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, 1997
[ ] 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.
(Exact name of registrant as specified in its charter)
North Carolina 56-1837282
(State or other jurisdiction (I.R.S. Employer
Of incorporation or Identification Number)
organization)
68 Cabarrus Avenue, East,
Concord, North Carolina 28025
(Address of principal executive (Zip Code)
Offices)
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:
None None
Securities registered pursuant to Section 12(g) of the Act:
Class B Nonvoting Common Stock
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 $131 per share
on March 24, 1998 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 $22,352,661
(170,631 x $131).
As of February 28, 1998, the Registrant had outstanding 337,843
shares of Voting Common Stock and 1,904,336 shares of Class B
Nonvoting Stock.
CT COMMUNICATIONS, INC.
AND CONSOLIDATED SUBSIDIARIES
Form 10-K for the Fiscal Year ended December 31, 1997
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters . . .. . . . . . . . . . . . . . 16
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. . . . . 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . 26
PART III
Item 10. Directors and Executive Officers of the Registrant . 26
Item 10A. Section 16(a) Beneficial Ownership Reporting
Compliance . . . . . . . . . . . . . . . . . . . . . 29
Item 11. Executive Compensation . . . . . . . . . . . . . . . 29
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
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. WORDS SUCH AS "EXPECTS,"
"ANTICIPATES," "BELIEVES," "ESTIMATES," VARIATIONS OF SUCH WORDS
AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. INFORMATION CONCERNING CERTAIN
FACTORS THAT COULD IMPACT EXPECTED RESULTS IS INCLUDED IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--FORWARD-LOOKING STATEMENTS."
General. CT Communications, Inc. (the "Registrant") is a
holding company providing telecommunications services and
communications systems and products through seven wholly owned
subsidiaries: The Concord Telephone Company ("CTC"); CTC Long
Distance Services, Inc. ("CTC LDS"); Carolina Personal
Communications, Inc. (doing business as "CT Wireless, Inc.")
("CPC"); CT Wireless Cable, Inc. ("CT Wireless Cable"); CT
Cellular, Inc. ("CT Cellular"); CTC Exchange Services, Inc. ("CTC
Exchange"); and CT Global Telecommunications, Inc. ("CTGT").
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. CT Cellular currently holds the
Registrant's general partnership interests in certain
partnerships that provide cellular mobile telephone services in
two North Carolina Rural Service Areas ("RSAs"), although it has
entered into an agreement to exchange such interests. CTC
Exchange provides local telephone service in small- to
medium-sized markets beyond the CTC Service Area. Finally, CTGT
holds an approximate 35% equity interest in Amaritel, S.A. DE
C.V. ("Amaritel"), a Mexican entity that proposes to provide
telephone services in Mexico.
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. At
December 31, 1997, the Registrant and its subsidiaries had total
consolidated assets of $147,339,429 and had approximately 407
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 1997.
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.
Simultaneous proceedings are in process to address issues and
proposals already before the FCC in pending rule making
proceedings. Two significant proceedings currently in process
relate to access charge reform and universal service. The results
of such proceedings and the timing of implementation is uncertain
at this time, and the Registrant cannot currently estimate the
impact of such proceedings on its business or results of
operations.
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. Although 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 that are 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.
In 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 challenges cannot be predicted.
Although certain interpretive issues under the Telecom Act
have not yet been resolved, it is apparent that the requirements
of the Telecom Act have led to increased competition among
providers of local telecommunications services and have
simplified 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 1997 to
improve its competitive position in the local telephone service
business and to take advantage of opportunities that are
developing with other emerging telecommunications technologies.
THE CONCORD TELEPHONE COMPANY
General. CTC, the Registrant's principal subsidiary, was
originally organized in 1897 and provides local telephone and
intra-LATA (Local Access and Transport Area) toll service, access
service to other carriers, and telephone and equipment sales and
leasing to customers residing primarily in Cabarrus, Stanly and
Rowan Counties in North Carolina. As of December 31, 1997, CTC
served 102,221 access lines within the CTC Service Area. This
figure represents a 5.9% increase from December, 31, 1996.
To support the ongoing growth in the CTC Service Area, CTC
invested more than $8.2 million in circuit and switching
technology and expanded the total fiber network in 1997 to more
than 9,700 fiber miles. In addition, CTC began implementing
state-of-the-art Nortel DMS digital switching equipment as its
next generation switching platform. Implementation is expected
to continue for approximately five to seven 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 that CTC
now serves. In addition, CTC has municipal franchises for
constructing and maintaining its lines in the Cities of
Albemarle, Badin, China Grove, Concord, Harrisburg, Kannapolis,
Landis, Mt. Pleasant, New London, Oakboro and Richfield,
North Carolina.
New Rate Plan. On November 1, 1996, CTC filed a price
regulation rate plan (the "Rate 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. On May 30, 1997, the NCUC approved the
Rate Plan, which CTC implemented effective September 1, 1997. As
a result of the Rate Plan, the rates charged by CTC for local,
state access and toll plans will be controlled by the parameters
specified by the NCUC in the Rate Plan.
A driving force behind the Rate Plan is customer demand for
expanded calling options to areas beyond their home communities.
The Rate Plan expanded 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 Rate Plan also expanded
CTC's metro area, which already included Charlotte, to include
Matthews, Huntersville, Davidson and other surrounding
communities. A residential customer now may select one of four
metro calling packages, which provide a flat monthly fee (ranging
from no charge to $24.00) for specified monthly minutes of use
(ranging from 30 minutes to unlimited minutes). The customer may
pay $.10 per minute for usage in excess of the monthly purchased
amounts. In addition, the Rate Plan eliminated the separate
charge for touch-tone calling and reduced charges for
long-distance calls into a broader calling zone that extends into
Western North Carolina.
Under the new rate structure implemented under the Rate Plan,
CTC's residential customers, except those in the Harrisburg
exchange, now pay $10.50 per month for basic local service,
including touch-calling. Harrisburg customers now pay a slightly
higher charge of $12.00 per month because these customers are
able to call more customers under that community's basic plan.
Under the prior rate structure, CTC's residential customers paid
approximately $7.00 per month for basic local service, plus a
separate charge of $.50 per month for touch-calling.
Although the new rate structure reflects an increase for
basic service, other changes in the Rate Plan offset these
increases for many customers. The new rate structure did not
materially impact the Registrant's revenues in 1997 and is not
expected to materially impact revenues in 1998 or future years.
Recent state legislative developments made it possible for
the Registrant to file for price regulation. 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 took effect in July 1996,
telephone companies are given the option to file for price
regulation. 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 Rate Plan requires 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.
As a result of the effectiveness of the Rate Plan, CTC is no
longer 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.
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. For example, CTC is currently negotiating interconnection
agreements with three competitors pursuant to which CTC would
provide such competitors access to its local telephone service
market, as mandated by the Telecom Act and the Rate Plan. The
terms of these agreements have not yet been finalized, and there
can be no assurance as to the terms of such agreements, the
timing of their execution or whether they will be executed. In
the event that CTC enters into one or more interconnection
agreements, CTC expects to experience the most significant
competitive pressure with regard to its largest business
customers, which CTC believes will be immediately targeted by its
competitors. CTC is unable to quantify the impact of such
competition.
CTC accounted for approximately 80% of the Registrant's
operating revenues and approximately 106% of the Registrant's
operating profit in 1997. 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 1998.
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 more than half of CTC's
customers. However, these customers are the smaller toll users,
and CTC LDS bills less than half 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 1997, as it added more than
8,000 new customers for a total of 69,339. 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 1998. During 1996, CTC LDS successfully introduced the
new CTC Calling Card, which the Registrant believes has enhanced
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.
In 1997, CTC LDS received regulatory approval to market long
distance telephone service in the surrounding states of Georgia,
South Carolina, Tennessee and Virginia. However, CTC LDS
concentrated its efforts in 1997 on expanding its operations in
the North Carolina counties contiguous to its current five-county
service area and proposes to expand concentrically from that area
in 1998. CTC LDS does not expect to have significant operations
outside of North Carolina in 1998.
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, 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 bills.
CTC EXCHANGE SERVICES, INC.
CTC Exchange Services was organized on January 23, 1997 and
began operations in the fourth quarter of 1997. This business
unit was created to enable CTC to offer local telephone service
to markets beyond the CTC Service Area. The new company targets
small- to medium-sized markets in the Carolinas for expansion of
local telephone service.
In September 1997, CTC Exchange Services entered into an
interconnection agreement with BellSouth Telecommunications, Inc.
("BellSouth") allowing CTC Exchange Services to access
BellSouth's facilities and equipment, for a fee, in order to
provide local telephone service in all of BellSouth's serving
areas in North Carolina. CTC Exchange Services began limited
operations in December 1997, primarily for the purpose of testing
its processes, facilities and equipment. Current operations
consist primarily of resale of BellSouth's existing products and
services.
The Registrant has developed a "90 Minute" market plan for
exchange services (i.e., the market accessible by a 90 minute
automobile trip, or approximately 75 miles, from Concord, North
Carolina). CTC Services expects to begin marketing its services
in the second quarter of 1998 in Salisbury, northern Charlotte,
and Statesville, North Carolina. Based on the results of those
efforts, CTC Exchange Services intends to decide in the fourth
quarter of 1998 the extent to which it will attempt to expand
beyond those areas. CTC Exchange Services expects its capital
needs in 1998 to be from $1 million to $1.5 million and expects
losses in 1998 to be approximately $500,000.
CT CELLULAR, INC.
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 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. Growth in cellular mobile services has been good in
1997, but it is expected that competition from the PCS technology
(see below) may slow this growth. During 1997, 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 1997.
CT Cellular and Ellerbe Telephone have entered into
agreements to exchange their respective interests in RSA 4/5
and RSA 15 to Palmetto MobileNet, L.P., a South Carolina limited
partnership ("Palmetto"), in a tax free transaction. In exchange
for its interests in RSA 4/5 and RSA 15. CT Cellular will receive
a 19% limited partnership interest in Palmetto, and a 19.5%
interest in the common stock of Palmetto's general partner.
The completion of the transaction is subject to receipt of
applicable regulatory approvals. The Registrant is not aware of
any issues that will prevent or delay regulatory approvals,
although there can be no assurance that such approvals will be
obtained. In the event that the transaction is consummated, it
will be deemed effective as of January 1, 1998. Thereupon, CT
Cellular will have no operations other than the ownership of its
Palmetto limited partnership interests.
Palmetto's other limited partners consist of 19
South Carolina independent telephone companies. Upon
consummation of the transaction, Palmetto will own 50% general
partnership interests in ten North Carolina and South Carolina
RSAs, with Alltel Mobile and 360 Communications owning the other
50% general partnership interests. Palmetto had actual net
income of $15.1 million in 1997 and had pro forma net income (to
reflect the transaction) of $20.5 million.
CAROLINA 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 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. 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. The Registrant owns 1.95% of the BellSouth
Partnership.
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 is 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 and began
offering PCS services in major markets, including MTA 006, during
1997. In addition, the FCC has continued to auction licenses for
PCS services through 1997. 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.
The Registrant invested an additional $2.8 million and $1.1
million in 1996 and 1997, respectively. Its 1998 commitments are
approximately $950,000, and its 1999 commitments are
approximately $550,000 million. Construction of towers and
transmitters began during 1996, and PCS service was first offered
to the public by the Bell Partnership in July 1996.
The Registrant experienced pre-tax losses in 1996 and 1997 of
$1.8 million and $2.9 million, respectively, due to expected
start-up costs. Losses associated with such start-up costs are
currently projected to continue through 1999. 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.
Each telephone company limited partner in the BellSouth 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 $12 million and $15 million, payable in
full on the date of partition. Following partition, CPC would
operate as a provider of PCS products and services within the PCS
Service Area. At the time of partitioning, CPC's PCS network
will be substantially built out throughout the PCS Service Area.
During 1996, CPC opened retail outlets to sell PCS telephones
in Concord and Statesville, and a third store began operations in
Salisbury, North Carolina during the first quarter of 1997.
These new telephones 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
television 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 to provide wireless cable
services in connection with leases between the schools and the
FCC pertaining to certain educational channel rights within North
Carolina. WONC later participated as a bidder in the Multi
Channel Multipoint 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 accounts. 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.
In 1977, BellSouth launched digital wireless cable systems in
New Orleans, Orlando and Atlanta. The digital system offers more
than 100 channels of high quality digital video and audio. In
addition, during 1997 several wireless cable operators announced
high-speed Internet services using wireless cable frequencies.
Wireless One launched its high-speed Internet service in Jackson,
Mississippi in the first quarter of 1998. In addition, in late
1997, the FCC initiated a proceeding to potentially expand the
use of wireless cable frequencies for telephony and two-way data
services. An Order is expected from the FCC in late 1998.
Contingent on FCC approval, WONC could begin construction of
wireless cable systems in 1999, with the first systems expected
to be in operation during the latter half of 1999. Complete
build out of the system is expected to take five years or longer.
The Registrant's capital requirements in connection with its WONC
investment were $1.4 million in 1996 and $3.2 million in 1997.
Additional capital requirements associated with the WONC network
are expected to be approximately $1 million in 1998.
CT GLOBAL TELECOMMUNICATIONS, INC.
In 1997, the Registrant acquired an 80% interest (increased
to 100% in March 1998) in CTGT, which holds the Registrant's
equity interest in Amaritel. Amaritel was formed early in 1997
for the purpose of constructing and operating domestic and
international long-distance services, as well as local telephone
services, in 111 communities representing approximately 25% of
Mexico's population, border to border along the coast of the Gulf
of Mexico and Mexico City. Amaritel expects to use a wide
spectrum of technology, ranging from microwave to wired fiber
distribution networks. Build-out of the system is expected to
be approximately 300,000 lines over a five-year period and is
expected to begin in the fourth quarter of 1998.
Amaritel has entered into a $100 million bank credit facility
with Nissho Iwai, which Amaritel intends to use to fund a portion of
its facilities build-out and operations. The credit facility is
secured in part by the Amaritel common stock held by CTGT, but
is not otherwise secured or guaranteed by CTGT or the Registrant.
Amaritel's ability to draw on the credit facility is contingent upon
its raising approximately $50 million of additional equity capital, and
there can be no assurance that Amaritel will be successful in doing
so. Access to the credit facility and additional equity investment
funds is necessary to implement Amaritel's business plan.
CTGT entered into an Operating Agreement with Amaritel
pursuant to which it will provide personnel and other services
for the purpose of conducting Amaritel's day-to-day operations
(e.g., network operation and maintenance, customer billing, sales
and marketing, customer service, general administration and
management). The fees to be paid to CTGT under the Operating
Agreement are expected to offset CTGT's expenses related to
providing those services. In addition, CTGT expects to provide
approximately $1.5 million of additional capital to Amaritel in
1998.
CTGT currently owns approximately 35% of the equity
securities of Amaritel. However, if Amaritel is successful in
raising additional equity in the future, CTGT expects its equity
interest to be reduced to approximately 15%.
CTGT was originally 80% owned by the Registrant and 20% owned
by US Telecom Holdings, Inc. ("US Telecom"). On March 31, 1998,
CTGT acquired and cancelled the CTGT shares held by US Telecom,
which resulted in CTGT becoming a wholly owned subsidiary of the
Registrant. The $1.4 million purchase price was paid through the
cancellation of a note in principal amount of $800,000 previously
owed by US Telecom to the Registrant and the delivery of cash.
The Registrant has an additional note receivable from US Telecom
in the principal amount of $1,551,851, which is secured by a first priority
interest in 4,950.50 shares of Telco Investors II, Inc. owned by
US Telecom and was due April 1, 1998. The Registrant expects to
amend the maturity of this note.
RECENT INVESTMENTS
Between 1993 and 1997, the Registrant invested
approximately $6.18 million in the common stock of ITC Holding
company, Inc. ("ITC Holding"). In October 1997, ITC Holding
completed a corporate reorganization in which it transferred all
of its assets and liabilities other than the stock of its then
wholly owned subsidiary, ITC^DeltaCom, Inc. ("ITC^DeltaCom") to
another subsidiary. The former ITC Holding then merged with and
into ITC^DeltaCom, and the other subsidiary was renamed ITC
Holding company, Inc., which is the parent of a group of
companies involved in a wide range of telecommunications
activities. ITC^DeltaCom is a provider of local, long distance
and other telecommunications services to mid-sized and major
regional businesses in the southern United States, and also
provides wholesale long-haul services to other telecommunications
comapnies using its owned, operated and managed fiber optic
network. As part of ITC Holding's reorganization, stockholders
of the former ITC Holding received, in exchange for their shares
of ITC Holding stock, shares of stock of the new ITC Holding and
of ITC^DeltaCom completed its initial public offering of common
stock. The Registrant owns approximately 4% and 3% of the outstanding
equity securities of ITC Holding Company, Inc., and ITC^DeltaCom, Inc.,
respectively. At December 31, 1997, the Registrant's ownership interest
in ITC^DeltaCom was recorded on the Registrant's financial
statements at a market value of $14.04 million, with a tax basis
of $3.45 million. The Registrant has recorded its equity
interest in ITC Holding as of the same date at a cost basis of
$3.45 million.
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 the middle of 1997 the Registrant began construction on
the second building on this tract of property. It is identical
to the building completed there during 1996. It will be occupied
by the sales and Enterprise Groups of employees and is slated for
completion near the end of the second quarter of 1998.
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 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 freed additional office space at the
Cabarrus Avenue headquarters facility.
In November 1997, the Registrant purchased a one-third
interest in 22.424 acres of undeveloped property located on
Weddington Road Extension and Speedway Boulevard in the King's
Grant Development. This property may be used for future
development if needed. The cost of this acquisition was
$597,096.
In the three years ended December 31, 1997, 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. In mid-1997, the
Registrant began 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. In 1997, the Registrant also replaced
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. In 1997, the
Registrant leased space for a third retail outlet in Salisbury,
North Carolina. 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.
The Salisbury lease is for a period of five years, at an annual
rent obligation of $31,958, with an option to renew for five more
years.
As of December 31, 1997, 14% of the Registrant's telephone
plant in service was represented by land, buildings and general
equipment; 37% by central office equipment; and 49% 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 112 motor
vehicles in its operations.
During 1997, 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. This debt was retired on
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") 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) 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
(the "PRP Group"), 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 originally estimated to
cost approximately $40 million and should take at least 10 years
to complete. Based on data obtained by the PRP Group, however,
the EPA modified the preferred remedy to eliminate groundwater
extraction and to alter the soil remedy. The EPA has reduced the
total estimated cost of this remedy to $12 million.
The PRP Group has obtained funding from several other sources
to reduce its costs at the Site. The federal government has
contributed $4.75 million, reflecting the amount of batteries it
sent to the Site. The EPA has agreed to pay approximately 30% of
the cleanup costs out of the federal "Superfund", to reflect the
number of PRPs that are no longer in business and therefore
cannot pay their share. Also, the PRP Group has filed civil
actions for contribution against more than 100 other parties.
All those actions have been settled, with net payments to the PRP
Group of more than $2 million.
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. The
Registrant's total assessment thus far has been $45,713, which has
been paid. Based on the progress of the cleanup thus far and the
funds available from other sources to pay for the cleanup, the PRP
Group does not expect that its members will be required to pay any
additional amounts.
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 1997.
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 July 24, 1997, the Board of Directors of the Registrant
declared a stock split in the form of a one-for-two stock
dividend payable August 29, 1997 to holders of record on
August 1, 1997. 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 Class B Stock are offered for sale.
During 1997, a known range of selling prices was $113 to $131 per
share. The Registrant is aware of a sale by an individual on
March 24, 1998 of 100 shares of Class B Stock at $131 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:
1997 1996
Quarter Dividend Dividend
------- -------- ---------
First $0.47 $0.46
Second 0.47 0.46
Third 0.48 0.47
Fourth 0.48 0.47
----- ------
$1.90 $1.86
===== =====
The approximate numbers of holders of each class of
common equity of the Registrant as of February 28, 1998, were as
follows:
Title of Class of Stock Number of Record Holders
----------------------- ------------------------
Voting Common Stock 296
Class B Nonvoting Common Stock 1,451
Item 6. Selected Financial Data
Years Ended December 31,
-----------------------------------------
1997 1996 1995
------------ ------------ ------------
Condensed Statements
of Income(1):
Operating
revenues $78,483,514 $ 67,054,006 $ 60,417,351
Operating
expenses 58,390,372 51,349,967 43,201,065
------------ ----------- -----------
Net Operating
Revenue 20,093,142 15,704,039 17,216,286
Other income(2) 1,645,866 1,341,053 2,561,081
Income taxes (7,898,159) (6,583,671) (6,760,624)
------------ ---------- ----------
Net income 13,840,849 10,461,421 13,016,743
Dividends on
preferred
stock 73,073 92,535 93,135
------------ ---------- ----------
Earnings for
common stock $13,767,776 10,368,886 12,923,608
============ ========== ==========
Common Stock
Data: (3)
Shares of
common stock
Year end 2,238,790 2,228,064 2,224,530
Basic weighted
average 2,236,188 2,227,184 2,248,383
Per share of
common stock
Basic earnings $ 6.16 $ 4.65 $ 5.83
Dividends $ 1.90 $ 1.85 $ 1.80
Book value
- year end $43.21 $35.89 $33.53
Total Assets $147,339,429 $115,063,963 $107,765,477
Long-Term Debt
(excluding current
maturities) $ 11,239,000 $ 2,014,000 $ 4,074,000
Redeemable Preferred Stock
with Sinking Fund
Requirements $ 150,000 $ 162,500 $ 175,000
Item 6. Selected Financial Data, Continued
Years Ended December 31,
-----------------------------
1994 1993
------------ ---------------
Condensed Statements
of Income(1):
Operating
revenues $ 55,129,895 $ 43,875,543
Operating
expenses 43,760,298 31,811,372
------------ -----------
Net Operating
Revenue 11,369,597 12,064,171
Other income(2) 1,663,687 176,919
Income taxes (4,688,936) (4,282,180)
------------ -----------
Net income 8,344,348 7,958,910
Dividends on
preferred stock 93,948 93,562
------------ -----------
Earnings for
common stock $ 8,250,400 $ 7,865,348
============ ===========
Common Stock
Data: (3)
Shares of
common stock
Year end 2,213,681 2,214,395
Basic weighted
average 2,213,285 2,214,180
Per share of
common stock
Basic earnings $ 3.73 $ 3.56
Dividends $ 1.76 $ 1.73
Book value
- year end $29.12 $26.92
Total Assets $ 99,886,639 $ 91,938,360
Long-Term Debt
(excluding current
maturities) $ 4,714,000 $ 6,331,000
Redeemable Preferred
Stock with Sinking
Fund Requirements $ 187,500 $ 200,000
______________________
(1) 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, 1994 and 1993
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.
(2) Other income in 1997 includes an extraordinary item of
$2,239,045, net of income taxes of $1,493,312, relating to the
discontinuance of SFAS No. 71.
(3) 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 distribution granted on
September 1, 1994, the 2 for 1 split effective May 3, 1996 and
the 1 for 2 split effective August 1, 1997. 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 FOLOWING 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 $21.2 million, $22.4 million and $20.3 million in
1997, 1996 and 1995, respectively. In 1997, the Registrant used
cash flows from operations and existing cash, cash equivalents,
short-term investments and borrowing on a line of credit to fund
(i) capital expenditures of $21.6 million pertaining to ongoing
plant construction projects, (ii) purchases of investments in
affiliates of $11.1 million, (iii) purchases of investment
securities of $400,000, (iv) dividends of $4.3 million and (v)
principal payments of $2,215,000 to retire long-term debt.
The Registrant has significant cash requirements due to growth
in its service area and the need to modernize its existing plant
and equipment. Capital expenditures in 1997 included a new Nortel
DMS 100/200 switch at the Concord Exchange, a new operator
position system, a new building and substantial investment in
outside plant, including poles, aerial cable and buried cable.
The Registrant's planned capital expenditures in 1998 are
approximately $20 million. Of this amount, approximately $8.0
million is for improvements in CTC's and CTC Exchange Services'
switching facilities, including the replacement of certain
elements of CTC's switching platform with a new Nortel DMS
switching platform. This replacement process began in mid-1997
and will continue over a period of approximately five years.
Approximately $7.7 million of the Registrant's planned capital
expenditures is for outside plant and circuit additions and
improvements to include the placement of six Nortel remote
switching nodes, and another $4.3 million is for other
telecommunications assets. Actual capital expenditures were
$21.6 million in 1997, $24.1 million in 1996 and $16.1 million in
1995.
Other anticipated uses of cash in 1998 include additional
investments in affiliates. In addition, the Registrant expects
to spend approximately $1 million in 1998 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 1998 will be to enable WONC to acquire the rights to lease
certain channel frequencies from UNC pursuant to WONC's agreement
with UNC.
In the event CTC elects during 1998 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 last quarter of 1998 is expected to be
between $12 million and $15 million.
During 1997, the Registrant generated $21.2 million in cash
from operations. During the same period, approximately $27.9
million was utilized for plant additions and other investment
activities and $4.5 million was generated from financing
activities, resulting in negative working capital of $2.2 million
at fiscal year-end. As of December 31, 1997, the Registrant had
short-term investments of $168,979, and two unsecured available
lines of credit totaling $18.5 million. One of the Registrant's
lines of credit is in the amount of $15 million from Rural
Telephone Finance Corporation ("RTFC") and the remaining $3.5
million line of credit is from First Charter National Bank. At
December 31, 1997, the Registrant had used $10 million of the
line of credit from RTFC. The current interest rate is 7.25%.
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 1998, management may seek additional bank
financing in 1998 to fund such activities.
At December 31, 1997, the Registrant had outstanding long-term
debt of $11,239,000. RTFC holds $10,000,000 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,
1997, are as follows: $620,000 in 1998; $10,620,000 in 1999;
$620,000 in 2000; and $154,000 in 2001.
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 1997, the Registrant expended
approximately $1.3 million in connection with its limited partner
status in the BellSouth Partnership. The Registrant's 1998
commitments are approximately $427,900.
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 1998 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 1998, management expects that such funds will be raised by
through additional bank borrowings.
RESULTS OF OPERATIONS
1997 Compared to 1996
Operating revenues increased $11,429,508 or 17.05% for the year
ending December 31, 1997 compared to 1996. This increase was
primarily attributable to local service, long distance service,
PCS service and business system sales. However, all categories
showed increases.
Local service revenues, from the provision of telephone
exchange services, increased $4,482,363 or 18.1% during 1997
compared to 1996. This growth arises primarily from increased
demand for local services due to growth in the CTC Service Area.
Nearly 5,700 new access lines were connected to the network in
1997, bringing the total number of local access lines in CTC's
three-county service area to 102,221. Due to access line growth
and increased customer demand, this area of operations is
expected to continue to grow.
Long distance service revenues are derived principally from
providing long distance communication between 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 $3,224,489 or
10.2% during 1997 compared to 1996. This increase is the result
of increased sales and marketing efforts by CTC LDS and increased
calling volume by the interexchange carriers.
Toll revenues in the intra-LATA markets decreased due to the
new Rate Plan implemented in September. This was expected due to
the rate structure which moved toll revenues to the local
revenues area. This reduction, however, is unquantifiable and is
relatively small when compared to total revenues.
Other and unregulated revenues increased $3,781,338 or 34.4%
during 1997 compared to 1996. This increase is made up of
increased directory advertising of approximately $603,545,
increased Internet revenues of approximately $411,437, a
$1,424,580 increase in business system sales, a $282,808 increase
in PCS telephone system sales and a $473,518 increase in inside
wire maintenance revenue. The Registrant is placing more
emphasis on non-regulated areas of operations and expects
non-regulated income to increase in 1998.
Operating expenses, exclusive of depreciation, increased
$7,533,122 or 18.3% during 1997 compared to 1996. Plant specific
expenditures increased $5,061,789 or 25.3%. This increase
results from an increase of $1,478,813 in DCS service expense and
cost of goods sold associated with the CT Wireless, Inc.
subsidiary; an increase in access expense of $1,648,041 due to
additional sales of toll services; and an increase of $697,164
relating to business systems cost of goods sold. The remaining
increase is primarily expenses associated with an increase in
outside contractor cost relating to the replacement of SPN poles
and increased expenditures in telephone plant due to growth.
Corporate and customer operations expense increased $1,451,333
or 6.8% during 1997 compared to 1996. Approximately $793,824 or
54.7% relates to costs associated with additional sales and
marketing efforts in long distance services and $587,313 or 40.5%
related to PCS sales and marketing efforts. Another $201,626 of
this amount related to additional expenditures in customer
service operations.
Other income decreased $1,934,232 or 144% in 1997, compared to
1996. This decrease was 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
1997 over 1996 as a result of the equity in earnings 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 1998 are
expected to approximate losses experienced in 1997; however, if
actual PCS sales exceed the Partnership's forecasted sales,
losses could be greater. Management expects losses associated with
the BellSouth Partnership to begin to decline in 1999.
Other expenses, principally interest, increased $280,163 in
1997 compared to 1996. This increase was primarily from
additional interest paid on loans outstanding.
In January 1997, the Registrant offered an early retirement program
to 29 CTC employees. Twenty-eight of those eligible accepted the
early retirement package and the Registrant recorded an
additional expense of $1,020,000 in connection with its
obligations under this program.
Depreciation expense decreased $492,717 during 1997 compared to
1996. This decrease resulted from a reclassification of circuit
equipment amounts into the Central Office switching category and
recalculating previously recorded depreciation expense at the
lower rates used for switching equipment. The reduction of
depreciation expense due to reclassification is $736,971. The
Registrant also recorded additional depreciation of $600,000
during the same period of the prior year, as authorized by the
NCUC. Without these factors, this expense would have increased
by $844,254, which would be expected due to the increased
depreciable plant balances.
For the reasons set forth above, the Registrant's net income
before extraordinary item in 1997 increased $1,140,383 or 10.9%
compared to 1996. Considering the extraordinary item arising
from the discontinuance of SFAS 71, 1997 net income increased
$3,379,428 compared to 1996. With the rapid pace of change in
the telecommunications industry caused by deregulation and
advancing technology, management expects operating expenses to
increase. It also expects operating losses in newly established
business ventures to continue but at a reduced rate. Management
believes that expenditures in telephone plant construction,
switching, marketing and advertising will continue to cause
increases in operating costs, but it believes these expenditures
are necessary to its long term profitability and growth.
1996 Compared to 1995
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 consolidated statement 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.
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.
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
continued 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.
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. 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.
Access charge reforms were approved by the FCC in 1997. This
approval resulted 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.
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.
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 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 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 the equity in the earnings of the
Registrant's investment in the Alltel Mobile Partnership
providing cellular communications services in North Carolina RSAs
4/5 and 15.
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.
For the reasons set forth above, the Registrant's net income in
1996 decreased $2,555,322 million or 19.6% compared to 1995.
OTHER EVENTS
VNET Acquisition
On March 13, 1998, the Registrant announced that it had signed
a nonbinding letter of intent to acquire G-A Technologies, Inc.,
doing business as VNET Access ("VNET"). VNET is a regional
provider of Internet services headquarters in Charlotte, North
Carolina. The acquisition would be effected through the tax-free
merger of VNET into a wholly owned subsidiary of the Registrant
and would be accounted for as a purchase. The resulting
subsidiary of the Registrant would continue to offer services
under the VNET brand name. All consideration payable to the
VNET shareholders would be in the form of Class B Stock.
Completion of the acquisition is contingent upon execution of a
definitive merger agreement, approval of the VNET shareholders,
certain regulatory approvals and satisfaction of other conditions
typical of such transactions. There can be no assurance that the
acquisition will be consummated. If completed, the acquisition
of VNET will not materially affect the Registrant's operations or
financial condition.
New Rate Plan
Effective September 1, 1997, CTC began operation under the new
Rate Plan. Although the Registrant's new rate structure under the
Rate Plan reflects an increase for the cost of basic service,
other changes in the Rate Plan offset these increases for many
customers. Overall, the new rate structure did not materially
impact the Registrant's revenues in 1997 and is not expected to
materially impact revenues in 1998 or future years. By submitting
its price regulation filing, the Registrant has agreed to open
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. See "Item 1. Business" for additional
information regarding the Rate Plan.
1996 Telecommunications Act
On February 8, 1996, the Telecom Act was enacted into law.
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 rule making 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
implementing the new Rate Plan, 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. See "Item 1.
Business" for additional information regarding the Telecom Act.
ACCOUNTING CONSIDERATIONS
As described in Note 13 to the Consolidated Financial
Statements of the Registrant, the Registrant discontinued
applying Statement of Financial Accounting Standards No. 71 (FAS
71), "Accounting for the Effects of Certain Types of Regulation,"
as of April 1, 1997. The Registrant determined that it no longer
met the criteria for following FAS 71 due to changes in the
manner in which the Registrant is regulated and the heightened
competitive environment. The accounting impact was an
extraordinary non-cash gain of $2,239,045, net of applicable
income taxes of $1,493,212. The effect on future charges for
depreciation is not expected to differ materially from what would
have been recorded under FAS 71 for the current year.
YEAR 2000 CONSIDERATIONS
The Registrant is in the process of identifying the business
issues associated with the Year 2000 that impact information
systems both internally and in relation to its external
customers, suppliers and other business associates. Factors
considered in the assessment of the business issues involved with
the Year 2000 include the evaluation of internal compliance
capabilities, significant customers' and vendors' compliance
plans and the compliance plans and status for businesses in which
the Registrant has investments.
The Registrant has identified a management team, representing
all significant areas of operation, with the responsibility of
addressing business issues associated with the Year 2000. Based
on its efforts to date, management believes that evaluation of
the Registrant's Year 2000 compliance and any modifications or
conversions will be completed well before the end of fiscal year
1999. Although the Registrant has not yet completed its
evaluation, management does not believe that any material
exposures or contingencies exist with respect to its internal
information systems and is not aware of any material exposure or
contingency related to its external business affiliates.
FORWARD-LOOKING STATEMENTS
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) the Registrant's ability
to successfully implement the Rate 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 27, 1998 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, 1997
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
Set forth below is (a) the name, age, principal occupation of
each director and executive officer of the Registrant, (b) the
name and principal business of the company by which such person
is employed, (c) the period during which such person has served
as a director of the Registrant, (d) all positions and offices
that such person holds with the Registrant, and (e) such person's
directorships in other companies with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or subject to the
requirements of Section 15(d) of the Exchange Act or companies
registered as an investment company under the Investment Company
Act of 1940. All positions, offices or occupations so indicated
have been held for at least the past five years, unless otherwise
indicated.
L. D. Coltrane, III - Age 79 - 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 51 - 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 66 - Director. Mr. McClellan retired as
Executive Vice President and General Plant Manager on February
1, 1996, although he continues to serve as director. He served
with the Registrant since 1949 and as a director since 1984.
Mr. McClellan was elected Executive Vice President in 1985.
Phil W. Widenhouse - Age 72 - 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.
Mr. John R. Boger, Jr. - Age 68. Director. Mr. Boger was
elected a director April 27, 1978 and serves as General Counsel
for the Registrant. Mr. Boger is a practicing attorney with
the firm of Williams, Boger, Grady, Davis and Tuttle. 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 81. 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 65. 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. 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 62. 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 Audit Review Committee.
Mr. Samuel E. Leftwich - Age 67. 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 57 - Senior Vice President, Assistant
Secretary. 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 43 - Senior Vice President,
Assistant Secretary. 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. from 1987
to 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 38 - Senior Vice President and Chief
Financial Officer, Secretary, Treasurer. Mr. Rubens was employed
by the Registrant in October 1992 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 64 - 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 45 - Senior Vice President. Ms. Duda
was employed by the Registrant in December 1995 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.
The current directors of the Registrant were elected at the
annual stockholders' meeting held on April 24, 1997 and will
serve until the next election scheduled for April 23, 1998.
Outside directors receive $5,000 as an annual retainer and $500
per meeting. The Chairman receives $5,500 as an annual retainer
and $550 per meeting. Committee chairmen receive $300 per
meeting and committee members $250. For meeting by telephone
conference call, Board members receive $100 and committee members
$50.
The 1996 Director Compensation Plan (the "1996 Plan") reserves
11,250 shares of Class B 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 Voting Common Stock and Class
B Stock. The Registrant is aware of one late filing of Form 4,
promulgated under Section 16, by Mr. Thomas A. Norman with regard
to beneficial ownership as a result of purchase of 100 shares of
the Voting Common Stock during the first quarter of 1997. 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 1997 (the "named executive officers").
Annual Compensation
-------------------------------------------
Other
Name and Annual
Principal Salary Bonus Compensation
Position Year ($)(1) ($)(2) ($)(3)
- --------- ------ -------- ------- -------------
Michael R. Coltrane 1997 $220,000 $ 86,680 $ 0
President and 1996 200,000 34,538 18,634
Chief Executive 1995 164,777 25,000 15,790
Officer
Barry R. Rubens 1997 152,006 47,262 0
Senior Vice 1996 130,000 62,178 0
President 1995 125,142 5,268 0
Nicholas L. Kottyan 1997 160,006 61,430 0
Senior Vice 1996 135,000 33,405 0
President 1995 127,402 0 0
Thomas A. Norman 1997 125,000 41,938 0
Senior Vice 1996 119,000 16,885 0
President(6) 1995 62,505 0 0
Catherine A. Duda 1997 120,000 31,432 0
Senior Vice 1996 101,923 6,662 0
President(7) 1995 0 0 0
Summary Compensation Table, continued
Long Term
Compensation
------------------------
Restricted Securities All Other
Name and Stock Underlying Compensation
Principal Position Year Awards(4) Options/SAR's ($)(5)
- ------------------- ---- ---------- ------------- ------------
Michael R. Coltrane 1997 $ 172,163 $ 2,817 $ 11,333
President and Chief 1996 21,828 0 5,627
Executive Officer 1995 0 4,500 9,149
Barry R. Rubens 1997 59,385 1,281 10,323
Senior Vice 1996 10,272 0 2,265
President 1995 0 2,250 4,052
Nicholas L. Kottyan 1997 50,611 1,330 6,622
Senior Vice 1996 10,593 0 4,603
President 1995 0 2,250 0
Thomas A. Norman 1997 66,447 1,272 8,712
Senior Vice 1996 3,531 0 1,116
President(6) 1995 21,060 3,150 92
Catherine A. Duda 1997 25,038 493 5,356
Senior Vice 1996 0 450 161
President(7) 1995 0 0 0
- --------------------
(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").
(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. Norman was employed by the Registrant on September 1,
1995.
(7) Ms. Duda was employed by the Registrant on December 18, 1995.
Stock Benefit 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. During 1997, options to
purchase an aggregate of 8,489 shares of Class B Stock were
granted under the Comprehensive Plan, of which options to
purchase an aggregate of 7,193 shares of Class B Stock were
granted to named executive officers. No options were exercised
by named executive officers in 1997 under the Comprehensive Plan.
The Registrant also has in effect the 1989 Executive Stock
Option Plan (the "1989 Plan"). No options were granted to or
exercised by named executive officers in 1997 under the 1989
Plan. Pursuant to the 1989 Plan, no additional options may be
granted, and options outstanding at year-end are exercisable in
1998.
The Registrant adopted the CT Communications, Inc. Omnibus
Stock Compensation Plan (the "Omnibus Plan") effective April 24,
1997. No options were granted to or exercised by named executive
officers in 1997 under the Omnibus Plan.
The following table sets forth information regarding options
granted to the executive officers named in the Summary
Compensation Table during 1997. No free-standing stock
appreciation rights ("SARs") were granted to executive officers
during 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants(1)
- ----------------------------------------------
Percent of
Total
Number of Options/
Securities SARs Market
Underlying Granted to Exercise Price on
Options/ Employees Or Base Grant Expira-
SARs In Price Date tion
Name Granted(#) Fiscal Year ($/Sh) ($) Date
- -------- --------- ----------- ------- ------- ------
Michael R.
Coltrane 2,817 33.18% 71.33 116.67 2/28/07
Barry R.
Rubens 1,281 15.09% 71.33 116.67 2/28/07
Nicholas L.
Kottyan 1,330 15.67% 71.33 116.67 2/28/07
Thomas L.
Norman 1,272 14.98% 71.33 116.67 2/28/07
Catherine A.
Duda 493 5.81% 71.33 116.67 2/28/07
Option/SAR Grants in Last Fiscal Year, continued
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
For Option Term
------------------------------------------
Name 0%($) 5%($) 10%($)
- ------------- ------------ ----------- ------------
Michael R. Coltrane 127,722.78 334,406.07 651,515.76
Barry R. Rubens 58,080.54 152,067.51 296,269.68
Nicholas L. Kottyan 60,302.20 157,884.30 307,602.40
Thomas A. Norman 57,672.48 150,999.12 294,188.16
Catherine A. Duda 22,352.62 58,524.03 114,021.04
(1) All options were granted under the Comprehensive Plan. All
options vest 25% per year beginning on February 28, 1999.
The following table sets forth information regarding the
exercise of stock options during 1997 by the executive officers
named in the Summary Compensation Table and the value of such
executive officer's unexercised stock options held at fiscal year
end (including options outstanding under the Comprehensive Stock
Option Plan, the 1989 Plan and the Omnibus Plan).
Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities
Shares Underlying Unexercised
Acquired Options/SARs
On Value At Fiscal Year-End(#)
Exercise Realized --------------------------
Name (#) ($)(1) Exercisable Unexercisable
- -------- ---------- --------- ----------- -------------
Michael R.
Coltrane 0 $ 0 5,624 2,817
Barry R.
Rubens 0 0 3,262 1,281
Nicholas L.
Kottyan 0 0 3,150 1,330
Thomas A.
Norman 0 0 3,150 1,272
Catherine A.
Duda 0 0 450 493
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values, Continued
Value of Unexercised
In-the-money Options/SARs
At Fiscal Year-End ($)(2)
-------------------------
Name Exercisable Unexercisable
- ------------ ----------- --------------
Michael R.Coltrane $359,312 $168,090
Barry R. Rubens 212,054 76,437
Nicholas L. Kottyan 203,360 79,361
Thomas A. Norman 198,158 75,900
Catherina A. Duda 26,852 29,417
(1) Based on market value at time of exercise.
(2) Based on the last known selling price of $131.00 at
December 31, 1997.
The Registrant has in effect the 1995 Employee Stock
Purchase Plan (the "1995 ESPP") and the 1997 Employee Stock
Purchase Plan (the "1997 ESPP"). During 1997, the Registrant did
not sell any additional shares of Class B Stock to employees
under the 1995 ESPP but sold 5,355 shares at $120 per share under
the 1997 ESPP.
The Registrant also has in effect the 1995 Restricted
Stock Award Program. A total of 6,869 restricted shares of
Class B Stock with a weighted average fair value of $76.00 were
granted in 1997 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. Pursuant to the RSAP, these shares
remain subject to certain transferability restrictions for
specified periods of four or 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, 1997 were as
follows: Michael R. Coltrane -- 2,719 shares ($356,189);
Barry R. Rubens -- 1,156 shares ($151,436); Nicholas L. Kottyan
- -- 857 shares ($112,267); Thomas A. Norman -- 1,494 shares
($195,714); and Catherine A. Duda -- 494 shares ($64,714)
Employment Agreements
The Registrant entered into Change in Control Agreements
(the "Agreements") with Michael R. Coltrane, Barry R. Rubens,
Nicholas L. Kottyan, Thomas A. Norman and Catherine A. Duda,
which provide that upon the occurrence of a Change of Control in
the Registrant the executives will receive additional
compensation for a period of 35 months following such Change in
Control. The executives entering into such Agreements also would
be entitled to receive additional medical and other fringe
benefits for a period following a Change in Control. In
consideration for entering into the Agreements, the executives
entered into covenants not to compete and not to disclose
confidential information.
SERP
The Registrant established a Supplemental Executive
Retirement Plan (the "SERP") to provide additional benefits for
key executive employees. These employees include Michael R.
Coltrane, Barry R. Rubens, Nicholas L. Kottyan, Thomas A. Norman
and Catherine A. Duda. The SERP is intended to provide an
aggregate income placement ratio of 60% of such employee's
pre-retirement average compensation when taking into account the
Registrant's pension benefit plan and Social Security.
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
5-year Average Upon Retirement With Years of
Annual Pay Creditable Service Indicated
----------------------------------------------
15 20 25 30 35 40
------ ------ ------ ------ ------ ------
$ 50,000 $10,200 $13,600 $17,000 $20,400 $23,800 $26,550
75,000 16,763 22,350 27,938 33,525 39,113 43,238
100,000 23,325 31,100 38,875 46,650 54,425 59,925
125,000 29,888 39,850 49,813 59,775 69,738 76,613
150,000 36,450 48,600 60,750 72,900 85,050 93,300
175,000 43,013 57,350 71,688 86,025 100,363 109,988
200,000 49,575 66,100 82,625 99,150 115,675 126,675
225,000 56,138 74,850 93,563 112,275 130,988 143,363
250,000 62,700 83,600 104,500 125,400 146,300 160,050
*Assuming a normal retirement date of 12/31/97.
As of December 31, 1997, the credited years of service and
compensation covered by the Pension Plan, for each named
executive officer, were approximately as follows: Mr. Coltrane
- -- 10 years ($149,350), Mr. Kottyan -- 3 years ($145,219),
Mr. Rubens -- 5 years ($123,607), Mr. Norman -- 3 years
($128,015) and Ms. Duda -- 2 years ($128,791). Under the terms
of the Pension Plan, Messrs. Kottyan and Norman and Ms. Duda 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,
1997 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 51,101(2) 15.1%
P.O. Box 227
Concord, NC 28026-0227
Betty Gay Bivens 43,011 12.7%
400 Avinger Lane
Davidson, NC 28036
Michael R. Coltrane 43,746(3) 12.9%
P.O. Box 227
Concord, NC 28026-0227
Ramark & Co. 26,121 7.7%
(Nominee Name of First Charter
National Bank Trust Department)
P.O. Box 228
Concord, NC 28026-0228
Mrs. Mariam C. Schramm 23,287 6.9%
(Mrs. T. M. Schramm)
400 Avinger Lane
Davidson, NC 28036
World Div. Bd. of Global Min. 22,643 6.7%
U. M. Church
475 Riverside Drive
15th Floor
New York, NY 10027
Phil W. Widenhouse 3,651 (4) 1.1%
824 Livingstone Ct NE
Concord, NC 28025
Jerry H. McClellan 694 (5) *
Neisler Road
Concord, NC 28025
O. C. Chewning, Jr. 557 *
3249 Shillington Place
Charlotte, NC 28210
Ben F. Mynatt 514 (6) *
1980 Hwy. 73 E.
Concord, NC 28025
John R. Boger 195 *
147 Union St. S.
Concord, NC 28025
Thomas A. Norman 150 *
P.O. Box 227
Concord, NC 28026-0227
S. E. Leftwich 82 *
223 Maple Hill Drive
Flat Rock, NC 28601
Catherine A. Duda 81 *
P. O. Box 227
Concord, NC 28026-0227
Kenneth R. Argo 68 *
P.O. Box 227
Concord, NC 28026-0227
Nicholas L. Kottyan 45 *
P.O. Box 227
Concord, NC 28026-0227
Barry R. Rubens 30 *
P.O. Box 227
Concord, NC 28026-0227
B. Class B Nonvoting Common
Mrs. Mariam C. Schramm 107,476 5.6%
(Mrs. T. M. Schramm)
400 Avinger Lane
Davidson, NC 28036
Michael R. Coltrane 38,068(7) 2.0%
P.O. Box 227
Concord, NC 28026-0227
Phil W. Widenhouse 21,392(8) 1.1%
824 Livingstone Ct NE
Concord, NC 28025
Betty Gay Bivens 10,249 *
400 Avinger Lane
Davidson, NC 28036
Jerry H. McClellan 6,128 (9) *
Neisler Road
Concord, NC 28025
Kenneth R. Argo 4,498 (10) *
P.O. Box 227
Concord, NC 28026-0227
Barry R. Rubens 4,751 (11) *
P.O. Box 227
Concord, NC 28026-0227
Nicholas L. Kottyan 4,577 (12) *
P.O. Box 227
Concord, NC 28026-0227
Thomas A. Norman 4,876 (13) *
P.O. Box 227
Concord, NC 28026-0227
Ben F. Mynatt 2,474 (14) *
1980 Hwy. 73 E.
Concord, NC 28025
L. D. Coltrane III 2,376 (15) *
P.O. Box 227
Concord, NC 28026-0227
Catherine A. Duda 1,094 (16) *
P.O. Box 227
Concord, NC 28026-6227
S. E. Leftwich
223 Maple Hill Drive
Flat Rock, NC 28601 321 *
O. C. Chewning, Jr. 224 *
3249 Shillington Place
Charlotte, NC 28210
John R. Boger, Jr. 747 *
147 Union St. S.
Concord, NC 28025
E. All directors, Voting Common 167,212 49.5%
nominees and Class B Stock 209,251 10.0%
Executive officers 5% Preferred 0 0
Of the Registrant 4-1/2% Preferred 0 0
As a group (15)
Persons (17)
- ------------------
*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 7,131 shares owned by spouse.
(3) Includes 21,793 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 1,268 shares
owned by spouse.
(4) Includes 189 shares owned by spouse.
(5) Includes 202 shares owned by spouse.
(6) Includes 514 shares owned by spouse.
(7) Includes 21,793 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, 225 shares owned
by spouse, and 5,624 shares represented by currently
exercisable options.
