UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
California 94-0817190
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6161
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates (and on the
assumption that all shares held by registrant's employee benefit plan, directors
and officers may be deemed shares held by affiliates), was $284,099,400 as of
February 28, 1994. As of February 28, 1994, 13,399,194 shares of the
registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III hereof are portions of the registrant's
definitive proxy statement issued in connection with the annual meeting of
registrant's shareholders to be held June 17, 1994.
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1.Business
2.Properties
3.Legal Proceedings
4.Submission of Matters to a Vote of Security Holders
PART II
5.Market for Registrant's Common Equity and Related Stockholder
Matters
6.Selected Financial Data
7.Management's Discussion and Analysis of Financial Condition
and Results of Operations
8.Financial Statements and Supplementary Data
9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10.Directors and Executive Officers of the Registrant
11.Executive Compensation
12.Security Ownership of Certain Beneficial Owners and
Management
13.Certain Relationships and Related Transactions
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
PART I
Item 1. Business.
Roseville Telephone Company (the "Company"), incorporated under the laws of the
State of California in 1914, is engaged in the business of furnishing
communications services, mainly local and toll telephone service and network
access services, in a territory covering approximately 83 square miles in Placer
and Sacramento Counties, California. Toll service to points outside the
Company's own area is furnished through connection at Roseville with facilities
of Pacific Bell, AT&T, and other interexchange carriers. The City of Roseville,
which is centrally located in the Company's service area, is 18 miles northeast
of Sacramento.
During recent years, including the year ended December 31, 1993, the area served
by the Company has experienced both land subdividing activity for home building
purposes and significant commercial and industrial development. The Company
continues to be engaged in the expansion of its facilities and operations to
meet current and anticipated service demand increases and to maintain modern and
efficient service.
Currently, no other telephone company operates in the area served by the
Company. However, the Company's future operations may be impacted by several
proceedings pending before the Public Utilities Commission of the State of
California (the "P.U.C.") which are considering whether certain services
presently provided solely by the Company within its "Local Access Transport
Area" ("LATA") should be opened to competition. See "Item 3 - Legal
Proceedings" and "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company, with a 23.5% equity interest, is one of four limited partners of
Sacramento-Valley Limited Partnership (the "Partnership"), a California limited
partnership formed for the construction and operation of a cellular mobile
radiotelephone system, which now operates in the following Standard Metropolitan
Statistical Areas ("SMSA"):
Sacramento Reno
Stockton Yuba City - Marysville
Modesto Redding - Chico
In addition, the Partnership also operates in the Tehama, Sierra and Storey
(Carson City) Rural Statistical Areas ("RSA").
PacTel Cellular, a wholly owned subsidiary of the Pacific Telesis Group, is the
sole general partner of the Partnership and responsible for the construction,
operation, maintenance and marketing of the cellular mobile radiotelephone
system.
In each SMSA and RSA, the Federal Communications Commission (the "F.C.C.") has
granted or will grant one license to provide cellular services to a wireline
carrier and one license to a non-wireline carrier. The Partnership is the
wireline carrier licensee for each SMSA and RSA in which it operates and
competes with the non-wireline licensee in each of those areas.
The table that follows reflects the percentage amounts of operating revenues of
the Company contributed by various services, excluding income from the
Partnership.
Network Access and
Local Telephone Long Distance
Year Service Service Miscellaneous
---- ------- ------- -------------
1993 38.1% 46.8% 15.1%
1992 35.9% 49.1% 15.0%
1991 33.0% 53.3% 13.7%
1990 34.5% 51.7% 13.8%
1989 34.5% 50.0% 15.5%
As indicated above, revenues from local, network access and long distance
services constituted approximately 85% of the Company's total operating revenues
in 1993. Miscellaneous operating revenues include primarily revenues from
billing and collection services and directory advertising services, in addition
to revenues from nonregulated activities. Nonregulated revenues are derived
from the sale, lease and maintenance of telecommunications equipment, and the
provision of alarm monitoring and paging services.
Revenues from telephone service are affected by rates authorized by various
regulatory agencies. The Company's local service rates are subject to
regulation by the P.U.C. As discussed more fully in "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company completed negotiations with Pacific Bell concerning new compensation
agreements, the effects of which were first realized in 1992, that affected
extended area service settlements and a significant portion of network access
and long distance revenues. With respect to calls terminating outside the
Company's LATA, access charges to interexchange carriers are assessed based on
tariffs filed by Pacific Bell for intrastate services. With respect to
interstate services, the Company has filed its own tariff with the F.C.C. for
all elements of access except carrier common line charges, with respect to which
the Company concurs with tariffs filed by the National Exchange Carrier
Association. Extensive cost separation studies are utilized to determine both
the final settlements and access charges.
Substantially all of the Company's revenues were from communications and related
services. As discussed more fully in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations", approximately 36%
and 34% of the Company's consolidated operating revenues in 1993 and 1992,
respectively, were derived from access charges and charges for other services
to, and transition contract payments from Pacific Bell pursuant to certain
agreements (such amounts represented less than 10% of the Company's consolidated
operating revenues in 1991). Approximately 10%, 10% and 11% of the Company's
consolidated operating revenues in 1993, 1992 and 1991, respectively, were
derived from the provision of services to AT&T. The revenues from services
provided to AT&T were received primarily from access charges, but also included
revenues from the provision of operator, billing and collection, and other
interexchange services. No other customers accounted for more than 10% of
consolidated operating revenues.
In addition to its regulatory authority with respect to rates, the P.U.C. also
has the power, among other things, to establish the terms and conditions of
service, to regulate securities issues, to prescribe uniform systems of accounts
to be kept by public utilities and to regulate the mortgaging or disposition of
public utility properties.
The Company uses public streets and highways in the conduct of its public
utility telephone business under a non-exclusive perpetual franchise granted by
Section 7901 of the California Public Utilities Code.
At December 31, 1993, the Company employed 463 persons, none of whom is
represented by any union.
Item 2. Properties.
The Company owns central office buildings and related equipment in Roseville,
Citrus Heights, Granite Bay, and other locations in Placer County, and completed
construction of a new 135,000 square foot operations facility in November 1993.
The Company's 68,000 square foot principal business office and administrative
headquarters is located in Roseville. Other land is held for future expansion.
The Company has appropriate easements, rights of way and other arrangements for
the accommodation of its pole lines and underground conduits and for its aerial
and underground cables and wires.
In addition to land and structures, the Company's property consists of equipment
required in providing telephone service. This includes central office
equipment, customer premises equipment and connections, radio antennas, pole
lines, aerial and underground cable and wire facilities, vehicles, furniture and
fixtures and other equipment. The Company also owns certain other
communications equipment held as inventory for sale or lease.
In addition to plant and equipment that the Company wholly owns, the Company
utilizes poles and conduit systems wholly owned by, or jointly owned with, other
utilities and leases space on facilities wholly or jointly owned by the Company
to other utilities. These arrangements are in accordance with written
agreements customary in the industry.
The Partnership owns certain equipment used in the provision of cellular mobile
radiotelephone services.
Item 3. Legal Proceedings.
Except for the proceedings described below the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
As appears in Item 1, above, the Company is subject to regulation by the F.C.C.
and P.U.C. In the past there have been various proceedings before these
agencies to which the Company has been a party. Reference is made to Item 1 for
further information regarding the nature of the jurisdiction of the F.C.C. and
P.U.C. over the business and operations of the Company. The regulatory
proceedings discussed below relate to matters which may effect the Company
prospectively and are not expected to effect the Company's 1993 financial
statements.
In March 1985, the P.U.C. commenced an investigation into the "rates, tolls,
rules, charges, operations, costs, separations, intercompany settlements,
contracts, service and facilities of the operations of independent telephone
companies" (I. 85-03-078), and consolidated this investigation with Application
No. 85-01-034 of Pacific Bell. In connection with the application, the P.U.C.
issued an interim rate design effective in 1988 for Pacific Bell which resulted
in a local rate increase for the Company and a decrease in settled toll
revenues. The P.U.C. has stated that it will order a final rate design during
1994, in conjunction with I. 87-11-033 discussed below, which could have a
material impact on the sources and amount of the Company's revenues.
The P.U.C. has instituted an investigation (I. 87-11-033) into the manner in
which it regulates local exchange carriers, including the Company. In the
course of this investigation, it will consider whether certain services
presently provided solely by the Company within its LATA should be open to
competition. In the course of this current proceeding the Company has proposed
adjustments to its rates that would maintain revenues at their present level,
while the P.U.C. staff has proposed a revenue reduction of approximately $6
million. A July 1991 decision of the P.U.C. ordered a phase-down of settlement
pool payments after January 1, 1993. The Company completed negotiations and has
entered into new agreements with Pacific Bell to replace these settlement
procedures effective as of January 1, 1992. In addition, the July 1991 decision
expressed the Commission's expectation that the Company will file a general rate
proceeding, including a request for regulation under the new incentive-based
regulatory framework. As a result of delays in issuing a final order, the
Company expects to submit a test year 1995 general rate case application during
calendar year 1994.
In April 1993, the P.U.C. opened an investigation and rulemaking proceeding (R.
93-04-003) to establish rules that will provide non-discriminatory access by
competing service providers to the network capabilities of local exchange
carriers. The P.U.C. proposed applying these rules to the five largest local
exchange carriers in California, including the Company. In connection with this
proceeding, the P.U.C. issued a further order in August 1993 proposing
additional rules to allow broader competition in the provision of specific
special access and switched transport services. The Company has filed comments
and expects a decision during 1994.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California in which it proposed opening all markets to competition by January 1,
1997. Specifically, the P.U.C. proposed streamlining regulation and eliminating
all remaining legal barriers to competition for telecommunications services in
order to accelerate the pace of innovation in the California telecommunications
marketplace.
There are a number of regulatory proceedings occurring at the federal level that
may have a material impact on the Company. These regulatory proceedings
include, but are not limited to, implementation of revised separations
procedures that shift revenue requirements and costs between interstate and
intrastate jurisdictions and implementation of revised procedures to allocate
costs between regulated and non-regulated operations. In addition, the F.C.C.
periodically establishes the authorized rate of return for interstate access
services, which in 1994 will remain at the 1993 rate of 11.25%.
In September 1992, the F.C.C. issued an order, which is currently under appeal,
granting to competitors expanded interconnection rights to the facilities of
local exchange carriers with annual revenues from regulated operations in excess
of $100 million. While not yet applicable to the Company, this order will
permit competitors to terminate their own facilities in telephone company
central offices to which the order applies. In addition, the F.C.C. initiated a
separate notice of proposed rulemaking establishing a two-phased proceeding to
modify interstate access rate structures to further competition in the provision
of interstate services. These two proceedings may broaden the scope of
competition in the provision of interstate services, the effects of which on the
Company cannot yet be determined.
The Company is subject to certain legal proceedings and claims arising in the
ordinary course of its business. In the opinion of management, any liability
which may ultimately be incurred with respect to these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
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 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company as of
March 14, 1994 are as follows:
Name Age Office
Robert L. Doyle(1) 75 Chairman of the Board; President and
Chief Executive Officer from 1954 to
1993
Brian H. Strom 51 President and Chief Executive Officer
(since December 1993); Vice President
and Chief Financial Officer from 1989
to 1993
A. A. Johnson 72 Executive Vice President and Chief
Operating Officer (since December
1993); Vice President-Operations from
1989 to 1993
Thomas E. Doyle(1) 65 Vice President (since 1972) and
Secretary-Treasurer (since 1965)
Michael D. Campbell 45 Vice President and Chief Financial
Officer (since March 1994); Partner,
Ernst & Young, from 1983 to 1994.
(1) Robert L. Doyle and Thomas E. Doyle are brothers.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock of the Company trades principally in local transactions without
the benefit of an established public trading market. As a result of the minimal
number of stock transactions, the Company's information with respect to price
per share is derived from reports provided by the Company's Retirement
Supplement Plan and disclosure, in limited circumstances, of third party
transactions. Retirement Supplement Plan transactions in the Company's Common
Stock were effected at approximately $22 per share in all quarters of 1992
through January 1993, approximately $23 per share from the balance of the first
quarter through the beginning of the fourth quarter of 1993 and approximately
$24 per share thereafter.
As of February 28, 1994, the approximate number of holders of the Company's
Common Stock was 9,500.
The Company pays quarterly cash dividends on its Common Stock. The Company paid
cash dividends of $.15 per share for each quarter during 1992 and 1993.
