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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE COMMUNICATIONS COMPANY
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(Exact name of registrant as specified in its charter)
California 68-0365195
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6141
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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 _____
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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 plans,
directors and officers may be deemed shares held by affiliates), was
$450,619,680 as of February 29, 2000. As of February 29, 2000, 15,839,173 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 May 19, 2000.
<PAGE>
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1. Business...................................................... 3
2. Properties.................................................... 5
3. Legal Proceedings............................................. 6
4. Submission of Matters to a Vote of Security Holders........... 9
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 11
6. Selected Financial Data....................................... 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 12
7A. Quantitative and Qualitative Disclosures About Market Risk.... 20
8. Financial Statements and Supplementary Data................... 21
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 43
PART III
10. Directors and Executive Officers of the Registrant.......... 43
11. Executive Compensation...................................... 43
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
13. Certain Relationships and Related Transactions.............. 43
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 43
<PAGE>
PART I
Item 1. Business
Roseville Communications Company (the "Company") was incorporated in 1995 under
the laws of the State of California as a holding company. The Company's
wholly-owned subsidiaries include Roseville Telephone Company ("Roseville
Telephone"), Roseville Directory Company ("RCS Directories"), Roseville Long
Distance Company ("Roseville Long Distance"), RCS Internet Services ("RCS
Internet"), and Roseville PCS, Inc. ("Roseville PCS"). Additionally, the Company
maintains ownership interests in two wireless partnerships through its
wholly-owned subsidiaries as described more fully below.
The Company has formed various subsidiaries for the purposes of pursuing new
businesses in the communications industry. The Company generates a majority of
its revenues from rate regulated services, but expects that its proportionate
share of revenues from nonregulated businesses may be greater in future years as
a result of its entry into these businesses. The table that follows reflects the
percentage of total operating revenues of the Company contributed by various
sources.
% of Total Operating Revenues
Revenues 1999 1998 1997
------------------------ ---- ---- ----
Rate regulated revenues 80% 80% 83%
Other revenues 20% 20% 17%
---- ---- ----
Total operating revenues 100% 100% 100%
Emerging Businesses
In February 1997, RCS Directories commenced operations to produce, publish and
distribute Roseville Telephone's directory including the sale of yellow pages
advertising previously provided by an unaffiliated company. RCS Directories is
also engaged in the business of producing, publishing and distributing
directories in other Northern California communities outside of Roseville
Telephone's service area.
In September 1997, Roseville Long Distance commenced the provision of long
distance services using a worldwide fiber-optic network, providing
international, interstate and intrastate long distance service, calling card and
800 services.
In August 1999, RCS Internet commenced the provision of high speed internet
access utilizing 100 percent digital subscriber line (DSL) technology.
Roseville PCS is the manager of and has an approximate 96.7% interest in West
Coast PCS LLC (d.b.a. "RCS Wireless"), which was formed together with another
entity not controlled by the Company for the purpose of providing wireless
personal communications services ("PCS"). During 1997, RCS Wireless purchased
from the Federal Communications Commission (the "F.C.C.") licenses to offer PCS
services in four Basic Trading Areas located in central California including
Sacramento, Stockton, Modesto and Yuba City. Each license represents 10
megahertz of broadband spectrum which offers digital wireless technology capable
of providing both voice and data transmission. RCS Wireless commenced deployment
of the network infrastructure in 1998 and commenced the provision of wireless
telecommunications services with telephone, paging and voicemail capabilities in
June 1999.
Investment in Sacramento-Valley Limited Partnership
Roseville Telephone, with an approximate 23.5% equity interest, is a limited
partner of Sacramento-Valley Limited Partnership ("SVLP"), a California limited
partnership formed for the construction and operation of a cellular mobile
radiotelephone system. AirTouch Cellular is the sole general partner of SVLP and
is responsible for the construction, operation, maintenance and marketing of the
cellular mobile radiotelephone system. SVLP currently operates in the following
Standard Metropolitan Statistical Areas in California and Nevada:
Sacramento Reno
Stockton Yuba City - Marysville
Modesto Redding - Chico
In addition, SVLP also operates in the Tehama, Sierra and Storey (Carson City)
Rural Statistical Areas.
The Company's equity in the earnings of SVLP constituted approximately 19% and
21% of the Company's income before income taxes in 1999 and 1998, respectively.
Telephone Operations
The Company's principal operating subsidiary, Roseville Telephone, is engaged in
the business of furnishing communications services, mainly local and toll
telephone service and network access services, in a territory covering
approximately 83 square miles in Placer and Sacramento Counties, California.
Toll service to points outside Roseville Telephone's service area is furnished
through connection in Roseville with facilities of Pacific Bell, AT&T and other
interexchange carriers. The City of Roseville, which is centrally located in
Roseville Telephone's service area, is 18 miles northeast of Sacramento. RCS
Digital Services, a Competitive Local Exchange Carrier ("CLEC") operating as a
non-regulated division of Roseville Telephone, offers local service, network
access service and toll service to customers outside Roseville Telephone's
service area.
For many years, including the year ended December 31, 1999, the area served by
Roseville Telephone has experienced significant residential, commercial and
industrial development. Roseville Telephone continues to be engaged in the
expansion of its facilities and operations to meet current and anticipated
service demand increases and to maintain modern and efficient service. Roseville
Telephone 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.
Revenues from rate regulated services, which include local service, network
access service and toll service revenues, constituted approximately 80% of the
Company's total operating revenues in 1999. Other Roseville Telephone revenues
consist primarily of directory advertising services, billing and collection
services, nonregulated sales and services and other miscellaneous revenues.
Nonregulated revenues are derived from the sale, lease and maintenance of
telecommunications equipment, payphone services, alarm monitoring services and
network access services.
Substantially all of the Company's revenues are from communications and related
services. Approximately 11%, 13% and 16% of the Company's total operating
revenues in 1999, 1998 and 1997, respectively, were derived from access charges
and charges for other services to Pacific Bell pursuant to certain agreements.
Approximately 8%, 8% and 10% of the Company's total operating revenues in 1999,
1998 and 1997 were derived from access charges and charges for other services to
AT&T Corp. No other customers accounted for more than 10% of consolidated
operating revenues.
Total rate regulated revenues from telephone services are affected by rates
authorized by various regulatory agencies. Intrastate service rates are subject
to regulation by the California Public Utilities Commission ("P.U.C.").
Roseville Telephone also has agreements with Pacific Bell relating to extended
area service settlements. With respect to intrastate toll calls, interexchange
carriers are assessed access charges based on tariffs filed by Roseville
Telephone. With respect to interstate services, Roseville Telephone has filed
its own tariff with the F.C.C. for all elements of access services except
carrier common line charges, for which Roseville Telephone concurs with tariffs
filed by the National Exchange Carrier Association. Extensive cost separation
studies are utilized to determine both the final settlements and access charges.
Additionally, as discussed in "Item 3 - Legal Proceedings", in December 1996,
the P.U.C. issued a decision regarding Roseville Telephone's authorized revenue
levels. The rate case decision also ordered the implementation of a new
regulatory framework for services furnished within the State of California and
restructured Roseville Telephone's rates in a comprehensive manner. Roseville
Telephone's future operations may be impacted by several proceedings pending
before the F.C.C. and the P.U.C. which are considering the manner in which
certain local exchange services presently provided solely by Roseville Telephone
should be opened to competition. See "Item 3 - Legal Proceedings" and "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion regarding Roseville Telephone's rate
regulated revenues and the competitive environment in which Roseville Telephone
operates.
In addition to its regulatory authority with respect to Roseville Telephone's
rates, the P.U.C. also has the power, among other things, to establish the terms
and conditions of service, to prescribe uniform systems of accounts to be kept
by public utilities and to regulate the mortgaging or disposition of public
utility properties.
In February 1996, Congress passed the Telecommunications Act of 1996 (the "Act")
which significantly changed the regulatory environment for telecommunications
companies. See "Item 3 - Legal Proceedings" and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion regarding the impact of the Act.
Employees
At December 31, 1999, the Company had 671 employees, none of whom is represented
by a union.
Item 2. Properties
The Company owns central office buildings and related equipment in Roseville,
Citrus Heights, Granite Bay, and other locations in Sacramento and Placer
Counties. The Company's 68,000 square foot principal business office and
administrative headquarters and 214,000 square foot operations facility are
located in Roseville. Other land is held for future expansion. The Company has
appropriate easements, rights of way and other arrangements for the
accommodation of its pole lines, underground conduits, aerial and underground
cables and wires, and PCS antennas.
In addition to land and structures, the Company's property consists of equipment
required in providing communication services. This includes central office
equipment, customer premises equipment and connections, radio and PCS antennas,
towers, pole lines, aerial and underground cable and wire facilities, vehicles,
furniture and fixtures and other equipment. The Company also owns certain other
communications equipment held as inventory for sale or lease.
In addition to plant and equipment that the Company wholly-owns, the Company
utilizes poles and conduit systems wholly-owned by, or jointly-owned with, other
utilities and leases space on facilities wholly or jointly-owned by the Company
to other utilities. These arrangements are in accordance with written agreements
customary in the industry.
SVLP owns certain equipment used in the provision of cellular mobile
radiotelephone services.
Item 3. Legal Proceedings
Except for the proceedings described below, the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
As appears in Item 1, above, Roseville Telephone is subject to regulation by the
F.C.C. and P.U.C. In the past, there have been various proceedings before these
agencies to which Roseville Telephone has been a party. Reference is made to
Item 1 for further information regarding the nature of the jurisdiction of the
F.C.C. and P.U.C. over the business and operations of Roseville Telephone.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California entitled "Enhancing California's Competitive Strength: A Strategy For
Telecommunications Infrastructure" in which it proposes to open markets to
competition and aggressively streamline regulation to accelerate the pace of
innovation in the telecommunications marketplace. In conjunction with these
proceedings, the P.U.C. issued an order in January 1995 to consider the goals
and definition of universal telephone service in a changing telecommunications
environment, including examination of subsidy support mechanisms and issues of
"carrier of last resort" and "franchise" obligations. In 1995, the P.U.C. issued
an order to develop and adopt rules for local exchange competition. Roseville
Telephone anticipates that additional proceedings will be held to refine further
the rules for local service competition in its territory, the effects of which
on Roseville Telephone cannot yet be determined.
In 1993, the P.U.C. also opened an investigation and rulemaking proceeding to
establish rules necessary to provide nondiscriminatory access by competing
service providers to the network capabilities of local exchange carriers
necessary to ensure fair competition in accordance with the mandate of the
Public Utilities Code. These proceedings continue through the present and may
broaden the scope of competition in the provision of intrastate services, the
effects of which on Roseville Telephone cannot presently be determined.
In December 1996, the P.U.C. issued a decision in connection with Roseville
Telephone's general rate proceeding which authorized Roseville Telephone to
implement a New Regulatory Framework ("NRF") for services furnished within the
State of California in order to accommodate market and regulatory movement
toward competition and greater pricing flexibility. In accordance with the
requirements of its general rate case decision, Roseville Telephone filed an
application for review of its New Regulatory Framework ("NRF") on March 8, 1999.
This proceeding will consider modifications to the NRF structure, including
potential changes to the current monitoring and reporting requirements, the
earnings sharing mechanism, promotional and pricing flexibility, and related
matters. A decision in this proceeding is anticipated in 2000. In addition, the
P.U.C. Office of Ratepayer Advocates ("ORA") has undertaken a verification audit
of Roseville Telephone's non-regulated and affiliated transactions pursuant to
the general rate case and other P.U.C. orders. The effect of these proceedings
on Roseville Telephone cannot yet be determined.
In March 1999, Pacific Bell expressed interest in withdrawing from the
designated carrier plan ("DCP") for Roseville Telephone's toll traffic and to
enter into a new, permanent compensation arrangement for extended area service
("EAS"). The DCP is a compensation arrangement between Roseville Telephone and
Pacific Bell for certain intraLATA toll services. Pacific Bell also pays
Roseville Telephone $11.5 million per year for EAS pursuant to a Settlement
Transition Agreement ("STA"). Pacific Bell and Roseville Telephone have begun to
negotiate the terms of possible modifications to these agreements. In addition,
Roseville Telephone has filed an application with the P.U.C. for revenues to
replace potential changes in Pacific Bell's payments to Roseville Telephone. In
January 2000, Pacific Bell filed a petition for arbitration pursuant to the
Telecommunications Act to establish an interconnection agreement for extended
area service which, if successful, might eliminate Pacific Bell's obligation to
make payments pursuant to the STA before the P.U.C. orders replacement revenues.
Roseville Telephone disagrees with the authority on which Pacific Bell relied
for its filing and, in addition, in February 2000, filed a separate application
with the P.U.C. to suspend any such proceedings pending an order on the prior
application filed by Roseville Telephone to obtain revenues to replace any
changes in Pacific Bell's payments to Roseville Telephone. Roseville Telephone
anticipates that additional proceedings and negotiations will be held to address
these issues in 2000, the effects of which on Roseville Telephone cannot yet be
determined.
There are a number of regulatory proceedings occurring at the federal level that
may have a material impact on Roseville Telephone. These regulatory proceedings
include, but are not limited to, consideration of changes to the interstate
universal service fund, access charge reform and the regulation of local
exchange carriers. In addition, the F.C.C. periodically establishes the
authorized rate of return for interstate access services. Since 1991, the F.C.C.
has established an 11.25% rate of return for interstate access services.
However, in 1998 the F.C.C. released a notice initiating a prescription
proceeding and notice of proposed rulemaking to represcribe the authorized rate
of return for interstate access services provided by incumbent local exchange
carriers ("ILEC").
Roseville Telephone's operations may also be impacted by the Telecommunications
Act of 1996 (the "Act"). Beginning in 1996, the F.C.C. adopted orders
implementing the Act's provisions to open local exchange service markets to
competition. The F.C.C. rules outline pricing methodologies for the states to
follow when setting rates for resale, interconnection and unbundled network
elements. In 1997, the United States Court of Appeals for the Eighth Circuit
found that the F.C.C. exceeded its jurisdiction in connection with some of its
orders implementing the Act. In early 1999, the United States Supreme Court
reversed the Eighth Circuit's determinations that the F.C.C. lacked authority to
implement the Act by adopting local pricing standards or to bar incumbent local
exchange carriers from separating already-combined unbundled network elements
("UNEs") before offering them to competitors. The Supreme Court also reinstated
the agency's "pick-and-choose" rules. However, the Supreme Court invalidated the
F.C.C.'s original list of UNEs, saying the F.C.C. had failed to determine that
those elements were necessary for competitors to offer service. The F.C.C. has
opened a proceeding to review this issue in light of the Supreme Court's order,
and on September 15, 1999, adopted an order identifying UNEs that ILECs must
make available to competitors.
In 1997, the F.C.C. adopted orders on access charge reform and a new universal
service program. The F.C.C.'s order on access charge reform generally removed
from minute-of-use access charges costs that are not incurred on a
per-minute-of-use basis. The F.C.C. also adopted changes to its interstate rate
structure for transport services which are designed to move the charges for
these services to more cost-based levels. The F.C.C.'s order on universal
service reformed the existing system of universal service in a manner that will
permit local telephone markets to move to a competitive arena. The order on
universal service provides continued support to low-income consumers and will
help to connect eligible schools, libraries and rural health care providers to
the global telecommunications network. On July 30, 1999, the United States Court
of Appeals for the Fifth Circuit issued an opinion addressing challenges to the
F.C.C.'s universal service order. The Court upheld the F.C.C.'s authority to
implement its program for funding telecommunications services for schools and
libraries and rejected challenges on technical issues such as the F.C.C.'s use
of models in determining universal service. The Court ruled, however, that the
F.C.C. can't use intrastate revenues in determining a carriers' universal
service contribution and rejected the so-called flowback method of collecting
universal service contributions through access charges. To implement the Fifth
Circuit's decision, the F.C.C. adopted an order on October 8, 1999 making
revisions to its rules, effective on November 1, 1999, requiring, among other
things, that incumbent LECs recover their universal service contributions either
through interstate access charges or interstate end-user charges based on
interstate and international end-user telecommunications revenues only. On
October 21, 1999, the Commission adopted two orders in connection with universal
service reform. In the first order, the F.C.C completed development of the cost
model to be used as a basis for federal universal service support. In the second
order, the F.C.C. adopted a methodology based on the results of the cost model
to calculate the level of support for non-rural carriers serving high-cost
areas. In addition, the F.C.C. held that the amount of support provided to
carriers on a per-line basis by the forward-looking mechanism will be no less
than the amount of support provided to the carrier by the present mechanism but
that federal universal service support will be portable among all eligible
telecommunications carriers. If a competitor acquires a subscriber line from an
incumbent receiving support, the competitor will receive the incumbent's federal
universal service support for that line.
