERS ENDED
----------------------
SEPT. 30 DEC. 31
---------- ----------
Operating revenues $ 15,090,972 16,747,534
Income before other income
(expenses) and income taxes 3,791,228 6,073,484
Net income 2,958,980 2,957,478
Earnings per common share $ 1.98 1.98
========== ==========
Earnings per common share for the third and fourth quarters
of 1996 and 1995 reflect the special amortization of
telephone plant in service as directed by the Commission of
$574,363 and $3,708,000, respectively, as mentioned in note
1c.
Schedule II
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1996, 1995, and 1994
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
DEDUCTIONS
BALANCE, ADDITIONS FROM BALANCE,
BEGINNING CHARGED RESERVES AT END
DESCRIPTION OF YEAR TO INCOME (SEE NOTE) OF YEAR
----------- --------- --------- ---------- -------
Valuation and qualifying
accounts deducted from
assets to which they
apply:
Allowance for
uncollectible accounts:
Year ended
December 31, 1996 $ 100,000 323,075 323,075 100,000
======= ======= ======= =======
Year ended
December 31, 1995 $ 100,000 335,958 335,958 100,000
======= ======= ======= =======
Year ended
December 31, 1994 $ 100,000 221,074 221,074 100,000
======= ======= ======= =======
Note: Represents balances written-off as uncollectible less
collections on balances previously written off of
$508,391, $432,117 and $395,490 for 1996, 1995, and
1994, respectively.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------
2 The Reorganization and Share Exchange Agreement by
and between The Concord Telephone Company and CT Communications,
Inc. dated as of August 1, 1993. (Incorporated by reference to
Exhibit 2.1 of registrant's current report on Form 8-K filed
November 8, 1993.)
3.1 Articles of Incorporation of the Registrant
effective October 25, 1993. (Incorporated by reference to
Exhibit of the Registrant's Annual Report Form 10-K dated March
29, 1994.)
3.2 Bylaws of the Registrant effective October 25,
1993. (Incorporated by reference to Exhibit of the Registrant's
Annual Report Form 10-K dated March 29, 1994.)
10.1 Partnership Agreement between Alltel Mobile Communications
of the Carolinas, Inc. (Alltel) and The Concord Telephone
Company dated September 15, 1989. (Incorporated by reference
to Exhibit 10(a) to Registrant's Annual Report Form 10-K
dated March 28, 1991.
10.2 Partnership Agreement between Alltel Mobile Communications
of the Carolinas, Inc. (Alltel) and The Ellerbe-Concord
Cellular Company dated September 20, 1989.
(Incorporated by reference to Exhibit 10(b) to Registrant's
Annual Report Form 10-K dated March 28, 1991.)
10.3 BellSouth Carolinas PCS Limited Partnership
Agreement dated December 8, 1994. (Incorporated by reference to
Exhibit 10(h) to Registrant's Amendment No. 1 to Annual Report
Form 10-K/A dated July 14, 1995.)
10.4 Limited Liability Company Agreement of Wireless
One of North Carolina, L.L.C. dated October 10, 1995 by and among
CT Wireless Cable, Inc., Wireless One, Inc. and O. Gene Gabbard.
10.5 North Carolina Utilities Commission order
approving the issuance and sale of Class B Nonvoting common stock
for use in an Executive Stock Option Plan dated March 12, 1990
effective April 27, 1989. (Incorporated by reference to Exhibit
10(c) to Registrant's Annual Report Form 10-K dated March 31,
1993.)*
10.6 1989 Executive Stock Option Plan dated April 26,
1989. (Incorporated by reference to Exhibit 10(d) to
Registrant's Annual Report Form 10-K dated March 29, 1994.)*
10.7 Comprehensive Stock Option Plan dated April 27,
1995. (Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59645) dated May 26,
1995.)*
10.8 Employee Stock Purchase Plan dated April 27, 1995.
(Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59643) dated May 26,
1995.)*
10.9 Restricted Stock Award Program dated April 27,
1995. (Incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement on Form S-8 (No. 33-59641) dated May 26,
1995.)*
11 Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
__________________________
* Indicates management contract or compensatory plan required
to be filed as an Exhibit.
LIMITED LIABILITY COMPANY AGREEMENT
OF
WIRELESS ONE OF NORTH CAROLINA, L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into as
of October 10, 1995, by and among CT Wireless Cable, Inc., a
North Carolina corporation (together with its permitted
successors or assigns, "CTWC"), Wireless One, Inc., a Delaware
corporation (together with its permitted successors or assigns,
"W/O"), and O. Gene Gabbard ("Gabbard") (CTWC, W/O, and Gabbard
sometimes are referred to herein individually as a "Member" and
collectively as the "Members").
WHEREAS, a Certificate of Formation (the "Certificate") to
form the LLC has been filed with the office of the Secretary of
the State of Delaware;
NOW, THEREFORE, in consideration of the foregoing, and of
the covenants and agreements hereinafter set forth, it is hereby
agreed as follows:
ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise specifies or requires,
capitalized terms used herein which are not otherwise defined in
the text of this Agreement shall have the respective meanings
assigned thereto in ADDENDUM I, attached hereto and incorporated
herein by reference, for all purposes of this Agreement (such
definitions to be equally applicable to both the singular and the
plural forms of the terms defined). Unless otherwise specified,
all references herein to Articles or Sections are to Articles or
Sections of this Agreement.
ARTICLE II
FORMATION; NAME; PLACE OF BUSINESS
2.1. Formation of LLC; Certificate of Formation
The Members of the LLC hereby:
(a) approve and ratify the filing of the Certificate with
the Recording Office and confirm and agree to their status as
Members of the LLC;
(b) execute this Agreement for the purpose of continuing
the existence of the LLC and establishing the rights, duties, and
relationship of the Members; and
(c) agree that if the laws of any jurisdiction in which the
LLC transacts business so require, the Management Committee or
appropriate officers or other authorized representatives of the
LLC also shall file, with the appropriate office in that
jurisdiction, any documents necessary for the LLC to qualify to
transact business under such laws; and agree and obligate
themselves to execute, acknowledge, and cause to be filed for
record, in the place or places and manner prescribed by law, any
amendments to the Certificate as may be required, either by the
Delaware LLC Act, by the laws of any jurisdiction in which the
LLC transacts business, or by this Agreement, to reflect changes
in the information contained therein or otherwise to comply with
the requirements of law for the continuation, preservation, and
operation of the LLC as a limited liability company under the
Delaware LLC Act.
2.2. Name of LLC
The name under which the LLC shall conduct its business is
"Wireless One of North Carolina, L.L.C." W/O hereby authorizes
the LLC to use the name "Wireless One of North Carolina" in the
connection with the operations and purposes of the LLC
contemplated by this Agreement, PROVIDED, HOWEVER, that, as among
the LLC and all Members, W/O will retain ownership of, and the
exclusive right to use, the name "Wireless One" and any
derivative thereof within the areas of the LLC s business
operations, except for use by the LLC in such areas in the
conduct of its business, and outside such areas; and PROVIDED
FURTHER, that upon dissolution of the LLC, W/O will once again
have the exclusive right to use the name "Wireless One" and any
derivative thereof within the states of North Carolina and South
Carolina and all other places as among the LLC and all Members.
The business of the LLC may be conducted under any other name
permitted by the Delaware LLC Act that is deemed necessary or
desirable by the Management Committee. The Management Committee
or appropriate officers or other authorized representatives of
the LLC promptly shall execute, file, and record any assumed or
fictitious name certificates required by the laws of the State of
Delaware or any state in which the LLC conducts business.
2.3. Place of Business
The location of the principal place of business of the LLC
shall be 5551 Corporate Boulevard, Suite 2K, Baton Rouge,
Louisiana 70808. The Management Committee hereafter may change
the principal place of business of the LLC to such other place or
places within the United States as the Management Committee may
from time to time determine. If necessary, the Members shall
amend the Certificate in accordance with the applicable
requirements of the Delaware LLC Act. The Management Committee
may establish and maintain such other offices and additional
places of business of the LLC, either within or without the State
of Delaware, as it deems appropriate.
2.4. Registered Office and Registered Agent
The street address of the initial registered office of the
LLC shall be 1013 Centre Road, Wilmington, Delaware 19805, and
the LLC's registered agent at such address shall be Corporation
Service Company.
ARTICLE III
PURPOSES AND POWERS OF LLC
3.1. Purposes
The purposes of the LLC shall be:
(a) to develop and operate one or more wireless cable
systems in the state of North Carolina and in the markets
encompassing Greenville, South Carolina and Spartanburg, South
Carolina, and immediately adjoining areas;
(b) the enter into lease agreements with educational
organizations for the use of ITFS wireless cable channels;
(c) to bid for, purchase or otherwise acquire the use of
licenses for commercial wireless cable channels (together, the
ITFS and commercial wireless cable channels are referred to as
the "Channels");
(d) to develop and operate wireless cable systems utilizing
such Channels in one or more markets (such systems collectively
are referred to herein as the "Systems");
(e) to sell or otherwise dispose of such Channels and
Systems;
(f) to operate and manage the business of the LLC and to
take any action necessary or appropriate in connection therewith;
and
(g) to enter into any lawful transaction and engage in any
lawful activities in furtherance of the foregoing purposes and as
may be necessary, incidental or convenient to carry out the
business of the LLC as contemplated by this Agreement.
3.2. Powers
The LLC shall have the power to do any and all acts and
things necessary, appropriate, advisable, or convenient for the
furtherance and accomplishment of the purposes of the LLC,
including, without limitation, to engage in any kind of activity
and to enter into and perform obligations of any kind necessary
to or in connection with, or incidental to, the accomplishment of
the purposes of the LLC, so long as said activities and
obligations may be lawfully engaged in or performed by a limited
liability company under the Delaware LLC Act.
ARTICLE IV
TERM OF LLC
The LLC commenced on the date upon which the Certificate was
duly filed with the Recording Office and shall continue until the
Termination Date, unless dissolved and liquidated before the
Termination Date in accordance with the provisions of ARTICLE X.
ARTICLE V
CAPITAL
5.1. Capital Contributions; Initial LLC Interests
5.1.1. Initial Capital Contributions
Concurrently with the execution of this Agreement or on such
later date as may be agreed to by all of the Members, each Member
shall make an initial Capital Contribution in the amount set
forth opposite its name on SCHEDULE A. Each Member initially
shall own an LLC Interest representing the Percentage Interest
set forth opposite such Member's name in SCHEDULE A. SCHEDULE A
shall be amended from time to time by the Management Committee to
the extent necessary to reflect accurately any additional Capital
Contributions, the admission of additional Members, the issuance
of additional LLC Interests, or similar events making an
amendment to SCHEDULE A necessary or appropriate in the judgment
of the Management Committee.
5.1.2. Additional Capital Contributions
The Members shall make additional Capital Contributions in
proportion to their respective Percentage Interests in such
additional amounts (i) as may be required by an approved Budget,
(ii) as may be required to pay any duly authorized contractual
obligations of the LLC (including, without limitation, interest
and principal payments under debt instruments), which amounts
were not provided for in the Budget, or for the payment of any
operating deficits, in each case which are immediately due and
payable, and for which the LLC otherwise lacks sufficient funds
to pay, or (iii) as the Members may otherwise agree. Such
additional Capital Contributions shall be paid (A) in the case of
clause (i) or clause (ii), within ten (10) business days
following request therefor by the Management Committee, provided
such request is reasonably related to the time the LLC
contractual obligations referred to in clause (ii) are due and
payable, or (B) in the case of clause (iii), on the date agreed
upon by the Members. The Members shall not be required to make
any Capital Contributions to the LLC other than as set forth in
this SECTION 5.1.
5.2. Failure to Make Required Capital Contributions
If at any time or times any Member shall fail to timely make
any Capital Contribution which such Member is obligated to make
under SECTION 5.1., and such failure shall continue for a period
of thirty (30) business days after notice of such failure from
the President or any non-defaulting Member (the "Cure Period"),
the rights and remedies set forth in this SECTION 5.2. shall
apply. A Member that fails to cure its default within the Cure
Period shall be a "Defaulting Member." The failure to make a
required Capital Contribution by a Member shall be an "Event of
Default." If any Member is a Defaulting Member as to any
required Capital Contribution, each other Member that is not then
a Defaulting Member shall be a "Non-Defaulting Member."
5.2.1. Loan by Non-Defaulting Members to Defaulting
Member
The President shall give prompt notice to each
Non-Defaulting Member in the event any Member becomes a
Defaulting Member. Each Non-Defaulting Member may (but shall not
be obligated to) advance all or any part of the portion of the
Capital Contribution which the Defaulting Member(s) failed to
make (the "Default Amount") to the LLC on behalf of the
Defaulting Member and treat such amount as a loan (a "Default
Loan") from the Non-Defaulting Member to the Defaulting
Member(s). If more than one Non-Defaulting Member wishes to make
such a Default Loan, such Non-Defaulting Members shall make such
Default Loans in amounts proportionate to their respective
Percentage Interests or in such other amounts as such
Non-Defaulting Members agree; PROVIDED, HOWEVER, that if the
Defaulting Member is Gabbard, then CTWC (if it is a
Non-Defaulting Member) shall have the first option to make a
Default Loan equal to the full amount of the Default Amount of
Gabbard, and if CTWC elects not to make such Default Loan, the
other Non-Defaulting Members shall have the right to make such
Default Loan. Each Non-Defaulting Member that desires to make
such a Default Loan shall give notice thereof to the Defaulting
Member upon the Non-Defaulting Member's payment of the Default
Amount to the LLC. Unless the Non-Defaulting Members otherwise
agree, each such Default Loan shall be made within ten (10)
calendar days after the last day of the Cure Period, and each
Default Loan shall be due and payable on the first business day
that is thirty (30) days after it was made by the Non-Defaulting
Member in question (the "Default Date"). Any Default Loan shall
bear interest on the unpaid principal amount thereof from time to
time remaining from the date advanced until repaid, at the
Default Rate. Any Default Loan shall be secured by a lien and a
security interest in the Defaulting Member s LLC Interest, and if
suit or other proceedings in any court shall be instituted for
collection of a Default Loan or enforcement of the lien and
security interest securing payment of same, the Defaulting Member
also shall be liable for all costs of court and reasonable
attorneys' fees and costs thereby incurred, payment of which
shall likewise be secured by said security interest and lien.
(a) If any Member shall fail to make any Capital
Contribution which such Member is required to make under SECTION
5.1., whether or not a Default Loan is made, the portion of such
additional Capital Contribution made by each Non-Defaulting
Member pursuant to SECTION 5.1. shall be treated as a loan to the
LLC from such Non-Defaulting Member, and the amount (if any)
advanced to the LLC on behalf of the Defaulting Member by each
Non-Defaulting Member pursuant to SECTION 5.2.1. shall be treated
as a loan to the LLC from the Defaulting Member, unless and until
such amounts are converted into Capital Contributions pursuant to
SECTION 5.2.1.(b) (any such loans to the LLC by a Non-Defaulting
Member or on behalf of the Defaulting Member are hereafter
referred to as "Capital Advances"). Any Capital Advances shall
accrue interest at the Default Rate.
(b) The outstanding principal amount of any Capital Advance
shall be converted into a Capital Contribution upon the
occurrence of any of the following:
(i) In the event any Non-Defaulting Member has elected
to make a Default Loan to the Defaulting Member and the
Defaulting Member repays the outstanding principal amount of all
such Default Loans made to it, together with the accrued interest
thereon, prior to the Default Date, the Defaulting Member and the
Non-Defaulting Members shall be treated as having made Capital
Contributions equal to the outstanding principal amount of the
Capital Advances each is treated as having made under SECTION
5.2.1.(a), provided, that any accrued but unpaid interest with
respect to such Capital Advances shall be paid to each Member in
proportion to such amounts by the LLC out of the first available
receipts of the LLC.