Item 6. Selected Financial Data.
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Total operating
revenues $ 96,780 $ 92,280 $ 88,461 $ 73,629 $ 61,293
Net income $ 22,518 $ 21,816 $ 19,940 $ 16,830 $ 14,740
Net income per share
of common stock (1) $ 1.68 $ 1.63 $ 1.49 $ 1.26 $ 1.14
Cash dividends per
share of common
stock (1) $ .58 $ .55 $ .53 $ .50 $ .40
Property, plant and
equipment, at cost $ 228,927 $ 203,379 $ 181,552 $ 159,880 $144,001
Total assets (2) $ 226,459 $ 190,760 $ 165,380 $ 143,264 $131,268
Long-term debt $ 40,000 $ 25,000 $ 13,270 $ 5,590 $ 6,400
Shares of common stock
used to calculate
per share data (1) 13,399,194 13,399,194 13,399,194 13,399,194 12,940,861
(1)Shares used in the computation of net income and cash dividends per share of
common stock are based on the weighted average number of shares outstanding
in each period after giving retroactive effect to 5% stock dividends issued
in 1993, 1992, 1991 and 1990.
(2)The 1989 through 1992 total asset amounts have been conformed to the
presentation of the 1993 amount.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
1993 versus 1992
Operating Revenues:
In years prior to 1992, a significant portion of the Company's network access
and long distance service revenues, as well as certain portions of local service
revenues, resulted from the Company's participation in pooling and settlement
arrangements. Such arrangements are processes whereby amounts billed by local
exchange carriers are reported to the pool and ultimately divided among the pool
participants on the basis of a pool-wide rate of return. Beginning in 1992,
there was a significant shift in the sources of these revenues as a result of
the Company's tentative agreements with Pacific Bell (the "Pacific Bell
Agreements"), effective concurrently with the Company's exit from the intrastate
settlement pools. Of the Company's total revenues in 1993 and 1992, 36% and
34%, respectively, was recorded under these tentative agreements. Definitive
agreements were executed in February 1994 and had no significant effect on
revenues recorded in 1993 and 1992 under the tentative agreements. In addition,
certain billings to interexchange carriers previously reported to and divided by
the pool are now retained by the Company.
Under the Pacific Bell Agreements, the Company billed Pacific Bell various
charges in connection with the provision of services within the Company's Local
Access Transport Area, one of ten in California. In addition, as a result of the
Pacific Bell Agreements the Company recognized transition revenues of $16.5
million and $15 million in 1993 and 1992, respectively, which will be reduced
over an approximate six year period, commencing in a year to be determined by
future regulatory developments, and ultimately eliminated. To avoid potential
adverse effects on future results of operations, the Company must either seek
adjustments to tariffed rates for services, increase productivity or both.
Local service revenues increased approximately $3.8 million, or 11% over 1992.
Of the total increase, approximately $2.3 million was related to an increase in
extended area service revenues recognized under the Pacific Bell Agreements
discussed above. In addition, local service revenues were positively affected
by a 5% growth in access lines and increased revenues associated with custom
calling and enhanced network services.
Network access and long distance revenues result from charges assessed to
carriers and end users for use of the local exchange network and from transition
revenues described above. In 1993, network access revenues increased slightly to
$37.5 million, reflecting growth in minutes of use volumes and higher interstate
settlements from the National Exchange Carrier Association. Positive settlement
adjustments which were recorded in 1992 and did not reoccur in 1993 reduced the
effect of this increase and also caused a decrease in long distance revenues.
Long distance revenues, comprised largely of transition revenues from Pacific
Bell, decreased $727,000 to $7.8 million.
Operating Expenses:
Operating expenses in 1993 increased approximately $5.1 million or 9% compared
to 1992. The increase in operating expenses was due primarily to a combination
of 1) software purchases and improvements in the Company's data systems to
implement movement from a mainframe platform to a client/server platform and to
implement a wide area network, 2) higher costs associated with the Company's
numerous regulatory proceedings, 3) higher pension costs resulting from changes
in actuarial assumptions, 4) normal inflationary factors, and 5) increased costs
associated with serving a larger number of access lines. Depreciation expense
increased as a result of increased plant levels.
Other Income (Expense):
Other income, which consists primarily of income attributable to the Company's
interest in Sacramento-Valley Limited Partnership, interest income from cash
equivalents and short-term investments and allowance for funds used during
construction (AFUDC), increased $2.4 million over 1992, due primarily to
improved results of operations of the partnership and a significant increase in
AFUDC due to the construction of the Company's new Industrial Avenue facility.
Other expense consists primarily of interest expense arising from the
$25,000,000 long-term debt facility obtained in March 1992 and the $15,000,000
facility obtained in November 1993. Total interest expense was approximately
$2.2 million compared to $2.1 million in 1992 resulting from a combination of
slightly increased average borrowings offset by lower interest rates.
Income Taxes:
Income tax expense for 1993 increased approximately $932,000 due to the increase
in income subject to tax and an increase in the effective tax rate resulting
from the implementation of the Revenue Reconciliation Act of 1993 which
retroactively increased the corporate federal income tax rate to 35% beginning
January 1, 1993. The effective federal and state income tax rate was 40.6%
compared to 39.9% in 1992.
1992 versus 1991
Operating Revenues:
The Pacific Bell Agreements, effective beginning in 1992, as previously
discussed, significantly affected the comparability of certain revenue
categories between 1992 and 1991.
Local service revenues increased approximately $3.9 million, or 13% over 1991.
Of this total increase, $2.0 million was due to increased extended area service
revenues recognized under the Pacific Bell Agreements. Additionally, local
service revenues were positively affected by a 4% growth in access lines and
increased custom calling and enhanced network service revenues.
In 1992, long distance service revenues resulted primarily from transition
revenues. In the aggregate, network access and long distance service revenues
decreased $1.8 million or 4%. In 1991, the Company received approximately $4
million from the California High Cost Fund ("CHCF"), and did not request CHCF
support for 1992. This decrease was partially offset by an increase in
interstate switched access revenues due to increases in minutes of use volumes
and in tariffed rates, and higher settlements from the National Exchange Carrier
Association. The remaining increase in network access revenues and the
remaining decrease in long distance service revenues was due to the shift in the
sources of these revenues as described above.
Operating Expenses:
Total operating expenses in 1992 remained at essentially the same level as in
1991. The cost of services and products decreased by $1.6 million primarily due
to decreases in network software expense and the cost of sales associated with
lower nonregulated equipment sales volumes. Depreciation expense increased by
$1.5 million due to an increase in average plant in service. General and
administrative expenses decreased due to the incurrence of nonrecurring
information management expenses in 1991.
Other Income (Expense):
Other income (expense), net increased approximately $973,000 over 1991, due
primarily to an increase in interest expense of $1.1 million as a result of the
Company's incurrence of $25 million in long-term indebtedness in March 1992 for
major construction projects and general corporate purposes.
Income Taxes:
Income tax expense for 1992 increased approximately $1.2 million due principally
to the increase in income subject to tax. The effective federal and state
income tax rate was 39.9% in both 1992 and 1991.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, the Company's
operations continue to provide positive cash flows. Net cash provided by
operating activities amounted to $36.6 million, $31.4 million and $33.2 million
in 1993, 1992 and 1991, respectively. The increase in 1993 was due primarily to
increases in net income, payables, accrued liabilities and other deferred
credits. During 1993, the Company utilized cash flows from operations and
existing cash and cash equivalents to fund capital expenditures in the amount of
$35.5 million and cash dividends of $7.8 million. Capital expenditures were
larger in 1993 than the $22.6 million in 1992 and the $25.9 million in 1991 due
to the completion in 1993 of the new Industrial Avenue facility.
In February 1992, the Company received authority from the P.U.C. to issue and
sell up to an aggregate $40 million of its long-term notes. The Company issued
the initial $25 million in March 1992, and the remaining $15 million in November
1993.
The Company's most significant use of funds in 1994 is expected to be for
budgeted capital expenditures of approximately $21.5 million for central office
equipment and cable and wire facilities. It is anticipated that the Company's
capital requirements in 1994 will be met from cash flows from operations and
existing cash, cash equivalents and short-term investments. The Company does
not presently anticipate that it will commence any securities offerings in 1994.
Inflation
While the Company is not immune from increased costs brought on by inflation and
regulatory requirements, the impact of such items on the Company's operations
and financial condition depends partly on results of future rate cases and the
extent to which increased rates can be translated into improved earnings.
Regulatory Matters
The Company's financial condition is and continues to be affected by recent and
future proceedings by the P.U.C. Pending before the P.U.C. are proceedings
which are considering:
Broad competition for the first time within the Company's LATA with regard
to IntraLATA toll
Rate design proposals by all California local exchange carriers to revise
toll, access, private line and basic exchange rates
Rules that will provide non-discriminatory access by competing service
providers to the network capabilities of local exchange carriers
Rules that will allow non-discriminatory open access to the local exchange
company's central office and authorize broader competition for intrastate
switched transport services
The P.U.C. has expressed its expectation that the Company will file an
application for a general rate proceeding and its election under the new
incentive-based regulatory framework for telephone utilities. The Company
anticipates submitting a test year 1995 general rate case application during
calendar year 1994. The potential future impact of this proceeding can not be
determined.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California in which it proposes to open all markets to competition by January 1,
1997 and aggressively streamline regulation to accelerate the pace of innovation
in the California telecommunications marketplace. The P.U.C. plans to consider
these proposals in future proceedings.
The Company believes it meets the criteria of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
("SFAS No. 71"), which requires the Company to give effect in its financial
statements to certain actions of regulators. Accordingly, the Company's
consolidated financial statements have been prepared on that basis. As a result
of increasing competition and rapid changes in the telecommunications industry,
the Company periodically monitors whether it continues to meet the criteria
which require the use of SFAS No. 71. In the future, should the Company
determine it no longer meets the SFAS No. 71 criteria, a material,
extraordinary, noncash charge would result.
Item 8. Financial Statements and Supplementary Data.