(8) Includes 12,627 shares owned by spouse.
(9) Includes 1,345 shares owned by spouse and 1,124 shares
represented by currently exercisable options.
(10)Includes 147 shares owned by spouse and 483 shares
represented by currently exercisable options.
(11)Includes 3,262 shares represented by currently
exercisable options.
(12)Includes 3,150 shares represented by currently
exercisable options.
(13)Includes 3,150 shares represented by currently
exercisable options.
(14)Includes 451 shares owned by spouse.
(15)Includes 13 shares owned by spouse and 1,012 shares
represented by currently exercisable options.
(16)Includes 450 shares represented by currently exercisable
options.
(17)Does not include 21,456 shares of Voting Common Stock,
87,397 shares of Class B 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 shareholder and Mr.
Michael R. Coltrane is a shareholder and a director. As of
December 31, 1997, 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, 1997
and none was used during 1997.
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 $111,338 for such services in 1997.
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, 1997 and 1996 F-3
* Consolidated statements of income
for the years ended December 31,
1997, 1996, and 1995 F-5
* Consolidated statements of stock-
holders' equity for the years ended
December 31, 1997, 1996, and 1995 F-6
* Consolidated statements of cash
flows for the years ended
December 31, 1997, 1996, and 1995 F-8
* Notes to consolidated financial
statements for the years ended
December 31, 1997, 1996, and 1995 F-9
(B) Consolidated Financial Statement Schedules
The following financial statement schedule is
included:
* Schedule II - Valuation and Qualifying
Accounts F-35
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 F-36
(2) Exhibits: The following exhibits are filed with this
report or, as noted, incorporated by reference herein:
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.)
4.1 The Registrant has certain long-term debt, but
has not filed the instruments evidencing such debt
as part of Exhibit 4 because such instruments
do not authorize the issuance of debt exceeding
10% of the total consolidated assets of the
Registrant. The Registrant agrees to furnish a
copy of such instruments to the Commission upon
request.
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.
(Incorporated by reference to Exhibit 10.4 to
Registrant's Annual Report on Form 10-K dated
March 31, 1997.)
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.)*
10.10 Omnibus Stock Compensation Plan dated
April 24, 1997.*
10.11 1997 Employee Stock Purchase Plan dated
April 24, 1997.*
10.12 Change in Control Agreement, dated October 1,
1997, between the Registrant and Michael R.
Coltrane.*
10.13 Change in Control Agreement, dated October 1,
1997, between the Registrant and Barry R. Rubens.*
10.14 Change in Control Agreement, dated October 1,
1997, between the Registrant and Nicholas
L. Kottyan.*
10.15 Change in Control Agreement, dated October 1,
1997, between the Registrant and Thomas A.
Norman.*
10.16 Change in Control Agreement, dated October 1,
1997, between the Registrant and Catherine A.
Duda.*
10.17 Form of Supplemental Executive Retirement Plan, dated
June 27, 1997.*
10.18 Contribution Agreement by and among Palmetto
MobileNet, L.P., PMN, Inc., the Registrant and
Ellerbe Telephone Co., dated as of January 1,
1998
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
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, 1997.
(c) The following exhibits are filed herewith and follow the
signature pages:
10.10 Omnibus Stock Compensation Plan dated April 24,
1997.
10.11 1997 Employee Stock Purchase Plan dated April 24,
1997.
10.12 Change in Control Agreement, dated October 1,
1997, between the Registrant and Michael R.
Coltrane.
10.13 Change in Control Agreement, dated October 1,
1997, between the Registrant and Barry R. Rubens.
10.14 Change in Control Agreement, dated October 1,
1997, between the Registrant and Nicholas L.
Kottyan.
10.15 Change in Control Agreement, dated October 1,
1997, between the Registrant and Thomas A.
Norman.
10.16 Change in Control Agreement, dated October 1,
1997, between the Registrant and Catherine A.
Duda.
10.17 Form of Supplemental Executive Retirement Plan, dated
June 27, 1996.
10.18 Contribution Agreement by and among Palmetto
MobileNet, L.P., PMN, Inc., the Registrant and
Ellerbe Telephone Co., dated as of January 1,
1998
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule.
(d) The financial statements listed in Item 14(a)(1) above begins
on page F-2.
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: April 9, 1998
/s/ BARRY R. RUBENS
Barry R. Rubens
Senior Vice President,
Treasurer and Chief Financial
Officer
(Principal Financial and
Principal Accounting Officer)
Date: April 9, 1998
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, Chief April 9, 1998
Michael R. Coltrane Executive Officer
and Director
(Principal Executive
Officer)
/s/ L.D. COLTRANE III Chairman of the Board April 9, 1998
L.D. Coltrane III and Director
/s/ JOHN R. BOGER, JR. Director April 9, 1998
John R. Boger, Jr.
/s/ PHIL W. WIDENHOUSE Director April 9, 1998
Phil W. Widenhouse
/s/ JERRY H. MCCLELLAN Director April 9, 1998
Jerry H. McClellan
/s/ BEN F. MYNATT Director April 9, 1998
Ben F. Mynatt
/s/ O. CHARLIE CHEWNING Director April 9, 1998
O. Charlie Chewning
/s/ SAMUEL E. LEFTWICH Director April 9, 1998
Samuel E. Leftwich
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements Index
December 31, 1997, 1996 and 1995
(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, 1997 and 1996 F - 3 and F - 4
* Consolidated statements of income for
the years ended December 31, 1997, 1996
and 1995 F - 5
* Consolidated statements of stockholders'
equity for the years ended December 31,
1997, 1996 and 1995 F - 6 and F - 7
* Consolidated statements of cash flows for
the years ended December 31, 1997, 1996
and 1995 F - 8
* Notes to consolidated financial statements
for the years ended December 31, 1997, 1996
and 1995 F - 9 to F - 34
(2) Consolidated Financial Statement Schedules
The following financial statement schedule is included:
* Schedule II - Valuation and Qualifying
Accounts F - 35
Other schedules are omitted because the required information
is included in the financial statements or is not applicable.
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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1997, 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.
/s/ KPMG PEAT MARWICK LLP
Charlotte, North Carolina
February 27, 1998
F-2
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------ ---- ----
Current assets:
Cash and cash equivalents $ - 2,162,698
Short-term investments (note 3) 168,979 316,158
Accounts receivable, net of
allowance for doubtful accounts
of $100,000 in 1997 and 1996 8,842,922 7,614,737
Notes receivable 1,810,500 -
Refundable income taxes - 14,736
Materials and supplies 2,696,432 2,860,114
Deferred income taxes (note 12) 1,545,470 103,399
Prepaid expenses and other assets 950,254 476,774
---------- ----------
Total current assets 16,014,557 13,548,616
---------- ----------
Investment securities (note 3) 14,624,757 3,637,445
Investments in affiliates (note 4) 29,550,326 25,888,315
Property, plant, and equipment:
Telephone plant in service (note 1c):
Land, buildings, and general
equipment 28,730,045 22,146,226
Central office equipment 64,227,829 58,691,229
Poles, wires, cables and conduit 80,143,917 72,466,757
Construction in progress 277,070 -
----------- ------------
173,378,861 153,304,212
Less accumulated depreciation 86,229,072 81,314,625
----------- ------------
Net property, plant, and
equipment 87,149,789 71,989,587
------------ ------------
147,339,429 115,063,963
=========== ============
See accompanying notes to consolidated financial statements.
F-3
Liabilities and Stockholders'
Equity 1997 1996
------------------------------ --------- ----------
Current liabilities:
Current portion of long-term debt
and redeemable preferred stock
(notes 6 and 7) $632,500 2,072,500
Accounts payable 9,697,000 9,962,149
Customer deposits and advance
billings 1,591,284 1,271,562
Accrued payroll 1,304,573 1,250,396
Income taxes payable 992,750 -
Accrued pension cost (note 11) 1,970,956 1,043,974
Other accrued liabilities 1,428,372 469,492
---------- ----------
Total current liabilities 17,617,435 16,070,073
---------- ----------
Long-term debt (note 6) 11,239,000 2,014,000
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes (note 12) 7,497,167 1,106,910
Investment tax credits (note 12) 919,080 1,033,965
Regulatory liability (note 1 g) - 2,507,029
Postretirement benefits other than
pension (note 11) 10,026,128 9,422,573
Other 1,573,668 1,103,098
---------- ----------
20,016,043 15,173,575
---------- ----------
Redeemable preferred stock: 4.8%
series; authorized 5,000 shares;
issued and outstanding 1,500 and
1,625 shares in 1997 and 1996,
respectively (note 7) 137,500 150,000
---------- ----------
Total liabilities 49,009,978 33,407,648
Minority interest 1,360,998 -
Stockholders' equity:
Preferred stock not subject to
mandatory redemption (note 8):
5% series, $100 par value;
3,631 and 15,087 shares
outstanding in 1997 and 1996,
respectively 363,100 1,508,700
4.5% series, $100 par value;
1,218 and 2,000 shares out-
standing in 1997 and 1996,
respectively 121,800 200,000
Discount on 5% preferred stock - (16,059)
Common stock (note 8):
Voting; 338,429 and 340,528
shares outstanding in 1997
and 1996, respectively 3,772,298 4,021,094
Nonvoting; 1,900,361 and
1,887,535 shares outstanding in
1997 and 1996, respectively 25,268,447 23,377,120
Other capital 298,083 298,083
Unearned compensation (note 9) (817,903) (188,055)
Unrealized gain on securities
available-for-sale, net of tax 6,169,443 195,419
Retained earnings 61,793,185 52,260,013
----------- -----------
Total stockholders' equity 96,968,453 81,656,315
----------- -----------
Contingency (note 14)
$ 147,339,429 115,063,963
============ ===========
F-4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
------ -------- ----------
Operating revenues:
Local service $ 29,197,401 24,715,038 21,230,607
Access and toll
service 34,877,748 31,653,259 29,971,626
Other and unregulated 14,790,122 11,008,784 9,551,076
Less: provision for
uncollectible
accounts (381,757) (323,075) (335,958)
------------- ----------- -----------
Total operating
revenues 78,483,514 67,054,006 60,417,351
------------- ----------- -----------
Operating expenses (note 1c):
Plant specific 25,087,883 20,026,094 15,627,931
Depreciation and
amortization 9,612,085 10,104,802 11,968,090
Customer operations 11,884,452 11,224,067 8,348,246
Corporate operations 10,785,952 9,995,004 7,256,798
Expense related to
early retirement
plan 1,020,000 - -
------------ ----------- ------------
Total operating
expenses 58,390,372 51,349,967 43,201,065
------------ ----------- -----------
Net operating
revenues 20,093,142 15,704,039 17,216,286
------------ ----------- ------------
Other income (expenses):
Equity in income of
affiliates, net
(note 4) 130,637 1,801,952 2,203,706
Interest, dividend
income and gain on
sale of investments 261,459 244,213 939,139
Other expenses,
principally interest (985,275) (705,112) (581,764)
------------ ---------- ------------
Total other income (593,179) 1,341,053 2,561,081
------------ ---------- ------------
Income before income
taxes and extraordinary
item 19,499,963 17,045,092 19,777,367
Income taxes (note 12) 7,898,159 6,583,671 6,760,624
---------- ---------- -----------
Net income before
extraordinary item 11,601,804 10,461,421 13,016,743
Extraordinary item -
discontinuance of SFAS
71, net of income taxes
of $1,493,312 (note 13) 2,239,045 - -
---------- ---------- ---------
Net income after
extraordinary item 13,840,849 10,461,421 13,016,743
Dividends on preferred
stock 73,073 92,535 93,135
---------- ---------- ----------
Earnings for common
stock $ 13,767,776 10,368,886 12,923,608
=========== ========== ==========
Basic earnings per
common share:
Earnings before
extraordinary item $ 5.16 4.65 5.83
========== ========== ==========
Extraordinary item $ 1.00 - -
========== =========== ==========
Earnings per common
share $ 6.16 4.65 5.83
========== =========== ==========
Diluted earnings per
common share:
Earnings before
Extraordinary item $ 5.13 4.64 5.82
========== =========== =========
Extraordinary item $ 1.00 - -
========= =========== ==========
Earnings per common
share $ 6.13 4.64 5.82
========== ========== ==========
Basic weighted average
shares outstanding $2,236,188 2,227,184 2,218,383
========== =========== ===========
Diluted weighted average
shares outstanding $2,244,996 2,233,847 2,221,071
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-5
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
5% Series 4.5% Series Discount Voting
Preferred Preferred Of 5% Common
Stock Stock Preferred Stock
--------- ----------- ---------- -------
Balances at
December 31, 1994 $ 1,508,700 200,000 (16,059) 4,021,094
Net Income - - - -
Issuance of 3,616 shares
of nonvoting common
stock - - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Tax Benefit from
exercise of stock
options - - - -
Realized gain on
investment in
affiliates - - - -
Unrealized gain on
investment
securities, net of
tax effect of
$583,297 - - - -
Unearned compensation
related to the
granting of 363 shares
of restricted nonvoting
common stock, net of
$4,256 earned during
the year - - - -
----------- ----------- -------- --------
Balances at
December 31, 1995 1,508,7800 200,000 (16,059) 4,021,194
----------- ----------- -------- ---------
Net Income - - - -
Issuance of 3,534 shares
of nonvoting common
stock - - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Tax Benefit from
exercise of stock
options - - - -
Unrealized loss on
investment
securities, net of
tax effect of
$640,204 - - - -
Unearned compensation
related to the
granting of 2,137 shares
of restricted nonvoting
common stock, net of
$25,172 earned during
the year - - - -
----------- ------------ ---------- ---------
Balances at
December 31, 1996 1,508,700 200,000 (16,059) 4,021,094
----------- ------------ ---------- ---------
Net Income - - - -
Issuance of 13,269 shares
of nonvoting common
stock - - - -
Issuance of stock options - - - -
Repurchases of shares:
11,456 shares of
5% preferred (1,145,600) - 16,059 -
782 shares of 4.5%
preferred - (78,200) - -
2,016 shares of
voting common - - - (248,796)
55 shares of
Nonvoting common - - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Unrealized loss on
investment
securities, net of
tax effect of
$3,929,182 - - - -
Unearned compensation
related to the
granting of 6,869 shares
of restricted nonvoting
common stock, net of
$140,931 earned during
the year - - - -
---------- ----------- ----------- ---------
Balances at
December 31, 1997 $363,100 121,800 - 3,772,298
=========== =========== =========== =========
CT Communications, Inc. And Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995, continued
Unrealized
Non- Gain on
Voting Securities
Common Other Unearned Available
Stock Capital Compensation For sale
-------- ------- ------------ ---------
Balances at
December 31, 1994 22,528,102 298,083 - 284,396
Net Income - - - -
Issuance of 3,616 shares
of nonvoting common
stock 586,675 - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Tax Benefit from
exercise of stock
options - - - -
Realized gain on
investment in
affiliates - - - -
Unrealized gain on
investment
securities, net of
tax effect of
$583,297 - - - 912,370
Unearned compensation
related to the
granting of 363 shares
of restricted nonvoting
common stock, net of
$4,256 earned during
the year - - (60,752) -
---------- --------- -------- -----------
Balances at
December 31, 1995 23,114,777 298,083 (60,752) 1,196,766
---------- --------- --------- ----------
Net Income - - - -
Issuance of 3,534 shares
of nonvoting common
stock 262,343 - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Tax Benefit from
exercise of stock
options - - - -
Unrealized loss on
investment
securities, net of
tax effect of
$640,204 - - - (1,001,347)
Unearned compensation
related to the
granting of 2,137 shares
of restricted nonvoting
common stock, net of
$25,172 earned during
the year - - (127,303) -
--------- ---------- --------- ----------
Balances at
December 31, 1996 23,377,120 298,083 (188,055) 195,419
Net Income - - - -
Issuance of 13,269 shares
of nonvoting common
stock 1,412,339 - - -
Issuance of stock options 74,279 - - -
Repurchases of shares:
11,456 shares of
5% preferred 362,039 - - -
782 shares of 4.5%
preferred 46,920 - - -
2,016 shares of
voting common - - - -
55 shares of
Nonvoting common (4,250) - - -
Dividends declared:
5% preferred - - - -
4.8% preferred - - - -
4.5% preferred - - - -
Voting common - - - -
Nonvoting common - - - -
Unrealized loss on
investment
securities, net of
tax effect of
$3,929,182 - - - 5,974,024
Unearned compensation
related to the
granting of 6,869 shares
of restricted nonvoting
common stock, net of
$140,931 earned during
the year - - (629,848) -
-------- ----------- --------- --------
Balances at
December 31, 1997 25,268,447 298,083 (817,903) 6,169,443
========== ============ ========== =========
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995, Continued
Equity in Total
Earnings of Retained Stockholders'
Investment Earnings Equity
------------ ---------- -----------
Balances at
December 31, 1994 260,624 37,065,596 66,150,536
Net Income - 13,016,743 13,016,743
Issuance of 3,616 shares
of nonvoting common
stock - - 586,675
Dividends declared:
5% preferred - (75,435) (75,435)
4.8% preferred - (8,700) (8,700)
4.5% preferred - (9,000) (9,000)
Voting common - (612,951) (612,951)
Nonvoting common - (3,381,472) (3,381,472)
Tax Benefit from
exercise of stock
options - 15,312 15,312
Realized gain on
investment in
affiliates (260,624) - (260,624)
Unrealized gain on
investment
securities, net of
tax effect of
$583,297 - - 912,370
Unearned compensation
related to the
granting of 363 shares
of restricted nonvoting
common stock, net of
$4,256 earned during
the year - - (60,752)
------------ -------------- --------------
Balances at
December 31, 1995 - 46,010,093 76,272,702
Net Income - 10,461,421 10,461,421
Issuance of 3,534 shares
of nonvoting common
stock - - 262,343
Dividends declared:
5% preferred - (75,435) (75,435)
4.8% preferred - (8,100) (8,100)
4.5% preferred - (9,000) (9,000)
Voting common - (631,870) (631,870)
Nonvoting common - (3,501,222) (3,501,222)
Tax Benefit from
exercise of stock
options - 14,126 14,126
Unrealized loss on
investment
securities, net of
tax effect of
$640,204 - - (1,001,347)
Unearned compensation
related to the
granting of 2,137 shares
of restricted nonvoting
common stock, net of
$25,172 earned during
the year - - (127,303)
--------- ------------- ----------------
Balances at
December 31, 1996 - 52,260,013 81,656,315
--------- ------------- ----------------
Net Income - 13,840,849 13,840,849
Issuance of 13,269 shares
of nonvoting common
stock - - 1,412,339
Issuance of stock options - - 74,279
Repurchases of shares:
11,456 shares of
5% preferred - - (767,502)
782 shares of 4.5%
preferred - - (31,280)
2,016 shares of
voting common - - (248,796)
55 shares of
Nonvoting common - - (4,250)
Dividends declared:
5% preferred - (56,298) (56,298)
4.8% preferred - (7,775) (7,775)
4.5% preferred - (9,000) (9,000)
Voting common - (641,785) (641,785)
Nonvoting common - (3,592,819) (3,592,819)
Unrealized loss on
investment
securities, net of
tax effect of
$3,929,182 - - 5,974,024
Unearned compensation
related to the
granting of 6,869 shares
of restricted nonvoting
common stock, net of
$140,931 earned during
the year - - (629,848)
---------- ----------- ----------------
Balances at
December 31, 1997 - 61,793,185 96,968,453
========== =========== ================
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating
activities:
Net income $13,840,849 10,461,421 13,016,743
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Extraordinary item (2,239,045) - -
Depreciation and
amortization 9,612,085 10,104,802 11,968,090
Postretirement
benefits 603,555 1,317,608 1,811,771
Loss (gain) on sale
of investment
securities 23,667 75,667 5,745
Undistributed income
of affiliates (130,637) (1,801,952) (1,079,323)
Deferred income taxes
and tax credits (589,093) 31,700 (2,532,397)
Changes in operating
assets and liabilities:
Accounts receivable(1,228,185) 1,263,961 (1,833,729)
Materials and
supplies 163,682 (1,056,695) (381,013)
Other current assets (473,480) 56,611 (294,806)
Accounts payable (1,565,023) 1,109,877 710,595
Customer deposits
and advance billings 319,722 190,789 90,963
Accrued liabilities 1,878,013 525,529 203,657
Refundable income
taxes 14,736 161,492 (1,350,587)
Income taxes payable 992,750 - -
---------- ---------- -----------
Net cash provided
by operating
activities 21,223,596 22,440,810 20,335,709
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures,
net (21,573,658) (24,118,712)(16,103,344)
Purchases of investments
in affiliates (11,148,674) (4,263,200) (8,665,390)
Purchases of investment
securities (356,268) (1,067,060) (9,787,257)
Proceeds from sale of
investment securities 2,306,812 4,606,652 10,316,461
Maturities of investment
securities 476,487 2,751,739 4,681,351
Partnership capital
distribution 4,229,675 1,965,792 713,761
Issuance of notes
receivable (1,810,500) - -
----------- ---------- ----------
Net cash used in
investing activities (27,876,126) (20,124,789)(18,844,418)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of long-term
debt (2,215,000) (640,000)(1,527,500)
Proceeds from new debt 10,000,000 - -
Redemption of preferred
stock (12,500) (12,500) (12,500)
Dividends paid (4,307,677) (4,225,627)(4,087,558)
Repurchases of common
and preferred stock (1,067,468) - -
Proceeds from common
stock issuances 643,600 109,869 586,675
Minority interest 1,360,998 - -
Other 87,879 (136,269) (45,439)
----------- ---------- --------
Net cash used in
financing activities 4,489,832 (4,904,527)(5,086,322)
---------- ----------- ----------
Net (decrease) increase in
cash and cash equivalents (2,162,698) (2,588,506)(3,595,031)
Cash and cash equivalents -
beginning of year 2,162,698 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 $ 7,912,449 6,474,267 10,589,211
Cash paid for
interest 390,735 310,099 398,376
See accompanying notes to consolidated financial
statements
F-8
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(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 Personal Communications (dba CTC Wireless),
CT Wireless Cable, CTC Exchange Service and its majority-owned
subsidiary, CT Global Telecommunications. 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. CTC Exchange
Service, which was established in 1997, was formed to provide
competitive local telephone service in North Carolina. CT
Global, which became a subsidiary in 1997, was formed to build
telecommunications networks outside of the United States. The
Company is under the jurisdiction of the North Carolina Utilities
Commission.
Effective April 1, 1997, the Company discontinued
application of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of
Regulation." See note 13 for further discussion of the impacts
of discontinuance of SFAS No. 71.
F-9
(1) Summary of Significant Accounting Policies, Continued
(b) Reclassifications
In certain instances, amounts previously reported in the
1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 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 is calculated using the straight-line method
over the estimated useful lives of the respective assets.
Prior to the Company's discontinued applications of SFAS No.
71 on April 1, 1997 (see note 13), depreciation on telephone
plant in service was provided on a straight-line basis using
composite rates acceptable to the regulatory authorities. During
1996 and 1995, 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 and
$3,708,000 in 1995.
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.
See note 13 for a discussion of SFAS No. 71 and its effect
on property, plant and equipment.
F-10
(1) Summary of Significant Accounting Policies, Continued
(d) Investment Securities
Investment securities at December 31, 1997 and 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, 1997 and 1996, all 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.
F-11
(1) Summary of Significant Accounting Policies, Continued
(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 existed excess
deferred income taxes at December 31, 1996. 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.
See note 13 for a discussion of the impacts of discontinuance of
SFAS No. 71.
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
During 1997, the Company implemented SFAS No. 128, "Earnings
per Share." Basic earnings per common share are based on the
weighted average number of common shares outstanding each year.
Diluted earnings per common share are based on the weighted
average number of common and potential common shares outstanding
each year. Both measures of earnings per share have been
adjusted for subsequent stock splits and restated for the effects
of implementing SFAS No. 128.
F-12
(1) Summary of Significant Accounting Policies, Continued
(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 reviews long-lived assets and certain
identifiable intangibles 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.
(m) Stock Option Plans
Statement of Financial Accounting Standards (SFAS) No. 123
allows entities 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.
F-13
(1) Summary of Significant Accounting Policies, Continued
(n) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 130 "Reporting Comprehensive Income." SFAS No. 130 requires
companies to display, with the same prominence as other financial
statements, the components of comprehensive income. SFAS No. 130
requires that an enterprise classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company's
financial statements will include the disclosure of comprehensive
income in accordance with the provisions of SFAS No. 130
beginning in the first quarter of 1998.
In June 1997, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way public business enterprises are
to report information about operating segments in annual
financial statements and requires those enterprises to report
selected financial information about operating segments in
interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
(2) Notes Receivable
At December 31, 1997, the Company had notes receivables of
$1,810,500 due from US Telecom Holdings, Inc. ("USTH") with
interest at 10.5%. $800,000 of the notes is secured by 72,487
shares of common stock of Hungarian Telephone and Cable Corp. and
is due April 17, 1998. $1,010,500 of the notes is secured by a
first priority security interest in 4,950.50 shares of common
stock of Telco Investors II, Inc. owned by USTH and is due April
1, 1998. Interest due to the Company as of December 31, 1997 was
$58,245.
F-14
(3) 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, 1997 and 1996, were as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
At December 31, 1997
Available-for-sale:
Certificates of
deposit $ 280,279 - - 280,279
Equity securities 4,290,011 13,054,451 (2,831,005)14,513,457
--------- ---------- --------- ----------
$4,570,290 13,054,451 (2,831,005)14,793,736
========= ========== ========== ==========
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
========= ========== =========== =========
In 1997, proceeds from the sale of investment securities
available for sale were $2,306,812 and included in income were
gross realized gains of $1,389 and gross realized losses of
$25,162.
Maturities of debt securities were as follows at December
31, 1997:
Amortized Fair
Cost Value
---------- -------
Currently due $ 168,979 168,979
Due after one year through
five years 111,300 111,300
Equity securities 4,610,251 14,513,457
--------- ----------
$4,890,530 14,793,736
========== ============
F-15
(4) Investments in Affiliated Companies
Investments in affiliated companies consist of the
following:
1997
Ownership
Percentage 1997 1996
------------ ------ ------
Equity Method:
RSA 15 Partnership 50.00% $ 7,478,888 6,516,008
Amaritel, S.A. DE C.V. 35.86% 6,860,000 -
Wireless One of North
Carolina, LLC 48.50% 4,100,204 1,371,000
BellSouth Carolinas PCS, LP 1.95% 3,752,556 5,581,051
U.S. Telecom Holdings 27.70% 1,895,385 3,556,294
Ellerbe-Concord Partnership 49.00% 1,268,571 1,188,967
Access On 19.58% 186,919 199,095
Cost Method:
ITC Associates Partnership - $ - 5,519,832
Illuminet Holdings, Inc. 4.00% 1,068,624 1,068,624
ITC Holding Company 4.4% 2,724,129 658,354
Other various 215,050 229,090
------------ ---------
$29,550,326 25,888,315
============ =========
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.
Amaritel, S.A. DE C.V. ("Amaritel") is creating a competitive
telecommunications company offering local, long distance, and
network telecommunications services in Mexico. The Company's
investment in Amaritel is through its majority-owned subsidiary,
CT Global. The Company has recorded minority interest of
$1,360,998 related to CT Global in the accompanying consolidated
balance sheet at December 31, 1997. Equity in earnings from this
investment were insignificant during 1997.
The purpose of Wireless One of North Carolina, LLC is to develop
and deploy wireless cable in 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.
F-16
(4) Investments in Affiliated Companies, Continued
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.
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.
Prior to its dissolution in January 1997, the purpose of the
ITC Associates partnership was to acquire, own or hold, manage
and sell ITC Holding Company common stock. The Partnership
distributed to each Partner the shares of ITC Holding common
stock contributed to the Partnership by such Partner.
In addition, ITC Holding Company structurally separated ITC
Deltacom, Inc. ("Deltacom") (a publicly held company) and its
subsidiaries from ITC Holding Company. ITC Holding Company
created the "New ITC Holding Company", of which the Company
received one share of stock for each share of "Old ITC Holding
Company" stock. The Company also received 2.3 shares of Deltacom
stock for each share of "Old ITC Holding Company" stock. The
investment in Deltacom is included in available-for-sale equity
securities in note 3.
Illuminet Holdings, Inc., formerly USTN Holdings, Inc.,
provides network services such a seamless routing for wireless
services and database and billing support.
Included in the Company's share of earnings from affiliates
accounted for under the equity method were total losses of
$5,044,749 and total income of $5,175,386. Over 59% of the
losses and 89% of the income was attributable to Bell South
Carolinas PCS and the RSA 15 Partnership, respectively.
F-17
(4) Investments in Affiliated Companies, Continued
Summarized unaudited combined financial position information for
these two entities as of December 31, 1997 and 1996 is as
follows: current assets - $25,020,000 and $16,182,000; property
and other non-current assets - $513,995,000 and $372,325,000;
current liabilities - $340,435,000 and $108,475,000; equity -
$198,580,000 and $280,032,000. Summarized unaudited combined
results of operations for these two entities for the years ended
December 31, 1997, 1996 and 1995, respectively, is as follows:
revenues - $88,597,000, $27,176,000 and $16,680,000; operating
income (loss) - ($131,683,000), ($81,861,000), and ($14,982,000);
and net income (loss) - ($141,067,000), ($86,351,000) and
($14,381,000).
(5) 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, notes 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.
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, 1997 and 1996 are as follows:
1997 1996
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Financial liabilities
Long-term debt and
redeemable preferred
stock, including
current maturities $12,009,000 12,009,000 4,236,500 4,154,645
=========== ========== ========= =========
F-18
(6) Long-Term Debt
Long-term debt at December 31, 1997 and 1996, consists of
the following:
1997 1996
---- ----
Line of credit (at 7.25%)
due in 1999 $10,000,000 -
Note payable to a bank (at 7.25%),
due in installments until 2001 1,859,000 2,634,000
6.25% Series F first mortgage bonds,
paid in 1997 - 1,440,000
---------- ---------
Total long-term debt 11,859,000 4,074,000
Less: current installments 620,000 2,060,000
---------- ---------
Long-term debt, excluding
current installments $11,239,000 2,014,000
========== =========
Annual maturities of the long-term debt outstanding for the
five-year periods subsequent to December 31, 1997, are as
follows: $620,000 in 1998, $10,620,000 in 1999, $620,000 in 2000,
and $154,000 in 2001.
The Company has available lines of credit totaling
$18,500,000, of which $10,000,000 was outstanding at December 31,
1997.
(7) 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, 1997, other than the
annual sinking fund requirement of $12,500.
(8) 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.
F-19
(8) Common Stock and Preferred Stock Not Subject to Mandatory
Redemption, Continued
In August 1997, the company effected a three-for-two stock
split in the form of a one-for-two stock distribution to
stockholders of record at August 1, 1997. 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:
$1.90 in 1997, $1.85 in 1996; and $1.80 in 1995.
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.
(9) Stock Compensation Plans
At December 31, 1997, the Company has five 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
SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1997 1996
---- ----
Net Income As Reported $13,840,849 10,461,421
Pro forma $13,813,602 10,120,715
Basic earnings per
common share As Reported $ 6.16 4.65
Pro forma 6.14 4.58
Diluted earnings per
common share As Reported $ 6.13 4.64
Pro Forma $ 6.12 4.57
F-20
(9) Stock Compensation Plans, Continued
The Company has an Executive Stock Option Plan (the Plan) to
allow key employees to increase their holdings of the Company's
common stock. 11,250 shares of Nonvoting Class B common stock
were reserved for issuance under the Plan. At December 31, 1997,
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,
1997, is as follows:
Weighted
Number Average Exercise
of Options Price
---------- ----------------
Options outstanding and
exercisable at December 31, 1994 8,878 $ 50
Options granted - -
Options exercised (2,668) 49
--------
Options outstanding and
exercisable at December 31, 1995 6,210 51
Options granted - -
Options exercised (869) 40
--------
Options outstanding and
exercisable at December 31, 1996 5,341 52
Options granted - -
Options exercised (112) 46
Options forfeited (6) 46
---------
Options outstanding and
exercisable at December 31, 1997 5,223 $51
====== ====
As of December 31, 1997, the 5,223 options outstanding and
exercisable have exercise prices between $43 and $57 and a
weighted-average remaining contractual life of 1.3 years.
The Company has a comprehensive Stock option plan (the Plan)
to allow key employees to increase their holdings of the
Company's stock. 22,500 shares of nonvoting class B Common Stock
have been reserved for issuance under the Plan. At December 31,
1997, the number of nonvoting Class B common stock reserved for
issuance but ungranted was 60 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 become
exercisable over periods from 6 months to four years after the
grant date.
Activity under the Plan for each of the years in the
three-year period ended December 31, 1997 is as follows:
F-21
(9) Stock Compensation Plans, Continued
Weighted
Number Average Exercise
of Options Price
---------- ---------------
Options outstanding at
December 31, 1994 - $ -
Options granted 13,950 71
Options exercised - -
------- --------
Options outstanding at
December 31, 1995 13,950 71
Options granted - -
Options exercised - -
-------- ---------
Options outstanding at
December 31, 1996 13,950 71
Options granted 8,489 71
Options exercised (150) 71
Options forfeited (750) 71
-------- ----------
Options outstanding at
December 31, 1997 21,539 $ 71
======== ==========
Options exercisable at
December 31, 1997 13,050 $ 71
======== ==========
As of December 31, 1997, the 21,539 options outstanding have
exercise prices between $60 and $71 and a weighted-average
remaining contractual life of 8.5 years.
The per share fair value of stock options granted in 1997
and 1995 was $25 and $21, respectively, at the date of grant.
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: 1995 - dividend yield of
2.5%; expected volatility of 20%; risk-free interest rate of 6%,
and expected lives of 10 years; 1997 - Dividend yield of 2.7%,
expected volatility of 20%; risk-free interest rate of 6%; and
expected lives of 10 years.
F-22
(9) Stock Compensation Plans, Continued
The Company has 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 22,500 shares. The Company
records deferred compensation in the amount of the fair market
value of the stock granted and amortizes this amount on a
straight line basis over the restricted period, generally 4 to 10
years. In 1997, 1996 and 1995, respectively, the Company granted
6,869, 2,137 and 1,089 shares to participants with a
weighted-average fair value of $76, $71 and $60. Deferred
compensation at December 31, 1997 and 1996, respectively was
$817,903 and $188,055, which is disclosed net of accumulated
amortization of $170,359 and $29,428, in the consolidated
statements of stockholders' equity.
In 1996, a Director Compensation Plan (the Plan) was
approved 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 11,250 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
1997 and 1996, the Company granted 783 and 528 shares,
respectively, with an average fair market value of $116 and $86,
respectively.
During 1997, the CT Communications, Inc. Omnibus Stock
Compensation Plan (the Plan) was approved. 100,000 shares of
Class B common stock have been reserved for issuance under the
Plan. The Plan provides for awards of stock, stock options and
stock appreciation rights. At December 31, 1997, no awards have
been granted under the Plan.
F-23
(10) Employee Stock Purchase Plan
The Company approved Employee Stock Purchase Plans in 1997
and 1995 (the Plans) which authorized 12,000 and 11,250 shares,
respectively, 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. 5,355 and 7,092 shares were issued
under the Plans at a purchase price of $120 and $55 per share in
1997 and 1995, respectively. No shares were issued in 1996.
(11) 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 1997
or 1996. 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, 1997 and 1996.
1997 1996
---- -----
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$22,147,568 in 1997 $20,657,133
in 1996, respectively $22,457,476 20,950,012
========== ==========
Projected benefit obligation (28,633,948) (26,375,271)
Plan assets at fair value 40,472,587 32,848,100
---------- -----------
Excess of plan assets over the
projected benefit obligation 11,838,639 6,472,829
Unrecognized net gain deferred (13,440,795) (7,078,443)
Unrecognized prior service cost (38,490) (41,989)
Unrecognized net asset being
amortized over 16 years from
January 1, 1987 (330,310) (396,371)
---------- -----------
Net accrued pension cost $(1,970,956) (1,043,974)
========== ===========
F-24
(11) Employee Benefit Plans, Continued
Net pension cost for 1997, 1996, and 1995 included the
following:
1997 1996 1995
---- ---- ----
Service cost, benefits
earned during the period $ 666,447 651,591 571,935
Interest cost on projected
benefit obligation 1,893,377 1,724,700 1,610,208
Actual return on plan assets (9,452,700)(3,784,646)(6,013,024)
Net amortization and deferral 6,776,734 1,309,296 4,006,215
---------- --------- ---------
Net periodic pension cost $ (116,142) (99,059) 175,334
========== =========== =========
The weighted average discount rate of 7% in 1997, 1996 and
1995 and the rate of increase in future compensation levels of 5%
in 1997, 1996 and 1995 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 1997, 1996 and 1995.
(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's match of a portion
of the employee's contribution totaled $265,746, $229,500 and
$322,867 in 1997, 1996, and 1995, 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 plan has been frozen. As of
January 1, 1987, no more contributions can be made into the plan
and no employee may become eligible to participate.
F-25
(11) Employee Benefit Plans, Continued
(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.
The following table presents the plan's accumulated
postretirement benefit obligation reconciled with amounts
recognized in the Company's balance sheets at December 31, 1997
and 1996:
1997 1996
---- ----
Accumulated postretirement benefit
obligation:
Retirees $4,076,863 5,198,219
Fully eligible active plan
participants 2,230,590 3,046,889
Other active plan participants 3,225,113 4,544,602
---------- ---------
9,532,566 12,789,710
Unrecognized net gain (loss) 1,868,016 2,139,040
Unrecognized transition obligation (4,894,379) (5,506,177)
Unrecognized prior service cost 3,519,925 -
---------- -----------
Accrued postretirement benefit
cost $10,026,128 9,422,573
========== =========
During 1997, Plan benefits were expanded to include Medicare
supplements and additional medical benefits resulting in
increased postretirement benefit costs.
F-26
(11) Employee Benefit Plans, Continued
Net periodic postretirement benefit cost for 1997, 1996 and
1995 includes the following components:
1997 1996 1995
---- ---- ----
Service cost $ 216,693 321,990 331,470
Interest cost 631,910 828,192 931,037
Amortization of transition
obligation over 15 years 611,798 611,798 611,798
Amortization of gain (74,769) (72,216) -
Amortization of prior service
cost (502,847) - -
--------- --------- --------
Net periodic postretirement
benefit cost $ 882,785 1,689,764 1,874,305
========= =========== ==========
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, 1997, to
approximately $10,806,167 and the aggregate of the service and
interest cost components of net periodic post retirement benefit
cost for the year ended December 31, 1997 by approximately
$975,504.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7% in 1997,
1996 and 1995.
F-27
(12) Income Taxes
Total income taxes for the years ended December 31, 1997,
1996 and 1995 were allocated as follows:
1997 1996 1995
---- ----- -----
Income before extraordinary
item $ 7,898,159 6,583,671 6,760,624
Extraordinary item 1,493,312 - -
---------- --------- ----------
$ 9,391,471 6,583,671 6,760,624
=========== ========== ===========
Stockholders' equity, for
unrealized holding gain
on debt and equity
securities recognized
for financial reporting
purposes $ 3,929,182 (640,204) 583,297
=========== =========== ===========
Income tax expense (benefit) attributable to income before
extraordinary item for the years ended December 31, 1997, 1996,
and 1995, consists of:
1997 1996 1995
---- ---- ----
Current:
Federal $6,694,381 5,385,969 7,500,277
North Carolina 1,965,013 1,292,799 1,792,744
---------- --------- ----------
8,659,394 6,678,768 9,293,021
Deferred:
Federal, net of investment
tax credit amortization (651,140) (111,920)(2,166,780)
North Carolina (110,095) 16,823 (365,617)
---------- -------- ----------
(761,235) (95,097)(2,532,397)
---------- --------- ----------
Total $7,898,159 6,583,671 6,760,624
========== ========== ==========
F-28
(12) Income Taxes, Continued
Income tax expense attributable to income before
extraordinary item differs from the amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income
from continuing operations as a result of the following:
1997 1996 1995
---- ---- ----
Amount computed at statutory
rate $ 6,824,987 5,965,782 6,922,078
State income taxes, net
of federal income tax
benefit 1,205,697 851,254 927,633
Nontaxable interest income (12,133) (104,315) (263,375)
Amortization of federal
investment tax credit (114,885) (114,885) (248,538)
Amortization of deferred
regulatory liability - (126,256) (69,356)
Other, net (5,507) 112,091 (507,818)
---------- ---------- ---------
Income tax expense $7,898,159 6,583,671 6,760,624
========== ========= =========
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities as of December 31, 1997 and 1996 were as follows:
1997 1996
---- ----
Deferred tax assets:
Accrued postretirement
and pension benefits $ 4,804,705 4,190,884
Regulatory liability - 971,646
Deferred investment tax credits 321,678 351,548
Environmental remediation costs 142,280 142,425
Accrued incentive 492,558 237,442
Intangibles 99,750 -
Net operating loss carryforwards 394,000 -
Other accrued expenses and
allowances 529,439 103,399
Other 371,174 106,864
--------- ---------
Total gross deferred tax
assets 7,155,584 6,104,208
--------- ---------
Less valuation allowance (394,000) -
--------- ---------
Net deferred tax assets 6,761,584 6,104,208
--------- ---------
F-29
(12) Income Taxes, Continued, Continued
1997 1996
---- ----
Deferred tax liabilities:
Property, plant and equipment,
primarily related to
depreciation differences 8,659,278 6,772,715
Unrealized gain on securities 4,054,003 124,821
Other - 210,183
---------- ----------
Total gross deferred
tax liabilities 12,713,281 7,107,719
------------ ---------
Net deferred tax liability $ 5,951,697 1,003,511
============ ==========
There was no valuation allowance for deferred tax assets as
of January 1, 1997 or 1996. The net change in the total
valuation allowance for the year ended December 31, 1997 was an
increase of $394,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are
deductible, management believes it is more like than not the
Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December
31, 1997. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if
estimates of future taxable income during the period are reduced.
Subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets as of December 31,
1997, will be allocated to income tax expense.
At December 31, 1997, the Company has net operating loss
carryforwards for state income tax purposes of approximately
$5,800,000 which will expire in the years 2000-2012.
(13) Accounting for the Effects of Regulation
Prior to April 1, 1997 the Company's regulated operations
were subject to the provisions of SFAS 71. Actions of a
regulator could 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. Therefore, regulatory
assets and liabilities established by the actions of a regulator
were required to be recorded, and, accordingly, reflected in the
balance sheet of an entity subject to SFAS 71.
F-30
(13) Accounting for the Effects of Regulation, Continued
As the result of changes in the manner in which the Company
is regulated and the heightened competitive environment, the
Company determined that it no longer met the criteria for
following SFAS No. 71. As of April 1, 1997, the Company
discontinued applying SFAS No. 71. The accounting impact was an
extraordinary non-cash gain of $2,239,045, net of applicable
income taxes of $1,493,212. Although estimated economic useful
lives are shorter than previously used for regulatory approved
asset lives, the change has resulted in an increase in net
telephone plant due to the Company recording additional
depreciation charges totaling $15,414,156 over the past five
years. The effect on future charges for depreciation is not
expected to differ materially from what would have been recorded
under SFAS No. 71 for the current year. The components of the
gain, pretax, are as follows:
Change in recorded value of long lived
telephone plant $ 1,757,824
Elimination of regulatory liabilities 1,974,433
----------
Total $ 3,732,257
==========
The increase in net telephone plant, $1,757,824 pretax, was
recorded as a decrease to the related accumulated depreciation
accounts. Such change was the result of changing from
regulator-approved asset lives, and additional depreciation
charges, to estimated economic asset lives.
The average depreciable lives of affected categories of long
lived telephone plant have been changed to more closely reflect
the economic and technological lives. Differences between
regulator-approved asset lives and the current economic asset
lives are as follows:
Composite of Estimate Economic
Regulator-Approved Asset
Asset Lives Lives
---------------- ----------------
Digital switching 14 10
Circuit equipment 10 7
Aerial cable 19 17
Buried cable 16 17
The remaining components of the extraordinary charge,
$1,974,433 pretax, was the result of the removal of regulatory
liabilities that were recorded as a result of previous actions by
regulators. Virtually all of these regulatory liabilities arose
in connection with the incorporation of new accounting standards
into the ratemaking process and were transitory in nature.
F-31
(13) Accounting for the Effects of Regulation, Continued
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 plan with
its state regulators seeking permission to become regulated based
on prices rather than traditional rate base rate of return
regulation. During 1997, the Company's plan was approved. Under
the plan, the Company "rebalanced" its rates, lowering or
eliminating many toll rates while bringing the price of monthly
local services closer to its underlying costs and significantly
expanding it's local and discounted toll calling areas. In
exchange for the greater flexibility in setting prices, the
Company agreed 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.
(14) 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.
F-32
(14) Environmental Remediation Costs, Continued
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, 1997, 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, 1997.
(15) Reconciliation of Basic and Diluted Weighted Average
Shares Outstanding
1997:
Basic weighted average shares outstanding $2,236,188
Effect of dilutive securities:
Stock options 8,808
----------
Diluted weighted average shares outstanding $2,244,996
==========
1996:
Basic weighted average shares outstanding $2,227,184
Effect of dilutive securities:
Stock options 6,663
----------
Diluted weighted average shares outstanding $2,233,847
==========
1995:
Basic weighted average shares outstanding $2,218,383
Effect of dilutive securities:
Stock options 2,688
----------
Diluted weighted average shares outstanding $2,221,071
==========
F-33
(16) Summary of Income Statement Information (Unaudited)
A summary of quarterly income statement information for the
years ended December 31, 1997 and 1996, follows:
1997 Quarters Ended
-------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- --------- --------- -----------
Operating
revenues $17,852,229 19,465,534 20,200,736 20,965,015
Income before
other income
(expenses) and
income taxes 5,272,271 4,675,029 4,547,808 5,598,034
Net income 2,649,392 5,315,069 3,008,584 2,867,804
Basic earnings
per common
share $ 1.18 2.37 1.33 1.28
========== ========= ========= ==========
Diluted
earnings
per common
share $ 1.17 2.36 1.33 1.27
=========== ========== ========= ==========
1996 Quarters Ended
----------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------- ----------- ----------- -----------
Operating
revenues $ 15,473,079 15,576,999 17,688,002 18,315,926
Income before
other income
(expenses) and
income taxes 4,636,111 2,667,387 3,891,375 4,509,166
Net income 3,332,600 2,087,412 2,561,567 2,479,842
Basic earnings
per common
share $ 1.48 .93 1.14 1.10
=========== ========= =========== ===========
Diluted
earnings
per common
share $ 1.48 .92 1.14 1.10
=========== ========= =========== ===========
Earnings per common share for the third and fourth quarters of
1996 reflect the special amortization of telephone plant in
service as directed by the Commission of $574,363 as mentioned in
note 1c. Earnings per common share for the second quarter of
1997 reflect an extraordinary gain from the discontinuance of FAS
71 of $2,239,045, net of income taxes of $1,493,312, as mentioned
in note 13. Amounts have also been adjusted for the effects of
implementing SFAS No. 128.
F-34
Schedule II
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996 and 1995
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,
1997 $ 100,000 381,757 381,757 100,000
======== ======= ======= =======
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
======== ======= ======= =======
Note: Represents balances written-off as uncollectible less
collections on balances previously written off of $204,760,
$508,391 and $432,117 for 1997, 1996, and 1995, respectively.
F-35
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORTS
F-36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of North Carolina RSA 15 Cellular Partnership:
We have audited the accompanying balance sheets of North Carolina
RSA 15 Cellular Partnership (a North Carolina general
partnership) as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' capital and cash
flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 financial statements referred to above
present fairly, in all material respects, the financial position
of North Carolina RSA 15 Cellular Partnership as of December 31,
1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
January 23, 1998.
F-37
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31,
1997 1996
ASSETS ---- ----
Current assets:
Cash $ 2,500 $2,500
Accounts receivable:
Customers - less allowance
for doubtful accounts of
$148,925 and $273,238 2,089,859 2,346,336
Roamers 343,470 295,773
Other 61,234 110,202
--------- ---------
Total accounts receivable 2,494,563 2,752,311
Affiliate receivable, net 1,215,805 349,242
Prepaid expenses 20,691 8,273
--------- --------
Total current assets 3,733,559 3,112,326
--------- --------
Property and equipment (at cost):
Land and improvements 1,000,066 1,008,739
Buildings and improvements 1,628,788 1,523,220
Equipment 11,790,249 10,743,572
Furniture and fixtures 501,825 486,355
Assets under construction 1,368,646 28,421
---------- ----------
16,289,574 13,790,307
Less accumulated depreciation 5,118,713 3,396,159
---------- ----------
Property and equipment, net 11,170,861 10,394,148
Other assets, net 60,480 70,936
---------- ----------
Total assets $14,964,900 $13,577,410
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 192,032 $ 211,456
Customer deposits 105,281 67,135
Other accrued liabilities 133,980 209,824
--------- ----------
Total current liabilities 431,293 488,415
Commitments (Note 3)
Partners' capital 14,533,607 13,088,995
---------- ----------
Total liabilities and
partners' capital $14,964,900 $13,577,410
=========== ===========
The accompanying notes are an integral part of these balance
sheets.