The regulatory proceedings occurring at the state and federal levels described
above may broaden the scope of competition in the provision of regulated
services and change the rates and rate structure for regulated services
furnished by Roseville Telephone, the effects of which on Roseville Telephone
cannot yet be determined.
Commencing in July 1998, there have been a series of communications between the
partners of SVLP regarding the ownership and operation of PCS licenses in
territories served by SVLP and the allegation by its general partner AirTouch
Cellular ("AirTouch") that such ownership and operation would cause a partner of
SVLP to be in violation of the terms of SVLP's Agreement Establishing Limited
Partnership, as amended ("Partnership Agreement"). In addition to the Company's
ownership of PCS licenses, an affiliate of AirTouch and one other limited
partner also own such licenses.
On March 26, 1999, the Company filed an action against AirTouch in the United
States District Court for the Eastern District of California requesting
declaratory relief, injunctive relief and damages for violation of the Sherman
Act, the California Cartwright Act, breach of contract, breach of fiduciary
duty, intentional and negligent interference with economic advantage and
violation of California's unfair competition act. AirTouch answered the
complaint, and filed counterclaims against the Company for breach of contract,
breach of fiduciary duty, breach of the covenant of good faith and fair dealing,
fraud and deceit, negligent misrepresentation, misappropriation of trade
secrets, violation of the California Business and Professions Code, declaratory
relief and contract reformation. In addition, AirTouch also sought to compel
arbitration to resolve the dispute.
The Company and AirTouch have previously reached an agreement on a resolution of
the dispute, including the dismissal of the litigation, which would permit the
Company to continue to provide PCS subject to the restriction on the provision
of certain SVLP information to the Company. AirTouch now refuses to implement
the agreement, and the Company has filed a Motion to Enforce Settlement, and
requested an Evidentiary Hearing, which request was granted and the Evidentiary
Hearing is scheduled to be conducted on March 27, 2000. If the Company prevails
on its Motion to Enforce Settlement, the litigation will be concluded. Even if
the Motion is unsuccessful, the Company will be able to continue to pursue its
legal remedies. If the dispute is not resolved, the Company does not believe
that these proceedings impair the recoverability of its $38.4 million investment
in SVLP.
<PAGE>
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 1999.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company as of
February 29, 2000 are as follows:
Name Age Office
---- --- ------
Robert L. Doyle 81 Chairman of the Board of Directors
Brian H. Strom 57 President and Chief Executive Officer
(since December 1993)
Michael D. Campbell 51 Executive Vice President and Chief Financial Officer
(since April 1996); Vice President and Chief
Financial Officer(1994 to 1996); Partner, Ernst
& Young LLP(1983 to 1994)
Jay B. Kinder 55 Vice President, Customer Services - Roseville
Telephone Company (since April 1996); Director of
Marketing and Planning (1993 to 1996)
Rulon D. Blackburn 59 Vice President, Network Services - Roseville Telephone
Company(since April 1996); Director, Network Services
(1994 to 1996)
Philip D. Germond 50 Vice President, Marketing - Roseville Telephone
Company (since August 1997); Director of Marketing
and Sales (1996 to 1997); General Sales Manager
(1995 to 1996); Product and Services Manager
(1989 to 1995) of Roseville Telephone Company
Thomas E. Doyle 70 Vice Chairman of the Board of Directors and
Secretary-Treasurer
<PAGE>
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, the Employee Stock Ownership Plan (collectively, the "Plans")
and disclosure, in limited circumstances, of third party transactions.
Transactions in the Company's common stock were effected by the Plans at
approximately $28 per share during the first quarter of 1998, $29 per share
during the second quarter of 1998 and $30 per share from the beginning of the
third quarter of 1998 through the end of the first quarter of 1999. Transactions
in the Company's common stock were effected by the Plans at $31 per share during
the second quarter of 1999, $32 per share during the third quarter of 1999, $33
per share during the fourth quarter of 1999 and $34 per share thereafter.
The Company's approximate number of shareholders was 9,300 as of February 29,
2000.
The Company pays quarterly cash dividends on its common stock. The Company paid
cash dividends of $.20 per share for the first three quarters of 1998, $.25 per
share for the fourth quarter of 1998 and $.25 per share for each quarter of
1999.
Item 6. Selected Financial Data
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(amounts in thousands, except per share amounts)
Total operating revenues $140,801 $126,682 $114,888 $105,566 $102,661
Net income $ 31,750 $ 25,049 $ 22,971 $ 21,461 $ 18,507
Basic and diluted earnings
per share (1) $ 2.01 $ 1.58 $ 1.45 $ 1.36 $ 1.17
Cash dividends per share (2) $ 1.00 $ .85 $ .63 $ .57 $ .55
Property, plant and equipment,
at cost $383,896 $328,437 $297,057 $275,563 $263,210
Total assets $333,187 $315,877 $276,297 $267,881 $256,889
Long-term debt $ 46,428 $ 48,571 $ 22,322 $ 28,036 $ 33,750
Shares of common stock used
to calculate earnings per
share (1) 15,822 15,815 15,815 15,815 15,815
(1) Shares used in the computation of basic and diluted earnings per share
are based on the weighted average number of shares outstanding in each
period after giving retroactive effect to stock dividends.
(2) Cash dividends per share are based on the actual dividends per share,
as declared by the Company's Board of Directors, after giving retroactive
effect to stock dividends.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Overview
Roseville Communications Company (the "Company") is a holding company with
subsidiaries operating in the communications services industry. The Company's
principal operating subsidiary, Roseville Telephone Company ("Roseville
Telephone"), provides local and toll telephone services, network access
services, billing and collection services, directory advertising services and
certain nonregulated services. Additionally, Roseville Telephone, with an
approximate 23.5% equity interest, is a limited partner of Sacramento-Valley
Limited Partnership ("SVLP"), which provides cellular telephone service
principally in California. The Company's wholly-owned subsidiary, Roseville PCS,
Inc., is the manager of and has an approximate 96.7% interest in West Coast PCS
LLC (d.b.a. "RCS Wireless"), which was formed together with another entity not
controlled by the Company for the purpose of providing wireless personal
communications services ("PCS"). In February 1997, Roseville Directory Company
("RCS Directories"), a wholly-owned subsidiary of the Company, commenced
operations to produce, publish and distribute Roseville Telephone's directory
including the sale of yellow pages advertising previously provided by an
unaffiliated company. RCS Directories is also engaged in the business of
producing, publishing and distributing directories in other Northern California
communities outside of Roseville Telephone's service area. In September 1997,
the Company's wholly-owned subsidiary, Roseville Long Distance Company
("Roseville Long Distance"), commenced the provision of long distance services.
In August 1999, the Company's wholly owned subsidiary, RCS Internet Services
("RCS Internet"), commenced the provision of high speed internet services. The
Company expects that the sources of its revenues and its cost structure may be
different in future years as a result of its entry into these communications
markets.
Revenues from rate regulated services, which include local service, network
access service and toll service revenues generated by Roseville Telephone,
constituted approximately 80%, 80%, and 83% of the Company's total operating
revenues in 1999, 1998, and 1997, respectively. Rate regulated revenues are
derived from various sources, including billings to business and residential
subscribers for basic exchange services, extended area service charges,
surcharges mandated by the California Public Utilities Commission ("P.U.C.");
billings to Pacific Bell, long distance carriers, competitive access providers
and subscribers for network access services; interstate settlement revenues from
the National Exchange Carrier Association; and support payments from the
interstate Universal Service Fund.
Roseville Telephone bills Pacific Bell various charges for certain local service
and network access service revenues pursuant to certain agreements described
below. Of the Company's total revenues in 1999, 1998 and 1997, 11%, 13% and 16%,
respectively, were recorded under these agreements. In March 1999, Pacific Bell
expressed interest in withdrawing from the designated carrier plan ("DCP") for
Roseville Telephone's toll traffic and to enter into a new, permanent
compensation arrangement for extended area service ("EAS"). The DCP is a
compensation arrangement between Roseville Telephone and Pacific Bell for
certain intraLATA toll services. Pacific Bell also pays Roseville Telephone
$11.5 million per year for EAS pursuant to a Settlement Transition Agreement
("STA"). Pacific Bell and Roseville Telephone have begun to negotiate the terms
of possible modifications to these agreements. In addition, Roseville Telephone
has filed an application with the P.U.C. for revenues to replace potential
changes in Pacific Bell's payments. In January 2000, Pacific Bell filed a
petition for arbitration pursuant to the Telecommunications Act to establish an
interconnection agreement for extended area service which, if successful, might
eliminate Pacific Bell's obligation to make payments pursuant to the STA before
the P.U.C. orders replacement revenues. Roseville Telephone disagrees with the
authority on which Pacific Bell relied for its filing and, in addition, in
February 2000, filed a separate application with the P.U.C. to suspend any such
proceedings pending an order on the prior application filed by Roseville
Telephone to obtain revenues to replace any changes in Pacific Bell's payments
to Roseville Telephone. Roseville Telephone anticipates that additional
proceedings and negotiations will be held to address these issues, the effects
of which on Roseville Telephone cannot yet be determined.
In December 1996, the P.U.C. issued a decision in connection with Roseville
Telephone's general rate proceeding which authorized Roseville Telephone to
implement a New Regulatory Framework ("NRF") for services furnished within the
State of California in order to accommodate market and regulatory movement
toward competition and greater pricing flexibility. Under the NRF, Roseville
Telephone is subject to ongoing monitoring and reporting requirements, including
a sharing mechanism whereby Roseville Telephone may be required to share
earnings with customers based on its earned annual rate-of-return. As of
December 31, 1999 and 1998, Roseville Telephone had no obligation to share
earnings with customers. In April 1999, the P.U.C. issued a decision modifying
the rate case decision by increasing the Company's rates to correct certain
legal and factual errors in the original rate case decision. This modification
resulted in 1) a one-time increase to rate regulated revenues for the year ended
December 31, 1999 of $958 thousand retroactive to 1997 and 2) an annual increase
of approximately $328 thousand to rate regulated revenues.
In accordance with the requirements of its general rate case order, Roseville
Telephone filed an application for review of its NRF in March 1999. This
proceeding will consider modifications to the NRF structure, including potential
changes to the current monitoring and reporting requirements, the earnings
sharing mechanism, promotional and pricing flexibility, and related matters. A
decision in this proceeding is anticipated in 2000. In addition, the P.U.C.
Office of Ratepayer Advocates ("ORA") has undertaken a verification audit of
Roseville Telephone's non-regulated and affiliated transactions pursuant to the
general rate case and other P.U.C. orders. The effect of these proceedings on
Roseville Telephone cannot yet be determined.
1999 versus 1998
Net income for 1999 was $31.7 million, or $2.01 per share, compared with net
income of $25.0 million, or $1.58 per share, for 1998. The increase in net
income and earnings per share for 1999 was due principally to the strong
economic growth in the Company's local exchange service area, the introduction
of new products and services, operational and financial efficiencies gained from
the Company's diversification and cost containment initiatives and the adoption
of a new accounting pronouncement.
Operating Revenues:
Rate regulated revenues increased $10.7 million, or 11%, compared to 1998 due to
the combined effects of 1) access line growth of 5%, 2) improved penetration in
custom calling, voice mail, national directory assistance services and other
enhanced network services, 3) increased network access revenues due to
increasing minute-of-use volumes and expanded demand for dedicated access
services, 4) a one-time increase of $812 thousand to interstate access
settlement revenues relating to 1998, and 5) a one-time increase of $958
thousand retroactive to 1997 relating to the modification to Roseville
Telephone's general rate case decision.
Directory advertising revenues increased $1.4 million, or 12%, compared to 1998
due to an increase in advertising sales from surrounding areas relating to
Roseville Telephone's directory, the addition of an independent directory
outside of Roseville Telephone's service area and the publication of another
local exchange carrier's telephone directory. Other operating revenues increased
$2.2 million, or 30%, compared to 1998 due primarily to an increase in the
market penetration of long distance services and the introduction of PCS
services in June 1999.
Operating Expenses:
Operating expenses increased $5.2 million, or 6%, compared to 1998. Cost of
services and products increased $2.3 million, or 6%, during 1999 due primarily
to an increase in transport costs associated with long distance services,
increased publishing and distribution costs relating to directory advertising
and start up costs associated with testing and implementing the PCS network.
These increases were partially offset by the adoption of Statement of Position
98-1 as discussed more fully below.
Customer operations expense increased $1.0 million, or 6%, during 1999 due
primarily to increased labor costs related to an increase in personnel and
marketing and customer service costs associated with long distance services, the
Company's PCS operations, and the introduction of internet services.
General and administrative costs increased $248 thousand, or 1%, during 1999 due
primarily to increased labor costs and administrative costs associated with the
introduction of PCS and internet services. These increases were largely offset
by the adoption of Statement of Position 98-1 as discussed more fully below.
Depreciation and amortization expense increased $1.7 million, or 8%, during 1999
as a result of an increased investment in property, plant and equipment.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1, which the
Company was required to adopt in 1999, requires the capitalization of certain
costs incurred in connection with developing or obtaining internal use software.
Prior to adoption of SOP 98-1, the Company expensed all internal use software
related costs as incurred. The effect of adopting SOP 98-1 was an increase in
net income of $3.2 million for 1999.
Other Income, Net:
Other income, net, increased $2.4 million, or 30%, compared to 1998 due
primarily to an increase of $1.2 million in income attributable to the Company's
interest in SVLP. The Company's equity in the earnings of SVLP constituted
approximately 19% and 21% of income before income taxes for 1999 and 1998,
respectively. Interest income increased $443 thousand, or 35%, during 1999 as a
result of larger average invested balances during 1999. Interest expense
increased $748 thousand, or 28%, during 1999 as a result of an increase in the
Company's average outstanding long-term debt balances.
Income Taxes:
Income taxes increased $4.6 million, or 27%, compared to 1998 due primarily to
the increase in income subject to tax. The effective federal and state income
tax rate was 40.1% in 1999 compared to 40.0% in 1998.
1998 versus 1997
Net income for 1998 was $25.0 million, or $1.58 per share, compared with net
income of $23.0 million, or $1.45 per share, for 1997. The increase in net
income and earnings per share for 1998 over 1997 was due principally to the
strong economic growth in the Company's local exchange service area, the
introduction of new products and services, the results of various marketing
initiatives and operational and financial efficiencies gained from the Company's
diversification and cost containment initiatives.
Operating Revenues:
Rate regulated revenues increased $5.8 million, or 6%, compared to 1997. This
increase was due to the combined effects of 1) access line growth of 7%, 2)
improved penetration in custom calling, voice mail and other enhanced network
services due to increased marketing activities, 3) the introduction of a new
national directory assistance service, and 4) increased network access revenues
due to larger minute-of-use volumes, expanded demand for special access services
and increased interstate access settlements.
Directory advertising revenues increased $4.7 million, or 68%, compared to 1997.
Prior to 1998, the Company recognized a net share of the revenues generated by
the directory, which was previously produced by a third party. Beginning in
1998, the Company's consolidated financial statements reflect all of the
revenues and the related costs associated with the directory, which is now
produced by RCS Directories.
Other revenues increased $1.8 million, or 33%, over 1997 due primarily to the
introduction of long distance services in the fourth quarter of 1997.