Page
Report of independent auditors
Consolidated balance sheets as of December 31, 1993 and 1992
Consolidated statements of income for each of the three years in
the period ended December 31, 1993
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1993
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1993
Notes to consolidated financial statements
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Roseville Telephone Company
We have audited the accompanying consolidated balance sheets of Roseville
Telephone Company as of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1993. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial position of
Roseville Telephone Company at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Sacramento, California
February 25, 1994
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
ASSETS 1993 1992
------ ------ -----
Current assets:
Cash and cash equivalents $ 9,847,000 $ 11,200,000
Short-term investments 8,920,000 -
Accounts receivable (less allowances of $47,000
and $94,000, respectively) 16,109,000 15,017,000
Refundable income taxes 944,000 -
Inventories 1,115,000 860,000
Deferred income tax asset 1,129,000 1,029,000
Prepaid pension cost - 824,000
Prepaid expenses and other current assets 434,000 456,000
------------ ------------
Total current assets 38,498,000 29,386,000
Property, plant and equipment:
In service 226,170,000 189,447,000
Under construction 2,757,000 13,932,000
------------ ------------
228,927,000 203,379,000
Less accumulated depreciation 60,356,000 58,694,000
------------ ------------
168,571,000 144,685,000
Investments and other assets:
Cellular partnership 17,327,000 15,771,000
Deferred charges and other assets 2,063,000 918,000
------------ ------------
19,390,000 16,689,000
------------ ------------
$226,459,000 $190,760,000
============ ============
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1993 and 1992
LIABILITIES AND SHAREHOLDERS' EQUITY 1993 1992
------------------------------------ ---- ----
Current liabilities:
Accounts payable and other accrued
liabilities $ 7,908,000 $4,777,000
Net payables to telecommunications
entities 6,569,000 7,531,000
Advance billings and customer deposits 1,375,000 1,394,000
Accrued income taxes - 52,000
Accrued pension cost 603,000 -
Accrued compensation 2,688,000 2,398,000
------------ ------------
Total current liabilities 19,143,000 16,152,000
Long-term debt 40,000,000 25,000,000
Commitments and contingencies
(Notes 1 and 5)
Deferred credits and other liabilities:
Deferred income taxes 20,071,000 18,225,000
Deferred investment tax credits 885,000 1,103,000
Other 3,439,000 2,121,000
------------ ------------
24,395,000 21,449,000
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized, 13,399,194 shares issued
and outstanding (12,765,141 shares in 1992) 130,287,000 115,704,000
Retained earnings 12,634,000 12,455,000
------------ ------------
Total shareholders' equity 142,921,000 128,159,000
------------ ------------
$226,459,000 $190,760,000
============ ============
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1993, 1992 and 1991
1993 1992 1991
---- ---- ----
Operating revenues:
Local service $36,883,000 $33,108,000 $29,173,000
Network access service 37,466,000 36,807,000 31,587,000
Long distance service 7,781,000 8,508,000 15,539,000
Directory advertising 6,085,000 5,592,000 4,755,000
Other 8,565,000 8,265,000 7,407,000
------------ ------------ -----------
Total operating revenues 96,780,000 92,280,000 88,461,000
Operating expenses:
Cost of services and products 23,138,000 21,454,000 23,063,000
Depreciation 12,453,000 12,249,000 10,725,000
Customer operations 10,717,000 9,533,000 9,208,000
General and administrative 11,951,000 9,947,000 10,450,000
Other 1,571,000 1,575,000 1,555,000
------------ ------------ ------------
Total operating expenses 59,830,000 54,758,000 55,001,000
------------ ------------ ------------
Income from operations 36,950,000 37,522,000 33,460,000
Other income (expense):
Interest income 285,000 403,000 59,000
Interest expense (2,220,000) (2,056,000) (992,000)
Equity in earnings of cellular
partnership 1,579,000 66,000 484,000
Allowance for funds used during
construction 1,356,000 393,000 315,000
Other, net (48,000) (60,000) (147,000)
------------ ------------ ------------
Total other income (expense), net 952,000 (1,254,000) (281,000)
------------ ------------ ------------
Income before income taxes 37,902,000 36,268,000 33,179,000
Income taxes 15,384,000 14,452,000 13,239,000
------------ ------------ -----------
Net income $22,518,000 $21,816,000 $19,940,000
============ ============ ===========
Per share of common stock:
Net income $1.68 $1.63 $1.49
===== ===== =====
Cash dividends $ .58 $ .55 $ .53
===== ===== =====
Shares of common stock used to
calculate per share data 13,399,194 13,399,194 13,399,194
============ ============ ===========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1993, 1992 and 1991
Common Stock
-------------------------
Number of Retained
Shares Amount earnings Total
------------ ------------ ------------ ------------
Balance at December 31,
1990 11,586,000 $89,763,000 $11,068,000 $100,831,000
5% stock dividend, at
fair value:
Shares 575,251 12,655,000 (12,655,000) -
Cash in lieu of
fractional shares - - (89,000) (89,000)
Cash dividends - - (6,952,000) (6,952,000)
Net income - - 19,940,000 19,940,000
------------ ------------ ------------ ------------
Balance at December 31,
1991 12,161,251 102,418,000 11,312,000 113,730,000
5% stock dividend, at
fair value:
Shares 603,890 13,286,000 (13,286,000) -
Cash in lieu of
fractional shares - - (91,000) (91,000)
Cash dividends - - (7,296,000) (7,296,000)
Net income - - 21,816,000 21,816,000
----------- ------------ ------------ ------------
Balance at December 31,
1992 12,765,141 115,704,000 12,455,000 128,159,000
5% stock dividend, at
fair value:
Shares 634,053 14,583,000 (14,583,000) -
Cash in lieu of
fractional shares - - (97,000) (97,000)
Cash dividends - - (7,659,000) (7,659,000)
Net income - - 22,518,000 22,518,000
----------- ------------ ------------ ------------
Balance at December 31,
1993 13,399,194 $130,287,000 $12,634,000 $142,921,000
=========== ============ ============ ============
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1992 and 1991
Increase (Decrease) in Cash and Cash Equivalents
1993 1992 1991
---- ---- ----
Cash flows from operating
activities:
Net income $22,518,000 $21,816,000 $19,940,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 12,453,000 12,249,000 10,725,000
Equity component of allowance for
funds used during
construction (976,000) (322,000) (277,000)
Amortization of investment tax
credits (218,000) (217,000) (222,000)
Provision for deferred income
taxes 2,743,000 2,912,000 1,625,000
Equity in earnings of cellular
partnership (1,579,000) (66,000) (484,000)
Other, net 121,000 105,000 219,000
Net changes in:
Accounts receivable, net (1,092,000) (2,401,000) (1,132,000)
Refundable income taxes (944,000) - -
Inventories, prepaid expenses and
other current assets 591,000 756,000 (1,468,000)
Payables, accrued liabilities and
other deferred credits 3,082,000 (2,320,000) 3,734,000
Accrued income taxes (52,000) (1,134,000) 586,000
----------- ----------- -----------
Net cash provided by operating
activities 36,647,000 31,378,000 33,246,000
Cash flows from investing
activities:
Capital expenditures for property,
plant and equipment (35,484,000) (22,588,000) (25,865,000)
Purchases of short-term
investments (8,920,000) - -
Investment in cellular
partnership (1,387,000) (1,721,000) (4,218,000)
Return of investment in cellular
partnership 1,410,000 - -
Other, net (863,000) (402,000) 152,000
----------- ------------ -----------
Net cash used in investing
activities (45,244,000) (24,711,000) (29,931,000)
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1993, 1992 and 1991
Increase (Decrease) in Cash and Cash Equivalents
1993 1992 1991
---- ---- ----
Cash flows from financing
activities:
Proceeds of short-term borrowings - - 4,550,000
Proceeds of long-term debt 15,000,000 25,000,000 -
Principal payments of long-term
debt - (13,270,000) (1,180,000)
Dividends paid and fractional share
amounts (7,756,000) (7,387,000) (7,041,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 7,244,000 4,343,000 (3,671,000)
Increase (decrease) in cash and cash
equivalents (1,353,000) 11,010,000 (356,000)
Cash and cash equivalents at
beginning of year 11,200,000 190,000 546,000
----------- ----------- ----------
Cash and cash equivalents at end of
year $9,847,000 $11,200,000 $ 190,000
=========== =========== ==========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of accounting
Roseville Telephone Company (the "Company") is engaged in the business of
furnishing communications and related services principally within its
service area in Northern California. The Company maintains its accounts in
accordance with the Uniform System of Accounts prescribed for telephone
companies by the Federal Communications Commission (the "F.C.C").
The Company believes it meets the criteria of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types
of Regulation" ("SFAS No. 71"), which requires the Company to give effect
in its financial statements to certain actions of regulators. Accordingly,
the Company's consolidated financial statements have been prepared on that
basis. As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether it
continues to meet the criteria which require the use of SFAS No. 71. In
the future, should the Company determine it no longer meets the SFAS No. 71
criteria, a material, extraordinary, noncash charge would result.
The Company engages in nonregulated activities through its RCC
Communications division ("RCC"). Products and services provided by RCC
include the sale, lease and maintenance of telecommunications equipment,
and the provision of alarm monitoring and paging services.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions
have been eliminated. The Company's 23.5% interest in the Sacramento-
Valley Limited Partnership is accounted for using the equity method. The
Company's portion of undistributed earnings of this partnership included in
the Company's consolidated retained earnings at December 31, 1993 amounted
to approximately $3,075,000.
Cash equivalents and short-term investments
The Company invests its excess cash in various investment grade, short-
term, interest-bearing investments. As of December 31, 1993, cash
equivalents and short-term investments consist of an interest-bearing cash
account and commercial paper. The Company has not experienced any losses
on such investments.
For purposes of reporting cash flows, the Company considers highly liquid
investments with original maturities of three months or less as cash
equivalents.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair values of financial instruments
As of December 31, 1993 and 1992, the Company's financial instruments
consist of cash, cash equivalents, short-term investments and long-term
debt. Management of the Company believes that their carrying amounts
approximate their fair values as of December 31, 1993 and 1992. Fair
values for short-term investments were determined by quoted market prices
and for long-term debt by a discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar instruments.
Inventories
Telephone construction inventories consist of materials and supplies, which
are stated at average cost. Equipment and other nonregulated inventory
held for resale are stated at the lower of average cost or market.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Retirements and other
reductions of regulated telephone plant and equipment of approximately
$9,886,000, $947,000 and $4,353,000 in 1993, 1992 and 1991, respectively,
were charged against accumulated depreciation with no gain or loss
recognized. When property applicable to nonregulated operations is sold or
retired, the asset and related accumulated depreciation are removed from
the accounts and the associated gain or loss is recognized. The cost of
maintenance and repairs is charged to operating expense when incurred.
Investment tax credits
Investment tax credits on utility property acquired subsequent to 1980 were
deferred and are being amortized to income over the productive lives of the
related property for rate-making and financial reporting purposes. For tax
return purposes, investment tax credits reduced federal income tax expense
in the year they arose or became available. The Tax Reform Act of 1986
effectively eliminated investment tax credits after December 31, 1985.
Revenues
The Company is subject to regulation by the F.C.C. and the Public Utilities
Commission of the State of California (the "P.U.C."). Pending and future
regulatory actions may have a significant impact on the Company's future
operations and financial condition.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In years prior to 1992, a significant portion of the Company's network
access and long distance service revenues, as well as certain portions of
local service revenues, resulted from the Company's participation in
pooling and settlement arrangements. Such arrangements are processes
whereby amounts billed by local exchange carriers are reported to the pool
and ultimately divided among the pool participants on the basis of a pool-
wide rate of return. Beginning in 1992, there was a significant shift in
the sources of these revenues as a result of the Company's tentative
agreements with Pacific Bell (the "Pacific Bell Agreements"), effective
concurrently with the Company's exit from the intrastate settlement pools.
Of the Company's total revenues in 1993 and 1992, 36% and 34%,
respectively, was recorded under these tentative agreements. Definitive
agreements were executed in February 1994 and had no significant effect on
revenues recorded in 1993 or 1992 under the tentative agreements. In
addition, certain billings to interexchange carriers previously reported to
and divided by the pool are now retained by the Company.
Under the Pacific Bell Agreements, the Company billed Pacific Bell various
charges in connection with the provision of services within the Company's
Local Access Transport Area, one of ten in California. In addition, as a
result of the Pacific Bell Agreements the Company recognized transition
revenues of $16.5 million and $15 million in 1993 and 1992, respectively,
which will be reduced over an approximate six year period, commencing in a
year to be determined by future regulatory developments and ultimately
eliminated. To avoid potential adverse effects on future results of
operations, the Company must either seek adjustments of tariffed rates for
services, increase productivity or both. The implementation of the Pacific
Bell Agreements significantly affected the comparability of certain revenue
categories between 1992 and 1991.
Depreciation
Depreciation of regulated telephone plant and equipment is computed on a
straight-line basis using rates approved by the P.U.C. Average annual
composite depreciation rates were 6.56%, 6.75% and 6.55% in 1993, 1992 and
1991, respectively.
The cost of property, plant and equipment used in nonregulated activities
is depreciated over their estimated useful lives, which range from 3 to 5
years, on a straight-line basis.
Allowance for funds used during construction
The F.C.C. and the P.U.C. allow the Company to capitalize an allowance for
funds used during construction, which includes both an interest and return
on equity component. Such amounts are reflected as a cost of constructing
certain plant assets and as an element of "Other income."
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
Effective January 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109") and, accordingly, the Company's prior consolidated
financial statements were not restated. SFAS No. 109 requires companies to
record deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
and tax returns. Additionally, SFAS No. 109 requires adjustments of
deferred tax assets and liabilities for changes in tax laws or rates (such
as the Revenue Reconciliation Act of 1993), and requires recognition of a
regulatory asset or liability when it is probable that deferred taxes would
be reflected in future rates of regulated companies. The adoption of SFAS
No. 109 and the implementation of the Revenue Reconciliation Act of 1993
did not have a material effect on the Company's consolidated financial
position or results of operations.
Prior to January 1, 1993, deferred income taxes were provided in accordance
with Accounting Principles Board Opinion No. 11 ("APB No. 11")for the tax
effect of all timing differences between financial statement income and
taxable income, except for items that were not allowable by the P.U.C. as
deferred tax expense for rate-making purposes.
Per share amounts
Net income and cash dividends per share of common stock are based on the
weighted average number of shares outstanding each year after giving
retroactive effect to stock dividends.
Statements of cash flows information
During 1993, 1992 and 1991, the Company made payments for interest and
income taxes as follows (in thousands):
1993 1992 1991
---- ---- ----
Interest (net of amounts capitalized) $ 1,747 $ 1,497 $ 1,049
Income taxes $13,855 $ 12,891 $11,250
Reclassifications
Certain amounts in the 1992 and 1991 consolidated financial statements have
been reclassified to conform with the presentation of the 1993 consolidated
financial statements.
2. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1993 consisted of the
following:
$25,000,000 under an unsecured, long-term credit arrangement with a
bank, with interest payable quarterly at rates increasing from 8.16%
to 8.46% during the period of the loan. Principal payments are due in
equal quarterly installments of $893,000, commencing in June 1995, and
ending in April 2002.
On November 17, 1993, the Company borrowed $15,000,000 under an
unsecured, long-term credit arrangement with a bank. Borrowings under
the new credit arrangement bear interest, which is payable quarterly,
at a fixed rate of 6.22%. Principal payments are due in equal
quarterly installments of $536,000, commencing in March 31, 1997, and
ending in December 2003.
At December 31, 1993, the aggregate maturity requirements on all long-term
debt are $2,679,000, $3,572,000, $5,716,000, and $5,716,000 in 1995, 1996,
1997 and 1998, respectively.
The aforementioned credit arrangements contain various positive and
negative covenants with respect to cash flow coverage, tangible net worth
and leverage ratio. These provisions could restrict the payment of
dividends in certain circumstances; however, the entire amount of retained
earnings at December 31, 1993 was unrestricted.
3. INCOME TAXES
The income tax provisions consist of the following components (in
thousands):
1993 1992 1991
---- ---- ----
Current expense:
Federal $9,633 $8,730 $8,810
State 3,226 3,027 3,026
------- ------- -------
12,859 11,757 11,836
Deferred expense:
Federal 2,484 2,552 1,550
State 259 360 75
------ ------- -------
2,743 2,912 1,625
Amortization of investment tax credits (218) (217) (222)
-------- ------- -------
$15,384 $14,452 $13,239
======== ======= =======
The income tax provisions differ from those computed by using the statutory
federal rate (35% in 1993, and 34% in 1992 and 1991) for the following
reasons (in thousands):
1993 1992 1991
---- ---- ----
Computed at statutory rates $13,266 $12,331 $11,281
Increase (decrease):
State taxes, net of federal benefit 2,265 2,235 2,047
Benefit of the rate differential
applied to reversing timing
differences (115) (207) (325)
Other, net (32) 93 236
------- ------- -------
Income tax provision $15,384 $14,452 $13,239
======= ======= =======
Effective federal and state rate 40.6% 39.9% 39.9%
======= ======= =======
3. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31, 1993 (in thousands):
Deferred Income Taxes
----------------------
Assets Liabilities
------ -----------
Property, plant and equipment - primarily due to
depreciation differences $ - $ 21,614
Differences in the timing of recognition
of revenues 2,871 -
Cellular partnership - 2,708
State franchise taxes 1,129 -
Other, net 1,380 -
---------- ----------
Total 5,380 24,322
Less current portion 1,129 -
----------- ----------
$ 4,251 $ 24,322
=========== ==========
Net long-term deferred income tax liability $ 20,071
==========
As of January 1, 1993 and December 31, 1993, there was no valuation
allowance for deferred tax assets.
3. INCOME TAXES (CONTINUED)
During 1992 and 1991, in accordance with APB No. 11, the deferred income
tax provisions resulted from differences in the timing of recognizing
certain revenues and expenses for financial reporting and income tax
purposes. The components of the aggregate deferred income tax provisions
were as follows (in thousands):
1992 1991
---- ----
Tax depreciation in excess of book depreciation $ 1,759 $ 2,268
Differences in the timing of
recognition of revenues 504 (633)
Differences between book and tax income
(loss) attributable to the Company's
investment in a cellular partnership 736 260
Benefit of the rate differential applied
to reversing timing differences (207) (325)
Other, net 120 55
--------- ----------
Deferred income tax provision $ 2,912 $ 1,625
========= ==========
4. PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company sponsors a noncontributory defined benefit pension plan
covering substantially all employees. Benefits are based on years of
service and the employee's average compensation during the five highest
consecutive years of the last ten years of credited service. The Company's
funding policy is to contribute annually an actuarially determined amount
consistent with applicable federal income tax regulations. Contributions
are intended to provide for benefits attributed to service to date. Plan
assets are primarily invested in collective trust accounts, government and
government agency obligations, publicly traded stocks and bonds and
mortgage-related securities.
Net periodic pension cost for the years ended December 31, 1993, 1992 and
1991 includes the following components (in thousands):
1993 1992 1991
---- ---- ----
Service cost-benefits earned during the
period $2,149 $1,544 $1,252
Interest cost on projected benefit
obligation 3,131 2,727 2,252
Actual return on plan assets (2,313) (1,592) (3,113)
Net amortization and deferral 910 (80) 1,786
------- ------- -------
Net pension cost $3,877 $2,599 $2,177
======= ======= =======
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the consolidated balance sheets as of December 31,
1993 and 1992 (in thousands):
1993 1992
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligation $29,717 $25,054
Nonvested benefit obligation 646 483
--------- --------
Accumulated benefit obligation $30,363 $25,537
========= ========
Plan assets at fair value $31,369 $27,659
Less projected benefit obligation (47,383) (39,609)
-------- --------
Projected benefit obligation in excess of
plan assets (16,014) (11,950)
Unrecognized net loss 12,614 9,260
Unrecognized transition obligation 3,247 3,514
-------- --------
Prepaid (accrued) pension cost $ (603) $ 824
======== ========
4. PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The discount rates used in determining the projected benefit obligation at
December 31, 1993 and 1992 were 7% and 7.5%, respectively. The assumed
rate of increase in future compensation levels used to measure the
projected benefit obligation was 6% at December 31, 1993 and 1992. The
expected long-term rate of return on plan assets used in determining net
pension cost was 8% in 1993, and 8.5% in 1992 and 1991. Changes in the
discount rate and expected long-term rate of return on plan assets
increased pension cost $1,054,000 in 1993.
The Company also maintains a retirement supplement plan providing both a
retirement and savings feature for substantially all employees. The
retirement feature allows for tax deferred contributions by employees under
Section 401(k) of the Internal Revenue Code. Subject to certain
limitations, one-half of all employee contributions made to the retirement
supplement plan are matched by the Company. Such matching contributions,
as defined in the plan, amounted to approximately $903,000, $731,000 and
$623,000 in 1993, 1992 and 1991, respectively. At December 31, 1993, 7% of
the Company's outstanding shares of common stock were held by the
retirement supplement plan.
Effective January 1, 1993, the Company adopted Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS No. 106") and No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112"). SFAS No. 106
requires accrual of the expected ultimate cost of providing benefits during
the years that the employee renders the necessary service. Prior to the
Company's adoption of SFAS No. 106, the cost of postretirement benefits was
generally recognized as paid. Presently, the Company provides certain
postretirement benefits other than pensions to substantially all employees,
including a stated reimbursement for Medicare supplemental insurance and
life insurance benefits. SFAS No. 112 establishes certain requirements for
accounting for benefits provided to former or inactive employees after
employment but before retirement. The adoption of SFAS No. 106 and No. 112
did not have a material effect on the Company's consolidated financial
position or results of operations.
5. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment used in its operations
and reflects lease payments as rental expense for the periods to which they
relate. Total rental expense amounted to $1,137,000, $936,000 and $961,000
in 1993, 1992 and 1991, respectively.
At December 31, 1993, the aggregate minimum rental commitments under
noncancellable operating lease obligations are not significant.
Other commitments
The Company's budgeted capital expenditures for the year ending
December 31, 1994 approximate $21.5 million. Binding commitments for such
planned expenditures at December 31, 1993 were not significant.
Litigation
The Company is subject to certain legal proceedings and claims arising in
the ordinary course of its business. In the opinion of management, any
liability which may ultimately be incurred with respect to these matters
will not materially affect the consolidated financial condition or results
of operations of the Company.
6. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Substantially all of the Company's revenues were from communications and
related services provided in the Northern California area. The Company
performs ongoing credit evaluations of its customers' financial condition
and management believes that an adequate allowance for doubtful accounts
has been provided.
As discussed more fully in Note 1 - Revenues, approximately 36% and 34% of
the Company's consolidated operating revenues in 1993 and 1992,
respectively, were derived from access charges and other charges to, and
transition contract payments from Pacific Bell pursuant to the Pacific Bell
Agreements (such amounts represented less than 10% of the Company's
consolidated operating revenues in 1991). Approximately 10%, 10% and 11%
of the Company's consolidated operating revenues in 1993, 1992 and 1991,
respectively, were derived from the provision of services to AT&T. The
revenues from services provided to AT&T were received primarily from access
charges, but also included revenues from the provision of operator, billing
and collection, and other interexchange services. No other customers
accounted for more than 10% of consolidated operating revenues.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
For information regarding the executive officers of the Company, see "Executive
Officers of the Registrant" at the end of Part I of this report. Other
information required by this item is incorporated herein by reference from the
proxy statement for the annual meeting of the Company's shareholders to be held
on June 17, 1994.
Item 11. Executive Compensation.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 17, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 17, 1994.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) 1 and 2. Financial Statements and Financial Statement
Schedules
The financial statements and schedules listed in the
accompanying Index to Financial Statements and Financial
Statement Schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth
quarter of 1993.
ROSEVILLE TELEPHONE COMPANY
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 1 and 2)
PAGE
Report of independent auditors 14
Consolidated balance sheets as of December 31, 1993 and 1992 15
Consolidated statements of income for each of the three years in
the period ended December 31, 1993 17
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1993 18
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1993 19
Notes to consolidated financial statements 21
Financial statement schedules for each of the three years in the
period ended December 31, 1993
V Property, plant and equipment 34
VI Accumulated depreciation 36
VIII Valuation and qualifying accounts 37
IX Short-term borrowings 38
X Supplementary income statement information 39
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
ROSEVILLE TELEPHONE COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Balance Net Other Balance
at additions changes at
beginning (transfers) Retire- - add end of
Classification of period at cost ments (deduct) period
--------------- --------- ---------- --------- --------- ---------
Year ended December 31,
1993:
In service:
Land $ 3,908 $ - $ - $ - $ 3,908
Buildings 28,777 24,232 4 - 53,005
Central office
equipment 63,968 12,638 8,951 - 67,655
Cable and wire
facilities 75,351 5,220 578 - 79,993
Furniture and office
equipment 10,650 4,341 278 - 14,713
Vehicles and other work
equipment 4,634 511 75 - 5,070
Nonregulated
equipment 2,159 693 1,026 - 1,826
--------- --------- -------- -------- --------
189,447 47,635 10,912 - 226,170
Under construction 13,932 (11,175) - - 2,757
--------- --------- -------- -------- --------
$203,379 $ 36,460 $ 10,912 $ - $228,927
======== ========= ======== ======== ========
Year ended December 31,
1992:
In service:
Land $ 3,909 $ - $ 1 $ - $ 3,908
Buildings 28,127 651 1 - 28,777
Central office
equipment 62,229 2,126 387 - 63,968
Cable and wire
facilities 69,254 6,397 300 - 75,351
Furniture and office
equipment 9,499 1,296 145 - 10,650
Vehicles and other work
equipment 4,247 500 113 - 4,634
Nonregulated
equipment 1,855 440 136 - 2,159
---------- --------- -------- --------- --------
179,120 11,410 1,083 - 189,447
Under construction 2,432 11,500 - - 13,932
---------- ---------- -------- --------- ---------
$ 181,552 $ 22,910 $ 1,083 $ - $203,379
========== ========== ========= ========= =========
ROSEVILLE TELEPHONE COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Balance Net Other Balance
at additions changes at
beginning (transfers) Retire- - add end of
Classification of period at cost ments (deduct) period
--------------- --------- ---------- --------- --------- ---------
Year ended December 31,
1991:
In service:
Land $ 2,436 $ 1,473 $ - $ - $ 3,909
Buildings 26,086 2,071 30 - 28,127
Central office
equipment 51,390 13,720 2,881 - 62,229
Cable and wire
facilities 63,347 6,334 427 - 69,254
Furniture and office
equipment 8,896 1,421 818 - 9,499
Vehicles and other work
equipment 3,971 473 197 - 4,247
Nonregulated
equipment 1,634 338 117 - 1,855
--------- --------- --------- --------- --------
157,760 25,830 4,470 - 179,120
Under construction 2,120 312 - - 2,432
--------- --------- --------- --------- --------
$159,880 $ 26,142 $ 4,470 $ - $181,552
========= ========= ========= ========= ========
ROSEVILLE TELEPHONE COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Balance Net Other Balance
at additions changes at
beginning (transfers) Retire- - add end of
Classification of period at cost ments (deduct) period
--------------- --------- ---------- --------- --------- ---------
Year ended December 31,
1993:
Buildings $ 6,944 $ 900 $ 6 $ - $ 7,838
Central office
equipment 22,655 5,977 8,735 - 19,897
Cable and wire
facilities 20,616 3,152 639 - 23,129
Furniture and office
equipment 4,331 1,624 279 - 5,676
Vehicles and other work
equipment 2,220 413 50 - 2,583
Nonregulated equipment 1,928 387 1,082 - 1,233
--------- --------- -------- --------- ---------
$ 58,694 $ 12,453 $10,791 $ - $60,356
========= ========= ======== ========= =========
Year ended December 31,
1992:
Buildings $ 6,103 $ 841 $ - $ - $ 6,944
Central office
equipment 16,910 6,009 264 - 22,655
Cable and wire
facilities 18,068 2,930 382 - 20,616
Furniture and office
equipment 3,069 1,405 143 - 4,331
Vehicles and other work
equipment 1,934 384 98 - 2,220
Nonregulated equipment 1,339 680 91 - 1,928
--------- --------- -------- --------- --------
$47,423 $ 12,249 $ 978 $ - $58,694
======== ======== ======== ========= ========
Year ended December 31,
1991:
Buildings $ 5,347 $ 785 $ 29 $ - $ 6,103
Central office
equipment 14,345 5,234 2,669 - 16,910
Cable and wire
facilities 15,861 2,704 497 - 18,068
Furniture and office
equipment 2,577 1,308 816 - 3,069
Vehicles and other work
equipment 1,752 355 173 - 1,934
Nonregulated equipment 1,067 339 67 - 1,339
--------- --------- --------- --------- ---------
$ 40,949 $ 10,725 $ 4,251 $ - $ 47,423
========= ========= ========= ========= =========
(1)Sales and retirements are net of salvage value and costs of removal.