F-38
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
Revenue and Sales:
Service revenue $ 22,083,366 $ 20,377,059 $ 16,759,288
Equipment Sales 1,155,243 1,087,024 985,888
----------- ---------- ----------
23,238,609 21,464,083 17,745,176
Cost and Expenses:
Cost of Services 3,742,605 3,450,524 2,803,334
Cost of Goods Sold 1,833,729 2,161,139 2,599,319
Selling, General and
Administrative 7,219,192 7,579,020 7,119,876
Depreciation and
Amortization 1,735,869 1,215,894 792,897
---------- ---------- ---------
Total operating expenses 14,531,395 14,406,577 13,315,426
Operating Income 8,707,214 7,057,506 4,429,750
---------- ---------- ----------
Other (Expense) Income (12,153) 320 33
Interest Income, Net 134,192 91,725 20,380
Net Income $ 8,829,253 $ 7,149,551 $ 4,450,163
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-39
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
ALLTEL Mobile
Communications
of the CT
Total Carolinas, Inc. Cellular, Inc.
--------- ---------------- -----------------
Balance,
December 31, 1994 $ 6,611,647 $ 3,305,824 $ 3,305,823
Capital
distributions (1,427,526) (713,763) (713,763)
Net income for
the year ended
December 31, 1995 4,450,163 2,225,081 2,225,082
---------- ----------- -----------
Balance,
December 31, 1995 $ 9,634,284 $ 4,817,142 $ 4,817,142
Capital
distributions (3,694,840) (1,847,420) (1,847,420)
Net income for
the year ended
December 31, 1996 7,149,551 3,574,775 3,574,776
--------- ---------- -----------
Balance,
December 31, 1996 13,088,995 6,544,497 6,544,498
Capital
distributions (7,384,641) (3,692,320) (3,692,321)
Net income for
the year ended
December 31, 1997 8,829,253 4,414,627 4,414,626
---------- ---------- -----------
Balance,
December 31, 1997 $ 14,533,607 $ 7,266,804 $ 7,266,803
========== ========== ===========
The accompanying notes are an integral part of the statements.
F-40
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
ASSETS ---- ---- ----
Cash flows from operating
activities:
Net Income $ 8,829,253 $ 7,149,551 $ 4,450,163
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,735,869 1,215,894 792,897
Provision for uncollectible
accounts 375,269 961,042 865,742
Changes in operating assets
and liabilities:
Increase in accounts
receivable (117,521) (1,225,666) (1,939,545)
Increase in prepaid expenses (12,418) (3,239) (1,772)
(Decrease) increase in current
liabilities (57,122) 269 (129,375)
----------- ---------- -----------
Net cash provided by
operating activities 10,753,330 8,097,851 4,038,110
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (2,502,126) (4,930,313) (2,997,385)
Sale of equipment to affiliate - 47,788 -
----------- --------- ----------
Net cash used in investing
activities (2,502,126) (4,882,525) (2,997,385)
------------ --------- -----------
Cash flows from financing activities:
Distributions to partner (3,692,321) (1,847,420) (713,763)
Change in affiliate receivable, net (4,558,883) (1,367,356) (326,562)
----------- --------- ----------
Net cash used in financing
activities (8,251,204) (3,214,776) (1,040,325)
----------- --------- ----------
Net change in cash - 550 400
Cash, beginning of year 2,500 1,950 1,550
----------- --------- ----------
Cash, end of year $ 2,500 $ 2,500 1,950
=========== ========= ==========
Supplemental cash flow information:
Interest paid (net of
capitalized interest) $ 6,202 $ 3,776 3,258
=========== ========= ==========
The accompanying notes are an integral part of these balance
statements.
F-41
NORTH CAROLINA RSA 15 CELLULAR PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
1. ORGANIZATION:
North Carolina RSA 15 Cellular Partnership (the "Partnership"), a
North Carolina general partnership, was formed on September 15,
1989. The Partnership was formed to fund, develop, and offer
cellular technology in the area of the State of North Carolina
designated by the Federal Communications Commission as North
Carolina Rural Service Area ("RSA") 15. The Partnership
commenced operations on April 17, 1991.
The partners and their respective ownership percentages as of
December 31, 1997 and 1996, are as follows:
Manager and general partner:
ALLTEL Mobile Communications
of the Carolinas, Inc.("AMC")
50%
General partner:
CT Cellular, Inc. ("CT Cellular")
50%
AMC, a wholly-owned subsidiary of ALLTEL Mobile Communications,
Inc. ("ALLTEL Mobile"), is responsible for managing and operating
the Partnership. Pursuant to the terms of the Partnership
Agreement (the "Agreement"), the general partners are liable for
all obligations of the Partnership to the extent not paid by the
Partnership.
The partners make capital contributions to, share in the
operating results of, and receive distributions from the
Partnership in accordance with their respective ownership
percentages as defined in the Agreement.
2. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates -
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amount of assets,
liabilities, revenues, and expenses reported in the accompanying
financial statements. The estimates and assumptions used in the
accompanying financial statements are based upon management's
evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results realized may differ
from these estimates.
Certain prior year amounts have been reclassified to conform with
the current year financial statement presentation.
Revenue Recognition -
The Partnership earns service revenue by providing access to the
cellular network (access revenue) and for usage of the cellular
network (airtime and toll revenues). Access revenue is
recognized when billed. Revenue that results from usage of the
cellular network is recognized when the services are rendered.
Other cellular service revenues are recognized when services are
provided and primarily
F-42
include connection, detailed billing, retail paging, and custom
calling feature revenues. Equipment sales are recognized upon
delivery of the equipment to the customer. Unbilled revenues associated
with the Partnership's Service revenues totaled $316,770, $294,713 and
$218,997 at December 31, 1997, 1996 and 1995, respectively.
Operating Expenses -
Operating expenses include expenses incurred directly by the
Partnership, as well as an allocation of costs incurred by the
managing partner or its affiliates on behalf of the Partnership.
See Note 4 for additional discussion of allocated costs and
related-party transactions, Selling and marketing expense
includes a net loss on equipment sales of $678,486, $1,074,115
and $1,613,431 in 1997, 1996 and 1995, respectively.
Interest Income Net -
The accompanying statements of operations reflect total interest
income, net of interest expense and interest capitalized. The
components of Interest income, net are as follows for the years
ended December 31, 1997 and 1996:
1997 1996 1995
---- ---- ----
Interest income $140,394 $95,501 $23,638
Interest expense (6,404) (3,776) (6,904)
Interest capitalized 202 - 3,646
------- ------ --------
Interest income, net $134,192 $ 91,725 $20,380
======= ====== ========
Income Taxes -
All income, losses, and tax credits are not separately taxable to
the Partnership under the Internal Revenue Code and applicable
state statutes, but rather are allocated directly to the
partners. Accordingly, no provision for federal or state income
taxes has been made in the accompanying financial statements.
Affiliate Receivable, Net -
Since the Partnership does not maintain a cash account for
operations, the cash receipts from revenues are recorded in an
ALLTEL Mobile cash account and reflected as advances to
affiliate. Likewise, all cash disbursements of the Partnership
are made by ALLTEL Mobile on behalf of the Partnership and are
reflected as advances from affiliate. In addition, AMC's capital
distributions/contributions are recorded through the advance
accounts. AMC's capital distributions of $3,692,320, $1,847,420
and $713,763 in 1997, 1996 and 1995, respectively, were recorded as
advances from affiliate. These advances are presented on a net
basis in the accompanying financial statements as Affiliate
receivable, net.
The Partnership is charged interest on advances provided by
ALLTEL Mobile and earns interest on advances provided to ALLTEL
Mobile. The average interest rate on advances provided to the
Partnership was 6.89%, 7.05% and 7.82% in 1997, 1996 and 1995,
respectively. The average interest rate on advances provided
by the Partnership was 5.45%, 5.21% and 5.71% in 1997, 1996 and
1995, respectively.
F-43
Provisions for Bad Debts and Sales Allowance
The Partnership establishes reserves for bad debt based upon analyses
of its aged accounts receivables and any identified collection issues.
The actitivity of the allowance account for the years ended December 31
is as follows:
1997 1996 1995
---- ---- ----
Balance, Beginning of Year $273,238 $339,914 $150,660
Write-offs (717,771) (1,272,087) (712,214)
Recoveries 218,129 244,369 35,726
Provision 375,269 961,042 865,742
------- --------- -------
Balance, End of Year $148,925 $273,238 $339,914
======= ======= =======
Inventories -
Inventories are purchased for the Partnership by an adjacent
Metropolitan Statistical Area ("MSA"), operated by the managing
partner. Upon sale, the related cost of the inventory is
transferred to the Partnership at the MSA's cost basis and is
reflected in the accompanying statements of operations as Costs of
Goods Sold.
Property and Equipment -
Property and equipment represent the costs incurred to construct
a cellular mobile telephone system and cellular equipment, and
include capitalized interest and overhead charges related to
direct labor costs capitalized. Depreciation is recorded using
the straight-line method over the estimated useful lives of the
assets, which are as follows:
Years
-----
Buildings and improvements 7-25
Equipment 7-10
Furniture and fixtures 10
Land improvements 7
When property is retired, the cost of the property and the
related accumulated depreciation are removed from the balance
sheet, and any gain or loss on the transaction is included in the
accompanying statements of operations. See Note 4 concerning
the transfer of equipment to affiliates.
Assets under construction primarily represent the costs incurred
for the construction of cell sites and include capitalized
interest and allocated overheads related to the direct labor
costs capitalized. When these assets are placed in service, they
are recorded in the appropriate property and equipment accounts
and are depreciated from that time forward. Depreciation expense
was $1,725,413, $1,205,438 and $782,445 for 1997, 1996 and 1995,
respectively.
Other Assets, Net -
Other assets, net consist primarily of costs associated with the
acquisition of options to lease land relating to future or
existing cell sites. These costs are amortized using the
straight-line method over a 10 year term. Amortization expense
totaled $10,456, 10,456 and $10,452 for 1997, 1996 and 1995,
respectively.
3. COMMITMENTS:
Future minimum payments required under operating leases for real
estate, office space and tower space that have non-cancelable
lease terms in excess of one year as of December 31, 1997, are as
follows:
1998 $226,300
1999 103,569
2000 90,687
2001 49,687
2002 1,612
Thereafter 228
--------
$472,083
========
These leases permit renewals at various intervals with provisions
for increased rentals at each renewal. Rent expense totaled
$274,010, $229,629 and $180,629 in 1997, 1996 and 1995, respectively, and is
included in System and operations expense in the accompanying
statements of operations.
F-44
4. RELATED-PARTY TRANSACTIONS:
ALLTEL Mobile, a wholly-owned subsidiary of ALLTEL Corporation,
provides certain services necessary for the operation,
management, and administration of the Partnership. Services
provided to the Partnership include accounting, cash management,
strategic planning, human resources, legal, marketing, customer
service, systems, and engineering. These costs are allocated to
the Partnership based on various factors, which are modified
periodically to more closely align costs with services received.
In accordance with the terms of the Agreement, ALLTEL Mobile is
reimbursed for its costs incurred on behalf of the Partnership in
providing these services. These costs amounted to $1,036,595,
$847,540 and $695,715 in 1997, 1996 and 1995, respectively.
A contiguous MSA, having common ownership with the Partnership,
provides the Partnership certain additional operational ,
management, and administrative services; the costs of which are
allocated to the Partnership based on various factors. Costs
incurred for such services amounted to $1,639,750, $1,493,032
and $1,436,119 in 1997, 1996 and 1995, respectively. During 1997
and 1996, the Partnership recorded cast allocation credits from
ALLTEL Mobile and a contiguous MSA related to the years 1992 through 1994.
These credits totaled $77,526 and $125,716 in 1997 and 1996,
respectively, and were recorded as a reduction of operating
expenses in the accompanying statements of operations.
The MSA also provides the Partnership with access to the MSA's
switch. The cost for this service is allocated to the Partnership
based on airtime usage and the number of ports in the switch
utilized. These costs were $664,211, $571,430 and $515,439 in 1997, 1996
and 1995, respectively. The MSA's switch is equipped with IS-4I
capabilities, the cost of which is shared with the Partnership
based on a fixed monthly charge and pre-call validation usage.
The cost to the Partnership for this additional service was
$47,533, $35,532 and $48,816 in 1997, 1996 and 1995, respectively.
The Partnership purchased cellular telephone equipment and
materials and supplies amounting to $187,132, $291,757 and $22,405 in 1997,
1996 and 1995, respectively, from ALLTEL Supply, Inc., a wholly-owned
subsidiary of ALLTEL Corporation. Additionally, ALLTEL
Information Services, Inc. ("AIS"), a wholly-owned subsidiary of
ALLTEL Corporation, provides billing and mailing services to the
Partnership. The charge to the Partnership for these services
was $1,073,736, $1,003,664 and $738,172 in 1997, 1996 and 1995,
respectively. The cost of service is based upon the number of customer bills
processed and mailed. The prices charged by ALLTEL Supply, Inc.
and AIS are comparable to prices the Partnership would be
required to pay non-affiliated suppliers for similar goods and
services.
During 1996 and 1995, the Partnership transferred certain property and
equipment to affiliates of the managing partner with a cost of
$55,753 and $951, respectively and accumulated depreciation of $7,965
and $439, respectively. In 1995, the Partnership also received
transfers of certain property from affiliates of the managing partner
with a cost of $9,711 and accumulated depreciation of $3,240.
These assets were transferred at net book value on the date of the
transaction.
The Partnership has an operating lease for tower space with AMC.
Rent expense under this lease totaled $34,162, $33,530 and $34,620
in 1997, 1996 and 1995, respectively. The Partnership also has operating
leases for building and tower space with Concord Telephone
Company, an affiliate of CT Cellular. Rent expense under these
leases totaled $29,475, $28,875 and $23,580 in 1997, 1996 and 1995,
respectively.
Future minimum payments required under these leases, which are
included in Note 3 as of December 31, 1997 are as follows:
F-45
1998 $ 29,475
1999 29,475
2000 29,475
2001 13,575
Thereafter -
---------
$102,000
========
The Partnership periodically incurs charges from ALLTEL
Corporation affiliates primarily relating to interconnect,
network, toll and lockbox clearing charges. The Partnership
incurred charges from these affiliates of $117,883, $127,726 and
$98,954 in 1997, 1996 and 1995, respectively. The prices for these
services are charged to the Partnership at tariffed rates or at cost.
The Partnership periodically incurs charges from non-ALLTEL
Corporation affiliates primarily relating to site utility,
interconnect, office rental, and site rental charges. Amounts
charged by these affiliates were $654,366, $671,943 and $497,504 in 1997,
1996 and 1995, respectively.
F-46
CT COMMUNICATIONS, INC.
OMNIBUS STOCK COMPENSATION PLAN
EFFECTIVE APRIL 24, 1997
<PAGE>
CT COMMUNICATIONS, INC.
OMNIBUS STOCK COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I - PREAMBLE . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - DEFINITIONS . . . . . . . . . . . . . . . . . . . .2
ARTICLE III - ADMINISTRATION . . . . . . . . . . . . . . . . . .6
ARTICLE IV - INCENTIVE STOCK OPTIONS . . . . . . . . . . . . . 11
ARTICLE V - NONQUALIFIED STOCK OPTIONS . . . . . . . . . . . . 13
ARTICLE VI - LIMITED STOCK APPRECIATION RIGHTS . . . . . . . . 14
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS. . . 15
ARTICLE VIII - RESTRICTED STOCK. . . . . . . . . . . . . . . . 17
ARTICLE IX - STOCK AWARDS. . . . . . . . . . . . . . . . . . . 20
ARTICLE X - PERFORMANCE SHARES . . . . . . . . . . . . . . . . 21
ARTICLE XI -CHANGES IN SHARES OR CHANGE OF CONTROL . . . . . . 23
ARTICLE XII - AMENDMENT AND TERMINATION. . . . . . . . . . . . 25
ARTICLE XIII - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . 27
<PAGE>
CT COMMUNICATIONS, INC.
OMNIBUS STOCK COMPENSATION PLAN
ARTICLE I - PREAMBLE
1.1 The Plan is intended to secure for the Corporation, its
Subsidiaries and its shareholders the benefits arising from
ownership the Corporation's Common Stock by the executives,
non-employee directors and key employees of the Corporation
and its Subsidiaries who are and will be responsible for the
Corporation's future growth. The Plan is designed to help
attract and retain for the Corporation and its Subsidiaries
personnel of superior ability for positions of exceptional
responsibility, and to motivate such personnel through added
incentives to further contribute to the success of the
Corporation. It is also intended that the Plan shall
satisfy the requirements of Rule 16b-3 of the Act.
1.2 Awards under the Plan may be made to Participants in the
form of (i) Incentive Stock Options; (ii) Nonqualified Stock
Options (to employees and directors); (iii) Limited Stock
Appreciation Rights; (iv) Restricted Stock; (v) Stock
Awards; (vi) Performance Shares; and (vii) other forms of
equity-based compensation as may be provided and are
permissible under this Plan and the state and federal laws.
1.3 The Plan shall be effective April 24, 1997 (the "Effective
Date").<PAGE>
ARTICLE II - DEFINITIONS
DEFINITIONS. Except where the context otherwise indicates, the
following definitions apply:
2.1 "Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.2 "Agreement" means the separate written agreement evidencing
each Award granted to a Participant under the Plan.
2.3 "Award" means an award granted to a Participant in
accordance with the provisions of the Plan, including, but
not limited to, a Stock Option, Stock Right, Restricted
Stock, Stock Award, Performance Share, or any combination of
the foregoing.
2.4 "Board of Directors" means the Board of Directors of the
Corporation.
2.5 "Change in Control" shall mean (i) the effective date of a
plan of merger or consolidation of the Corporation with any
other corporation as a result of which the holders of the
voting capital stock of the Corporation as a group would
receive less than 50% of the voting capital stock of the
surviving or resulting corporation, (ii) the effective date
of an agreement providing for the sale or transfer (other
than as security for obligations of the Corporation) of
substantially all the assets of the Corporation, or (iii) in
the absence of a prior expression of approval by the Board
of Directors, the acquisition except by inheritance or
devise of more than 20% of the Corporation's voting capital
stock by any person within the meaning of Section 13(d)(3)
of the Act, as amended, other than by a person, or group
including a person, who beneficially owned, as of the
effective date of the Plan, more than five percent of the
Corporation's voting stock or equity.
2.6 "Code" means the Internal Revenue Code of 1986, as now in
effect or as hereafter amended. (All citations to sections
of the Code are to such sections as they may from time to
time be amended or renumbered.)
2.7 "Committee" means the Compensation Committee of the Board of
Directors or such other committee consisting of two (2) or
more members as may be appointed by the Board of Directors
to administer this Plan pursuant to Article III. To the
extent required by Rule 16b-3 under the Act, the Committee
shall consist of individuals who are members of the Board of
Directors and at least two Non-Employee Directors.
Committee members may also be appointed for such limited
purposes as may be provided by the Board of Directors.
2.8 "Common Stock" means the Nonvoting Class B Common Stock, no
par value, of the Corporation to be issued pursuant to the
Plan.
2.9 "Corporation" means CT Communications, Inc., a North
Carolina corporation, and its successors and assigns.
"Corporation" also means CT Communications, Inc. and its
Subsidiaries, unless the context clearly indicates otherwise.
2.10 "Director" means a member of the Board of Directors of the
Corporation.
2.11 "Disability" means disability as determined under procedures
established by the Committee or in any Award.
2.12 "Early Retirement" means retirement from active employment
with the Corporation or any Subsidiary, with the express
consent of the Committee, pursuant to the early retirement
provisions established by the Committee or in any Award
Agreement.
2.13 "Effective Date" shall be the date set forth in Section 1.3
of the Plan.
2.14 "Eligible Participant" means any executive, director or key
employee of the Corporation or its Subsidiaries, as shall be
determined by the Committee, as well as any other person,
other than a person designated as a Non-Employee Director
whose participation the Committee determines is in the best
interest of the Corporation, subject to limitations as may
be provided by the Code, the Act or the Committee.
2.15 "ERISA" means the Employee Retirement Income Security Act of
1974, as now in effect or as hereafter amended.
2.16 "Fair Market Value" means, with respect to any given day,
the value for a share of Common Stock determined by using
the weighted average price of the two (2) most recent arm's
length trades of the Common Stock between unrelated parties
as reported to the Corporation.
2.17 "Incentive Stock Option" means a Stock Option granted under
Article IV of the Plan, and as defined in Section 422 of the
Code.
2.18 "Limited Stock Appreciation Right" means a Stock Right which
is exercisable only in the event of a Change in Control, as
described in Article VI of this Plan, which provides for an
amount payable solely in cash, equal to the excess of the
Limited Stock Appreciation Right Fair Market Value of a
share of Common Stock on the day the Stock Right is
surrendered over the price at which a Participant could
exercise a related Stock Option to purchase the share of
Common Stock.
2.19 "Limited Stock Appreciation Right Fair Market Value" means a
value established by the Committee for the exercise of a
Limited Stock Appreciation Right.
2.20 "Non-Employee Director" shall have the meaning set forth in
Rule 16b-3 under the Act.
2.21 "Nonqualified Stock Option" means a Stock Option granted
under Article V of the Plan.
2.22 "Normal Retirement" means retirement from active employment
with the Corporation or any Subsidiary on or after age 65,
or pursuant to such other requirements as may be established
by the Committee or in any Award.
2.23 "Option Grant Date" means, as to any Stock Option, the
latest of:
(a) the date on which the Committee grants the Stock Option
by entering into an Award Agreement with the
Participant;
(b) the date the Participant receiving the Stock Option
becomes an employee or a director of the Corporation or
its Subsidiaries, to the extent employment status is a
condition of the grant or a requirement of the Code or
the Act; or
(c) such other date (later than the dates described in (i)
and (ii) above) as the Committee may designate.
2.24 "Participant" means an Eligible Participant to whom an Award
has been granted and who has entered into an Agreement
evidencing the Award.
2.25 "Performance Share" means an Award under Article X of the
Plan of a unit valued by reference to a designated number of
shares of Common Stock, which value may be paid to the
Participant by delivery of such property as the Committee
shall determine, including, without limitation, cash, Common
Stock, or any combination thereof, upon achievement of such
Performance Objectives during the Performance Period as the
Committee shall establish at the time of such Award or
thereafter.
2.26 "Performance Objectives" shall have the meaning set forth in
Article X of the Plan.
2.27 "Performance Period" shall have the meaning set forth in
Article X of the Plan.
2.28 "Plan" means the CT Communications, Inc. Omnibus Stock
Compensation Plan, as amended and restated as of the date
hereof, and as further amended from time to time.
2.29 "Restricted Stock" means an Award of Common Stock under
Article VIII of the Plan, which Common Stock is issued with
the restriction that the holder may not sell, transfer,
pledge, or assign such Common Stock and with such other
restrictions as the Committee, in its sole discretion, may
deem appropriate (including, without limitation,
restrictions on the right to vote such Common Stock, the
right to receive any cash dividends on such stock, the
forfeiture of such Common Stock upon certain events and the
obligation to sell the stock back to the Corporation at a
fixed price), which restrictions may lapse separately or in
combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
2.30 "Restriction Period" means the period commencing on the date
an Award of Restricted Stock is granted and ending on such
date as the Committee shall determine.
2.31 "Retirement" means Normal or Early Retirement.
2.32 "Stock Award" means an Award of Common Stock granted in
payment of compensation, as provided in Article IX of the
Plan.
2.33 "Stock Option" means an Award under Article IV or V of the
Plan of an option to purchase Common Stock. A Stock Option
may be either an Incentive Stock Option or a Nonqualified
Stock Option.
2.34 "Stock Right" means an Award of a Limited Stock Appreciation
Right.
2.35 "Subsidiary" means a subsidiary corporation of the
Corporation as that term is defined in Code section 424(f).
"Subsidiaries" means more than one Subsidiary.
2.36 "Termination of Employment" means the discontinuance of
employment of a Participant with the Corporation or its
Subsidiaries for any reason other than a transfer to another
member of the group consisting of the Corporation and its
Subsidiaries. The determination of whether a Participant
has discontinued employment shall be made by the Committee
in its discretion. In determining whether a Termination of
Employment has occurred, the Committee may provide that
service as a consultant or service with a business
enterprise in which the Corporation has a significant
ownership interest shall be treated as employment with the
Corporation. The Committee shall have the discretion,
exercisable either at the time the Award is granted or at
the time the Participant terminates employment, to establish
as a provision applicable to the exercise of one or more
Awards that during the limited period of exercisability
following Termination of Employment, the Award may be
exercised not only with respect to the number of shares of
Common Stock for which it is exercisable at the time of the
Termination of Employment but also with respect to one or
more subsequent installments for which the Award would have
become exercisable had the Termination of Employment not
occurred.
<PAGE>
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. A
Committee member who is not a Non-Employee Director, with
respect to action to be taken by the Committee, shall not be
able to participate in the decision to the extent prescribed
by Rule 16b-3 under the Act. The Committee, in its
discretion, may delegate to one or more of its members such
of its powers as it deems appropriate. The Committee also
may limit the power of any member to the extent necessary to
comply with Rule 16b-3 under the Act or any other law.
Members of the Committee shall be appointed originally, and
as vacancies occur, by the Board of Directors, to serve at
the pleasure of the Board of Directors. The Board of
Directors may serve as the Committee, if by the terms of the
Plan all Board of Directors members are otherwise eligible
to serve on the Committee.
3.2 The Committee shall meet at such times and places as it
determines. A majority of its members shall constitute a
quorum, and the decision of a majority of those present at
any meeting at which a quorum is present shall constitute
the decision of the Committee. A memorandum signed by all
of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an
actual meeting.
3.3 The Committee shall have the exclusive right to interpret,
construe and administer the Plan, to select the persons who
are eligible to receive an Award, and to act in all matters
pertaining to the granting of an Award and the contents of
the Agreement evidencing the Award, including, without
limitation, the determination of the number of Stock
Options, Stock Rights, shares of Stock or Performance Shares
subject to an Award and the form, terms, conditions and
duration of each Award, and any amendment thereof consistent
with the provisions of the Plan. All acts, determinations
and decisions of the Committee made or taken pursuant to
grants of authority under the Plan or with respect to any
questions arising in connection with the administration and
interpretation of the Plan, including the severability of
any and all of the provisions thereof, shall be conclusive,
final and binding upon all Participants, Eligible
Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and
procedures of general application for the administration of
this Plan, as it deems appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and
3.4, and notwithstanding any other provisions of the Plan,
the Committee is authorized to take such action as it
determines to be necessary or advisable, and fair and
equitable to Participants, and to the Corporation with
respect to an Award in the event of a Change of Control as
defined in Article XI or other similar event. Such action
may include, but shall not be limited to, establishing,
amending or waiving the forms, terms, conditions and
duration of an Award and the Award Agreement, so as to
provide for earlier, later, extended or additional times for
exercise or payments, differing methods for calculating
payments, alternate forms and amounts of payment, an
accelerated release of restrictions or other modifications.
The Committee may take such actions pursuant to this Section
3.5 by adopting rules and regulations of general
applicability to all Participants or to certain categories
of Participants, by including, amending or waiving terms and
conditions in an Award and the Award Agreement, or by taking
action with respect to individual Participants.
3.6 The aggregate number of shares of Common Stock which are
subject to an Award under the Plan shall be One Hundred
Thousand (100,000) shares. Such shares of Common Stock
shall be made available from authorized and unissued shares
of the Corporation.
(a) If, for any reason, any shares of Common Stock or
Performance Shares awarded or subject to purchase under
the Plan are not delivered or purchased, or are
reacquired by the Corporation, for reasons including,
but not limited to, a forfeiture of Restricted Stock or
termination, expiration or cancellation of a Stock
Option, Stock Right or Performance Share, or any other
termination of an Award without payment being made in
the form of Common Stock (whether or not Restricted
Stock), such shares of Common Stock or Performance
Shares shall not be charged against the aggregate
number of shares of Common Stock available for Award
under the Plan, and shall again be available for Award
under the Plan.
(b) For all purposes under the Plan, each Performance Share
awarded shall be counted as one share of Common Stock
subject to an Award.
(c) To the extent a Stock Right granted in connection with
a Stock Option is exercised without payment being made
in the form of Common Stock (whether or not Restricted
Stock), the shares of Common Stock which otherwise
would have been issued upon the exercise of such
related Stock Option shall not be charged against the
aggregate number of shares of Common Stock subject to
an Award under the Plan, and shall again be available
for Award under the Plan.
(d) The foregoing subsections (a), (b), and (c) of this
Section 3.6 shall be subject to any limitations
provided by Rule 16b-3 under the Act.
3.7 Each Award granted under the Plan shall be evidenced by a
written Award Agreement. Each Award Agreement shall be
subject to and incorporate (by reference or otherwise) the
applicable terms and conditions of the Plan, and any other
terms and conditions (not inconsistent with the Plan)
required by the Committee.
3.8 The Corporation shall not be required to issue or deliver
any certificates for shares of Common Stock prior to:
(a) the approval of the Plan by the shareholders of the
Corporation; and
(b) the completion of any registration or qualification of
such shares of Common Stock under any federal or state
law, or any ruling or regulation of any government body
which the Corporation shall, in its discretion,
determine to be necessary or advisable.
3.9 All certificates for shares of Common Stock delivered under
the Plan shall also be subject to such stop-transfer orders
and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed and any applicable
federal or state laws, and the Committee may cause a legend
or legends to be placed on any such certificates to make
appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of
counsel for the Corporation.
3.10 Subject to the restrictions on Restricted Stock, as provided
in Article VIII of the Plan and in the Restricted Stock
Award Agreement, each Participant who receives an Award of
Restricted Stock shall have all of the rights of a
stockholder with respect to such shares of Common Stock,
including the right to vote the shares and receive dividends
and other distributions. Except as provided otherwise in
the Plan or in an Award Agreement, no Participant awarded a
Stock Option, Stock Right, Deferred Stock, Stock Award or
Performance Share shall have any right as a stockholder with
respect to any shares of Common Stock covered by his or her
Stock Option, Stock Right, Deferred Stock, Stock Award or
Performance Share prior to the date of issuance to him or
her of a certificate or certificates for such shares of
Common Stock.
3.11 If any reorganization, recapitalization, reclassification,
stock split-up, spin-off of one or more Subsidiaries that
results in a material distribution of shares, stock
dividend, or consolidation of shares of Common Stock, merger
or consolidation of the Corporation or its Subsidiaries or
sale or other disposition by the Corporation or its
Subsidiaries of all or a portion of its assets, any other
change in the Corporation's or its Subsidiaries' corporate
structure, or any distribution to stockholders other than a
cash dividend results in the outstanding shares of Common
Stock, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class
of shares of Common Stock or other securities of the
Corporation, or for shares of Common Stock or other
securities of any other corporation; or new, different or
additional shares or other securities of the Corporation or
of any other corporation being received by the holders of
outstanding shares of Common Stock, then equitable
adjustments shall be made by the Committee in:
(a) the limitation of the aggregate number of shares of
Common Stock that may be awarded as set forth in
Section 3.6 of the Plan;
(b) the number and class of Common Stock that may be
subject to an Award, and which have not been issued or
transferred under an outstanding Award;
(c) the purchase price to be paid per share of Common Stock
under outstanding Stock Options and the number of
shares of Common Stock to be transferred in settlement
of outstanding Stock Rights; and
(d) the terms, conditions or restrictions of any Award and
Award Agreement, including the price payable for the
acquisition of Common Stock; provided, however, that
all adjustments made as the result of the foregoing in
respect of each Incentive Stock Option shall be made so
that such Stock Option shall continue to be an
Incentive Stock Option, as defined in Section 422 of
the Code.
3.12 In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the
members of the Committee shall be indemnified by the
Corporation against reasonable expenses, including
attorney's fees, actually and necessarily incurred in
connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with
the Plan or any Award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected
by the Corporation) or paid by them in satisfaction of a
judgment or settlement in any such action, suit or
proceeding, except as to matters as to which the Committee
member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within sixty (60)
days after institution of any such action, suit or
proceeding, a Committee member shall in writing offer the
Corporation the opportunity, at its own expense, to handle
and defend the same.
3.13 The Committee may require each person purchasing shares of
Common Stock pursuant to a Stock Option or other Award under
the Plan to represent to and agree with the Corporation in
writing that he is acquiring the shares of Common Stock for
investment purposes and without a view to distribution
thereof. The certificates for such shares of Common Stock
may include any legend which the Committee deems appropriate
to reflect any restrictions on transfer.
3.14 The Committee shall be authorized to make adjustments in a
performance based criteria or in the terms and conditions of
other Awards in recognition of unusual or nonrecurring
events affecting the Corporation (or any Subsidiary, if
applicable) or its financial statements or changes in
applicable laws, regulations or accounting principles. The
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award
Agreement in the manner and to the extent it shall deem
desirable to carry it into effect. In the event the
Corporation (or any Subsidiary, if applicable) shall assume
outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the
acquisition of another corporation or business entity, the
Committee may, in its discretion, make such adjustments in
the terms of Awards under the Plan as it shall deem
appropriate.
3.15 The Committee shall have full power and authority to
determine whether, to what extent and under what
circumstances, any Award shall be canceled or suspended.
Notwithstanding the foregoing, all outstanding Awards to any
Participant shall be canceled if (a) the Participant,
without the consent of the Committee, while employed by the
Corporation or any Subsidiary or for a period of two (2)
years after termination of such employment, directly or
indirectly engages in the business of sales, marketing,
distribution or provision of telecommunications services or
equipment or other products sold by the Employee during his
employment with the Corporation, becomes associated with,
employed by, renders services to, or owns any interest in
(other than any nonsubstantial interest, as determined by
the Committee), any business that is in competition with the
Corporation or with any business in which the Corporation
and its Subsidiaries has a substantial interest as
determined by the Committee; (b) materially breeches (as
determined in the sole discretion of the Committee) any term
or provision of any employment agreement entered into
between a Participant and the Corporation or a Subsidiary;
(c) solicits, hires or recruits (or causes or assists
another party to solicit, hire or recruit) any person in the
employ of the Corporation or its Subsidiaries to leave his
or her employment with the Corporation or Subsidiary; or (d)
is terminated for cause as determined by the Committee.
3.16 The Committee may require in the Agreement or Award that
upon the termination of any Participant's employment with
the Corporation or Subsidiary for any reason other than
retirement with the consent of the Corporation or
Subsidiary, the Corporation shall have the option, but not
the obligation, to purchase any part or all of any shares of
the Common Stock which were acquired by the Participant
pursuant to this Plan and owned by Participant at the date
of the termination of his employment with the Corporation or
Subsidiary. The purchase price of any share purchased by
the Corporation pursuant to the repurchase option under this
Section 3.16 will be the Fair Market Value of a share of
Common Stock as of the date of the repurchase, and the
Corporation must exercise its right to repurchase within
thirty (30) days of the Participant's termination of
employment.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive
Stock Option granted hereunder shall be construed in
accordance with the provisions of Section 422 of the Code,
and any provision hereof that cannot be so construed shall
be disregarded. Incentive Stock Options shall be granted
only to Eligible Participants who are not Directors, each of
whom may be granted one or more such Incentive Stock Options
at such time or times determined by the Committee following
the Effective Date until a date not more than 10 years from
the Effective Date, subject to the following conditions:
(a) The Incentive Stock Option price per share of Common
Stock shall be set in the Award Agreement, but shall
not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock at the time of the
Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right,
if any, may be exercised in full or in part from time
to time within ten (10) years from the Option Grant
Date, or such shorter period as may be specified by the
Committee in the Award; provided, that in any event,
the Incentive Stock Option and related Stock Right
shall lapse and cease to be exercisable upon, or within
such period following, a Termination of Employment as
shall have been determined by the Committee and as
specified in the Incentive Stock Option Award Agreement
or its related Stock Right Award Agreement; provided,
however, that such period following a Termination of
Employment shall not exceed three (3) months unless
employment shall have terminated:
(i) as a result of death or Disability, in which
event, such period shall not exceed one year after
the date of death or Disability; or
(ii) as a result of death, if death shall have occurred
following a Termination of Employment and while
the Incentive Stock Option or Stock Right was
still exercisable, in which event, such period
shall not exceed one year after the date of death;
provided, further, that such period following a
Termination of Employment shall in no event extend the
original exercise period of the Incentive Stock Option
or any related Stock Right.
(c) The aggregate Fair Market Value, determined as of the
Option Grant Date, of the shares of Common Stock with
respect to which Incentive Stock Options are first
exercisable during any calendar year by any Eligible
Participant shall not exceed one hundred thousand
dollars ($100,000); provided, however, to the extent
permitted under Section 422 of the Code:
(i) if a Participant's employment is terminated by
reason of death, Disability or Retirement and the
portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination
period applied without regard to the one hundred
thousand dollar ($100,000) limitation contained in
Section 422 of the Code is greater than the
portion of such option that is immediately
exercisable as an Incentive Stock Option during
such post-termination period under Section 422,
such excess shall be treated as a Nonqualified
Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of an Change of Control, any
portion of such Award that is not exercisable as
an Incentive Stock Option by reason of the one
hundred thousand dollar ($100,000) limitation
contained in Section 422 of the Code shall be
treated as a Nonqualified Stock Option.
(d) Incentive Stock Options shall be granted only to an
Eligible Participant who, at the time the Option Grant
Date, does not own stock possessing more than 10% of
the total combined voting power of all classes of stock
of the Corporation.
(e) Subject to the limitations of Section 3.6, the maximum
number of shares of Common Stock subject to Incentive
Stock Option Awards shall be One Hundred Thousand
(100,000).
(f) The Committee may adopt any other terms and conditions
which it determines should be imposed for the Incentive
Stock Option to qualify under Section 422 of the Code,
as well as any other terms and conditions not
inconsistent with this Article IV as determined by the
Committee.
4.2 The Committee may at any time offer to buy out for a payment
in cash, Stock, or Restricted Stock an Incentive Stock
Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate
to the Participant at the time that such offer is made.
4.3 If the Incentive Stock Option Award Agreement so provides,
the Committee may require that all or part of the shares of
Common Stock to be issued upon the exercise of an Incentive
Stock Option shall take the form of Restricted Stock, which
shall be valued on the date of exercise, as determined by
the Committee, on the basis of the Fair Market Value of such
Restricted Stock determined without regard to the deferral
limitations and/or forfeiture restrictions involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified
Stock Options to Eligible Participants to purchase shares of
Common Stock at such time or times determined by the
Committee, following the Effective Date, subject to the
terms and conditions set forth in this Article V.
5.2 The Nonqualified Stock Option price per share of Common
Stock shall be established in the Award Agreement and may be
less than one hundred percent (100%) of the Fair Market
Value at the time of the grant, or at such later date as the
Committee shall determine.
5.3 The Nonqualified Stock Option and its related Stock Right,
if any, may be exercised in full or in part from time to
time within such period as may be specified by the Committee
or in the Award Agreement; provided, that, in any event, the
Nonqualified Stock Option and the related Stock Right shall
lapse and cease to be exercisable upon, or within such
period following, Termination of Employment as shall have
been determined by the Committee and as specified in the
Nonqualified Stock Option Award Agreement or Stock Right
Award Agreement; provided, however, that such period
following Termination of Employment shall not exceed three
(3) months unless employment shall have terminated:
(a) as a result of Retirement or Disability, in which
event, such period shall not exceed one year after the
date of Retirement or Disability, or within such longer
period as the Committee may specify; or
(b) as a result of death, or if death shall have occurred
following a Termination of Employment and while the
Nonqualified Stock Option or Stock Right was still
exercisable, in which event, such period may exceed one
year after the date of death, as provided by the
Committee or in the Award Agreement.
5.4 The Nonqualified Stock Option Award Agreement may include
any other terms and conditions not inconsistent with this
Article V or in Article VII, as determined by the Committee.
5.5 Nonqualified Stock Options may be made to Directors under
the additional provisions of this Section 5.5. Directors
may be granted Nonqualified Stock Options as provided in
Sections 5.1 through 5.4 above only if the grant of the
Nonqualified Stock Options is approved in advance by the
full Board of Directors or by a committee of the Board of
Directors composed solely of two or more Non-Employee
Directors as described by Rule 16b-3 of the Act. All Awards
under this Plan to Directors will be made pursuant to this
Article V, and no other Awards may be made to a Director
under any other Article or Section of the Plan.
ARTICLE VI - LIMITED STOCK APPRECIATION RIGHTS
The Committee may grant Limited Stock Appreciation Rights
under this Article VI. Limited Stock Appreciation Rights
become exercisable only in the event of a Change in Control,
subject to such terms and conditions as the Committee, in
its sole discretion, may specify at grant. Such Limited
Stock Appreciation Rights shall be settled only in cash. A
Limited Stock Appreciation Right shall entitle the holder of
the related Stock Option to surrender such Stock Option, or
any portion thereof, to the extent unexercised in respect of
the number of shares of Common Stock as to which such
Limited Stock Appreciation Right is exercised, and to
receive a cash payment equal to the difference between (a)
the Limited Stock Appreciation Right Fair Market Value (at
the date of surrender) of a share of Common Stock for which
the surrendered Stock Option or portion thereof is then
exercisable, and (b) the price at which a Participant could
exercise a related Stock Option to purchase the share of
Stock. Such Stock Option shall, to the extent so
surrendered, thereupon cease to be exercisable. A Limited
Stock Appreciation Right shall be subject to such further
terms and conditions as the Committee shall, in its sole
discretion, deem appropriate, including any restrictions
necessary to comply with Section 16(b) of the Act and Rule
16b-3 promulgated thereunder.
<PAGE>
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
7.1 Each Stock Option and Stock Right shall be granted subject
to such terms and conditions, if any, not inconsistent with
this Plan, as shall be determined by the Committee,
including any provisions as to continued employment as
consideration for the grant or exercise of such Stock Option
or Stock Right and any provisions which may be advisable to
comply with applicable laws, regulations or rulings of any
governmental authority.
7.2 A Stock Option or Stock Right shall not be transferable by
the Participant other than by will or by the laws of descent
and distribution, or, to the extent otherwise allowed by
Rule 16b-3 under the Act, and shall be exercisable during
the lifetime of the Participant only by the Participant or
the Participant's guardian or legal representative.
7.3 Shares of Common Stock purchased upon exercise of a Stock
Option shall be paid for in such amounts, at such times and
upon such terms as shall be determined by the Committee,
subject to limitations set forth in the Stock Option Award
Agreement.
7.4 No cash dividends shall be paid on shares of Common Stock
subject to unexercised Stock Options.
7.5 In the event of death or Disability, the Committee, with the
consent of the Participant or his legal representative, may
authorize payment, in cash or in Common Stock, or partly in
cash and partly in Common Stock, as the Committee may
direct, of an amount equal to the difference at the time
between the Fair Market Value of the Common Stock subject to
a Stock Option and the Option price in consideration of the
surrender of the Stock Option.
7.6 If a Participant is required to pay to the Corporation an
amount with respect to income and employment tax withholding
obligations in connection with (i) the exercise of a
Nonqualified Stock Option, (ii) certain dispositions of
Common Stock acquired upon the exercise of an Incentive
Stock Option, (iii) the receipt of Limited Stock
Appreciation Rights or (iv) payments made pursuant to
Section 7.5 hereof, then the exercise of such Option shall
not be effective unless such withholding tax or other
withholding liabilities shall have been satisfied in a
manner acceptable to the Corporation. The Committee, in its
sole discretion and subject to such rules as it may adopt,
may permit the Participant to satisfy the obligation, in
whole or in part, by making an irrevocable election that a
portion of the total Fair Market Value of the shares of
Common Stock subject to the Nonqualified Stock Option and/or
with respect to certain dispositions of Common Stock
acquired upon the exercise of an Incentive Stock Option, be
paid in the form of cash in lieu of the issuance of Common
Stock and that such cash payment be applied to the
satisfaction of the withholding obligations. The amount to
be withheld shall not exceed the statutory minimum Federal
and State income and employment tax liability arising from
the Stock Option exercise transaction. Notwithstanding any
other provision of the Plan, any election under this Section
7.7 is required to satisfy the applicable requirements under
Rule 16b-3 of the Act.
7.7 The Committee may permit the voluntary surrender of all or a
portion of any Stock Option granted under the Plan to be
conditioned upon the granting to the Participant of a new
Stock Option for the same or a different number of shares of
Common Stock as the Stock Option surrendered, or may require
such voluntary surrender as a condition precedent to a grant
of a new Stock Option to such Participant. Subject to the
provisions of the Plan, such new Stock Option shall be
exercisable at the same price, during such period and on
such other terms and conditions as are specified by the
Committee at the time the new Stock Option is granted. Upon
surrender, the Stock Options surrendered shall be canceled
and the shares of Common Stock previously subject to them
shall be available for the grant of other Stock Options.
7.8 The Corporation shall have a right of first refusal to
purchase from the Participant prior to any transfer or sale
any part or all of any shares of the Common Stock which were
acquired by the Participant pursuant to this Plan. The
purchase price of any share purchased by the Corporation
pursuant to the right of first refusal under this Section
7.8 will be the lesser of (i) the Fair Market Value of a
share of Common Stock as of the date of the proposed
transfer or sale and (ii) the proposed price per share to be
paid by the proposed buyer or transferee. The Corporation's
right of first refusal may be exercised by the Corporation,
if at all and in its sole discretion, within ten (10) days
of receiving notice from the Participant of the proposed
transfer or sale. The Corporation may waive this right of
first refusal at any time and in whole or in part.
<PAGE>
ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants
as a reward for past service and an incentive for the
performance of future services that will contribute
materially to the successful operation of the Corporation
and its Subsidiaries. Awards of Restricted Stock may be
made either alone, in addition to or in tandem with other
Awards granted under the Plan and/or cash payments made
outside of the Plan.
8.2 With respect to Awards of Restricted Stock, the Committee
shall:
(a) determine the purchase price, if any, to be paid for
such Restricted Stock, which may be equal to or less
than par value and may be zero, subject to such minimum
consideration as may be required by applicable law;
(b) determine the length of the Restriction Period and
whether any events may accelerate or delay the end of
the Restriction Period;
(c) determine any restrictions applicable to the Restricted
Stock such as service or performance, other than those
set forth in this Article VIII;
(d) determine if the restrictions shall lapse as to all
shares of Restricted Stock at the end of the
Restriction Period or as to a portion of the shares of
Restricted Stock in installments during the Restriction
Period by means of one or more vesting schedules;
(e) determine if the Restricted Stock is subject to
repurchase by the Corporation or a right of first
refusal at a predetermined price or if the Restricted
Stock may be forfeited entirely under certain
conditions;
(f) determine what, if any, performance goals may apply to
the Restriction Period to shorten or lengthen such
period;
(g) determine if dividends and other distributions on the
Restricted Stock are to be paid currently to the
Participant or withheld by the Corporation or its
Subsidiaries for the account of the Participant; and
(h) generally determine the terms and conditions of each
Restricted Stock Award.
8.3 Awards of Restricted Stock must be accepted within a period
of sixty (60) days (or such shorter periods as the Committee
may specify at grant) after the Award date, by executing a
Restricted Stock Award Agreement and paying whatever price
(if any) is required.
The prospective recipient of a Restricted Stock Award shall
not have any rights with respect to such Award, unless such
recipient has executed a Restricted Stock Award Agreement
and has delivered a fully executed copy thereof to the
Committee, and has otherwise complied with the applicable
terms and conditions of such Award.
8.4 Except when the Committee determines otherwise, or as
otherwise provided in the Restricted Stock Award Agreement,
if a Participant terminates employment with the Corporation
or its Subsidiaries for any reason before the expiration of
the Restriction Period, all shares of Restricted Stock still
subject to restriction shall be forfeited by the Participant
and shall be reacquired by the Corporation.
8.5 Except as otherwise provided in this Article VIII, no shares
of Restricted Stock received by a Participant shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise
disposed of during the Restriction Period.
8.6 To the extent not otherwise provided in a Restricted Stock
Award Agreement, in cases of death, Disability or Retirement
or in cases of special circumstances, the Committee, if it
finds that a waiver would be appropriate, may elect to waive
any or all remaining restrictions with respect to all or any
part of such Participant's Restricted Stock.
8.7 In the event of hardship or other special circumstances of a
Participant whose employment with the Corporation or any
Subsidiary is involuntarily terminated, the Committee may
waive in whole or in part any or all remaining restrictions
with respect to any or all of the Participant's Restricted
Stock, based on such factors and criteria as the Committee
may deem appropriate.
8.8 The certificates representing shares of Restricted Stock may
either:
(a) be held in custody by the Corporation until the
Restriction Period expires or until restrictions
thereon otherwise lapse, and the Participant shall
deliver to the Corporation a stock power endorsed in
blank relating to the Restricted Stock; and/or
(b) be issued to the Participant and registered in the name
of the Participant, and shall bear an appropriate
restrictive legend and shall be subject to appropriate
stop-transfer orders.
8.9 Except as provided in this Article VIII, a Participant
receiving a Restricted Stock Award shall have, with respect
to the shares of Restricted Stock covered by any Award, all
of the rights of a shareholder of the Corporation, including
the right to vote the shares, and the right to receive any
dividends; provided, however, the Committee may require that
any dividends on such shares of Restricted Stock shall be
automatically deferred and reinvested in additional
Restricted Stock subject to the same restrictions as the
underlying Award, or may require that dividends and other
distributions on Restricted Stock shall be withheld by the
Corporation or its Subsidiaries for the account of the
Participant. The Committee shall determine whether interest
shall be paid on amounts withheld, the rate of any such
interest, and the other terms applicable to such withheld
amounts.