Operating Expenses:
Operating expenses increased $6.0 million, or 7%, compared to 1997. Cost of
services and products increased $2.6 million, or 8%, during 1997 due primarily
to costs associated with the production of Roseville Telephone's 1998 directory.
Depreciation expense increased $1.6 million as a result of an increased
investment in property, plant and equipment. Customer operations expense
increased $1.7 million during 1998 due primarily to increased labor costs
related to an increase in personnel and costs associated with new services.
Other Income, Net:
Other income, net, decreased $1.8 million compared to 1997 due primarily to a
decrease of $1.2 million in income attributable to the Company's interest in
SVLP. The Company's equity in the earnings of SVLP constituted approximately 21%
and 27% of income before income taxes for 1998 and 1997, respectively. Interest
expense increased $300 thousand compared to 1997 primarily as a result of an
increase in the Company's average outstanding long-term debt balances.
Income Taxes:
Income taxes increased $1.9 million compared to 1997 due primarily to the
increase in income subject to tax. The effective federal and state income tax
rate was 40.0% in 1998 compared to 39.2% in 1997 due to certain income tax
credits received in 1997.
Year 2000 Matters
In prior years, the Company discussed the nature and progress of its plans to
make its computer systems Year 2000 compliant. In late 1999, the Company
completed the remediation and testing of its computer systems. As a result of
those planning and implementation efforts, the Company experienced no
significant operational problems for its computer systems and believes those
systems successfully responded to the Year 2000 date change. The Company
incurred approximately $1.3 million during 1999 in connection with modifying and
converting its computer systems. The Company is not aware of any material
problems resulting from Year 2000 issues; however, it will continue to monitor
its computer applications throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
Pending Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for fiscal years beginning after
June 15, 2000. This statement standardized the accounting for derivatives and
hedging activities and requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities at fair value.
Changes in the fair value of derivatives that do not meet the hedge accounting
criteria are to be reported in earnings. The Company is required to adopt this
accounting pronouncement in 2001; however, management believes it will not have
a significant impact on the Company's annual consolidated financial statements.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, net cash provided by
operating activities was $42.7 million, $41.0 million and $27.1 million in 1999,
1998 and 1997, respectively. The increase in operating cash flows for 1999 was
primarily due to an increase in income from operations and the timing of
payables and other accrued liabilities. The Company used cash flows from
operations and existing cash and cash equivalents to fund 1) capital
expenditures of $58.4 million pertaining to ongoing plant construction projects
for Roseville Telephone and RCS Wireless, 2) dividends of $15.8 million and 3)
principal payments of $2.1 million to retire long-term debt.
The Company's most significant use of funds in 2000 is expected to be for 1)
budgeted capital expenditures of approximately $30.8 million and $20.2 million
relating to Roseville Telephone and RCS Wireless, respectively, 2) net operating
expenditures of up to $9.5 million relating to RCS Wireless, 3) scheduled
payments of long-term debt of $2.1 million and 4) the purchase by the Company of
up to one million shares of its outstanding common stock pursuant to a
repurchase program authorized by the Board of Directors on February 29, 2000.
In addition to net cash provided by operations and existing cash, cash
equivalents and short-term investments, the Company may consider other sources
of external financing, including short-term borrowings or long term debt, for
the purposes of funding future capital expenditures and potential investments.
Other Financial Information
The Company's consolidated financial statements have been prepared in accordance
with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation,"
which requires companies meeting the criteria to give effect in their financial
statements to certain actions of regulators. For example, amounts charged to
regulated operations for depreciation expense reflect estimated lives and
methods prescribed by regulators rather than the economic lives that might
otherwise apply to nonregulated enterprises. A number of telecommunications
companies, including all of the Regional Bell Operating Companies, have
determined that they no longer meet the criteria of SFAS No. 71. However, such
telecommunications companies are significantly different from Roseville
Telephone in the level and nature of competition they experience and in the
nature and mix of services they offer. The Company believes its regulated
operations continue to meet the criteria of SFAS No. 71 due to its nature and
mix of revenues, the authority of federal and state regulators to establish
rates and monitor Roseville Telephone's earnings, the P.U.C.'s regulatory
authority to set Roseville Telephone's depreciation lives and recent legal
proceedings at the federal level which prohibit a regulatory agency from setting
rates and charges at levels which do not allow telephone companies to recover
their cost of providing telephone services, including a reasonable profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether its
regulated operations continue to meet the criteria which require the use of SFAS
No. 71. If it becomes no longer reasonable to assume that Roseville Telephone
can recover its costs of providing regulated services through rates charged to
customers, whether resulting from the effects of increased competition or
specific regulatory actions, SFAS No. 71 would no longer apply. In the future,
should the Company determine its regulated operations no longer meet the SFAS
No. 71 criteria, a material, extraordinary, non-cash charge would result. The
approximate non-cash charge for Roseville Telephone's net regulatory asset at
December 31, 1999 would have been between $9.9 million and $17.1 million,
consisting principally of property, plant and equipment. The estimate for
property, plant and equipment was calculated based upon a projection of useful
lives which may be affected by the increasing competition and rapid changes in
the telecommunications industry referred to above.
Regulatory and Legal Matters
In 1996, Congress passed the Telecommunications Act of 1996 (the "Act") which
significantly changed the regulatory environment for telecommunications
companies. Beginning in 1996, the F.C.C. adopted orders implementing the Act's
provisions to open local exchange service markets to competition. The F.C.C.
rules outline pricing methodologies for the states to follow when setting rates
for resale, interconnection and unbundled network elements. In 1997, the United
States Court of Appeals for the Eighth Circuit found that the F.C.C. exceeded
its jurisdiction in connection with some of its orders implementing the Act. In
early 1999, the United States Supreme Court reversed the Eighth Circuit's
determinations that the F.C.C. lacked authority to implement the Act by adopting
local pricing standards or to bar incumbent local exchange carriers from
separating already-combined unbundled network elements ("UNEs") before offering
them to competitors. The Supreme Court also reinstated the agency's
"pick-and-choose" rules. However, the Supreme Court invalidated the F.C.C.'s
original list of UNEs, saying the F.C.C. had failed to determine that those
elements were necessary for competitors to offer service. The F.C.C. has opened
a proceeding to review this issue in light of the Supreme Court's order, and on
September 15, 1999, adopted an order identifying UNEs that incumbent local
exchange carriers ("ILECs") must make available to competitors.
In 1997, the F.C.C. adopted orders on access charge reform and a new universal
service program. The F.C.C.'s order on access charge reform generally removed
from minute-of-use access charges costs that are not incurred on a
per-minute-of-use basis. The F.C.C. also adopted changes to its interstate rate
structure for transport services which are designed to move the charges for
these services to more cost-based levels. The F.C.C.'s order on universal
service reformed the existing system of universal service in a manner that will
permit local telephone markets to move to a competitive arena. The order on
universal service provides continued support to low-income consumers and will
help to connect eligible schools, libraries and rural health care providers to
the global telecommunications network. On July 30, 1999, the United States Court
of Appeals for the Fifth Circuit issued an opinion addressing challenges to the
F.C.C.'s universal service order. The Court upheld the F.C.C.'s authority to
implement its program for funding telecommunications services for schools and
libraries and rejected challenges on technical issues such as the F.C.C.'s use
of models in determining universal service. The Court ruled, however, that the
F.C.C. can't use intrastate revenues in determining a carriers' universal
service contribution and rejected the so-called flowback method of collecting
universal service contributions through access charges. To implement the Fifth
Circuit's decision, the F.C.C. adopted an order on October 8, 1999, making
revisions to its rules, effective on November 1, 1999, requiring, among other
things, that ILECs recover their universal service contributions either through
interstate access charges or interstate end-user charges based on interstate and
international end-user telecommunications revenues only. On October 21, 1999,
the Commission adopted two orders in connection with universal service reform.
In the first order, the F.C.C. completed development of the cost model to be
used as a basis for federal universal service support. In the second order, the
F.C.C. adopted a methodology based on the results of the cost model to calculate
the level of support for non-rural carriers serving high-cost areas. In
addition, the F.C.C. held that the amount of support provided to carriers on a
per-line basis by the forward-looking mechanism will be no less than the amount
of support provided to the carrier by the present mechanism but that federal
universal service support will be portable among all eligible telecommunications
carriers. If a competitor acquires a subscriber line from an incumbent receiving
support, the competitor will receive the incumbent's federal universal service
support for that line.
Given the Act's relatively recent enactment, the ongoing actions of the F.C.C.
to implement the Act, and the various ongoing legal challenges considering the
validity of these F.C.C. orders, it is not yet possible to determine fully the
impact of the Act and related F.C.C. regulations on Roseville Telephone's
operations.
The Company's financial condition and results of operations have been and will
be affected by recent and future proceedings before the P.U.C. and F.C.C.
Pending before the F.C.C. and P.U.C. are proceedings which are considering:
o The rules governing the opening of markets to competition
o The goals and definition of universal telephone service in a changing
environment, including examination of subsidy support mechanisms for
subscribers in high cost areas and issues of "carrier of last resort"
and "franchise" obligations
o Rules that will provide non-discriminatory access by competing
service providers to the network capabilities of local exchange
carriers
The eventual impact on the Company of the effect of all the proceedings
described above cannot presently be determined.
Commencing in July 1998, there have been a series of communications between the
partners of SVLP regarding the ownership and operation of PCS licenses in
territories served by SVLP and the allegation by its general partner AirTouch
Cellular ("AirTouch") that such ownership and operation would cause a partner of
SVLP to be in violation of the terms of SVLP's Agreement Establishing Limited
Partnership, as amended ("Partnership Agreement"). In addition to the Company's
ownership of PCS licenses, an affiliate of AirTouch and one other limited
partner also own such licenses.
On March 26, 1999, the Company filed an action against AirTouch in the United
States District Court for the Eastern District of California requesting
declaratory relief, injunctive relief and damages for violation of the Sherman
Act, the California Cartwright Act, breach of contract, breach of fiduciary
duty, intentional and negligent interference with economic advantage and
violation of California's unfair competition act. AirTouch answered the
complaint, and filed counterclaims against the Company for breach of contract,
breach of fiduciary duty, breach of the covenant of good faith and fair dealing,
fraud and deceit, negligent misrepresentation, misappropriation of trade
secrets, violation of the California Business and Professions Code, declaratory
relief and contract reformation. In addition, AirTouch also sought to compel
arbitration to resolve the dispute.
The Company and AirTouch have previously reached an agreement on a resolution of
the dispute, including the dismissal of the litigation, which would permit the
Company to continue to provide PCS subject to the restriction on the provision
of certain SVLP information to the Company. AirTouch now refuses to implement
the agreement, and the Company has filed a Motion to Enforce Settlement, and
requested an Evidentiary Hearing, which request was granted and the Evidentiary
Hearing is scheduled to be conducted on March 27, 2000. If the Company prevails
on its Motion to Enforce Settlement, the litigation will be concluded. Even if
the Motion is unsuccessful, the Company will be able to continue to pursue its
legal remedies. If the dispute is not resolved, the Company does not believe
that these proceedings impair the recoverability of its $38.4 million investment
in SVLP.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with interest rate movements.
However, the Company's market risk disclosure pursuant to item 7A is not
material and therefore not required.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Auditors .................................... 22
Consolidated statements of income for each of the
three years in the period ended December 31, 1999 ................. 23
Consolidated balance sheets as of December 31, 1999 and 1998 ...... 24
Consolidated statements of shareholders' equity for each of
the three years in the period ended December 31, 1999 ............. 26
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 1999 ....................... 27
Notes to consolidated financial statements ........................ 29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Roseville Communications Company
We have audited the accompanying consolidated balance sheets of Roseville
Communications Company as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of Sacramento-Valley Limited
Partnership (a partnership in which the Company has an approximate 23.5%
interest) have been audited by other auditors whose reports have been furnished
to us; insofar as our opinion on the consolidated financial statements relates
to data included for Sacramento-Valley Limited Partnership, it is based solely
on their reports.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Roseville Communications Company at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ERNST & YOUNG LLP
Sacramento, California
February 4, 2000
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
(amounts in thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Operating revenues:
Local service $ 68,605 $ 62,728 $ 57,612
Network access service 43,531 38,724 37,993
-------- -------- --------
Total rate regulated revenues 112,136 101,452 95,605
Directory advertising 12,989 11,593 6,898
Nonregulated sales and service 6,284 6,431 6,952
Other 9,392 7,206 5,433
-------- -------- --------
Total operating revenues 140,801 126,682 114,888
Operating expenses:
Cost of services and products 37,558 35,305 32,702
Customer operations and selling 17,108 16,108 14,403
General and administrative 20,805 20,557 20,431
Depreciation and amortization 22,378 20,684 19,116
-------- -------- --------
Total operating expenses 97,849 92,654 86,652
-------- -------- --------
Income from operations 42,952 34,028 28,236
Other income (expense):
Interest income 1,725 1,282 1,537
Interest expense (3,465) (2,717) (2,417)
Equity in earnings of cellular
partnership 10,129 8,904 10,080
Allowance for funds used during
construction 1,530 498 587
Other, net 154 (244) (228)
-------- -------- --------
Total other income, net 10,073 7,723 9,559
-------- -------- --------
Income before income taxes 53,025 41,751 37,795
Income taxes 21,275 16,702 14,824
-------- -------- --------
Net income $ 31,750 $ 25,049 $ 22,971
======== ======== ========
Basic and diluted
earnings per share $2.01 $1.58 $1.45
===== ===== =====
Cash dividends per share $1.00 $ .85 $ .63
===== ===== =====
Shares of common stock used to
calculate earnings per share 15,822 15,815 15,815
======= ======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(amounts in thousands)
ASSETS 1999 1998
------ ---- ----
Current assets:
Cash and cash equivalents $ 10,886 $ 38,840
Short-term investments 6,464 4,242
Accounts receivable (less allowances of
$436 and $287, respectively) 20,399 16,851
Refundable income taxes 330 969
Inventories 2,510 1,828
Deferred income tax asset 1,625 1,240
Prepaid expenses and other current assets 251 107
-------- --------
Total current assets 42,465 64,077
Property, plant and equipment:
In service 365,047 309,601
Under construction 18,849 18,836
-------- --------
383,896 328,437
Less accumulated depreciation 144,988 126,300
-------- --------
238,908 202,137
Investments and other assets:
Cellular partnership 38,426 35,875
PCS licenses, at cost, net 8,737 9,000
Deferred charges and other assets 4,651 4,788
-------- --------
51,814 49,663
-------- --------
$333,187 $315,877
======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1999 and 1998
(amounts in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------------------------------ ---- ----
Current liabilities:
Current portion of long-term debt $ 2,143 $ 2,143
Accounts payable and other accrued
liabilities 6,265 9,506
Payables to telecommunications entities 6,353 5,790
Advance billings and customer deposits 2,014 1,926
Accrued pension cost 5,128 3,111
Accrued compensation 4,253 3,618
-------- --------
Total current liabilities 26,156 26,094
Long-term debt 46,428 48,571
Deferred income taxes 25,629 23,629
Other liabilities and deferred credits 6,118 4,777
Minority interest in subsidiary 1,256 1,517
Shareholders' equity:
Common stock, without par value; 100,000
shares authorized, 15,828 shares issued and
outstanding (15,815 shares in 1998) 189,554 189,171
Retained earnings 38,046 22,118
-------- --------
Total shareholders' equity 227,600 211,289
-------- --------
$333,187 $315,877
======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(amounts in thousands)
Common Stock
-------------------
Number of Retained
Shares Amount earnings Total
------ -------- -------- -------
Balance at December 31, 1996 15,358 $177,758 $ 9,043 $186,801
3% stock dividend, at fair value:
Shares 457 11,413 (11,413) -
Cash in lieu of fractional
shares - - (106) (106)
Cash dividends - - (9,983) (9,983)
Net income - - 22,971 22,971
------ -------- ------- --------
Balance at December 31, 1997 15,815 189,171 10,512 199,683
Cash dividends - - (13,443) (13,443)
Net income - - 25,049 25,049
------ -------- ------- --------
Balance at December 31, 1998 15,815 189,171 22,118 211,289
Issuance of common stock 13 383 - 383
Cash dividends - - (15,822) (15,822)
Net income - - 31,750 31,750
------ -------- ------- --------
Balance at December 31, 1999 15,828 $189,554 $38,046 $227,600
====== ======== ======= ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(amounts in thousands)
1999 1998 1997
-------- -------- --------
activities:
Net income $ 31,750 $ 25,049 $ 22,971
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 22,378 20,684 19,116
Equity component of allowance
for funds used during
construction (643) (378) (505)
Provision for deferred income
taxes
1,495 (650) 1,455
Equity in earnings of cellular
partnership (10,129) (8,904) (10,080)
Provision for doubtful accounts 638 942 297
Other, net 122 (165) (96)
Net changes in:
Accounts receivable (4,186) (1,620) (1,750)
Refundable income taxes 639 858 (1,955)
Deferred directory charges (53) (299) (3,578)
Inventories, prepaid expenses
and other current assets (826) 400 984
Payables, accrued liabilities
and other deferred credits 1,523 5,127 196
-------- -------- --------
Net cash provided by operating
activities 42,708 41,044 27,055
Cash flows from investing
activities:
Capital expenditures for property,
plant and equipment (58,402) (35,209) (22,116)
Purchase of PCS licenses -- -- (9,000)
Purchases of held-to-maturity
investments (8,022) (7,478) (7,481)
Maturities of held-to-maturity
investments 5,800 7,200 5,750
Investment in cellular partnership -- (701) (2,514)
Return of investment in cellular
partnership 7,578 6,761 5,710
Return of refundable deposit -- 1,620 9,000
Other, net 349 327 299
-------- -------- --------
Net cash used in investing
activities (52,697) (27,480) (20,352)
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(amounts in thousands)
1999 1998 1997
---- ---- ----
Cash flows from financing
activities:
Principal payments of long-term
debt $ (2,143) $ (4,822) $ (5,714)
Proceeds of long-term debt - 40,000 -
Retirement of long-term debt - (12,500) -
Dividends paid and fractional
share amounts (15,822) (13,443) (10,089)
Investment in subsidiary by
minority partners - 681 25
-------- -------- --------
Net cash provided by (used in)
financing activities (17,965) 9,916 (15,778)
-------- -------- --------
Increase (decrease) in cash and
cash equivalents (27,954) 23,480 (9,075)
Cash and cash equivalents at
beginning of year 38,840 15,360 24,435
-------- -------- --------
Cash and cash equivalents at
end of year $ 10,886 $ 38,840 $ 15,360
======== ======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of accounting
Roseville Communications Company (the "Company") is a holding company
with subsidiaries operating in the communications services industry. The
Company's wholly-owned principal operating subsidiary is Roseville
Telephone Company ("Roseville Telephone"). Roseville Directory Company
("RCS Directories"), Roseville Long Distance Company ("Roseville Long
Distance"), RCS Internet Services ("RCS Internet") and Roseville PCS,
Inc. are each wholly-owned subsidiaries of the Company. Roseville PCS,
Inc. is the manager of and has an approximate 96.7% interest in West
Coast PCS LLC (d.b.a. "RCS Wireless").