(ii) In the event no Non-Defaulting Member has elected
to make a Default Loan to the Defaulting Member and the
Defaulting Member pays the Default Amount to the LLC prior to the
date on which a Default Loan, if it had been made, would have
been due in accordance with SECTION 5.2.1. (the "Deemed Default
Date"), the Defaulting Member shall be treated as having made a
Capital Contribution equal to the amount of such payment and each
Non-Defaulting Member shall be treated as having made a Capital
Contribution equal to the principal amount of its Capital
Advance; provided, that any accrued but unpaid interest with
respect to such Capital Advance shall be paid to the
Non-Defaulting Members by the LLC out of the first available
receipts of the LLC.
(iii) In the event the Defaulting Member either fails
to repay the full amount of any Default Loan plus all interest
accrued thereon prior to the Default Date (if a Non-Defaulting
Member has elected to make a Default Loan to the Defaulting
Member) or fails to pay the Default Amount to the LLC in
accordance with SECTION 5.2.1. prior to the Deemed Default Date
(if no Non-Defaulting Member has elected to make a Default Loan
to the Defaulting Member), at any time during the ninety (90) day
period beginning with the Default Date each Non-Defaulting Member
may (but shall not be obligated to) elect to treat the
outstanding amount of the Capital Advances made by such
Non-Defaulting Member and the Defaulting Member s Capital
Advances, together with all accrued but unpaid interest thereon,
as Capital Contributions by the Non-Defaulting Member(s) as of
the date of such election.
(c) In the event the Non-Defaulting Member elects to
convert the Capital Advances of the Non-Defaulting Member and the
Defaulting Member s Capital Advances to Capital Contributions
pursuant to SECTION 5.2.1.(b)(iii), as of the date such Capital
Advances are treated as having been so converted (i) the
Percentage Interest of each Member shall be adjusted to equal the
quotient (expressed as a percentage) of (x) the total amount of
Capital Contributions made by such Member (including the
principal amount of any Capital Advances treated as Capital
Contributions of such Member pursuant to SECTION 5.2.1.(b)),
divided by (y) the total amount of Capital Contributions made or
deemed made by the Members pursuant to SECTIONS 5.1. and
5.2.1.(b) (including the Capital Advances converted to Capital
Contributions thereunder).
(d) The making of a Capital Advance on behalf of a
Defaulting Member shall not cure the default by the Defaulting
Member which gave rise to such Capital Advance, and a Member that
becomes a Defaulting Member under SECTION 5.2.1. shall continue
to be a Defaulting Member until all Capital Advances have been
either repaid in full, with all accrued interest, or converted
into Capital Contributions pursuant to SECTION 5.2.1.(b). When a
Defaulting Member shall have repaid the principal of and interest
on a Default Loan in full (to the extent that such Default Loan
has not been converted into a Capital Contribution pursuant to
SECTION 5.2.1.(b)), together with any costs and fees payable by
the Defaulting Member in connection therewith, the Defaulting
Member shall be deemed to have made a Capital Contribution to the
LLC equal to the principal amount of the Default Loan so repaid.
A Default Loan may be prepaid without penalty or premium at any
time prior to it being converted into a Capital Contribution
pursuant to the terms of SECTION 5.2.1.(b).
(e) If a Non-Defaulting Member converts a Default Loan into
a Capital Contribution pursuant to SECTION 5.2.1.(b), no
subsequent payment or tender of payment of the amount so
converted or contributed shall affect the Members' Percentage
Interests as recalculated in accordance with SECTION 5.2.1.(c).
5.2.2. Other Remedies
In addition to the Default Loan procedure set forth in
SECTION 5.2.1., any Non-Defaulting Member may exercise any one or
more of the following remedies:
(a) institute suit in any court of competent
jurisdiction to obtain (i) specific performance of the
obligations of a Defaulting Member under this Agreement, (ii)
reimbursement for all costs of court and reasonable attorneys'
fees thereby incurred and (iii) damages, if any, resulting to the
LLC or such Non-Defaulting Member from such default by a
Defaulting Member plus interest thereon at the Default Rate from
the date incurred until the date paid; PROVIDED, HOWEVER, that
except as he may otherwise agree, Gabbard in no event shall be
personally liable for his failure to make any Capital
Contributions in excess of Fifty Thousand Dollars ($50,000) in
the aggregate; or
(b) elect to dissolve and terminate the LLC; PROVIDED that,
if any Non-Defaulting Member has made a Default Loan to such
Defaulting Member, then such election must be made by all
Non-Defaulting Members making any such Default Loan.
5.3. Capital Accounts
A separate Capital Account shall be established and
maintained for each Member in accordance with the Tax Allocations
Addendum attached hereto as ADDENDUM II and incorporated herein
by reference.
5.4. Negative Capital Accounts
Except to the extent the Members are required or elect to
make contributions to the capital of the LLC under SECTION 5.1.
or SECTION 5.9., or SECTION 5.10., no Member shall be required to
pay to the LLC or to any other Member any deficit or negative
balance which may exist from time to time in such Member's
Capital Account.
5.5. No Interest on Capital Contributions or Capital
Accounts
No Member shall be entitled to receive any interest on its
Capital Contributions or its outstanding Capital Account balance.
5.6. Advances to LLC
In addition to any Default Loans that may be made pursuant
to SECTION 5.2.1., a Member may advance funds to the LLC in
excess of the amounts required hereunder to be contributed by it
to the capital of the LLC in any amount and on terms upon which
the Member and the Management Committee may agree. Any such
advances by a Member shall not result in any increase in the
amount of such Member's Capital Account or entitle it to any
increase in its LLC Interest. The amounts of such advances shall
be debts of the LLC to such Member and shall be payable or
collectible only out of the LLC Assets in accordance with terms
and conditions agreed upon by the Member and the Management
Committee.
5.7. Liability of Members and the Management Committee
Except as otherwise provided in the Delaware LLC Act, the
debts, obligations and liabilities of the LLC, whether arising in
contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the LLC, and none of the Members
or the Management Committee members shall be obligated personally
for any such debt, obligation or liability of the LLC solely by
reason of being a Member or a Management Committee member. The
failure of the LLC to observe any formalities or requirements
relating to the exercise of its powers or management of its
business or affairs under the Delaware LLC Act or this Agreement
shall not be grounds for imposing personal liability on any
Member or Management Committee member for liabilities of the LLC.
5.8. Return of Capital
Except upon the dissolution of the LLC or as may be
specifically provided in this Agreement, no Member shall have the
right to demand or to receive the return of all or any part of
its Capital Account or its Capital Contributions to the LLC.
5.9. Issuance of Additional LLC Interests
The LLC from time to time may issue to Members or other
Persons (who shall execute and deliver such documents as the
Management Committee deems necessary or appropriate to evidence
such Persons' agreement to be admitted as Members and be bound by
the terms and conditions of the Certificate and this Agreement)
additional LLC Interests, with such designations, preferences and
relative, participating, optional, voting or other special
rights, powers and duties, including rights, powers and duties
senior to the then-existing LLC Interests, and for such
consideration, all as shall be determined by the Management
Committee subject to Delaware law, including, without limitation,
(i) the allocations of items of LLC income, gain, loss, deduction
and credit to each such class of LLC Interests; (ii) the rights
of each such class of LLC Interests to share in LLC
distributions; and (iii) the rights of each such class of LLC
Interests upon dissolution and liquidation of the LLC.
5.10. Rights to Subscribe to Additional Issuances
In the event the Management Committee decides to cause the
LLC to issue additional LLC Interests, each Member shall be
offered the first opportunity to subscribe for such additional
issuance of LLC Interests, on the same terms and conditions as
the Management Committee proposes to issue such LLC Interests, in
the proportion that such Member s Percentage Interest bears to
the aggregate Percentage Interests then held by all Members (the
Member s "Pro Rata Share"). The Management Committee shall
deliver a written notice to each Member at least 30 days in
advance of the proposed issuance of LLC Interests, stating the
number and class of LLC Interests proposed to be issued, the
proposed subscription price, and the manner in which such Member
may exercise its rights to subscribe to such LLC Interests. Such
Member may exercise its rights to subscribe to such LLC Interests
by delivering a notice to that effect to the LLC and each other
Members within 10 days after the delivery of such notice by the
LLC and complying with the procedures for subscription specified
by the LLC in the notice to Members. If any Member does not
elect to purchase its full Pro Rata Share of the offered LLC
Interests, the LLC shall offer the Members that have elected to
purchase their full Pro Rata Shares of such LLC Interests the
opportunity to increase the number of such LLC Interests they
wish to subscribe for by their Pro Rata Shares of the
unsubscribed portion of such LLC Interests. This process shall
be repeated as often as necessary until either the Members have
subscribed for all of the LLC Interests offered or no Member is
willing to subscribe for additional LLC Interests.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS
6.1. Allocation of Net Income or Net Loss
The Net Income or Net Loss, other items of income, gains,
losses, deductions and credits, and the taxable income, gains,
losses, deductions and credits of the LLC, if any, for each
Fiscal Year (or portion thereof) shall be allocated to the
Members as provided in the Tax Allocations Addendum.
6.2. Allocation of Income and Loss With Respect to LLC
Interests Transferred
If any LLC Interest is transferred during any Fiscal Year in
accordance with this Agreement, the Net Income or Net Loss (and
other items referred to in SECTION 6.1.) attributable to such LLC
Interest for such Fiscal Year shall be allocated between the
transferor and the transferee by closing the books of the LLC as
of the effective date of transfer.
6.3. Distributions
For each Fiscal Quarter of the LLC, the Management Committee
shall determine the amount, if any, of cash of the LLC that the
Management Committee reasonably determines is not required by the
LLC to pay expenses (including any payments to W/O pursuant to
the Services Agreement), to pay future obligations of the LLC, or
for working capital, capital expenditure or other reserves
established by the Management Committee, and is available for
distribution to the Members ("Available Cash Flow"), and shall
cause the LLC to distribute such Available Cash Flow to the
Members, pro rata, in proportion to their Percentage Interests,
subject to any applicable limitations under Delaware law.
ARTICLE VII
MEMBERS AND MANAGEMENT
7.1. Members
7.1.1. Meetings
The Members shall meet at least once each Fiscal Year at
such place, on such date and at such time as may be fixed by the
Management Committee (unless such meeting shall be waived by all
of the Members). Special meetings of the Members may be called
by the Chairman of the Management Committee or President, and
shall be called by the Chairman of the Management Committee,
President, or Secretary upon the request of any member of the
Management Committee or the request of any Member owning an LLC
Interest representing a Percentage Interest of more than twenty
percent (20%) upon ten (10) days' notice to all Members in
writing or by telephone or facsimile. No business shall be taken
at a special meeting that is not stated in the notice of the
meeting. Meetings may be held by telephone or any other
communication by means of which all participating Members can
simultaneously hear each other during the meeting.
7.1.2. Quorum
No action may be taken at a meeting of the Members unless a
quorum consisting of Members owning LLC Interests representing
Percentage Interests of more than fifty percent (50%), in the
aggregate, is present in person or by proxy.
7.1.3. Action by Written Consent
Any action to be taken by the Members may be taken without a
meeting if a written consent setting forth the action so taken is
signed by Members having voting power to cast not less than the
minimum number of votes necessary to take the action if taken at
a meeting of Members. All Members who do not participate in
taking the action by written consent shall be given written
notice thereof by the Secretary of the LLC promptly after such
action has been taken.
7.1.4. Required Vote; Voting Rights
To be approved, any action requiring or properly submitted
for approval by the Members must be approved by a Majority of the
Members.
7.1.5. Waivers of Notice
Whenever the giving of any notice is required by statute or
this Agreement, a waiver thereof, in writing and delivered to the
LLC signed by the person or persons entitled to said notice,
whether before or after the event as to which such notice is
required, shall be deemed equivalent to notice. Attendance of a
Member at a meeting or execution of a written consent to any
action shall constitute a waiver of notice of such meeting or
action.
7.2. Management of the LLC by the Management Committee
Subject to this Agreement and the Delaware LLC Act, the
Members hereby unanimously agree that the responsibility for
management of the business and affairs of the LLC shall be vested
in the Management Committee, and that the Management Committee
(acting on behalf of the LLC) shall have all right, power, and
authority, to manage, operate and control the business and
affairs of the LLC and to do or cause to be done any and all
acts, at the expense of the LLC, deemed by the Management
Committee to be necessary or appropriate to effectuate the
purposes of the LLC. Except as otherwise expressly provided in
this Agreement or as may be approved by the Management Committee,
no Member shall have any authority, right, or power to bind the
LLC, or to manage or control, or to participate in the management
or control of, the business and affairs of the LLC in any manner
whatsoever. Without limiting the generality of the foregoing,
the specific responsibilities of the Management Committee
("Management Committee Decisions") shall include:
(a) approving the Initial Business Plan and any
changes or amendments thereto;
(b) the sale, merger or other disposition of the LLC;
(c) the sale of all or substantially all of any
System;
(d) admitting any new Members to the LLC or causing
the LLC to issue additional LLC Interests;
(e) entering into a joint venture or other entity as
contemplated by SECTION 7.12.;
(f) decisions on behalf of the LLC relating to the
Services Agreement, including without limitation
whether to extend, modify, or terminate the
Services Agreement;
(g) removal/appointment of the Chairman, President and
Treasurer;
(h) hiring and terminating management employees of the
LLC;
(i) making all technology decisions;
(j) submitting bids for, acquiring and selling or
otherwise disposing of Channels and Systems;
(k) determining the terms of any Channel acquisition
(including the terms of any bids for Channel
licenses that are offered in an auction sale and
lease agreements and any extensions or
modifications thereof);
(l) service offerings and marketing strategy;
(m) location of transmitters;
(n) admitting additional participants in any markets;
(o) commencing or terminating any significant
litigation on behalf of the LLC;
(p) selecting or replacing the firm of certified
public accountants which shall prepare the
financial statements and information of the LLC as
provided in SECTION 8.3.;
(q) entering into resale agreements and/or joint
ventures with local telephone companies or other
entities as contemplated by SECTION 7.6.,
including determining the terms and conditions of
such arrangements;
(r) approving any Budget as provided in SECTION
8.8.2.;
(s) approving incurring any indebtedness of the LLC;
and
(t) any other item expressly delegated to the
Management Committee under this Agreement.
7.2.1. Composition
CTWC and W/O shall be entitled to appoint two (2) Management
Committee members, and Gabbard shall be entitled to appoint one
(1) Management Committee member. The number and method of
appointment of Management Committee members may be changed only
by agreement of all of the Members; PROVIDED, HOWEVER, that in
the event Gabbard transfers his LLC Interest to CTWC (but not to
its designee) in accordance with this Agreement, Gabbard s right
to appoint a member of the Management Committee shall terminate,
and the number of members of the Management Committee shall be
reduced to four (4). W/O hereby appoints Hans Sternberg and Sean
Reilly to serve as initial Management Committee members, CTWC
hereby appoints Michael Coltrane and Barry Rubens to serve as
initial Management Committee members, and Gabbard hereby appoints
himself to serve as an initial Management Committee member.
CTWC, W/O, or Gabbard, as the case may be, by written notice to
the LLC and to the other Members, may remove any of its appointed
Management Committee members at any time and from time to time,
and for any reason or for no reason, and may designate an
individual to serve as a successor Management Committee member in
the event of the death, resignation or removal of a Management
Committee member appointed by such Member. Each Person appointed
to serve as a Management Committee member pursuant to this
SECTION 7.2.1. shall so serve until a successor Management
Committee member is appointed as provided hereunder or until such
Person s earlier death, resignation, or removal.