8.10 If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such
Restriction Period, unrestricted certificates for such
shares shall be delivered to the Participant (in exchange
for the Restricted Stock certificates if the Participant has
possession of certificates with a restricted legend).
8.11 In order to better ensure that Award payments actually
reflect the performance of the Corporation and its
Subsidiaries and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a
minimum value, payable in cash or Common Stock to the
recipient of a Restricted Stock Award, subject to such
performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
ARTICLE IX - STOCK AWARDS
9.1 A Stock Award shall be granted only in payment of
compensation that has been earned or as compensation to be
earned, including, without limitation, compensation awarded
concurrently with or prior to the grant of the Stock Award.
9.2 For the purposes of this Plan, in determining the value of a
Stock Award, all shares of Common Stock subject to such
Stock Award shall be valued at not less than one hundred
percent (100%) of the Fair Market Value of such shares of
Common Stock on the date such Stock Award is granted,
regardless of whether or when such shares of Common Stock
are issued or transferred to the Participant and whether or
not such shares of Common Stock are subject to restrictions
which affect their value.
9.3 Shares of Common Stock subject to a Stock Award may be
issued or transferred to the Participant at the time the
Stock Award is granted, or at any time subsequent thereto,
or in installments from time to time, as the Committee shall
determine. If any such issuance or transfer shall not be
made to the Participant at the time the Stock Award is
granted, the Committee may provide for payment to such
Participant, either in cash or shares of Common Stock, from
time to time or at the time or times such shares of Common
Stock shall be issued or transferred to such Participant, of
amounts not exceeding the dividends which would have been
payable to such Participant in respect of such shares of
Common Stock (as adjusted under Section 3.11) if such shares
of Common Stock had been issued or transferred to such
Participant at the time such Stock Award was granted. Any
issuance payable in shares of Common Stock under the terms
of a Stock Award may, at the discretion of the Committee, be
paid in cash on each date on which delivery of shares of
Common Stock would otherwise have been made, in an amount
equal to the Fair Market Value on such date of the shares of
Common Stock which would otherwise have been delivered.
9.4 A Stock Award shall be subject to such terms and conditions,
including, without limitation, restrictions on the sale or
other disposition of the Stock Award or of the shares of
Common Stock issued or transferred pursuant to such Stock
Award, as the Committee shall determine; provided, however,
that upon the issuance or transfer of shares pursuant to a
Stock Award, the Participant, with respect to such shares of
Common Stock, shall be and become a shareholder of the
Corporation fully entitled to receive dividends, to vote and
to exercise all other rights of a shareholder except to the
extent otherwise provided in the Stock Award. Each Stock
Award shall be evidenced by a written Award Agreement in
such form as the Committee shall determine.
ARTICLE X - PERFORMANCE SHARES
10.1 Awards of Performance Shares may be made to certain
Participants as an incentive for the performance of future
services that will contribute materially to the successful
operation of the Corporation and its Subsidiaries. Awards
of Performance Shares may be made either alone, in addition
to or in tandem with other Awards granted under the Plan
and/or cash payments made outside of the Plan.
10.2 With respect to Awards of Performance Shares, which may be
issued for no consideration or such minimum consideration as
is required by applicable law, the Committee shall:
(a) determine and designate from time to time those
Participants to whom Awards of Performance Shares are
to be made;
(b) determine the performance period (the "Performance
Period") and/or performance objectives (the
"Performance Objectives") applicable to such Awards;
(c) determine the form of settlement of a Performance
Share; and
(d) generally determine the terms and conditions of each
such Award. At any date, each Performance Share shall
have a value equal to the Fair Market Value, determined
as set forth in Section 2.17.
10.3 Performance Periods may overlap, and Participants may
participate simultaneously with respect to Performance
Shares for which different Performance Periods are
prescribed.
10.4 The Committee shall determine the Performance Objectives of
Awards of Performance Shares. Performance Objectives may
vary from Participant to Participant and between Awards and
shall be based upon such performance criteria or combination
of factors as the Committee may deem appropriate, including
for example, but not limited to, minimum earnings per share
or return on equity. If during the course of a Performance
Period there shall occur significant events which the
Committee expects to have a substantial effect on the
applicable Performance Objectives during such period, the
Committee may revise such Performance Objectives.
10.5 The Committee shall determine for each Participant the
number of Performance Shares which shall be paid to the
Participant if the applicable Performance Objectives are
exceeded or met in whole or in part.
10.6 If a Participant terminates service with the Corporation or
its Subsidiaries during a Performance Period because of
death, Disability, Retirement or under other circumstances
in which the Committee in its discretion finds that a waiver
would be appropriate, that Participant, as determined by the
Committee, may be entitled to a payment of Performance
Shares at the end of the Performance Period based upon the
extent to which the Performance Objectives were satisfied at
the end of such period and pro rated for the portion of the
Performance Period during which the Participant was employed
by the Corporation or any Subsidiary; provided, however, the
Committee may provide for an earlier payment in settlement
of such Performance Shares in such amount and under such
terms and conditions as the Committee deems appropriate or
desirable. If a Participant terminates service with the
Corporation or its Subsidiaries during a Performance Period
for any other reason, then such Participant shall not be
entitled to any payment with respect to that Performance
Period unless the Committee shall otherwise determine.
10.7 Each Award of a Performance Share shall be paid in whole
shares of Common Stock, or cash, or a combination of Common
Stock and cash as the Committee shall determine, with
payment to be made as soon as practicable after the end of
the relevant Performance Period.
10.8 The Committee shall have the authority to approve requests
by Participants to defer payment of Performance Shares on
terms and conditions approved by the Committee and set forth
in a written Award Agreement between the Participant and the
Corporation or its Subsidiaries entered into in advance of
the time of receipt or constructive receipt of payment by
the Participant.
10.9 The Committee shall have the authority to place restrictions
on the Performance Shares including, but not limited to,
restrictions on exercise or transfer following receipt of
such shares.
ARTICLE XI -CHANGES IN SHARES OR CHANGE OF CONTROL
11.1 The total amount of shares for which Stock Options,
Restricted Stock, Stock Awards or Performance Shares may be
granted under the Plan and option rights (both as to the
number of shares and the option exercise price per share)
shall be appropriately adjusted for any increase or decrease
in the number of outstanding shares of Common Stock
resulting from payment of a stock dividend on the Common
Stock, a subdivision or combination of shares of the Common
Stock or from a reclassification of the Common Stock, and
(in accordance with the provisions contained in the next
following paragraph) in the event of a merger or
consolidation.
11.2 At the time of a Change of Control, as defined in Section
2.5, any Award granted hereunder shall become exercisable in
full and restrictions shall lapse as described in Section
11.3 through 11.5, subject to any appropriate adjustments in
the number of shares subject to the Stock Option and the
option exercise price per share.
11.3 Anything contained herein to the contrary notwithstanding,
upon the dissolution or liquidation of the Corporation each
Award granted under the Plan shall terminate; provided,
however that following the adoption of a plan of dissolution
or liquidation, and in any event prior to the effective date
of such dissolution or liquidation (and as provided above
regarding certain mergers and consolidations), each Award
granted hereunder shall be exercisable in full and all
restrictions lapse, regardless of any provision contained in
the Agreement with respect thereto requiring that the Award
or any portion thereof be outstanding for a minimum amount
of time prior to exercise, subject to all of the terms
hereof and of the Agreement with respect thereto not
inconsistent with this paragraph.
The grant of an Award pursuant to this Plan shall not affect
in any way the right or power of the Corporation or any of
its Subsidiaries to make adjustments, reclassification,
reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve,
liquidate or sell, or transfer all or part of its business
or assets.
11.4 Upon the occurrence of a Change of Control, and unless
otherwise provided in the Agreement, all then outstanding
Performance Shares with respect to which the applicable
Performance Period has not been completed shall be paid as
soon as practicable as follows:
(a) All Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been
satisfied to the extent necessary to result in payment
of one hundred percent (100%) of the Performance Shares
covered by the Award; and
(b) The applicable Performance Period shall be deemed to
have ended on the date of the Change of Control;
(c) The payment to the Participant shall be the amount
determined either by the Committee, in its sole
discretion, or in the manner stated in the Award
Agreement. This amount shall then be multiplied by a
fraction, the numerator of which is the number of full
calendar months of the applicable Performance Period
that have elapsed prior to the date of the Change of
Control, and the denominator of which is the total
number of months in the original Performance Period;
and
(d) Upon the making of any such payment, the Award
Agreement as to which it relates shall be deemed
canceled and of no further force and effect.
11.5 Upon the occurrence of a Change of Control, the Committee in
its discretion, shall declare the restrictions applicable to
Awards of Restricted Stock to have lapsed, in which case the
Corporation shall remove all restrictive legends and
stop-transfer orders applicable to the certificates for such
shares of Common Stock, and deliver such certificates to the
Participants in whose names they are registered, or deliver
to such Participants unrestricted certificates in exchange
for the Restricted Stock certificates.
ARTICLE XII - AMENDMENT AND TERMINATION
12.1 The Board of Directors, upon recommendation of the
Committee, or otherwise, at any time and from time to time,
may amend or terminate the Plan as may be necessary or
desirable to implement or discontinue this Plan or any
provision thereof. To the extent required by Rule 16b-3
under the Act, no amendment, without approval by the
Corporation's stockholders, shall:
(a) alter the group of persons eligible to participate in
the Plan;
(b) except as provided in Section 3.6 or 11.1, increase the
maximum number of shares of Common Stock or Stock
Options or Stock Rights which are available for Awards
under the Plan;
(c) extend the period during which Incentive Stock Option
Awards may granted beyond April 24, 2007.
(d) limit or restrict the powers of the Committee with
respect to the administration of this Plan;
(e) change the definition of an Eligible Participant for
the purpose of an Incentive Stock Option or increase
the limit or the value of shares of Common Stock for
which an Eligible Participant may be granted an
Incentive Stock Option;
(f) materially increase the benefits accruing to
Participants under this Plan;
(g) materially modify the requirements, as to eligibility
for participation in this Plan;
(h) modify the Plan or terms of awards in such a way that the
members of the Committee lose their status as Nonemployee
Directors under Rule 16b-3 of the Securities Exchange Act of
1934, as amended; or
(i) change any of the provisions of this Article XII.
12.2 No amendment to or discontinuance of this Plan or any
provision thereof by the Board of Directors or the
stockholders of the Corporation shall, without the written
consent of the Participant, adversely affect, as shall be
determined by the Committee, any Award theretofore granted
to such Participant under this Plan; provided, however, the
Committee retains the right and power to:
(a) annul any Award if the Participant is terminated for
cause as determined by the Committee;
(b) provide for the forfeiture of shares of Common Stock or
other gain under an Award as determined by the
Committee for competing against the Corporation or any
Subsidiary; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock option.
12.3 If a Change of Control has occurred, no amendment or
termination shall impair the rights of any person with
respect to an outstanding Award as provided in Article XI.
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.1 Nothing in the Plan or any Award granted hereunder shall
confer upon any Participant any right to continue in the
employ of the Corporation or its Subsidiaries (or to serve
as a director thereof) or interfere in any way with the
right of the Corporation or its Subsidiaries to terminate
his or her employment at any time. Unless specifically
provided otherwise, no Award granted under the Plan shall be
deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other
arrangement of the Corporation or its Subsidiaries for the
benefit of its employees unless the Corporation shall
determine otherwise. No Participant shall have any claim to
an Award until it is actually granted under the Plan. To
the extent that any person acquires a right to receive
payments from the Corporation under the Plan, such right
shall, except as otherwise provided by the Committee, be no
greater than the right of an unsecured general creditor of
the Corporation. All payments to be made hereunder shall be
paid from the general funds of the Corporation, and no
special or separate fund shall be established and no
segregation of assets shall be made to assure payment of
such amounts, except as provided in Section 8.8 with respect
to Restricted Stock and except as otherwise provided by the
Committee.
13.2 The Corporation may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding
of any taxes which the Corporation is required by any law or
regulation of any governmental authority, whether federal,
state or local, domestic or foreign, to withhold in
connection with any Stock Option or the exercise thereof,
any Stock Right or the exercise thereof, or in connection
with any other type of equity-based compensation provided
hereunder or the exercise thereof, including, but not
limited to, the withholding of payment of all or any portion
of such Award or another Award under this Plan until the
Participant reimburses the Corporation or its Subsidiaries
for the amount the Corporation or its Subsidiaries is
required to withhold with respect to such taxes, or
canceling any portion of such Award or another Award under
this Plan in an amount sufficient to reimburse itself for
the amount it is required to so withhold, or selling any
property contingently credited by the Corporation for the
purpose of paying such Award or another Award under this
Plan, in order to withhold or reimburse itself for the
amount it is required to so withhold.
13.3 The Plan and the grant of Awards shall be subject to all
applicable federal and state laws, rules, and regulations
and to such approvals by any government or regulatory agency
as may be required. Any provision herein relating to
compliance with Rule 16b-3 under the Act shall not be
applicable with respect to participation in the Plan by
Participants who are not subject to Section 16(b) of the
Act.
13.4 The terms of the Plan shall be binding upon the Corporation,
its Subsidiaries and their successors and assigns.
13.5 Neither a Stock Option, Stock Right, nor any other type of
equity-based compensation provided for hereunder, shall be
transferable except as provided for herein. In addition to
the transfer restrictions otherwise contained herein,
additional transfer restrictions shall apply to the extent
required by federal or state securities laws. If any
Participant makes such a transfer in violation hereof, any
obligation of the Corporation shall forthwith terminate.
13.6 This Plan and all actions taken hereunder shall be governed
by the laws of the State of North Carolina, except to the
extent preempted by ERISA.
13.7 The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Corporation,
nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of
the Corporation. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver
shares of Common Stock or payments in lieu of or with
respect to Awards hereunder; provided, however, that, unless
the Committee otherwise determines with the consent of the
affected Participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the
Plan.
13.8 Each Participant exercising an Award hereunder agrees to
give the Committee prompt written notice of any election
made by such Participant under Section 83(b) of the Code, or
any similar provision thereof.
13.9 If any provision of this Plan or an Award Agreement is or
becomes or is deemed invalid, illegal or unenforceable in
any jurisdiction, or would disqualify the Plan or any Award
Agreement under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to
conform to applicable laws or if it cannot be construed or
deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the
Award Agreement, it shall be stricken and the remainder of
the Plan or the Award Agreement shall remain in full force
and effect.
CT COMMUNICATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purposes
This CT Communications, Inc. 1997 Employee Stock Purchase
Plan is intended to provide an employment incentive to eligible
employees, including officers, of CT Communications, Inc. (the
"Corporation") and its Subsidiary corporations, by increasing
their proprietary interest in the Corporation's success and
encouraging ownership of the Corporation's Common Stock, and to
encourage them to remain in the employ of the Corporation or a
Subsidiary. It is not intended that this Plan shall operate as
an "employee stock purchase plan" within the meaning of Code
section 423(b).
2. Definitions
Wherever used herein, the following words and phrases shall
have the meanings stated below unless a different meaning is
plainly required by the context:
(a) "Board of Directors" means the Board of Directors of
the Corporation.
(b) "Code" means the Internal Revenue Code of 1986, as now
in force or as hereafter amended.
(c) "Committee" means the Compensation Committee of the
Board of Directors, to which the Board of Directors may
delegate its powers with respect to administration of the
Plan pursuant to Section 3 hereof.
(d) "Common Stock" means the Corporation's authorized but
unissued $50.00 Par Value Nonvoting Class B Common Stock.
Common Stock hereunder includes both treasury stock and
stock of original issue.
(e) "Corporation" means CT Communications, Inc.
(f) "Elected Shares" means those shares of Common Stock
which an Optionee elects to purchase pursuant to Section
6(c) hereof.
(g) "Employee" means an employee (including officers) of the
Corporation or a Subsidiary.
(h) "Exercise Date" means the date after which an Option shall
lapse and become null and void.
(i) "Fair Market Value" means, with respect to any given
day, the value for a share of Common Stock determined by
using the weighted average price of the two (2) most recent
arm's length trades of the Common Stock between unrelated
parties as reported to the Corporation.
.
(j) "Note" means the promissory note which may be entered
into between an Optionee and the Corporation to facilitate
payment for the Elected Shares, as further described in
Section 6(d) hereof.
(k) "Notice of Grant" means the document or documents which
shall: (i) be in such form as the Committee shall determine;
(ii) incorporate, by reference, the terms and provisions of
this Plan; and (iii) be issued to each Optionee at least two
weeks prior to the Exercise Date.
(l) "Option" (or "Options") means the right granted
hereunder which will entitle an Optionee to purchase shares
of Common Stock
(m) "Option Date" means the date upon which Options are
granted by the Board of directors, which must occur within
eighteen (18) months after the Corporation's shareholders
have approved the Plan.
(n) "Option Period" means the term to be established by the
Committee for each Option during which an Option may be
exercised. Each Option Period shall end on an Exercise
Date.
(o) "Option Price" means the price per share of Common
Stock described in Section 6(b) hereof.
(p) "Optionee" means an Employee selected by the Committee
to receive an Option.
(q) "Plan" means the CT Communications, Inc. 1997 Employee
Stock Purchase Plan.
(r) "Subsidiary" or "Subsidiaries" means the corporation or
corporations meeting the requirements of Code section
424(f).
3. Administration
The Plan shall be administered by the Committee. No member
of the Board of Directors who is not otherwise employed by the
Corporation shall be eligible to receive an Option. No
individual director who is or within the preceding year has been
eligible to receive an Option may serve as a member of the
Committee. No member of the Board of Directors may exercise
discretion with respect to, or participate in, the administration
of the Plan if, at any time within one year prior to such
exercise or participation, he or she has been eligible for
selection as a person to whom stock may be allocated or to whom
stock options or stock appreciation rights may be granted
pursuant to the Plan or any other plan of the Corporation or any
Subsidiary or other affiliate thereof entitling the participants
therein to acquire stock, stock options or stock appreciation
rights of the Corporation or of any of its Subsidiaries or other
affiliates. Subject to the express provisions of the Plan, the
Committee may interpret the Plan, prescribe, amend and rescind
rules and regulations relating to it, correct any defect or
omission or reconcile any inconsistency in the Plan, determine
the terms and provisions of the Options granted hereunder,
determine and change the Offering Periods, Offering Dates and
Exercise Periods (except as otherwise limited herein) and make
all other determinations necessary or advisable for the
administration of the Plan. The determinations of the Committee
on all matters regarding the Plan shall be conclusive. The
Committee shall have the absolute discretion to select Optionees
and determine the number of shares of Common Stock that may be
purchased by an Optionee under this Plan.
4. Eligibility
Any Employee may be designated as an Optionee by the
Committee and may be granted as of the Option Date an Option to
purchase Common Stock.
5. Stock
The stock subject to the Options to be issued hereunder
shall be the Common Stock. The maximum number of such shares to
be issued upon the exercise of the Options hereby granted shall
be an aggregate of Eight Thousand (8000) shares. In the event
that any Option expires or is terminated, surrendered or canceled
without being exercised, in whole or in part, for any reason, the
number of shares of Common Stock theretofore subject to such
Option shall again be available for grant as an Option hereunder
and shall not reduce the aggregate number of shares of Common
Stock available for grant as such Options as set forth in this
Section 5.
6. Terms and Conditions of Options
Options granted hereunder shall be evidenced by a Notice of
the Grant. Such Options shall be subject to the following terms
and conditions:
(a) Duration of the Option. Each Option shall, unless
sooner expired pursuant to Section 6(g) or (h) be exercised
by the Exercise Date. Each Option not exercised during an
Offering Period shall expire on the Exercise Date for the
Offering Period.
(b) Option Price. The Option Price shall be the Fair
Market Value of the Common Stock on the Exercise Date but
not less than the par value of such stock.
(c) Elected Shares. Each Optionee shall notify the
Corporation, in the manner described in Section 6(f) and on
such forms as shall be provided by the Corporation, of the
number of Elected Shares which the Optionee wishes to
purchase, which election may be for either all or any part
of the shares subject to the Option.
The Optionee may elect to pay the Corporation the Fair
Market Value of the Common Stock as described in Section (f)
by making full payment for the Fair Market Value of the
Elected Shares to the Corporation by the Exercise Date.
Alternatively, the Optionee may enter into a Note by the
Exercise Date (as described in Section 6(d)) to facilitate
payment to the Corporation of the Fair Market Value of the
Elected Shares.
(d) Note. The Corporation shall make available to each
Optionee an alternative means of exercising an Option as
described in this Section 6(d). Before the Exercise Date,
the Optionee and the Corporation may enter into a Note for a
period not to exceed twenty-four (24) months, such Note
accruing simple interest at the rate of six percent (6%) per
annum, computed on a 365 day basis, on the amount due on the
Note. The Note will be in a principal amount equal to the
Fair Market Value of the Elected Shares for which the
Optionee does not tender payment by the Exercise Date, and
shall be secured by Elected Shares purchased under the
Option and held by the Corporation as described in Section
6(k). Payments on the Note will be made from the Optionee's
salary on a payroll deduction basis and all amounts withheld
shall be exclusively applied to the retirement of the Note.
(e) Date by Which Option Shall be Exercised. Except as
provided in Section 6(h) and (i), each Option which is
exercised shall be exercised on or before the Exercise Date.
(f) Manner of Exercising Option. Except as provided in
Section 6(h) and (i), each Optionee shall, on such forms as
shall be provided by the Corporation, at least three (3)
business days prior to the Exercise Date, notify the
Corporation of the Optionee's election either to: (i)
exercise the Option to purchase all or any part of the
Elected Shares by cash payment on or before the Exercise
Date; (ii) exercise the Option to purchase all or any part
of the Elected Shares by entering into a Note for payment of
the Option Price and secured by the Elected Shares; (iii)
any combination of (i) or (ii); or, (iv) decline to so
exercise the Option, which election, in all events, shall be
effective as of said Exercise Date.
In the event the Optionee so exercises the Option by
payment of cash, the Optionee shall tender to the
Corporation all funds as may be necessary to purchase all or
any part of the Optionee's Elected Shares.
In the event that the Optionee enters into a Note,
salary withholding for repayment of the Note shall begin
immediately and continue until the Note is paid in full.
Should the Optionee fail to deliver the notification
form referred to in this Section 6(f), such failure shall be
deemed an election by said Optionee to decline to exercise
the Option.
(g) Termination of Option. An Optionee may at any time on
or before the Exercise Date terminate the Option in its
entirety by written notice of such termination delivered in
the manner set forth in Section 11 hereof. Such termination
shall become effective upon receipt of such notice by the
Corporation. Upon such termination, the Note will become
due pursuant to its terms, and all further rights and
privileges of Optionee granted pursuant to this Plan and the
Option granted hereunder shall be terminated.
(h) Termination of Employment. In the event that an
Optionee's employment by the Corporation or a Subsidiary is
terminated other than by retirement with the consent of the
Corporation, medical disability (determined in accordance
with the Corporation's long term disability plan then in
effect) or by death, all rights and privileges of Optionee
granted pursuant to the Plan and of any Option granted
hereunder shall terminate, except that any obligations
arising under the Note(s) shall continue under the terms of
the Note(s). If any termination of employment is due to
retirement with the consent of the Corporation, the Optionee
shall have the right within two (2) business days prior to
the Exercise Date, to exercise the Option to purchase all or
any part of the Optionee's shares. If the Optionee shall
become medically disabled or dies while in the employment of
the Corporation or any Subsidiary of the Corporation before
the Exercise Date, the Optionee's beneficiary (as provided
in Section 6(j) estate, or personal representative shall
have the right, at any time, within two (2) business days
prior to the Exercise Date, to exercise the employee's
Option to purchase all or any part of the shares. Options
exercised pursuant to the terms of this Section 6(h) may be
exercised (during the specified times) as to all or any part
of the shares by written notice delivered in the manner set
forth in Section 11 hereof and tendering with such notice
payment of any or all funds, and shall be deemed exercised
as of the date such notice is delivered. Failure to deliver
such notice and payment within the time provided shall be
deemed an election not to exercise the Option, which shall
terminate.
Retirement of an Optionee at the Optionee's normal
retirement date in accordance with the provisions of any
retirement plan adopted by the Corporation or by any
Subsidiary shall be deemed to be a retirement with the
consent of the Corporation. Whether any other terminations
of employment (either at an optional retirement date in
accordance with the provision of any such retirement plan or
otherwise) are to be considered retirements with the consent
of the Corporation and whether authorized leaves of absence
or absences on military or government service or for other
reasons shall constitute a termination of employment for the
purposes of the Plan, shall be determined by the Committee,
the determination of which shall be final and conclusive.
Employment by the Corporation or any Subsidiary shall be
deemed to be continuous and not to terminate during any
uninterrupted period in which an employee is in the
employment of the Corporation or any Subsidiary, but only if
and so long, in the case of employment by a Subsidiary, as
employment by such Subsidiary will, under the applicable
provisions of the Code as then in effect, result in the same
tax treatment as would be accorded if such Optionee were an
employee of the Corporation.
(i) Adjustment Provisions. The aggregate number of shares
of Common Stock with respect to which Options may be
granted, the aggregate number of shares of Common Stock
subject to each outstanding Option, and the Option Price per
share of each Option may all be appropriately adjusted as
the Board of Directors may determine for any increase or
decrease in the number of shares of issued Common Stock
resulting from a subdivision or consolidation of shares,
whether through reorganization, recapitalization, stock
split-up, stock distribution or combination of shares, or
the payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected
without receipt of consideration by the Corporation.
Adjustments under this Section 10 shall be made according to
the sole discretion of the Board of Directors, and its
decision shall be binding and conclusive.
(j) Transferability and Designation of Beneficiary. No
Option may be transferred, assigned, pledged, or
hypothecated (whether by operation of law or otherwise),
except as provided by will or the applicable laws of descent
or distribution, and no Option shall be subject to
execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other
disposition of an Option, or levy of attachment or similar
process upon the Option not specifically permitted herein
shall be null and void and without effect. An Option may be
exercised only by the Optionee during his or her lifetime,
and only by the Optionee's beneficiary (as described below),
estate or the person who acquires the right to exercise such
Option upon the Optionee's death.
Each Optionee may file a written designation of beneficiary
who is to receive any stock or cash in the event that such
Optionee dies after the end of an Offering Period but
before the issuance of the shares or during an Offering Period
but before the Exercise Date.
(k) Rights as a Shareholder. An Optionee shall have all
rights as a shareholder with respect to shares purchased
pursuant to the Options to be granted hereunder after full
payment has been made for such shares and a stock
certificate for such shares has been actually issued to said
Optionee, except that Elected Shares which are security for
a Note shall be held by the Corporation until the Note is
paid in full. No adjustment will be made for dividends or
other rights for which the record date is prior to the date
of such issuance.
(l) Registration. Each Option under the Plan shall be
granted on the condition that a registration statement under
the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock subject to such
Option has become effective and a copy of the prospectus has
been delivered to the Optionee.
(m) Additional Conditions. As a condition to the exercise
of an Option, the Corporation may require the person
exercising such Option to represent that, at the time of any
such exercise, the shares are being purchased only for an
investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the
Corporation, such representation is required by any of the
aforementioned applicable provisions of law.
7. Duration of the Plan
The Plan will terminate on the first to occur of (i) the
granting of all Options authorized under the Plan , (ii)
termination by the Committee pursuant to Section 8 hereof or
(iii) December 31, 1999.
8. Termination and Amendment of the Plan
The Committee may, from time to time, alter, amend, or
suspend the Plan at any time without notice, or may at any time
terminate the Plan, provided that no Optionee's existing rights
are materially and adversely affected thereby without the consent
of the affected Optionee; provided further, upon any such
amendment or modification, all Optionees shall continue to have
the same rights and privileges as other Optionees (except as
otherwise provided for in Section 6 hereof); and provided
further, that no such amendment of the Plan shall, except as
provided Section 6 hereof; change the formula by which the price
for which the Common Stock shall be sold is determined or
increase the maximum number of shares which any Optionee may
purchase.
9. Application of Funds
The proceeds received by the Corporation from the sale of
its Common Stock pursuant to Options granted hereunder will be
used for general corporate purposes.
10. No Obligation to Purchase Shares
The granting of an Option pursuant to this Plan shall impose
no obligation upon the Optionee to purchase any shares covered by
such Option unless such Optionee affirmatively elects to purchase
Common Stock as described in Section 6(c).
11. Notices
Any notice which the Corporation or Optionee may be required
or permitted to give to each other shall be in writing and shall
be deemed given when delivered personally or deposited in the
U.S. Mail, first class postage prepaid, addressed as follows:
Secretary, CT Communications, Inc., 68 Cabarrus Avenue, Post
Office Box 227, Concord, North Carolina 28026-0227, or as such
other address as the Corporation, by notice to the Optionee, may
designate in writing from time to time; to the Optionee, at the
address shown on the records of the Corporation, or at such other
address as the Optionee, by notice to the Corporation, may
designate in writing from time to time.
12. The Right of the Corporation to Terminate Employment
Nothing contained in the Plan or in any option granted
pursuant to the Plan shall confer upon any Optionee any right to
be continued in the employment of the Corporation or one of its
Subsidiaries, or shall interfere in any way with the right of the
Corporation or any of its Subsidiaries, as the case may be, to
terminate his employment at any time for any reason.
13. Miscellaneous
(a) Legal and Other Requirements. The obligations of the
Corporation to sell and deliver Common Stock under the Plan shall
be subject to all applicable foreign or domestic laws,
regulations, rules and approvals, including, but not by way of
limitation, the effectiveness of a registration statement under
the Securities Act and the requirements of any stock exchange
upon which the shares of Common Stock may be listed if deemed
necessary or appropriate by the Corporation. Certificates for
shares of Common Stock issued hereunder may be legended as the
Committee shall deem appropriate
(b) Withholding Taxes. Upon the exercise of any Option
under the Plan, the Corporation shall have the right to require
the Optionee to remit to the Corporation an amount sufficient to
satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for
shares of Common Stock
14. Effectiveness of the Plan
The Plan shall become effective only if:
A. The Plan shall have been adopted by the Board of
Directors of the Corporation; and
B. The Plan shall have been approved by the
affirmative vote of the holders of at least a majority of
shares of Class A Common Stock voted at the shareholders'
meeting at which the Plan is considered.
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1997 by and between CT COMMUNICATIONS, INC. (the
"Company"), a North Carolina corporation, and MICHAEL R. COLTRANE
("Employee"), an individual residing in Cabarrus County, North
Carolina;
WHEREAS, the Employee is a valued employee of the Company or
one of the Company's subsidiaries, and in order to induce the
Employee to continue employment with the Company and to enhance
the Employee's job security, the Company desires to provide
compensation to the Employee in the event the Employee's
employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar
with the Company's products, relationships, trade secrets and
confidential information relating to both the Company's and its
customers' business, products, processes and development and may
generate or have generated confidential information, the Company
wishes to protect its long-term interests by having the Employee
enter into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained
herein, including the compensation the Company agrees to pay to
the Employee upon certain events, the Employee's continued
employment with the Company, the Employee's covenants and other
good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii)
hereof) occurs and if, within two years following the Change in
Control, the employment of the Employee is terminated (A) by the
Company other than for Cause (as defined in Section IA(i)
hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined
in Section IA(iv) hereof) shall continue to be paid in monthly
installments, subject to applicable withholdings, by the Company
for a period of thirty-five (35) months following such
termination of employment. In lieu of receiving payment of
Compensation for such 35-month period in installments, the
Employee may elect, at any time prior to the earlier to occur of
a Change in Control or action by the Board of Directors of the
Company (the "Board") with respect to an event which would, upon
consummation, result in a Change in Control (which election shall
be evidenced by notice filed with the Company), to be paid the
present value of any such Compensation in a lump sum within 30
days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder.
The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's
independent audit, and such calculation, including but not
limited to any discount factor used to determine present value,
shall be conclusive.
For purposes of this Agreement, the following terms shall
have the meanings indicated:
(i) Cause. Termination by the Company for "Cause" shall
mean termination with the approval of the Board (A)
because of willful misconduct of a material nature by
the Employee in connection with the performance of his
duties as an employee; (B) because of the Employee's
use of alcohol or illegal drugs that affects his
ability to perform his assigned duties as an employee;
(C) because of the Employee's conviction of a felony or
serious misdemeanor involving moral turpitude; (D)
because of the Employee's embezzlement or theft from
the Company; (E) because of the Employee's gross
inattention to or dereliction of duty; or (F) because
of performance by the Employee of any other willful
act(s) which the Employee knew or reasonably should
have known would be materially detrimental to the
Company; provided, however, that prior to the
determination by the Board that "Cause" as described in
A, E or F above has occurred, the Board shall (1)
provide to the Employee in writing, in reasonable
detail, the reasons for the Board's determination that
such "Cause" exists, (2) afford the Employee a
reasonable opportunity to remedy any such breach, (3)
provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to
be considered, and (4) make any decision that such
"Cause" exists in good faith.
(ii) Good Reason. Termination by the Employee for "Good
Reason" shall mean (A) a material reduction in the
Employee's position, duties, responsibilities or status
as in effect immediately preceding the Change in
Control, or a change in the Employee's title resulting
in a material reduction in his responsibilities or
position with the Company as in effect immediately
preceding the Change in Control, in either case without
the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by
the Company after receiving notice from the Employee
and further excluding any such reductions or changes
made in good faith to conform with generally accepted
industry standards for the Employee's position; (B) a
reduction in the rate of the Employee's base salary as
in effect immediately preceding the Change in Control
or a decrease in any bonus amount to which the Employee
was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year
immediately preceding the Change in Control, in either
case without the Employee's consent; provided, however,
that a decrease in the Employee's bonus amount shall
not constitute "Good Reason" and nothing herein shall
be construed to guarantee such bonus awards if
performance, either by the Company or the Employee, is
below such targets as may reasonably and in good faith
be set forth in such bonus or incentive plans; (C) the
relocation of the Employee, without his consent, to a
location outside a 30 mile radius of Concord, North
Carolina, following a Change in Control or (D) the
resignation by the Employee, by written notice to the
Board, during the period beginning at the end of the
twelfth month period following the Change in Control
and ending on the first day of the eighteenth month
following the Change in Control.
(iii) Change in Control. For purposes of this
Agreement, "Change in Control" shall mean (A) the
consummation of a merger, consolidation, share
exchange or similar transaction of the Company
with any other corporation, entity or group, as a
result of which the holders of the voting capital
stock of the Company as a group would receive less
than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the
consummation of an agreement providing for the
sale or transfer (other than as security for
obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence
of a prior expression of approval by the Board,
the acquisition except by inheritance or devise of
more than 20% of the Company's voting capital
stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than a person, or group
including a person, who beneficially owned, as of
the date of this Agreement, more than 5% of the
Company's voting stock or equity, except that
transactions between the Company and any affiliate
or subsidiary of the Company and transactions
between the Company and any employee stock
ownership plan shall not be deemed a "Change in
Control" as described in A, B or C above.
(iv) Compensation. The Employee's Compensation shall
consist of the following: (A) the Employee's annual
base salary, as paid by the Company, in effect
immediately preceding the Change in Control plus (B) an
annual bonus equal to the average bonus (calculated as
a percentage of base salary, without regard to vesting
schedules or restrictions on the bonus compensation and
converting all post-employment payments in stock and
stock options to a cash present value) paid by the
Company for each one-year performance period (often
referred to as the "annual incentive program") to the
Employee for the three (3) most recent fiscal years
ending prior to such Change in Control pursuant to the
Company's incentive and bonus plans or, if the relevant
bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the
independent accounting firm then performing the
Company's independent audit, which calculation shall be
conclusive.
B. Upon termination of the Employee's employment entitling
the Employee to Compensation set forth in Section IA hereof, and
for the 35-month period following such termination of employment
(unless terminated sooner as provided herein), the Company shall:
(i) maintain in full force and effect for the continued
benefit of the Employee medical insurance (including coverage for
the Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under such
medical insurance plans and programs in which the Employee was
entitled to participate immediately prior to the date of such
termination of employment, provided that the Employee's continued
participation is possible under the general terms and provisions
of such plans and programs. During such period, the Company will
pay the Employee's portion, if any, of such medical insurance
premiums that may be required, and the Employee's termination of
employment at the beginning of the period shall not constitute a
"qualifying event" under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). At the conclusion of such
period, the Employee shall be entitled to full rights to
continued medical insurance coverage as provided under COBRA, if
eligible. In the event that the Employee's participation in any
such plan or program is barred for any reason, the Company shall
arrange to provide the Employee with medical insurance benefits
for such 35-month period substantially similar to those which the
Employee would otherwise have been entitled to receive under such
plans and programs from which his continued participation is
barred; provided, however, in no event will the Employee receive
from the Company the medical insurance contemplated by this
Section IB if the Employee receives comparable insurance from any
other source,
(ii) permit the Employee to participate in all qualified
retirement plans, including without limitation the Company's
pension plan and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued
benefit of the Employee the Employee's life insurance (both basic
and supplemental, if applicable) and
(iv) maintain in full force and effect for the continued
benefit of the Employee the Employee's short term disability and
long term disability insurance policies.
C. Upon termination of the Employee's employment entitling
the Employee to Compensation as set forth in Section IA hereof,
the Employee will become immediately vested in any and all stock
options and shares of restricted stock previously granted to him
by the Company notwithstanding any provision to the contrary of
any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall
also be fully vested upon grant to the Employee. The Employee
may exercise such options only at the times and in the method
described in such options. All restrictions on shares of the
Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any
manner necessary to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee
that no portion of the payment made under this Agreement, or
payments to or for the Employee under any other agreement or
plan, be deemed to be an excess parachute payment as defined in
the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. The Company and the
Employee agree that the present value of any payment hereunder
and any other payment to or for the benefit of the Employee in
the nature of compensation, receipt of which is contingent on a
Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an
amount equal to one dollar less than the maximum amount that the
Employee may receive without becoming subject to the tax imposed
by Code section 4999 or any successor provision or which the
Company may pay without loss of deduction under Code section 280G
or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section
1274(b)(2) or any successor provision. In the event that the
provisions of Code sections 280G and 4999 or any successor
provisions are repealed without succession, this Section ID shall
be of no further force or effect.
E. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date the
Employee's employment was terminated. As used in this Agreement,
"Company" shall mean the Company as defined herein and any
successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section
IE or that otherwise becomes bound by the all terms and
provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior
consent of the Company, all payments provided for under this
Section I shall be paid in cash (including the cash values of
stock options or restricted stock, if any) from the general funds
of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to
assure payment, except as provided to the contrary in funded
benefits plans. The Employee shall have no right, title or
interest whatsoever in or to any investments that the Company may
make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken
pursuant to the provisions hereof, shall create or be construed
to create a trust of any kind or a fiduciary relationship between
the Company and the Employee or any other person. To the extent
that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
G. Following the Employee's termination as a result of a
Change in Control, the Corporation agrees (i) to indemnify,
defend and hold harmless the Employee from and against any
liabilities other than those contained in Section II and III
hereof and felonies committed by the Employee against the Company
to which he may be subject as a result of his service as an
officer or director of the Company or as an officer or director
of any of the Company's subsidiaries or affiliates, and (ii) to
indemnify the Employee for all costs, including attorney's fees
and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such
employment, or (b) any legal action in which the Employee is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the
Employee and the Company relating to his rights under this
Agreement following a Change in Control, and it is determined by
agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal,
that the Employee has been substantially successful in his
claims, then reasonable legal fees and disbursements of the
Employee in connection with such dispute shall be paid by the
Company.
I. Following a Change in Control, the Employee shall be entitled to
receive outplacement assistance for a period of six (6) months at the Company's
expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with
the Company is one of trust and confidence because of the
Employee's access to trade secrets and confidential and
proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the
trade secrets and confidential or proprietary business
information of the Company.
B. Unless required by the Company in connection with
his employment or with the Company's express written consent, the
Employee agrees that he will not, either during his employment or
afterwards, directly or indirectly, use, misappropriate, disclose
or aid anyone else in disclosing to any third party for the
Employee's own benefit or the benefit of another all or any part
of any of the Company's trade secrets or confidential or
proprietary information, whether or not the information is
acquired, learned, or developed by the Employee alone or in
conjunction with others. The Employee makes the same pledge with
regard to the confidential information of the Company's
customers, contractors, or others with whom the Company has a
business relationship.
C. The Employee understands that trade secrets and
confidential or proprietary information, for purposes of this
Agreement, shall include, but not be limited to, any and all
versions of the Company's computer software, hardware, and
documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer
requirements, customer lists, employee lists and
salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and
projections for business opportunities for new or developing
business of the Company; and all other confidential or
proprietary information, patents, ideas, know-how and trade
secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company
obtains from a customer, contractor or another party or entity
and that the Company treats or designates as confidential or
proprietary information, whether or not such information is owned
or was developed by the Company.
D. The Employee also agrees that all notes, records
(including all computer and electronic records), software,
drawings, handbooks, manuals, policies, contracts, memoranda,
sales files, customer lists, employee lists or other documents
that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company,
in whatever form, including but not limited to all such documents
and data concerning any processes, inventions, services or
products used or developed by the Employee during his employment,
shall be the property of the Company. The Employee further
agrees to deliver and make available all such documents and data
to the Company, regardless of how stored or maintained and
including all originals, copies and compilations thereof, upon
the separation of his employment, for any reason, or at any other
time at the Company's request.
E. The Employee understands that the Company expects
him to respect any trade secrets or confidential information of
any of the Employee's former employers, business associates, or
other business relationships. The Employee also agrees to
respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of
certain communications is protected by state and federal laws,
and that violations of the Federal Communications Act may subject
the Employee to fines of up to $10,000, or imprisonment for up to
ten years, or both. Therefore, the Employee agrees that the
following restrictions apply to all modes of communications
during the duration of the Employee's employment with the
Company:
1. The Employee will not divulge to any
unauthorized person any knowledge that he may have
regarding communication arrangements between the
Company and its customers.
2. Except as required by the daily performance
of his duties, the Employee will not give to any
individual or group any information whatsoever
regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the
installation of the Company's central office equipment,
or any information regarding the Company's plant or
facilities.
3. Except as required in the performance of his
duties with the Company, the Employee will not listen
in on any telephone conversation in any form, nor
disclose to any unauthorized individual or group any
part of any telephone conversation which the Employee
may overhear in the performance of his duties.
4. The Employee will not discuss with his
family, friends or acquaintances any information gained
through his employment with the Company regarding
military installations, communications, filter centers
or other communication procedures and equipment
relating to national security.
5. The Employee will not divulge to any
unauthorized individual or group the existence,
substance, purport, effect of meaning of any
communication between the Company's customers.
6. The Employee will promptly refer to his supervisor any
unauthorized request regarding telephone communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the
change in control protection contained herein and the Employee's
continued employment with the Company, the Employee agrees that,
unless specifically authorized by the Company in writing, the
Employee will not during his employment with the Company and for
a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the
employment relationship):
1. Engage in any "Competitive Activity" (as
defined below) within the "Restricted Territory" (as
defined below);
2. Serve as an employee, director, owner,
partner, contractor, consultant or agent of, or own any
interest in (except for ownership of a minor percentage
of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity"
within the "Restricted Territory";
3. Engage in any "Competitive Activity" with,
for or towards or divert, attempt to divert or direct
others to divert any business of the Company from an
existing Company customer, a joint venturer or other
business partner of the Company (hereinafter referred
to as an "affiliate"), or from a potential customer
identified through leads or relationships developed
during the Employee's employment with the Company,
within the "Restricted Territory";
B. Furthermore, the Employee will not during his
employment with the Company and for a period of three years after
his employment with the Company has terminated or ended (whatever
the reason for the end of the employment relationship) solicit or
hire for employment or as an independent contractor any employee
of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit, or cause another person in the
employ of the Company or any of the Company's affiliates to leave
his employment with the Company or affiliate for the purpose of
joining, associating, or becoming employed with any business or
activity with which the Employee is or expects to be directly or
indirectly associated or employed.
C. "Competitive Activity" means: (1) the business
activities engaged in by the Company during the Employee's
employment with the Company, including the sales, marketing,
distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee
sold or was involved during his employment with the Company;
and/or (2) the performance of any other business activities
competitive with the Company for or on behalf of any
telecommunications entity.
D. "Restricted Territory" means: (1) the geographic
area encompassing a seventy-five (75) mile radius of Concord,
North Carolina; and/or (2) any Metropolitan Statistical Area (as
defined by the United States Department of Commerce) from which
the Company generated at least two percent (2%) of its gross
annual revenue during the last two calendar years before the end
of the Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions
placed upon him by this Agreement are reasonable given the nature
of the Employee's position with the Company, the area in which
the Company markets its products and services, and the
consideration provided by the Company to the Employee pursuant to
this Agreement. Specifically, the Employee acknowledges that the
length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and
"Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any
breach or threatened breach of the provisions of Section II and
III hereof by Employee, the Company's remedies at law would be
inadequate, and the Company shall be entitled to an injunction
(without any bond or other security being required), restraining
such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude
the Company from pursuing any other remedies at law or in equity
available to it for any such breach or threatened breach.
Moreover, the Employee also agrees that if the Employee breaches
any of Sections II or III above, the Employee shall be required
to refund to the Company and the Company shall be entitled to
recover of the Employee 90% of the amount of the Employee's
Compensation (as defined in Section IA(iv) herein) for a Change
in Control already paid to the Employee by the Company under this
Agreement at the time of the breach, and the Employee shall
forfeit at the time of the breach the right to any additional payments
or benefits under this Agreement, except that if the breach occurs before
the payments set forth in Section IA are made, the Employee shall be
entitled to receive the first monthly payment set forth in Section IA and
nothing more. In such case, the Employee and the Company agree that the
confidential information and non-compete obligations contained in this
Agreement shall remain valid and enforceable based upon the consideration
actually paid.
C. The Employee acknowledges that all of the
provisions of the Agreement are fair and necessary to protect the
interests of the Company. Accordingly, the Employee agrees not
to contest the validity or enforceability of Section II or
Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be
unenforceable, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision
or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and
subsections as separable and uphold those separable provisions
and subsections deemed to be reasonable.
D. The Employee understands that every provision of
this Agreement is severable from each other provision of this
Agreement. Therefore, if any provision of this Agreement is held
invalid or unenforceable, every other provision of this Agreement
will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee
and the Company agree that such provision shall be enforced to
the extent reasonable under the circumstances and that all other
provisions shall be enforceable to the fullest extent permissible
by law. The Employee and the Company further agree that, if any
court makes such a determination, such court shall have the power
to reduce the duration, scope and/or area of such provisions
and/or delete specific words and phrases by "blue penciling" and,
in its reduced or blue penciled form, such provisions shall then
be enforceable as allowed by law.
V. MISCELLANEOUS
A. The Employee shall have no right to receive any
payment hereunder except following a Change of Control as
determined pursuant to Section I. Nothing contained in this
Agreement shall confer upon the Employee any right to continued
employment by the Company or shall interfere in any way with the
right of the Company to terminate his employment at any time for
any reason. The provisions of this Agreement shall not affect in
any way the right or power of the Company to change its business
structure or to effect a merger, consolidation, share exchange or
similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its business or assets.
B. The Employee understands that his obligations
under this Agreement will continue whether or not his employment
with the Company is terminated voluntarily or involuntarily, or
with or without cause.
C. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Employee
and the Company may have entered into with the Company with
respect to the Employee's employment by the Company. This
Agreement may not be changed in any detail by any verbal
statement, representation, or other agreement made by any other
Company employee, or by any written document signed by any
Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of
any default by the Employer shall not constitute a waiver of its
rights under this Agreement with respect to any subsequent
default by the Employee. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by all
parties.
E. This Agreement shall be binding upon, and inure to
the benefit of, the Employee and the Company and their respective
permitted successors and assigns. Neither this Agreement nor any
right or interest hereunder shall be assignable by the Employee,
his beneficiaries, or legal representatives without the Company's
prior written consent.
F. Where appropriate as used in this Plan, the
masculine shall include the feminine.
G. This Agreement has been executed and delivered in
the State of North Carolina, and the laws of the State of North
Carolina shall govern its validity, interpretation, performance
and enforcement.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /S/ MICHAEL R. COLTRANE
EMPLOYEE:
/s/ MICHAEL R. COLTRANE (Seal)
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1997 by and between CT COMMUNICATIONS, INC. (the
"Company"), a North Carolina corporation, and BARRY R. RUBENS
("Employee"), an individual residing in Cabarrus County, North
Carolina;
WHEREAS, the Employee is a valued employee of the Company or
one of the Company's subsidiaries, and in order to induce the
Employee to continue employment with the Company and to enhance
the Employee's job security, the Company desires to provide
compensation to the Employee in the event the Employee's
employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar
with the Company's products, relationships, trade secrets and
confidential information relating to both the Company's and its
customers' business, products, processes and development and may
generate or have generated confidential information, the Company
wishes to protect its long-term interests by having the Employee
enter into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained
herein, including the compensation the Company agrees to pay to
the Employee upon certain events, the Employee's continued
employment with the Company, the Employee's covenants and other
good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii)
hereof) occurs and if, within two years following the Change in
Control, the employment of the Employee is terminated (A) by the
Company other than for Cause (as defined in Section IA(i)
hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined
in Section IA(iv) hereof) shall continue to be paid in monthly
installments, subject to applicable withholdings, by the Company
for a period of thirty-five (35) months following such
termination of employment. In lieu of receiving payment of
Compensation for such 35-month period in installments, the
Employee may elect, at any time prior to the earlier to occur of
a Change in Control or action by the Board of Directors of the
Company (the "Board") with respect to an event which would, upon
consummation, result in a Change in Control (which election shall
be evidenced by notice filed with the Company), to be paid the
present value of any such Compensation in a lump sum within 30
days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder.