The Company maintains the accounts of Roseville Telephone in accordance
with the Uniform System of Accounts prescribed for telephone companies
by the Federal Communications Commission (the "F.C.C."). The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
The Company's consolidated financial statements have been prepared in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
71, "Accounting for the Effects of Certain Types of Regulation," which
requires companies meeting its criteria to give effect in their
financial statements to certain actions of regulators. For example,
amounts charged to regulated operations for depreciation expense reflect
estimated lives and methods prescribed by regulators rather than the
economic lives that might otherwise apply to nonregulated enterprises. A
number of telecommunications companies, including all of the Regional
Bell Operating Companies, have determined that they no longer meet the
criteria of SFAS No. 71. However, such telecommunications companies are
significantly different from Roseville Telephone in the level and nature
of competition they experience and in the nature and mix of services
they offer. The Company believes its regulated operations continue to
meet the criteria of SFAS No.71 due to its nature and mix of revenues,
the authority of federal and state regulators to establish rates and
monitor Roseville Telephone's earnings, the California Public Utilities
Commission's ("P.U.C.") regulatory authority to set Roseville
Telephone's depreciation lives and recent legal proceedings at the
federal level which prohibit a regulatory agency from setting rates and
charges at levels which do not allow telephone companies to recover
their cost of providing telephone services, including a reasonable
profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether
its regulated operations continue to meet the criteria which require the
use of SFAS No. 71. If it becomes no longer reasonable to assume that
Roseville Telephone can recover its costs of providing regulated
services
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
through rates charged to customers, whether resulting from the effects
of increased competition or specific regulatory actions, SFAS No. 71
would no longer apply. In the future, should the Company determine its
regulated operations no longer meet the SFAS No. 71 criteria, a
material, extraordinary, non-cash charge would result. The approximate
non-cash charge for Roseville Telephone's net regulatory asset at
December 31, 1999 would have been between $9,900 and $17,100, consisting
principally of property, plant and equipment. The estimate for property,
plant and equipment was calculated based upon a projection of useful
lives which may be affected by the increasing competition and rapid
changes in the telecommunications industry referred to above.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and a majority-owned limited
liability company. All significant intercompany transactions have been
eliminated.
Cash equivalents and short-term investments
The Company invests its excess cash in high-quality debt instruments and
certain other investments. The Company considers highly liquid
investments with maturities of three months or less from the acquisition
date of the instrument to be cash equivalents. Short-term investments at
December 31, 1999 and 1998 consist of high grade commercial paper, U.S.
government agency securities and unsecured corporate notes with
maturities greater than 90 days; however, none of the Company's
investments have maturities greater than one year. The Company has no
investments in equity securities.
Fair values of financial instruments
As of December 31, 1999 and 1998, the Company's financial instruments
consist of cash, cash equivalents, short-term investments and long-term
debt. Management believes that the carrying values of cash equivalents
and short-term investments at December 31, 1999 and 1998, which are at
amortized cost, approximated their fair values at such dates. The
aggregate fair value of the Company's long-term debt (including current
maturities) was approximately $44,534 and $50,840 at December 31, 1999
and 1998, respectively. Fair values for cash equivalents and short-term
investments were determined by quoted market prices and for long-term
debt by a discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar instruments.
Inventories
Telephone construction inventories consist of materials and supplies,
which are stated at average cost. Equipment and other nonregulated
inventory held for resale are stated at the lower of average cost or
market.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Retirements and other
reductions of regulated telephone plant and equipment with a cost of
approximately $3,586, $3,470 and $1,127 in 1999, 1998 and 1997,
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.
Software costs
In 1999, the Company adopted Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"). Under SOP 98-1, the Company capitalizes certain costs
incurred in connection with developing or obtaining internal use
software. The effect of adopting SOP 98-1 was an increase to net income
of $3,200 for the year ended December 31, 1999.
Directory advertising
Costs of directory production and advertising sales are deferred until
the directory is published. Such costs are amortized to expense and the
related advertising revenues are recognized over the life of the related
directory, normally over the year following the issue date of the
directory. Deferred directory costs of approximately $3,900 as of both
December 31, 1999 and 1998 are included in "Deferred charges and other
assets."
Regulated revenues and costs
Certain of the Company's operations are subject to regulation by the
F.C.C. and the P.U.C. Pending and future regulatory actions may have a
significant impact on the Company's future operations and financial
position.
Roseville Telephone bills Pacific Bell various charges for certain local
service and network access service revenues pursuant to certain
agreements described below. Of the Company's total revenues in 1999,
1998 and 1997, 11%, 13%, and 16%, respectively, were recorded under
these agreements.
In March 1999, Pacific Bell expressed interest in withdrawing from the
designated carrier plan ("DCP") for Roseville Telephone's toll traffic
and to enter into a new, permanent compensation arrangement for extended
area service ("EAS"). The DCP is a compensation arrangement between
Roseville Telephone and Pacific Bell for certain intraLATA toll
services. Pacific Bell also pays Roseville Telephone $11,500 per year
for EAS pursuant to a Settlement Transition Agreement ("STA"). Pacific
Bell and Roseville Telephone have begun to negotiate the terms of
possible modifications to these agreements. In addition, Roseville
Telephone has filed an application with the P.U.C. for revenues to
replace potential changes in Pacific Bell's payments. In January 2000,
Pacific Bell filed a petition for arbitration pursuant to the
Telecommunications Act to establish an interconnection agreement for
extended area service which, if successful, might eliminate Pacific
Bell's obligation to make payments pursuant to the STA before the P.U.C.
orders replacement revenues. Roseville Telephone disagrees with the
authority on which Pacific Bell relied for its filing and, in addition,
in February 2000, filed a separate application with the P.U.C. to
suspend any such proceedings pending an order on the prior application
filed by Roseville Telephone to obtain revenues to replace any changes
in Pacific Bell's payments to Roseville Telephone. Roseville Telephone
anticipates that additional proceedings and negotiations will be held to
address these issues, the effects of which on Roseville Telephone cannot
yet be determined.
In December 1996, the P.U.C. issued a decision in connection with
Roseville Telephone's general rate proceeding which authorized Roseville
Telephone to implement a New Regulatory Framework ("NRF") for services
furnished within the State of California in order to accommodate market
and regulatory movement toward competition and greater pricing
flexibility. Under the NRF, Roseville Telephone is subject to ongoing
monitoring and reporting requirements, including a sharing mechanism
whereby Roseville Telephone may be required to share earnings with
customers based on its earned annual rate-of-return. As of December 31,
1999, and 1998, Roseville Telephone had no obligation to share earnings
with customers. In April 1999, the P.U.C. issued a decision modifying
the rate case decision by increasing the Company's rates to correct
certain legal and factual errors in the original rate case decision.
This modification resulted in 1) a one-time increase to rate regulated
revenues for the year ended December 31, 1999 of $958 retroactive to
1997 and 2) an annual increase of approximately $328 to rate regulated
revenues.
In accordance with the requirements of its general rate case order,
Roseville Telephone filed an application for review of its NRF on March
8, 1999. This proceeding will consider modifications to the NRF
structure, including potential changes to the current monitoring and
reporting requirements, the earnings sharing mechanism, promotional and
pricing flexibility, and related matters. A decision in this proceeding
is anticipated in mid-2000. In addition, the P.U.C. Office of Ratepayer
Advocates ("ORA") has undertaken a verification audit of Roseville
Telephone's non-regulated and affiliated transactions pursuant to the
general rate case and other P.U.C. orders. The effect of these
proceedings on Roseville Telephone cannot yet be determined.
Depreciation and amortization
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 6.74%, 6.85%, and 6.89% in 1999, 1998
and 1997, respectively.
The cost of property, plant and equipment used in nonregulated
activities is depreciated over its estimated useful lives, which range
from 5 to 10 years, on a straight-line basis.
Amortization of PCS licenses is computed on a straight-line basis over
twenty years.
Advertising costs
The costs of advertising are expensed as incurred. Advertising costs
were $1,351, $887 and $742 in 1999, 1998 and 1997, respectively.
Allowance for funds used during construction
The F.C.C. and the P.U.C. allow Roseville Telephone to capitalize an
allowance for funds used during construction, which includes both an
interest and return on equity component. Such amounts are reflected as a
cost of constructing certain plant assets and as an element of "Other
income."
Income taxes
The Company accounts for income taxes using the liability method, which
requires deferred tax assets and liabilities to be recorded for the
expected future tax consequences of events that have been included in
the financial statements and tax returns. Additionally, the liability
method requires adjustments of deferred tax assets and liabilities for
changes in tax laws or rates and requires recognition of a regulatory
asset or liability when it is probable that deferred taxes would be
reflected in future rates of regulated companies.
Per share amounts
Basic and diluted earnings per share of common stock are based on the
weighted average number of shares outstanding each year. Cash dividends
per share is based on the actual dividends per share, as declared by the
Company's Board of Directors.
Statements of cash flows information
During 1999, 1998 and 1997, the Company made payments for interest and
income taxes as follows:
1999 1998 1997
---- ---- ----
Interest (net of amounts capitalized) $ 2,552 $ 2,536 $ 2,480
Income taxes $19,141 $16,494 $15,324
<PAGE>
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Management determines the appropriate classification of securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. At December 31, 1999 and 1998, all securities are designated
as held-to-maturity as management has the positive intent and ability to
hold the securities until maturity. Held-to-maturity securities are
stated at cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion, as well as any
interest on the securities, is included in interest income.
Following is a summary of the Company's investments (included in cash,
cash equivalents and short-term investments) as of December 31, 1999 and
1998 at amortized cost, which approximates fair value:
1999 1998
---- ----
Commercial paper $3,488 $31,329
U.S. government agency securities 2,726 2,754
Repurchase agreements 190 50
Other unsecured corporate notes 250 500
------ -------
Total investments $6,654 $34,633
====== =======
<PAGE>
3. INVESTMENT IN SACRAMENTO-VALLEY LIMITED PARTNERSHIP
The Company has an approximate 23.5% interest in Sacramento-Valley
Limited Partnership ("SVLP") which is accounted for using the equity
method. SVLP operates a cellular mobile radiotelephone system
principally in California. The Company's portion of undistributed
earnings of SVLP included in consolidated shareholders' equity at
December 31, 1999 amounted to $31,006.
Summarized financial information for SVLP is as follows:
Balance sheet information as of December 31, 1999 and 1998:
1999 1998
---- ----
Current assets $ 44,240 $ 39,564
Noncurrent assets, primarily cellular plant $161,672 $152,404
Current liabilities $ 34,043 $ 40,080
Noncurrent liabilities $ 201 $ 178
Income statement information for
the years ended December 31, 1999, 1998
and 1997:
1999 1998 1997
---- ---- ----
Net revenues $215,105 $195,624 $173,616
Costs and expenses, net 169,407 158,829 130,673
-------- -------- --------
Net income $ 45,698 $ 36,795 $ 42,943
======== ======== ========
<PAGE>
3. INVESTMENT IN SACRAMENTO-VALLEY LIMITED PARTNERSHIP (CONTINUED)
Commencing in July 1998, there have been a series of communications
between the partners of SVLP regarding the ownership and operation of PCS
licenses in territories served by SVLP and the allegation by its general
partner AirTouch Cellular ("AirTouch") that such ownership and operation
would cause a partner of SVLP to be in violation of the terms of SVLP's
Agreement Establishing Limited Partnership, as amended ("Partnership
Agreement"). In addition to the Company's ownership of PCS licenses, an
affiliate of AirTouch and one other limited partner also own such
licenses.
On March 26, 1999, the Company filed an action against AirTouch in the
United States District Court for the Eastern District of California
requesting declaratory relief, injunctive relief and damages for
violation of the Sherman Act, the California Cartwright Act, breach of
contract, breach of fiduciary duty, intentional and negligent
interference with economic advantage and violation of California's unfair
competition act. AirTouch answered the complaint, and filed counterclaims
against the Company for breach of contract, breach of fiduciary duty,
breach of the covenant of good faith and fair dealing, fraud and deceit,
negligent misrepresentation, misappropriation of trade secrets, violation
of the California Business and Professions Code, declaratory relief and
contract reformation. In addition, AirTouch also sought to compel
arbitration to resolve the dispute.
The Company and AirTouch have previously reached an agreement on a
resolution of the dispute, including the dismissal of the litigation,
which would permit the Company to continue to provide PCS subject to the
restriction on the provision of certain SVLP information to the Company.
AirTouch now refuses to implement the agreement, and the Company has
filed a Motion to Enforce Settlement, and requested an Evidentiary
Hearing, which request was granted and the Evidentiary Hearing is
scheduled to be conducted on March 27, 2000. If the Company prevails on
its Motion to Enforce Settlement, the litigation will be concluded. Even
if the Motion is unsuccessful, the Company will be able to continue to
pursue its legal remedies. If the dispute is not resolved, the Company
does not believe that these proceedings impair the recoverability of its
$38,426 investment in SVLP.