ROSEVILLE TELEPHONE COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end of
Description period expenses accounts(1) Deductions(2) period
- ----------- ------------ ----------- ----------- ------------- ------------
Allowance for doubtful
accounts:
1993 $ 94 $106 $122 $275 $ 47
==== ==== ==== ==== ====
1992 $162 $ 87 $116 $271 $ 94
==== ==== ==== ==== ====
1991 $235 $ 69 $244 $386 $162
==== ==== ==== ==== ====
(1) Represents collection of accounts previously written-off.
(2) Represents accounts written-off.
ROSEVILLE TELEPHONE COMPANY
SCHEDULE IX - SHORT-TERM BORROWINGS
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Weighted
Maximum Average average
Balance Weighted amount amount interest
at end average outstanding outstanding rate
Category of aggregate of interest during the during the during the
short-term borrowings period rate period period(1) period(2)
- --------------------- ------- ----- ------- --------- ---------
Year ended December 31, 1993
- ----------------------------
Not applicable $ - -% $ - $ - -%
Year ended December 31, 1992
- ----------------------------
Not applicable(3) $ - -% $ - $ - -%
Year ended December 31, 1991
- ----------------------------
Bank line of credit
agreement $ -(3) 5.25% $ 13,500 $ 5,587 6.97%
(1)The average amount of short-term borrowings during each period was
determined by multiplying the amount of each advance during the period by
the percentage of the period for which it was outstanding.
(2)The approximate weighted average interest rate for each period was
determined by dividing interest expense applicable to the borrowing by the
average amount outstanding during the period.
(3)Borrowings outstanding under this bank line of credit agreement at December
31, 1991, and subsequent thereto until its refinancing in March 1992 on a
long-term basis, were classified as long-term debt in the Company's
Consolidated Balance Sheet.
ROSEVILLE TELEPHONE COMPANY
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1993, 1992 and 1991
(In thousands)
Charged to costs and expenses
-----------------------------
Year ended December 31,
-----------------------
1993 1992 1991
---- ----- ----
1. Taxes, other than
payroll and income
taxes $1,571 $1,575 $1,555
Maintenance and repairs is the primary component of plant operations expense,
which is included in "Cost of services and products" in the Company's
Consolidated Statements of Income. Plant operations expense amounted to
$12,911,000, $11,397,000 and $12,419,000 in 1993, 1992 and 1991, respectively.
Depreciation and amortization of intangible assets, preoperating costs and
similar deferrals, royalties paid and advertising costs incurred were
insignificant in each year presented.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEVILLE TELEPHONE COMPANY
(Registrant)
Date: March 25, 1994 By: /s/ Robert L. Doyle
Robert L. Doyle,
Chairman of the Board
Date: March 25, 1994 By: /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 25, 1994 By: /s/ Robert L. Doyle
Robert L. Doyle,
Chairman of the Board
Date: March 25, 1994 By: /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
(Chief Financial Officer
and Principal Accounting
Officer); Director
Date: March 25, 1994 /s/ Thomas E. Doyle
Thomas E. Doyle
Director
Date: March 25, 1994 /s/ Ralph E. Hoeper
Ralph E. Hoeper,
Director
Date: March 25, 1994 /s/ John R. Roberts III
John R. Roberts III
Director
ROSEVILLE TELEPHONE COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit No. Description of Filing Page
----------- ----------- --------- ----
3(a) Restated Articles of Incorporation of the Incorporated -
Company (Filed as Exhibit I to Form 10-Q by reference
Quarterly Report for the quarter ended June
30, 1980), together with Certificate of
Amendment amending such Restated Articles
of Incorporation (as filed with Exhibit
3(a) to Form 10-K Annual Report for the
year ended December 31, 1982), and
Certificate of Amendment further amending
such Restated Articles of Incorporation, as
amended (Filed as Exhibit 3A to Form 10-K
Annual Report for the year ended December
31, 1983)
3(b) Certificate of Amendment of Articles of Incorporated -
Incorporation (Filed as Exhibit 3(b) to by reference
Form 10-K Annual Report for the year ended
December 31, 1988)
3(c) Bylaws of the Company, as amended to date Incorporated -
(Filed as Exhibit 3(c)to Form 10-K Annual by reference
Report for the year ended December 31,
1988)
10(a) Sacramento-Valley Limited Partnership Incorporated -
Agreement, dated April 4, 1984 (Filed as by reference
Exhibit I to Form 10-Q Quarterly Report for
the quarter ended March 31, 1984)
10(b) Credit Agreement with Bank of America Incorporated -
National Trust and Savings Association, by reference
dated March 27, 1992, with respect to
$25,000,000 term loan. (Filed as Exhibit
10(a) to Form 10-Q Quarterly Report for the
quarter ended March 31, 1992)
10(c) Credit Agreement with Bank of America Filed -
National Trust and Savings Association, herewith
dated January 4, 1994, with respect to
$15,000,000 term loan.
22(a) List of subsidiaries (Filed as Exhibit Incorporated -
22(a) to Form 10-K Annual Report for the by reference
year ended December 31, 1981)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEVILLE TELEPHONE COMPANY
(Registrant)
Date: March 25, 1994 By:
Robert L. Doyle,
Chairman of the Board
Date: March 25, 1994 By:
Brian H. Strom,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 25, 1994
Robert L. Doyle,
Chairman of the Board
Date: March 25, 1994
Brian H. Strom,
President and Chief
Executive Officer
(Chief Financial Officer
and Principal Accounting
Officer); Director
Date: March 25, 1994
Thomas E. Doyle,
Director
Date: March 25, 1994
Ralph E. Hoeper,
Director
Date: March 25, 1994
John R. Roberts III,
Director
Credit Agreement
This Agreement is entered into as of January 4, 1994, effective as of
November 12, 1993, between Roseville Telephone Company ("Borrower") and Bank
of America National Trust and Savings Association ("Bank").
1. Definitions and Financial Requirements.
1.1 Definitions. The following terms have the meanings indicated
for purposes of this Agreement:
"Business Day" means a day other than Saturday or Sunday on
which Bank is open for business in San Francisco, California.
"Cash Flow" means the sum of net income (before income taxes
and interest expense), depreciation and amortization.
"Cash Flow Coverage Ratio" means, for any period, the ratio of
Cash Flow during such period to the sum of (a) the current portion of
long-term debt paid during such period, plus (b) interest expense for
such period.
"Closing Date" means the date of this Agreement.
"Compliance Certificate" means the certificate in the form of
Exhibit A.
"Effective Date" means November 12, 1993.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" means any event listed in Article 9.
"Fixed Rate" means 5.47% per annum.
"Leverage Ratio" means the ratio of total liabilities to
Tangible Net Worth.
"Money Market" means the domestic certificate of deposit
market, the eurodollar deposit market or other appropriate money market
designated by Bank.
"Money Market Rate" means the fixed interest rate per annum
which Bank determines could be obtained by reinvesting a specified
Prepaid Installment in the Money Market from the date of prepayment
through the applicable Original Payment Date.
"Non-Essential Assets" means fixed or capital assets which are
worn or obsolete and are not necessary for business activities and
operations.
"Original Payment Date" (collectively "Original Payment
Dates") means, as of the date of any prepayment by Borrower, each date
subsequent thereto on which principal of the Term Loan is to be paid in
accordance with Paragraph 2.4.
"Person" means any individual, association, joint venture,
partnership, joint stock company, corporation, trust, business trust,
government, governmental authority, regulatory authority or other
entity.
"Prepaid Installment" means, for each prepayment made by
Borrower, the portion of such prepayment allocated to each Original
Payment Date. To calculate the Prepaid Installment, the aggregate
amount of such prepayment is divided by the number of Original Payment
Dates. The resulting quotient is the amount of the Prepaid Installment
for each Original Payment Date.
"Plan" means any employee pension benefit plan maintained or
contributed to by Borrower or by any trade or business (whether or not
incorporated) under common control (as defined in Section 4001(b) of
ERISA) with Borrower and insured by the Pension Benefit Guaranty
Corporation under Title IV of ERISA.
"Reference Rate" means the rate of interest publicly announced
from time to time by Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is a rate set by Bank based upon various
factors including Bank's costs and desired return, general economic
conditions, and other factors, and is used as a reference point for
pricing some loans. Bank may price loans at, above or below the
Reference Rate. Any change in the Reference Rate shall take effect on
the day specified in the public announcement of such change.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means any association, corporation or other
entity of which Borrower owns, directly or indirectly, more than 50% of
the voting shares thereof or which Borrower otherwise controls.
"Tangible Net Worth" means total assets (exclusive of
goodwill, patents, trademarks, trade names, organization expense,
treasury shares, unamortized debt discount and premium, deferred charges
(other than those recoverable in regulatory proceedings) and other like
intangibles) less all liabilities (including accrued and deferred income
taxes and subordinated liabilities).
"Term Date" means November 12, 1993, the Business Day on which
Bank disbursed to Borrower the Term Loan.
"Term Loan" means the loan provided under Article 2.
"Treasury Rate" means the interest rate yield for U.S.
Government Treasury Securities which Bank determines could be obtained
by reinvesting a specified Prepaid Installment in such securities from
the date of prepayment through the applicable Original Payment Date.
1.2 Financial Requirements. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted,
all financial information required under this Agreement shall be prepared and
all financial computations required under this Agreement shall be made in
accordance with generally accepted accounting principles consistently
applied.
2. The Term Loan.
2.1 Commitment for the Term Loan. On the Term Date, Bank loaned
to Borrower in one disbursement the total principal amount of $15,000,000.
Such loan shall be the Term Loan hereunder. The interest rate for the Term
Loan shall be based on the Fixed Rate, and the Term Loan shall be subject to
the terms and conditions of this Agreement.
2.2 Reserved.
2.3 Interest on the Term Loan.
(a) The outstanding principal amount of the Term Loan shall
bear interest from the Term Date until payment in full at the Fixed Rate
plus 0.75% (computed on the basis of a 360 day year and actual days
elapsed).
(b) Borrower shall pay interest on the outstanding principal
amount of the Term Loan on the last day of each calendar quarter,
beginning with the first such date after the disbursement by Bank to
Borrower of the Term Loan, and upon payment in full of the Term Loan.
2.4 Principal on the Term Loan. Borrower shall pay the principal
amount of the Term Loan in 28 substantially equal quarterly installments
commencing on March 31, 1997, on the last day of each successive calendar
quarter thereafter, and on December 1, 2003, on which day the entire balance
of principal and interest then unpaid shall be due and payable.