7.2.2. MEETINGS
The Management Committee shall meet at least once each
calendar quarter at the principal offices of the LLC or at such
other place and time as may be fixed from time to time by the
Management Committee (unless such meeting shall be waived by all
of the Management Committee members). Regular meetings of the
Management Committee may be held upon not less than ten (10)
days' notice to all Management Committee members in writing or by
telephone or facsimile transmission. Special meetings of the
Management Committee may be called by the Chairman of the
Management Committee or President, and shall be called by the
Chairman of the Management Committee, President or Secretary upon
the request of any Member owning an LLC Interest representing a
Percentage Interest of more than twenty percent (20%), upon three
(3) days' notice to all Management Committee members in writing
or by telephone or facsimile transmission. Meetings may be held
by telephone or any other communication by means of which all
participating directors can simultaneously hear each other during
the meeting.
7.2.3. Quorum
No action may be taken at a meeting of the Management
Committee unless a quorum consisting of Management Committee
members representing a majority of the total voting interests of
all Management Committee members are present in person or by
proxy.
7.2.4. Required Vote; Voting Rights
Each member of the Management Committee shall be entitled to
vote with respect to all matters submitted to the Management
Committee for approval, except with respect to a determination to
grant indemnification pursuant to SECTION 7.14.1. hereof, in
which event a Management Committee member seeking indemnification
hereunder shall have no vote with respect to indemnification of
such member. Except as otherwise expressly provided in this
Agreement, any action or approval by the Management Committee
must be approved by the Majority Vote of the Management Committee
members; PROVIDED, HOWEVER, that any decision to be made or
action to be taken by the Company pursuant to Section 4.2(d) of
the Services Agreement shall require the approval of a Majority
Vote of the members other than those members appointed by W/O.
The voting interest of each member or members, collectively, of
the Management Committee appointed by any Member shall be equal
to the Percentage Interest of such Member. For example, the two
members of the Management Committee appointed by W/O collectively
shall have a voting interest equal to W/O s Percentage Interest;
the two members of the Management Committee appointed by CTWC
collectively shall have a voting interest equal to CTWC s
Percentage Interest; and the member of the Management Committee
appointed by Gabbard shall have a voting interest equal to
Gabbard s Percentage Interest. If both of the Management
Committee members appointed by a Member participate in a vote or
action, their voting interests shall be equally divided among
them. If only one of such members participates, such member
shall be entitled to exercise the entire voting interest on
behalf of both such members.
Notwithstanding the foregoing, any of the following matters
shall require the affirmative Supermajority Vote of the
Management Committee members:
(a) the sale, merger or other disposition of the LLC;
(b) the sale of all or substantially all of any
System;
(c) admitting any new Members to the LLC or causing
the LLC to issue additional LLC Interests; and
(d) entering into a joint venture or other entity as
contemplated by SECTION 7.12.
7.2.5. Action by Written Consent
Any action to be taken by the Management Committee may be
taken without a meeting if consents in writing setting forth the
action so taken are signed by all of the Management Committee
members.
7.2.6. Deadlock on a Material Decision; Distribution on
Dissolution
(a) The Management Committee members shall attempt in good
faith to resolve any disagreements among them. In the event that
the Management Committee is unable to reach agreement as to any
issue, any member of the Management Committee may request
non-binding mediation in an attempt to reach an agreement as to
such issue. Such mediation shall be effected by a qualified
mediator, mutually acceptable to the members of the Management
Committee, who has significant relevant experience in the
telecommunications field and familiarity with the wireless cable
field. In the event that the Management Committee is unable to
reach agreement on any "Material Decision" at any time after the
date that is three (3) years after the date of this Agreement, or
at any time with respect to a termination of the Services
Agreement, then unless and until such disagreement is resolved,
each Member at any time shall have the right, by written notice
thereof to the other Members, to cause the dissolution of the LLC
and the distribution of its assets in accordance with this
SECTION 7.2.6. For purposes of this SECTION 7.2.6., the term
"Material Decision" shall mean any decision as to: (i) whether
the LLC should assume direct responsibility for the day-to-day
management of the LLC s Systems; (ii) the sale of all or
substantially all of the LLC s assets; (iii) a merger in which
the LLC is not the surviving entity; (iv) a public offering of
the interests in the LLC; and (v) any of the Management Committee
Decisions set forth in SECTION 7.2 of this Agreement.
(b) In the event of a dissolution of the LLC, the assets of
the LLC relating to the geographic markets to which the LLC s
assets relate shall be allocated among the Members, pro rata,
based on the fair market value of such assets and the Members
respective Percentage Interests (determined as set forth below);
PROVIDED, HOWEVER, that CTWC shall have the right to purchase
from Gabbard any assets allocated to Gabbard for a cash purchase
price equal to the fair market value of such assets (determined
as set forth below). To the extent it is not practicable (due to
differences in the fair market values of the assets relating to
the different markets) to distribute solely assets in kind on a
pro rata basis, the amount necessary to make the distributions
pro rata shall be settled in cash of the LLC or, if necessary,
cash contributed by one or more Members.
(c) The Members shall attempt to mutually agree on the fair
market value of the assets relating to each geographic market.
If the Members are unable to reach an agreement within thirty
(30) days as to the fair market value of the assets relating to
any market or as to a method for determining such value, then the
fair market value shall be determined by appraisal under the
following valuation procedure. The Members shall attempt in good
faith, within fifteen (15) days after demand for appraisal, to
mutually agree on a single appraiser. If the Members fail to
agree on such single appraiser within the fifteen (15) day
period, then each Member owning an LLC Interest representing a
Percentage Interest of more than twenty percent (20%) shall,
within fifteen (15) days thereafter, choose one appraiser. If
more than one appraiser is so designated, then an additional
appraiser shall be selected promptly by the appraisers so
designated. Each appraiser must be a qualified person having
significant experience appraising interests in partnerships or
limited liability companies that invest in wireless cable
television operations. If the two appraisers so selected shall
be unable to agree on an additional appraiser within ten (10)
days, an additional appraiser shall be selected by the American
Arbitration Association to serve as herein provided. Should any
of such Members fail or refuse to appoint an appraiser within
such fifteen (15) day period, then the single appraiser appointed
by the other shall have the right to decide alone and such
appraiser s decision shall be final and binding upon the Members.
In the event that any appraiser shall be unable to act, a new
appraiser shall be appointed within ten (10) days after such
inability occurs, such appointment to be made in the same manner
as hereinabove provided for the appointment of the appraiser who
is unable to act. The appraisers shall determine the fair market
value of the assets relating to each market and deliver a written
statement of the same to the Members within sixty (60) days after
the last appraiser has been engaged. For purposes of this
SECTION 7.2.6., the fair market value of the assets relating to
each market shall be (i) the valuation jointly determined by the
three appraisers, or (ii) if the three appraisers are unable to
agree upon a valuation, then each of the appraisers shall make
its own determination and the fair market value shall be
determined as follows:
(i) if the lowest valuation is not less than 90
percent of the middle valuation and the highest
valuation is not greater than 110 percent of the middle
valuation, the fair market value shall equal the
average of the values determined by the three
appraisers;
(ii) if the lowest valuation is less than 90 percent of
the middle valuation and the highest valuation is more
than 110 percent of the middle valuation, the low and
the high valuations shall be disregarded and the middle
valuation shall be the fair market value; or
(iii) if either the lowest valuation is less than
90% of the middle valuation or the highest valuation is
more than 110% of the middle valuation (but not both),
then the fair market value shall equal the average of
the two valuations which are closest in amount.
(d) In determining the fair market value of the assets
relating to each geographic market hereunder, there shall be
taken into consideration the effect on value of the proximity of
the assets to be distributed to other wireless cable channels or
systems owned or to be distributed to the recipient Members.
(e) CTWC shall have the right to designate the assets it
shall receive pursuant to this SECTION 7.2.6.; PROVIDED, that its
designation shall be taken into account determining the fair
market values of the assets to be distributed as provided in
SECTION 7.2.6.(d) and its designation shall not increase its pro
rata share of the assets to be distributed.
(f) The cost of all appraisals prepared in accordance with
this SECTION 7.2.6. shall be borne by the LLC.
7.2.7. Committees
The Management Committee from time to time may appoint one
or more other committees to perform any functions or conduct any
activities that the Management Committee has the right, power,
and authority to perform or conduct, subject to the voting
requirements of SECTION 7.2.4.
7.2.8. Services Agreement
On the date of this Agreement, the LLC is entering into a
services agreement ('Services Agreement") with W/O in
substantially the form attached hereto as EXHIBIT A, pursuant to
which W/O will provide certain management and engineering
services to the LLC, subject to the supervision and control of
the Management Committee; PROVIDED, HOWEVER, that if the
Management Committee determines that it is in the best interests
of the LLC to do so, the LLC shall assume responsibility for
directly providing all or certain of such services; and PROVIDED
FURTHER, that any Member owning an LLC Interest representing a
Percentage Interest of more than twenty percent (20%) shall have
the unilateral right to cause the LLC to terminate such Services
Agreement for "cause", as defined in the Management Agreement.
Any dispute concerning termination for "cause" shall be settled
by binding arbitration.
7.3. Failure to Buildout System
Notwithstanding the provisions of SECTION 7.2., the decision
to construct a System for a particular market shall be reserved
to the Members. Once the LLC has acquired the right to use at
least sixteen (16) Channels in a given market (the "Subject
Market"), if the Members fail to agree to construct the System
for such Subject Market, any Member voting against the buildout
(an "Opposing Member") shall have ninety (90) days in which to
obtain a bona fide third party offer to purchase for cash all
(but not less than all) of the LLC s Channels and related assets
for such Subject Market. Any Member voting in favor of the
buildout (the "Approving Members") shall have the right to match
such offer for a period of thirty (30) days after the date on
which the Opposing Member provides the Approving Members with
written notice of the third party offer, which notice shall
include a copy of the third party offer. If no Approving Member
matches such offer, the Channels in such Subject Market (and the
LLC s other assets relating to such Subject Market, if any) shall
be sold to the third party pursuant to the terms of the third
party offer. If no third party offer is obtained, the Approving
Members shall have the right to purchase such Channels and other
assets at their appraised value, determined in accordance with
the appraisal procedures set forth in SECTION 7.2.6. If more
than one Approving Member wishes to purchase such Channels and
other assets, the Approving Members shall make such purchase pro
rata in proportion to their respective Percentage Interests or as
they otherwise may agree. If the Approving Members fail to
purchase such Channels and other assets at their appraised value,
the LLC shall continue to offer such Channels and other assets
for sale to third parties but shall not, without the consent of a
Majority of the Members, undertake the buildout of the System
utilizing such Channels except to the extent legally required in
order to maintain the LLC s ownership of such Channels.
7.4. Failure to Acquire Channels
If the LLC fails to acquire at least sixteen (16) Channels
in a market by the date that is three (3) years from the date the
LLC first obtains a Channel for that market, each Member shall
have the right to obtain a written bona fide third party offer to
purchase for cash all (but not less than all) of the LLC s
Channels and related assets for that market. Once a Member
obtains a written bona fide third party offer ("Offer"), such
Member ("Offering Member") shall provide the other Members with
written notice ("Notice") of the Offer, which Notice shall
include a copy of the Offer. The other Members shall have the
right to match the Offer for a period of thirty (30) days after
the date on which such Member receives Notice of the Offer. If
the other Members fail to match such offer, the LLC s Channels
and related assets shall be sold to the third party pursuant to
the terms of the Offer. If more than one of the other Members
wishes to purchase the Channels and related assets , such members
shall make such purchase pro rata in proportion to their
respective Percentage Interests or as they otherwise may agree.
7.5. Restrictions on Sale of LLC and Assets of LLC
Notwithstanding the provisions of SECTION 7.2., there shall
not be a sale of the LLC or substantially all of the assets of
the LLC, a merger in which the LLC is not the surviving entity,
or a public offering of interests in the LLC for the period
beginning on the date of this Agreement and ending on the date
that is three years from the date of this Agreement without the
agreement of all Members.
7.6. Opportunities for Local Telephone Companies to Resell
Services
The Members contemplate that the LLC will offer to local
telephone companies providing services in the geographic markets
in which the LLC has Systems an opportunity to purchase
programming and other service offerings from the LLC on
commercially reasonable terms and conditions and to resell such
offerings under their own brand names within such markets, on a
non-exclusive basis.
7.7. Officers
7.7.1. Chairman of the Management Committee
The Management Committee may elect a Person to serve as its
chairman (the "Chairman of the Management Committee") to preside
over all meetings of Members and the Management Committee and to
exercise such other powers and authority as the Management
Committee from time to time may prescribe. O. Gene Gabbard is
hereby appointed the initial Chairman of the Management
Committee.
7.7.2. President
The Management Committee shall appoint a president of the
LLC (the "President"). Hans Sternberg is hereby appointed to be
the initial President. The President shall be the chief
executive officer of the LLC and shall be primarily responsible
for the management of the business and financial affairs of the
LLC. The President shall have full authority over the day-to-day
general management and direction of the business and operations
of the LLC, except with respect to matters requiring approval of
the Management Committee or approval of the Members and subject
to being overruled by the Management Committee. The President
may sign and execute in the name of the LLC, without specific
authorization by the Management Committee, deeds, mortgages,
bonds, contracts or other instruments, except in cases where
approval of the same has been expressly delegated by the
Management Committee or by this Agreement to some other officer
or agent of the LLC or shall be required by law otherwise to be
signed or executed. Third parties dealing with the LLC shall be
entitled to rely conclusively upon the power and authority of the
President as set forth herein.
7.7.3. Vice Presidents
The Management Committee may appoint one or more vice
presidents of the LLC (each a "Vice President"). Each Vice
President shall have such duties and responsibilities as shall be
delegated to them by the Management Committee and the President
and shall perform the duties and exercise powers of the President
in the absence or unavailability of the President.
7.7.4. Secretary
The Management Committee shall appoint a secretary of the
LLC (the "Secretary"). Sean Reilly is hereby appointed to be the
initial Secretary. The Secretary, at the direction of the
President, shall prepare and distribute to the Management
Committee members an agenda in advance of each meeting of the
Management Committee and shall prepare and distribute promptly to
each Management Committee member written minutes of all meetings
of the Management Committee. The Secretary shall also be
responsible for preparing and distributing to the Management
Committee members any notices received by the LLC or otherwise
called for by this Agreement to be given by the LLC. The
Secretary shall perform such other duties as may be specified by
the President.
7.7.5. Treasurer
The Management Committee shall appoint a treasurer of the
LLC (the "Treasurer"). Barry Rubens is hereby appointed to be
the initial Treasurer. The Treasurer shall have charge of the
funds of the LLC. The Treasurer shall keep full and accurate
accounts of all receipts and disbursements of the LLC in books
belonging to the LLC and shall deposit all monies and other
valuable effects in the name and to the credit of the LLC in such
depositories as may be designated by the President. The
Treasurer shall disburse the funds of the LLC as may be ordered
by the President, and shall render to the President, whenever he
may require it, an account of all his transactions undertaken as
Treasurer and an account of the business and financial position
of the LLC. The Treasurer shall perform such other duties as may
be specified by the President.
7.7.6. Other Officers
The Management Committee may appoint such other officers of
the LLC upon terms and conditions the Management Committee deems
necessary and appropriate. Any officer shall hold his or her
respective office unless and until such officer is removed by the
President or the Management Committee. Any two offices may be
held by the same person, except that in no event shall the
President and the Secretary be the same person.