<PAGE>
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1999 and 1998 consisted of
the following:
1999 1998
---- ----
Unsecured Series A Senior Notes, with interest
payable semiannually at a fixed rate of 6.3%;
principal payments are due in equal annual
installments of approximately $3,636, commencing
in December 2003 and ending in December 2013 $ 40,000 $ 40,000
Unsecured term loan with a bank, with interest
payable quarterly at a fixed rate of 6.22%;
principal payments are due in equal quarterly
installments of approximately $536, through
December 2003 8,571 10,714
-------- --------
Total long-term debt 48,571 50,714
Less current portion 2,143 2,143
-------- --------
Total long-term debt, net of current portion $ 46,428 $ 48,571
======== ========
At December 31, 1999, the aggregate maturity requirements for the years
2000 through 2002 are $2,143 in each year, $5,779 in 2003 and $3,636 in
2004.
Certain of the aforementioned credit arrangements contain various
positive and negative covenants with respect to cash flow coverage,
tangible net worth and leverage ratio. These provisions could restrict
the payment of dividends in certain circumstances; however, the entire
amount of retained earnings at December 31, 1999 and 1998 was
unrestricted.
<PAGE>
5. INCOME TAXES
Income tax expense consists of the following components:
1999 1998 1997
---- ---- ----
Current expense:
Federal $ 15,267 $ 13,400 $ 10,273
State 4,513 3,952 3,096
--------- --------- ---------
Total current expense 19,780 17,352 13,369
Deferred expense:
Federal 1,526 (271) 1,442
State (31) (379) 13
--------- --------- ---------
Total deferred expense 1,495 (650) 1,455
--------- --------- ---------
Total income tax expense $ 21,275 $ 16,702 $ 14,824
========= ========= =========
Income tax expense differs from that computed by using the statutory
federal tax rate (35% in all years presented) due to the following:
1999 1998 1997
---- ---- ----
Computed at statutory rates $ 18,559 $ 14,613 $ 13,228
Increase (decrease):
State taxes, net of federal benefit 2,913 2,322 2,021
Other, net (197) (233) (425)
-------- -------- --------
Income tax expense $ 21,275 $ 16,702 $ 14,824
======== ======== ========
Effective federal and state tax rate 40.1% 40.0% 39.2%
======== ======== ========
<PAGE>
5. Income taxes (continued)
The significant components of the Company's deferred income tax assets
and liabilities were as follows at December 31, 1999 and 1998:
Deferred Income Taxes
----------------------
1999 1998
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Property, plant and
equipment - primarily due
to depreciation differences $ -- $24,801 $ -- $23,429
Differences in the timing of
recognition
of revenues 2,403 -- 2,403 --
Cellular partnership -- 6,757 -- 5,875
State franchise taxes 1,625 -- 1,240 --
Other, net 3,745 219 3,591 319
------- ------- ------- -------
Total 7,773 31,777 7,234 29,623
Less current portion 1,625 -- 1,240 --
------- ------- ------- -------
Total deferred income taxes $ 6,148 $31,777 $ 5,994 $29,623
======= ======= ======= =======
Net long-term deferred
income tax liability $25,629 $23,629
======= =======
<PAGE>
6. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
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 1999, 1998 and 1997 includes the following
components:
1999 1998 1997
---- ---- ----
Service cost-benefits earned during the
period $ 3,750 $ 3,248 $ 2,915
Interest cost on projected benefit
obligation 5,298 4,850 4,599
Expected return on plan assets (5,964) (5,216) (4,341)
Amortization of transition obligation 265 265 265
------- ------- -------
Net pension cost $ 3,349 $ 3,147 $ 3,438
======= ======= =======
<PAGE>
The following table sets forth the change in benefit obligation, change
in plan assets and funded status as of December 31, 1999 and 1998:
1999 1998
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 75,813 $ 67,033
Service cost 3,750 3,248
Interest cost 5,298 4,850
Actuarial losses (gain) (8,423) 2,823
Benefits paid (2,489) (2,141)
-------- --------
Benefit obligation at end of year $ 73,949 $ 75,813
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ 71,223 $ 60,937
Actual return on plan assets 6,657 9,040
Company contribution 1,332 3,387
Benefits paid (2,489) (2,141)
-------- --------
Fair value of plan assets at end of year $ 76,723 $ 71,223
======== ========
Funded status:
Funded status of plan at end of year $ 2,774 $ (4,590)
Unrecognized actuarial loss (9,520) (404)
Unrecognized prior service cost (24) (26)
Unrecognized net transition obligation 1,642 1,909
-------- --------
Accrued benefit cost $ (5,128) $ (3,111)
======== ========
The discount rates used in determining the projected benefit obligation
at December 31, 1999 and 1998 were 7.5% and 6.75%, respectively. The
assumed rate of increase in future compensation levels used to measure
the projected benefit obligation was 6% and 5.5% at December 31, 1999
and 1998, respectively. The expected long-term rate of return on plan
assets used in determining net pension cost was 8.5% in 1999, 1998 and
1997. A decrease in the discount rate at December 31, 1998 increased
pension cost $233 for 1999.
The Company also maintains two defined contribution retirement plans,
the Employee Stock Ownership Plan ("ESOP") and the Retirement Supplement
Plan ("RSP") which together provide a retirement and savings feature for
substantially all employees. The retirement feature allows for qualified
tax deferred contributions by employees under Section 401(k) of the
Internal Revenue Code (the "Code"). Subject to certain limitations,
one-half of all employee contributions made to the plans are matched by
the Company. Until January 1, 1999, employees made both retirement and
savings contributions to the RSP. However, effective January 1, 1999,
the Company approved an amendment to discontinue the provisions of the
retirement feature of the RSP and approved the formation of the ESOP for
the purposes of qualifying employer and employee contributions under
section 401(k) of the Code. The plan provisions of the ESOP regarding
eligibility, vesting, benefits and qualifying contributions are
substantially the same as the retirement feature of the RSP.
Additionally, the ESOP provides for voting rights as to the
participant's share of the Company's common stock held by the ESOP and
for certain diversification rights of participant's account balances.
Matching contributions made by the Company under the RSP and ESOP
amounted to $1,499, $1,417 and $1,340 in 1999, 1998 and 1997,
respectively. At December 31, 1999, 11% of the Company's outstanding
shares of common stock were held by the RSP and ESOP.
The Company provides certain postretirement benefits other than pensions
to substantially all employees, including life insurance benefits and a
stated reimbursement for Medicare supplemental insurance. The benefit
obligations and annual postretirement benefits costs relating to these
benefits are not significant to the Company's consolidated financial
position and results of operations.
<PAGE>
7. SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder Rights Plan wherein shareholders of the
Company receive rights to purchase the Company's common stock, or an
acquirer's common stock, at a discount in certain events involving an
acquisition of 20% or more of the Company's common stock by any person
or group in a transaction not approved by the Company's Board of
Directors. The rights expire in March 2008.
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment used in its
operations and reflects lease payments as rental expense for the periods
to which they relate. Total rent expense was $602, $496, and $482 in
1999, 1998 and 1997, respectively.
As of December 31, 1999 the Company had various non-cancellable leases
with terms greater than one year. The minimum lease payments for the
next five years are as follows:
2000 $ 956
2001 936
2002 845
2003 719
2004 392
------
Total $3,848
======
Other commitments
As of December 31, 1999, binding commitments for future capital
expenditures approximate $1,800. The Company periodically contributes
capital to SVLP to maintain its existing partnership interest. As of
December 31, 1999, the known commitment for future capital funding to
the partnership was $3,079.
Litigation and regulatory proceedings
The Company is subject to certain legal and regulatory 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.
<PAGE>
9. CONCENTRATIONS OF CREDIT RISK, SEGMENTS 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.
Based on the common nature of the operations, service area, and customer
base, management believes that the Company, its subsidiaries and its
divisions operate in a single business segment.
Approximately 11%, 13%, and 16% of the Company's consolidated operating
revenues in 1999, 1998, and 1997, respectively, were derived from access
charges and other charges to Pacific Bell pursuant to certain agreements
described in Note 1 - Regulated revenues and costs. Approximately 8%,
8%, and 10% of the Company's consolidated operating revenues in 1999,
1998 and 1997, respectively, were derived from access charges and other
charges to AT&T. No other customers accounted for more than 10% of
consolidated operating revenues.
<PAGE>
10. PENDING ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. This statement
standardized the accounting for derivatives and hedging activities and
requires that all derivatives be recognized in the statement of
financial position as either assets or liabilities at fair value.
Changes in the fair value of derivatives that do not meet the hedge
accounting criteria are to be reported in earnings. The Company is
required to adopt this accounting pronouncement in 2001; however,
management believes it will not have a significant impact on the
Company's annual consolidated financial statements.
11. SUBSEQUENT EVENT (UNAUDITED)
On February 29, 2000, the Company's Board of Directors authorized a
program to repurchase up to 1,000 shares of the Company's outstanding
common stock.
<PAGE>
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 May 19, 2000.
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 May 19, 2000.
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 May 19, 2000.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on May 19, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) 1 and 2. Financial Statements
The financial statements listed in the
accompanying Index to Financial Statements
are filed as part of this annual report.
3. Exhibits
The exhibits listed on the accompanying
Index to Exhibits are filed as part of
this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
fourth quarter of 1999.
(c) Separate Financial Statements of Subsidiaries
Not Consolidated and Fifty Percent or Less Owned
Persons
The financial statements of a 50% or less
owned unconsolidated company are submitted
inasmuch as the registrant's equity in the
income before income taxes of such company
exceeds 20% of the total consolidated income
before income taxes of the registrant:
1. Financial Statements and Financial Statement
Schedule of Sacramento-Valley Limited Partnership
are included herewith beginning on page 47:
Page
----
Report of Independent Accountants 46
Consolidated Balance Sheets at
December 31, 1999 and 1998 47
Consolidated Statements of Income
for the Years Ended December 31, 1999,
1998 and 1997 48
Consolidated Statements of Partners'
Capital for the Years Ended December 31,
1999, 1998 and 1997 49
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999,
1998 and 1997 50
Notes to Consolidated Financial
Statements 51
Schedule II - Valuation and Qualifying
Account for the years ended December 31,1999
1998 and 1997 57
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO FINANCIAL STATEMENTS
(Item 14(a) 1 and 2)
PAGE
----
Report of Independent Auditors ..................................... 22
Consolidated statements of income for each of the three years
in the period ended December 31, 1999 .............................. 23
Consolidated balance sheets as of December 31, 1999 and 1998 ....... 24
Consolidated statements of shareholders' equity for each of
the three years in the period ended December 31, 1999 .............. 26
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 1999 ........................ 27
Notes to consolidated financial statements ......................... 29
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Sacramento-Valley Limited Partnership and subsidiary:
We have audited the accompanying consolidated balance sheet of Sacramento-Valley
Limited Partnership (the "Partnership") and subsidiary as of December 31, 1999,
and the related consolidated statements of income, changes in partners' capital,
and cash flows and the financial statement schedule I - valuation and qualifying
account for the year then ended. These financial statements and the financial
statement schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audit. The
consolidated financial statements and the financial statement schedule of the
Partnership for the years ended December 31, 1998 and 1997 were audited by other
auditors whose report, dated March 1, 1999, expressed an unqualified opinion on
those statements and the financial statement schedule.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Partnership and subsidiary as
of December 31, 1999, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 8, 2000
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In thousands)
ASSETS 1999 1998
---- ----
CURRENT ASSETS:
Cash $ 17 $ 36
Accounts receivable, net of allowance for doubtful
accounts of $2,159 and $1,823, respectively 24,524 21,658
Due from general partner 12,383 7,362
Inventories 4,174 9,361
Other current assets 3,142 1,147
-------- --------
Total current assets 44,240 39,654
PROPERTY, PLANT AND EQUIPMENT, Net 150,774 141,109
FCC LICENSES, Net 9,886 10,204
OTHER NONCURRENT ASSETS 1,012 1,091
-------- --------
TOTAL ASSETS $205,912 $191,968
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable, trade $ 21,364 $ 28,228
Deferred revenue 4,639 3,307
Accrued commissions 2,356 3,109
Accrued employee benefits 2,550 1,988
Accrued taxes 1,902 2,289
Other current liabilities 1,232 1,159
-------- --------
Total current liabilities 34,043 40,080
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 201 178
-------- --------
PARTNERS' CAPITAL:
General partner 88,896 75,663
Limited partners 82,772 76,047
-------- --------
Total partners' capital 171,668 151,710
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $205,912 $191,968
======== ========
See notes to consolidated financial statements.
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
1999 1998 1997
---- ---- ----
OPERATING REVENUE $215,105 $195,624 $173,616
-------- -------- --------
OPERATING EXPENSES:
Cost of revenues 56,684 47,801 35,385
Selling, general and administrative:
General partner and affiliates 15,681 10,371 8,162
Other 73,769 75,670 68,265
Depreciation and amortization 25,900 25,522 19,179
-------- -------- --------
Total operating expenses 172,034 159,364 130,991
-------- -------- --------
OPERATING INCOME 43,071 36,260 42,625
OTHER INCOME 2,136 - -
INTEREST INCOME ON AMOUNTS DUE
FROM GENERAL PARTNER 600 615 371
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY (109) (80 (53)
-------- -------- --------
NET INCOME $ 45,698 $ 36,795 $ 42,943
======== ======== ========
ALLOCATION OF NET INCOME:
General partner $ 22,793 $ 18,352 $ 21,418
Limited partners 22,905 18,443 21,525
-------- -------- --------
TOTAL $ 45,698 $ 36,795 $ 42,943
======== ======== ========
See notes to consolidated financial statements.
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
General
Partner Limited Partners
-------- ----------------------------------------------
Centennial
Cellular
Telephone
Company of Roseville Evans GTE
AirTouch Sacramento Telephone Cellular Wireless
Cellular Valley Company Inc. Inc. Total
------- ------- ------- ------ ------ --------
Partners' capital,
December 31, 1996 $55,560 $26,150 $26,150 $2,450 $1,093 $111,403
Contributions 5,343 2,514 2,514 236 105 10,712
Distributions (12,130) (5,709) (5,709) (535) (238) (24,321)
Net income 21,418 10,080 10,080 945 420 42,943
------- ------- ------- ------ ------ --------
Partners' capital,
December 31, 1997 70,191 33,035 33,035 3,096 1,380 140,737
Contributions 1,489 701 701 66 29 2,986
Distributions (14,369) (6,761) (6,761) (635) (282) (28,808)
Net income 18,352 8,636 8,636 811 360 36,795
------- ------- ------- ------ ------ --------
Partners' capital,
December 31, 1998 75,663 35,611 35,611 3,338 1,487 151,710
Contributions 6,542 3,079 3,079 288 128 13,116
Distributions (16,102) (7,577) (7,577) (710) (316) (32,282)
Contributions
due from limited
partners - (3,079) (3,079) (288) (128) (6,574)
Net income 22,793 10,726 10,726 1,006 447 45,698
------- ------- ------- ------ ------ --------
Partners' capital,
December 31, 1999 $88,896 $38,760 $38,760 $3,634 $1,618 $171,668
See notes to consolidated financial statements.