2.5 Prepayment of the Term Loan.
(a) Borrower may at any time prepay the Term Loan, in whole
or in part, in the minimum amount of $1,000,000 or a multiple thereof.
(b) Each prepayment shall be made upon the irrevocable
written notice of Borrower received by Bank not later than 12:00 p.m.
San Francisco time five Business Days prior to prepayment. The notice
of prepayment shall specify the date and the amount of the prepayment.
If a prepayment is being made in conjunction with a scheduled principal
payment required under Paragraph 2.4, the notice of prepayment should
set forth such information, and the definition of "Original Payment
Date" for such prepayment shall be adjusted to reflect such information.
(c) Each prepayment of the Term Loan, whether voluntary, by
reason of acceleration or otherwise, shall be accompanied by payment of
all accrued interest on the amount of the prepayment and the prepayment
fee described below.
(d) To determine the prepayment fee due from Borrower upon
each prepayment made in accordance with subparagraph (b) ("Total
Prepayment Fee"), a prepayment fee shall be calculated separately for
each Prepaid Installment in accordance with the steps set forth in
(d)(i) through (d)(iii) below. The Total Prepayment Fee will be the
aggregate amount of each separate calculation pertaining to each Prepaid
Installment.
(i) First, determine the amount of interest which
would have accrued each calendar quarter on the Prepaid Installment
had it remained outstanding until the applicable Original Payment
Date, using the rates per annum set forth in Paragraph 2.3(a);
(ii) Second, subtract from each quarterly interest
amount determined in (d)(i) above the amount of interest which
would accrue for that Prepaid Installment if it were reinvested
from the date of prepayment through the applicable Original Payment
Date, using the following rate:
(A) if the applicable Original Payment
Date is more than five years after the date of prepayment:
the Treasury Rate plus 0.25% (computed on the basis of a 360
day year and actual days elapsed); or
(B) if the applicable Original Payment
Date is five years or less after the date of prepayment: the
Money Market Rate (computed on the basis of a 360 day year
and actual days elapsed);
(iii) Third, if (d)(i) minus (d)(ii) for the
Prepaid Installment is greater than zero, discount the quarterly
differences to the date of prepayment by the rate used in (d)(ii)
above. The sum of the discounted quarterly differences is the
prepayment fee for that Prepaid Installment.
(e) Bank may adjust the Treasury Rate and Money Market Rate
to reflect the compounding, accrual basis, or other costs of the Term
Loan. Each of the rates is Bank's estimate only and Bank is under no
obligation to actually reinvest any prepayment. The rates shall be
based on information from either the Telerate or Reuters information
services, The Wall Street Journal, or other information sources Bank
deems appropriate.
(f) Borrower acknowledges that prepayment of the Term Loan
may result in Bank incurring certain additional costs, expenses and
liabilities. Borrower therefore agrees to pay the Total Prepayment Fee
for each prepayment and agrees that said amount represents a reasonable
estimate of the prepayment costs, expenses and liabilities of Bank.
2.6 Arrangement Fee. Borrower shall pay to Bank on the Closing
Date a non-refundable arrangement fee of $75,000.
3. Disbursements and Payments.
3.1 Lending Branch. The disbursement of the Term Loan by Bank and
each payment by Borrower under this Agreement shall be made for the account
of such branch of Bank as it shall designate from time to time.
3.2 Loan Account. Principal, interest and other sums owing to
Bank under this Agreement shall be evidenced by entries in records maintained
by Bank. Each payment on and any other credits with respect to principal,
interest and other sums under this Agreement shall be evidenced by entries in
such records.
3.3 Immediately Available Funds; Disbursements and Payments. The
disbursement of the Term Loan by Bank and each payment by Borrower under this
Agreement shall be made in immediately available funds (or such other funds
as Bank may require) at such branch of Bank or such other place as Bank may
from time to time select. Each payment by Borrower may be made only on a
Business Day. If the day on which a payment would fall due is not a Business
Day, the day on which such payment is due shall be the next succeeding
Business Day. Each payment shall be made without setoff or counterclaim not
later than 12:00 p.m. San Francisco time on the day such payment is due. All
sums received after such time shall be deemed received on the next Business
Day and interest and fees shall accrue on such sums at the applicable rate
for the additional day or days.
3.4 Default Interest. Any principal not paid on the date when
due, or any interest or other sum payable by Borrower hereunder if not paid
on the date which is five days from when due, shall bear interest (payable on
demand) from such date until payment in full (computed daily on the basis of
a 360 day year and actual days elapsed) at a rate per annum equal to the
Reference Rate plus two percentage points.
3.5 Interest Rate Calculations. All interest rate calculations
hereunder shall be made on the basis of a 360 day year and actual days
elapsed, which results in greater interest than if a 365/66 day year were
used.
4. Taxes, Costs and Capital Adequacy.
4.1 Taxes. Borrower agrees to make all payments or reimbursements
under this Agreement free and clear of any deduction for any present or
future taxes and agrees to pay any present or future taxes or charges with
respect to such payments or reimbursements which may be imposed by any
government authority, except net income taxes of Bank imposed by any
jurisdiction. On request of Bank, Borrower will provide Bank with original
tax receipts, notarized copies of tax receipts, or such other documentation
as will prove payment of tax in a court of law applying the United States
Federal Rules of Evidence for all taxes paid by Borrower.
4.2 Costs. Borrower shall reimburse or compensate Bank, upon
demand by Bank from time to time, for all costs incurred, losses suffered and
payments made by Bank which are applied or allocated by Bank to the Term Loan
(all as determined by Bank in its sole and absolute discretion) by reason of:
(a) any and all present and future reserve, deposit or
similar requirements against (or against any class of or change in or in
the amount of) assets or liabilities of, or commitments or extensions of
credit by, Bank;
(b) compliance by Bank with any directive, requirement or
request from any governmental or regulatory authority, whether or not
having the force of law.
4.3 Capital Adequacy. If Bank determines that any law, rule,
regulation or guideline regarding capital adequacy affects or would affect
the amount of capital required to be maintained by Bank or any corporation
controlling Bank and Bank determines (taking into consideration Bank's
policies with respect to capital adequacy and Bank's desired return on
capital) that the amount of required capital is increased as a result of
Bank's obligations under this Agreement, then, upon demand by Bank from time
to time, Borrower shall pay Bank additional amounts sufficient as specified
by Bank to compensate Bank for such increase.
5. Conditions Precedent. This Agreement shall take effect on the Closing
Date, but effective as of the Effective Date, subject to the conditions
precedent that, on or before the Closing Date, there shall have been
delivered to Bank, in form and substance satisfactory to Bank:
5.1 Opinion of Borrower's Counsel. A written opinion, dated the
Closing Date, of counsel for Borrower (which counsel must be satisfactory to
Bank), which opinion may be qualified to the extent approved by Bank and
shall cover such legal matters relating hereto as Bank may reasonably
request;
5.2 Borrower's Corporate Resolution. A copy of a resolution or
resolutions passed by the Board of Directors of Borrower, certified by the
Secretary or an Assistant Secretary of Borrower as being in full force and
effect on the Closing Date, authorizing the borrowing provided for herein and
the execution, delivery and performance of this Agreement and any instrument
or agreement required hereunder;
5.3 Borrower's Incumbency Certificate. A certificate, signed by
the Secretary or an Assistant Secretary of Borrower and dated the Closing
Date, as to the incumbency, and containing the specimen signature or
signatures, of the person or persons authorized to execute and deliver this
Agreement and any instrument or agreement required hereunder on behalf of
Borrower;
5.4 Borrower's Compliance Certificate. A completed Compliance
Certificate, signed on behalf of Borrower by its chief financial officer and
calculated as of December 31, 1992, dated the Closing Date;
5.5 Approvals and Consents. Certified copies of all approvals,
consents, exemptions and other actions by, and notices to and filings with,
any governmental or regulatory authority and any trustee or holder of any
indebtedness or obligation of Borrower which, in Bank's opinion, are required
in connection with any transaction contemplated hereby;
5.6 Evidence of No Material Adverse Change. A certificate signed
on behalf of Borrower by its chief financial officer stating that since
December 31, 1992 there has been no material adverse change in Borrower's
consolidated financial condition or results of operations or ability to
perform its obligations under this Agreement or under any instrument or
agreement required hereunder;
5.7 Fees. The arrangement fee; and
5.8 Other Evidence Bank May Require. Such other evidence as Bank
may reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all proceedings in connection herewith and
compliance with the conditions set forth in this Agreement.
6. Representations and Warranties.
Borrower represents and warrants that:
6.1 Organization of Borrower. Borrower is a corporation duly
organized and existing under the laws of California, and is properly
licensed, qualified and in good standing in every jurisdiction in which it is
doing business;
6.2 Authorization of Agreement. The execution, delivery and
performance of this Agreement and any instrument or agreement required
hereunder are within Borrower's powers, have been duly authorized, and are
not in conflict with the terms of any charter, bylaw or other organization
papers of Borrower, or any instrument or agreement to which Borrower is a
party or by which Borrower is bound or affected;
6.3 Government Approvals. No approval, consent, exemption or
other action by, or notice to or filing with (other than a Form 8-K Current
Report which Borrower may determine to file with the SEC to disclose the
execution of this Agreement and notification to the PUC (as hereinafter
defined), which notice Borrower shall give promptly after the Closing Date),
any governmental or regulatory authority is necessary in connection with the
execution, delivery, performance or enforcement of this Agreement or any
instrument or agreement required hereunder, except as may have been obtained
and certified copies of which have been delivered to Bank;
6.4 Compliance with Laws. There is no law, rule or regulation,
nor is there any judgment, decree or order of any court or governmental or
regulatory authority binding on Borrower which would be contravened by the
execution, delivery, performance or enforcement of this Agreement or any
instrument or agreement required hereunder;
6.5 Investment Company Act. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940;
6.6 Enforceability of Agreement. This Agreement is a legal, valid
and binding agreement of Borrower, enforceable against Borrower in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and
enforceable;
6.7 Title to Property. Borrower has good and marketable title to
its property free and clear of all security interests, liens, encumbrances
and rights of others, except for:
(a) taxes which have resulted in a lien but are not yet
delinquent; and
(b) security interests, liens and encumbrances permitted
under Paragraph 8.3, none of which secure revolving lines of credit or
term indebtedness extended by banks or other lenders to Borrower;
and the execution, delivery, performance or enforcement of this Agreement or
any instrument or agreement required hereunder will not result in the
creation of any security interest, lien, encumbrance or right of another
except in favor of Bank;
6.8 Hazardous Materials. Borrower is in compliance with all
federal, state and local laws, rules and regulations relating to hazardous or
toxic materials, substances or wastes;
6.9 No Litigation. (a) Excluding for purposes of this
subparagraph (a) only any proceedings, claims or disputes before or
involving the Public Utilities Commission of the State of California
("PUC"), there are no actions, proceedings, claims or disputes pending
or, to the knowledge of Borrower, threatened against or affecting
Borrower or its property, the adverse determination of which might
materially adversely affect Borrower's consolidated financial condition
or results of operations or Borrower's ability to perform its
obligations hereunder or under any instrument or agreement required
hereunder;
(b) There are no actions, proceedings, claims or disputes
before or involving the PUC pending or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property, the adverse
determination of which might materially adversely affect Borrower's
consolidated financial condition or its ability to perform its
obligations hereunder or under any instrument or agreement required
hereunder;
(c) There are no actions, proceedings, claims or disputes
pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its property, alleging violation of any federal,
state, or local law, rule or regulation relating to hazardous or toxic
materials, substances or wastes;
6.10 Events of Default. No event has occurred or would result from
the incurring of obligations by Borrower under this Agreement which is, or
upon the lapse of time or notice or both would become, an Event of Default;
6.11 Regulation U. The proceeds of the Term Loan will not be used,
directly or indirectly, to purchase or carry any margin stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve System or any
successor regulation) or to extend credit to others for the purpose of
purchasing or carrying any margin stock;
6.12 Taxes. All payments under or in respect of this Agreement and
any instrument or agreement required hereunder are exempt from tax other than
taxes on net income imposed by the country or any subdivision of the country
in which Bank's principal office or actual lending office is located;
6.13 Subsidiaries. Borrower has one Subsidiary, RTC Communications
Corp., which has no contracts and which engages in no business activities;
6.14 Financial Information. All financial statements dated
December 31, 1992, information and data furnished by Borrower to Bank prior
to the Closing Date are complete, and such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial condition
and results of operations of Borrower as of such date. Since December 31,
1992 there has been no material adverse change in Borrower's consolidated
financial condition or results of operations or ability to perform its
obligations under this Agreement or under any instrument or agreement
required hereunder. Borrower has no contingent obligations, liabilities for
taxes or other outstanding financial obligations which are material in the
aggregate, except as disclosed in such statements, information and data.