7.7.7. Removal of Officers; Vacancies
The Chairman of the Management Committee, President and
Treasurer may be removed with or without cause, at any time, by
the Management Committee. All other officers of the LLC may be
removed at any time, with or without cause, by the Management
Committee or by the President. Vacancies in the offices of
Chairman of the Management Committee, President and Treasurer
shall be filled by the Management Committee; vacancies in all
other offices shall be filled by the Management Committee or the
President.
7.7.8. Third Party Reliance
Third parties dealing with the LLC shall be entitled to rely
conclusively upon the power and authority of the officers of the
LLC as set forth herein.
7.8. Fiduciary Relationship
No Management Committee member or officer shall be liable to
the LLC or its Members for monetary damages for breach of
fiduciary duty as a Management Committee member or officer or
otherwise liable, responsible or accountable to the LLC or its
Members for monetary damages or otherwise for any acts performed,
or for any failure to act; PROVIDED, HOWEVER, that this provision
shall not eliminate or limit the liability of a Management
Committee member or officer (i) for any breach of the Management
Committee member's or officer's duty of loyalty to the LLC or its
Members, (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law, or (iii) for any
transaction from which the Management Committee member or officer
received any improper personal benefit.
7.9. Compensation of Management Committee; Officers
Management Committee members, as such, shall not receive any
stated salary for their services but shall be reimbursed by the
LLC for the actual costs of travel and accommodations incurred by
them in attending each regular or special meeting of the
Management Committee; provided that nothing herein contained
shall be construed to preclude any Management Committee member
from serving the LLC in any other capacity and receiving
compensation therefor. The compensation of officers shall be
determined by the Management Committee.
7.10. Reimbursement
All expenses incurred with respect to the organization,
operation, and management of the LLC shall be borne by the LLC.
The Management Committee members and officers shall be entitled
to reimbursement from the LLC for direct expenses allocable to
the organization, operation, and management of the LLC.
7.11. Other Activities of Members and Affiliates
Subject to any specific agreement herein to the contrary,
any Member or any Affiliate thereof may have other business
interests or may engage in other business ventures of any nature
or description whatsoever, whether currently existing or
hereafter created and may compete, directly or indirectly, with
the business of the LLC; PROVIDED, HOWEVER, that during the term
of this Agreement, neither W/O nor CTWC, nor in each case its
Parent or any subsidiary of its Parent, may purchase or operate
Channels or Systems operating from transmitters, located in the
Greenville, South Carolina market, the Spartanburg, South
Carolina market, or any geographic market located in the state of
North Carolina other than through another limited liability
company or other entity the original owners of which include each
of the Members or one or more of their Affiliates. No Member or
Affiliate thereof shall incur any liability to the LLC as a
result of such Member's or such Affiliate's pursuit of such other
permitted business interests, ventures and competitive activity,
and neither the LLC nor the other Members, by virtue of their
interests in the LLC, shall have any right to participate in such
other permitted business ventures or to receive or share in any
income or profits derived therefrom.
7.12. Right to Enter into Sub-Ventures
The Members acknowledge and agree that the LLC shall be
permitted to enter into agreements to form separate limited
liability companies or other arrangements with other local
communications companies or other persons or entities with
respect to the Systems for particular Markets.
7.13. Certain Transactions
The LLC is expressly permitted in the normal course of its
business to enter into transactions with any Members or with any
Affiliate of any Member provided that the price and other terms
of such transaction are not less favorable to the LLC than those
generally prevailing with respect to comparable transactions
between unrelated parties. The LLC is specifically authorized to
enter into the Services Agreement with W/O. For so long as it is
the Manager of any of the Systems, W/O agrees and covenants to
keep each Member owning an LLC Interest representing a Percentage
Interest of more than twenty percent (20%) fully informed with
respect to the services being provided to the LLC pursuant to the
Services Agreement and W/O agrees to consult with such Members as
to all significant matters relating to the provision of such
services. Furthermore, the LLC is specifically authorized to
enter into resale agreements with local telephone companies as
approved by the Management Committee pursuant to SECTION 7.2.
7.14. Indemnification of the Members, Management
Committee Members, Officers and any Affiliate
7.14.1. Indemnity
The LLC shall indemnify and hold harmless any Member,
Management Committee member, officer, and Affiliate thereof, or
their respective partners, officers, employees and agents
(individually, in each case, an "Indemnitee"), to the fullest
extent permitted by law from and against any and all losses,
claims, demands, costs, damages, liabilities (joint or several),
expenses of any nature (including attorneys' fees and
disbursements), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits, or
proceedings, whether civil, criminal, administrative or
investigative, in which the Indemnitee may be involved, or
threatened to be involved as a party or otherwise, arising out of
or incidental to the business or activities of or relating to the
LLC, regardless of whether the Indemnitee continues to be a
Member, a Management Committee member, an officer, or Affiliate
thereof, or their respective partners, officers, employees and
agents, at the time any such liability or expense is paid or
incurred; PROVIDED, HOWEVER, that this provision shall not
eliminate or limit the liability of an Indemnitee (i) for any
breach of the Indemnitee's duty of loyalty to the LLC or its
Members or (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law.
7.14.2. EXPENSES
Prior to the final disposition of a claim, demand, action,
suit, or proceeding subject to this SECTION 7.14., upon the
request of the Indemnitee, the LLC from time to time shall
advance to the Indemnitee amounts equal to the expenses incurred
by the Indemnitee in defending such claim, demand, action, suit,
or proceeding, provided that the LLC receives an undertaking by
or on behalf of the Indemnitee to repay the amount of such
advances, if it shall be determined in a judicial proceeding or a
binding arbitration that such Indemnitee is not entitled to be
indemnified as authorized in this SECTION 7.14.
7.14.3. OTHER RIGHTS
The indemnification provided by this SECTION 7.14. shall be
in addition to any other rights to which an Indemnitee may be
entitled under any agreement, vote of the Members, as a matter of
law or equity, or otherwise, both as to an action in the
Indemnitee's capacity as a Member, a Management Committee member,
an officer, or any Affiliate thereof, or their respective
partners, officers, employees and agents, and as to an action in
another capacity, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit
of the heirs, successors, assigns, and administrators of the
Indemnitee.
7.14.4. Insurance
The LLC may purchase and maintain insurance on behalf of the
Management Committee, officers, and such other Persons as the
Management Committee shall determine against any liability that
may be asserted against or expense that may be incurred by such
Persons in connection with the offering of interests in the LLC
or the business or activities of the LLC, regardless of whether
the LLC would have the power to indemnify such Persons against
such liability under the provisions of this Agreement.
7.14.5. Interest in Transaction
An Indemnitee shall not be denied indemnification in whole
or in part under this SECTION 7.14. or otherwise by reason of the
fact that the Indemnitee had an interest in the transaction with
respect to which the indemnification applies if the transaction
was otherwise permitted or not expressly prohibited by the terms
of this Agreement and does not constitute a breach of the
Indemnitee s duty of loyalty to the LLC or its Members.
7.14.6. Benefit
The provisions of this SECTION 7.14. are for the benefit of
the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for
the benefit of any other Persons.
7.15. Amendment of this Agreement
Amendments to SCHEDULE A to reflect actions taken pursuant
to SECTION 5.9. may be made by the Management Committee or the
President. Any other amendment or modification to this Agreement
may be made only upon the written consent of all Members.
7.16. Effect of Change of Control of W/O
In the event there is a Change of Control with respect to
W/O as a result of which the LLC or its Members incur any loss or
expense by reason of a mandatory repayment or loss of any
financial incentive granted by the U.S. government (or any agency
thereof) at the time the LLC acquired a license for any Channel,
then W/O shall be required to bear all such loss or expense.
ARTICLE VIII
BANK ACCOUNTS; BOOKS AND RECORDS;
STATEMENTS; TAXES; FISCAL YEAR; ANNUAL BUDGET
8.1. Bank Accounts
All funds of the LLC shall be deposited in its name in such
checking and savings accounts, time deposits or certificates of
deposit, or other accounts at such banks as shall be designated
by the Management Committee. The Management Committee or the
officers of the LLC shall arrange for the appropriate conduct of
such account or accounts.
8.2. Books and Records
The Management Committee shall keep, or cause to be kept,
accurate, full and complete books and accounts showing assets,
liabilities, income, operations, transactions and the financial
condition of the LLC. Such books and accounts shall be prepared
on the cash or accrual basis of accounting, as determined by the
Management Committee. Any Member, or its respective designee,
shall have access thereto at any reasonable time during regular
business hours and shall have the right to copy said records at
its expense.
8.3. Financial Statements and Information
All financial statements prepared pursuant to this SECTION
8.3. shall present fairly the financial position and operating
results of the LLC and shall be prepared by a firm of certified
public accountants selected by the Management Committee, as
provided in SECTION 7.2., in accordance with generally accepted
accounting principles, as provided in SECTION 8.2., for each
Fiscal Year of the LLC during the term of this Agreement.
8.3.1. Quarterly Financial Statements
Within forty-five (45) days after the end of each quarterly
period (the "Fiscal Quarter") of each Fiscal Year, commencing
with the first full Fiscal Quarter after the date of this
Agreement, the Management Committee shall prepare and submit or
cause to be prepared and submitted to the Members an unaudited
statement of profit and loss for the LLC for such Fiscal Quarter
and an unaudited balance sheet of the LLC dated as of the end of
such Fiscal Quarter, in each case prepared in accordance with
generally accepted accounting principles consistently applied.
8.3.2. Annual Financial Statements
Within one hundred twenty (120) days after the end of each
Fiscal Year during the term of this Agreement, the Management
Committee shall prepare and submit or cause to be prepared and
submitted to the Members (i) an audited balance sheet, together
with audited statements of profit and loss, Members' equity and
changes in financial position for the LLC during such Fiscal
Year; (ii) a report of the activities of the LLC during the
Fiscal Year; (iii) a report summarizing any fees and other
remuneration paid by the LLC for such Fiscal Year to any Member
or any Affiliate thereof; and (iv) an audited statement showing
any amounts distributed to the Members in respect of such Fiscal
Year.
8.3.3. Other Reports
The Management Committee shall provide to the Members such
other reports and information concerning the business and affairs
of the LLC as may be required by the Delaware LLC Act or by any
other law or regulation of any regulatory body applicable to the
LLC.
8.4. Accounting Decisions
All decisions as to accounting matters, except as
specifically provided to the contrary herein, shall be made by
the Management Committee.
8.5. Where Maintained
The books, accounts and records of the LLC at all times
shall be maintained at the LLC's principal office or such other
place of business as the officers may determine.
8.6. Tax Returns; Tax Matters Partner
8.6.1. Tax Returns
The President or the Treasurer, at the expense of the LLC,
shall cause all tax returns to be timely filed with the
applicable government authorities. The President or the
Treasurer, at the expense of the LLC, shall cause to be prepared
and delivered to the Members, in a timely fashion after the end
of each Fiscal Year and at the expense of the LLC, copies of all
federal, state and local income tax returns for the LLC for such
Fiscal Year, one copy of which shall be filed with the
appropriate tax authorities. The Members agree to take all steps
necessary to insure that the LLC will be characterized as a
partnership for federal, state and local tax purposes.
8.6.2. Tax Matters Partner.
The Management Committee from time to time shall appoint a
Person (who shall be a Member) to act as the "tax matters
partner" of the LLC, as provided in the Regulations pursuant to
section 6231 of the Code, and may replace the Person so
designated. Each Member hereby approves of such designation and
agrees to execute, certify, acknowledge, deliver, swear to, file,
and record at the appropriate public offices such documents as
may be deemed necessary or appropriate to evidence such approval.
8.6.3. Obligation to IRS
To the extent and in the manner provided by applicable Code
sections and the Regulations thereunder, the tax matters partner
shall furnish the name, address, profits interest, and taxpayer
identification number of each Member (or assignee) to the IRS.
8.6.4. Obligations to Members
To the extent and in the manner provided by applicable Code
sections and the Regulations thereunder, the tax matters partner
shall inform each Member of all administrative or judicial
proceedings for the adjustment of LLC items required to be taken
into account by a Member for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and
such judicial proceedings being referred to as "judicial
review"). In addition, upon receipt by the tax matters partner
of any written notice, request, inquiry, or statement of a
material nature from the IRS in connection with an examination of
the LLC involving a potential income tax liability for any of the
Members, the tax matters partner shall promptly send each Member
a copy of the documents so received. In the event the tax
matters partner intends to respond in writing to any such
documents received from the IRS, the tax matters partner shall
provide a copy of its proposed response to all Members at least
ten (10) days before such response is to be submitted to the IRS
and shall consider in good faith any comments received from the
Members with respect to such proposed response.
8.6.5. Authority of Tax Matters Partner
The tax matters partner is authorized:
(a) in the event that a notice of a final administrative
adjustment at the LLC level of any item required to be taken into
account by a Member for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of
such final adjustment, including the filing of a petition for
readjustment with the Tax Court or the United States Claims
Court, or the filing of a complaint for refund with the District
Court of the United States for the district in which the LLC's
principal place of business is located;
(b) to intervene in any action brought by any other Member
for judicial review of a final adjustment;
(c) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading (petition or
complaint) for judicial review with respect to such request;
(d) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item
required to be taken into account by a Member for tax purposes,
or an item affected by such item; and
(e) to take any other action on behalf of the Members or
the LLC in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or
regulations.
8.7. Fiscal Year
The fiscal year of the LLC for financial, accounting,
Federal, state and local income tax purposes initially shall be
the calendar year (the "Fiscal Year"). The Management Committee
shall have authority to change the beginning and ending dates of
the Fiscal Year if the Management Committee deems such change to
be necessary or appropriate.
8.8. Annual Budget
8.8.1. Distribution of Annual Budgets
Prior to the commencement of each new Fiscal Year, W/O shall
prepare and distribute to the members of the Management Committee
a proposed Budget for such Fiscal Year, which shall set forth in
detail for the LLC and each of the Systems the anticipated
expenditures, aggregate annual operating expenses and revenues of
the LLC, a capital budget, and any required Capital Contributions
or other financing with respect to such Fiscal Year.
8.8.2. Budget Subject to Approval
The Management Committee shall have the right to approve the
Budget submitted to it pursuant to SECTION 8.8.1. If the
Management Committee approves the proposed Budget, then such
proposed Budget shall become the operative Budget for the Fiscal
Year to which it relates. If the Management Committee does not
approve the proposed Budget, then W/O shall submit a revised
proposed Budget to the members of the Management Committee within
thirty (30) days after such disapproval. The Management
Committee and W/O shall attempt in good faith to reach agreement
on such revised proposed Budget. During any Fiscal Year (or
portion thereof) in which no Budget is in effect because it has
been disapproved by the Management Committee, or has not yet been
approved by the Management Committee, then the operative Budget
for such Fiscal Year shall be deemed to include (a) all
liabilities or obligations of the LLC that were previously
incurred or committed to by or on behalf of the LLC in good faith
and that become due and payable during such Fiscal Year, (b) all
liabilities or obligations that the Management Committee, in good
faith, believes should be incurred or committed to by or on
behalf of the LLC for the operation of its business or the
carrying out of the purposes of the LLC during such Fiscal Year
and (c) all other operating expenses in an amount equal to up to
one hundred ten percent (110%) of the operating expenses set
forth in the most recently approved Budget for any prior Fiscal
Year. Any operative budget for a Fiscal Year (or portion
thereof) in which no budget is in effect because a Budget has
been disapproved by the Management Committee, or has not yet been
approved by the Management Committee, shall be superseded by the
Budget, if any, ultimately approved by the Management Committee
for such Fiscal Year.