The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's
independent audit, and such calculation, including but not
limited to any discount factor used to determine present value,
shall be conclusive.
For purposes of this Agreement, the following terms shall
have the meanings indicated:
(i) Cause. Termination by the Company for "Cause" shall
mean termination with the approval of the Board (A)
because of willful misconduct of a material nature by
the Employee in connection with the performance of his
duties as an employee; (B) because of the Employee's
use of alcohol or illegal drugs that affects his
ability to perform his assigned duties as an employee;
(C) because of the Employee's conviction of a felony or
serious misdemeanor involving moral turpitude; (D)
because of the Employee's embezzlement or theft from
the Company; (E) because of the Employee's gross
inattention to or dereliction of duty; or (F) because
of performance by the Employee of any other willful
act(s) which the Employee knew or reasonably should
have known would be materially detrimental to the
Company; provided, however, that prior to the
determination by the Board that "Cause" as described in
A, E or F above has occurred, the Board shall (1)
provide to the Employee in writing, in reasonable
detail, the reasons for the Board's determination that
such "Cause" exists, (2) afford the Employee a
reasonable opportunity to remedy any such breach, (3)
provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to
be considered, and (4) make any decision that such
"Cause" exists in good faith.
(ii) Good Reason. Termination by the Employee for "Good
Reason" shall mean (A) a material reduction in the
Employee's position, duties, responsibilities or status
as in effect immediately preceding the Change in
Control, or a change in the Employee's title resulting
in a material reduction in his responsibilities or
position with the Company as in effect immediately
preceding the Change in Control, in either case without
the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by
the Company after receiving notice from the Employee
and further excluding any such reductions or changes
made in good faith to conform with generally accepted
industry standards for the Employee's position; (B) a
reduction in the rate of the Employee's base salary as
in effect immediately preceding the Change in Control
or a decrease in any bonus amount to which the Employee
was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year
immediately preceding the Change in Control, in either
case without the Employee's consent; provided, however,
that a decrease in the Employee's bonus amount shall
not constitute "Good Reason" and nothing herein shall
be construed to guarantee such bonus awards if
performance, either by the Company or the Employee, is
below such targets as may reasonably and in good faith
be set forth in such bonus or incentive plans; (C) the
relocation of the Employee, without his consent, to a
location outside a 30 mile radius of Concord, North
Carolina, following a Change in Control or (D) the
resignation by the Employee, by written notice to the
Board, during the period beginning at the end of the
twelfth month period following the Change in Control
and ending on the first day of the eighteenth month
following the Change in Control.
(iii) Change in Control. For purposes of this
Agreement, "Change in Control" shall mean (A) the
consummation of a merger, consolidation, share
exchange or similar transaction of the Company
with any other corporation, entity or group, as a
result of which the holders of the voting capital
stock of the Company as a group would receive less
than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the
consummation of an agreement providing for the
sale or transfer (other than as security for
obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence
of a prior expression of approval by the Board,
the acquisition except by inheritance or devise of
more than 20% of the Company's voting capital
stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than a person, or group
including a person, who beneficially owned, as of
the date of this Agreement, more than 5% of the
Company's voting stock or equity, except that
transactions between the Company and any affiliate
or subsidiary of the Company and transactions
between the Company and any employee stock
ownership plan shall not be deemed a "Change in
Control" as described in A, B or C above.
(iv) Compensation. The Employee's Compensation shall
consist of the following: (A) the Employee's annual
base salary, as paid by the Company, in effect
immediately preceding the Change in Control plus (B) an
annual bonus equal to the average bonus (calculated as
a percentage of base salary, without regard to vesting
schedules or restrictions on the bonus compensation and
converting all post-employment payments in stock and
stock options to a cash present value) paid by the
Company for each one-year performance period (often
referred to as the "annual incentive program") to the
Employee for the three (3) most recent fiscal years
ending prior to such Change in Control pursuant to the
Company's incentive and bonus plans or, if the relevant
bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the
independent accounting firm then performing the
Company's independent audit, which calculation shall be
conclusive.
B. Upon termination of the Employee's employment entitling
the Employee to Compensation set forth in Section IA hereof, and
for the 35-month period following such termination of employment
(unless terminated sooner as provided herein), the Company shall:
(i) maintain in full force and effect for the continued
benefit of the Employee medical insurance (including coverage for
the Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under such
medical insurance plans and programs in which the Employee was
entitled to participate immediately prior to the date of such
termination of employment, provided that the Employee's continued
participation is possible under the general terms and provisions
of such plans and programs. During such period, the Company will
pay the Employee's portion, if any, of such medical insurance
premiums that may be required, and the Employee's termination of
employment at the beginning of the period shall not constitute a
"qualifying event" under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). At the conclusion of such
period, the Employee shall be entitled to full rights to
continued medical insurance coverage as provided under COBRA, if
eligible. In the event that the Employee's participation in any
such plan or program is barred for any reason, the Company shall
arrange to provide the Employee with medical insurance benefits
for such 35-month period substantially similar to those which the
Employee would otherwise have been entitled to receive under such
plans and programs from which his continued participation is
barred; provided, however, in no event will the Employee receive
from the Company the medical insurance contemplated by this
Section IB if the Employee receives comparable insurance from any
other source,
(ii) permit the Employee to participate in all qualified
retirement plans, including without limitation the Company's
pension plan and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued
benefit of the Employee the Employee's life insurance (both basic
and supplemental, if applicable) and
(iv) maintain in full force and effect for the continued
benefit of the Employee the Employee's short term disability and
long term disability insurance policies.
C. Upon termination of the Employee's employment entitling
the Employee to Compensation as set forth in Section IA hereof,
the Employee will become immediately vested in any and all stock
options and shares of restricted stock previously granted to him
by the Company notwithstanding any provision to the contrary of
any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall
also be fully vested upon grant to the Employee. The Employee
may exercise such options only at the times and in the method
described in such options. All restrictions on shares of the
Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any
manner necessary to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee
that no portion of the payment made under this Agreement, or
payments to or for the Employee under any other agreement or
plan, be deemed to be an excess parachute payment as defined in
the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. The Company and the
Employee agree that the present value of any payment hereunder
and any other payment to or for the benefit of the Employee in
the nature of compensation, receipt of which is contingent on a
Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an
amount equal to one dollar less than the maximum amount that the
Employee may receive without becoming subject to the tax imposed
by Code section 4999 or any successor provision or which the
Company may pay without loss of deduction under Code section 280G
or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section
1274(b)(2) or any successor provision. In the event that the
provisions of Code sections 280G and 4999 or any successor
provisions are repealed without succession, this Section ID shall
be of no further force or effect.
E. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date the
Employee's employment was terminated. As used in this Agreement,
"Company" shall mean the Company as defined herein and any
successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section
IE or that otherwise becomes bound by the all terms and
provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior
consent of the Company, all payments provided for under this
Section I shall be paid in cash (including the cash values of
stock options or restricted stock, if any) from the general funds
of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to
assure payment, except as provided to the contrary in funded
benefits plans. The Employee shall have no right, title or
interest whatsoever in or to any investments that the Company may
make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken
pursuant to the provisions hereof, shall create or be construed
to create a trust of any kind or a fiduciary relationship between
the Company and the Employee or any other person. To the extent
that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
G. Following the Employee's termination as a result of a
Change in Control, the Corporation agrees (i) to indemnify,
defend and hold harmless the Employee from and against any
liabilities other than those contained in Section II and III
hereof and felonies committed by the Employee against the Company
to which he may be subject as a result of his service as an
officer or director of the Company or as an officer or director
of any of the Company's subsidiaries or affiliates, and (ii) to
indemnify the Employee for all costs, including attorney's fees
and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such
employment, or (b) any legal action in which the Employee is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the
Employee and the Company relating to his rights under this
Agreement following a Change in Control, and it is determined by
agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal,
that the Employee has been substantially successful in his
claims, then reasonable legal fees and disbursements of the
Employee in connection with such dispute shall be paid by the
Company.
I. Following a Change in Control, the Employee shall be
entitled to receive outplacement assistance for a period of six
(6) months at the Company's expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with
the Company is one of trust and confidence because of the
Employee's access to trade secrets and confidential and
proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the
trade secrets and confidential or proprietary business
information of the Company.
B. Unless required by the Company in connection with
his employment or with the Company's express written consent, the
Employee agrees that he will not, either during his employment or
afterwards, directly or indirectly, use, misappropriate, disclose
or aid anyone else in disclosing to any third party for the
Employee's own benefit or the benefit of another all or any part
of any of the Company's trade secrets or confidential or
proprietary information, whether or not the information is
acquired, learned, or developed by the Employee alone or in
conjunction with others. The Employee makes the same pledge with
regard to the confidential information of the Company's
customers, contractors, or others with whom the Company has a
business relationship.
C. The Employee understands that trade secrets and
confidential or proprietary information, for purposes of this
Agreement, shall include, but not be limited to, any and all
versions of the Company's computer software, hardware, and
documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer
requirements, customer lists, employee lists and
salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and
projections for business opportunities for new or developing
business of the Company; and all other confidential or
proprietary information, patents, ideas, know-how and trade
secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company
obtains from a customer, contractor or another party or entity
and that the Company treats or designates as confidential or
proprietary information, whether or not such information is owned
or was developed by the Company.
D. The Employee also agrees that all notes, records
(including all computer and electronic records), software,
drawings, handbooks, manuals, policies, contracts, memoranda,
sales files, customer lists, employee lists or other documents
that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company,
in whatever form, including but not limited to all such documents
and data concerning any processes, inventions, services or
products used or developed by the Employee during his employment,
shall be the property of the Company. The Employee further
agrees to deliver and make available all such documents and data
to the Company, regardless of how stored or maintained and
including all originals, copies and compilations thereof, upon
the separation of his employment, for any reason, or at any other
time at the Company's request.
E. The Employee understands that the Company expects
him to respect any trade secrets or confidential information of
any of the Employee's former employers, business associates, or
other business relationships. The Employee also agrees to
respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of
certain communications is protected by state and federal laws,
and that violations of the Federal Communications Act may subject
the Employee to fines of up to $10,000, or imprisonment for up to
ten years, or both. Therefore, the Employee agrees that the
following restrictions apply to all modes of communications
during the duration of the Employee's employment with the
Company:
1. The Employee will not divulge to any
unauthorized person any knowledge that he may have
regarding communication arrangements between the
Company and its customers.
2. Except as required by the daily performance
of his duties, the Employee will not give to any
individual or group any information whatsoever
regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the
installation of the Company's central office equipment,
or any information regarding the Company's plant or
facilities.
3. Except as required in the performance of his
duties with the Company, the Employee will not listen
in on any telephone conversation in any form, nor
disclose to any unauthorized individual or group any
part of any telephone conversation which the Employee
may overhear in the performance of his duties.
4. The Employee will not discuss with his
family, friends or acquaintances any information gained
through his employment with the Company regarding
military installations, communications, filter centers
or other communication procedures and equipment
relating to national security.
5. The Employee will not divulge to any
unauthorized individual or group the existence,
substance, purport, effect of meaning of any
communication between the Company's customers.
6. The Employee will promptly refer to his
supervisor any unauthorized request regarding telephone
communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the
change in control protection contained herein and the Employee's
continued employment with the Company, the Employee agrees that,
unless specifically authorized by the Company in writing, the
Employee will not during his employment with the Company and for
a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the
employment relationship):
1. Engage in any "Competitive Activity" (as
defined below) within the "Restricted Territory" (as
defined below);
2. Serve as an employee, director, owner,
partner, contractor, consultant or agent of, or own any
interest in (except for ownership of a minor percentage
of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity"
within the "Restricted Territory";
3. Engage in any "Competitive Activity" with,
for or towards or divert, attempt to divert or direct
others to divert any business of the Company from an
existing Company customer, a joint venturer or other
business partner of the Company (hereinafter referred
to as an "affiliate"), or from a potential customer
identified through leads or relationships developed
during the Employee's employment with the Company,
within the "Restricted Territory";
B. Furthermore, the Employee will not during his
employment with the Company and for a period of three years after
his employment with the Company has terminated or ended (whatever
the reason for the end of the employment relationship) solicit or
hire for employment or as an independent contractor any employee
of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit, or cause another person in the
employ of the Company or any of the Company's affiliates to leave
his employment with the Company or affiliate for the purpose of
joining, associating, or becoming employed with any business or
activity with which the Employee is or expects to be directly or
indirectly associated or employed.
C. "Competitive Activity" means: (1) the business
activities engaged in by the Company during the Employee's
employment with the Company, including the sales, marketing,
distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee
sold or was involved during his employment with the Company;
and/or (2) the performance of any other business activities
competitive with the Company for or on behalf of any
telecommunications entity.
D. "Restricted Territory" means: (1) the geographic
area encompassing a seventy-five (75) mile radius of Concord,
North Carolina; and/or (2) any Metropolitan Statistical Area (as
defined by the United States Department of Commerce) from which
the Company generated at least two percent (2%) of its gross
annual revenue during the last two calendar years before the end
of the Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions
placed upon him by this Agreement are reasonable given the nature
of the Employee's position with the Company, the area in which
the Company markets its products and services, and the
consideration provided by the Company to the Employee pursuant to
this Agreement. Specifically, the Employee acknowledges that the
length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and
"Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any
breach or threatened breach of the provisions of Section II and
III hereof by Employee, the Company's remedies at law would be
inadequate, and the Company shall be entitled to an injunction
(without any bond or other security being required), restraining
such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude
the Company from pursuing any other remedies at law or in equity
available to it for any such breach or threatened breach.
Moreover, the Employee also agrees that if the Employee breaches
any of Sections II or III above, the Employee shall be required
to refund to the Company and the Company shall be entitled to
recover of the Employee 90% of the amount of the Employee's
Compensation (as defined in Section IA(iv) herein) for a Change
in Control already paid to the Employee by the Company under this
Agreement at the time of the breach, and the Employee shall
forfeit at the time of the breach the right to any additional
payments or benefits under this Agreement, except that if the
breach occurs before the payments set forth in Section IA are
made, the Employee shall be entitled to receive the first monthly
payment set forth in Section IA and nothing more. In such case,
the Employee and the Company agree that the confidential
information and non-compete obligations contained in this
Agreement shall remain valid and enforceable based upon the
consideration actually paid.
C. The Employee acknowledges that all of the
provisions of the Agreement are fair and necessary to protect the
interests of the Company. Accordingly, the Employee agrees not
to contest the validity or enforceability of Section II or
Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be
unenforceable, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision
or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and
subsections as separable and uphold those separable provisions
and subsections deemed to be reasonable.
D. The Employee understands that every provision of
this Agreement is severable from each other provision of this
Agreement. Therefore, if any provision of this Agreement is held
invalid or unenforceable, every other provision of this Agreement
will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee
and the Company agree that such provision shall be enforced to
the extent reasonable under the circumstances and that all other
provisions shall be enforceable to the fullest extent permissible
by law. The Employee and the Company further agree that, if any
court makes such a determination, such court shall have the power
to reduce the duration, scope and/or area of such provisions
and/or delete specific words and phrases by "blue penciling" and,
in its reduced or blue penciled form, such provisions shall then
be enforceable as allowed by law.
V. MISCELLANEOUS
A. The Employee shall have no right to receive any
payment hereunder except following a Change of Control as
determined pursuant to Section I. Nothing contained in this
Agreement shall confer upon the Employee any right to continued
employment by the Company or shall interfere in any way with the
right of the Company to terminate his employment at any time for
any reason. The provisions of this Agreement shall not affect in
any way the right or power of the Company to change its business
structure or to effect a merger, consolidation, share exchange or
similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its business or assets.
B. The Employee understands that his obligations
under this Agreement will continue whether or not his employment
with the Company is terminated voluntarily or involuntarily, or
with or without cause.
C. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Employee
and the Company may have entered into with the Company with
respect to the Employee's employment by the Company. This
Agreement may not be changed in any detail by any verbal
statement, representation, or other agreement made by any other
Company employee, or by any written document signed by any
Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of
any default by the Employer shall not constitute a waiver of its
rights under this Agreement with respect to any subsequent
default by the Employee. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by all
parties.
E. This Agreement shall be binding upon, and inure to
the benefit of, the Employee and the Company and their respective
permitted successors and assigns. Neither this Agreement nor any
right or interest hereunder shall be assignable by the Employee,
his beneficiaries, or legal representatives without the Company's
prior written consent.
F. Where appropriate as used in this Plan, the
masculine shall include the feminine.
G. This Agreement has been executed and delivered in
the State of North Carolina, and the laws of the State of North
Carolina shall govern its validity, interpretation, performance
and enforcement.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /S/ MICHAEL R. COLTRANE
EMPLOYEE:
/S/ BARRY R. RUBENS (Seal)
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1997 by and between CT COMMUNICATIONS, INC. (the
"Company"), a North Carolina corporation, and NICHOLAS L. KOTTYAN
("Employee"), an individual residing in Cabarrus County, North
Carolina;
WHEREAS, the Employee is a valued employee of the Company or
one of the Company's subsidiaries, and in order to induce the
Employee to continue employment with the Company and to enhance
the Employee's job security, the Company desires to provide
compensation to the Employee in the event the Employee's
employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar
with the Company's products, relationships, trade secrets and
confidential information relating to both the Company's and its
customers' business, products, processes and development and may
generate or have generated confidential information, the Company
wishes to protect its long-term interests by having the Employee
enter into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained
herein, including the compensation the Company agrees to pay to
the Employee upon certain events, the Employee's continued
employment with the Company, the Employee's covenants and other
good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii)
hereof) occurs and if, within two years following the Change in
Control, the employment of the Employee is terminated (A) by the
Company other than for Cause (as defined in Section IA(i)
hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined
in Section IA(iv) hereof) shall continue to be paid in monthly
installments, subject to applicable withholdings, by the Company
for a period of thirty-five (35) months following such
termination of employment. In lieu of receiving payment of
Compensation for such 35-month period in installments, the
Employee may elect, at any time prior to the earlier to occur of
a Change in Control or action by the Board of Directors of the
Company (the "Board") with respect to an event which would, upon
consummation, result in a Change in Control (which election shall
be evidenced by notice filed with the Company), to be paid the
present value of any such Compensation in a lump sum within 30
days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder.
The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's
independent audit, and such calculation, including but not
limited to any discount factor used to determine present value,
shall be conclusive.
For purposes of this Agreement, the following terms shall
have the meanings indicated:
(i) Cause. Termination by the Company for "Cause" shall
mean termination with the approval of the Board (A)
because of willful misconduct of a material nature by
the Employee in connection with the performance of his
duties as an employee; (B) because of the Employee's
use of alcohol or illegal drugs that affects his
ability to perform his assigned duties as an employee;
(C) because of the Employee's conviction of a felony or
serious misdemeanor involving moral turpitude; (D)
because of the Employee's embezzlement or theft from
the Company; (E) because of the Employee's gross
inattention to or dereliction of duty; or (F) because
of performance by the Employee of any other willful
act(s) which the Employee knew or reasonably should
have known would be materially detrimental to the
Company; provided, however, that prior to the
determination by the Board that "Cause" as described in
A, E or F above has occurred, the Board shall (1)
provide to the Employee in writing, in reasonable
detail, the reasons for the Board's determination that
such "Cause" exists, (2) afford the Employee a
reasonable opportunity to remedy any such breach, (3)
provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to
be considered, and (4) make any decision that such
"Cause" exists in good faith.
(ii) Good Reason. Termination by the Employee for "Good
Reason" shall mean (A) a material reduction in the
Employee's position, duties, responsibilities or status
as in effect immediately preceding the Change in
Control, or a change in the Employee's title resulting
in a material reduction in his responsibilities or
position with the Company as in effect immediately
preceding the Change in Control, in either case without
the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by
the Company after receiving notice from the Employee
and further excluding any such reductions or changes
made in good faith to conform with generally accepted
industry standards for the Employee's position; (B) a
reduction in the rate of the Employee's base salary as
in effect immediately preceding the Change in Control
or a decrease in any bonus amount to which the Employee
was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year
immediately preceding the Change in Control, in either
case without the Employee's consent; provided, however,
that a decrease in the Employee's bonus amount shall
not constitute "Good Reason" and nothing herein shall
be construed to guarantee such bonus awards if
performance, either by the Company or the Employee, is
below such targets as may reasonably and in good faith
be set forth in such bonus or incentive plans; (C) the
relocation of the Employee, without his consent, to a
location outside a 30 mile radius of Concord, North
Carolina, following a Change in Control or (D) the
resignation by the Employee, by written notice to the
Board, during the period beginning at the end of the
twelfth month period following the Change in Control
and ending on the first day of the eighteenth month
following the Change in Control.
(iii) Change in Control. For purposes of this
Agreement, "Change in Control" shall mean (A) the
consummation of a merger, consolidation, share
exchange or similar transaction of the Company
with any other corporation, entity or group, as a
result of which the holders of the voting capital
stock of the Company as a group would receive less
than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the
consummation of an agreement providing for the
sale or transfer (other than as security for
obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence
of a prior expression of approval by the Board,
the acquisition except by inheritance or devise of
more than 20% of the Company's voting capital
stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than a person, or group
including a person, who beneficially owned, as of
the date of this Agreement, more than 5% of the
Company's voting stock or equity, except that
transactions between the Company and any affiliate
or subsidiary of the Company and transactions
between the Company and any employee stock
ownership plan shall not be deemed a "Change in
Control" as described in A, B or C above.
(iv) Compensation. The Employee's Compensation shall
consist of the following: (A) the Employee's annual
base salary, as paid by the Company, in effect
immediately preceding the Change in Control plus (B) an
annual bonus equal to the average bonus (calculated as
a percentage of base salary, without regard to vesting
schedules or restrictions on the bonus compensation and
converting all post-employment payments in stock and
stock options to a cash present value) paid by the
Company for each one-year performance period (often
referred to as the "annual incentive program") to the
Employee for the three (3) most recent fiscal years
ending prior to such Change in Control pursuant to the
Company's incentive and bonus plans or, if the relevant
bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the
independent accounting firm then performing the
Company's independent audit, which calculation shall be
conclusive.
B. Upon termination of the Employee's employment entitling
the Employee to Compensation set forth in Section IA hereof, and
for the 35-month period following such termination of employment
(unless terminated sooner as provided herein), the Company shall:
(i) maintain in full force and effect for the continued benefit
of the Employee medical insurance (including coverage for the
Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under such
medical insurance plans and programs in which the Employee was
entitled to participate immediately prior to the date of such
termination of employment, provided that the Employee's continued
participation is possible under the general terms and provisions
of such plans and programs. During such period, the Company will
pay the Employee's portion, if any, of such medical insurance
premiums that may be required, and the Employee's termination of
employment at the beginning of the period shall not constitute a
"qualifying event" under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). At the conclusion of such
period, the Employee shall be entitled to full rights to
continued medical insurance coverage as provided under COBRA, if
eligible. In the event that the Employee's participation in any
such plan or program is barred for any reason, the Company shall
arrange to provide the Employee with medical insurance benefits
for such 35-month period substantially similar to those which the
Employee would otherwise have been entitled to receive under such
plans and programs from which his continued participation is
barred; provided, however, in no event will the Employee receive
from the Company the medical insurance contemplated by this
Section IB if the Employee receives comparable insurance from any
other source,
(ii) permit the Employee to participate in all qualified
retirement plans, including without limitation the Company's
pension plan and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued
benefit of the Employee the Employee's life insurance (both basic
and supplemental, if applicable) and
(iv) maintain in full force and effect for the continued
benefit of the Employee the Employee's short term disability and
long term disability insurance policies.
C. Upon termination of the Employee's employment entitling
the Employee to Compensation as set forth in Section IA hereof,
the Employee will become immediately vested in any and all stock
options and shares of restricted stock previously granted to him
by the Company notwithstanding any provision to the contrary of
any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall
also be fully vested upon grant to the Employee. The Employee
may exercise such options only at the times and in the method
described in such options. All restrictions on shares of the
Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any
manner necessary to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee
that no portion of the payment made under this Agreement, or
payments to or for the Employee under any other agreement or
plan, be deemed to be an excess parachute payment as defined in
the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. The Company and the
Employee agree that the present value of any payment hereunder
and any other payment to or for the benefit of the Employee in
the nature of compensation, receipt of which is contingent on a
Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an
amount equal to one dollar less than the maximum amount that the
Employee may receive without becoming subject to the tax imposed
by Code section 4999 or any successor provision or which the
Company may pay without loss of deduction under Code section 280G
or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section
1274(b)(2) or any successor provision. In the event that the
provisions of Code sections 280G and 4999 or any successor
provisions are repealed without succession, this Section ID shall
be of no further force or effect.
E. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date the
Employee's employment was terminated. As used in this Agreement,
"Company" shall mean the Company as defined herein and any
successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section
IE or that otherwise becomes bound by the all terms and
provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior
consent of the Company, all payments provided for under this
Section I shall be paid in cash (including the cash values of
stock options or restricted stock, if any) from the general funds
of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to
assure payment, except as provided to the contrary in funded
benefits plans. The Employee shall have no right, title or
interest whatsoever in or to any investments that the Company may
make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken
pursuant to the provisions hereof, shall create or be construed
to create a trust of any kind or a fiduciary relationship between
the Company and the Employee or any other person. To the extent
that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
G. Following the Employee's termination as a result of a
Change in Control, the Corporation agrees (i) to indemnify,
defend and hold harmless the Employee from and against any
liabilities other than those contained in Section II and III
hereof and felonies committed by the Employee against the Company
to which he may be subject as a result of his service as an
officer or director of the Company or as an officer or director
of any of the Company's subsidiaries or affiliates, and (ii) to
indemnify the Employee for all costs, including attorney's fees
and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such
employment, or (b) any legal action in which the Employee is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the
Employee and the Company relating to his rights under this
Agreement following a Change in Control, and it is determined by
agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal,
that the Employee has been substantially successful in his
claims, then reasonable legal fees and disbursements of the
Employee in connection with such dispute shall be paid by the
Company.
I. Following a Change in Control, the Employee shall be
entitled to receive outplacement assistance for a period of six
(6) months at the Company's expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with
the Company is one of trust and confidence because of the
Employee's access to trade secrets and confidential and
proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the
trade secrets and confidential or proprietary business
information of the Company.
B. Unless required by the Company in connection with
his employment or with the Company's express written consent, the
Employee agrees that he will not, either during his employment or
afterwards, directly or indirectly, use, misappropriate, disclose
or aid anyone else in disclosing to any third party for the
Employee's own benefit or the benefit of another all or any part
of any of the Company's trade secrets or confidential or
proprietary information, whether or not the information is
acquired, learned, or developed by the Employee alone or in
conjunction with others. The Employee makes the same pledge with
regard to the confidential information of the Company's
customers, contractors, or others with whom the Company has a
business relationship.
C. The Employee understands that trade secrets and
confidential or proprietary information, for purposes of this
Agreement, shall include, but not be limited to, any and all
versions of the Company's computer software, hardware, and
documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer
requirements, customer lists, employee lists and
salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and
projections for business opportunities for new or developing
business of the Company; and all other confidential or
proprietary information, patents, ideas, know-how and trade
secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company
obtains from a customer, contractor or another party or entity
and that the Company treats or designates as confidential or
proprietary information, whether or not such information is owned
or was developed by the Company.
D. The Employee also agrees that all notes, records
(including all computer and electronic records), software,
drawings, handbooks, manuals, policies, contracts, memoranda,
sales files, customer lists, employee lists or other documents
that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company,
in whatever form, including but not limited to all such documents
and data concerning any processes, inventions, services or
products used or developed by the Employee during his employment,
shall be the property of the Company. The Employee further
agrees to deliver and make available all such documents and data
to the Company, regardless of how stored or maintained and
including all originals, copies and compilations thereof, upon
the separation of his employment, for any reason, or at any other
time at the Company's request.
E. The Employee understands that the Company expects
him to respect any trade secrets or confidential information of
any of the Employee's former employers, business associates, or
other business relationships. The Employee also agrees to
respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of
certain communications is protected by state and federal laws,
and that violations of the Federal Communications Act may subject
the Employee to fines of up to $10,000, or imprisonment for up to
ten years, or both. Therefore, the Employee agrees that the
following restrictions apply to all modes of communications
during the duration of the Employee's employment with the
Company:
1. The Employee will not divulge to any
unauthorized person any knowledge that he may have
regarding communication arrangements between the
Company and its customers.
2. Except as required by the daily performance
of his duties, the Employee will not give to any
individual or group any information whatsoever
regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the
installation of the Company's central office equipment,
or any information regarding the Company's plant or
facilities.
3. Except as required in the performance of his
duties with the Company, the Employee will not listen
in on any telephone conversation in any form, nor
disclose to any unauthorized individual or group any
part of any telephone conversation which the Employee
may overhear in the performance of his duties.
4. The Employee will not discuss with his
family, friends or acquaintances any information gained
through his employment with the Company regarding
military installations, communications, filter centers
or other communication procedures and equipment
relating to national security.
5. The Employee will not divulge to any
unauthorized individual or group the existence,
substance, purport, effect of meaning of any
communication between the Company's customers.
6. The Employee will promptly refer to his
supervisor any unauthorized request regarding telephone
communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the
change in control protection contained herein and the Employee's
continued employment with the Company, the Employee agrees that,
unless specifically authorized by the Company in writing, the
Employee will not during his employment with the Company and for
a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the
employment relationship):
1. Engage in any "Competitive Activity" (as
defined below) within the "Restricted Territory" (as
defined below);
2. Serve as an employee, director, owner,
partner, contractor, consultant or agent of, or own any
interest in (except for ownership of a minor percentage
of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity"
within the "Restricted Territory";
3. Engage in any "Competitive Activity" with,
for or towards or divert, attempt to divert or direct
others to divert any business of the Company from an
existing Company customer, a joint venturer or other
business partner of the Company (hereinafter referred
to as an "affiliate"), or from a potential customer
identified through leads or relationships developed
during the Employee's employment with the Company,
within the "Restricted Territory";
B. Furthermore, the Employee will not during his
employment with the Company and for a period of three years after
his employment with the Company has terminated or ended (whatever
the reason for the end of the employment relationship) solicit or
hire for employment or as an independent contractor any employee
of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit, or cause another person in the
employ of the Company or any of the Company's affiliates to leave
his employment with the Company or affiliate for the purpose of
joining, associating, or becoming employed with any business or
activity with which the Employee is or expects to be directly or
indirectly associated or employed.
C. "Competitive Activity" means: (1) the business
activities engaged in by the Company during the Employee's
employment with the Company, including the sales, marketing,
distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee
sold or was involved during his employment with the Company;
and/or (2) the performance of any other business activities
competitive with the Company for or on behalf of any
telecommunications entity.
D. "Restricted Territory" means: (1) the geographic
area encompassing a seventy-five (75) mile radius of Concord,
North Carolina; and/or (2) any Metropolitan Statistical Area (as
defined by the United States Department of Commerce) from which
the Company generated at least two percent (2%) of its gross
annual revenue during the last two calendar years before the end
of the Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions
placed upon him by this Agreement are reasonable given the nature
of the Employee's position with the Company, the area in which
the Company markets its products and services, and the
consideration provided by the Company to the Employee pursuant to
this Agreement. Specifically, the Employee acknowledges that the
length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and
"Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any
breach or threatened breach of the provisions of Section II and
III hereof by Employee, the Company's remedies at law would be
inadequate, and the Company shall be entitled to an injunction
(without any bond or other security being required), restraining
such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude
the Company from pursuing any other remedies at law or in equity
available to it for any such breach or threatened breach.
Moreover, the Employee also agrees that if the Employee breaches
any of Sections II or III above, the Employee shall be required
to refund to the Company and the Company shall be entitled to
recover of the Employee 90% of the amount of the Employee's
Compensation (as defined in Section IA(iv) herein) for a Change
in Control already paid to the Employee by the Company under this
Agreement at the time of the breach, and the Employee shall
forfeit at the time of the breach the right to any additional
payments or benefits under this Agreement, except that if the
breach occurs before the payments set forth in Section IA are
made, the Employee shall be entitled to receive the first monthly
payment set forth in Section IA and nothing more. In such case,
the Employee and the Company agree that the confidential
information and non-compete obligations contained in this
Agreement shall remain valid and enforceable based upon the
consideration actually paid.
C. The Employee acknowledges that all of the
provisions of the Agreement are fair and necessary to protect the
interests of the Company. Accordingly, the Employee agrees not
to contest the validity or enforceability of Section II or
Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be
unenforceable, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision
or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and
subsections as separable and uphold those separable provisions
and subsections deemed to be reasonable.
D. The Employee understands that every provision of
this Agreement is severable from each other provision of this
Agreement. Therefore, if any provision of this Agreement is held
invalid or unenforceable, every other provision of this Agreement
will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee
and the Company agree that such provision shall be enforced to
the extent reasonable under the circumstances and that all other
provisions shall be enforceable to the fullest extent permissible
by law. The Employee and the Company further agree that, if any
court makes such a determination, such court shall have the power
to reduce the duration, scope and/or area of such provisions
and/or delete specific words and phrases by "blue penciling" and,
in its reduced or blue penciled form, such provisions shall then
be enforceable as allowed by law.
V. MISCELLANEOUS
A. The Employee shall have no right to receive any
payment hereunder except following a Change of Control as
determined pursuant to Section I. Nothing contained in this
Agreement shall confer upon the Employee any right to continued
employment by the Company or shall interfere in any way with the
right of the Company to terminate his employment at any time for
any reason. The provisions of this Agreement shall not affect in
any way the right or power of the Company to change its business
structure or to effect a merger, consolidation, share exchange or
similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its business or assets.
B. The Employee understands that his obligations
under this Agreement will continue whether or not his employment
with the Company is terminated voluntarily or involuntarily, or
with or without cause.
C. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Employee
and the Company may have entered into with the Company with
respect to the Employee's employment by the Company. This
Agreement may not be changed in any detail by any verbal
statement, representation, or other agreement made by any other
Company employee, or by any written document signed by any
Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of
any default by the Employer shall not constitute a waiver of its
rights under this Agreement with respect to any subsequent
default by the Employee. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by all
parties.
E. This Agreement shall be binding upon, and inure to
the benefit of, the Employee and the Company and their respective
permitted successors and assigns. Neither this Agreement nor any
right or interest hereunder shall be assignable by the Employee,
his beneficiaries, or legal representatives without the Company's
prior written consent.
F. Where appropriate as used in this Plan, the
masculine shall include the feminine.
G. This Agreement has been executed and delivered in
the State of North Carolina, and the laws of the State of North
Carolina shall govern its validity, interpretation, performance
and enforcement.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /S/ MICHAEL R. COLTRANE
EMPLOYEE:
/S/ NICHOLAS L. KOTTYAN (Seal)
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1997 by and between CT COMMUNICATIONS, INC. (the
"Company"), a North Carolina corporation, and THOMAS A. NORMAN
("Employee"), an individual residing in Cabarrus County, North
Carolina;
WHEREAS, the Employee is a valued employee of the Company or
one of the Company's subsidiaries, and in order to induce the
Employee to continue employment with the Company and to enhance
the Employee's job security, the Company desires to provide
compensation to the Employee in the event the Employee's
employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar
with the Company's products, relationships, trade secrets and
confidential information relating to both the Company's and its
customers' business, products, processes and development and may
generate or have generated confidential information, the Company
wishes to protect its long-term interests by having the Employee
enter into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained
herein, including the compensation the Company agrees to pay to
the Employee upon certain events, the Employee's continued
employment with the Company, the Employee's covenants and other
good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii)
hereof) occurs and if, within two years following the Change in
Control, the employment of the Employee is terminated (A) by the
Company other than for Cause (as defined in Section IA(i)
hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined
in Section IA(iv) hereof) shall continue to be paid in monthly
installments, subject to applicable withholdings, by the Company
for a period of thirty-five (35) months following such
termination of employment. In lieu of receiving payment of
Compensation for such 35-month period in installments, the
Employee may elect, at any time prior to the earlier to occur of
a Change in Control or action by the Board of Directors of the
Company (the "Board") with respect to an event which would, upon
consummation, result in a Change in Control (which election shall
be evidenced by notice filed with the Company), to be paid the
present value of any such Compensation in a lump sum within 30
days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder.
The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's
independent audit, and such calculation, including but not
limited to any discount factor used to determine present value,
shall be conclusive.
For purposes of this Agreement, the following terms shall
have the meanings indicated:
(i) Cause. Termination by the Company for "Cause" shall
mean termination with the approval of the Board (A)
because of willful misconduct of a material nature by
the Employee in connection with the performance of his
duties as an employee; (B) because of the Employee's
use of alcohol or illegal drugs that affects his
ability to perform his assigned duties as an employee;
(C) because of the Employee's conviction of a felony or
serious misdemeanor involving moral turpitude; (D)
because of the Employee's embezzlement or theft from
the Company; (E) because of the Employee's gross
inattention to or dereliction of duty; or (F) because
of performance by the Employee of any other willful
act(s) which the Employee knew or reasonably should
have known would be materially detrimental to the
Company; provided, however, that prior to the
determination by the Board that "Cause" as described in
A, E or F above has occurred, the Board shall (1)
provide to the Employee in writing, in reasonable
detail, the reasons for the Board's determination that
such "Cause" exists, (2) afford the Employee a
reasonable opportunity to remedy any such breach, (3)
provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to
be considered, and (4) make any decision that such
"Cause" exists in good faith.
(ii) Good Reason. Termination by the Employee for "Good
Reason" shall mean (A) a material reduction in the
Employee's position, duties, responsibilities or status
as in effect immediately preceding the Change in
Control, or a change in the Employee's title resulting
in a material reduction in his responsibilities or
position with the Company as in effect immediately
preceding the Change in Control, in either case without
the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by
the Company after receiving notice from the Employee
and further excluding any such reductions or changes
made in good faith to conform with generally accepted
industry standards for the Employee's position; (B) a
reduction in the rate of the Employee's base salary as
in effect immediately preceding the Change in Control
or a decrease in any bonus amount to which the Employee
was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year
immediately preceding the Change in Control, in either
case without the Employee's consent; provided, however,
that a decrease in the Employee's bonus amount shall
not constitute "Good Reason" and nothing herein shall
be construed to guarantee such bonus awards if
performance, either by the Company or the Employee, is
below such targets as may reasonably and in good faith
be set forth in such bonus or incentive plans; (C) the
relocation of the Employee, without his consent, to a
location outside a 30 mile radius of Concord, North
Carolina, following a Change in Control or (D) the
resignation by the Employee, by written notice to the
Board, during the period beginning at the end of the
twelfth month period following the Change in Control
and ending on the first day of the eighteenth month
following the Change in Control.
(iii) Change in Control. For purposes of this
Agreement, "Change in Control" shall mean (A) the
consummation of a merger, consolidation, share
exchange or similar transaction of the Company
with any other corporation, entity or group, as a
result of which the holders of the voting capital
stock of the Company as a group would receive less
than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the
consummation of an agreement providing for the
sale or transfer (other than as security for
obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence
of a prior expression of approval by the Board,
the acquisition except by inheritance or devise of
more than 20% of the Company's voting capital
stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than a person, or group
including a person, who beneficially owned, as of
the date of this Agreement, more than 5% of the
Company's voting stock or equity, except that
transactions between the Company and any affiliate
or subsidiary of the Company and transactions
between the Company and any employee stock
ownership plan shall not be deemed a "Change in
Control" as described in A, B or C above.
(iv) Compensation. The Employee's Compensation shall
consist of the following: (A) the Employee's annual
base salary, as paid by the Company, in effect
immediately preceding the Change in Control plus (B) an
annual bonus equal to the average bonus (calculated as
a percentage of base salary, without regard to vesting
schedules or restrictions on the bonus compensation and
converting all post-employment payments in stock and
stock options to a cash present value) paid by the
Company for each one-year performance period (often
referred to as the "annual incentive program") to the
Employee for the three (3) most recent fiscal years
ending prior to such Change in Control pursuant to the
Company's incentive and bonus plans or, if the relevant
bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the
independent accounting firm then performing the
Company's independent audit, which calculation shall be
conclusive.
B. Upon termination of the Employee's employment entitling
the Employee to Compensation set forth in Section IA hereof, and
for the 35-month period following such termination of employment
(unless terminated sooner as provided herein), the Company shall:
(i) maintain in full force and effect for the continued
benefit of the Employee medical insurance (including coverage for
the Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under such
medical insurance plans and programs in which the Employee was
entitled to participate immediately prior to the date of such
termination of employment, provided that the Employee's continued
participation is possible under the general terms and provisions
of such plans and programs. During such period, the Company will
pay the Employee's portion, if any, of such medical insurance
premiums that may be required, and the Employee's termination of
employment at the beginning of the period shall not constitute a
"qualifying event" under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). At the conclusion of such
period, the Employee shall be entitled to full rights to
continued medical insurance coverage as provided under COBRA, if
eligible. In the event that the Employee's participation in any
such plan or program is barred for any reason, the Company shall
arrange to provide the Employee with medical insurance benefits
for such 35-month period substantially similar to those which the
Employee would otherwise have been entitled to receive under such
plans and programs from which his continued participation is
barred; provided, however, in no event will the Employee receive
from the Company the medical insurance contemplated by this
Section IB if the Employee receives comparable insurance from any
other source,
(ii) permit the Employee to participate in all qualified
retirement plans, including without limitation the Company's
pension plan and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued
benefit of the Employee the Employee's life insurance (both basic
and supplemental, if applicable) and
(iv) maintain in full force and effect for the continued
benefit of the Employee the Employee's short term disability and
long term disability insurance policies.
C. Upon termination of the Employee's employment entitling
the Employee to Compensation as set forth in Section IA hereof,
the Employee will become immediately vested in any and all stock
options and shares of restricted stock previously granted to him
by the Company notwithstanding any provision to the contrary of
any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall
also be fully vested upon grant to the Employee. The Employee
may exercise such options only at the times and in the method
described in such options. All restrictions on shares of the
Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any
manner necessary to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee
that no portion of the payment made under this Agreement, or
payments to or for the Employee under any other agreement or
plan, be deemed to be an excess parachute payment as defined in
the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. The Company and the
Employee agree that the present value of any payment hereunder
and any other payment to or for the benefit of the Employee in
the nature of compensation, receipt of which is contingent on a
Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an
amount equal to one dollar less than the maximum amount that the
Employee may receive without becoming subject to the tax imposed
by Code section 4999 or any successor provision or which the
Company may pay without loss of deduction under Code section 280G
or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section
1274(b)(2) or any successor provision. In the event that the
provisions of Code sections 280G and 4999 or any successor
provisions are repealed without succession, this Section ID shall
be of no further force or effect.
E. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date the
Employee's employment was terminated. As used in this Agreement,
"Company" shall mean the Company as defined herein and any
successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section
IE or that otherwise becomes bound by the all terms and
provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior
consent of the Company, all payments provided for under this
Section I shall be paid in cash (including the cash values of
stock options or restricted stock, if any) from the general funds
of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to
assure payment, except as provided to the contrary in funded
benefits plans. The Employee shall have no right, title or
interest whatsoever in or to any investments that the Company may
make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken
pursuant to the provisions hereof, shall create or be construed
to create a trust of any kind or a fiduciary relationship between
the Company and the Employee or any other person. To the extent
that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
G. Following the Employee's termination as a result of a
Change in Control, the Corporation agrees (i) to indemnify,
defend and hold harmless the Employee from and against any
liabilities other than those contained in Section II and III
hereof and felonies committed by the Employee against the Company
to which he may be subject as a result of his service as an
officer or director of the Company or as an officer or director
of any of the Company's subsidiaries or affiliates, and (ii) to
indemnify the Employee for all costs, including attorney's fees
and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such
employment, or (b) any legal action in which the Employee is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the
Employee and the Company relating to his rights under this
Agreement following a Change in Control, and it is determined by
agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal,
that the Employee has been substantially successful in his
claims, then reasonable legal fees and disbursements of the
Employee in connection with such dispute shall be paid by the
Company.
I. Following a Change in Control, the Employee shall be
entitled to receive outplacement assistance for a period of six
(6) months at the Company's expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with
the Company is one of trust and confidence because of the
Employee's access to trade secrets and confidential and
proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the
trade secrets and confidential or proprietary business
information of the Company.
B. Unless required by the Company in connection with
his employment or with the Company's express written consent, the
Employee agrees that he will not, either during his employment or
afterwards, directly or indirectly, use, misappropriate, disclose
or aid anyone else in disclosing to any third party for the
Employee's own benefit or the benefit of another all or any part
of any of the Company's trade secrets or confidential or
proprietary information, whether or not the information is
acquired, learned, or developed by the Employee alone or in
conjunction with others. The Employee makes the same pledge with
regard to the confidential information of the Company's
customers, contractors, or others with whom the Company has a
business relationship.
C. The Employee understands that trade secrets and
confidential or proprietary information, for purposes of this
Agreement, shall include, but not be limited to, any and all
versions of the Company's computer software, hardware, and
documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer
requirements, customer lists, employee lists and
salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and
projections for business opportunities for new or developing
business of the Company; and all other confidential or
proprietary information, patents, ideas, know-how and trade
secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company
obtains from a customer, contractor or another party or entity
and that the Company treats or designates as confidential or
proprietary information, whether or not such information is owned
or was developed by the Company.
D. The Employee also agrees that all notes, records
(including all computer and electronic records), software,
drawings, handbooks, manuals, policies, contracts, memoranda,
sales files, customer lists, employee lists or other documents
that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company,
in whatever form, including but not limited to all such documents
and data concerning any processes, inventions, services or
products used or developed by the Employee during his employment,
shall be the property of the Company. The Employee further
agrees to deliver and make available all such documents and data
to the Company, regardless of how stored or maintained and
including all originals, copies and compilations thereof, upon
the separation of his employment, for any reason, or at any other
time at the Company's request.
E. The Employee understands that the Company expects
him to respect any trade secrets or confidential information of
any of the Employee's former employers, business associates, or
other business relationships. The Employee also agrees to
respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of
certain communications is protected by state and federal laws,
and that violations of the Federal Communications Act may subject
the Employee to fines of up to $10,000, or imprisonment for up to
ten years, or both. Therefore, the Employee agrees that the
following restrictions apply to all modes of communications
during the duration of the Employee's employment with the
Company:
1. The Employee will not divulge to any
unauthorized person any knowledge that he may have
regarding communication arrangements between the
Company and its customers.
2. Except as required by the daily performance
of his duties, the Employee will not give to any
individual or group any information whatsoever
regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the
installation of the Company's central office equipment,
or any information regarding the Company's plant or
facilities.
3. Except as required in the performance of his
duties with the Company, the Employee will not listen
in on any telephone conversation in any form, nor
disclose to any unauthorized individual or group any
part of any telephone conversation which the Employee
may overhear in the performance of his duties.
4. The Employee will not discuss with his
family, friends or acquaintances any information gained
through his employment with the Company regarding
military installations, communications, filter centers
or other communication procedures and equipment
relating to national security.
5. The Employee will not divulge to any
unauthorized individual or group the existence,
substance, purport, effect of meaning of any
communication between the Company's customers.
6. The Employee will promptly refer to his
supervisor any unauthorized request regarding telephone
communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the
change in control protection contained herein and the Employee's
continued employment with the Company, the Employee agrees that,
unless specifically authorized by the Company in writing, the
Employee will not during his employment with the Company and for
a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the
employment relationship):
1. Engage in any "Competitive Activity" (as
defined below) within the "Restricted Territory" (as
defined below);
2. Serve as an employee, director, owner,
partner, contractor, consultant or agent of, or own any
interest in (except for ownership of a minor percentage
of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity"
within the "Restricted Territory";
3. Engage in any "Competitive Activity" with,
for or towards or divert, attempt to divert or direct
others to divert any business of the Company from an
existing Company customer, a joint venturer or other
business partner of the Company (hereinafter referred
to as an "affiliate"), or from a potential customer
identified through leads or relationships developed
during the Employee's employment with the Company,
within the "Restricted Territory";
B. Furthermore, the Employee will not during his
employment with the Company and for a period of three years after
his employment with the Company has terminated or ended (whatever
the reason for the end of the employment relationship) solicit or
hire for employment or as an independent contractor any employee
of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit, or cause another person in the
employ of the Company or any of the Company's affiliates to leave
his employment with the Company or affiliate for the purpose of
joining, associating, or becoming employed with any business or
activity with which the Employee is or expects to be directly or
indirectly associated or employed.
C. "Competitive Activity" means: (1) the business
activities engaged in by the Company during the Employee's
employment with the Company, including the sales, marketing,
distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee
sold or was involved during his employment with the Company;
and/or (2) the performance of any other business activities
competitive with the Company for or on behalf of any
telecommunications entity.