7. Positive Covenants.
Borrower covenants and agrees that so long as the Term Loan shall remain
available, and until the full and final payment of all obligations of
Borrower under this Agreement and any instrument or agreement required
hereunder, it will:
7.1 Payment. Pay interest and principal on the Term Loan and all
other sums outstanding under or in respect of this Agreement and any
instrument or agreement required hereunder in accordance with the terms
hereof and thereof;
7.2 Use of Proceeds. Use the proceeds of the Term Loan for
general corporate purposes;
7.3 Cash Flow Coverage Ratio. Achieve on a consolidated basis on
the last day of each calendar quarter, for the 12-month period ending on such
day, a Cash Flow Coverage Ratio of at least 2.0 to 1.0;
7.4 Tangible Net Worth. Maintain at all times on a consolidated
basis Tangible Net Worth of at least 90% of Tangible Net Worth on June 30,
1993 plus the sum of 40% of net income after income taxes (without
subtracting losses) earned in each calendar quarter commencing after June 30,
1993 and the net proceeds from any equity securities issued after June 30,
1993;
7.5 Notices. Promptly give written notice to Bank of:
(a) all actions, proceedings, claims or disputes affecting
Borrower (other than actions, proceedings, claims or disputes before or
involving the PUC or the Federal Communications Commission ("FCC"))
where the amount claimed is $1,000,000 or more;
(b) any substantial dispute which may exist between Borrower
and any governmental or regulatory authority;
(c) any labor controversy resulting in or threatening to
result in a strike, work stoppage, boycott, shutdown or other labor
disruption against or involving Borrower;
(d) (i) all significant developments in the actions,
proceedings, claims or disputes before or involving the PUC or the FCC
which are disclosed in Borrower's 10-K Annual Report filed with the SEC
for the fiscal year ending December 31, 1992, (ii) all actions,
proceedings, claims or disputes before or involving the PUC or the FCC
which arise subsequent to the Closing Date and which Borrower
anticipates will be disclosed in the next Form 10-K Annual Report which
Borrower is required to file with the SEC, and (iii) all significant
developments pertaining to items in
subparagraph (ii);
(e) any reportable event under Section 4043(b)(5), (6) or (9)
of ERISA with respect to any Plan, any decision to terminate or withdraw
from a Plan, the commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA, or any material increase in the actuarial
present value of unfunded vested benefits under any Plan over the
preceding year;
(f) as required under Paragraph 2.3(c);
(g) any Event of Default or any event which, upon the lapse
of time or notice or both, would become an Event of Default; and
(h) any matter which has resulted or might result in a
material adverse change in Borrower's consolidated financial condition
or results of operations or Borrower's ability to perform its
obligations hereunder or under any instrument or agreement required
hereunder;
(i) copies of the reports pertaining to the execution of this
Agreement which Borrower submits to the PUC or one of its divisions in
accordance with the PUC's order with respect to Application 91-11-045, and
evidence of the PUC's or such division's receipt of same;
7.6 Financial Statements, Reports, Etc. Deliver to Bank in form
and detail satisfactory to Bank, and in such number of copies as Bank may
request:
(a) as soon as available but no later than 60 days after the
end of each of the first three quarters of each of its fiscal years,
Borrower's balance sheet as of the end of such quarter, and Borrower's
statements of income, retained earnings and cash flows for such quarter
and that portion of the fiscal year ending with such quarter, prepared
on a consolidated basis, all as set forth in Borrower's Form 10-Q
Quarterly Report filed with the SEC for such quarter, and a certificate
signed on behalf of Borrower by its chief financial officer stating that
such financial statements fairly present the consolidated financial
condition and results of operations of Borrower during such quarter and
were prepared in accordance with generally accepted accounting
principles consistently applied;
(b) as soon as available but no later than 120 days after the
end of each of its fiscal years, a complete copy of Borrower's audited
financial statements, which shall include at least Borrower's balance
sheet as of the end of such year, and Borrower's statements of income,
retained earnings and cash flows for such year, prepared on a
consolidated basis, and the opinion of an independent certified public
accountant selected by Borrower and satisfactory to Bank stating that
Borrower's financial statements fairly present the consolidated
financial condition and results of operations of Borrower and were
prepared in accordance with generally accepted accounting principles
consistently applied, all as set forth in Borrower's Form 10-K Annual
Report filed with the SEC for such fiscal year. The opinion of such
certified public accountant shall not be qualified or limited because of
a restricted or limited examination by such accountant of any material
portion of Borrower's records;
(c) at the same time as the deliveries made to Bank by
Borrower pursuant to subparagraphs (a) and (b) above, a completed
Compliance Certificate signed on behalf of Borrower by its chief
financial officer and calculated as of the end of such quarter or year;
(d) as soon as distributed to Borrower's shareholders, a copy
of any interim financial statements furnished by Borrower to its
shareholders;
(e) as soon as filed with the Securities and Exchange
Commission, a copy of each Form 8-K Current Report, Form 10-K Annual
Report, Annual Report to Shareholders, Proxy Statement and Registration
Statement;
(f) such other statements, lists of property and accounts,
budgets, forecasts or reports as Bank may reasonably request;
7.7 Cooperation. Perform, on request of Bank and at Borrower's
expense, such acts as may be reasonably necessary or advisable to carry out
the intent of this Agreement;
7.8 Existence, Etc. Maintain and preserve its existence and all
rights, privileges and franchises now enjoyed, and keep all its properties in
good working order and condition; provided, however, that Borrower may
dissolve RTC Communications Corp.;
7.9 Payment of Obligations. Pay all obligations, including tax
claims, when due, except such as may be contested in good faith or as to
which a bona fide dispute may exist;
7.10 Compliance with Laws. Comply with all laws, rules,
regulations, orders and directions of any governmental or regulatory
authority having jurisdiction over it or its business;
7.11 Insurance. Maintain and keep in force in adequate amounts
such insurance as is usual in its business;
7.12 Maintain Books and Records; Inspection Rights. Maintain
adequate books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and permit employees or agents of
Bank at any reasonable time to inspect its properties, and to examine and
audit its books, accounts and records and make copies and memoranda thereof.
8. Negative Covenants.
Borrower covenants and agrees that, so long as the Term Loan shall
remain available, and until full and final payment of all obligations of
Borrower under this Agreement and any instrument or agreement required
hereunder, it will not:
8.1 Leverage Ratio. Permit at any time its Leverage Ratio to
exceed 0.75 to 1.0;
8.2 Reserved.
8.3 Other Security Interests. Create, assume or suffer to exist
any security interest, lien (including the lien of an attachment, judgment or
execution) or encumbrance, securing a charge or obligation, on or of any of
its property, whether now owned or hereafter acquired, except:
(a) any security interests, liens or encumbrances disclosed
to Bank prior to the Closing Date;
(b) liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without
any penalty, or the validity of which is being contested in good faith
by appropriate proceedings upon stay of execution of the enforcement
thereof;
(c) deposits or pledges to secure:
(i) statutory obligations;
(ii) surety or appeal bonds;
(iii) bonds for release of attachment, stay of
execution or injunction; or
(iv) performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, or for
purposes of like general nature in the ordinary course of its
business as presently conducted;
(d) purchase money security interests or mortgages in or
against property hereafter acquired if the liability secured does not
exceed 100% of the cost thereof and the security interest does not
extend beyond the property purchased;
(e) security interests, liens or encumbrances on margin stock
(as defined in Regulation U of the Board of Governors of the Federal
Reserve System or any successor regulation);
(f) involuntary liens which do not give rise to an Event of
Default under Paragraph 9.4;
8.4 Liquidation; Merger, Etc. Liquidate or dissolve, or enter
into any merger, consolidation, reorganization, partnership, joint venture or
other combination other than in the ordinary course of business as presently
conducted, or sell, lease, exchange, transfer or otherwise dispose of all or
substantially all of its property; provided, however, that
(a) Borrower may enter into mergers after the Closing Date so
long as (i) Borrower is the surviving party to any such merger, and (ii)
the primary business activity or operation of the entity(ies) merging
into Borrower is substantially related to Borrower's business activities
and operations as of the Closing Date;
(b) Borrower may enter into any partnership or joint venture
if to do so would be in the ordinary course of its business as conducted
as of the Closing Date;
8.5 Sale of Property for Fair Consideration. Sell, lease,
exchange, transfer or otherwise dispose of any of its property except for
full, fair and reasonable consideration, provided, however, that this
Paragraph shall not apply to Non-Essential Assets;
8.6 Sale of Fixed or Capital Assets. Sell, lease, exchange,
transfer or otherwise dispose of all or substantially all of its fixed or
capital assets, or enter into any sale and leaseback agreement covering any
of its fixed or capital assets, provided, however, that this Paragraph shall
not apply to Non-Essential Assets;
8.7 Purchase of Property. Purchase or otherwise acquire the
property or business of, or any shares or other forms of ownership interest
in, make any capital contributions to or loans or extensions of credit, or
otherwise invest in, any Person; provided, however, that this Paragraph shall
not be deemed to prohibit the purchase or acquisition of the property or
business of or any form of ownership interest in any entity if such entity's
primary business activity or operation is substantially related to Borrower's
business activities and operations as of the Closing Date;
8.8 Contracts. Enter into any contracts, leases, indentures, or
other agreements except in the ordinary course of its business as conducted
as of the Closing Date;
8.9 Change in Business. Engage in any business activities or
operations substantially different from or unrelated to its business
activities and operations as of the Closing Date.
9. Events of Default.
The occurrence of any of the following events shall terminate any
obligation on the part of Bank to make or continue the Term Loan and, at the
option of Bank, shall make all interest and principal remaining on the Term
Loan and all other sums outstanding under or in respect of this Agreement
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character:
9.1 Nonpayment-Principal. Borrower fails to pay, when due, any
installment of principal under this Agreement in accordance with the terms
hereof;
9.2 Nonpayment-Interest and Other Sums. Borrower fails to pay,
within five days after the date when due, any installment of interest or any
other sum under this Agreement in accordance with the terms hereof;
9.3 Misrepresentation. Any representation or warranty herein or
in any agreement, instrument or certificate executed pursuant hereto or in
connection with any transaction contemplated hereby proves to have been false
or misleading in any material respect when made or when deemed to have been
made;
9.4 Involuntary Liens. Any involuntary lien or liens in the
aggregate amount of $1,000,000 or more, of any kind or character, attaches to
any property of Borrower and remains unvacated or unbonded for a period of 30
days, except for taxes due but not in default;
9.5 Judgments. A judgment or judgments or arbitration award or
awards is entered against Borrower in the aggregate amount of $1,000,000 or
more on a claim or claims not covered by insurance and remains unpaid,
unvacated, unbonded or unstayed for a period of 60 days;
9.6 Voluntary Bankruptcy. Borrower is generally not paying or
admits in writing its inability to pay its debts as such debts become due, or
files any petition or action for relief under any bankruptcy, reorganization,
arrangement, insolvency, or moratorium law or any other law for the relief
of, or relating to, debtors, or requests the appointment of a custodian,
receiver or trustee (or other similar official) to take possession, custody
or control of any of its property, or enters into any composition with
creditors, or makes any assignment for the benefit of creditors, or takes any
corporate action in furtherance of any of the foregoing;
9.7 Involuntary Bankruptcy. An involuntary petition is filed
against Borrower under any bankruptcy, reorganization, arrangement,
insolvency, or moratorium law or any other law for the relief of, or relating
to, debtors, or a custodian, receiver, trustee, assignee for the benefit of
creditors (or other similar official) is appointed to take possession,
custody or control of any property of Borrower, unless such petition or
appointment is set aside or withdrawn or ceases to be in effect within 60
days from the date of said filing or appointment;
9.8 Condemnation. All, or in the opinion of Bank substantially
all, of the property of Borrower is condemned, seized or appropriated;
9.9 Regulatory Action. Any governmental or regulatory authority
takes or institutes action which, in the opinion of Bank, will materially
adversely affect Borrower's consolidated financial condition or results of
operations or ability to perform its obligations hereunder or under any
instrument or agreement required hereunder;
9.10 Cross Default. Any breach or default occurs under any other
agreement or agreements involving the borrowing of money or the extension of
credit under which Borrower may be obligated as borrower, instalment
purchaser or guarantor, if such breach or default consists of the failure to
pay any indebtedness when due or if such breach or default permits or causes
(or upon the lapse of time or notice or both would permit or cause) the
acceleration of any indebtedness or the termination of any commitment to lend
or to extend credit;
9.11 Breach of Other Obligations. Any breach or default occurs
under any other obligation of Borrower to Bank or any subsidiary or affiliate
of Bank;
9.12 ERISA Termination. Any Plan termination or any full or
partial withdrawal from a Plan or Plans occurs which could result in
liability of Borrower to the Pension Benefit Guaranty Corporation or to the
Plan or Plans in the aggregate amount of $10,000,000 or more, or the
actuarial present value of unfunded vested benefits under all Plans shall
exceed 10% of Borrower's Tangible Net Worth (determined on a consolidated
basis);
9.13 Material Adverse Change. Any material adverse change occurs
in Borrower's consolidated financial condition or results of operations or
ability to perform its obligations hereunder or under any instrument or
agreement required hereunder;
9.14 Other Defaults. Borrower breaches, or defaults under, any
term, condition, provision, representation, warranty or covenant contained in
this Agreement not specifically referred to in this Article.