ARTICLE IX
TRANSFER OF LLC INTERESTS AND
THE WITHDRAWAL OF MEMBERS
9.1. Definition
The term "transfer," when used in this ARTICLE IX with
respect to LLC Interests, shall include any sale, assignment,
gift, pledge, hypothecation, mortgage, exchange, or other
disposition, except that such term shall not include any pledge,
mortgage, or hypothecation of or granting of a security interest
in LLC Interests in connection with any financing obtained on
behalf of the LLC.
9.2. No Unauthorized Transfers; Prohibition During Initial
Three Years
No LLC Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in
this ARTICLE IX. Any transfer or purported transfer of any LLC
Interest not made in accordance with this ARTICLE IX shall be
void AB INITIO. Furthermore, no transfer of any LLC Interest
shall be permitted during the period commencing on the date of
this Agreement and ending on the date that is three years from
the date of this Agreement ("Restricted Period"). After such
Restricted Period, a Member may transfer all or a portion of its
LLC Interest, subject to the provisions of this ARTICLE IX;
PROVIDED, HOWEVER, that all transfers must be in accordance with
Federal Communications Commission rules and regulations. Subject
to SECTION 9.7, each Member shall have the right to transfer all,
but not less than all, of its LLC Interest to an Affiliate of
such Member, CTWC shall have the right to make transfers of
portions of its LLC Interest to local communications companies
located in markets where the LLC has or intends to construct or
acquire Systems, and Gabbard shall have the right to transfer its
LLC Interest to CTWC.
9.3. Right of First Offer
Before any Member shall transfer all or any portion of its
LLC Interest (other than a transfer pursuant to the last sentence
of SECTION 9.2., which transfer shall not be subject to this
SECTION 9.3.), such Member (the "Offeror") shall offer to sell
such portion of its LLC Interest to the other Members (the
"Offeree"), by a written offer notice to the Offeree (the "Offer
Notice") which shall state that it is an offer to sell the
Offeror s LLC Interest and set forth the offering price for such
LLC Interest, which price shall be payable in cash, PROVIDED,
HOWEVER, that if the Offeror is Gabbard, CTWC shall have the
exclusive first opportunity to exercise the rights of an Offeree
pursuant to this SECTION 9.3. and SECTION 9.4. prior to any other
Member being offered such opportunity.
9.4. Election Procedure
Each Offeree shall have twenty (20) days after receiving
such offer notice (the "Offeree s Election Period") within which
to elect to purchase all (but not less than all) of the Offeror s
LLC Interest. Such election shall be made by a written notice of
election given to the Offeror. Any Offeree may assign its right
to purchase hereunder to one or more other Persons; PROVIDED,
HOWEVER, that the right of the Offeree(s) to make such purchase
is conditioned upon the Offeree(s) and/or any other such Persons
collectively purchasing the Offeror s entire LLC Interest which
is being offered. In the event that more than one Offeree elects
to purchase the Offeror s LLC Interest, such Offerees shall
purchase the LLC Interest pror its Members incur any loss or
expense by reason of a mandatory repayment or loss o rata in
proportion to their respective Percentage Interests or as they
otherwise may agree.
9.5. Closing
The closing date of any purchase by the Offeree(s) (and any
other Person participating in the purchase pursuant to SECTION
9.4.) shall be twenty (20) days after expiration of the Offeree s
Election Period (or if not a business day, then on the next
business day thereafter), or such other date as is mutually
agreed by the Offeror and the Offeree(s). At the closing of such
purchase, upon payment of the offering price for such LLC
Interest by the Persons purchasing such LLC Interest pursuant to
the terms hereof, the Offeror shall deliver evidence of the
transfer of the LLC Interest to such Person(s) in valid form for
transfer with appropriate duly executed assignments, powers or
endorsements, bearing any necessary documentary stamps and
accompanied by such certificates of authority, tax releases,
consents to transfer or other instruments or evidences of the
good title of the Offeror to the LLC Interest as may be
reasonably required by such Person(s).
9.6. Sale Period
If the Offerees shall fail to elect to purchase the entire
LLC Interest that the Offeror wishes to transfer pursuant to the
terms of any Offer Notice, or at any time shall notify the
Offeror of their election not to purchase all of such LLC
Interest, or shall elect to purchase but fail to close the
purchase on the closing date, then the Offeror shall be free for
a period of 90 days thereafter to sell all, but not less than
all, of its LLC Interest specified in such Offer Notice to one or
more third parties on terms and conditions no less favorable to
the Offeror than those contained in the Offer Notice; PROVIDED,
HOWEVER, that such LLC Interest shall remain subject to this
Agreement; and PROVIDED FURTHER, that if the Offeror sells such
LLC Interest to more than one third party, such parties and the
selling Member (if it remains a Member) shall be treated as a
single Person for the purposes of this Agreement. If the Offeror
fails to sell such LLC Interest within such 90-day period, all
rights of the Offeror to transfer such LLC Interest free of the
obligation to first offer to sell such LLC Interest to the other
Members as provided herein shall terminate.
9.7. Substituted Members and General Transfer Restrictions
9.7.1. Substituted Members
Notwithstanding anything in this Agreement to the contrary,
any transferee of an LLC Interest or portion thereof that is not
already a Member shall become a substituted Member only upon (i)
the express written consent of all non-transferring Members in
their sole and absolute discretion, and (ii) the transferee
agreeing to be bound by all the terms and conditions of the
Certificate and this Agreement as then in effect. Unless and
until a transferee is admitted as a substituted Member, the
transferee shall have no right to exercise any of the powers,
rights, and privileges of a Member hereunder and shall possess
only the economic rights set forth in SECTION 9.9. A Member who
has transferred its entire LLC Interest in accordance with this
Agreement to a transferee who is admitted as a substituted Member
hereunder shall cease to be a Member upon the effective date of
such admission and thereafter shall have no further powers,
rights, and privileges as a Member hereunder except as provided
in SECTION 6.2. and SECTION 7.14.
9.7.2. General Transfer Restrictions
Notwithstanding anything in this Agreement to the contrary,
no Member may transfer all or any portion of its LLC Interest
unless such transfer will not (and, upon the request of any
Member, the Member desiring to transfer its LLC Interest provides
an opinion of counsel in form and substance satisfactory to the
requesting Member that such transfer will not) (i) violate any
applicable federal or state securities laws or regulations; (ii)
subject the LLC to registration as an investment company or
election to be regulated as a "business development company"
under the Investment Company Act of 1940; (iii) require any
Member or any of its Affiliates to register as an investment
advisor under the Investment Advisers Act of 1940; (iv) cause the
LLC to be treated as an association taxable as a corporation for
federal income tax purposes, either as a "publicly traded
partnership" under Section 7704 of the Code or otherwise; (v)
cause the LLC or any Member to be treated as a fiduciary under
ERISA; or (vi) cause the LLC to suffer any other adverse
consequences under federal or state laws or regulations.
9.8. Dealings with LLC
The LLC, each Member, the Management Committee, the officers
and any other Person or Persons having business with the LLC need
deal only with Members who are admitted as Members or as
substituted Members of the LLC, and they shall not be required to
deal with any other Person by reason of transfer by a Member or
by reason of the death of a Member, except as otherwise provided
in this Agreement. In the absence of the substitution (as
provided herein) of a Member for a transferring or a deceased
Member, any payment to a Member or to a Member's executors or
administrators shall absolve the LLC and the Management Committee
of all liability to any other Persons who may be interested in
such payment by reason of an assignment by, or the death of, such
Member.
9.9. Transferee of Economic Interest
The transferee of all or any portion of an LLC Interest in
accordance with this Agreement that is not already a Member shall
acquire only the transferor Member s economic rights to receive
distributions from the LLC and an allocable share of the LLC s
income, gain and loss with respect to the transferred LLC
Interest unless and until the transferee is admitted as a
substituted Member in accordance with SECTION 9.7.
9.10. Purchase Option on the Happening of Certain Events
9.10.1. Option to Purchase
In the event of the happening of any of the following
events:
(a) a Member is dissolved or terminated or, in the
case of Gabbard, dies or is adjudged legally incompetent;
(b) a Member is adjudicated bankrupt or a Member's
interest is assigned for the benefit of creditors, levied upon,
attached, subjected to a charging order or proposed to be sold in
a foreclosure or by execution or under any power of sale
contained in a note or other instrument or granted by operation
of law or court order; or
(c) a Member's interest becomes subject to liquidation
as a result of a Member's filing a petition for involuntary
dissolution of the LLC;
then, notwithstanding any other provision of this ARTICLE IX, if
the LLC continues, the remaining Members shall have the option to
purchase, at a price determined in accordance with SECTION
9.10.2., all (but not less than all) of such Member s LLC
Interest. Such option shall be exercised by written notice to
the Member or the Member's legal representative or successor,
(each of which may be referred to herein as the "offeror"), as
the case may be, within sixty (60) days after the date of the
event giving rise to the option occurs or, if later, the date
that the LLC receives actual notice that such event has occurred.
If more than one of the remaining Members elects to purchase the
affected LLC Interest, such Members shall purchase the affected
LLC Interest pro rata in proportion to their respective
Percentage Interests or as they otherwise may agree; PROVIDED,
HOWEVER, that if the affected LLC Interest is that of Gabbard,
then (i) CTWC (or its designee) shall have the exclusive first
opportunity to purchase the affected LLC Interest hereunder, and
(ii) in the event CTWC or its designee so purchases the entire
LLC Interest of Gabbard, then notwithstanding any other provision
of this Agreement or the Delaware LLC Act to the contrary, the
LLC shall continue in existence and shall not be dissolved solely
as a result of the event giving rise to such purchase unless, as
a result of such purchase, (x) the LLC or its Members would incur
any loss or expense by reason of a mandatory repayment or loss of
any financial incentive granted by the U.S. government (or any
agency thereof) at the time the LLC acquired a license for any
Channel, (y) CTWC fails to provide or arrange for substitute
financing on terms and conditions not less favorable to the LLC,
in any material respect, and to reimburse the LLC and the other
Members in respect of all losses and expenses described in clause
(x) above (to the extent such losses and expenses would exceed
the amount of any such losses and expenses that the LLC or its
Members would incur if the LLC were to dissolve in accordance
with SECTION 7.2.6.) no later than the date that is thirty (30)
days after the date of such purchase of Gabbard s LLC Interest,
and (z) no later than the date that is sixty (60) days after the
date of such purchase of Gabbard s LLC Interest, W/O provides
written notice to CTWC of W/O s election to dissolve the LLC. If
the remaining Members do not elect to purchase the affected LLC
Interest pursuant to SECTION 9.10.1., then the affected LLC
Interest may be held by the offeror, subject to the terms of this
Agreement.
9.10.2. Purchase Price
The Members shall attempt to mutually agree on the fair
market value of the affected LLC Interest. If the Members are
unable to reach an agreement within ninety (90) days, then the
fair market value shall be determined by appraisal under the
following valuation procedure. The Members shall attempt in good
faith, within fifteen (15) days after demand for appraisal, to
mutually agree on a single appraiser. If the Members fail to
agree on such single appraiser within the fifteen (15) day
period, then the selling Member, on the one hand, and the
purchasing Member(s), on the other hand, each shall, within
fifteen (15) days thereafter, choose one appraiser. The third
appraiser shall be selected by the two appraisers so designated.
Each appraiser must be a qualified person having significant
experience appraising interests in partnerships or limited
liability companies that invest in wireless cable television
operations. If the two appraisers so selected shall be unable to
agree on a third appraiser within ten (10) days, the third
appraiser shall be selected by the American Arbitration
Association to serve as herein provided. Should either of the
Members fail or refuse to appoint an appraiser within such
fifteen (15) day period, then the single appraiser shall have the
right to decide alone and such appraiser s decision shall be
final and binding upon the Members. In the event that any
appraiser shall be unable to act, a new appraiser shall be
appointed within ten (10) days after such inability occurs, such
appointment to be made in the same manner as hereinabove provided
for the appointment of the appraiser who is unable to act. The
appraisers shall determine the fair market value of the affected
Interest and deliver a written statement of the same to the
Members within sixty (60) days after the last appraiser has been
engaged. For purposes of this SECTION 9.10.2., such fair market
value shall be (i) the valuation jointly determined by the three
appraisers, or (ii) if the three appraisers are unable to agree
upon a valuation, then each of the appraisers shall make its own
determination and the fair market value shall be determined as
follows:
(a) if the lowest valuation is not less than 90 percent of
the middle valuation and the highest valuation is not greater
than 110 percent of the middle valuation, the fair market value
shall equal the average of the values determined by the three
appraisers;
(b) if the lowest valuation is less than 90 percent of the
middle valuation and the highest valuation is more than 110
percent of the middle valuation, the low and the high valuations
shall be disregarded and the middle valuation shall be the fair
market value; or
(c) if either the lowest valuation is less than 90% of the
middle valuation or the highest valuation is more than 110% of
the middle valuation (but not both), then the fair market value
shall equal the average of the two valuations which are closest
in amount.
The cost of all appraisals prepared in accordance with this
SECTION 9.10.2. shall be borne pro rata by the purchasing
Member(s).
9.11. No Right to Withdraw
Subject to SECTIONS 7.2.6., 9.10, AND 9.12., a Member shall
not have any right (but shall have the power) to resign, retire
or otherwise withdraw from the LLC without the express written
consent of all the other Members.
9.12. Sale Right of New Member
Notwithstanding any provision of this Agreement to the
contrary, but subject to SECTION 9.7., at any time after a date
that is five (5) years from the date the LLC first obtains a
license for Channels through competitive bidding, Gabbard shall
have the right, at its option, to require CTWC (or its designee)
to purchase for cash all, but not less than all, of Gabbard s LLC
Interest. Such option shall be exercised by written notice to
CTWC. CTWC and Gabbard shall attempt to mutually agree on the
fair market value of Gabbard s LLC Interest. If CTWC and Gabbard
are unable to reach an agreement within ninety (90) days, then
the fair market value shall be determined by appraisal under the
following valuation procedure. The CTWC and Gabbard shall
attempt in good faith, within fifteen (15) days after demand for
appraisal, to mutually agree on a single appraiser. If the CTWC
and Gabbard fail to agree on such single appraiser within the
fifteen (15) day period, then CTWC and Gabbard each shall, within
fifteen (15) days thereafter, choose one appraiser. The third
appraiser shall be selected by the two appraisers so designated.
Each appraiser must be a qualified person having significant
experience appraising interests in partnerships or limited
liability companies that invest in wireless cable television
operations. If the two appraisers so selected shall be unable to
agree on a third appraiser within ten (10) days, the third
appraiser shall be selected by the American Arbitration
Association to serve as herein provided. Should either of CTWC
or Gabbard fail or refuse to appoint an appraiser within such
fifteen (15) day period, then the single appraiser shall have the
right to decide alone and such appraiser s decision shall be
final and binding upon CTWC and Gabbard. In the event that any
appraiser shall be unable to act, a new appraiser shall be
appointed within ten (10) days after such inability occurs, such
appointment to be made in the same manner as hereinabove provided
for the appointment of the appraiser who is unable to act. The
appraisers shall determine the fair market value of Gabbard s LLC
Interest and deliver a written statement of the same to the CTWC
and Gabbard within sixty (60) days after the last appraiser has
been engaged. For purposes of this SECTION 9.12., such fair
market value shall be (i) the valuation jointly determined by the
three appraisers, or (ii) if the three appraisers are unable to
agree upon a valuation, then each of the appraisers shall make
its own determination and the fair market value shall be
determined as follows:
(a) if the lowest valuation is not less than 90 percent of
the middle valuation and the highest valuation is not greater
than 110 percent of the middle valuation, the fair market value
shall equal the average of the values determined by the three
appraisers;
(b) if the lowest valuation is less than 90 percent of the
middle valuation and the highest valuation is more than 110
percent of the middle valuation, the low and the high valuations
shall be disregarded and the middle valuation shall be the fair
market value; or
(c) if either the lowest valuation is less than 90% of the
middle valuation or the highest valuation is more than 110% of
the middle valuation (but not both), then the fair market value
shall equal the average of the two valuations which are closest
in amount.