D. "Restricted Territory" means: (1) the geographic
area encompassing a seventy-five (75) mile radius of Concord,
North Carolina; and/or (2) any Metropolitan Statistical Area (as
defined by the United States Department of Commerce) from which
the Company generated at least two percent (2%) of its gross
annual revenue during the last two calendar years before the end
of the Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions
placed upon him by this Agreement are reasonable given the nature
of the Employee's position with the Company, the area in which
the Company markets its products and services, and the
consideration provided by the Company to the Employee pursuant to
this Agreement. Specifically, the Employee acknowledges that the
length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and
"Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any
breach or threatened breach of the provisions of Section II and
III hereof by Employee, the Company's remedies at law would be
inadequate, and the Company shall be entitled to an injunction
(without any bond or other security being required), restraining
such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude
the Company from pursuing any other remedies at law or in equity
available to it for any such breach or threatened breach.
Moreover, the Employee also agrees that if the Employee breaches
any of Sections II or III above, the Employee shall be required
to refund to the Company and the Company shall be entitled to
recover of the Employee 90% of the amount of the Employee's
Compensation (as defined in Section IA(iv) herein) for a Change
in Control already paid to the Employee by the Company under this
Agreement at the time of the breach, and the Employee shall
forfeit at the time of the breach the right to any additional
payments or benefits under this Agreement, except that if the
breach occurs before the payments set forth in Section IA are
made, the Employee shall be entitled to receive the first monthly
payment set forth in Section IA and nothing more. In such case,
the Employee and the Company agree that the confidential
information and non-compete obligations contained in this
Agreement shall remain valid and enforceable based upon the
consideration actually paid.
C. The Employee acknowledges that all of the
provisions of the Agreement are fair and necessary to protect the
interests of the Company. Accordingly, the Employee agrees not
to contest the validity or enforceability of Section II or
Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be
unenforceable, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision
or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and
subsections as separable and uphold those separable provisions
and subsections deemed to be reasonable.
D. The Employee understands that every provision of
this Agreement is severable from each other provision of this
Agreement. Therefore, if any provision of this Agreement is held
invalid or unenforceable, every other provision of this Agreement
will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee
and the Company agree that such provision shall be enforced to
the extent reasonable under the circumstances and that all other
provisions shall be enforceable to the fullest extent permissible
by law. The Employee and the Company further agree that, if any
court makes such a determination, such court shall have the power
to reduce the duration, scope and/or area of such provisions
and/or delete specific words and phrases by "blue penciling" and,
in its reduced or blue penciled form, such provisions shall then
be enforceable as allowed by law.
V. MISCELLANEOUS
A. The Employee shall have no right to receive any
payment hereunder except following a Change of Control as
determined pursuant to Section I. Nothing contained in this
Agreement shall confer upon the Employee any right to continued
employment by the Company or shall interfere in any way with the
right of the Company to terminate his employment at any time for
any reason. The provisions of this Agreement shall not affect in
any way the right or power of the Company to change its business
structure or to effect a merger, consolidation, share exchange or
similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its business or assets.
B. The Employee understands that his obligations
under this Agreement will continue whether or not his employment
with the Company is terminated voluntarily or involuntarily, or
with or without cause.
C. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Employee
and the Company may have entered into with the Company with
respect to the Employee's employment by the Company. This
Agreement may not be changed in any detail by any verbal
statement, representation, or other agreement made by any other
Company employee, or by any written document signed by any
Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of
any default by the Employer shall not constitute a waiver of its
rights under this Agreement with respect to any subsequent
default by the Employee. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by all
parties.
E. This Agreement shall be binding upon, and inure to
the benefit of, the Employee and the Company and their respective
permitted successors and assigns. Neither this Agreement nor any
right or interest hereunder shall be assignable by the Employee,
his beneficiaries, or legal representatives without the Company's
prior written consent.
F. Where appropriate as used in this Plan, the
masculine shall include the feminine.
G. This Agreement has been executed and delivered in
the State of North Carolina, and the laws of the State of North
Carolina shall govern its validity, interpretation, performance
and enforcement.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /S/ MICHAEL R. COLTRANE
EMPLOYEE:
/S/ THOMAS A. NORMAN (Seal)
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1997 by and between CT COMMUNICATIONS, INC. (the
"Company"), a North Carolina corporation, and CATHERINE A DUDA
("Employee"), an individual residing in Mecklenburg County, North
Carolina;
WHEREAS, the Employee is a valued employee of the Company or
one of the Company's subsidiaries, and in order to induce the
Employee to continue employment with the Company and to enhance
the Employee's job security, the Company desires to provide
compensation to the Employee in the event the Employee's
employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar
with the Company's products, relationships, trade secrets and
confidential information relating to both the Company's and its
customers' business, products, processes and development and may
generate or have generated confidential information, the Company
wishes to protect its long-term interests by having the Employee
enter into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained
herein, including the compensation the Company agrees to pay to
the Employee upon certain events, the Employee's continued
employment with the Company, the Employee's covenants and other
good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii)
hereof) occurs and if, within two years following the Change in
Control, the employment of the Employee is terminated (A) by the
Company other than for Cause (as defined in Section IA(i)
hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined
in Section IA(iv) hereof) shall continue to be paid in monthly
installments, subject to applicable withholdings, by the Company
for a period of thirty-five (35) months following such
termination of employment. In lieu of receiving payment of
Compensation for such 35-month period in installments, the
Employee may elect, at any time prior to the earlier to occur of
a Change in Control or action by the Board of Directors of the
Company (the "Board") with respect to an event which would, upon
consummation, result in a Change in Control (which election shall
be evidenced by notice filed with the Company), to be paid the
present value of any such Compensation in a lump sum within 30
days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder.
The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's
independent audit, and such calculation, including but not
limited to any discount factor used to determine present value,
shall be conclusive.
For purposes of this Agreement, the following terms shall
have the meanings indicated:
(i) Cause. Termination by the Company for "Cause" shall
mean termination with the approval of the Board (A)
because of willful misconduct of a material nature by
the Employee in connection with the performance of his
duties as an employee; (B) because of the Employee's
use of alcohol or illegal drugs that affects his
ability to perform his assigned duties as an employee;
(C) because of the Employee's conviction of a felony or
serious misdemeanor involving moral turpitude; (D)
because of the Employee's embezzlement or theft from
the Company; (E) because of the Employee's gross
inattention to or dereliction of duty; or (F) because
of performance by the Employee of any other willful
act(s) which the Employee knew or reasonably should
have known would be materially detrimental to the
Company; provided, however, that prior to the
determination by the Board that "Cause" as described in
A, E or F above has occurred, the Board shall (1)
provide to the Employee in writing, in reasonable
detail, the reasons for the Board's determination that
such "Cause" exists, (2) afford the Employee a
reasonable opportunity to remedy any such breach, (3)
provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to
be considered, and (4) make any decision that such
"Cause" exists in good faith.
(ii) Good Reason. Termination by the Employee for "Good
Reason" shall mean (A) a material reduction in the
Employee's position, duties, responsibilities or status
as in effect immediately preceding the Change in
Control, or a change in the Employee's title resulting
in a material reduction in his responsibilities or
position with the Company as in effect immediately
preceding the Change in Control, in either case without
the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by
the Company after receiving notice from the Employee
and further excluding any such reductions or changes
made in good faith to conform with generally accepted
industry standards for the Employee's position; (B) a
reduction in the rate of the Employee's base salary as
in effect immediately preceding the Change in Control
or a decrease in any bonus amount to which the Employee
was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year
immediately preceding the Change in Control, in either
case without the Employee's consent; provided, however,
that a decrease in the Employee's bonus amount shall
not constitute "Good Reason" and nothing herein shall
be construed to guarantee such bonus awards if
performance, either by the Company or the Employee, is
below such targets as may reasonably and in good faith
be set forth in such bonus or incentive plans; (C) the
relocation of the Employee, without his consent, to a
location outside a 30 mile radius of Concord, North
Carolina, following a Change in Control or (D) the
resignation by the Employee, by written notice to the
Board, during the period beginning at the end of the
twelfth month period following the Change in Control
and ending on the first day of the eighteenth month
following the Change in Control.
(iii) Change in Control. For purposes of this
Agreement, "Change in Control" shall mean (A) the
consummation of a merger, consolidation, share
exchange or similar transaction of the Company
with any other corporation, entity or group, as a
result of which the holders of the voting capital
stock of the Company as a group would receive less
than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the
consummation of an agreement providing for the
sale or transfer (other than as security for
obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence
of a prior expression of approval by the Board,
the acquisition except by inheritance or devise of
more than 20% of the Company's voting capital
stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than a person, or group
including a person, who beneficially owned, as of
the date of this Agreement, more than 5% of the
Company's voting stock or equity, except that
transactions between the Company and any affiliate
or subsidiary of the Company and transactions
between the Company and any employee stock
ownership plan shall not be deemed a "Change in
Control" as described in A, B or C above.
(iv) Compensation. The Employee's Compensation shall
consist of the following: (A) the Employee's annual
base salary, as paid by the Company, in effect
immediately preceding the Change in Control plus (B) an
annual bonus equal to the average bonus (calculated as
a percentage of base salary, without regard to vesting
schedules or restrictions on the bonus compensation and
converting all post-employment payments in stock and
stock options to a cash present value) paid by the
Company for each one-year performance period (often
referred to as the "annual incentive program") to the
Employee for the three (3) most recent fiscal years
ending prior to such Change in Control pursuant to the
Company's incentive and bonus plans or, if the relevant
bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the
independent accounting firm then performing the
Company's independent audit, which calculation shall be
conclusive.
B. Upon termination of the Employee's employment entitling
the Employee to Compensation set forth in Section IA hereof, and
for the 35-month period following such termination of employment
(unless terminated sooner as provided herein), the Company shall:
(i) maintain in full force and effect for the continued benefit
of the Employee medical insurance (including coverage for the
Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under such
medical insurance plans and programs in which the Employee was
entitled to participate immediately prior to the date of such
termination of employment, provided that the Employee's continued
participation is possible under the general terms and provisions
of such plans and programs. During such period, the Company will
pay the Employee's portion, if any, of such medical insurance
premiums that may be required, and the Employee's termination of
employment at the beginning of the period shall not constitute a
"qualifying event" under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). At the conclusion of such
period, the Employee shall be entitled to full rights to
continued medical insurance coverage as provided under COBRA, if
eligible. In the event that the Employee's participation in any
such plan or program is barred for any reason, the Company shall
arrange to provide the Employee with medical insurance benefits
for such 35-month period substantially similar to those which the
Employee would otherwise have been entitled to receive under such
plans and programs from which his continued participation is
barred; provided, however, in no event will the Employee receive
from the Company the medical insurance contemplated by this
Section IB if the Employee receives comparable insurance from any
other source,
(ii) permit the Employee to participate in all qualified
retirement plans, including without limitation the Company's
pension plan and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued
benefit of the Employee the Employee's life insurance (both basic
and supplemental, if applicable) and
(iv) maintain in full force and effect for the continued
benefit of the Employee the Employee's short term disability and
long term disability insurance policies.
C. Upon termination of the Employee's employment entitling
the Employee to Compensation as set forth in Section IA hereof,
the Employee will become immediately vested in any and all stock
options and shares of restricted stock previously granted to him
by the Company notwithstanding any provision to the contrary of
any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall
also be fully vested upon grant to the Employee. The Employee
may exercise such options only at the times and in the method
described in such options. All restrictions on shares of the
Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any
manner necessary to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee
that no portion of the payment made under this Agreement, or
payments to or for the Employee under any other agreement or
plan, be deemed to be an excess parachute payment as defined in
the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. The Company and the
Employee agree that the present value of any payment hereunder
and any other payment to or for the benefit of the Employee in
the nature of compensation, receipt of which is contingent on a
Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an
amount equal to one dollar less than the maximum amount that the
Employee may receive without becoming subject to the tax imposed
by Code section 4999 or any successor provision or which the
Company may pay without loss of deduction under Code section 280G
or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section
1274(b)(2) or any successor provision. In the event that the
provisions of Code sections 280G and 4999 or any successor
provisions are repealed without succession, this Section ID shall
be of no further force or effect.
E. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date the
Employee's employment was terminated. As used in this Agreement,
"Company" shall mean the Company as defined herein and any
successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section
IE or that otherwise becomes bound by the all terms and
provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior
consent of the Company, all payments provided for under this
Section I shall be paid in cash (including the cash values of
stock options or restricted stock, if any) from the general funds
of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to
assure payment, except as provided to the contrary in funded
benefits plans. The Employee shall have no right, title or
interest whatsoever in or to any investments that the Company may
make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken
pursuant to the provisions hereof, shall create or be construed
to create a trust of any kind or a fiduciary relationship between
the Company and the Employee or any other person. To the extent
that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
G. Following the Employee's termination as a result of a
Change in Control, the Corporation agrees (i) to indemnify,
defend and hold harmless the Employee from and against any
liabilities other than those contained in Section II and III
hereof and felonies committed by the Employee against the Company
to which he may be subject as a result of his service as an
officer or director of the Company or as an officer or director
of any of the Company's subsidiaries or affiliates, and (ii) to
indemnify the Employee for all costs, including attorney's fees
and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such
employment, or (b) any legal action in which the Employee is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the
Employee and the Company relating to his rights under this
Agreement following a Change in Control, and it is determined by
agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal,
that the Employee has been substantially successful in his
claims, then reasonable legal fees and disbursements of the
Employee in connection with such dispute shall be paid by the
Company.
I. Following a Change in Control, the Employee shall be
entitled to receive outplacement assistance for a period of six
(6) months at the Company's expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with
the Company is one of trust and confidence because of the
Employee's access to trade secrets and confidential and
proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the
trade secrets and confidential or proprietary business
information of the Company.
B. Unless required by the Company in connection with
his employment or with the Company's express written consent, the
Employee agrees that he will not, either during his employment or
afterwards, directly or indirectly, use, misappropriate, disclose
or aid anyone else in disclosing to any third party for the
Employee's own benefit or the benefit of another all or any part
of any of the Company's trade secrets or confidential or
proprietary information, whether or not the information is
acquired, learned, or developed by the Employee alone or in
conjunction with others. The Employee makes the same pledge with
regard to the confidential information of the Company's
customers, contractors, or others with whom the Company has a
business relationship.
C. The Employee understands that trade secrets and
confidential or proprietary information, for purposes of this
Agreement, shall include, but not be limited to, any and all
versions of the Company's computer software, hardware, and
documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer
requirements, customer lists, employee lists and
salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and
projections for business opportunities for new or developing
business of the Company; and all other confidential or
proprietary information, patents, ideas, know-how and trade
secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company
obtains from a customer, contractor or another party or entity
and that the Company treats or designates as confidential or
proprietary information, whether or not such information is owned
or was developed by the Company.
D. The Employee also agrees that all notes, records
(including all computer and electronic records), software,
drawings, handbooks, manuals, policies, contracts, memoranda,
sales files, customer lists, employee lists or other documents
that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company,
in whatever form, including but not limited to all such documents
and data concerning any processes, inventions, services or
products used or developed by the Employee during his employment,
shall be the property of the Company. The Employee further
agrees to deliver and make available all such documents and data
to the Company, regardless of how stored or maintained and
including all originals, copies and compilations thereof, upon
the separation of his employment, for any reason, or at any other
time at the Company's request.
E. The Employee understands that the Company expects
him to respect any trade secrets or confidential information of
any of the Employee's former employers, business associates, or
other business relationships. The Employee also agrees to
respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of
certain communications is protected by state and federal laws,
and that violations of the Federal Communications Act may subject
the Employee to fines of up to $10,000, or imprisonment for up to
ten years, or both. Therefore, the Employee agrees that the
following restrictions apply to all modes of communications
during the duration of the Employee's employment with the
Company:
1. The Employee will not divulge to any
unauthorized person any knowledge that he may have
regarding communication arrangements between the
Company and its customers.
2. Except as required by the daily performance
of his duties, the Employee will not give to any
individual or group any information whatsoever
regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the
installation of the Company's central office equipment,
or any information regarding the Company's plant or
facilities.
3. Except as required in the performance of his
duties with the Company, the Employee will not listen
in on any telephone conversation in any form, nor
disclose to any unauthorized individual or group any
part of any telephone conversation which the Employee
may overhear in the performance of his duties.
4. The Employee will not discuss with his
family, friends or acquaintances any information gained
through his employment with the Company regarding
military installations, communications, filter centers
or other communication procedures and equipment
relating to national security.
5. The Employee will not divulge to any
unauthorized individual or group the existence,
substance, purport, effect of meaning of any
communication between the Company's customers.
6. The Employee will promptly refer to his
supervisor any unauthorized request regarding telephone
communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the
change in control protection contained herein and the Employee's
continued employment with the Company, the Employee agrees that,
unless specifically authorized by the Company in writing, the
Employee will not during his employment with the Company and for
a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the
employment relationship):
1. Engage in any "Competitive Activity" (as
defined below) within the "Restricted Territory" (as
defined below);
2. Serve as an employee, director, owner,
partner, contractor, consultant or agent of, or own any
interest in (except for ownership of a minor percentage
of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity"
within the "Restricted Territory";
3. Engage in any "Competitive Activity" with,
for or towards or divert, attempt to divert or direct
others to divert any business of the Company from an
existing Company customer, a joint venturer or other
business partner of the Company (hereinafter referred
to as an "affiliate"), or from a potential customer
identified through leads or relationships developed
during the Employee's employment with the Company,
within the "Restricted Territory";
B. Furthermore, the Employee will not during his
employment with the Company and for a period of three years after
his employment with the Company has terminated or ended (whatever
the reason for the end of the employment relationship) solicit or
hire for employment or as an independent contractor any employee
of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit, or cause another person in the
employ of the Company or any of the Company's affiliates to leave
his employment with the Company or affiliate for the purpose of
joining, associating, or becoming employed with any business or
activity with which the Employee is or expects to be directly or
indirectly associated or employed.
C. "Competitive Activity" means: (1) the business
activities engaged in by the Company during the Employee's
employment with the Company, including the sales, marketing,
distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee
sold or was involved during his employment with the Company;
and/or (2) the performance of any other business activities
competitive with the Company for or on behalf of any
telecommunications entity.
D. "Restricted Territory" means: (1) the geographic
area encompassing a seventy-five (75) mile radius of Concord,
North Carolina; and/or (2) any Metropolitan Statistical Area (as
defined by the United States Department of Commerce) from which
the Company generated at least two percent (2%) of its gross
annual revenue during the last two calendar years before the end
of the Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions
placed upon him by this Agreement are reasonable given the nature
of the Employee's position with the Company, the area in which
the Company markets its products and services, and the
consideration provided by the Company to the Employee pursuant to
this Agreement. Specifically, the Employee acknowledges that the
length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and
"Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any
breach or threatened breach of the provisions of Section II and
III hereof by Employee, the Company's remedies at law would be
inadequate, and the Company shall be entitled to an injunction
(without any bond or other security being required), restraining
such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude
the Company from pursuing any other remedies at law or in equity
available to it for any such breach or threatened breach.
Moreover, the Employee also agrees that if the Employee breaches
any of Sections II or III above, the Employee shall be required
to refund to the Company and the Company shall be entitled to
recover of the Employee 90% of the amount of the Employee's
Compensation (as defined in Section IA(iv) herein) for a Change
in Control already paid to the Employee by the Company under this
Agreement at the time of the breach, and the Employee shall
forfeit at the time of the breach the right to any additional
payments or benefits under this Agreement, except that if the
breach occurs before the payments set forth in Section IA are
made, the Employee shall be entitled to receive the first monthly
payment set forth in Section IA and nothing more. In such case,
the Employee and the Company agree that the confidential
information and non-compete obligations contained in this
Agreement shall remain valid and enforceable based upon the
consideration actually paid.
C. The Employee acknowledges that all of the
provisions of the Agreement are fair and necessary to protect the
interests of the Company. Accordingly, the Employee agrees not
to contest the validity or enforceability of Section II or
Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be
unenforceable, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision
or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and
subsections as separable and uphold those separable provisions
and subsections deemed to be reasonable.
D. The Employee understands that every provision of
this Agreement is severable from each other provision of this
Agreement. Therefore, if any provision of this Agreement is held
invalid or unenforceable, every other provision of this Agreement
will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee
and the Company agree that such provision shall be enforced to
the extent reasonable under the circumstances and that all other
provisions shall be enforceable to the fullest extent permissible
by law. The Employee and the Company further agree that, if any
court makes such a determination, such court shall have the power
to reduce the duration, scope and/or area of such provisions
and/or delete specific words and phrases by "blue penciling" and,
in its reduced or blue penciled form, such provisions shall then
be enforceable as allowed by law.
V. MISCELLANEOUS
A. The Employee shall have no right to receive any
payment hereunder except following a Change of Control as
determined pursuant to Section I. Nothing contained in this
Agreement shall confer upon the Employee any right to continued
employment by the Company or shall interfere in any way with the
right of the Company to terminate his employment at any time for
any reason. The provisions of this Agreement shall not affect in
any way the right or power of the Company to change its business
structure or to effect a merger, consolidation, share exchange or
similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its business or assets.
B. The Employee understands that his obligations
under this Agreement will continue whether or not his employment
with the Company is terminated voluntarily or involuntarily, or
with or without cause.
C. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Employee
and the Company may have entered into with the Company with
respect to the Employee's employment by the Company. This
Agreement may not be changed in any detail by any verbal
statement, representation, or other agreement made by any other
Company employee, or by any written document signed by any
Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of
any default by the Employer shall not constitute a waiver of its
rights under this Agreement with respect to any subsequent
default by the Employee. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by all
parties.
E. This Agreement shall be binding upon, and inure to
the benefit of, the Employee and the Company and their respective
permitted successors and assigns. Neither this Agreement nor any
right or interest hereunder shall be assignable by the Employee,
his beneficiaries, or legal representatives without the Company's
prior written consent.
F. Where appropriate as used in this Plan, the
masculine shall include the feminine.
G. This Agreement has been executed and delivered in
the State of North Carolina, and the laws of the State of North
Carolina shall govern its validity, interpretation, performance
and enforcement.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /S/ MICHAEL R. COLTRANE
EMPLOYEE:
/S/ CATHERINE A. DUDA (Seal)
Agreement under
Supplemental Executive Retirement Plan
THIS AGREEMENT MADE THIS ____ day of _____________________,
1997, by and between CT Communications, Inc., a corporation
organized under the State of North Carolina (hereinafter
referred to as "Employer"), and ___________________________,
an individual whose address is
_____________________________________________, and who
resides in the City of _______________________, County of
______________, and State of
____________________________(hereinafter referred to as
"Employee").
WITNESSETH
WHEREAS, the Employer currently employs the Employee, and
the Employee serves the Employer in such capacity as the
Board of Directors of the Employer may designate from time
to time; and
WHEREAS, the Employee currently devotes all of his time,
attention, skill and efforts to the performance of duties on
behalf of the Employer; and
WHEREAS, in consideration of services rendered on behalf of
the Employer and as an inducement for ongoing valuable
services until retirement, the Employer has agreed to
provide a deferred compensation benefit to the Employee; and
WHEREAS, the intent of this deferred compensation agreement
(hereinafter referred to as the "Agreement") is to provide
from this Agreement, the Concord Telephone Company Pension
Benefit Plan, and Social Security, an aggregate income
replacement ratio of 60% of the Employee's pre-retirement
Average Compensation (paid in the form of a single life
annuity and calculated at no more than 20 Years of Service);
NOW THEREFORE, in consideration of the Agreement and mutual
promises hereinafter contained, the parties hereto agree to
the following:
Article I
DEFINITIONS. The following definitions shall govern this
Agreement:
1. ACCRUED BENEFIT means the accrued benefit of the
Employee determined under Article III expressed in
terms of an annual single life annuity beginning at or
after the date he attains Normal Retirement Age on the
basis of his years of Creditable Service to the date as
of which the computation is made.
2. AGE means the Employee's age at the nearest birthday,
except as otherwise specifically provided.
3. ANNIVERSARY DATE means the date of this Agreement and
each anniversary thereof.
4. AVERAGE COMPENSATION means the average of the
Employee's annual Benefit Compensation for the five
consecutive Years of Service that produce the highest
average. The partial Plan Year that includes the
Employee's retirement date or other termination date
may be included if it results in a higher average. If
the Employee does not have at least five consecutive
Years of Service, all of his Years of Service will be
included in determining his Average Compensation.
5. BENEFICIARY means the person designated in writing by
the Employee to receive any benefits due the Employee
upon his death. If no such designation is made or if
the designated person is not living at the death of the
Employee, the Beneficiary shall be the deceased
Employee's spouse, if living; if the Employer is not
survived by a spouse, the Beneficiary shall be his
estate.
6. BENEFIT COMPENSATION means the remuneration received by
the Employee from the Employer as basic salary or
wages, and annual incentive bonuses (that may be
comprised of cash and/or stock components). Benefit
Compensation does not include income derived from long-term
incentive arrangements, including but not limited
to the Employer's long-term incentive plans or plans
that provide the Employee benefits in the form of cash,
restricted stock or stock options. Benefit
Compensation includes any salary deferral amounts the
Employee elects to contribute to the Employer's
retirement savings plan under Internal Revenue Code of
1986 (the "Code") section 401(k) or cafeteria plan
under Code section 125, if any; but excludes the cost
or value of benefit programs in which the Employee may
participate (such as group insurance (but excluding the
Employee's executive life insurance, if any),
disability, hospitalization, sick pay, perquisites, or
similar benefits), special cash awards or stock
received outside the Employer's normal programs, income
derived from the exercise of stock options and/or the
receipt of restricted stock, the cost of benefits under
this Agreement, the value of job perquisites treated as
income and any other payments or benefits not usually
regarded as pay for service.
7. BOARD OF DIRECTORS means the Board of Directors of the
Employer.
8. COMMITTEE means the Compensation Committee of the Board
of Directors or such other Committee as may be
appointed by the Board of Directors to administer this
Plan pursuant to Article II.
9. CREDITABLE SERVICE means all of the Employee's Years of
Service, up to age 65 (including all periods up to a
maximum of 35 months during which the the Employee has
received cash benefits pursuant to a Change-of-Control
Agreement). Creditable Service shall be used in
calculating the Employee's Accrued Benefit under the
Plan. If the Employee terminates his employment with
the Employer and receives all of his vested Accrued
Benefit under the Plan and later is re-employed by the
Employer, his service before he left the Employer will
not be counted in determining his Creditable Service.
10. DISABILITY means the inability of the Employee to
engage in his profession by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which is to last or can
be expected to last for a continuous period of not less
than twelve months, as determined by the Plan
Administrator in its sole discretion upon certification
thereof by a qualified physician selected by the Plan
Administrator after such physician examines the
Employee.
11. DISABILITY RETIREMENT DATE means the date the Committee
establishes as the date the Employee may retire because
of the Employee's Disability.
12. EARLY RETIREMENT AGE means the date the Employee
attains age 55.
13. EFFECTIVE DATE means the date of this Agreement, unless
the Employer specifies otherwise.
14. EMPLOYER means CT Communications, Inc. In the case of
a group of employers that constitute a controlled group
of corporations (as defined in Section 414(b) of the
Internal Revenue Code of 1986, as amended) or that
constitutes trades or businesses that are under common
control (as defined in Section 414(c) of the Internal
Revenue Code of 1986, as amended), all such employers
shall be considered a single Employer.
15. NORMAL RETIREMENT AGE means the date the Employee
attains age 65 if the Employee was born in 1937 or
before; the date the Employee attains age 66, if the
Employee was born between 1938 and 1954; and the date
the Employee attains age 67 if the Employee was born in
1955 or later.
16. NORMAL RETIREMENT DATE means the first day of the first
month beginning on or after the date the Employee
attains Normal Retirement Age.
17. PENSION PLAN means the Concord Telephone Company
Pension Benefit Plan, as amended from time to time.
18. PLAN means the Employer's Supplemental Executive
Retirement Plan, which is comprised of this Agreement
and similar agreements between the Employer and other
executives employed by the Employer, wherein the
Employer agrees to provide supplemental retirement
benefits to such executives to supplement their Pension
Plan and Social Security benefits.
19. PLAN YEAR means the twelve consecutive month period
beginning January 1 and ending December 31.
20. SOCIAL SECURITY PRIMARY INSURANCE AMOUNT means an
annual amount calculated according to the rules for
computing the "Primary Insurance Amount" under the
Federal Social Security Act as in effect at the time
the Employee retires or terminates employment. The
Committee, at its discretion, reserves the right to
revise or amend the definition of "Primary Insurance
Amount" should the federal Social Security Act reduce
the Employee's projected Social Security benefit
subsequent to the adoption of the Plan. In determining
this amount, the Employee's actual earnings shall be
used for calendar years through the year preceding the
date of termination, to the extent such information is
available. For years beginning with the date of
termination and through the calendar year during which
the Employee attains his Normal Retirement Age, it will
be assumed that the Employee continues to earn
compensation based on his compensation rate on the date
of termination.
21. YEAR OF SERVICE means a Plan Year in which the Employee
remains a participant in the Plan, at the Committee's
discretion and with the approval of the Board of
Directors, and completes 1000 or more hours of service
(as determined under the Pension Plan). For service
completed before January 1, 1976, a Year of Service is
a twelve month period of service, taking into account
all periods of service without loss of credit for
termination of service. Service before January 1, 1976
will be counted only if the Employee was employed by
the Employer on January 1, 1976. The Employee shall
not receive credit for a Year of Service during periods
of Disability.
Article II
ADMINISTRATION. The Committee shall be the Plan
Administrator. The Plan Administrator shall be responsible
for administering the Plan. The Plan Administrator shall
have all of the powers necessary to enable it to properly
carry out its duties under the Plan. Not in limitation of
the foregoing, the Plan Administrator shall have the power
to construe and interpret the Plan and to determine all
questions that shall arise thereunder. The Plan
Administrator shall have such other and further specified
duties, powers, authority and discretion as are elsewhere in
the Plan either expressly or by necessary implication
conferred upon it. The Plan Administrator may appoint such
agents as it may deem necessary for the effective
performance of its duties, and may delegate to such agents
such powers and duties as the Plan Administrator may deem
expedient or appropriate that are not inconsistent with the
intent of the Plan. The decision of the Plan Administrator
upon all matters within its scope of authority shall be
final and conclusive on all persons, except to the extent
otherwise provided by law.
Article III
ELIGIBILITY. Only those executives of the Employer who have
been identified by the Committee and approved by the Board
of Directors as participants in the Supplemental Executive
Retirement Plan, shall be eligible to participate in the
Plan. The Board of Directors, at its sole discretion, may
determine that the Employee is no longer eligible to
participate in the Plan due to demotion, change in duties,
or other circumstance. Loss of eligibility shall freeze the
Employee's Accrued Benefit in the Plan, if vested, based on
the accrued pension benefit from the Pension Plan and
projected Social Security Primary Insurance Amount, in each
case determined as of date the Employee ceases to
participate in the Plan.
VESTING. The Employee shall be 100% vested in his Accrued
Benefit, as determined under Article III, after five Years
of Service following the Effective Date, subject to the
forfeiture provisions of Article VII and VIII. The Employee
shall have no vested interest in his Accrued Benefit under
the Plan prior completing five Years of Service.
Article IV
NORMAL RETIREMENT BENEFIT. The Employee shall be entitled
to receive an annual retirement benefit commencing on his
Normal Retirement Date in an amount equal to (A) less (B)
less (C), where:
(A) is 3% of the Employee's Average Compensation
multiplied by his years of Creditable Service up to,
but not exceeding, 20 years; and
(B) is the Employee's Social Security Primary
Insurance Amount accrued to the Employee's actual date
of retirement from the Employer; and
(C) is the Employee's accrued pension benefit from the
Pension Plan, calculated in the form of a single-life
annuity, at the Employee's actual date of retirement
from the Employer.
EARLY RETIREMENT BENEFIT. If the Employee retires from
service with the Employer prior to the Employee's Normal
Retirement Age and on or after attainment of the Employee's
Early Retirement Age, the Employee shall be entitled to
receive an annual retirement benefit commencing on or after
such date of retirement (the "early retirement date") in an
amount equal to (a) less (b) less (c), where:
(a) is 3% of the Employee's Average Compensation
multiplied by his years of Creditable Service up to,
but not exceeding, 20 years, actuarially reduced for
early retirement as described hereafter; and
(b) is the Employee's Social Security Primary
Insurance Amount, reduced to retirement at age 65; and
(c) is the Employee's accrued pension benefit from the
Pension Plan, calculated in the form of a single-life
annuity, at the actual date of the Employee's
retirement from the Employer actuarially reduced for
early retirement as described hereafter.
The Employee may choose to retire from the service of the
Employer and receive an early retirement benefit at any time
after reaching his Early Retirement Age, following at least
60 days written notice to the Employer and if approved by
the Committee. The 20 year service requirement present in
the Pension Plan shall not be considered for the purposes of
this Plan. However, five Years of Service are required to
vest in any benefit from this Plan.
An Employee may elect in writing for payment of his Early
Retirement Benefit to begin as of the first day of any
calendar month coinciding with or next following his early
retirement date. The Employee's Early Retirement Benefit
will equal his Accrued Benefit determined as of his early
retirement date. If the Employee elects payments to begin
before his Normal Retirement Date, his Early Retirement
Benefit will equal his Accrued Benefit as of his early
retirement date, reduced by 1/180th for each of the first 60
months and 1/360th for each of the next 60 months that the
starting date of the Early Retirement Benefit precedes his
Normal Retirement Date.
DISABILITY BENEFIT. If the Employee has a vested benefit in
the Plan as described in Article III and becomes disabled
while he is employed by the Employer, he may retire as of
his Disability Retirement Date. The Board of Directors may
require the Employee to be medically examined from time to
time to confirm that his Disability is continuing. If the
Committee finds that he has recovered from his Disability,
his disability benefits will stop, and he will be deemed to
have terminated service as of his Disability Retirement
Date.
An Employee's disability benefit will begin as of the first
day of the month following his Disability Retirement Date
and will equal his Accrued Benefit as of his Disability
Retirement Date, reduced by 1/180th for each of the first 60
months and 1/360th for each of the next 60 months that the
starting date of the disability benefit precedes his Normal
Retirement Date.
If the Employee is entitled to benefits under an insured
long-term disability program sponsored by the Employer,
payment of his disability benefit under the Plan will be
delayed until payment of the insured long-term disability
benefits ends. Creditable Service is not accrued during
periods of long-term disability under this Plan. If the
Employee is living at the time payment of his insured
disability benefit ends, he will receive his Accrued Benefit
determined as of his disability retirement date, increased
by one percent (1%) for each Plan Year that occurs between
his disability retirement date and the date payment to the
Employee actually begins. The disability benefit will be
reduced in the same manner as described in the preceding
paragraph if payments start before the Employee's Normal
Retirement Date.
DEATH BENEFIT. If the Employee is married and dies with a
vested benefit under the Plan before his benefit payments
have begun, his surviving spouse will be entitled to receive
a monthly death benefit. The monthly amount of the death
benefit will be based on the amount of the Employee's vested
Accrued Benefit on the date of his death, regardless of
whether the Employee is then eligible to retire. If the
Employee is not eligible for early or normal retirement when
he dies, his Beneficiary, will be entitled to receive
approximately equal monthly installments (actuarially
adjusted for the life expectancy of the Beneficiary) in an
amount determined as if the Employee terminated employment
on the date of his death, survived to his Early Retirement
Age, and then died the next day.
If the Employee is eligible for early or normal retirement
on the date of his death, but his benefit payments have not
started, his Beneficiary, will be entitled to receive
approximately equal monthly installments (actuarially
adjusted for the life expectancy of the Beneficiary) in an
amount determined as if he had retired on the date of his
death, and then died the next day.
If the Employee is not married on the date of his death, any
vested benefits will be actuarially adjusted to the value of
a life annuity determined at the Employee's age at date of
death, and paid to the Beneficiary (actuarially adjusted for
the life expectancy of the Beneficiary).
Article V
ACCRUAL OF BENEFITS. The Employer shall accrue the benefits
payable under this Plan in a separate account on its books.
The Employer may use any reasonable accounting policy in
determining the method of this accrual. The account
established hereunder shall be segregated from other
accounts on the books and records of the Employer as a
contingent liability of the Employer to the Employee and
other employees participating in the Plan.
Article VI
GENERAL CREDITOR. The Employee shall be regarded as a
general creditor of the Employer with respect to any rights
derived by the Employee from the existence of this Agreement
or the existence or amount of the liability.
ASSETS. Title to and beneficial ownership of any assets,
whether cash, investments, life insurance policies, or other
assets that the Employer may intend to use to pay the
contingent deferred compensation hereunder, shall at all
times remain with the Employer. The Employee and his
Beneficiary shall not have any property interest whatsoever
in any specific assets of the Employer.
Article VII
PAYMENT OF DEFERRED COMPENSATION TO THE EMPLOYEE. The
benefits to be paid as deferred compensation to the Employee
(unless forfeited by the occurrence of any of the events of
forfeiture specified in Article VII) are as follows:
* Upon termination of the Employee's employment on or after
the Employee attains his Early Retirement Age, the
Employer shall pay to Employee in the form of a single
life annuity, in equal monthly installments, an amount
equal to his Accrued Benefit. The Committee is under no
obligation to purchase an annuity, except at its sole
discretion.
* In the event that the Employee's employment terminated
with the Employer by reason of death with a vested
benefit, or disability before reaching Early Retirement
Date, and while in the employ of the Employer, the
Employer shall make monthly payments to the Employee (in
the event of Disability) or the Employee's designated
Beneficiary (in the event of the Employee's death) in the
manner described in Article III of this Agreement.
* In the event that the Employee's employment with the
Employer is terminated for any reason other than the
Employee's retirement, on or after the Employee's Early
Retirement Age, death or Disability, the entire Accrued
Benefit established hereunder shall be forfeited by the
Employee.
OPTIONAL FORMS. Any amounts payable to the Employee
hereunder shall be deemed to have been paid if the Employer
decides to purchase and distribute to the Employee an
immediate or deferred annuity contract, on the single life
of the Employee, or any optional form of annuity then
available under the Pension Plan. The Committee, at its
sole discretion, may approve any other form of annuity as
requested by the Employee.
LUMP SUM. The Committee may recommend to the Board of
Directors, and the Board of Directors by resolution
specifically referring to this Agreement and the date hereof
may provide, that the payment of the Employee's entire
Accrued Benefit hereunder be made in the form of a single
lump-sum payment, or any other schedule of installment
payments.
FACILITY OF PAYMENTS. If, in the sole opinion of the
Committee, any person entitled to payment under this
Agreement shall be too physically or mentally incapacitated
to properly receive such payments, the Employer may make
such payments to any member of the family of such person
then entitled to payment, or for the use and benefit of such
person, or to any person or institution providing care for
such person then entitled to such payments. All payments so
made by the Employer shall fully discharge and acquit the
Employer to the amounts thereof.
INCOME TAX OR OTHER WITHHOLDING. The Employer may withhold
from any benefits payable under this Agreement (i) all
federal, state, city, or other taxes, or (ii) all
distributions required under any domestic relations order or
divorce decree as shall be required pursuant to any law,
government regulation or ruling, or court order.
Article VIII
FORFEITURE PROVISIONS. All rights to any deferred
compensation payments pursuant to this Agreement, including
the payment of any unpaid installments, shall be immediately
forfeited by the Employee if any of the following events
occur:
1. The Employer-Employee relationship between the Employee
and the Employer is terminated at the behest of the
Employer or upon the mutual Agreement thereof between
the Employee and Employer (other than on account of the
Employee's retirement, death or Disability).
2. The Employee resigns without the consent of the
Employer or the Board of Directors, even though the
Employee is vested in a benefit.
3. The Employee engages in any act that, in the opinion of
the Committee, is inimical to the best interests of the
Employer, including, but not limited to fraud,
embezzlement, non-productivity, disloyalty, etc. The
judgment of the Committee, as expressed by a majority
vote, shall be final as to the determination of the
nature of any acts performed by the Employee that are
subject to this Article VIII. The Committee, in its
sole discretion, may interpret and decide upon the
nature of such acts.
4. Following the Employee's retirement from employment
with the Employer, the Employee refuses to provide
advice or counsel to the Employer when reasonably
requested to do so and when reasonably able to do so;
or,
5. The Employee is in violation of an executed noncompete
agreement.
Article IX
LIABILITY OF EMPLOYER. Nothing in this Agreement shall
constitute the creation of a trust or other fiduciary
relationship between the Employer and the Employee or
between the Employer and the Beneficiary or any other
person. The Employer shall not be considered a trustee by
reason of this Agreement.
Article X
ASSIGNMENT. No rights under this Agreement may be
assigned, transferred, pledged or encumbered by the Employee
or the Beneficiary except by will or by North Carolina
intestate laws or other laws of descent and distribution.
This Agreement may be assigned by the Employer only upon the
following events:
1. The Employer or its assets are purchased by another
entity or are merged into the assets of another entity.
2. Prior written consent of the Employee.
Article XI
AGREEMENT BINDING. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective next of kin, successors, assigns, heirs, personal
representatives, executors, administrators, and legatees.
The Employer shall not merge or consolidate with any other
entity or reorganize unless and until such succeeding and
continuing entity agrees to assume and discharge the
obligations of the Employer under this Agreement. Upon such
assumption, the term Employer as used in this Agreement
shall be deemed to refer to such successor Employer. The
Board of Directors, at its sole discretion, reserves the
right to amend, revise, or terminate this Agreement with
respect to future benefits.
Article XII
ENTIRE AGREEMENT. This document constitutes the entire
Agreement between the parties as to the provision of
supplemental retirement benefits by the Employer to the
Employee. This Agreement may only be modified, altered, or
amended by prior written approval and consent of the parties
with respect to Accrued Benefits, except those provisions
that may be amended solely by a Board of Directors
resolution as described in this Agreement.
Article XIII
NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall
be construed as guaranteeing future employment to the
Employee. The Employee continues to be an Employee of the
Employer solely at the will of the Employer, notwithstanding
this Agreement.
Article XIV
BENEFITS HEREUNDER ARE NOT "COMPENSATION" FOR OTHER
PURPOSES. Any deferred compensation payable under this
Agreement (or actuarial or the net present value of any such
payments) shall not be deemed salary or other compensation
to the Employee for purposes of any qualified retirement
plans maintained by the Employer, any incentive bonus plans,
or for purposes of any other fringe benefit obligations of
the Employer.
Article XV
CLAIMS SUBMISSION AND REVIEW PROCEDURE. In the event that a
Employee has a claim under the Plan, such claim shall be
made by the Employee's filing a notice thereof with the Plan
Administrator within ninety (90) days after such Employee
first has knowledge of such claim. Each Employee who has
submitted a claim to the Plan Administrator shall be
afforded a reasonable opportunity to state such Employee's
position and to present evidence and other material relevant
to the claim to the Plan Administrator for its consideration
in rendering its decision with respect thereto. The Plan
Administrator shall render its decision in writing within
ninety (90) days after the claim is referred to it, unless
special circumstances require an extension of such time
within which to render such decision, in which event such
decision shall be rendered no later than one hundred eighty
(180) days after the claim is referred to it. A copy of
such written decision shall be furnished to the Employee.
1. Notice of Decision of Plan Administrator. Each
Employee whose claim has been denied by the Plan
Administrator shall be provided written notice thereof,
which notice shall set forth:
a) the specific reason(s) for the denial;
b) specific reference to pertinent provision(s) of
the Plan upon which such denial is based;
c) description of any additional material or
information necessary for the Employee to perfect
such claim and an explanation of why such material
or information is necessary; and
d) an explanation of the procedure hereunder for
review of such claim; all in a manner calculated
to be understood by such Employee.
2. Review of Decision of Plan Administrator. Each
such Employee shall be afforded a reasonable opportunity for
a full and fair review of the decision of the Plan
Administrator denying the claim. Such review shall be by
the Board of Directors. Such appeal shall be made within
ninety (90) days after the Employee received the written
decision of the Plan Administrator and shall be made by the
written request of the Employee or such Employee's duly
authorized representative. In the event of appeal, the
Employee or such Employee's duly authorized representative
may review pertinent documents and submit issues and
comments in writing to the Board of Directors. The Board of
Directors shall review the following:
A) the initial proceedings of the Plan Administrator
with respect to such claim;
B) such issues and comments as were submitted in
writing by the Employee or the Employee's duly
authorized representative ; and
C) such other material and information as the Board of
Directors, in its sole discretion, deems advisable for
a full and fair review of the decision of the Plan
Administrator.
The Board of Directors may approve, disapprove or modify the
decision of the Plan Administrator, in whole or in part, or
may take such other action with respect to such appeal as it
deems appropriate. The decision of the Board of Directors
with respect to such appeal shall be made promptly, and in
no event later than sixty (60) days after receipt of such
appeal, unless special circumstances require an extension of
such time within which to render such decision, in which
event such decision shall be rendered as soon as possible
and in no event later than one hundred twenty (120) days
following receipt of such appeal. The decision of the Board
of Directors shall be in writing and in a manner calculated
to be understood by the Employee and shall include specific
reasons for such decision and set forth specific references
to the pertinent provisions of the Plan upon which such
decision is based. The Employee shall be furnished a copy
of the written decision of the Board of Directors. No member
of the Board of Directors shall be liable to any person for
any action taken hereunder except those actions undertaken
with lack of good faith.
3. Arbitration of Interpretations and Constructions. The
interpretations and construction hereof by the Board of
Directors shall be binding and conclusive on all persons and
for all purposes. Any disagreements about such
interpretations and construction shall be submitted to an
arbitrator subject to the rules and procedures established
by the American Arbitration Association. The arbitrator
shall be acceptable to both the Employer and the Employee;
if the parties cannot agree the disagreement shall be heard
by a panel of three arbitrators, with each party to appoint
one arbitrator and the third to be chosen by the other two.
The decision of the arbitrator(s) decision shall be final
and conclusive upon all persons interested therein, except
to the extent otherwise provided by applicable law.
GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of
North Carolina, except to the extent such laws are preempted
by federal laws and regulations.
CONSTRUCTION. The masculine gender shall include the
feminine, and the singular the plural, unless the context
clearly requires otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
CT COMMUNICATIONS, INC.
_____________________________________
Name:
Title:
Witnesses ACKNOWLEDGED:
___________________________ _____________________________________
Employee
___________________________
Contribution Agreement
by and among
Palmetto MobileNet, L.P.,
PMN, Inc.,
CT Cellular, Inc.
and
Ellerbe Telephone Co.