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,698 $ 36,795 $ 42,943
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 25,900 25,522 19,179
Minority interest in net income of
consolidated subsidiary 109 80 53
Loss on sale of equipment 171 975 113
Changes in assets and liabilities:
Accounts receivable, net (2,866) 2,546 (611)
Inventories 5,187 (498) (5,619)
Other current assets (1,995) 1,694 (886)
Other noncurrent assets 79 (135) (104)
Accounts payable, trade (4,413) (4,584) 3,294
Deferred revenue 1,332 373 1,070
Accrued commissions (753) (156) (630)
Accrued employee benefits 562 (666) 65
Accrued taxes (387) (3,919) 4,461
Other current liabilities 73 103 (4)
-------- -------- --------
Cash flows provided by operating activities 68,697 58,130 63,324
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (31,430) (41,245) (38,665)
Proceeds from sale of equipment 103 104 83
Change in due from general partner (5,021) 8,908 (11,097)
-------- -------- --------
Cash flows used in investing activities (36,348) (32,233) (49,679)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from partners - 2,986 10,712
Distributions to partners (32,282) (28,808) (24,321)
Distributions to minority interest in
consolidated subsidiary (86) (57) (34)
-------- -------- --------
Cash flows used in financing activities (32,368) (25,879) (13,643)
-------- -------- --------
NET CHANGE IN CASH (19) 18 2
CASH, Beginning of year 36 18 16
-------- -------- --------
CASH, End of year $ 17 $ 36 $ 18
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS-
Acquisition of property, plant and equipment
included in accounts payable, trade at year-end $ 5,495 $ 7,946 $ 15,147
======== ======== ========
Contribution of property, plant and equipment
by the General Partner $ 6,542 $ - $ -
======== ======== ========
See notes to consolidated financial statements.
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
1. DESCRIPTION OF PARTNERSHIP AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Sacramento-Valley Limited Partnership (the "Partnership") was formed on
April 2, 1984 under the laws of the State of California and provides
wireless telecommunications services in the Northern California and
Northern Nevada areas. The Partnership's ownership interests are as
follows:
General Partner:
AirTouch Cellular, wholly-owned by a subsidiary of
Vodafone AirTouch Plc. ("Vodafone AirTouch") 49.878%
Limited Partners:
Centennial Cellular Telephone Company of Sacramento Valley 23.472%
Roseville Telephone Company 23.472%
Evans Cellular Inc. 2.200%
GTE Wireless, Inc. 0.978%
Profits and losses are allocated based on respective partnership
interests. Capital calls and distributions are made quarterly, at the
discretion of the General Partner.
Financial Statement Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Conformity with GAAP requires
the use of estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Redding MSA Limited Partnership ("RMLP") and the Partnership. The
Partnership owns a 97.1% interest in RMLP. All significant intercompany
transactions have been eliminated.
Inventory
Inventory consists of wireless communications equipment (primarily
handsets). Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out or average method. Any losses
on the sales of handsets to customers are recognized at the time of
sale.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful life
of the asset. Land is not depreciated. Gains and losses on disposals are
included in income at amounts equal to the difference between the net
book value of the disposed assets and the proceeds received upon
disposal. Expenditures for replacements and improvements are
capitalized, while expenditures for maintenance and repairs are charged
against earnings as incurred. Assets under construction are not
depreciated until placed into service.
FCC Licenses
The Federal Communications Commission ("FCC") issues cellular licenses
that enable U.S. cellular carriers to provide service in specific
Cellular Geographic Service Areas. A cellular license is issued
conditionally for ten years. Historically, the FCC has routinely granted
license renewals providing the licensees have complied with applicable
rules, policies, and the Communications Act of 1934, as amended. The
Partnership records FCC licenses at cost and believes it has complied
and intends to continue to comply with applicable standards. The
Partnership amortizes the FCC licenses using the straight-line method
over 40 years. Accumulated amortization of FCC licenses totaled $2,827
and $2,509 at December 31, 1999 and 1998, respectively. Related
amortization expense was $318, $318 and $321 in 1999, 1998 and 1997,
respectively.
Valuation of Long-Lived Assets
The Partnership periodically reviews the carrying value of long-lived
assets and certain identifiable intangible assets, including FCC
licenses, for impairment when events or changes in circumstances
indicate that the book value of an asset may not be recoverable. An
impairment loss is recognized whenever the review demonstrates that the
book value of a long-lived asset is not recoverable.
Revenue Recognition
Operating revenues primarily consist of billings to customers for
monthly access charges, cellular airtime usage, prepaid airtime usage,
long distance and roamer charges. Revenues are recognized as services
are provided.
Unbilled revenues, resulting from cellular service provided from the
billing cycle date to the end of each period and from other cellular
carriers' customers using the Partnership's cellular systems for the
last half of each period, are estimated and recorded as receivables.
Unearned monthly access charges relating to periods after period end are
deferred.
Concentration of Credit Risk
Due to the diversity and large number of customers within the
Partnership's service area, concentrations of credit risk with respect
to trade receivables are limited. The Partnership performs ongoing
credit evaluations of its customers and in certain circumstances obtains
refundable deposits. The Partnership maintains reserves for potential
credit losses and, historically, such losses have been within
management's expectations.
Income Taxes
No provisions have been made for federal or state income taxes since
such taxes, if any, are the responsibility of the individual partners.
Advertising Costs
The Partnership expenses advertising costs as incurred. Advertising
expense was $10,269, $9,484 and $9,652 in 1999, 1998 and 1997,
respectively.
Reclassifications
Certain reclassifications of the 1998 financial statements have been
made to conform to the 1999 presentation. The reclassifications have not
affected previously reported net income or Partners' capital.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
December 31,
Depreciable ------------
Lives (Years) 1999 1998
Land $ 37 $ 37
Buildings and leasehold improvements 5-18 36,205 33,322
Cellular plant and equipment 5-10 204,103 183,215
Other equipment and furniture 2-5 20,417 22,356
Construction in progress 23,160 15,885
Total 283,922 254,815
------- -------
Less accumulated depreciation 133,148 113,706
-------- -------
Property, plant and equipment, net $150,774 $141,109
======== =======
Related depreciation expense was $25,582, $25,204 and $18,858 in 1999,
1998 and 1997, respectively.
3. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Partnership leases various facilities and equipment under
noncancelable lease arrangements. Most leases contain renewal options
for varying periods. Related rent expense under all operating leases was
$4,824, $4,760 and $4,334 in 1999, 1998 and 1997, respectively.
Future minimum lease payments required under noncancelable operating
leases with an initial term of one year or more at December 31, 1999
were:
2000 $ 5,460
2001 4,031
2002 4,640
2003 4,263
2004 4,147
Thereafter 35,987
------
Total minimum lease payments $58,528
=======
Contingencies
In December of 1998, the Partnership was named as a defendant in a class
action lawsuit, Parrish versus AirTouch Cellular. The lawsuit alleges
that the defendant conspired to fix prices of cellular services across
California, and seeks damages up to $100,000. The Partnership intends to
defend itself vigorously. While the outcome is uncertain, management
does not believe that this proceeding will have a material adverse
effect on the Partnership's financial position or results of operations
.
The Partnership is also involved in a lawsuit with Roseville Telephone
Company, a limited partner in the Partnership. The lawsuit is based on
allegations of misconduct relative to the Partnership Agreement. The
lawsuit also seeks the right for Roseville to operate its PCS licenses
within certain markets in which the Partnership operates. The
Partnership intends to defend itself vigorously and does not believe
that these proceedings will have a material adverse effect on the
Partnership's financial position or results of operations.
The Partnership is subject to state regulation of the "terms and
conditions" of cellular service other than rates and market entry and is
party to various legal proceedings in the ordinary course of business.
Although the ultimate resolution of these proceedings cannot be
ascertained, management does not believe they will have a materially
adverse effect on the financial position or results of operations of the
Partnership.
4. RELATED PARTY TRANSACTIONS
The General Partner is reimbursed for all Partnership expenditures made
as General Partner. As provided in the Partnership agreement, certain
system operations and selling, general and administrative expenses
incurred by the General Partner on behalf of the Partnership are passed
through to the Partnership.
The Partnership participates in a centralized cash management
arrangement with the General Partner. The General Partner pays or
charges the Partnership monthly interest, computed using the General
Partner's average borrowing rate (5.09% and 5.63% at December 31, 1999
and 1998, respectively) on the amounts due to or from the Partnership.
In December 1999, the General Partner contributed network equipment with
an appraised fair market value of $6,542 to the Partnership. As a
result, the General Partner issued a capital call that required the
Limited Partners to contribute cash of $6,574, to maintain their
respective ownership percentages. As of December 31, 1999, the
contributions had not been received. These amounts were recorded as
contributions in the period, with the related receivable amounts being
shown as a reduction in Partners' Capital. All requested contributions
were received by March 16, 2000.
5. MCI COMMUNICATIONS SETTLEMENT
In December 1999, the Partnership settled all outstanding litigation
with MCI Communications pertaining to a contract breach regarding retail
kiosks. As a result of this settlement, the Partnership was awarded
$2,136, that was recorded as other income in the financial statements.
The cash payment was received in January 2000.
6. MAJOR SUPPLIER
The Partnership purchases substantially all of its network equipment
from one supplier.
7. SUBSEQUENT EVENTS
In January 2000, Vodafone AirTouch entered in to a tower sublease
agreement ("the Agreement") with American Tower Corporation ("American
Tower"). Concurrent with the original sublease agreement, American Tower
also entered a build-to-suit agreement whereby American Tower has an
exclusive right to construct new towers in certain domestic markets to
Vodafone AirTouch's specifications that will be leased to Vodafone
AirTouch. The term of the Agreement differs for leased sites versus
sites owned by the company and ranges up to 99 years. Under the
Agreement, Vodafone AirTouch will transfer the right to lease available
space on up to 2,100 cellular towers owned by Vodafone AirTouch in
exchange for a cash payment of approximately $380 per tower. Vodafone
AirTouch will also receive a warrant to purchase 3,000,000 shares of
American Tower Corporation Class A Common Stock (subject to reduction if
fewer than 2,100 towers are subleased). Vodafone AirTouch will be
required to pay American Tower a monthly maintenance fee of
approximately $1.5 per tower for the existing physical space used by
their cellular equipment. Vodafone AirTouch will retain title to the
tower equipment and will have the right of first refusal for leasing
additional space on the tower. Up to approximately one hundred sixty
(160) towers owned and operated by the Partnership and subsidiary are
included in the above transaction. The Partnership is entitled to
payments of approximately $380 per tower subleased to American Tower
under the terms of the Agreement. The Partnership is also entitled to a
proportionate share of the warrants issued. The Agreement is expected to
close in multiple tranches during the year 2000.
In September 1999, Vodafone AirTouch and Bell Atlantic Corporation
("Bell Atlantic") entered into an Alliance Agreement under which
Vodafone AirTouch would contribute its U.S. wireless interest to the
existing Cellco Partnership ("Cellco"), an existing general partnership
formed by Bell Atlantic, in exchange for a partnership interest in
Cellco, subject to certain regulatory and other approvals. Upon
obtaining such approvals, as applicable, Vodafone Air Touch's interest
in the Partnership and subsidiary will be contributed to Cellco as part
of the Alliance Agreement. The Alliance Agreement is expected to close
in the second quarter of 2000.
<PAGE>
SACRAMENTO-VALLEY LIMITED PARTNERSHIP AND SUBSIDIARY
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DCEMBER 31, 1999, 1998 AND 1997
(In thousands)
Balance at Charged to Balance
Beginning of Costs and At end
Period Expenses Deductions of Period
------------ ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $1,823 $4,286 $(3,950) (a) $2,159
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $1,964 $4,289 $(4,430) (a) $1,823
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $1,305 $3,247 $(2,588) (a) $1,964
(a) Amounts reflect items written off, net of recoveries.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit No. Description of Filing Page
- ----------- ---------- --------- ----
3(a) Articles of Incorporation of the Incorporated by -
Company, together with Certificate of reference
Amendment of Articles of Incorporation
dated January 25, 1996 and Certificate
of Amendment of Articles of
Incorporation dated June 21, 1996 (Filed
as Exhibit 3(a) to Form 10-Q Quarterly
Report for the quarter ended September
30, 1996)
3(b) Bylaws of the Company Filed herewith 63
4(a) Shareholder Rights Plan(Filed as Exhibit Incorporated by -
2.1 to Form 8-A Registration Statement reference
under the Securities Act of 1934)
10(a) Sacramento-Valley Limited Partnership Incorporated by -
Agreement, dated April 4, 1984 (Filed as reference
Exhibit I to Form 10-Q Quarterly Report
of Roseville Telephone Company
for the quarter ended March 31, 1984)
10(b) Credit Agreement of Roseville Telephone Incorporated by -
Company with Bank of America National reference
Trust and Savings Association, dated
March 27, 1992, with respect to
$25,000,000 term loan.(Filed as
Exhibit 10(a) to Form 10-Q
Quarterly Report of Roseville Telephone
Company for the quarter ended March
31, 1992)
10(c) Note Purchase Agreement for Series A Incorporated by -
Senior Notes in the aggregate amount of reference
$40,000,000 dated December 9, 1998
(Filed as Exhibit 10(c) to Form 10-K
Annual Report of Roseville
Communications Company for the year ended
December 31, 1998)
10(d) Operating Agreement of West Coast PCS LLC Incorporated by -
(Filed as Exhibit 10(d) to Form 10-K reference
Annual Report of Roseville
Communications Company for the year
ended December 31, 1997)
10(e) 1999 Restricted Stock Bonus Plan (Filed Incorporated by -
as Exhibit 10(e) to Form 10-K Annual reference
Report of Roseville Communications Company
for the year ended December 31, 1998)
10(f) 2000 Equity Incentive Plan Filed herewith 101
21(a) List of subsidiaries Filed herewith 117
27 Financial Data Schedule Filed herewith -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEVILLE COMMUNICATIONS COMPANY
(Registrant)
Date: March 22, 2000 By: /s/ Brian H. Strom
------------------
Brian H. Strom,
President and Chief
Executive Officer
Date: March 22, 2000 By: /s/Michael D. Campbell
----------------------
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 22, 2000 /s/ Robert L. Doyle
-------------------
Robert L. Doyle,
Chairman of the Board
Date: March 22, 2000 /s/ Brian H. Strom
------------------
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 22, 2000 /s/ Michael D. Campbell
-----------------------
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 22, 2000 /s/ Thomas E. Doyle
-------------------
Thomas E. Doyle,
Director
Date: March 22, 2000 /s/ Ralph E. Hoeper
-------------------
Ralph E. Hoeper,
Director
Date: March 22, 2000 /s/ John R. Roberts III
-----------------------
John R. Roberts III,
Director
Date: March 22, 2000 /s/ Chris L. Branscum
---------------------
Chris L. Branscum,
Director
Date: March 22, 2000 /s/ Neil J. Doerhoff
--------------------
Neil J. Doerhoff,
Director
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEVILLE COMMUNICATIONS COMPANY
(Registrant)
Date: March 22, 2000 By: --------------------
Brian H. Strom,
President and Chief
Executive Officer
Date: March 22, 2000 By: --------------------
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
<PAGE>
SIGNATURES
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 22, 2000
Robert L. Doyle,
Chairman of the Board
Date: March 22, 2000
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 22, 2000
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 22, 2000
Thomas E. Doyle,
Director
Date: March 22, 2000
Ralph E. Hoeper,
Director
Date: March 22, 2000
John R. Roberts III,
Director
Date: March 22, 2000
Chris L. Branscum,
Director
Date: March 22, 2000
Neil J. Doerhoff,
Director
These Bylaws reflect amendments through January 31, 2000.