The cost of all appraisals prepared in accordance with this
SECTION 9.12. shall be borne by the LLC.
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1. Events Causing Dissolution
Unless the Members elect to continue the existence and
operation of the LLC pursuant to SECTION 10.2., the LLC shall be
dissolved and its affairs wound up upon the occurrence of any of
the following events:
(a) the consent in writing to dissolve and wind up the
affairs of the LLC by all of the Members;
(b) an election by any Member in the event of a deadlock on
any Material Decision under SECTION 7.2.6. or pursuant to SECTION
5.2.2.(C);
(c) the Bankruptcy (as hereinafter defined) of a Member;
(d) upon a Change of Control of a Member and the election
by each remaining Member owning an LLC Interest representing a
Percentage Interest of more than twenty percent (20%);
(e) the Termination Date;
(f) the sale or other disposition (voluntarily or
involuntarily) by the LLC of all or substantially all of the LLC
Assets and the collection of all amounts derived from any such
sale or other disposition, including all amounts payable to the
LLC under any promissory notes or other evidences of
indebtedness taken by the LLC (unless the Management Committee
shall elect to distribute such indebtedness to the Members in
liquidation), and the satisfaction of contingent liabilities of
the LLC in connection with such sale or other disposition;
(g) the occurrence of any event that, under the Delaware
LLC Act, would cause the dissolution of the LLC or that would
make it unlawful for the business of the LLC to be continued; and
(h) at the election of W/O pursuant to clause (ii)(z) of
SECTION 9.10.1.
For the purpose of this Agreement, the term "Bankruptcy"
shall mean, and the Member shall be deemed "Bankrupt" upon, (i)
the entry of a decree or order for relief of the Member by a
court of competent jurisdiction in any involuntary case involving
the Member under any bankruptcy, insolvency, or other similar law
nor or hereafter in effect; (ii) the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator, or other
similar agent for the Member or for any substantial part of the
Member's assets or property; (iii) the ordering of the winding up
or liquidation of the Member's affairs; (iv) the filing with
respect to the Member of a petition in any such involuntary
bankruptcy case, which petition remains undismissed for a period
of ninety (90) days or which is dismissed or suspended pursuant
to Section 305 of the Federal Bankruptcy Code (or any
corresponding provision of any future United States bankruptcy
law); (v) the commencement by the Member of a voluntary case
under any bankruptcy, insolvency, or other similar law nor or
hereafter in effect; (vi) the consent by the Member to the entry
of an order for relief in an involuntary case under any such law
or the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or other
similar agent for the Member or for any substantial part of the
Member's assets or property; (vii) the making by the Member of
any general assignment for the benefit of creditors; or (viii)
the failure by the Member generally to pay its debts as such
debts become due.
10.2. Right to Continue Business of the LLC
Upon an event described in SECTIONS 10.1.(c), 10.1.(e), or
10.1.(g) (but not an event described in SECTION 10.1.(g) that
makes it unlawful for the business of the LLC to be continued or
for the LLC to continue to be a limited liability company under
the Delaware LLC Act), except as otherwise provided in this
Agreement, the LLC thereafter shall be dissolved and liquidated
unless, within ninety (90) days after the event described in any
of such Sections, an election to continue the business of the LLC
shall be made in writing by all of the remaining Members. If
such an election to continue the LLC is made, then the LLC shall
continue until another event causing dissolution in accordance
with this ARTICLE X shall occur (whereupon this SECTION 10.2
shall once again be applicable).
10.3. Cancellation of Certificate
Upon the dissolution and the completion of winding up of the
LLC, the Certificate shall be canceled in accordance with the
provisions of Section 18-203 of the Delaware LLC Act.
10.4. Distributions Upon Dissolution
Subject to SECTION 7.2.6., SECTION 10.2. and SECTION 9.10.,
upon the dissolution of the LLC, the Management Committee (or any
other person or entity responsible for winding up the affairs of
the LLC) shall proceed without any unnecessary delay to pay or
make due provision for the payment of all debts, liabilities and
obligations of the LLC. The Management Committee (or any other
person or entity responsible for winding up the affairs of the
LLC) shall distribute any assets of the LLC remaining after the
payment of all debts, liabilities and obligations of the LLC
(including, without limitation, all amounts owing to a Member
under this Agreement or under any agreement between the LLC and a
Member entered into by the Member other than in its capacity as a
Member in the LLC), the payment of expenses of liquidation of the
LLC, and the establishment of a reasonable reserve in an amount
estimated by the Management Committee to be sufficient to pay any
amounts reasonably anticipated to be required to be paid by the
LLC, which shall be distributed to the Members first, pro rata,
in proportion to the positive balances, if any, in their
respective Capital Accounts until such Capital Accounts are
reduced to zero sums, and second, the remaining LLC Assets, if
any, shall be distributed to the Members, pro rata, in accordance
with their respective Percentage Interests; PROVIDED, HOWEVER,
that the Management Committee (or any other person or entity
responsible for winding up the affairs of the LLC) shall make all
reasonable efforts (consistent with the requirement that
distributions be made pro rata, as aforesaid, in aggregate
amount) when distributing any assets of the LLC to the Members,
to distribute such assets in accordance with SECTION 7.2.6.; and
PROVIDED FURTHER, that CTWC, at its election, may purchase from
Gabbard the entire interest of Gabbard in the assets to be
distributed to Gabbard hereunder, for a cash purchase price equal
to the net fair market value of such assets, as determined by the
Management Committee for purposes of making the distributions
hereunder.
10.5. Reasonable Time for Winding Up
A reasonable time shall be allowed for the orderly winding
up of the business and affairs of the LLC and the liquidation of
its assets pursuant to SECTION 10.4. in order to minimize any
losses otherwise attendant upon such a winding up.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. Additional Actions and Documents
Each Member hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or
cause to be executed, acknowledged, delivered and filed such
further documents and instruments, and to use best efforts to
obtain such consents, as may be necessary or as may be reasonably
requested in order fully to effectuate the purposes, terms and
conditions of this Agreement, whether before, at or after the
closing of the transactions contemplated by this Agreement.
11.2. Notices
All notices, demands, requests or other communications which
may be or are required to be given, served, or sent by a Member
pursuant to this Agreement shall be in writing and shall be hand
delivered (including delivery by courier), mailed by first-class,
registered or certified mail, return receipt requested, postage
prepaid, or transmitted by telegram, telex or facsimile
transmission, addressed as set forth on SCHEDULE A attached
hereto. Each Member may designate by notice in writing a new
address to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand,
request or communication which shall be delivered, mailed or
transmitted in the manner described above shall be deemed
sufficiently given, served, sent or received for all purposes at
such time as it is delivered to the addressee (with an affidavit
of personal delivery, the return receipt, the delivery receipt,
or (with respect to a telex) the answer back being deemed
conclusive evidence of such delivery) or at such time as delivery
is refused by the addressee upon presentation.
11.3. Expenses
Except as otherwise expressly provided in this Agreement or
the Services Agreement, each Member shall each pay its own
expenses (including its own legal fees and expenses) in
connection with the preparation, negotiation and execution of
this Agreement and in their roles as Members of the LLC.
11.4. Severability
The invalidity of any one or more provisions hereof or of
any other agreement or instrument given pursuant to or in
connection with this Agreement shall not affect the remaining
portions of this Agreement or any such other agreement or
instrument or any part thereof, all of which are inserted
conditionally on their being held valid in law; and in the event
that one or more of the provisions contained herein or therein
should be invalid, or should operate to render this Agreement or
any such other agreement or instrument invalid, this Agreement
and such other agreements and instruments shall be construed as
if such invalid provisions had not been inserted.
11.5. Survival
It is the express intention and agreement of the Members
that all covenants, agreements, statements, representations,
warranties and indemnities made in this Agreement shall survive
the execution and delivery of this Agreement.
11.6. Waivers
Neither the waiver by a Member of a breach of or a default
under any of the provisions of this Agreement, nor the failure of
a Member, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right, remedy or
privilege hereunder, shall thereafter be construed as a waiver of
any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies or privileges
hereunder.
11.7. Exercise of Rights
No failure or delay on the part of a Member or the LLC in
exercising any right, power or privilege hereunder and no course
of dealing between the Members or between a Member and the LLC
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any
other rights or remedies which a Member or the LLC would
otherwise have at law or in equity or otherwise.
11.8. Binding Effect
Subject to any provisions hereof restricting assignment,
this Agreement shall be binding upon and shall inure to the
benefit of the Members and their respective successors and
assigns.
11.9. Limitation on Benefits of this Agreement
Subject to SECTION 7.14. and SECTION 8.6.5., it is the
explicit intention of the Members that no person or entity other
than the Members and the LLC is or shall be entitled to bring any
action to enforce any provision of this Agreement against any
Member or the LLC, and that the covenants, undertakings and
agreements set forth in this Agreement shall be solely for the
benefit of, and shall be enforceable only by, the Members (or
their respective successors and assigns as permitted hereunder)
and the LLC.
11.10. Entire Agreement
This Agreement (including the Addenda and Schedules hereto)
and the Services Agreement contain the entire agreement between
the Members with respect to the transactions contemplated herein,
and supersede all prior oral or written agreements, commitments
or understandings with respect to the matters provided for herein
and therein.
11.11. Pronouns
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
11.12. Headings
Article, Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall
not be deemed to be a part of this Agreement for any purpose, and
shall not in any way define or affect the meaning, construction
or scope of any of the provisions hereof.
11.13. Governing Law
This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the
State of Delaware (but not including the choice of law rules
thereof).
11.14. Execution in Counterparts
To facilitate execution, this Agreement may be executed in
as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each party, or
that the signatures of all persons required to bind any party,
appear on each counterpart; but it shall be sufficient that the
signature of, or on behalf of, each party, or that the signatures
of the persons required to bind any party, appear on one or more
of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in
making proof of this Agreement to produce or account for more
than a number of counterparts containing the respective
signatures of, or on behalf of, all of the parties hereto.
IN WITNESS WHEREOF, the undersigned have duly executed this
Limited Liability Company Agreement, or have caused this Limited
Liability Company Agreement to be duly executed on their behalf,
as of the day and year first hereinabove set forth.
CT WIRELESS CABLE, INC.
By:/s/ MICHAEL R. COLTRANE
Title: President
WIRELESS ONE, INC.
By:/s/ H. G. STERNBERG
Title: Chairman
/s/ O. GENE GABBARD
O. GENE GABBARD
<PAGE>
SCHEDULE A
INITIAL CAPITAL PERCENTAGE
MEMBER'S NAME AND ADDRESS CONTRIBUTION INTEREST
CT WIRELESS CABLE, INC. $240,000 48%
69 CABARRUS AVENUE EAST
CONCORD, NORTH CAROLINA 28025
WIRELESS ONE, INC. $250,000 50%
5551 CORPORATE BOULEVARD
SUITE 2K
BATON ROUGE, LOUISIANA 70808
O. GENE GABBARD $10,000 2%
102 MARSEILLE PLACE
CARY, NORTH CAROLINA 27511
LIMITED LIABILITY COMPANY AGREEMENT
OF
WIRELESS ONE OF NORTH CAROLINA, L.L.C.
TABLE OF CONTENTS
PAGE
ARTICLE I CERTAIN DEFINITIONS.............................1
ARTICLE II FORMATION; NAME; PLACE OF BUSINESS..............1
2.1. Formation of LLC; Certificate of Formation......1
2.2. Name of LLC.....................................2
2.3. Place of Business...............................2
2.4. Registered Office and Registered Agent..........3
ARTICLE III PURPOSES AND POWERS OF LLC......................3
3.1. Purposes........................................3
3.2. Powers..........................................3
ARTICLE IV TERM OF LLC.....................................4
ARTICLE V CAPITAL.........................................4
5.1. Capital Contributions; Initial LLC Interests....4
5.1.1. Initial Capital Contributions.........4
5.1.2. Additional Capital Contributions......5
5.2. Failure to Make Required Capital Contributions..5
5.2.1. Loan by Non-Defaulting Members to
Defaulting Member.....................5
5.2.2. Other Remedies........................8
5.3. Capital Accounts................................8
5.4. Negative Capital Accounts.......................8
5.5. No Interest on Capital Contributions or Capital
Accounts........................................8
5.6. Advances to LLC.................................9
5.7. Liability of Members and the Management
Committee.......................................9
5.8. Return of Capital...............................9
5.9. Issuance of Additional LLC Interests............9
5.10. Rights to Subscribe to Additional Issuances....10
ARTICLE VI ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS..................................10
6.1. Allocation of Net Income or Net Loss...........10
6.2. Allocation of Income and Loss With Respect to
LLC Interests Transferred.....................10
6.3. Distributions..................................11
ARTICLE VII MEMBERS AND MANAGEMENT.........................11
7.1. Members........................................11
7.1.1. Meetings.............................11
7.1.2. Quorum...............................11
7.1.3. Action by Written Consent............12
7.1.4. Required Vote; Voting Rights.........12
7.1.5. Waivers of Notice....................12
7.2. Management of the LLC by the Management
Committee......................................12
7.2.1. Composition..........................14
7.2.2. Meetings.............................14
7.2.3. Quorum...............................15
7.2.4. Required Vote; Voting Rights.........15
7.2.5. Action by Written Consent............16
7.2.6. Deadlock on a Material Decision;
Distribution on Dissolution..........16
7.2.7. Committees...........................18
7.2.8. Services Agreement...................18
7.3. Failure to Buildout System.....................18
7.4. Failure to Acquire Channels....................19
7.5. Restrictions on Sale of LLC and Assets of LLC..19
7.6. Opportunities for Local Telephone Companies to
Resell Services................................19
7.7. Officers.......................................20
7.7.1. Chairman of the Management Committee.20
7.7.2. President............................20
7.7.3. Vice Presidents......................21
7.7.4. Secretary............................21
7.7.5. Treasurer............................21
7.7.6. Other Officers.......................21
7.7.7. Removal of Officers; Vacancies.......22
7.7.8. Third Party Reliance.................22
7.8. Fiduciary Relationship.........................22
7.9. Compensation of Management Committee; Officers.22
7.10. Reimbursement..................................22
7.11. Other Activities of Members and Affiliates.....23
7.12. Right to Enter into Sub-Ventures...............23
7.13. Certain Transactions...........................23
7.14. Indemnification of the Members, Management
Committee Members, Officers and any Affiliate.24
7.14.1. Indemnity............................24
7.14.2. Expenses.............................24
7.14.3. Other Rights.........................24
7.14.4. Insurance............................25
7.14.5. Interest in Transaction..............25
7.14.6. Benefit..............................25
7.15. Amendment of this Agreement....................25
7.16. Effect of Change of Control of W/O.............25
ARTICLE VIII BANK ACCOUNTS; BOOKS AND RECORDS; STATEMENTS;
TAXES; FISCAL YEAR; ANNUAL BUDGET..............26
8.1. Bank Accounts..................................26
8.2. Books and Records..............................26
8.3. Financial Statements and Information...........26
8.3.1. Quarterly Financial Statements.......26
8.3.2. Annual Financial Statements..........27
8.3.3. Other Reports........................27
8.4. Accounting Decisions...........................27
8.5. Where Maintained...............................27
8.6. Tax Returns; Tax Matters Partner...............27
8.6.1. Tax Returns..........................27
8.6.2. Tax Matters Partner..................28
8.6.3. Obligation to IRS....................28
8.6.4. Obligations to Members...............28
8.6.5. Authority of Tax Matters Partner.....29
8.7. Fiscal Year....................................29
8.8. Annual Budget..................................29
8.8.1. Distribution of Annual Budgets.......29
8.8.2. Budget Subject to Approval...........31
ARTICLE IX TRANSFER OF LLC INTERESTS AND THE WITHDRAWAL OF
MEMBERS........................................31
9.1. Definition.....................................31
9.2. No Unauthorized Transfers; Prohibition During
Initial Three Years...........................31
9.3. Right of First Offer...........................32
9.4. Election Procedure.............................32
9.5. Closing........................................32
9.6. Sale Period....................................33
9.7. Substituted Members and General Transfer
Restrictions...................................33
9.7.1. Substituted Members..................33
9.7.2. General Transfer Restrictions........34
9.8. Dealings with LLC..............................34
9.9. Transferee of Economic Interest................34
9.10. Purchase Option on the Happening of Certain
Events ........................................34
9.10.1. Option to Purchase...................35
9.10.2. Purchase Price.......................36
9.11. No Right to Withdraw...........................37
9.12. Sale Right of New Member.......................37
ARTICLE X DISSOLUTION AND LIQUIDATION....................38
10.1. Events Causing Dissolution.....................38
10.2. Right to Continue Business of the LLC..........40
10.3. Cancellation of Certificate....................40
10.4. Distributions Upon Dissolution.................40
10.5. Reasonable Time for Winding Up.................41
ARTICLE XI MISCELLANEOUS PROVISIONS.......................41
11.1. Additional Actions and Documents...............41
11.2. Notices........................................41
11.3. Expenses.......................................42
11.4. Severability...................................42
11.5. Survival.......................................42
11.6. Waivers........................................42
11.7. Exercise of Rights.............................42
11.8. Binding Effect.................................43
11.9. Limitation on Benefits of this Agreement.......43
11.10. Entire Agreement...............................43
11.11. Pronouns.......................................43
11.12. Headings.......................................43
11.13. Governing Law..................................43
11.14. Execution in Counterparts......................44
SCHEDULE A MEMBERS' NAMES AND ADDRESSES; LLC INTERESTS; AND
CAPITAL CONTRIBUTIONS
ADDENDUM I DEFINITIONS
ADDENDUM II TAX ALLOCATIONS ADDENDUM
EXHIBIT A SERVICES AGREEMENT WITH WIRELESS ONE, INC.