10. Miscellaneous.
10.1 Notices. Any communications between the parties hereto to be
given in writing shall be given by mailing the same, postage prepaid, or by
telex, cable, facsimile or personal delivery to each party at its address set
forth on the signature pages hereto, or to such other addresses as either
party may in writing hereafter indicate. Any communications between the
parties hereto to be given by telephone shall be confirmed immediately in
writing by the party initiating the telephone call.
10.2 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Borrower shall not assign this Agreement or
any of the rights of Borrower hereunder without the prior written consent of
Bank.
10.3 Participations.
(a) Bank may from time to time sell, assign, grant
participations in, or otherwise transfer to any bank (a "Participant")
all or part of the obligations of Borrower to Bank under this
Agreement.
(b) Borrower agrees that each transfer of its obligations
under this Agreement will give rise to a direct obligation of Borrower
to the Participant and that Participant shall have the same rights and
benefits under this Agreement as it would have if it were party to this
Agreement.
(c) Bank shall remain liable for the performance of all of
its obligations under this Agreement notwithstanding any transfer by
Bank of Borrower's obligations under this Agreement, unless Borrower,
Bank and Participant agree to the contrary in writing.
(d) Borrower authorizes Bank to disclose to any prospective
Participant and any Participant any and all confidential information in
Bank's possession concerning Borrower and this Agreement, subject to
such prospective Participant and Participant executing a confidentiality
agreement substantially in the form of Exhibit B. Bank shall not be
responsible if such prospective Participant or Participant fails to
comply with the confidentiality agreement.
10.4 Novations.
(a) Bank may from time to time assign to any bank (an
"Assignee") all or part of the obligations of Borrower to Bank under
this Agreement and delegate to Assignee all or a proportionate part of
the obligations of Bank to Borrower under this Agreement.
(b) The effectiveness of each such assignment and delegation
is subject to the prior written consent of Borrower (whose consent will
not be unreasonably withheld).
(c) Borrower agrees that each such assignment and delegation
will give rise to a direct obligation of Borrower to Assignee and that
Assignee shall have the same rights and benefits and obligations under
this Agreement as it would have if it were party to this Agreement.
Borrower agrees that each such assignment and delegation will release
and discharge Bank from Bank's obligations to Borrower under this
Agreement with respect to the portion of Bank's obligations delegated to
Assignee.
(d) Borrower authorizes Bank to disclose to any prospective
Assignee and any Assignee any and all confidential information in Bank's
possession concerning Borrower and this Agreement, subject to such
prospective Assignee and Assignee executing a confidentiality agreement
substantially in the form of Exhibit B. Bank shall not be responsible
if such prospective Assignee or Assignee fails to comply with the
confidentiality agreement.
10.5 Setoff. Borrower authorizes Bank and each Participant and
each Assignee, upon the occurrence of an Event of Default, to proceed
directly by right of setoff, banker's lien, or otherwise, against any
property of Borrower which may be in the hands of Bank or such Participant or
such Assignee, respectively.
10.6 Confidentiality. Bank agrees to maintain confidentiality with
respect to all information which is furnished by or on behalf of Borrower to
Bank under this Agreement, except to the extent such information:
(a) was or becomes generally available to the public other
than as a result of a disclosure by Bank;
(b) was or becomes available on a non-confidential basis from
a source other than Borrower, provided that such source is not bound by
a confidentiality agreement with Borrower known to Bank;
(c) is disclosed by Bank:
(i) to any governmental or regulatory authority in
the course of its duties;
(ii) pursuant to subpoena or other legal process;
(iii) to legal counsel and other advisors retained
by Bank;
(iv) to any Person and in any proceeding necessary
in Bank's judgment to protect Bank's interest in connection with
any claim or dispute involving Bank; or
(v) to any prospective Participant or Assignee and
any Participant or Assignee.
10.7 Waivers; Writing Required. No delay or omission by Bank to
exercise any right under this Agreement shall impair any such right, nor
shall it be construed to be a waiver thereof. No waiver of any single breach
or default under this Agreement shall be deemed a waiver of any other breach
or default. Any amendment or waiver of any provision of this Agreement must
be in writing to be effective.
10.8 Remedies. All rights and remedies provided in this Agreement
and any instrument or agreement required hereunder are cumulative and are not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further
exercise thereof or the exercise of any other right or remedy.
10.9 Costs and Expenses. Borrower agrees to pay to Bank on demand
from time to time all costs, expenses and attorneys' fees (including
allocated costs for in-house legal services) incurred by Bank in connection
with (a) the preparation of this Agreement and of any waivers and amendments,
(b) the administration of this Agreement and any waivers and amendments, but
not including any charges for time allocated by Bank personnel (other than in-
house legal staff) to routine ongoing operations with respect to this
Agreement, (c) enforcement of this Agreement and any instrument or agreement
required hereunder, and (d) in connection with any refinancing or
restructuring of the Term Loan in the nature of a "work-out"; provided,
however, that Borrower's reimbursement of Bank for attorneys' fees (including
allocated costs for in-house legal services) incurred by Bank in connection
with the preparation of this Agreement shall not exceed $10,000.
10.10 Indemnification for Hazardous Substances. Borrower shall
indemnify Bank and its directors, officers, agents, employees and counsel
against and hold Bank and each such person harmless from any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including attorneys' fees and allocated costs for in-house legal services)
arising out of or attributable to the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence on, under or about Borrower's operations or property or property
leased by Borrower of any material, substance or waste which is or becomes
designated as hazardous or toxic under any federal, state or local law, rule
or regulation.
10.11 Indemnification for Use of Proceeds of Term Loan.
Borrower shall indemnify Bank and its directors, officers, agents, employees
and counsel against and hold Bank and each such person harmless from any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including attorneys' fees and allocated costs for in-house legal services)
arising out of or incurred in connection with Borrower's use or proposed use
of the proceeds of the Term Loan for any purpose, including the purchase or
other acquisition of any shares or other forms of ownership interest in any
Person (or to refinance any indebtedness incurred for such purpose).
10.12 Paragraph Headings. Paragraph headings are for reference
only, and shall not affect the interpretation or meaning of any provision of
this Agreement. Unless otherwise provided, references to Articles,
Paragraphs and Exhibits shall be deemed reference to Articles, Paragraphs and
Exhibits of this Agreement.
10.13 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement
required hereunder.
10.14 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of which, when so executed,
shall be deemed an original but all such counterparts shall constitute but
one and the same agreement.
10.15 Governing Law. This Agreement, and any instrument or
agreement required hereunder, shall be governed by and construed under the
laws of the State of California.
10.16 Entire Agreement. This Agreement and any instrument,
agreement or document attached hereto or referred to herein (a) integrate all
the terms and conditions mentioned herein or incidental hereto, (b) supersede
all oral negotiations and prior writings with respect to the subject matter
hereof, and (c) are intended by the parties as the final expression of the
agreement with respect to the terms and conditions set forth in this
Agreement and any such instrument, agreement or document and as the complete
and exclusive statement of the terms agreed to by the parties. In the event
of any conflict between the terms, conditions and provisions of this
Agreement and any such instrument, agreement or document, the terms,
conditions and provisions of this Agreement shall prevail.
In Witness Whereof, the parties hereto have executed this Agreement by
their duly authorized officers as of the day and year first above written,
effective for all purposes as of November 12, 1993.
BANK OF AMERICA NATIONAL TRUST ROSEVILLE TELEPHONE COMPANY
AND SAVINGS ASSOCIATION
By By
Title Title
By By
Title Title
Address for notices: Address for notices:
555 California St., 41st Floor 211 Lincoln Street
San Francisco, CA 94104 Roseville, CA 95678
Attn: S. DeMarti, #3838
CONTENTS
SECTION PAGE
INTRODUCTION
RECITALS
1. Definitions and Financial Requirements
1.1 Definitions
1.2 Financial Requirements
2. The Term Loan
2.1 Commitment for the Term Loan
2.2 Reserved
2.3 Interest on the Term Loan
2.4 Principal on the Term Loan
2.5 Prepayment of the Term Loan
2.6 Arrangement Fee
3. Disbursements and Payments
3.1 Lending Branch
3.2 Loan Account
3.3 Immediately Available Funds; Disbursements and Payments
3.4 Default Interest
3.5 Interest Rate Calculations
4. Taxes, Costs and Capital Adequacy
4.1 Taxes
4.2 Costs
4.3 Capital Adequacy
5. Conditions Precedent
5.1 Opinion of Borrower's Counsel
5.2 Borrower's Corporate Resolution
5.3 Borrower's Incumbency Certificate
5.4 Borrower's Compliance Certificate
5.5 Approvals and Consents
5.6 Evidence of No Material Adverse Change
5.7 Fees
5.8 Other Evidence Bank May Require
6. Representations and Warranties
6.1 Organization of Borrower
6.2 Authorization of Agreement
6.3 Government Approvals
6.4 Compliance with Laws
6.5 Investment Company Act
6.6 Enforceability of Agreement
6.7 Title to Property
6.8 Hazardous Materials
6.9 No Litigation
6.10 Events of Default
6.11 Regulation U
6.12 Taxes
6.13 Subsidiaries
6.14 Financial Information
7. Positive Covenants
7.1 Payment
7.2 Use of Proceeds
7.3 Cash Flow Coverage Ratio
7.4 Tangible Net Worth
7.5 Notices
7.6 Financial Statements, Reports, Etc.
7.7 Cooperation
7.8 Existence, Etc.
7.9 Payment of Obligations
7.10 Compliance with Laws
7.11 Insurance
7.12 Maintain Books and Records; Inspection Rights
8. Negative Covenants
8.1 Leverage Ratio
8.2 Reserved
8.3 Other Security Interests
8.4 Liquidation; Merger, Etc.
8.5 Sale of Property for Fair Consideration
8.6 Sale of Fixed or Capital Assets
8.7 Purchase of Property
8.8 Contracts
8.9 Change in Business
9. Events of Default
9.1 Nonpayment-Principal
9.2 Nonpayment-Interest and Other Sums
9.3 Misrepresentation
9.4 Involuntary Liens
9.5 Judgments
9.6 Voluntary Bankruptcy
9.7 Involuntary Bankruptcy
9.8 Condemnation
9.9 Regulatory Action
9.10 Cross Default
9.11 Breach of Other Obligations
9.12 ERISA Termination
9.13 Material Adverse Change
9.14 Other Defaults
10. Miscellaneous
10.1 Notices
10.2 Successors and Assigns
10.3 Participations
10.4 Novations
10.5 Setoff
10.6 Confidentiality
10.7 Waivers; Writing Required
10.8 Remedies
10.9 Costs and Expenses
10.10 Indemnification for Hazardous Substances
10.11 Indemnification for Use of Proceeds of Term Loan
10.12 Paragraph Headings
10.13 Severability
10.14 Counterparts
10.15 Governing Law
10.16 Entire Agreement
EXHIBITS
Exhibit A Compliance Certificate
Exhibit B Confidentiality Agreement
=============================================================================
CREDIT AGREEMENT
dated as of January 4, 1994
between
ROSEVILLE TELEPHONE COMPANY
as Borrower
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
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