BYLAWS
OF
ROSEVILLE COMMUNICATIONS COMPANY
EXHIBIT 3(b)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1.Offices......................................................1
1.01 Principal Office........................................1
1.02 Other Offices...........................................1
ARTICLE 2.Meetings of Shareholders.....................................1
2.01 Place...................................................1
2.02 Annual Meeting..........................................2
2.03 Special Meetings........................................2
2.04 Notice of Meetings......................................3
2.05 Manner of Giving Notice; Affidavit of Notice............4
2.06 Quorum..................................................5
2.07 Adjourned Meetings and Notice Thereof...................6
2.08 Consent of Absentees....................................6
2.09 Voting..................................................7
2.10 Shareholder Action by Written Consent Without a
Meeting.............................................9
2.11 Record Date for Shareholders...........................11
2.12 Proxies................................................12
ARTICLE 3.Directors...................................................13
3.01 Powers.................................................13
3.02 Number and Qualification of Directors..................14
3.03 Election and Term of Office............................14
3.04 Vacancies..............................................15
3.05 Place of Meetings and Meetings by Telephone............16
3.06 Annual Meeting.........................................17
3.07 Other Regular Meetings.................................17
3.08 Special Meetings -- Call and Notice....................17
3.09 Waiver of Notice.......................................18
3.10 Quorum.................................................18
3.11 Action Without Meeting.................................19
3.12 Adjournment -- Notice..................................19
3.13 Fees and Compensation..................................19
3.14 Indemnification........................................20
3.15 Committees of Directors................................27
3.16 Meetings And Action of Committees......................29
ARTICLE 4.Officers....................................................29
4.01 Number and Titles......................................29
4.02 Election...............................................30
4.03 Removal, Resignation and Disqualification..............30
4.04 Vacancies..............................................31
4.05 President..............................................31
4.06 Vice President.........................................32
4.07 Secretary..............................................32
4.08 Chief Financial Officer................................33
4.09 Salaries...............................................34
ARTICLE 5.Corporate Records and Reports...............................34
5.01 Maintenance and Inspection of the Record of
Shareholders.......................................34
5.02 Maintenance and Inspection of Bylaws...................35
5.03 Maintenance and Inspection of Other Corporate
Records............................................35
5.04 Inspection by Directors................................36
5.05 Annual Report to Shareholders..........................36
5.06 Financial Statements...................................37
5.07 Annual Statement of General Information................38
ARTICLE 6.General Corporate Matters...................................39
6.01 Checks, Drafts and Evidences of Indebtedness...........39
6.02 Corporate Contracts and Instruments; How Executed......39
6.03 Certificates for Shares................................39
6.04 Lost Certificates......................................40
6.05 Representation of Shares of Other Corporations.........41
ARTICLE 7.Construction and Definitions................................41
7.01 Construction and Definitions...........................41
ARTICLE 8.Amendments..................................................42
8.01 Power of Shareholders..................................42
8.02 Power of Directors.....................................42
<PAGE>
BYLAWS
OF
ROSEVILLE COMMUNICATIONS COMPANY
ARTICLE 1.
Offices
1.01 Principal Office. The principal executive office of the
corporation shall be located in the City of Roseville, County of Placer, State
of California. The board of directors shall have the power and authority to
change the principal office from one location to another in said County.
1.02 Other Offices. Branch or subordinate offices may
be established at any time by the board of directors at any
place or places where the corporation is qualified to do business.
ARTICLE 2.
Meetings of ShareholdersARTICLE
2.01 Place. Meetings of shareholders, whether annual or
special, shall be held either at the principal executive office or at any other
place within or without the State of California which may be designated either
by the board of directors in writing or by the written consent of all
shareholders entitled to vote thereat, which consent may be given either before
or after the meeting and filed with the secretary of the corporation.
<PAGE>
2.02 Annual Meeting. The annual meeting of shareholders, after
the year 1999, shall be held at the time and date each year fixed by the board
of directors, or, if not so designated, then on the third Friday of May of each
year. At each annual meeting, directors shall be elected and any other proper
business may be transacted.
2.03 Special Meetings.
----------------
(a) Special meetings of the shareholders, for
any purpose or purposes whatsoever, may be called at any
time by the board of directors, the president, or by one or more shareholders
holding shares in the aggregate entitled to cast not less than ten percent (10%)
of the votes at that meeting.
<PAGE>
(b) If a special meeting is called by any
person other than the board of directors, the request shall
be in writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
president, any vice president, or the secretary of the corporation. The officer
receiving the request shall cause notice to be promptly given to the
shareholders entitled to vote, in accordance with the provisions of Sections
2.04 and 2.05 hereof, that a meeting will be held at the time requested by the
person or persons calling the meeting, not less than thirty (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this Section
2.03 shall be construed as limiting, fixing, or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.04 Notice of Meetings.
------------------
(a) All notices of meetings of shareholders
shall be sent or otherwise given in accordance with
Section 2.05 hereof not less than ten (10) nor more than sixty (60) days before
the date of the meeting. Such notice shall state the place, date and hour of the
meeting and (1) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted, or (2) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the
shareholders. The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees whom, at the time of the
notice, the board of directors intends to present for election.
<PAGE>
(b) If action is proposed to be taken at any
meeting for approval of (1) a contract or transaction in
which a director has a direct or indirect financial interest pursuant to Section
310 of the Corporations Code of California, (2) an amendment of the articles of
incorporation pursuant to Section 902 of that Code, (3) a reorganization of the
corporation pursuant to Section 1201 of that Code, (4) a voluntary dissolution
of the corporation pursuant to Section 1900 of that Code or (5) a distribution
in dissolution other than in accordance with the rights of outstanding preferred
shares pursuant to Section 2007 of that Code, the notice shall also state the
general nature of that proposal.
2.05 Manner of Giving Notice; Affidavit of Notice.
--------------------------------------------
(a) Notice of any meeting of shareholders shall
be given either personally or by first-class mail or
telegraphic or other written communication, charges prepaid, addressed to each
shareholder entitled to vote thereat at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is so given, notice shall be deemed to have been given if
it is sent to that shareholder by first-class mail or telegraphic or other
written communication to the corporation's principal executive office or is
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
<PAGE>
(b) If any notice addressed to a shareholder at
the address of that shareholder appearing on the books
of the corporation is returned to the corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given to that shareholder without
further mailing if they shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the corporation for a
period of one year from the date of the giving of the notice to all other
shareholders.
(c) An affidavit of the mailing or other means
of giving any notice of any shareholders' meeting may
be executed by the secretary, assistant secretary or any transfer agent of the
corporation giving the notice, and filed and maintained in the minute book of
the corporation.
<PAGE>
2.06 Quorum. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business at such meeting. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
2.07 Adjourned Meetings and Notice Thereof.
-------------------------------------
(a) Any shareholders' meeting, annual or special
,whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum no other
business may be transacted except as provided in Section 2.06.
(b) When a shareholders' meeting is adjourned
to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than forty-five (45) days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting, in accordance with Sections 2.04 and 2.05 hereof.
2.08 Consent of Absentees.
--------------------
<PAGE>
(a) The transactions of any meeting of
shareholders, either annual or special, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
Such waiver, consent or approval need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in Section 2.04(b) hereof, such waiver, consent or
approval shall state the general nature of the proposal. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
(b) Attendance by a person at a meeting shall
also constitute a waiver of notice of that meeting,
except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, and except that attendance at a meeting is not a waiver of any right
to object to the consideration of matters required by law to be included in the
notice of the meeting but not so included, if that objection is expressly made
at the meeting.
2.09 Voting.
------
<PAGE>
(a) The shareholders entitled to vote at any
meeting of shareholders shall be determined in accordance
with the provisions of Section 2.11 hereof, subject to the provisions of
Sections 702 to 704, inclusive, of the Corporations Code of California (relating
to voting shares held by a fiduciary and others, in the name of a corporation or
in joint ownership). Except as provided in subsection (b) of this Section 2.09,
each outstanding share shall be entitled to one vote on each matter submitted to
a vote of the shareholders. The shareholders' vote may be by voice vote or by
ballot; provided, however, that any election of directors must be by ballot if
demanded by any shareholder at the meeting and before the voting has begun. On
any matter other than elections to office, any shareholder may vote part of his
or her shares in favor of the proposal and refrain from voting the remaining
shares or vote them against the proposal, but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholder's approving vote is with
respect to all shares that the shareholder is entitled to vote. If a quorum is
present, the affirmative vote of a majority of the shares represented and voting
at a duly held meeting (which shares voting affirmatively also shall constitute
at least a majority of the required quorum) shall be the act of the shareholders
(other than in respect of the election of directors), unless the vote of a
greater number or voting by classes is required by California General
Corporation Law or by the articles of incorporation.
<PAGE>
(b) No shareholder shall be entitled to
cumulate votes (i.e., cast for any one candidate a number of
votes greater than the number of votes which such shareholder normally is
entitled to cast) unless such candidate or candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice at the meeting prior to commencement of the voting of the shareholder's
intention to cumulate his or her votes. If any shareholder has given such a
notice, then every shareholder entitled to vote may cumulate his or her votes
for candidates in nomination and give one candidate a number of votes equal to
the number of directors to be elected multiplied by the number of votes to which
that shareholder's shares are entitled or distribute the shareholder's votes on
the same principle among any or all of the candidates. The candidates receiving
the highest number of affirmative votes, up to the number of directors to be
elected, shall be elected.
2.10 Shareholder Action by Written Consent Without a Meeting.
-------------------------------------------------------
<PAGE>
(a) Any action which may be taken at any
annual or special meeting of shareholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take that action at a meeting at which all shares entitled to vote on that
action were present and voted. In the case of an election of directors, such a
consent shall be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors; provided, however, that a
director may be elected at any time to fill a vacancy on the board of directors
that has not been filled by the directors, if such vacancy was created other
than by removal, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors. All such
consents shall be filed with the secretary of the corporation and shall be
maintained in the corporate records. Any shareholder giving a written consent or
the shareholder's proxy holders or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders may revoke
the consent by a writing received by the secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the secretary, but may not do so thereafter.
<PAGE>
(b) If the consents of all shareholders
entitled to vote have not been solicited in writing and if the
unanimous written consent of all such shareholders has not been received, the
secretary shall give prompt notice of the corporate action approved by the
shareholders without a meeting to those shareholders entitled to vote who have
not consented in writing. This notice shall be given in the manner specified in
Section 2.05 hereof. In the case of approval of (1) contracts or transactions in
which a director has a direct or indirect financial interest pursuant to Section
310 of the Corporations Code of California, (2) indemnification of agents of the
corporation pursuant to Section 317 of that Code, (3) a reorganization of the
corporation pursuant to Section 1201 of that Code or (4) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares pursuant to Section 2007 of that Code, the notice shall be given at least
(10) ten days before the consummation of any action authorized by that approval.
2.11 Record Date for Shareholders.
----------------------------
(a) For purposes of determining the
shareholders entitled to notice of any meeting or to vote or
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten days before the date of any
such meeting nor more than sixty (60) days before any other action.
<PAGE>
(b) If the board of directors does not fix a
record date, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(c) If the board of directors does not fix a
record date, the record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting, when
no prior action by the board has been taken, shall be the day on which the first
written consent is given.
(d) The record date for determining
shareholders for any other purpose shall be at the close of
business on the day on which the board adopts the resolution relating thereto or
the sixtieth (60th) day before the date of such other action, whichever is
later.
(e) Only shareholders of record at the close
of business on the record date shall be entitled to
notice and to vote or to receive the dividend distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the California General Corporation Law.
2.12 Proxies.
-------
<PAGE>
(a) Every person entitled to vote shares
shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact.
(b) A validly executed proxy which does not
state that it is irrevocable shall continue in full force
and effect unless (1) revoked by the person executing it, before the vote
pursuant to that proxy, by (i) a writing delivered to the corporation stating
that the proxy is revoked, (ii) by a subsequent proxy executed by the person
executing the prior proxy and presented to the meeting or (iii) as to any
meeting, by attendance at such meeting and voting in person by the person
executing the proxy, or (2) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy.
(c) The revocability of a proxy that states
on its face that it is irrevocable shall be governed by
the provisions of Sections 705(e) and 705(f) of the Corporations Code of
California.
ARTICLE 3.
Directors
---------
<PAGE>
3.01 Powers. Subject to limitations of the articles of
incorporation, these bylaws and the California General Corporation Law as to
action to be authorized or approved by shareholders, and subject to the duties
of directors as prescribed by these bylaws, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.02 Number and Qualification of Directors. The number of
directors of the corporation shall be not less than five (5) nor more than nine
(9). The exact number of directors shall be seven (7) until changed, within the
limits specified above, by an amendment of this Section 3.02, duly adopted by
the board of directors or by the shareholders. The indefinite number of
directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles of
incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the fixed number or the
minimum number of directors to a number less than five (5) cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of an action by written consent, are equal to more than sixteen and
two thirds percent (16 2/3%) of the outstanding shares entitled to vote thereon.
<PAGE>
3.03 Election and Term of Office. At each annual meeting of
the shareholders, directors shall be elected to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
3.04 Vacancies.
---------
(a) A vacancy on the board of directors shall
be deemed to exist when any authorized position of
director is not filled by a duly elected director, whether caused by death,
resignation, removal, change in the authorized number of directors or otherwise.
(b) The board of directors may remove for cause
any director who has been declared of unsound mind by
an order of court or convicted of a felony.
(c) Any or all of the directors may be
removed without cause if such removal is approved by the
affirmative vote of a majority of the outstanding shares entitled to vote,
subject to the provisions of Section 303 of the Corporations Code of California.
<PAGE>
(d) Vacancies on the board of directors may be
filled by a majority of the directors then in office,
or, if the number of directors then in office is less than a quorum, by (1) the
unanimous written consent of directors then in office, (2) the affirmative vote
of a majority of directors then in office at a meeting complying with Section
307 of the Corporation Code of California, or (3) a sole remaining director,
except that a vacancy created by the removal of a director may be filled only by
the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote.
(e) Each director elected to fill a vacancy
shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and qualified.
(f) The shareholders may elect a director
at any time to fill any vacancy not filled by the board of
directors. Any such election by written consent shall require the consent of the
holders of a majority of the outstanding shares entitled to vote.
(g) Any director may resign effective on giving
written notice to the president, the secretary or the
board of directors. The notice may specify that the resignation is effective at
a later time, in which case a successor may be elected to take office when the
resignation becomes effective.
(h) Reduction of the authorized number of
directors shall not have the effect of removing any director
prior to the expiration of the director's term of office.
3.05 Place of Meetings and Meetings by Telephone.
-------------------------------------------
<PAGE>
(a) Regular meetings of the board of directors
may be held at any place within or without the State of
California that has been designated from time to time by resolution of the board
of directors. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation.
(b) Special meetings of the board of directors
shall be held at any place within or without the State
of California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
(c) Any meeting, regular or special, may be
held by conference telephone or similar communication
equipment, so long as all directors participating in the meeting can hear one
another. All such directors shall be deemed to be present in person at the
meeting.
3.06 Annual Meeting. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting shall not be required.
3.07 Other Regular Meetings. Other regular meetings of
the board of directors may be held without notice at such
------------------------
time as shall from time to time be fixed by the board of directors.
3.08 Special Meetings -- Call and Notice.
-----------------------------------
(a) Special meetings of the board for any
purpose or purposes may be called at any time by the
president, any vice president, the secretary or any two (2) directors.
<PAGE>
(b) Notice of the time and place of special
meetings shall be (1) delivered personally or by telephone
or telegraph at least forty-eight (48) hours in advance of the meeting or (2)
sent by first-class mail, postage prepaid, at least four days in advance of the
meeting. The notice or waiver of notice need not specify the purpose of the
meeting.
3.09 Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of the notice, a consent to holding
such meeting or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to that director.
<PAGE>
3.10 Quorum. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.12 hereof. Every act or decision by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, unless a greater number is
required by law or by the articles of incorporation. Business may continue to be
transacted at a meeting at which a quorum is initially present notwithstanding
the withdrawal of directors, provided that any action taken is approved by at
least a majority of the required quorum for such meeting.
3.11 Action Without Meeting. Any action required or permitted
to be taken by the board of directors may be taken without a meeting if all
members of the board of directors individually or collectively consent in
writing to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the board of directors. Action by written consent
shall have the same force and effect as the unanimous vote of the board of
directors.
3.12 Adjournment -- Notice. A majority of the directors
present, whether or not a quorum is present, may adjourn any directors' meeting
to another time and place. If the meeting is adjourned for more than twenty-four
(24) hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to all directors not present at the
time of the adjournment.
<PAGE>
3.13 Fees and Compensation. Directors shall not receive any
stated salary for their services as directors, but, by resolution of the board
of directors, a fixed fee, with or without expenses of attendance, may be
allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
therefor.