THE LIMITED LIABILITY COMPANY INTERESTS EVIDENCED BY THIS
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS (THE "STATE ACTS"), AND MAY BE OFFERED OR SOLD
ONLY (1) UPON REGISTRATION OF THE LIMITED LIABILITY COMPANY
INTERESTS UNDER THE ACT AND THE STATE ACTS OR PURSUANT TO AN
EXEMPTION THEREFROM, AND (2) AFTER COMPLIANCE WITH ALL
RESTRICTIONS ON TRANSFER OF LIMITED LIABILITY COMPANY INTERESTS
IMPOSED BY THIS AGREEMENT, INCLUDING (WITHOUT LIMITATION) THE
PROVISIONS OF ARTICLE IX.
* * * * *
LIMITED LIABILITY COMPANY AGREEMENT
OF
WIRELESS ONE OF NORTH CAROLINA, L.L.C.
ADDENDUM I
DEFINITIONS
AFFILIATE: When used with reference to a specified Person,
means (i) any Person that directly or indirectly through one or
more intermediaries controls or is controlled by or is under
common control with the specified Person, (ii) any Person that is
an officer or director of, general partner in or trustee of, or
serves in a similar capacity with respect to, the specified
Person or of which the specified Person is an officer, director,
general partner or trustee, or with respect to which the
specified Person serves in a similar capacity, (iii) any Person
for which an officer or director of, general partner in or
trustee of, or individual serving in a similar capacity with
respect to, the specified Person serves in any such capacity, and
(iv) any relative or spouse of the specified Person who makes his
or her home with that of the specified Person. As used in this
definition of "Affiliate", the term "control" means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract,
or otherwise.
AGREEMENT: This Limited Liability Company Agreement, as it
may be further amended or supplemented from time to time.
APPROVING MEMBER: As defined in SECTION 7.3.
BANKRUPTCY: As defined in SECTION 10.1.
BUDGET: A budget for the operations of the LLC, including
anticipated revenues, expenses, capital expenditures, and
required Capital Contributions, which is approved by the
Management Committee in accordance with SECTION 8.8.
BUSINESS DAY: Monday through Friday of each week, except
that a legal holiday recognized as such by the Government of the
United States shall not be regarded as a Business Day.
CAPITAL ACCOUNT: The capital account established and
maintained for each Member pursuant to the Tax Allocations
Addendum in ADDENDUM II attached hereto.
CAPITAL CONTRIBUTION: Any property (including cash)
contributed to the LLC by or on behalf of a Member.
CERTIFICATE: The Certificate of Formation of the LLC, dated
as of October 5, 1995, and any and all amendments thereto, filed
on behalf of the LLC with the Recording Office as required under
the Delaware LLC Act.
CHANGE OF CONTROL: As to any Member that is not an
individual, any capital reorganization, reclassification or
recapitalization of a Member or a Member s Parent s capital stock
or other voting equity interests or any transfer of its capital
stock or other voting equity interests in one or a series of
related transfers, or any merger or consolidation with or into
any other entity as a result of which reorganization,
reclassification, recapitalization, transfer, consolidation or
merger a person or group of related persons not controlling,
controlled by or under common control with such Member or such
Member s Parent as of the date of this Agreement acquires common
stock or other equity interests representing more than fifty
percent (50%) of the total voting power of all common stock or
other common equity interests of such Member or such Member s
Parent or any successor thereto.
CHANNELS: As defined in SECTION 3.1.
CODE: The Internal Revenue Code of 1986, as in effect and
hereafter amended, and, unless the context otherwise requires,
applicable regulations thereunder. Any reference herein to a
specific section or sections of the Code shall be deemed to
include a reference to any corresponding provision of future law.
CURE PERIOD: As defined in SECTION 5.2.
DEFAULT AMOUNT: As defined in SECTION 5.2.1.
DEFAULT DATE: As defined in SECTION 5.2.1.
DEFAULT RATE: An interest rate of 12% per annum, which
shall be compounded monthly.
DEFAULT LOAN: As defined in SECTION 5.2.1.
DEFAULTING MEMBER: As defined in SECTION 5.2.
DELAWARE LLC ACT: The Delaware Limited Liability Company
Act, as amended.
EVENT OF DEFAULT: As defined in SECTION 5.2.
FISCAL YEAR: As defined in SECTION 8.7.
INDEMNITEE: As defined in SECTION 7.14.1.
INITIAL BUSINESS PLAN: The initial plan for the conduct of
the business of the LLC to be approved by the Management
Committee no later than December 31, 1995, which sets forth,
among other matters, a schedule of the Members anticipated
Capital Contributions and bidding limits for the Channels.
ITFS: Instructional Television Fixed Service.
LLC: As defined in the preamble.
LLC ASSETS: All assets and property, whether tangible or
intangible and whether real, personal, or mixed, at any time
owned by or held for the benefit of the LLC.
LLC INTEREST: As to any Member, all of the interest of that
Member in the LLC, including, without limitation, such Member's
(i) right to a distributive share of the income, gain, losses and
deductions of the LLC in accordance with this Agreement, and (ii)
right to a distributive share of LLC Assets.
MAJORITY OF THE MEMBERS: The affirmative vote of Members
that collectively hold Percentage Interests of at least eighty
percent (80%).
MAJORITY VOTE: The affirmative vote of Management Committee
members representing a majority of the total voting interests of
all Management Committee members entitled to vote with respect to
a particular action or decision, whether or not present in person
or by proxy at the time any such vote is taken.
MANAGEMENT COMMITTEE: The group of Persons appointed by the
Members pursuant to SECTION 7.2. who are vested with the
responsibility and authority for management of the business and
affairs of the LLC.
MATERIAL DECISION: As defined in SECTION 7.2.6.
MEMBER: The signatories to this Agreement or any other
Person who in the future shall execute and deliver this
Agreement, or other documents as the Management Committee deems
necessary or appropriate to evidence such Person's agreement to
be admitted as a Member and be bound by the terms and conditions
of the Certificate and this Agreement, and who shall be admitted
to the LLC as a new or substitute Member pursuant to the
provisions hereof.
NET INCOME OR NET LOSS: As defined in the Tax Allocations
Addendum.
NON-DEFAULTING MEMBER: As defined in SECTION 5.2.
OFFER NOTICE: As defined in SECTION 9.3.
OFFEREE: As defined in SECTION 9.3.
OFFEREE S ELECTION PERIOD: As defined in SECTION 9.4.
OFFEROR: As defined in SECTION 9.3.
OPPOSING MEMBER: As defined in SECTION 7.3.
PARENT: An entity that owns, directly or through one or
more other entities, 50% or more of the voting power with respect
to a Member.
PERCENTAGE INTEREST: A Member s ownership interest in the
LLC by virtue of its LLC Interest expressed as a percentage of
the ownership interests of all Members.
PERSON: Any individual, corporation, association,
partnership, limited liability company, joint venture, trust,
estate, or other entity or organization.
RECORDING OFFICE: The office of the Secretary of State of
the State of Delaware.
SERVICES AGREEMENT: As defined in SECTION 7.2.8.
SUBJECT MARKET: As defined in SECTION 7.3.
SUPERMAJORITY VOTE. The affirmative vote of Management
Committee members representing eighty percent (80%) of the total
voting interests of all Management Committee members entitled to
vote with respect to a particular action or decision, whether or
not present in person or by proxy at the time any such vote is
taken.
SYSTEMS: As defined in SECTION 3.1.
TAX ALLOCATIONS ADDENDUM: The Addendum attached to the
Agreement as ADDENDUM II and incorporated herein by reference.
TERMINATION DATE: June 30, 2094.
ADDENDUM II
TAX ALLOCATIONS ADDENDUM
1. Purpose.
This Tax Allocations Addendum (the "ADDENDUM") is
attached to, and constitutes a part of, the Limited Liability
Company Agreement of Wireless One of North Carolina, L.L.C. (the
"LLC"), as it may be amended from time to time (the "AGREEMENT"),
for the purpose of setting forth the rules governing the
maintenance of the Capital Accounts required to be maintained for
each Member under the Agreement and the rules governing the
allocation of the LLC's items of Net Income and Net Loss, other
items of income, gain, loss, deduction and credit, and taxable
income, gain, loss, deduction, and credit. This Addendum is to
be construed and applied to the extent practicable in a manner
consistent with the Members' agreement with respect to LLC
distributions as set forth in Article VI of the Agreement.
2. Certain Definitions.
Unless otherwise provided in this Addendum, all
capitalized terms used in this Addendum shall have the meanings
assigned to them in other provisions of the Agreement. In
addition, the following terms shall have the meanings indicated:
ADDENDUM: This Tax Allocations Addendum, as it may be
amended from time to time.
ADJUSTED BASIS: The basis for determining gain or loss
for federal income tax purposes from the sale or other
disposition of property, as defined in section 1011 of the Code.
ADJUSTED CAPITAL ACCOUNT BALANCE: The balance in a
Member's Capital Account after crediting to that account the
Member's current share of minimum gain as determined in
Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5). This
definition of "Adjusted Capital Account Balance" and the
provisions in section 4 of this Addendum that contain the term
"Adjusted Capital Account Balance" are intended to take into
account, in determining a Member's Capital Account balance prior
to liquidation, such Member's share, if any, of future expected
recapture of deductions attributable to nonrecourse debt.
CARRYING VALUE: With respect to any asset, the asset's
Adjusted Basis, except as follows:
(a) the initial Carrying Value of any asset
contributed (or deemed contributed) to the LLC shall be such
asset's fair market value at the time of such contribution;
(b) upon adjustment of the Members' Capital Accounts
pursuant to section 3(d) of this Addendum, the Carrying Values of
all LLC assets shall be adjusted to equal their respective fair
market values at the time of such adjustment;
(c) any adjustments to the Adjusted Basis of any asset
of the LLC pursuant to section 734 or 743 of the Code shall not
be taken into account in determining such asset's Carrying Value;
and
(d) if the Carrying Value of any asset has been
determined pursuant to paragraph (a), (b) or (c) above, such
Carrying Value shall thereafter be adjusted in the same manner as
would the asset's Adjusted Basis, except that depreciation,
amortization or other cost recovery deductions shall be computed
based on the asset's Carrying Value as so determined, and not on
the asset's Adjusted Basis.
EXCESS DEFICIT BALANCE: The deficit balance, if any,
in a Member's Capital Account as of the end of a Fiscal Year
determined, solely for purposes of this definition of "Excess
Deficit Balance", by CREDITING the Member's Capital Account with
the amount of any deficit balance in such Capital Account that
the Member is obligated to restore or is treated as obligated to
restore pursuant to Regulations sections 1.704-1(b)(2)(ii)(B)(3)
and 1.704-1(b)(2)(ii)(C) or is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations sections
1.704-2(g)(1) and 1.704-2(i)(5) (determined after taking into
account any Nonrecourse Deductions or recapture of Nonrecourse
Deductions, as provided in section 4.3(a) of this Addendum, for
such year), and by DEBITING the Member's Capital Account with any
adjustment, allocation, or distribution described in paragraph
(4), (5), or (6) of Regulations section 1.704-1(b)(2)(ii)(D).
This definition of "Excess Deficit Balance" and the provisions in
section 4 of this Addendum that contain the term "Excess Deficit
Balance" are intended to deal with the theoretical but unlikely
circumstances in which Capital Accounts could, but for the
inclusion of such provisions in this Addendum, be driven negative
without economic significance.
FISCAL YEAR: The fiscal year of the LLC under the
Agreement.
NET INCOME and NET LOSS: For a period as determined
for federal income tax purposes, the taxable income or loss,
respectively, computed with the following adjustments:
(a) items of gain, loss and deduction relating to LLC
assets shall be computed based on the Carrying Values of the
LLC's assets rather than upon the assets' Adjusted Bases, and in
the case of depreciation, amortization or other cost recovery
deductions, computed using the same method and useful life used
by the LLC in computing such deductions for federal income tax
purposes;
(b) tax-exempt income of the LLC shall be treated, for
purposes of this definition only, as gross income;
(c) expenditures of the LLC described in section
705(a)(2)(B) of the Code or treated as such expenditures pursuant
to Regulations section 1.704-1(b)(2)(iv)(I) shall be treated, for
purposes of this definition only, as deductible expenses; and
(d) notwithstanding any other provision of this
definition, any items which are specially allocated pursuant to
section 4.3 of this Addendum shall not be taken into account in
computing Net Income or Net Loss.
NONRECOURSE DEDUCTION: A deduction of the LLC
described in Regulations sections 1.704-2(c) and (j)(1)(ii).
REGULATIONS: The regulations issued by the United
States Department of the Treasury under the Code as now in effect
and as they may be amended from time to time, and any successor
regulations.
3. Maintenance of Capital Accounts.
(a) The Management Committee shall maintain Capital
Accounts for each Member in accordance with the rules set forth
in Regulations sections 1.704-1(b)(2)(iv) and 1.704-2.