Effective as of January 1, 1998
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . 2
ARTICLE II ISSUANCE OF PARTNERSHIP UNITS
Section 2.1 Contribution of CT Interests . . . . . . . 3
Section 2.2 Contribution of Ellerbe Interests . . . . 4
Section 2.3 Issuance of Partnership Units . . . . . . 4
Section 2.4 "True Up" Distributions. . . . . . . . . . 4
ARTICLE III ISSUANCE OF PMN SHARES
Section 3.1 Transfer of Partnership Units. . . . . . . 4
Section 3.2 Issuance of Stock. . . . . . . . . . . . . 4
ARTICLE IV CLOSING
Section 4.1 Time and Place of Closing. . . . . . . . . 5
Section 4.2 Deliveries by CT . . . . . . . . . . . . . 5
Section 4.3 Deliveries by Ellerbe. . . . . . . . . . . 6
Section 4.4 Deliveries by the Partnership. . . . . . . 6
Section 4.5 Deliveries by PMN. . . . . . . . . . . . . 7
Section 4.6 Additional Deliveries by PMN, CT and Ellerbe7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CT AND ELLERBE
Section 5.1 Representations and Warranties of CT
Regarding the CT Interests . . . . . . . . . . 7
(a) Title and Voting. . . . . . . . . . . 8
(b) Effect of Transfer of CT Interests. . 8
Section 5.2 Representations and Warranties of Ellerbe
Regarding the Ellerbe Interest . . . . . . . . 8
(a) Title and Voting. . . . . . . . . . . 8
(b) Effect of Transfer of Ellerbe Interest 8
Section 5.3 Representations and Warranties of CT . . . 8
(a) Title and Voting. . . . . . . . . . . 8
(b) Effect of Transfer . . . . . . . . . 8
(c) Organization . . . . . . . . . . . . 9
(d) Capitalization. . . . . . . . . . . . 9
(e) Company Subsidiaries. . . . . . . . . 9
(f) Banks and Financial Institutions. . . 9
(g) Financial Statements. . . . . . . . . 9
(h) Good Standing and Authority . . . . . 9
(i) Certain Contracts and Arrangements. . 10
(j) Employment Matters. . . . . . . . . . 10
(k) Accounts Receivable . . . . . . . . . 10
Page
Section 5.4 Representations and Warranties of CT and
Ellerbe Regarding Ellerbe-Concord
Company . . . . . . . . . . . . . . . . . 11
(a) Title and Voting. . . . . . . . . . . 11
(b) Effect of Transfer . . . . . . . . . 11
(c) Organization . . . . . . . . . . . . 11
(d) Capitalization. . . . . . . . . . . . 11
(e) Company Subsidiaries. . . . . . . . . 11
(f) Banks and Financial Institutions. . . 11
(g) Financial Statements. . . . . . . . . 12
(h) Good Standing and Authority . . . . . 12
(i) Certain Contracts and Arrangements. . 12
(j) Employment Matters. . . . . . . . . . 12
(k) Accounts Receivable . . . . . . . . . 13
Section 5.5 Additional Representations and Warranties of
CT and Ellerbe . . . . . . . . . . . . . . 13
(a) Consents and Approvals; No Violations 13
(b) Delivery of Documents . . . . . . . . 14
(c) Broker's or Finder's Fees . . . . . . 14
(d) Due Authorization . . . . . . . . . . 14
Section 5.6 Additional Representations of CT and Ellerbe
with Respect to CT 15 LLC, CT 4/5 LLC,
Ellerbe-Concord Company, NC RSA 15
Partnership, and NC RSA 4/5 Partnership. . 14
(a) No Undisclosed Liabilities . . . . . 14
(b) Absence of Certain Changes or Events. 15
(c) Books of Account. . . . . . . . . . . 15
(d) Title and Related Matters . . . . . . 16
(e) Legal Proceedings, etc. . . . . . . . 16
(f) Insurance . . . . . . . . . . . . . . 16
(g) Taxes . . . . . . . . . . . . . . . . 16
(h) All Accounts Paid . . . . . . . . . . 17
(i) Environmental Matters . . . . . . . . 17
(j) Regulatory Licensure or Other Violation 17
(k) Permits, Licenses and Other Legal
Requirements;
Compliance with Laws. . . . . . . . . 17
(l) Documents Delivered . . . . . . . . . 17
(m) Solvency. . . . . . . . . . . . . . . 17
(n) Full Disclosure . . . . . . . . . . . 17
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE ISSUERS
Section 6.1 Representations and Warranties of the
Partnership. . . . . . . . . . . . . . . . 18
(a) Organization . . . . . . . . . . . . 18
(b) Capitalization . . . . . . . . . . . 18
(c) Partnership Subsidiaries. . . . . . . 18
Page
Section 6.2 Representations and Warranties of PMN . . 18
(a) Organization. . . . . . . . . . . . . 18
(b) Capitalization . . . . . . . . . . . 19
(c) PMN Subsidiaries. . . . . . . . . . . 19
Section 6.3 Representations and Warranties of the
Partnership and PMN . . . . . . . . . . . 19
(a) Consents and Approvals; No Violations 19
(b) Financial Statements . . . . . . . . 20
(c) No Undisclosed Liabilities . . . . . 20
(d) Absence of Certain Changes or Events. 20
(e) Books of Account. . . . . . . . . . . 21
(f) Title and Related Matters . . . . . . 21
(g) Certain Contracts and Arrangements. 22
(h) Legal Proceedings, etc. . . . . . . . 22
(i) Insurance . . . . . . . . . . . . . . 22
(j) Taxes . . . . . . . . . . . . . . . . 23
(k) All Accounts Paid . . . . . . . . . . 23
(l) Broker's or Finder's Fees . . . . . . 23
(m) Employment Matters. . . . . . . . . . 23
(n) Accounts Receivable . . . . . . . . . 25
(o) OSHA . . . . . . . . . . . . . . . . 26
(p) Environmental Matters . . . . . . . . 26
(q) Regulatory Licensure or Other Violation 26
(r) Permits, Licenses and Other Legal
Requirements;
Compliance with Laws. . . . . . . . . 26
(s) Documents Delivered . . . . . . . . . 26
(t) Solvency. . . . . . . . . . . . . . . 26
(u) Full Disclosure . . . . . . . . . . . 26
Section 6.4 Representations of PMN and the Partnership
with Respect to the SC RSA Partnerships. . 27
(a) No Undisclosed Liabilities. . . . . . 27
(b) Absence of Certain Changes or Events. 27
(c) Books of Account. . . . . . . . . . . 28
(d) Title and Related Matters . . . . . . 28
(e) Legal Proceedings, etc. . . . . . . . 28
(f) Insurance . . . . . . . . . . . . . . 29
(g) Taxes . . . . . . . . . . . . . . . . 29
(h) All Accounts Paid . . . . . . . . . . 29
(i) Accounts Receivable . . . . . . . . . 29
(j) Environmental Matters . . . . . . . . 29
(k) Regulatory Licensure or Other Violations 30
Page
(l) Permits, Licenses, and Other Legal
Requirements; Compliance with Laws . 30
(m) Documents Delivered . . . . . . . . . 30
(n) Solvency. . . . . . . . . . . . . . . 30
(o) Full Disclosure . . . . . . . . . . . 30
ARTICLE VII COVENANTS OF THE PARTIES
Section 7.1 Amendment to the Limited Partnership
Agreement. . . . . . . . . . . . . . . . . 30
Section 7.2 Amendment to the Stockholders' Agreement . 31
Section 7.3 Expenses . . . . . . . . . . . . . . . . . 31
Section 7.4 Restatement of Partnership and Shareholder
Agreements . . . . . . . . . . . . . . . . 31
Section 7.5 Further Assurances . . . . . . . . . . . . 31
Section 7.6 Consents and Licenses. . . . . . . . . . . 32
Section 7.7 Public Announcements . . . . . . . . . . . 32
ARTICLE VIII CLOSING CONDITIONS
Section 8.1 Conditions to the Obligations of CT and
Ellerbe. . . . . . . . . . . . . . . . . . 32
Section 8.2 Conditions to the Obligations of the Issuers 33
ARTICLE IX TERMINATION
Section 9.1 Termination. . . . . . . . . . . . . . . . 34
Section 9.2 Procedure and Effect of Termination. . . . 34
ARTICLE X INDEMNIFICATION
Section 10.1 Definition of Indemnified Party. . . . . . 35
Section 10.2 Indemnification by Parties . . . . . . . . 35
Section 10.3 Defense of Action. . . . . . . . . . . . . 35
ARTICLE XI MISCELLANEOUS PROVISIONS
Section 11.1 Amendment and Modification . . . . . . . . 36
Section 11.2 Waiver of Compliance; Consents . . . . . . 36
Section 11.3 Investigations; Survival of Representations
and Warranties . . . . . . . . . . . . . . 36
Section 11.4 Notices. . . . . . . . . . . . . . . . . . 36
Section 11.5 Assignment . . . . . . . . . . . . . . . . 37
Section 11.6 Governing Law. . . . . . . . . . . . . . . 37
Section 11.7 Counterparts . . . . . . . . . . . . . . . 38
Section 11.8 Interpretation . . . . . . . . . . . . . . 38
Section 11.9 Entire Agreement . . . . . . . . . . . . . 38
Section 11.10 Severability . . . . . . . . . . . . . . . 38
EXHIBITS
2.1 CT Assignment Agreement
2.2 Ellerbe Assignment Agreement
2.4 Units Owned and Amount of Payment
4.2(c) Certification Signature Page (CT Cellular, Inc.)
4.2(g) Waiver and Release (CT Cellular, Inc.)
4.3(c) Certification Signature Page (Ellerbe Telephone Company)
4.3(g) Waiver and Release (Ellerbe-Concord Company)
5.3(f) Names and Locations of all CT LLC Bank Accounts
and Safe Deposit Boxes and all Authorized Persons
5.3(g) Financial Statements for CT LLC
5.3(i) List of all CT LLC Material Contracts
5.4(f) Names and Locations of all Ellerbe-Concord Company
Bank Accounts and Safe Deposit Boxes and all Authorized
Persons
5.4(g) Financial Statements for Ellerbe-Concord Company
5.4(i) List of all Ellerbe-Concord Company Material Contracts
5.5(a) Approval of the Federal Communications Commission
5.6(a) Undisclosed Liabilities of CT LLC and Ellerbe
5.6(b) Absence of Certain Changes or Events (CT LLC and Ellerbe)
5.6(k) Permits, Licenses and Other Legal Requirements; Compliance
with Laws (CT/Ellerbe)
6.1(b) List of Partnership Units (MobileNet)
6.2(b) List of Shares (PMN)
6.3(a) Consents and Approvals; No Violations (PMN
and Palmetto MobileNet)
6.3(b) Financial Statements for PMN and Palmetto
MobileNet for the Years Ended Sept. 30, 1997,
Dec. 31, 1996 and 1995
6.3(c) Undisclosed Liabilities (Palmetto Mobile and PMN)
6.3(d) Absence of Certain Changes or Events
(Palmetto Mobilenet and PMN)
6.3(f) Title and Related Matters (Palmetto MobileNet)
6.3(g) List of Contracts and Arrangements (Palmetto
MobileNet and PMN)
6.3(i) List of Insurance Policies (Palmetto
MobileNet and PMN)
6.3(j) Taxes
6.3(m)(iii) List of all Employees of PMN
6.3(m)(iv) List of all Plans, Contracts, Agreements,
Practices, Policies or Arrangements that
Provide for any Stock Bonuses or Employee
Bonuses or Benefits (PMN)
6.3(r) Approvals, Authorizations, Licenses and
Permits (Palmetto MobileNet and PMN)
6.4(a) Undisclosed Liabilities of Palmetto MobileNet
and PMN Regarding the RSA Partnerships
6.4(b) Absence of Certain Changes or Events
(Palmetto MobileNet and PMN Regarding the RSA
Partnerships)
6.4(c) Book of Accounts
6.4(l) Permits, Licenses, and other Legal
Requirements; Compliance with Laws (Palmetto
MobileNet)
7.4 Special Committee Issues
8.1(d) Form of Officer's Certificate Regarding
Performance and Compliance
8.2(b) Resignations of CT LLC Managers
8.2(e) Form of Officer's Certificate Regarding
Representations and Warranties
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, to be effective as of January
1, 1998 (the "Agreement"), is entered into by and among Palmetto
MobileNet, L. P. a South Carolina limited partnership (the
"Partnership"), PMN, Inc., a South Carolina corporation which is
the sole general partnership of the Partnership ("PMN"),
(collectively the Partnership and PMN are the "Issuers" or
individually, an "Issuer"), CT Cellular, Inc., a North Carolina
corporation ("CT"), and Ellerbe Telephone Co., a North Carolina
corporation ("Ellerbe").
W I T N E S E T H :
WHEREAS, CT is the owner of all the issued and outstanding
membership interests (the "CT 15 LLC Interest") of CT Cellular
Holdings 15, L.L.C. ("CT 15 LLC"), a Delaware limited liability
company which owns, as its principal asset, a 50% general
partnership interest in a North Carolina general partnership
licensed to provide cellular telephone service in North Carolina
RSA 15 ("NC RSA 15 Partnership");
WHEREAS, CT is the owner of all the issued and outstanding
membership interests (the "CT 4/5 LLC Interest") of CT Cellular
Holdings 4/5, L.L.C. ("CT 4/5 LLC"), a Delaware limited liability
company which owns, as its principal asset, a 49% general
partnership interest in the Ellerbe-Concord Cellular Company (the
"Ellerbe-Concord Company"), which holds a 50% general partnership
interest in a general partnership licensed to provide cellular
telephone service in North Carolina RSA 4/5 ("NC RSA 4/5
Partnership");
WHEREAS, Ellerbe is the owner of a 51% general partnership
interest in the Ellerbe-Concord Company (the "Ellerbe Interest");
WHEREAS, the Partnership owns, among other assets, a 50%
general partnership interest in eight general partnerships, each
of which is licensed to provide cellular telephone service in a
separate rural services area in South Carolina ("SC RSA
Partnerships");
WHEREAS, the Partnership, Ellerbe and CT desire to combine
their interests in order to achieve better economies of scale and
to diversify their investments;
WHEREAS, pursuant to the terms of this Agreement, CT will
contribute the CT 15 LLC Interest and the CT 4/5 LLC Interest,
and Ellerbe will contribute the Ellerbe Interest, to the
Partnership in exchange for limited partner interests in the
Partnership and will transfer certain of those interests to PMN
in exchange for shares of the common stock of PMN, all upon the
terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, representations, warranties, and agreements
herein contained, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I DEFINITIONS
As used in this Agreement or any of the Exhibits, the
following terms shall have the following meanings (with terms
defined in the singular to include the plural and vice versa):
"Affiliate" of any Person shall mean any other Person who
controls, is controlled by, or is under common control with, such
Person.
"Associate" of a Person shall mean (1) a corporation or
organization (other than the Company) of which such Person is an
officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities,
(2) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves
as trustee or in a similar capacity, or (3) any relative or
spouse of such Person (or any relative of such spouse) who has
the same home as such Person.
"Balance Sheet" shall mean the balance sheet of any entity
as of September 30, 1997 (together with its notes and supporting
schedules).
"Basic Documents" shall mean this Agreement and each other
agreement, certificate, or instrument executed and delivered or
required to be executed and delivered pursuant to this Agreement.
"Business Day" shall mean any day that is not a Saturday, a
Sunday, or a day on which banks in Columbia, South Carolina are
authorized or required by law to close.
"Closing" shall mean the closing of the transactions
contemplated by this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor thereto.
"CT Interests" shall mean the CT 15 LLC Interest and the CT
4/5 LLC Interest.
"Encumbrances" shall mean all security interests, liens,
pledges, claims, charges, escrows, encumbrances, encroachments,
rights of first refusal, mortgages, indentures, easements,
licenses, restrictions or other covenants, agreements,
understandings, obligations, defects, or irregularities affecting
title to any assets, but excluding any rights or obligations
created or arising under the terms of the partnership agreements
and any amendments thereto identified on Exhibits 1(a), (b), or
(c).
"Environmental Laws" shall mean all federal, state, and
local laws and regulations relating to the protection of the
environment, including, without limitation, those respecting
hazardous materials.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or any successor thereto.
"Exhibits" shall mean the exhibits hereto, which are
incorporated into and made a part of this Agreement.
"Limited Partnership Agreement" shall mean the Limited
Partnership Agreement of the Partnership, as described in Section
6.1 hereof.
"Partnership Units" shall mean units representing a
partner's interest in the Partnership, including but not limited
to such partner's share of the Partnership's income, loss and
voting interest.
"Person" shall include an individual, a partnership, a
limited liability company, a joint venture, a professional
association, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof,
or any other entity.
"PMN Closing" shall mean the issuance of the shares by PMN
as contemplated by this Agreement which shall occur no later than
two days after the Closing.
"Stockholders' Agreement" shall mean the Stockholders'
Agreement of PMN, as described in Section 6.2 hereof.
"Taxes" shall mean all taxes, charges, fees, levies, or
other assessments, including, without limitation, income, excise,
property, sales, and franchise taxes, imposed by the United
States or any state, county, local, or foreign government or
subdivision or agency thereof, including any interest, penalties,
or additions attributable thereto.
ARTICLE II ISSUANCE OF PARTNERSHIP UNITS
Section 2.1 Contribution of CT Interests. At the
Closing, upon the terms and subject to the conditions of this
Agreement, in reliance upon the agreements, representations and
warranties of the Partnership and PMN contained herein, and in
consideration of the issuance and delivery of the Partnership
Units set forth herein, CT will assign, transfer and deliver to
the Partnership, free and clear of all Encumbrances, and the
Partnership will accept from CT, all of CT's right, title and
interest to the CT Interests, as a contribution to the capital of
the Partnership. The transfer, assignment, and conveyance of the
CT Interests shall be made by the delivery by CT at the Closing
of a duly executed Assignment Agreement in substantially the form
attached hereto as Exhibit 2.1 (the "CT Assignment Agreement"),
and such other documents of assignment, transfer, and conveyance
as the Partnership reasonably may request.
Section 2.2 Contribution of Ellerbe Interests. At the
Closing, upon the terms and subject to the conditions of this
Agreement, in reliance upon the agreements, representations and
warranties of the Partnership and PMN contained herein, and in
consideration of the issuance and delivery of the Partnership
Units set forth herein, Ellerbe will assign, transfer and deliver
to the Partnership, free and clear of all Encumbrances, and the
Partnership will accept from Ellerbe, all of Ellerbe's right,
title and interest to the Ellerbe Interest, as a contribution to
the capital of the Partnership. The transfer, assignment, and
conveyance of the Ellerbe Interest shall be made by the delivery
by Ellerbe at the Closing of a duly executed Assignment Agreement
in substantially the form attached hereto as Exhibit 2.2 (the
"Ellerbe Assignment Agreement") and such other documents of
assignment, transfer, and conveyance as the Partnership
reasonably may request.
Section 2.3 Issuance of Partnership Units. At the
Closing upon the terms and subject to the conditions contained in
this Agreement, in reliance upon the agreements, representations
and warranties of CT and Ellerbe contained herein, and in
consideration of the aforesaid contribution, of the CT Interests
and the Ellerbe Interest, the Partnership will issue 25,070
Partnership Units to CT and 3,260 Partnership Units to Ellerbe,
and CT and Ellerbe shall be admitted to the Partnership as
limited partners. The Partnership Units to be issued and
delivered pursuant to the terms of this Agreement, when issued as
contemplated hereby, shall be duly authorized, validly issued,
and fully paid.
Section 2.4 "True Up" Distributions. At the Closing, the
Partnership shall make cash contributions to CT and Ellerbe
representing the additional distributions the parties estimate CT
and Ellerbe would have received if the transactions contemplated
by this Agreement had occurred on January 1, 1997 (the date of
the appraisals on which these transactions are based) by
delivering to each of CT and Ellerbe a check in the amount set
forth opposite such person's name in the last column of Exhibit
2.4.
ARTICLE III ISSUANCE OF PMN SHARES
Section 3.1 Transfer of Partnership Units . Immediately
after the Closing, CT and Ellerbe will sell, assign, transfer and
deliver to PMN and PMN will accept and purchase from CT and
Ellerbe twenty Partnership Units from CT and ten Partnership
Units from Ellerbe. The sale, transfer, assignment, and
conveyance of the Units shall be made by the delivery by CT and
Ellerbe at the PMN Closing of certificates representing the
Partnership Units duly endorsed for transfer or accompanied by
duly executed documents of assignment, transfer, and conveyance
as PMN may request.
Section 3.2 Issuance of Stock. In consideration of the
aforesaid sale, assignment, transfer and delivery of the
Partnership Units, PMN will cause to be issued and delivered to
CT as payment for the Partnership Units 25,200 shares of PMN
common stock, par value $1.00 per share (the "CT Shares"). In
consideration of the aforesaid sale, assignment, transfer and
delivery of the Partnership Units, PMN will cause to be issued
and delivered to Ellerbe as payment for the Partnership Units
3,285 shares of PMN common stock, par value $1.00 per share (the
"Ellerbe Shares" and, together with the CT Shares, the "PMN
Shares"). The PMN Shares to be issued and delivered pursuant to
the terms of this Agreement, when issued as contemplated hereby
shall be duly authorized, validly issued, fully paid and
nonassessable. The sale, transfer, assignment, and conveyance of
the PMN Shares shall be made by the delivery to CT and Ellerbe at
the Closing of certificates representing the PMN Shares.
ARTICLE IV CLOSING
Section 4.1 Time and Place of Closing. Upon the terms
and subject to the conditions contained in this Agreement, the
Closing shall take place at the Columbia, South Carolina offices
of McNair Law Firm, P.A., at 10:00 a.m. (local time) within two
days after the satisfaction of the conditions set forth in
Article VIII, or at such other place or later time as the parties
may agree. All actions taken and documents delivered at the
Closing shall be deemed to have been taken and executed
simultaneously, and no action shall be deemed taken or any
document delivered until all have been taken and delivered.
Section 4.2 Deliveries by CT. At the Closing, CT shall
deliver the following to the Partnership (unless waived by the
Partnership);
(a) a legal opinion of CT's attorney as may be
reasonably required by the Partnership and its counsel;
(b) the CT Assignment of Interest (the "CT
Assignment") duly executed by CT and any other documents that are
necessary to transfer to the Partnership good title to the CT
Interests;
(c) the Certification Signature Page to the Limited
Partnership Agreement substantially in the form of Exhibit
4.2(c);
(d) [reserved]
(e) any and all ledgers, minute books, and records of
CT 15 LLC and CT 4/5 LLC;
(f) the certificates contemplated by Section 8.2(e);
(g) a waiver and release substantially in the form of
Exhibit 4.2(g);
(h) the Balance Sheets of CT 15 LLC, CT 4/5 LLC, and
NC RSA 15 Partnership; and
(i) such certificates and other documents as the
Partnership and its counsel may reasonably require to evidence
the receipt by CT of all necessary consents, authorizations, and
approvals for the consummation of the transactions contemplated
hereby.
Section 4.3 Deliveries by Ellerbe. At the Closing,
Ellerbe shall deliver the following to the Partnership (unless
waived by the Partnership);
(a) a legal opinion of the Ellerbe's attorney as may
be reasonably required by the Partnership or its counsel;
(b) the Ellerbe of Interest (the "Ellerbe Assignment")
Agreement duly executed by Ellerbe and any other documents that
are necessary to transfer to the Partnership good title to the
Ellerbe Interest;
(c) the Certification Signature Page to the Limited
Partnership Agreement substantially in the form of Exhibit
4.3(c);
(d) [reserved]
(e) any and all ledgers, minute books, and records of
the Ellerbe Partnership;
(f) the certificates contemplated by Section 8.2(e);
(g) a waiver and release substantially in the form of
Exhibit 4.3(g);
(h) the Balance Sheet of Ellerbe-Concord Company and
NC RSA 4/5 Partnership; and
(i) such certificates and other documents as the
Partnership and its counsel may reasonably require to evidence
the receipt by Ellerbe of all necessary consents, authorizations,
and approvals for the consummation of the transactions
contemplated hereby.
Section 4.4 Deliveries by the Partnership. At the
Closing, the Partnership shall deliver the following to each of
CT and Ellerbe (unless waived by them);
(a) a legal opinion of the Partnership's attorney as
may be reasonably required by CT, Ellerbe, or their counsel;
(b) a certificate representing the number of
Partnership Units to be issued to each of them at the Closing
pursuant to Section 2.3 and accompanied by any other documents
that are necessary to transfer to each of them good title to the
Partnership Units it is acquiring hereunder;
(c) a check payable to it as provided in Section 2.4;
(d) the certificate contemplated by Section 8.1(c);
(e) certified copies of (i) the Second Amendment of
the Limited Partnership Agreement of the Partnership, (ii) the
Third Amendment of the Limited Partnership Agreement, (iii) a
resolution of the board of directors of PMN, in its capacity as
the General Partner of the Partnership, approving the
transactions contemplated hereby and (iv) the written consent of
the Partners approving the transaction contemplated hereby;
(f) the Balance Sheets of the Partnership and each of
the SC RSA Partnerships; and
(g) such certificates and other documents as CT and
Ellerbe and their counsel may reasonably require to evidence the
receipt by the Partnership of all necessary consents,
authorizations, and approvals for the consummation of the
transactions contemplated hereby.
Section 4.5 Deliveries by PMN . At the PMN Closing, PMN
shall deliver the following to each of CT and Ellerbe (unless
waived by them);
(a) a legal opinion of PMN's attorney as may be
reasonably required by the Partnership or its counsel;
(b) the certificate contemplated by Section 8.1(c);
(c) certified copies of (i) the Second Amendment of
the Stockholders' Agreement of PMN, and (ii) a resolution of the
board of directors of PMN approving the transactions contemplated
hereby;
(d) the Balance Sheet of PMN; and
(e) such certificates and other documents as CT and
Ellerbe and their counsel may reasonably require to evidence the
receipt by PMN of all necessary consents, authorizations, and
approvals for the consummation of the transactions contemplated
hereby.
Section 4.6 Deliveries by PMN, CT and Ellerbe. At the
PMN Closing, PMN shall deliver to each of CT and Ellerbe (a) a
certificate representing the number of PMN Shares to be issued to
CT or Ellerbe (as the case may be) pursuant to Section 3.2 and
accompanied by any other documents that are necessary to transfer
to it good title to the PMN Shares; and (b) each of CT and
Ellerbe shall deliver to PMN (unless waived by PMN) (i) the
certificates representing the Partnership Units to be transferred
to PMN pursuant to Section 3.1 duly endorsed for transfer or
accompanied by any other documents that are necessary to transfer
to the PMN good title to such Partnership Units; and (ii) the
Signature Page to the Stockholders' Agreement substantially in
the form of Exhibit 4.6;
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CT AND ELLERBE
Section 5.1 Representations and Warranties of CT
Regarding the CT Interests. CT individually represents and
warrants to the Partnership that:
(a) Title and Voting.
CT is the sole record and beneficial owner of all
of the outstanding CT Interests free and clear of all (i) voting
trust and other arrangements that require or permit any of the CT
Interests to be voted by or at the discretion of anyone other
than CT and (ii) Encumbrances.
(b) Effect of Transfer of CT Interests.
Upon consummation of the transactions contemplated
hereby, CT will have transferred to the Partnership all of the
outstanding CT Interests, free and clear of all Encumbrances
other than such Encumbrances as have been or may be created
pursuant to this Agreement.
Section 5.2 Representations and Warranties of Ellerbe
Regarding the Ellerbe Interest. Ellerbe represents and warrants
to the Partnership that:
(a) Title and Voting.
Ellerbe is the sole record and beneficial owner of
the Ellerbe Interest free and clear of all (i) voting trust and
other arrangements that require or permit any of the interests in
the Ellerbe-Concord Company owned by Ellerbe to be voted by or at
the discretion of anyone other than Ellerbe and (ii)
Encumbrances.
(b) Effect of Transfer of Ellerbe Interest.
Upon consummation of the transactions contemplated
hereby, Ellerbe will have transferred to the Partnership all of
Ellerbe's interest in the Ellerbe-Concord Company, free and clear
of all Encumbrances other than such Encumbrances as have been or
may be created pursuant to this Agreement.
Section 5.3 Representations and Warranties of CT. CT
represents and warrants to the Partnership that:
(a) Title and Voting.
CT 15 LLC is the sole record and beneficial owner
of the 50% general partnership interest in NC RSA 15 Partnership
held by it and CT 4/5 LLC is the sole record and beneficial owner
of the 49% interest in the Ellerbe-Concord Company held by it,
free and clear of all (i) voting trust and other arrangements
that require or permit any of the partnership interests owned by
it to be voted by or at the discretion of anyone other than it
and (ii) Encumbrances.
(b) Effect of Transfer.
Upon consummation of the transactions contemplated
hereby, the interest of CT 15 LLC in the NC RSA 15 Partnership
and the interest of CT 4/5 LLC in the Ellerbe-Concord Company
will be free and clear of all Encumbrances other than such
Encumbrances as have been or may be created pursuant to this
Agreement.
(c) Organization.
Each of CT 15 LLC and CT 4/5 LLC is a limited
liability company duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Complete and
correct copies of the Operating Agreement, as currently in
effect, of each of CT 15 LLC and CT 4/5 LLC have been delivered
to the Partnership. All actions and transactions requiring
approval or other action by their respective managers or members
have been duly authorized or ratified as necessary.
(d) Capitalization.
CT is the owner of all the outstanding membership interests
of CT 15 LLC and CT 4/5 LLC, and all such interests have been
duly authorized and are validly issued, fully paid and
nonassessable. There are not, and at the Closing Date there will
not be, outstanding (i) any options, warrants, or other rights
with respect to the membership interests of CT 15 LLC or CT 4/5
LLC, (ii) any securities convertible into or exchangeable for
shares of such membership interests, or (iii) any other
commitments of any kind for the issuance of additional membership
interests or options, warrants, or other securities of CT 15 LLC
or CT 4/5 LLC.
(e) Company Subsidiaries.
CT 15 LLC and CT 4/5 LLC have no subsidiaries.
(f) Banks and Financial Institutions.
The names and locations of all banks and other
financial institutions at which the CT 15 LLC and CT 4/5 LLC have
any accounts or safe deposit boxes, the numbers of such accounts,
and the names of all persons authorized to draw thereon or have
access thereto are set forth on Exhibit 5.3(f).
(g) Financial Statements.
Attached as Exhibit 5.3(g) are the balance sheets
of CT 15 LLC and CT 4/5 LLC for the nine months ended September
30, 1997. The balance sheets referred to in this Section
presents, and any financial statements of either the CT 15 LLC or
CT 4/5 LLC delivered to the Issuers will present, fairly in all
material respects the financial position of such entities as of
their respective dates and the results of its operations and its
cash flows for the periods then ended, all in conformity with
generally accepted accounting principles applied on a consistent
basis, and do not and will not include or omit to state any fact
which renders such financial statements misleading.
(h) Good Standing and Authority.
Neither CT 15 LLC nor CT 4/5 LLC (i) has any
offices in any state other than Delaware and North Carolina, (ii)
owns or leases any property in any state other than Delaware and
North Carolina, or (iii) is required to qualify to do business in
any state other than Delaware and North Carolina. Each of CT 15
LLC and CT 4/5 LLC has full power and authority to carry on its
business as it is now conducted and as it was conducted in the
past and is entitled to own, lease, or operate all of its
properties and assets in all places where such properties and
assets are now or have been owned, leased, or operated. Each of
CT 15 LLC and CT 4/5 LLC has full power and authority to carry on
its business as it is now conducted and as it was conducted in
the past and is entitled to own, lease, or operate all of its
properties and assets in all places where such properties and
assets are now or have been owned, leased, or operated.
(i) Certain Contracts and Arrangements.
Exhibit 5.3(i) sets forth a list of all material
contracts of CT 15 LLC and CT 4/5 LLC. Except as set forth in
Exhibit 5.3(i), CT 15 LLC and CT 4/5 LLC are not parties to any
(i) power of attorney (whether revocable or irrevocable) given to
any person for any purpose whatsoever, (ii) agreement to lease
real or personal property, whether as lessor or lessee, or (iii)
guarantee or indemnity or other contract, agreement, undertaking,
or arrangement, whether oral, written, or implied, that involves
payments by or to CT 15 LLC or CT 4/5 LLC of more than $1,000 in
the aggregate or that is not terminable by CT 15 LLC or CT 4/5
LLC on 30 or fewer days' notice at any time without penalty.
There is not, under any of the agreements or instruments listed
on Exhibit 5.3(i), any existing default, event of default, or
other event that would constitute (with or without notice or
lapse of time or otherwise) a default or event of default on the
part of CT 15 LLC or CT 4/5 LLC; no default, event of default, or
other event that would constitute (with or without notice or
lapse of time or otherwise) a default or event of default by any
other party thereto is known or claimed by CT 15 LLC or CT 4/5
LLC to exist; and consummation of the transactions contemplated
hereby will not violate or otherwise constitute a breach of any
such agreements.
(j) Employment Matters.
(i) CT 15 LLC and CT 4/5 LLC have no employees
now and never have had any employees. CT 15 LLC and CT 4/5 LLC
are not now, and never have been, parties to any union contract
or collective bargaining agreement with any labor union or other
association of employees.
(ii) CT 15 LLC and CT 4/5 LLC are not, and as of
the Closing will not be, obligated or liable, pursuant to any
plan, contract, agreement, arrangement, understanding, applicable
law or judgment, or otherwise, for the payment of any benefits
pursuant to any employee benefit plan as defined in Section 3(3)
of ERISA.
(iii) CT 15 LLC and CT 4/5 LLC do not
contribute, and have not contributed and are not obligated to
contribute, to any multiemployer plan within the meaning of
Section 3(37) of ERISA.
(iv) CT 15 LLC and CT 4/5 LLC have no current
plans that provide, and no projected liability in respect of,
post-retirement health and medical benefits.
(k) Accounts Receivable.
Any accounts receivable as shown on the Balance
Sheet of CT 15 LLC or CT 4/5 LLC represent valid obligations
arising in the ordinary course of business. As of the Closing
Date, the accounts receivable net of applicable reserves will be
collectible in the ordinary course of business. There is no
contest, claim, or right of set-off contained in any agreement
with any maker of an account receivable relating to the amount or
validity of such account receivable.
Section 5.4 Representations and Warranties of CT and
Ellerbe Regarding Ellerbe-Concord Company. CT and Ellerbe
represent and warrant to the Partnership that:
(a) Title and Voting.
Ellerbe-Concord Company is the sole record and
beneficial owner of the 50% general partnership interests in NC
RSA 4/5 Partnership held by it, free and clear of all (i) voting
trust and other arrangements that require or permit such
interests to be voted by or at the discretion of anyone other
than Ellerbe-Concord Company and (ii) Encumbrances.
(b) Effect of Transfer.
Upon consummation of the transactions contemplated
hereby, Ellerbe-Concord Company's interest in the NC RSA 4/5
Partnership will be free and clear of all Encumbrances other than
such Encumbrances as have been or may be created pursuant to this
Agreement.
(c) Organization.
Ellerbe-Concord Company is a general partnership
duly organized, validly existing, and in good standing under the
laws of the State of North Carolina. Complete and correct copies
of the Partnership Agreement, as currently in effect, of Ellerbe-Concord
Company have been delivered to the Partnership. All
actions and transactions requiring approval or other action by
the partners of Ellerbe-Concord Company have been duly authorized
or ratified as necessary.
(d) Capitalization.
Ellerbe-Concord Company has two partners, CT 4/5
LLC and Ellerbe. There are not, and at the Closing Date there
will not be, outstanding (i) any options, warrants, or other
rights with respect to Ellerbe-Concord Company (ii) any
securities convertible into or exchangeable for interests in such
partnership, or (iii) any other commitments of any kind for the
issuance of additional interests or options, warrants, or other
securities of Ellerbe Partnership.
(e) Company Subsidiaries.
Ellerbe-Concord Company has no subsidiaries.
(f) Banks and Financial Institutions.
The names and locations of all banks and other
financial institutions at which Ellerbe-Concord Company has any
accounts or safe deposit boxes, the numbers of such accounts, and
the names of all persons authorized to draw thereon or have
access thereto are set forth on Exhibit 5.4(f).
(g) Financial Statements.
Attached as Exhibit 5.4(g) is the balance sheet of
Ellerbe-Concord Company for nine months ended September 30, 1997.
The balance sheet referred to in this Section presents, and any
financial statements of Ellerbe-Concord Company delivered to the
Partnership will present, fairly in all material respects the
financial position of Ellerbe-Concord Company as of their
respective dates and the results of Ellerbe-Concord Company's
operations and its cash flows for the periods then ended, all in
conformity with generally accepted accounting principles applied
on a consistent basis, and do not and will not include or omit to
state any fact which renders such financial statements
misleading.
(h) Good Standing and Authority .
Ellerbe-Concord Company (i) has no employees and no
offices in any state other than North Carolina, (ii) does not own
or lease any property in any state other than North Carolina, and
(iii) is not required to qualify to do business in any state
other than North Carolina. Ellerbe-Concord Company has full
power and authority to carry on its business as it is now
conducted and as it was conducted in the past and is entitled to
own, lease, or operate all of its properties and assets in all
places where such properties and assets are now or have been
owned, leased, or operated.
(i) Certain Contracts and Arrangements.
Exhibit 5.4(i) sets forth a list of all material
contracts of Ellerbe-Concord Company. Except as set forth in
Exhibit 5.4(i), Ellerbe-Concord Company is not a party to any (i)
power of attorney (whether revocable or irrevocable) given to any
person for any purpose whatsoever, (ii) agreement to lease real
or personal property, whether as lessor or lessee, or (iii)
guarantee or indemnity or other contract, agreement, undertaking,
or arrangement, whether oral, written, or implied, that involves
payments by or to Ellerbe-Concord Company of more than $1,000 in
the aggregate or that is not terminable by Ellerbe-Concord
Company on 30 or fewer days' notice at any time without penalty.
There is not, under any of the agreements or instruments listed
on Exhibit 5.4(i), any existing default, event of default, or
other event that would constitute (with or without notice or
lapse of time or otherwise) a default or event of default on the
part of Ellerbe-Concord Company; no default, event of default, or
event that would constitute (with or without notice or lapse of
time or otherwise) a default or event of default by any other
party thereto is known or claimed by Ellerbe-Concord Company to
exist; and consummation of the transactions contemplated hereby
will not violate or otherwise constitute a breach of any such
agreements.
(j) Employment Matters.
(i) Ellerbe-Concord Company has no employees now
and never has had an employee. Ellerbe-Concord Company is not
now, and never has been, a party to any union contract or
collective bargaining agreement with any labor union or other
association of employees.
(ii) Ellerbe-Concord Company is not, and as of the
Closing will not be, obligated or liable, pursuant to any plan,
contract, agreement, arrangement, understanding, applicable law
or judgment, or otherwise, for the payment of any benefits
pursuant to any employee benefit plan as defined in Section 3(3)
of ERISA.
(iii) Ellerbe-Concord Company does not
contribute, and has not contributed and is not obligated to
contribute, to any multiemployer plan within the meaning of
Section 3(37) of ERISA.
(iv) Ellerbe-Concord Company has no current plans
that provide, and no projected liability in respect of, post-retirement
health and medical benefits.
(k) Accounts Receivable.
Any accounts receivable as shown on the balance
sheet of the Ellerbe-Concord Company represent valid obligations
arising in the ordinary course of business. As of the Closing
Date, the accounts receivable net of applicable reserves will be
collectible in the ordinary course of business. There is no
contest, claim, or right of set-off contained in any agreement
with any maker of an account receivable relating to the amount or
validity of such account receivable.
Section 5.5 Additional Representations and Warranties of
CT and Ellerbe. Each of CT and Ellerbe individually and
severally (but not jointly) represents and warrants to each
Issuer that:
(a) Consents and Approvals; No Violations.
Except as disclosed on Exhibit 5.5(a), neither the
execution or delivery by it of this Agreement or any of the other
Basic Documents nor the performance by it of the terms hereof or
thereof nor the consummation of the transactions contemplated
hereby or thereby (i) requires any notice, consent, or approval
under, or has resulted or will result (with or without notice,
lapse of time, or otherwise) in a breach of the terms or
conditions of, a default under, a conflict with, or the
acceleration of (or the creation in any Person of any right to
cause the acceleration of) any performance or any increase in any
payment required by, or the termination, suspension,
modification, impairment, or forfeiture (or the creation in any
Person of any right to cause the termination, suspension,
modification, impairment, or forfeiture) of any rights or
privileges of it under, any material agreement, instrument,
undertaking, judgment, award, regulatory or other restriction, or
obligation to which it, any of its ownership interests, or any of
its properties, assets, or business may be bound or affected;
(ii) has resulted or will result (with or without notice, lapse
of time, or otherwise) in the creation, imposition or foreclosure
of, or right to exercise or foreclose any Encumbrance of any
nature whatsoever upon or in any of its ownership interests;
(iii) conflicts or will conflict with any requirement of law
applicable to it or by which it or any of such its ownership
interests may be bound or affected; or (iv) requires it to make
any filing with, give any notice to, or obtain any permit,
authorization, consent, or approval of, any Person which will not
have been obtained by the Closing.
(b) Delivery of Documents.
(1) This Agreement has been, and at or prior to
the Closing each of the other Basic Documents to which it is a
party will have been, duly executed and delivered by it.
(2) This Agreement constitutes, and each of the
other Basic Documents to which it is a party when executed and
delivered by it will constitute, a legal, valid, and binding
obligation of it, enforceable against it in accordance with its
terms.
(c) Broker's or Finder's Fees.
No agent, broker, or other Person acting on its
behalf is or will be entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any
Affiliate of any of the parties hereto, in connection with any of
the transactions contemplated hereby.
(d) Due Authorization.
It has full legal capacity, right, power, and
authority to enter into, deliver, and perform this Agreement and
each of the other Basic Documents to which it is or is intended
to be a party or which it has or is required to deliver pursuant
hereto and to consummate the transactions contemplated hereby or
thereby.
Section 5.6 Additional Representations of CT and Ellerbe
with Respect to CT 15 LLC, CT 4/5 LLC, Ellerbe-Concord Company,
NC RSA 15 Partnership, and NC RSA 4/5 Partnership.
For purposes of the representations and warranties of CT in
this Section 5.6 references to the Company shall be deemed to
refer to CT 15 LLC, CT 4/5 LLC, NC RSA 15 Partnership and NC RSA
4/5 Partnership. For purposes of the representations and
warranties of Ellerbe in this Section 5.6 references to the
Company shall be deemed to refer to Ellerbe-Concord Company and
NC RSA 4/5 Partnership. In addition, the representations and
warranties by both CT and Ellerbe with respect to NC RSA 15
Partnership and NC RSA 4/5 Partnership shall be limited to their
actual knowledge with respect to such partnerships. Subject to
the foregoing, each of CT and Ellerbe severally, but not jointly,
represents and warrants to each Issuer as follows:
(a) No Undisclosed Liabilities.
Except as set forth in Exhibit 5.6(a), the Company
has no liability or obligation of any nature whatsoever (whether
secured or unsecured, absolute, accrued, contingent, or
otherwise, and whether due or to become due), except (i) as and
to the extent accrued or reserved against in the Balance Sheet of
such Company or disclosed in the notes thereto or (ii) debts,
liabilities, and obligations arising after the date of the
Balance Sheet of such Company in the ordinary course of business.
(b) Absence of Certain Changes or Events.
Except as set forth in Exhibit 5.6(b), since the
date of the Balance Sheet of such Company there has not been (i)
any change in the business, operations, condition (financial or
other), properties or assets, liabilities, results of operations,
or prospects of the Company or in the value of its ownership
interests other than changes in the ordinary course of business,
none of which, individually or in the aggregate, has had or is
reasonably likely to have a material adverse effect on the
business, operations, condition (financial or other), properties
or assets, liabilities, results of operations, or prospects of
the Company or in the value of such interests; (ii) any issuance
or authorization of any issuance of any security of the Company
or any declaration, setting aside, or payment of any dividend or
other distribution (whether in cash, stock, property, or any
combination thereof) in respect of or any other security of the
Company, or any redemption or other acquisition by the Company of
or any other security of the Company; (iii) any material damage,
destruction, or casualty loss of any of the Company's properties
or assets, whether covered by insurance or not; (iv) any increase
in the amount or rate or change in the terms of compensation
payable or to become payable by the Company to any of its
directors, officers, agents, or employees or any increase in the
amount or rate or change in the terms of any bonus, insurance,
pension, or other employee benefit plan, payment, or arrangement
made to, for, or with any of such directors, officers, or
employees, or the adoption or establishment of any such plan or
arrangement; (v) any change by the Company in accounting or
auditing methods, principles, or practices; (vi) any discharge or
satisfaction of any Encumbrance or payment, cancellation,
compromise, or other satisfaction of any material obligation,
indebtedness, or liability (absolute or contingent) other than
the payment in the ordinary course of business of current
liabilities shown on the Company's Balance Sheet or incurred
since the date thereof in the ordinary course of business
consistent with past practice; (vii) any mortgage, pledge,
subjection to, or suffering to exist of any Encumbrance upon any
of the Company's properties or assets; (viii) any sale, transfer,
or other disposition of any of the Company's properties or assets
except in the ordinary course of business; (ix) any (A) purchase,
lease, or acquisition by the Company of any additional assets
except in the ordinary course of the business and consistent with
past practice or (B) extraordinary capital or operating
expenditure, capital addition, or improvement; (x) any loan or
advance or any other payment by the Company to or any other
transaction with any of the Company's directors, officers, or
employees or any of their respective Affiliates or Associates;
(xi) any modification, amendment, or termination of any material
agreement to which the Company is a party or by which it or any
of its properties or assets is bound, or any waiver or release of
any rights under any such agreement; (xii) except for routine
operating expenses incurred in the ordinary course of business
consistent with past practice, any incurrence of any debt,
obligation, or liability of any nature, whether accrued,
absolute, contingent, or otherwise; (xiii) any strike or work
stoppage that adversely affects the Company's business; (xiv) any
merger, consolidation, share exchange, or other material
transaction involving the Company; or (xv) any authorization of
or agreement to do any of the foregoing.
(c) Books of Account.
The books of account of the Company are true and
complete in all material respects, have been maintained in
accordance with good business and accounting practices, and
accurately and fairly reflect all of the properties, assets,
liabilities, and transactions of the Company in accordance with
generally accepted accounting principles consistently applied.
Since December 31, 1996, there have not been any disagreements
between the Company and its accountants or former accountants, or
any change by the Company in its accounting methods, principles,
or practices except as required by generally accepted accounting
principles and consented to by the Company's accountants.
(d) Title and Related Matters.
The Company owns and possesses and has good and
merchantable or marketable title to all of its properties and
assets, free and clear of Encumbrances. All of such properties
and assets are in good operating condition and repair, ordinary
wear and tear excepted, and are free and clear of any material
defects. The properties and assets of the Company have been
properly maintained and have been repaired or replaced when
necessary. The assets and properties owned or leased by the
Company constitute all of the assets and properties necessary or
appropriate for the continued operation of the Company's business
in the same fashion as it has been conducted.
(e) Legal Proceedings, etc.
There is no claim, suit, action, arbitration,
governmental inquiry, injunction, consent decree, or legal,
administrative, or other proceeding existing, pending, or
threatened against or relating to the Company or any of its
properties or assets, nor is there any basis for any such claim,
suit, action, arbitration, governmental inquiry, injunction,
consent decree, or legal, administrative, or other proceeding.
There are no judgments outstanding against the Company or to or
by which the Company or any of its properties or assets are
subject or bound.
(f) Insurance.
The Company maintains insurance in such amounts
and in respect of such risks as are customary for entities such
as the Company. The Company has not received any notice or other
communication from any such insurance company canceling or
materially amending or materially increasing the annual or other
premiums payable under any of said insurance policies, and no
such cancellation, amendment, or increase of premiums is
threatened. The Company is not in material default with respect
to any provision contained in any such policy or has failed to
give any notice or present any claim under any such policy in due
and timely fashion.
(g) Taxes.
The Company has duly filed all reports and returns
of Taxes required to be filed by the Company prior to the date
hereof (each such return or report being true, correct, and
complete) and has timely withheld, collected, and paid or
provided for the payment of all Taxes and other charges due or
claimed to be due from or with respect to the Company by federal,
state, and local taxing authorities, including, without
limitation, those due in respect of the properties, income,
franchises, licenses, sales, or payrolls of the Company. There
are no tax liens upon any properties or assets of the Company, or
any special charges or levies, liens, taxes, unemployment
compensation contributions, penalties, or interest that form or
might form an Encumbrance on any of the Company's properties or
assets or that could become payable by the Company or the Issuer
following the Closing. There is no agreement for extension of
time of assessment or payment of any Taxes relating to the
Company's business, and no waiver or any statute of limitations
has been executed by the Company for any tax year that remains
open or unsettled.
(h) All Accounts Paid.
The Company is not in default with respect to the
payment of any material liability.
(i) Environmental Matters.
The Company is in compliance in all material
respects with all applicable Environmental Laws.
(j) Regulatory Licensure or Other Violation.
The Company has not violated any regulatory
agreements or licensing regulations or inspections for which a
fine or penalty may be levied.
(k) Permits, Licenses, and Other Legal Requirements;
Compliance with Laws.
Except as described on Exhibit 5.6(k), the Company
has obtained all approvals, authorizations, licenses, and permits
required by all federal, state, and local governmental agencies
for the conduct of the Company's business. All such approvals,
authorizations, licenses, and permits are in full force and
effect, and the Company is in compliance with all thereof. The
Company has complied in all material respects with all applicable
requirements of law in respect of the conduct of the Company's
business and the ownership, possession, maintenance, and
operation of its properties and assets, and no claims or
investigations alleging any violation by the Company of any such
requirements of law have at any time been made or settled.
(l) Documents Delivered.
All documents that have been or that shall be
delivered to the Issuer by or on behalf of the Company pursuant
to this Agreement or any of the other Basic Documents, or in
connection with the transactions contemplated hereby or thereby,
are, or when so delivered shall be, true and complete copies of
the originals thereof.
(m) Solvency.
The Company is, and at the Closing Date will be,
solvent. No event of bankruptcy with respect to the Company has
occurred or is planned or proposed.
(n) Full Disclosure.
None of the representations and warranties with
respect to the Company herein, or in any document, schedule, or
certificate furnished or to be furnished pursuant hereto,
contains, or will contain when so furnished, any false statement
of a material fact or omits or will omit to state any material
fact the omission of which would be misleading.
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE ISSUERS
Section 6.1 Representations and Warranties of the
Partnership. The Partnership represents and warrants to each of
CT and Ellerbe that:
(a) Organization.
The Partnership is a limited partnership duly
organized and validly existing under the laws of the State of
South Carolina. The Partnership (i) has no offices or employees
in any state other than South Carolina, (ii) does not own or
lease any property in any state other than South Carolina, and
(iii) is not required to qualify to do business in any state
other than South Carolina. The Partnership has full power and
authority to carry on its business as it is now conducted and as
it was conducted in the past and is entitled to own, lease, or
operate all of its properties and assets in all places where such
properties and assets are now or have been owned, leased, or
operated. Complete and correct copies of the Certificate of
Limited Partnership and Limited Partnership Agreement, as
currently in effect, of the Partnership have been delivered to CT
and Ellerbe. The minute books of the Partnership, as made
available to CT and Ellerbe, accurately and fairly reflect all
meetings of, and contain true and complete originals of all
written consents in lieu of meetings executed by, the general
partner and partners of the Partnership, and all actions and
transactions requiring approval or other action by the
Partnership's general partner or partners have been duly
authorized or ratified as necessary and are evidenced in such
minute books. The ownership records of the Partnership, as made
available to CT and Ellerbe, are true and complete.
(b) Capitalization.
All of the Partnership Units issued and outstanding
are listed on Exhibit 6.1(b). The Partnership Units to be issued
to CT and Ellerbe on the Closing date will be duly authorized and
validly issued and fully paid. There are not, and at the
Closing Date there will not be, outstanding (i) any Partnership
Units other than those listed on Exhibit 6.1(b) or any options,
warrants, or other rights with respect to Partnership Units, (ii)
any securities convertible into or exchangeable for Partnership
Units, or (iii) any other commitments of any kind for the
issuance of additional Partnership Units or other securities of
the Partnership other than to CT and Ellerbe in accordance with
this Agreement.
(c) Partnership Subsidiaries.
The Partnership has no subsidiaries.
Section 6.2 Representations and Warranties of PMN . PMN
represents and warrants to each of CT and Ellerbe that:
(a) Organization.
PMN is a corporation duly organized and validly
existing under the laws of the State of South Carolina. PMN (i)
has no offices or employees in any state other than South
Carolina, (ii) does not own or lease any property in any state
other than South Carolina, and (iii) is not required to qualify
to do business in any state other than South Carolina. PMN has
full power and authority to carry on its business as it is now
conducted and as it was conducted in the past and is entitled to
own, lease, or operate all of its properties and assets in all
places where such properties and assets are now or have been
owned, leased, or operated. Complete and correct copies of the
articles of incorporation, the bylaws, and the Stockholders'
Agreement, as currently in effect, of PMN have been delivered to
the CT and Ellerbe. The minute books of PMN, as made available
to CT and Ellerbe, accurately and fairly reflect all meetings of,
and contain true and complete originals of all written consents
in lieu of meetings executed by, the board of directors and
shareholders of PMN, and all actions and transactions requiring
approval or other action by PMN board of directors or
shareholders have been duly authorized or ratified as necessary
and are evidenced in such minute books. The ownership records of
PMN, as made available to CT and Ellerbe, are true and complete.
(b) Capitalization.
All of the Shares of PMN common stock issued and
outstanding are listed on Exhibit 6.2(b). Upon issuance to CT
and Ellerbe, the PMN Shares will be duly authorized and validly
issued, fully paid and nonassessable. There are not, and at the
Closing Date there will not be, outstanding (i) any shares of PMN
stock issued and outstanding other than those listed on Exhibit
6.2(b), or options, warrants, or other rights with respect to the
common stock of PMN, (ii) any securities convertible into or
exchangeable for the common stock of PMN, or (iii) any other
commitments of any kind for the issuance of additional shares of
or other securities of PMN, other than the PMN Shares.
(c) PMN Subsidiaries.
PMN has no subsidiaries.
Section 6.3 Representations and Warranties of the
Partnership and PMN. Each of the Partnership and PMN represents
and warrants to each of CT and Ellerbe that:
(a) Consents and Approvals; No Violations.
Except as disclosed on Exhibit 6.3(a), neither the
execution or delivery of this Agreement or any of the other Basic
Documents by the Issuers, nor the performance by the Issuers or
any of them of the terms hereof or thereof, nor the consummation
of the transactions contemplated hereby or thereby (i) requires
any notice, consent, or approval under, or has resulted or will
result (with or without notice, lapse of time, or otherwise) in a
breach of the terms or conditions of, a default under, a conflict
with, or the acceleration of (or the creation in any Person of
any right to cause the acceleration of) any performance or any
increase in any payment required by, or the termination,
suspension, modification, impairment, or forfeiture (or the
creation in any Person of any right to cause the termination,
suspension, modification, impairment, or forfeiture) of any
rights or privileges of the Issuer under (a) PMN's Articles of
Incorporation or the Partnership's Certificate of Limited
Partnership, (b) PMN's bylaws or Stockholders' Agreement or the
Limited Partnership Agreement, or (c) any material agreement,
instrument, undertaking, judgment, regulatory or other
restriction, or obligation to which either Issuer is a party or
to or by which either Issuer or any of its properties, assets, or
businesses is subject or bound; (ii) has resulted or will result
(with or without notice, lapse of time, or otherwise) in the
creation, imposition or foreclosure of, or right to exercise or
foreclose any Encumbrance of any nature whatsoever upon or in any
of the properties or assets of the Issuer; (iii) does or will
conflict in any material respect with, or result in any violation
of, any requirement of law applicable to either Issuer or to or
by which either Issuer or any of its properties, assets, or
businesses is subject or bound; or (iv) requires either Issuer to
make any filing with, give any notice to, or obtain any permit,
authorization, consent, or approval of, any Person.
(b) Financial Statements.
Attached as Exhibit 6.3(b) are (i) the financial
statements of the Issuers for the fiscal years ended September
30, 1997, December 31, 1996, and December 1, 1995. Each of the
financial statements referred to in this Section presents, and
any financial statements of the Issuers delivered to CT and
Ellerbe will present, fairly in all material respects the
financial position of such Issuer as of their respective dates
and the results of the Issuer's operations and its cash flows for
the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis, and do not
and will not include or omit to state any fact which renders such
financial statements misleading.
(c) No Undisclosed Liabilities.
Except as set forth in Exhibit 6.3(c), neither the
Partnership nor PMN has any liability or obligation of any nature
whatsoever (whether secured or unsecured, absolute, accrued,
contingent, or otherwise, and whether due or to become due),
except (i) as and to the extent accrued or reserved against in
the Balance Sheet or disclosed in the notes thereto or (ii)
debts, liabilities, and obligations arising after the date of the
Balance Sheet in the ordinary course of business and that neither
individually nor in the aggregate are material.
(d) Absence of Certain Changes or Events.
Except as set forth in Exhibit 6.3(d), since the
date of the Balance Sheet there has not been (i) any change in
the business, operations, condition (financial or other),
properties or assets, liabilities, results of operations, or
prospects of the Partnership or PMN or in the value of the
Partnership Units or the common stock of PMN other than changes
in the ordinary course of business, none of which, individually
or in the aggregate, has had or is reasonably likely to have a
material adverse effect on the business, operations, condition
(financial or other), properties or assets, liabilities, results
of operations, or prospects of the Partnership or PMN or in the
value of the Partnership Units or the common stock of PMN; (ii)
any issuance or authorization of any issuance of any security of
the Partnership or PMN or any declaration, setting aside, or
payment of any dividend or other distribution (whether in cash,
stock, property, or any combination thereof) in respect of the
Partnership Units or common stock of PMN or any other security of
the Partnership or PMN, or any redemption or other acquisition by
the Partnership of Partnership Units or any other security of the
Partnership, or any redemption or other acquisition by PMN of
shares of its stock or any other security of PMN; (iii) any
material damage, destruction, or casualty loss of any of the
Partnership's or PMN's properties or assets, whether covered by
insurance or not; (iv) any increase in the amount or rate or
change in the terms of compensation payable or to become payable
by the Partnership or PMN to any of its directors, officers,
agents, or employees or any increase in the amount or rate or
change in the terms of any bonus, insurance, pension, or other
employee benefit plan, payment, or arrangement made to, for, or
with any of such directors, officers, or employees, or the
adoption or establishment of any such plan or arrangement; (v)
any change by the Partnership or PMN in accounting or auditing
methods, principles, or practices; (vi) any discharge or
satisfaction of any Encumbrance or payment, cancellation,
compromise, or other satisfaction of any material obligation,
indebtedness, or liability (absolute or contingent) other than
the payment in the ordinary course of business of current
liabilities shown on the Balance Sheet of the Partnership or PMN
or incurred since the date thereof in the ordinary course of
business consistent with past practice; (vii) any mortgage,
pledge, subjection to, or suffering to exist of any Encumbrance
upon any of the Partnership's or PMN's properties or assets;
(viii) any sale, transfer, or other disposition of any of the
Partnership's or PMN's properties or assets except in the
ordinary course of business; (ix) any (A) purchase, lease, or
acquisition by the Partnership or PMN of any additional assets
except in the ordinary course of the business and consistent with
past practice or (B) extraordinary capital or operating
expenditure, capital addition, or improvement; (x) any loan or
advance or any other payment by the Partnership or PMN to or any
other transaction with any of the Partnership's or PMN's
directors, officers, or employees or any of their respective
Affiliates or Associates; (xi) any modification, amendment, or
termination of any material agreement to which the Partnership or
PMN is a party or by which it or any of its properties or assets
is bound, or any waiver or release of any rights under any such
agreement; (xii) except for routine operating expenses incurred
in the ordinary course of business consistent with past practice,
any incurrence of any debt, obligation, or liability of any
nature, whether accrued, absolute, contingent, or otherwise;
(xiii) any strike or work stoppage that adversely affects the
Partnership's or PMN's business; (xiv) any merger, consolidation,
share exchange, or other material transaction involving the
Partnership or PMN; or (xv) any authorization of or agreement to
do any of the foregoing.
(e) Books of Account.
The books of account of the Partnership and PMN
are true and complete in all material respects, have been
maintained in accordance with good business and accounting
practices, and accurately and fairly reflect all of the
properties, assets, liabilities, and transactions of the
Partnership or PMN, as the case may be, in accordance with
generally accepted accounting principles consistently applied.
Since December 31, 1996 there have not been any disagreements
between the Partnership or PMN and their accountants or former
accountants, or any change by the Partnership or PMN in its
accounting methods, principles, or practices except as required
by generally accepted accounting principles and consented to by
the Partnership's or PMN's accountants.
(f) Title and Related Matters.
The Partnership and PMN own and possess and have
good and merchantable or marketable title to all of their
properties and assets, free and clear of Encumbrances, except as
disclosed in Exhibit 6.3(b). All of such properties and assets
are in good operating condition and repair, ordinary wear and
tear excepted, and are free and clear of any material defects.
The properties and assets of the Partnership and PMN have been
properly maintained and have been repaired or replaced when
necessary. Neither the Partnership nor PMN owns any partnership
interests in or securities of any other corporation or other
entity, and neither the Partnership nor PMN is a partner in any
partnership or member of any joint venture or other business
association, except as disclosed in Exhibit 6.3(f). The assets
and properties owned or leased by the Partnership and PMN
constitute all of the assets and properties necessary or
appropriate for the continued operation of the Partnership's and
PMN's business in the same fashion as it has been conducted.
(g) Certain Contracts and Arrangements.
Exhibit 6.3(g) sets forth a list of all material
contracts of the Partnership and PMN, including all employment
contracts with the other employees of PMN. Except as set forth
in Exhibit 6.3(g), neither the Partnership nor PMN is a party to
any (i) power of attorney (whether revocable or irrevocable)
given to any person for any purpose whatsoever, (ii) agreement to
lease real or personal property, whether as lessor or lessee, or
(iii) guarantee or indemnity or other contract, agreement,
undertaking, or arrangement, whether oral, written, or implied,
that involves payments by or to the Partnership or PMN of more
than $1,000 in the aggregate or that is not terminable by the
Partnership or PMN on 30 or fewer days' notice at any time
without penalty. There is not, under any of the agreements or
instruments listed on Exhibit 6.3(g), any existing default, event
of default, or other event that would constitute (with or without
notice or lapse of time or otherwise) a default or event of
default on the part of the Partnership or PMN; no default, event
of default, or event that would constitute (with or without
notice or lapse of time or otherwise) a default or event of
default by any other party thereto is known or claimed by the
Partnership or PMN to exist; and consummation of the transactions
contemplated hereby will not violate or otherwise constitute a
breach of any such agreements.
(h) Legal Proceedings, etc.
There is no claim, suit, action, arbitration,
governmental inquiry, injunction, consent decree, or legal,
administrative, or other proceeding existing, pending, or
threatened against or relating to the Partnership or PMN or any
of their properties or assets, nor is there any basis for any
such claim, suit, action, arbitration, governmental inquiry,
injunction, consent decree, or legal, administrative, or other
proceeding. There are no judgments outstanding against the
Partnership or PMN or to or by which the Partnership or PMN or
any of its properties or assets are subject or bound.
(i) Insurance.
The Issuers maintain insurance in such amounts and
in respect of such risks as are customary for entities such as
PMN and the Partnership. Exhibit 6.3(i) sets forth a true and
correct list of all insurance policies of any nature whatsoever
currently in effect and maintained by PMN or the Partnership and
the annual or other premiums payable from time to time
thereunder. Neither PMN nor the Partnership has received any
notice or other communication from any such insurance company
canceling or materially amending or materially increasing the
annual or other premiums payable under any of said insurance
policies, and no such cancellation, amendment, or increase of
premiums is threatened. Neither the Partnership nor PMN is in
material default with respect to any provision contained in any
such policy or has failed to give any notice or present any claim
under any such policy in due and timely fashion. Exhibit 6.3(i)
sets forth a list of all claims for any insured loss in excess of
Five Thousand Dollars ($5,000) per occurrence filed by any of the
Issuers during the three-year period immediately preceding the
Closing, including, but not limited to, worker's compensation,
general liability, and environmental liability claims.
(j) Taxes.
The Partnership and PMN have duly filed all
reports and returns of Taxes required to be filed by the
Partnership or PMN, as the case may be, (each such return or
report being true, correct, and complete) and has timely
withheld, collected, and paid or provided for the payment of all
Taxes and other charges due or claimed to be due from or with
respect to the Partnership or PMN by federal, state, and local
taxing authorities, including, without limitation, those due in
respect of the properties, income, franchises, licenses, sales,
or payrolls of the Partnership or PMN. There are no tax liens
upon any properties or assets of the Partnership or PMN, or any
special charges or levies, liens, taxes, unemployment
compensation contributions, penalties, or interest that form or
might form an Encumbrance on any of the Partnership's or PMN's
properties or assets or the Partnership Interests or PMN Shares
or that could become payable by the Partnership, PMN, CT or
Ellerbe following the Closing. There is no agreement for
extension of time of assessment or payment of any Taxes relating
to the Partnership's or PMN's business, and no waiver or any
statute of limitations has been executed by the Partnership or
PMN for any tax year that remains open or unsettled, except as
described in Exhibit 6.3(j).
(k) All Accounts Paid.
The Partnership and PMN are not in default with
respect to the payment of any material liability.
(l) Broker's or Finder's Fees.
No agent, broker, or other Person acting on behalf
of the Issuers is or will be entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from
any Affiliate of any of the parties hereto, in connection with
any of the transactions contemplated hereby.
(m) Employment Matters.
(i) The Partnership has no employees now and has
never had an employee. PMN is in compliance with all federal,
state, and local laws, ordinances, and regulations respecting
employment practices, terms and conditions of employment, and
wages and hours and is not engaged in any unfair labor practice,
and there is no unfair labor practice complaint against the
Partnership pending before the National Labor Relations Board.
Neither the Partnership nor PMN is now, or has ever been, a party
to any union contract or collective bargaining agreement with any
labor union or other association of employees and, to the
knowledge of the Partnership and PMN, no attempt has been made to
organize or certify the employees of PMN as a bargaining unit.
(ii) PMN has never been the subject of any
inspection or investigation relating to its compliance with or
alleging any violation of the Immigration Reform and Control Act
of 1986, or any related federal statute and the rules and
regulations promulgated thereunder (the "Immigration Laws"), nor
has PMN been fined or otherwise penalized by reason of any
failure to comply with the Immigration Laws, nor, to the
knowledge of PMN, is any such proceeding pending or threatened.
(iii) Exhibit 6.3(m)(iii) contains a true and
complete list of all employees (including officers) of PMN, their
current compensation and other remuneration of every kind,
including current year vacation pay earned to date, accrued sick
leave, and the date and amount of the latest compensation
increase of each such employee, together with a summary of
compensation (whether current or deferred) if any, paid or
payable to each such person for services rendered effective
January 1, 1998 and the basis therefor.
(iv) Exhibit 6.3(m)(iv) contains a true and
complete list of all plans, contracts, agreements, practices,
policies, or arrangements, oral or written, that provide for any
bonuses, deferred compensation, excess benefits, pensions,
retirement benefits, profit sharing, stock bonuses, stock
options, stock purchases, fringe benefits, life, accident, and
health insurance, hospitalization, savings, holiday, vacation,
sick pay, sick leave, disability, tuition refund, service awards,
scholarship, relocation, patent awards, severance agreements, or
any other employee or executive benefits, with respect to, and
which currently cover, any employee or former employee of PMN
including, without limitation, any such plan, contract,
agreement, practice, policy, or arrangement that is an "employee
benefit plan" as defined in Section 3(3) of ERISA, including any
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA and any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (all of the foregoing are referred to
herein as the "Benefit Plans").
(v) PMN has made available complete copies, or
accurate and complete descriptions where copies of the same are
not available, of (a) all documents governing the Benefit Plans,
including, without limitation, all amendments thereto which will
become effective at a later date, (b) to the extent required for
any Benefit Plan, the latest Internal Revenue Service
determination letter obtained with respect to such plan, (iii)
Form 5500 for the most recent completed plan year for each of the
Benefit Plans, together with all schedules forming a part
thereof, (iv) all summary plan descriptions relating to the
Benefit Plans, (v) all annuity contracts funding obligations of
any Benefit Plan, and (vi) all insurance policies or contracts
with respect to the Benefit Plans.
(vi) Except as set forth on Exhibit 6.3(m)(iv),
PMN is not, and as of the Closing will not be, obligated or
liable, pursuant to any plan, contract, agreement, arrangement,
understanding, applicable law or judgment, or otherwise, for the
payment of severance pay or other benefit by reason of the
voluntary or involuntary termination of the employment of any
Person, whether before or after the Closing.
(vii) PMN and each plan administrator and
fiduciary of each Benefit Plan identified on Exhibit 6.3(m)(iv)
are and have at all times complied in all material respects with
all applicable requirements of ERISA, the Code, and any other
applicable law (including applicable regulations and rulings
thereunder); each such Benefit Plan is and has been at all times
properly administered in all material respects in accordance with
its terms; and PMN has no liability under or with respect to any
Benefit Plan that could, individually or in the aggregate, have a
material adverse effect on the Partnership.
(viii) Neither PMN nor any other Person has
engaged in any transaction that could subject PMN to liability
for breach of fiduciary duty or for any civil penalty or excise
tax under either Section 502(i) of ERISA or Sections 4972 or 4975
through 4980B of the Code.
(ix) PMN does not contribute, and has not
contributed, to any multiemployer plan within the meaning of
Section 3(37) of ERISA.
(x) PMN has no current plans that provide, and no
projected liability in respect of, post-retirement health and
medical benefits.
(xi) All reports and disclosures relating to the
Benefit Plans required to be filed with or furnished to
governmental agencies, plan participants, or plan beneficiaries
have been or will be filed or furnished in accordance with
applicable law in a timely manner.
(xii) There are no claims or lawsuits (other
than routine claims for benefits) that have been asserted or
instituted against the Benefit Plans, and no basis for any such
claim or lawsuit exists.
(xiii) The total of all unpaid contributions
(including all employer contributions and employer salary
reduction contributions), premiums, and other payments with
respect to the Benefit Plans for all plan periods ending on or
before the Closing does not exceed one thousand dollars.
(xiv) PMN does not and has not ever maintained
an employee pension benefit plan within the meaning of Section
3(2) of ERISA and to which Title IV of ERISA applies pursuant to
Section 4021 of ERISA.
(n) Accounts Receivable.
All accounts receivable of PMN and the Partnership
represent valid obligations. There is no contest, claim, or
right of set-off contained in any agreement with any maker of an
account receivable relating to the amount or validity of such
account receivable.
(o) OSHA.
The Partnership and PMN are in compliance in all
material respects with all requirements of the Occupational
Safety and Health Act pertaining to the facilities and operations
used in the Partnership's business.
(p) Environmental Matters.
The Partnership and PMN are in compliance in all
material respects with all applicable Environmental Laws.
(q) Regulatory Licensure or Other Violation.
The Partnership and PMN have not violated any
regulatory agreements or licensing regulations or inspections for
which a fine or penalty may be levied.
(r) Permits, Licenses, and Other Legal Requirements;
Compliance with Laws.
The Partnership and PMN have obtained all
approvals, authorizations, licenses, and permits required by all
federal, state, and local governmental agencies, including,
without limitation, any Environmental Laws and any applicable
building, zoning, or other law, ordinance, or regulation
affecting the Partnership's or PMN's properties or assets or the
conduct of the Partnership's or PMN's business. All such
approvals, authorizations, licenses, and permits are listed on
Exhibit 6.3(r) and are in full force and effect, and the
Partnership and PMN are in compliance with all thereof. The
Partnership and PMN have complied in all material respects with
all applicable requirements of law in respect of the conduct of
the Partnership's or PMN's business and the ownership,
possession, maintenance, and operation of its properties and
assets, and no claims or investigations alleging any violation by
the Partnership or PMN of any such requirements of law have at
any time been made or settled.
(s) Documents Delivered.
All documents that have been or that shall be
delivered to CT and Ellerbe by or on behalf of the Partnership or
PMN pursuant to this Agreement or any of the other Basic
Documents, or in connection with the transactions contemplated
hereby or thereby, are, or when so delivered shall be, true and
complete copies of the originals thereof.
(t) Solvency.
The Partnership is, and at the Closing Date will
be, solvent. PMN is, and at the Closing Date will be, solvent.
No event of bankruptcy with respect to the Partnership or PMN has
occurred or is planned or proposed.
(u) Full Disclosure.
None of the representations and warranties made by
any of the Issuers herein, or in any document, schedule, or
certificate furnished or to be furnished by the Issuers pursuant
hereto, contains, or will contain when so furnished, any false
statement of a material fact or omits or will omit to state any
material fact the omission of which would be misleading.
Section 6.4 Representations of PMN and the Partnership with
Respect to the SC RSA Partnerships.
For purposes of the representations and warranties of PMN
and the Partnership in this Section 6.4 references to the Company
shall be deemed to refer to the SC RSA Partnerships. In addition
the representations and warranties by both PMN and the
Partnership with respect to the SC RSA Partnerships shall be
limited to their actual knowledge with respect to such
partnerships. Subject to the foregoing, each of PMN and the
Partnership represent and warrant to CT and Ellerbe as follows:
(a) No Undisclosed Liabilities.
Except as set forth in Exhibit 6.4(a), the Company
has no liability or obligation of any nature whatsoever (whether
secured or unsecured, absolute, accrued, contingent, or
otherwise, and whether due or to become due), except (i) as and
to the extent accrued or reserved against in the Balance Sheet of
such Company or disclosed in the notes thereto or (ii) debts,
liabilities, and obligations arising after the date of the
Balance Sheet of such Company in the ordinary course of business
and that neither individually nor in the aggregate are material.
(b) Absence of Certain Changes or Events.
Except as set forth in Exhibit 6.4(b), since the
date of the Balance Sheet of such Company there has not been (i)
any change in the business, operations, condition (financial or
other), properties or assets, liabilities, results of operations,
or prospects of the Company or in the value of its ownership
interests other than changes in the ordinary course of business,
none of which, individually or in the aggregate, has had or is
reasonably likely to have a material adverse effect on the
business, operations, condition (financial or other), properties
or assets, liabilities, results of operations, or prospects of
the Company or in the value of such interests; (ii) any issuance
or authorization of any issuance of any security of the Company
or any declaration, setting aside, or payment of any dividend or
other distribution (whether in cash, stock, property, or any
combination thereof) in respect of or any other security of the
Company, or any redemption or other acquisition by the Company of
or any other security of the Company; (iii) any material damage,
destruction, or casualty loss of any of the Company's properties
or assets, whether covered by insurance or not; (iv) any increase
in the amount or rate or change in the terms of compensation
payable or to become payable by the Company to any of its
directors, officers, agents, or employees or any increase in the
amount or rate or change in the terms of any bonus, insurance,
pension, or other employee benefit plan, payment, or arrangement
made to, for, or with any of such directors, officers, or
employees, or the adoption or establishment of any such plan or
arrangement; (v) any change by the Company in accounting or
auditing methods, principles, or practices; (vi) any discharge or
satisfaction of any Encumbrance or payment, cancellation,
compromise, or other satisfaction of any material obligation,
indebtedness, or liability (absolute or contingent) other than
the payment in the ordinary course of business of current
liabilities shown on the Company's Balance Sheet or incurred
since the date thereof in the ordinary course of business
consistent with past practice; (vii) any mortgage, pledge,
subjection to, or suffering to exist of any Encumbrance upon any
of the Company's properties or assets; (viii) any sale, transfer,
or other disposition of any of the Company's properties or assets
except in the ordinary course of business; (ix) any (A) purchase,
lease, or acquisition by the Company of any additional assets
except in the ordinary course of the business and consistent with
past practice or (B) extraordinary capital or operating
expenditure, capital addition, or improvement; (x) any loan or
advance or any other payment by the Company to or any other
transaction with any of the Company's directors, officers, or
employees or any of their respective Affiliates or Associates;
(xi) any modification, amendment, or termination of any material
agreement to which the Company is a party or by which it or any
of its properties or assets is bound, or any waiver or release of
any rights under any such agreement; (xii) except for routine
operating expenses incurred in the ordinary course of business
consistent with past practice that are normally paid within 30
days of the due date thereof, any incurrence of any debt,
obligation, or liability of any nature, whether accrued,
absolute, contingent, or otherwise; (xiii) any strike or work
stoppage that adversely affects the Company's business; (xiv) any
merger, consolidation, share exchange, or other material
transaction involving the Company; or (xv) any authorization of
or agreement to do any of the foregoing.
(c) Books of Account.
Except as disclosed in Exhibit 6.4(c), the books
of account of the Company are true and complete in all material
respects, have been maintained in accordance with good business
and accounting practices, and accurately and fairly reflect all
of the properties, assets, liabilities, and transactions of the
Company in accordance with generally accepted accounting
principles consistently applied. Since December 31, 1996, there
have not been any disagreements between the Company and its
accountants or former accountants, or any change by the Company
in its accounting methods, principles, or practices except as
required by generally accepted accounting principles and
consented to by the Company's accountants.
(d) Title and Related Matters.
The Company owns and possesses and has good and
merchantable or marketable title to all of its properties and
assets, free and clear of Encumbrances, except as described in
Exhibit 6.3(b). All of such properties and assets are in good
operating condition and repair, ordinary wear and tear excepted,
and are free and clear of any material defects. The properties
and assets of the Company have been properly maintained and have
been repaired or replaced when necessary. The Company does not
own any shares in or securities of any other corporation or other
entity, except as described in Exhibit 6.3(b). The assets and
properties owned or leased by the Company constitute all of the
assets and properties necessary or appropriate for the continued
operation of the Company's business in the same fashion as it has
been conducted.
(e) Legal Proceedings, etc.
There is no claim, suit, action, arbitration,
governmental inquiry, injunction, consent decree, or legal,
administrative, or other proceeding existing, pending, or
threatened against or relating to the Company or any of its
properties or assets, nor is there any basis for any such claim,
suit, action, arbitration, governmental inquiry, injunction,
consent decree, or legal, administrative, or other proceeding.
There are no judgments outstanding against the Company or to or
by which the Company or any of its properties or assets are
subject or bound.
(f) Insurance.
The Company maintains insurance in such amounts
and in respect of such risks as are customary for entities such
as the Company. The Company has not received any notice or other
communication from any such insurance company canceling or
materially amending or materially increasing the annual or other
premiums payable under any of said insurance policies, and no
such cancellation, amendment, or increase of premiums is
threatened. The Company is not in material default with respect
to any provision contained in any such policy or has failed to
give any notice or present any claim under any such policy in due
and timely fashion.
(g) Taxes.
The Company has duly filed all reports and returns
of Taxes required to be filed by the Company prior to the date
hereof (each such return or report being true, correct, and
complete) and has timely withheld, collected, and paid or
provided for the payment of all Taxes and other charges due or
claimed to be due from or with respect to the Company by federal,
state, and local taxing authorities, including, without
limitation, those due in respect of the properties, income,
franchises, licenses, sales, or payrolls of the Company. There
are no tax liens upon any properties or assets of the Company, or
any special charges or levies, liens, taxes, unemployment
compensation contributions, penalties, or interest that form or
might form an Encumbrance on any of the Company's properties or
assets or that could become payable by the Company or the Issuer
following the Closing. There is no agreement for extension of
time of assessment or payment of any Taxes relating to the
Company's business, and no waiver or any statute of limitations
has been executed by the Company for any tax year that remains
open or unsettled, except as disclosed on Exhibit 6.3(j).
(h) All Accounts Paid.
The Company is not in default with respect to the
payment of any material liability.
(i) Accounts Receivable.
All accounts receivable as shown on the Balance
Sheet of the Company represent valid obligations arising in the
ordinary course of business. As of the Closing Date, all such
accounts receivable net of applicable reserves will be
collectible in the ordinary course of business. There is no
contest, claim, or right of set-off contained in any agreement
with any maker of an account receivable relating to the amount or
validity of such account receivable.
(j) Environmental Matters.
The Company is in compliance in all material
respects with all applicable Environmental Laws.
(k) Regulatory Licensure or Other Violation.
The Company has not violated any regulatory
agreements or licensing regulations or inspections for which a
fine or penalty may be levied.
(l) Permits, Licenses, and Other Legal Requirements;
Compliance with Laws.
Except as described on Exhibit 6.4(l), the Company
has obtained all approvals, authorizations, licenses, and permits
required by all federal, state, and local governmental agencies,
including, without limitation, any Environmental Laws and any
applicable building, zoning, or other law, ordinance, or
regulation affecting the Company's properties or assets or the
partnership interests or the conduct of the Company's business.
All such approvals, authorizations, licenses, and permits are in
full force and effect, and the Company is in compliance with all
thereof. The Company has complied in all material respects with
all applicable requirements of law in respect of the conduct of
the Company's business and the ownership, possession,
maintenance, and operation of its properties and assets, and no
claims or investigations alleging any violation by the Company of
any such requirements of law have at any time been made or
settled.
(m) Documents Delivered.
All documents that have been or that shall be
delivered to the Issuer by or on behalf of the Company or any
Acquiror pursuant to this Agreement or any of the other Basic
Documents, or in connection with the transactions contemplated
hereby or thereby, are, or when so delivered shall be, true and
complete copies of the originals thereof.
(n) Solvency.
The Company is, and at the Closing Date will be,
solvent. No event of bankruptcy with respect to the Company or
any of the Acquirors has occurred or is planned or proposed.
(o) Full Disclosure.
None of the representations and warranties with
respect to the Company herein, or in any document, schedule, or
certificate furnished or to be furnished pursuant hereto,
contains, or will contain when so furnished, any false statement
of a material fact or omits or will omit to state any material
fact the omission of which would be misleading.
ARTICLE VII COVENANTS OF THE PARTIES
Section 7.1 Amendment to the Limited Partnership
Agreement. The Issuers covenant and agree that no later than
February 28, 1998, the Limited Partnership Agreement shall be
amended as follows: (1) the requirement that a limited partner
be a South Carolina local exchange carrier shall be deleted; (2)
the percentage limitations on ownership of interests in the
Partnership shall be increased to 30% from 10%; (3) the "Book
Value" of the Partnership shall be deemed to be one hundred
million dollars; and (4) a new definition of "Change in Control"
which requires, among other things, that such change in ownership
must be accomplished by a single person or group acting in
concert.
Section 7.2 Amendment to the Stockholders' Agreement.
The Issuers covenant and agree that no later than February 28,
1998, the Stockholders' Agreement shall be amended as follows:
(1) the percentage limitations on ownership of interests in the
Corporation shall be increased to 30% from 10%; and (2) the
"Book Value" of the Corporation shall be deemed to be one million
dollars; and (3) a representative of Ellerbe and a representative
of CT shall be nominated and elected to the board of directors of
PMN.
Section 7.3 Expenses. Whether or not the transactions
contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
costs and expenses; provided, that the Partnership shall
reimburse CT for the amount of fees and expenses of legal counsel
of CT in connection with the regulatory filings with the Federal
Communications Commission ("FCC").
Section 7.4 Restatement of Partnership and Stockholder
Agreements. The parties agree that the provisions of the Limited
Partnership Agreement and the Stockholders' Agreement may no
longer adequately reflect the goals and interests of the partners
and shareholders, as the case may be. A committee consisting of
four partners of the Partnership and a representative of CT and a
representative of Ellerbe (the "Special Committee") shall be
convened to review the Partnership Agreement and the
Stockholders' Agreement. This Special Committee shall prepare,
with the assistance of counsel, a revised and restated limited
partnership agreement and revised and restated stockholders'
agreement which shall be submitted to the partners of the
Partnership and to the shareholders of PMN within ninety (90)
days of the execution of this Agreement. The Special Committee's
review will address the issues listed on Exhibit 7.4 and any
other issues it deems to be appropriate.
Section 7.5 Further Assurances. Subject to the terms
and conditions of this Agreement, each of the parties hereto
shall use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things
necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement. From time to time after the
Closing, without further consideration, each party shall, at its
own expense, execute and deliver such documents to any other
party as such party may reasonably request in order to more
effectively consummate the transactions contemplated by this
Agreement. The parties agree (i) to file or cause their
appropriate Affiliates to file with the appropriate state
regulatory authorities, if any, in North Carolina, as well as the
FCC and such other federal and state regulatory agencies that the
parties agree is necessary (such agreement not to unreasonably be
withheld) all notifications, applications, and other documents
needed to secure all approvals or consents required of such
regulatory bodies in order to consummate the transactions
contemplated in this Agreement, and (ii) to use their
commercially reasonable best efforts to obtain such approvals and
consents. In addition, the parties agree to use their
commercially reasonable best efforts to obtain the waiver,
consent and approval of all other Persons whose waiver, consent
or approval is required (a) in order to consummate the
transactions contemplated by this Agreement or (b) by any
material agreement, instrument, arrangement, judgment, decree,
order or license to which the Partnership, PMN, CT or Ellerbe is
a party, and which would prohibit, or require the waiver, consent
or approval of any Person or entity to such transaction or under
which, without such waiver, consent or approval, such transaction
would constitute an occurrence of default under the provisions
thereof, result in the acceleration of any obligation thereunder,
or give rise to a right of any party thereto to terminate its
obligations thereunder. All obtained written waivers, consents
and approvals relating to the Partnership and PMN shall be
produced at Closing in form and content reasonably satisfactory
to Ellerbe and CT, and all obtained written waivers, consents and
approvals relating to Ellerbe and CT shall be produced at Closing
in form and content reasonably satisfactory to the Partnership
and PMN.
Section 7.6 Consents and Licenses. Each of the parties
hereto shall use all reasonable efforts and cooperate with each
other to obtain the consents or approvals of all Persons
necessary to the consummation of the transactions contemplated by
this Agreement.
Section 7.7 Public Announcements. The parties hereto
shall consult with the other parties hereto before issuing any
press releases or otherwise making any public statements with
respect to this Agreement and the transactions contemplated
hereby, and no party shall issue any such press release or make
any such public statement without the express written consent of
the other parties.
ARTICLE VIII CLOSING CONDITIONS
Section 8.1 Conditions to the Obligations of CT and
Ellerbe. The obligations of each of CT and Ellerbe to effect the
transactions contemplated hereby shall be further subject to the
fulfillment at the Closing of the following conditions, any one
or more of which except (a) may be waived by CT and Ellerbe
acting jointly:
(a) none of the transactions contemplated hereby or by
any of the other Basic Documents shall be restrained or enjoined
(preliminarily, temporarily or permanently) by any governmental
or regulatory authority;
(b) each of the Issuers shall have delivered to CT and
Ellerbe all of the documents, instruments, and other items
required to be delivered by Issuers to CT and Ellerbe pursuant to
Section 4.4;
(c) all governmental and third-party consents and
approvals (including, without limitation, the FCC) necessary in
connection with the transfer of the CT Interests, the Ellerbe
Interest, the Partnership Units, and the PMN Shares and the other
transactions contemplated by this Agreement or any of the other
Basic Documents shall have been obtained and be in effect; and
(d) each Issuer shall, in all material respects, have
performed and complied with the agreements contained in this
Agreement required to be performed and complied with by it at or
prior to the Closing, and the representations and warranties of
such Issuer set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as
of the Closing as though made at and as of the date of the
Closing (except as otherwise contemplated by this Agreement), and
such Issuer shall have delivered to CT and Ellerbe a certificate
to that effect substantially in the form of Exhibit 8.1(d) dated
as of the Closing Date and signed by a duly authorized
representative of such Issuer.
Section 8.2 Conditions to the Obligations of the Issuers.
The obligations of the Issuers to effect the transactions
contemplated hereby shall be further subject to the fulfillment
at or prior to the Closing of the following conditions, any one
or more of which except (a) may be waived by the Issuers:
(a) none of the transactions contemplated hereby or by
any of the other Basic Documents shall be restrained or enjoined
(preliminarily, temporarily, or permanently) by any governmental
or regulatory authority;
(b) the Managers of CT 15 LLC and CT 4/5 LLC shall
have delivered to the Partnership written resignations
substantially in the form of Exhibit 8.2(b);
(c) all governmental and third-party consents and
approvals (including, without limitation, the FCC) necessary in
connection with the transfer of the CT Interests, the Ellerbe
Interest, the Partnership Units, and the PMN Shares and the other
transactions contemplated by this Agreement or any of the other
Basic Documents shall have been obtained and be in effect;
(d) CT and Ellerbe shall have delivered all of the
other documents, instruments, and other items required to be
delivered by them to the Issuers pursuant to Section 4.2 and 4.3;
and
(e) CT and Ellerbe shall, in all material respects,
have performed and complied with the agreements contained in this
Agreement required to be performed and complied with by them at
or prior to the Closing, and the representations and warranties
of CT and Ellerbe set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made at and as of the
Closing Date (except as otherwise contemplated by this
Agreement), and CT and Ellerbe shall have delivered to the
Partnership a certificate to that effect in the form of Exhibit
8.2(e) dated as of the Closing Date and signed by a duly
authorized representative of CT or Ellerbe, as the case may be.
ARTICLE IX TERMINATION
Section 9.1 Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual consent of all of CT and Ellerbe and the
Issuers;
(b) if the Closing has not occurred by December 31,
1998, by either CT, Ellerbe, PMN, or the Partnership;
(c) by the Issuers if at any time from the date of
this Agreement through the Closing, either (i) the
representations and warranties of CT and Ellerbe set forth in
this Agreement or any of the Basic Documents shall not have been
true and correct in all material respects when made or except as
otherwise contemplated hereby shall have ceased to be true and
correct in all material respects or (ii) CT or Ellerbe shall
breach or fail to perform in any material respect any of his or
her covenants or agreements contained in this Agreement, and such
violation or breach has not been waived by the Issuers;
(d) by either CT or Ellerbe if at any time from the
date of this Agreement through the Closing, either (i) the
representations and warranties of either Issuer set forth in this
Agreement or any of the Basic Documents shall not have been true
and correct in all material respects when made or except as
otherwise contemplated hereby shall have ceased to be true and
correct in all material respects or (ii) either Issuer shall
breach or fail to perform in any material respect any of its
covenants or agreements contained in this Agreement, and such
violation or breach has not been waived by CT and Ellerbe; or
(e) by any of the parties hereto if the consummation
of the transactions contemplated hereby shall be prohibited by a
final, non-appealable order, decree or injunction of a court of
competent jurisdiction or government agency.
Section 9.2 Procedure and Effect of Termination. In the
event of the termination of this Agreement and abandonment of the
transactions contemplated hereby by any party pursuant to Section
9.1, written notice thereof shall forthwith be given to the other
parties, and this Agreement shall terminate and the transactions
contemplated hereby shall be abandoned without further action by
any of the parties hereto. If this Agreement is terminated
pursuant to Section 9.1(a) or Section 9.1(e), no party or any of
its respective directors, officers, stockholders, partners, or
Affiliates shall have any liability or further obligation to any
other party. If this Agreement is terminated pursuant to Section
9.1(b), no party shall have any liability or further obligation
to any other party unless such first party shall have failed to
act reasonably and in good faith to cause the Closing to occur by
the date specified in Section 9.1(b). In the case of a
termination of this Agreement pursuant to Section 9.1(c) or
Section 9.1(d) due to the violation or breach of any agreement,
representation, or warranty of any party hereto, the other
parties shall have the right to pursue any and all rights and
remedies available at law or in equity against the party at
fault.
ARTICLE X INDEMNIFICATION
Section 10.1 Definition of Indemnified Party.
"Indemnified Party" shall mean (i) the Acquirors, the Issuers and
their respective Affiliates and (ii) the respective partners,
trustees, officers, employees, agents, consultants, and advisors
of the CT, Ellerbe, Issuers and their respective Affiliates
(acting in their capacities as such and within the scope of their
employment or engagement).
Section 10.2 Indemnification by Parties. Each party to
this Agreement shall, individually and not jointly, defend,
protect, indemnify, and hold harmless each Indemnified Party from
and against any and all claims, damages, liabilities,
obligations, losses, deficiencies, penalties, judgments, costs,
disbursements, and expenses of any kind or nature (including,
without limitation, the reasonable fees and disbursements of
counsel and amounts paid or agreed to be paid in settlement of
any claim, action, suit, proceeding, or investigation) in any
manner resulting from, arising out of, based upon, or related or
attributable to (i) any breach or inaccuracy of any
representation or warranty made by such party in this Agreement
or any of the other Basic Documents or (ii) any breach or failure
to perform any covenant, agreement, or obligation of such party
contained in this Agreement or any of the other Basic Documents.
This indemnification obligation shall survive the Closing, and
shall apply notwithstanding any provision of this Agreement, the
Partnership Agreement, or the Shareholders Agreement to the
contrary.
Section 10.3 Defense of Action. Any Indemnified Party
seeking indemnification under this Article shall give the
Indemnifying Party from whom such indemnification is sought
prompt notice of any third-party claim, investigation, action,
suit, or proceeding with respect to which such indemnification is
sought. In the case of any such third-party claim, such
Indemnified Party shall be entitled, at the sole expense and
liability of the Indemnifying Party from whom indemnification is
sought (the "Indemnifying Party"), to exercise full control of
the defense, compromise or settlement of any third-party claim,
investigation, action, suit or proceeding unless the Indemnifying
Party within 10 Business Days after the giving of such notice by
the Indemnified Party shall (i) deliver a written confirmation to
such Indemnified Party that the indemnification provisions of
this Article are applicable to such claim, investigation, action,
suit, or proceeding and that the Indemnifying Party shall
indemnify such Indemnified Party in respect of such claim,
investigation, action, suit, or proceeding pursuant to the terms
of Section 10.2, (ii) notify such Indemnified Party in writing of
the Indemnifying Party's intention to assume the defense thereof,
and (iii) retain legal counsel reasonably satisfactory to such
Indemnified Party to conduct the defense of such claim,
investigation, action, suit or proceeding. If the Indemnifying
Party so assumes the defense of any such claim, investigation,
action, suit, or proceeding in accordance herewith, then such
Indemnified Party shall cooperate with the Indemnifying Party in
any manner that the Indemnifying Party reasonably may request in
connection with the defense, compromise, or settlement thereof.
If the Indemnifying Party so assumes the defense of any such
claim, investigation, action, suit, or proceeding, the
Indemnified Party shall have the right to employ separate counsel
and to participate in (but not control) the defense, compromise,
or settlement thereof, but the reasonable fees and expenses of
such counsel shall be the expense of such Indemnified Party
unless (i) the Indemnifying Party has agreed to pay such fees and
expenses, (ii) any relief other than the payment of money damages
is sought against such Indemnified Party, or (iii) such
Indemnified Party shall have been advised by its counsel that
there may be one or more legal defenses available to it that are
different from or additional to those available to the
Indemnifying Party, and in any such case the reasonable fees and
expenses of such separate counsel shall be borne by the
Indemnifying Party. The Indemnifying Party shall not, without
the written consent of such Indemnified Party, settle or
compromise or consent to entry of any judgment with respect to
any such claim, investigation, action, suit, or proceeding (i) in
which any relief other than the payment of money damages is or
may be sought against such Indemnified Party or (ii) that does
not include as an unconditional term thereof the giving by the
claimant, Person conducting such investigation, plaintiff, or
petitioner to such Indemnified Party of a release from all
liability with respect to such claim, investigation, action,
suit, or proceeding (unless such claimant, Person, plaintiff, or
petitioner is a governmental authority and refuses to grant such
release).
ARTICLE XI MISCELLANEOUS PROVISIONS
Section 11.1 Amendment and Modification. Subject to
applicable law, this Agreement may be amended, modified, or
supplemented only by written agreement of all of the parties at
any time prior to the Closing Date with respect to any of the
terms contained herein.
Section 11.2 Waiver of Compliance; Consents. Except as
otherwise provided in this Agreement, any failure of any party to
comply with any obligation, covenant, agreement, or condition
herein may be waived by whichever of the other parties are
entitled to the benefits thereof only by a written instrument
signed by such parties, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement, or
condition shall not operate as a waiver of, or an estoppel with
respect to, any subsequent failure to comply with such
obligation, covenant, agreement, or condition. Whenever this
Agreement requires or permits consent by or on behalf of any
party, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as
set forth in this Section.
Section 11.3 Investigations; Survival of Representations
and Warranties. Notwithstanding any investigations or inquiries
made by any Person prior to the Closing or the waiver of any
conditions, the representations, warranties, covenants, and
agreements of the parties, shall survive the Closing and,
notwithstanding the Closing, shall continue in full force and
effect.
Section 11.4 Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier or
facsimile transmission, or mailed by registered or certified mail
(return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notice of a
change of address shall be effective only upon receipt thereof):
(a) if to CT: to (b) if to Ellerbe,to
CT Cellular, Inc. Ellerbe Telephone Company
68 Cabarrus Avenue East 254 Second Street
P. O. Box 227 P. O. Box 220
Concord, NC 28026-0277 Ellerbe, NC 28332
Facsimile No.: 704-722-2558 Facsimile No.: 910-652-7700
with a copy to: with a copy to:
Facsimile No. Facsimile No.
Attention: Attention:
(b) if to either Issuer, to
Keith N. Stuckey
President
PMN, Inc.
440 Knox Abbott Dr., Suite 430
P. O. Box 1568
Cayce, SC 29033
with a copy to:
McNair Law Firm, P.A.
Post Office Box 11390
Columbia, SC 29211
Attention: M. John Bowen, Jr.
Facsimile No. (803) 376-2277
Section 11.5 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by
any party without the prior written consent of the other parties,
nor is this Agreement intended to confer upon any Person except
the parties hereto any rights or remedies hereunder.
Section 11.6 Governing Law. This Agreement shall be
governed by the laws of the State of South Carolina (regardless
of the laws that might otherwise govern under applicable
principles of conflicts of law) as to all matters, including,
without limitation, matters of validity, construction, effect,
performance, and remedies.
Section 11.7 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
Section 11.8 Interpretation. The article and section
headings contained in this Agreement are solely for the purpose
of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this
Agreement. The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein
shall be deemed to be or include the plural (and vice versa),
wherever appropriate.
Section 11.9 Entire Agreement. This Agreement, including
the Exhibits and the documents, schedules, certificates, and
instruments referred to herein, embodies the entire agreement and
understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no
restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such
transactions.
Section 11.10 Severability. Any provision of this
Agreement that is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity, illegality, or unenforceability
without affecting in any way the remaining provisions hereof in
such jurisdiction or rendering that or any other provisions of
this Agreement invalid, illegal, or unenforceable in any other
jurisdiction.
(SIGNATURES ARE ON THE FOLLOWING PAGE.)
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
PMN, INC.
By: /S/ JOHN M. BARNES
Its: Chairman
PALMETTO MOBILENET, L.P.
By: PMN, Inc., its general partner
By: /s/ JOHN M. BARNES
John M. Barnes, Chairman
ELLERBE TELEPHONE COMPANY
By: /S/ DAN BENNETT
Dan Bennett, President
CT CELLULAR, INC.
By: /S/ MICHAEL R. COLTRANE
Its: President
EXHIBIT 21
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Subsidiaries of the Registrant
State of
Name Incorporation
The Concord Telephone Company North Carolina
CTC Long Distance Services, Inc. North Carolina
CT Cellular, Inc. North Carolina
Carolina Personal Communications, Inc. North Carolina
CT Wireless Cable, Inc. North Carolina
CTC Exchange Services, Inc. North Carolina
CT Global Telecommunications, Inc. Delaware
Independent Auditors' Consent
The Board of Directors
CT Communications, Inc.:
We consent to incorporation by reference in the Registration
Statements on Form S-8 (nos. 33-59643, 33-59645, 333-15537, 333-30125,
and 333-38895) of CT Communications, Inc. Of our reports
dated February 27, 1998, relating to the consolidated balance
sheets of CT Communications, Inc. And subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, and
related schedule, which reports appear in the December 31, 1997
annual report on Form 10-K of CT Communications, Inc.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Charlotte, North Carolina
April 8, 1998
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<ARTICLE> 5
<LEGEND>
APPENDIX A TO ITEM 601(C) OF REGULATION S-K
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 0 2,162,698
<SECURITIES> 168,979 316,158
<RECEIVABLES> 10,753,422 7,714,737
<ALLOWANCES> 100,000 100,000
<INVENTORY> 2,696,432 2,860,114
<CURRENT-ASSETS> 16,014,557 13,548,616
<PP&E> 173,378,861 153,304,212
<DEPRECIATION> 86,229,072 81,314,625
<TOTAL-ASSETS> 147,339,429 115,063,963
<CURRENT-LIABILITIES> 17,617,435 16,070,073
<BONDS> 11,239,000 2,014,000
137,500 150,000
484,900 1,692,641
<COMMON> 28,966,466 27,398,214
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<LOSS-PROVISION> 0 323,075
<INTEREST-EXPENSE> 0 705,112
<INCOME-PRETAX> 19,499,963 17,045,092
<INCOME-TAX> 7,898,159 6,583,671
<INCOME-CONTINUING> 11,601,804 10,461,421
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<EXTRAORDINARY> 2,239,045 0
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