Consistent with such Regulations, the Capital Account of each
Member shall be credited with:
(i) the amount of cash and the fair market value
of any property (net of liabilities secured by such property,
which liabilities are assumed or taken subject to by the LLC)
contributed to the LLC by such Member; and
(ii) all Net Income and other specially allocated
items of income and gain of the LLC allocated to such Member
pursuant to section 4 of this Addendum; and shall be debited with
the sum of:
(iii) all Net Losses and other specially
allocated items of loss or deduction of the LLC allocated to such
Member pursuant to section 4 of this Addendum; and
(iv) all cash and the fair market value of any
property (net of liabilities secured by such property, which
liabilities are assumed or taken subject to by such Member)
distributed by the LLC to such Member pursuant to SECTION 6.3. or
SECTION 10.4. of the Agreement.
Any references in this Addendum or in the Agreement to the
Capital Account of a Member shall be deemed to refer to such
Capital Account as the same may be credited or debited from time
to time as set forth above.
(b) Immediately prior to decreasing a Member's Capital
Account to reflect any distribution of an LLC Asset to it (other
than cash) (including a deemed liquidating distribution under
section 708 of the Code), all Members' Capital Accounts shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss and deduction inherent in such LLC Asset (that has not
been reflected in the Capital Accounts previously) would be
allocated among the Members if there were a taxable disposition
of such LLC Asset for its fair market value (but not for less
than the amount of any nonrecourse indebtedness secured by such
LLC Asset).
(c) A Member shall be considered to have only one
Capital Account.
(d) The Management Committee may increase or decrease
the Capital Account balances of the Members to reflect a
revaluation of LLC Assets on the LLC's books to the extent
required or permitted by the Regulations; provided, however, that
if any adjustment to the Capital Account balances made pursuant
to this section 3(d) of this Addendum must be based on the fair
market value of the LLC Assets as determined by the Management
Committee (provided that no LLC asset shall be valued at an
amount less than any nonrecourse indebtedness to which such LLC
asset is subject on the date of adjustment) and must reflect the
manner in which the unrealized income, gain, loss, or deduction
inherent in such LLC Assets (that has not been reflected in a
Capital Account previously) would be allocated among the Members
if there were a taxable disposition of such LLC Assets for such
fair market value on that date.
(e) Any permitted transferee of an interest in the LLC
shall succeed to the Capital Account relating to the interest
transferred.
(f) Except as otherwise provided in this Addendum or
the Agreement, whenever it is necessary to determine the Capital
Account of any Member, the Capital Account of such Member shall
be determined after giving effect to all allocations pursuant to
Section 4 of this Addendum and all actual or deemed contributions
and distributions made prior to the time as of which such
determination is to be made.
4. Allocations.
4.1 NET INCOME. Subject to Section 4.3 of this Addendum,
the Net Income of the LLC, if any, for each Fiscal Year (or
portion thereof) shall be allocated as follows and in the
following order of priority:
(i) FIRST: to the extent of, and in proportion
to, the amounts (if any) necessary to cause the Members' Adjusted
Capital Account Balances to be the same ratio to one another as
the Members' LLC Interests are to each other; and
(ii) SECOND: the balance of such Net Income (if
any) shall be allocated to the Members in proportion to their
respective LLC Interests.
4.2 NET LOSS. Subject to Section 4.3 of this Addendum, the
Net Loss of the LLC, if any, for each Fiscal Year (or portion
thereof) shall be allocated to the Members as follows and in the
following order of priority:
(i) FIRST: to the extent of, and in proportion
to, the Members' positive Adjusted Capital Account Balances; and
(ii) SECOND: the balance of such Net Loss (if
any) shall be allocated to the Members in proportion to their
respective LLC Interests.
4.3 SPECIAL ALLOCATION RULES. The following allocation
rules shall apply notwithstanding the provisions of Sections 4.1
and 4.2 of this Addendum, and the provisions of Sections 4.1 and
4.2 of this Addendum shall be applied only after giving effect to
the following rules.
(a) Nonrecourse Deductions for a Fiscal Year shall be
allocated to the Members in the same manner as Net Loss is
allocated pursuant to section 4.2 of this Addendum. In
accordance with Regulations sections 1.704-2(f), (g) and (j),
upon the recapture (or other reversal) of Nonrecourse Deductions,
items of income or gain of the LLC shall be allocated to the
Members in proportion to the amount of such Nonrecourse
Deductions previously allocated to them pursuant to the preceding
sentence (and not previously recaptured pursuant to this
sentence). With respect to a liability (or portion thereof) of
the LLC that is considered nonrecourse for purposes of
Regulations section 1.1001-2 but with respect to which a Member
bears (or is deemed to bear) the economic risk of loss under
Regulations section 1.752-2, deductions associated with such
liability (and the recapture or other reversal of such
deductions) shall be allocated in accordance with Regulations
section 1.704-2(i) and (j).
(b) For purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of
the LLC within the meaning of Regulations section 1.752-3(a)(3),
the respective interests of the Members in LLC profits shall be
equal to their respective LLC Interests.
(c) In the event a Member receives with respect to a
Fiscal Year an adjustment, allocation, or distribution described
in subparagraphs (4), (5), or (6) of Regulations section
1.704-1(b)(2)(ii)(D) that causes or increases an Excess Deficit
Balance in such Member's Capital Account, such Member shall be
specially allocated for such Fiscal Year (and, if necessary, in
subsequent Fiscal Years) items of income and gain in an amount
and manner sufficient to eliminate such Excess Deficit Balance as
promptly as possible. Items to be so allocated shall be
determined and the allocations made as provided in Regulations
section 1.704-1(b)(2)(ii)(D).
(d) No Net Loss or LLC deductions for any Fiscal Year
shall be allocated to any Member to the extent such allocation
would cause or increase an Excess Deficit Balance in such
Member's Capital Account.
(e) In the event that any fees, interest, or other
amounts paid to a Member or affiliate of a Member pursuant to the
Agreement, or any agreement between the LLC and the Member or
affiliate providing for the payment of such amounts, and deducted
by the LLC, whether in reliance on sections 162, 163, 707(a),
and/or 707(c) of the Code or otherwise, on its federal income tax
return for the Fiscal Year in or with respect to which such
amounts are claimed, are disallowed as deductions to the LLC and
are treated as LLC distributions, then:
(i) the Net Income or Net Loss, as the case may
be, for the Fiscal Year in or with respect to which such
deduction was claimed shall be increased or decreased, as the
case may be, by the amount of such deduction that is so
disallowed and treated as an LLC distribution; and
(ii) there shall be allocated to the Member who
received (or whose affiliate received) such payments, prior to
the allocations pursuant to Sections 4.1 and 4.2 of this
Addendum, an amount of gross income of the LLC for the Fiscal
Year in or with respect to which such claimed deduction was
disallowed equal to the amount of such deduction that is so
disallowed and treated as an LLC distribution.
(f) If there is a net decrease in "partnership minimum
gain" (within the meaning of Regulations section 1.704-2(d)) for
a Fiscal Year, there shall be allocated to each Member items of
income and gain for such Fiscal Year equal to that Member s share
of the net decrease in partnership minimum gain (within the
meaning of Regulations section 1.704-2(g)(2)), subject to the
exceptions set forth in Regulations section 1.704-2(f)(2), (3)
and (5). If the application of this minimum gain chargeback
requirement would cause a distortion in the economic arrangement
among the Members, the LLC shall request a waiver of the
requirement pursuant to Regulations section 1.704-2(f)(4). This
provision is intended to be a "minimum gain chargeback" provision
as described in Regulations section 1.704-2(f) and shall be
interpreted and applied in accordance with such section.
(g) If there is a net decrease in "partner nonrecourse
debt minimum gain" (within the meaning of Regulations section
1.704-2(i)(3)) for a Fiscal Year, then in addition to the amounts
allocated in accordance with Section 4.3 (g) of this Addendum, if
any, there shall be allocated to each Member with a share of such
"partner nonrecourse debt minimum gain"(determined in accordance
with Regulations section 1.704-2(i)(5)) as of the beginning of
the Fiscal Year items of income and gain for such Fiscal Year
(and, if necessary, for subsequent Fiscal Years) equal to that
Member s share of the net decrease in partner nonrecourse debt
minimum gain, subject to the exceptions set forth in Regulations
section 1.704-2(i)(4). If the application of this minimum gain
chargeback requirement would cause a distortion in the economic
arrangement among the Members, the LLC shall request a waiver of
the requirement pursuant to Regulations sections 1.704-2(f)(4)
and 1.704-2(i)(4). This provision is intended to be a
"chargeback of partner nonrecourse debt minimum gain" provision
as described in Regulations section 1.704-2(i)(4) and shall be
interpreted and applied in accordance with such section.
4.4 TAX ALLOCATIONS
(a) For federal income and applicable state tax
purposes, all items of taxable income, gain, loss and deduction
of the LLC shall be allocated to the Members in the same manner
as are Net Income, Net Loss and items of income, gain, loss and
deduction pursuant to Sections 4.1, 4.2 and 4.3 of this Addendum,
and items of credit shall be allocated to the Members, generally
in the same manner as items of Net Income, Net Loss and items of
income, gain, loss and deduction, as provided in Regulations
section 1.704-1(b)(4)(ii); PROVIDED, HOWEVER, that the character
of any income recognized pursuant to section 1245 or 1250 of the
Code and any investment credit recapture recognized pursuant to
section 47 of the Code shall be allocated among the Members in
the same proportions as the cost recovery deductions and
investment credits giving rise to such income or recapture were
allocated among such members and their respective predecessors in
interest; and PROVIDED FURTHER, that if the Carrying Value of any
LLC Asset differs from its Adjusted Basis, then items of taxable
income, gain, loss and deduction shall be allocated among the
Members in a manner that takes account of both the amount and
character of such difference and that is consistent with section
704(c) of the Code and the Regulations thereunder and Regulations
sections 1.704-1(b)(2)(iv)(F), (b)(2)(iv)(G) and (b)(4)(i).
(b) In making the tax allocations provided for in
section 4.4(a) of this Addendum, appropriate adjustments shall be
made as necessary to take into account the effects of any
election pursuant to Section 754 of the Code.
4.5 WITHHOLDING TAXES
(a) The LLC shall be entitled to withhold or cause to
be withheld from any Member's distributions from the LLC such
amounts on account of taxes or similar charges, if any, as are
required by applicable law. Each Member shall furnish to the LLC
from time to time all such information as is required by
applicable law or otherwise reasonably requested by the LLC
(including certificates in the form prescribed by the Code or
Regulations or applicable state, local or foreign law) to permit
the LLC to ascertain whether and in what amount withholding is
required in respect of such Member.
(b) If the LLC itself pays any tax (including
penalties or interest) or similar charge on behalf of any Member
(other than by withholding from a distribution) or pays any
amount (including any tax, penalty, or interest) in respect of
any failure to withhold from any Member as required by applicable
law, such Member shall on demand reimburse the LLC for the amount
of such payment plus interest thereon (accruing from the date
such payment was made by the LLC) at a floating rate per annum
(which shall change from time to time in accordance with the
Prime Rate specified below, as the Prime Rate changes) equal to
the lesser of (i) the highest lawful rate of interest or (ii) the
prime rate of interest (as established by Citibank, N.A. in New
York, New York, from time to time, regardless of whether such
rate is designated by such bank as its "prime" rate, "reference"
rate, "base" rate, or some other nomenclature) (the "PRIME RATE")
plus 2%. The LLC shall have a security interest in the LLC
Interest of any Member who owes money to it pursuant to this
Section 4.5(b) of this Addendum and, in addition to all other
rights and remedies of the LLC with respect to such security
interest or otherwise available at law or in equity, the LLC
shall have the right to offset, or cause to be offset, against
any such Member's distributions under the Agreement or this
Addendum all amounts owed by such Member to the LLC pursuant to
this Section 4.5(b) of this Addendum.
(c) Any amounts withheld or offset by the LLC in
accordance with Section 4.5(a) or 4.5(b) of this Addendum shall
nevertheless, for purposes of the Agreement and this Addendum be
deemed to have been distributed to the Member in respect of which
they are withheld.
5. SECTION 754 ELECTION
The Tax Matters Partner shall cause the LLC to file an
election under Section 754 of the Code to provide for an
adjustment to the Adjusted Basis of LLC Assets if requested to by
a Member in connection with the disposition of an LLC interest by
that Member.
6. COMPLIANCE WITH SECTION 704(B)
The provisions in this Addendum and Agreement
pertaining to allocations and adjustments of the Capital Accounts
are intended to comply with Code Section 704(b) and the
regulations thereunder. The Members or Tax Matters Partner,
whichever the case may be, shall make appropriate modifications
when needed to comply with this Code section or the Regulations
thereunder, to the extent such modifications would not result in
any material modification of the economic arrangement of the
Members as reflected in the allocation, distribution and
liquidation provisions of Section 4 of this Addendum and SECTIONS
6.3. and 10.4. of the Agreement.
7. ISSUANCES TO NEW MEMBERS
The Members acknowledge that the provisions of this Tax
Allocations Addendum may require amendment in the event of an
issuance of an LLC Interest to a new Member.
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
Years Ended
--------------------------------------
December 31 December 31 December 31
1996 1995 1994
------------ ----------- -----------
Computation of share
totals used in computing
earnings per share:
Weighted average number
of shares outstanding
(Adjusted for stock split
May 3, 1996) 1,484,789 1,478,922 1,475,523
Primary average shares:
a - Outstanding 1,484,789 1,478,922 1,475,523
Incremental shares arising
from oustanding stock
options: 12,861 13,140 5,019
--------- ------------ -----------
b - Totals 1,497,650 1,492,062 1,480,542
c - Net Income 10,368,886 12,923,608 8,250,400
---------- ----------- ------------
Net Income Per Share
Primary - (c/a) $ 6.98 $ 8.74 $ 5.59
---------- ----------- ------------
Net Income Per Share
assuming full dilution
(c/b) $ 6.98 $ 8.66 $ 5.57
---------- ----------- -----------
EXHIBIT 21
CT COMMUNICATIONS, INC.
List of Subsidiaries as of March 24, 1997
Listed below are the subsidiaries of CT Communications, Inc.
(the "Registrant"), all of which are wholly owned and are owned directly
by the Registrant:
The Concord Telephone Company
CTC Long Distance Services, Inc.
Carolinas Personal Communications, Inc.
(doing business as "CT Wireless, Inc.")
CT Wireless Cable, Inc.
CT Cellular, Inc.
CTC Exchange Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,162,698
<SECURITIES> 316,158
<RECEIVABLES> 7,714,737
<ALLOWANCES> 100,000
<INVENTORY> 2,860,114
<CURRENT-ASSETS> 13,548,616
<PP&E> 153,304,212
<DEPRECIATION> 81,314,625
<TOTAL-ASSETS> 115,063,963
<CURRENT-LIABILITIES> 16,070,073
<BONDS> 2,014,000
<COMMON> 27,398,214
150,000
1,692,641
<OTHER-SE> 52,565,460
<TOTAL-LIABILITY-AND-EQUITY> 115,063,963
<SALES> 0
<TOTAL-REVENUES> 67,054,006
<CGS> 0
<TOTAL-COSTS> 51,349,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 323,075
<INTEREST-EXPENSE> 705,112
<INCOME-PRETAX> 17,045,092
<INCOME-TAX> 6,583,671
<INCOME-CONTINUING> 10,461,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,368,886
<EPS-PRIMARY> 8.74
<EPS-DILUTED> 8.66
</TABLE>