3.14 Indemnification.
---------------
(a) For the purpose of this Section 3.14,
"agent" means any person who is or was a director, officer,
employee, or other agent of this corporation, or is or was serving at the
request of this corporation as a director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee, or agent of a foreign or
domestic corporation which was a predecessor corporation of this corporation or
of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification under Section (d) or Section (e)(iii) of this Section
3.14.
<PAGE>
(b) This corporation shall indemnify any
person who was or is a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of this
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of this corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of this
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
(c) This corporation shall indemnify any
person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action by or in the right of this
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of this corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith, in a manner such person
believed to be in the best interests of this corporation. No indemnification
shall be made under this Section 3.14(c) for any of the following:
<PAGE>
(i) In respect of any claim, issue or
matter as to which such person shall have been adjudged
to be liable to this corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for the expenses which the court
shall determine; or
(ii) Of amounts paid in settling or
otherwise disposing of a pending action without court approval; or
(iii) Of expenses incurred in defending a
pending action which is settled or otherwise disposed
of without court approval.
(d) To the extent that an agent of this
corporation has been successful on the merits in defense of
any proceeding referred to in Section (b) or (c) of this Section 3.14 or in
defense of any claim, issue, or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith.
<PAGE>
(e) Except as provided in Section (d) of this
Section 3.14, any indemnification under this Section
shall be made by this corporation only if authorized in the specific case upon a
determination that indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct set forth in
Sections (b) and (c) of this Section 3.14, by any of the following:
(i) A majority vote of a quorum
consisting of directors who are not parties to such proceeding; or
(ii) If such a quorum of directors
is not obtainable, by independent legal counsel in a written opinion; or
(iii) Approval of the shareholders, with
the shares owned by the person to be indemnified not
being entitled to vote thereon. For the purposes of this subsection, "approval
of the shareholders" means approved or ratified by the affirmative vote of a
majority of the shares of this corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively shall
also constitute at least a majority of the required quorum) or by the written
consent signed by the holders of a majority of the outstanding shares entitled
to vote, which written consent shall be procedurally procured in the manner
provided by law; or
(iv) The court in which the
proceeding is or was pending upon application made by this
corporation or the agent of the attorney or other person rendering services in
connection with the defense, whether or not such application by the agent,
attorney, or other person is opposed by this corporation.
<PAGE>
(f) Expenses incurred in defending any
proceeding shall be advanced by this corporation before the
final disposition of the proceedings on receipt of an undertaking by or on
behalf of the agent to repay the amount of the advance unless it shall be
determined ultimately that the agent is entitled to be indemnified as authorized
in this Section 3.14.
(g) The indemnification provided by this
Section 3.14 shall not be exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders, or vote of disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, to the extent such additional rights to indemnification are
authorized in the Articles of Incorporation of this corporation. Nothing
contained in this Section 3.14 shall affect any right to indemnification to
which persons other than directors and officers of this corporation or any
subsidiary hereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made
under this Section 3.14, except as provided in Section
(d) or Section (e)(iii), in any circumstance where it appears:
(i) That it would be inconsistent with
a provision of the articles, bylaws, a resolution of
the shareholders, or an agreement in effect at the time of the accrual of the
alleged cause of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid, which prohibits or otherwise limits
indemnification; or
<PAGE>
(ii) That it would be inconsistent
with any condition expressly imposed by a court in
approving a settlement.
(i) Upon and in the event of a determination by
the board of directors of this corporation to purchase
such insurance, this corporation shall purchase and maintain insurance on behalf
of any agent of the corporation against any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status as
such whether or not this corporation would have the power to indemnify the agent
against that liability under the provisions of this Section 3.14.
(j) This Section 3.14 does not apply to any
proceeding against any trustee, investment manager, or
other fiduciary of an employee benefit plan in that person's capacity as such,
even though that person may also be an agent of the corporation as defined in
Section (a) of this Section 3.14. Nothing contained in this Section 3.14 shall
limit any right to indemnification to which such a trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by applicable law other than this Section
3.14.
(k) The rights to indemnity provided for in
this Section 3.14 shall continue as to a person who has
ceased to be a director, office, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person.
<PAGE>
(l) If a claim under this Section 3.14 is not
paid in full by the corporation within sixty days after
a written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against
this corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any suit or in a suit brought by this corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expense of prosecuting or
defending such suit. The indemnitee's failure to meet any applicable standard of
conduct set forth in the General Corporation Law of the State of California
shall (i) be a defense in any suit brought by the indemnitee to enforce a right
to indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) and (ii) entitle this corporation
to recover expenses advanced pursuant to an undertaking that this corporation
shall be entitled to recover such expenses upon a final adjudication that the
indemnitee failed to meet applicable standards of conduct. Neither the failure
of this corporation (including the Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met any applicable standard of
conduct set forth in the General Corporation Law of the State of California, nor
an actual determination by this corporation (including the Board of Directors,
independent legal counsel, or its shareholders) that the indemnitee has not met
any such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by this corporation
to recover an advancement of expenses pursuant to the terms of an undertaking,
the burden of proving that the indemnitee is not entitled to be indemnified or
to such advancement of expenses under this Section 3.14 or otherwise shall be on
the corporation.
(m) The Board of Directors may, without
shareholder approval, authorize the corporation to enter into
agreements, including any amendments or modifications thereto, with any of its
directors, officers or other persons described in paragraph (a) providing for
indemnification of such persons to the maximum extent permitted under applicable
law and the corporation's Articles of Incorporation and Bylaws.
<PAGE>
3.15 Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two (2) or more directors,
to serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any such committee, to the extent provided in the resolution of
the board, shall have all the authority of the board, except with respect to:
(a) the approval of any action which, under the
General Corporation Law of California, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of
directors or in any committee;
(c) the fixing of compensation of the directors
for serving on the board or on any committee
(d) the amendment or repeal of bylaws or the
adoption of new bylaws;
(e) the amendment or repeal of any resolution
of the board of directors which by its
express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the
corporation, except at a rate or in a
periodic amount or within a price range
determined by the board of directors; or
<PAGE>
(g) the appointment of any other committees of
the board of directors or the members thereof.
3.16 Meetings And Action of Committees. Meetings and action
of committees shall be governed by, and held and taken
----------------------------------
in accordance with, the provisions of Article III of these bylaws, Sections 3.05
(place of meetings), 3.06 and 3.07 (regular meetings), 3.08 (special meetings
and notice), 3.09 (waiver of notice), 3.10 (quorum), 3.11 (action without
meeting), and 3.12 (adjournment and notice), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members, except that the time of regular meetings
of committees may be determined by resolution of the board of directors as well
as by resolution of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE 4.
Officers
4.01 Number and Titles. The officers of the corporation shall
be a president, a vice president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more additional vice presidents, one or more
assistant secretaries, one or more assistant treasurers and such other officers
as may be appointed by the board of directors, each of whom shall hold office
for such period, have such authority and perform such duties as the board of
directors may from time to time determine. Officers other than the chairman of
the board need not be directors. Any number of offices may be held by the same
person.
4.02 Election. The officers of the corporation shall be chosen
by and serve at the pleasure of the board of directors, subject to the rights,
if any, of an officer under any contract of employment. Each officer of the
corporation shall hold office until such person resigns or is removed or until a
successor is elected and has qualified or until such person becomes disqualified
to serve.
4.03 Removal, Resignation and Disqualification.
-----------------------------------------
(a) Subject to the rights, if any, of an
officer under a contract of employment, any officer may be
removed, either with or without cause, by the board of directors or, except in
the case of an officer chosen by the board of directors, by any officer upon
whom such power of removal may be conferred by the board of directors.
<PAGE>
(b) Any officer may resign at any time by giving
written notice to the board of directors, president,
or secretary of the corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Any such resignation shall be without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party.
4.04 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to such office.
4.05 President. The president shall be the chief executive
officer of the corporation and shall, subject to the control of the board of
directors, have general supervision, direction and control of the business and
officers of the corporation. In the absence or disability of the chairman of the
board, the president shall preside at all meetings of the shareholders and at
all meetings of the board of directors. The president shall have the general
powers and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the board of directors or these bylaws.
<PAGE>
4.06 Vice President. In the absence or disability of the
president, the vice presidents in order of their rank as fixed by the board of
directors, or if not ranked, the vice president designated by the board of
directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or these bylaws.
4.07 Secretary.
---------
(a) The secretary shall keep, or cause to be
kept at the principal executive office or such other
place as the board of directors may order, a book of minutes of all meetings and
actions of directors and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
<PAGE>
(b) The secretary shall keep or cause to be
kept at the principal executive office a record of
shareholders or a duplicate record of shareholders, showing the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
(c) The secretary shall give, or cause to be
given, notice of all the meetings of the shareholders and
of the board of directors required by these bylaws to be given and shall have
such other powers and perform such other duties as may be prescribed by the
board of directors or these bylaws.
4.08 Chief Financial Officer.
-----------------------
(a) The chief financial officer (who may also
use the title of treasurer) shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
account of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at all
times be open to inspection by any director.
<PAGE>
(b) The chief financial officer shall deposit
all moneys and other valuables in the name and to the
credit of the corporation with such depositaries as may be designated by the
board of directors. Such person shall disburse the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his or her
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
4.09 Salaries. The salaries of the officers shall be fixed
from time to time by the board of directors, and no officer shall be prevented
from receiving such salary by reason of the fact that such person is also a
director of the corporation.
ARTICLE 5.
Corporate Records and Reports
5.01 Maintenance and Inspection of the Record of Shareholders
--------------------------------------------------------
(a) The corporation shall keep at its principal
executive office a record of its shareholders, giving
the names and addresses of all shareholders and the number and class of shares
held by each shareholder.
(b) A shareholder or shareholders of the
corporation holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation may inspect and
copy the records of shareholders' names and addresses and shareholdings during
usual business hours on five (5) days' prior written demand upon the
corporation.
<PAGE>
(c) The record of shareholders shall also
be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate.
(d) Any inspection and copying under this
Section 5.01 may be made in person or by an agent or
attorney of the shareholder or holder of a voting trust certificate making the
demand.
5.02 Maintenance and Inspection of Bylaws. The corporation
shall keep at its principal executive office, or, if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in this
state, the secretary shall, upon the written request of any shareholder, furnish
to that shareholder a copy of the bylaws as amended to date.
5.03 Maintenance and Inspection of Other Corporate Records.
-----------------------------------------------------
<PAGE>
(a) The accounting books and records and
minutes of proceedings of the shareholders and the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
(b) The minutes and accounting books and
records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
holder's interest as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney and
shall include the right to copy and make extracts. These rights of inspection
shall extend to the records of each subsidiary corporation of the corporation.
5.04 Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
<PAGE>
5.05 Annual Report to Shareholders. The annual report to
shareholders referred to in Section 1501 of the Corporations Code of California
is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
5.06 Financial Statements.
--------------------
(a) A copy of any annual, semi-annual or
quarterly income statements and any accompanying balance
sheets that have been prepared by the corporation shall be kept on file in the
principal executive office of the corporation for twelve (12) months and each
such statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
<PAGE>
(b) If no annual report for the last fiscal year
has been sent to shareholders, the corporation shall,
upon the written request of any shareholder made more than one hundred twenty
(120) days after the close of such fiscal year, deliver or mail the annual
report to the person making the request within thirty (30) days thereafter. A
shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation may make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, a balance sheet
of the corporation as of the end of that period and an annual report for the
last fiscal year if none has been sent to shareholders. The chief financial
officer shall deliver personally or mail the statement or statements requested
to the person making the request within thirty (30) days after the receipt of
the request.
(c) The quarterly income statements and
balance sheets referred to in this section shall be
accompanied by the report, if any, of any independent accountants engaged by the
corporation or the certificate of an authorized officer of the corporation that
the financial statements were prepared without audit from the books and records
of the corporation.
5.07 Annual Statement of General Information. The corporation
shall file with the Secretary of State of the State of California, on the
prescribed form, a statement setting forth the authorized number of directors,
the names and complete business or residence addresses of all incumbent
directors, the names and complete business or residence addresses of the chief
executive officer, secretary and chief financial officer, the street address of
its principal executive office or principal business office in this state and
the general type of business constituting the principal business activity of the
corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with Section 1502 of the
Corporations Code of California.
<PAGE>
ARTICLE 6.
General Corporate Matters
-------------------------
6.01 Checks, Drafts and Evidences of Indebtedness. All checks,
drafts, or other orders for payment of money, notes or other evidence of
indebtedness issued in the name of or payable to the corporation shall be signed
or endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the board of directors.
6.02 Corporate Contracts and Instruments; How Executed. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
6.03 Certificates for Shares.
-----------------------
<PAGE>
(a) A certificate or certificates for shares
of the capital stock of the corporation shall be issued
to each shareholder when such shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid.
(b) All certificates shall be signed in the
name of the corporation by the president or vice president
and by the chief financial officer or an assistant treasurer or the secretary or
any assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on a certificate
shall cease to be that officer, transfer agent or registrar before that
certificate is issued, it may be issued by the corporation with the same effect
as if that person were an officer, transfer agent or registrar at the date of
issue.
<PAGE>
6.04 Lost Certificates. Except as provided in this section, no
new certificate for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is alleged to have been lost, stolen or destroyed, authorize the
issuance of a replacement certificate on such terms and conditions as the board
may require, including provision for indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
liability on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
6.05 Representation of Shares of Other Corporations. The
president, any vice president or any other person authorized by resolution of
the board of directors or by any of the foregoing designated officers is
authorized to vote on behalf of the corporation any and all shares of any other
corporation or corporations, foreign or domestic, standing in the name of the
corporation. The authority granted to these officers to vote or represent on
behalf of the corporation any and all shares held by the corporation in any
other corporation or corporations may be exercised by any of these officers in
person or by any person authorized to do so by a proxy duly executed by these
officers.
ARTICLE 7.
Construction and Definitions
----------------------------
7.01 Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular and the term
"person" includes both a corporation and a natural person.
<PAGE>
ARTICLE 8.
Amendments
----------
8.01 Power of Shareholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote.
8.02 Power of Directors. Subject to the right of shareholders
as provided in Section 8.01 to adopt, amend, or repeal bylaws, bylaws other than
a bylaw or amendment thereof changing the authorized number of directors may be
adopted, amended or repealed by the board of directors.
ROSEVILLE COMMUNICATIONS COMPANY
2000 EQUITY INCENTIVE PLAN
(As ADOPTED EFFECTIVE JANUARY 31, 2000)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. INTRODUCTION.........................................1
ARTICLE 2. DEFINITIONS..........................................1
ARTICLE 3. ADMINISTRATION.......................................4
3.1 Committee Composition.........................................4
3.2 Committee Responsibilities....................................5
3.3 Committee for Non-Officer Grants..............................5
ARTICLE 4. SHARES AVAILABLE FOR GRANTS..........................5
4.1 Basic Limitation..............................................5
4.2 Forfeited Shares..............................................5
4.3 Dividend Equivalents..........................................6
ARTICLE 5. ELIGIBILITY..........................................6
5.1 Incentive Stock Options.......................................6
5.2 Other Grants..................................................6
ARTICLE 6. OPTIONS..............................................6
6.1 Stock Option Agreement........................................6
6.2 Number of Shares..............................................6
6.3 Exercise Price................................................7
6.4 Exercisability and Term.......................................7
6.5 Effect of Change in Control...................................7
6.6 Modification or Assumption of Options.........................7
6.7 Buyout Provisions.............................................7
ARTICLE 7. PAYMENT FOR OPTION SHARES............................8
7.1 General Rule..................................................8
7.2 Surrender of Stock............................................8
7.3 Exercise/Sale.................................................8
7.4 Exercise/Pledge...............................................8
7.5 Promissory Note...............................................9
7.6 Other Forms of Payment........................................9
ARTICLE 8. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.........9
8.1 Annual Grants.................................................9
8.2 Accelerated Exercisability....................................9
8.3 Exercise Price................................................9
8.4 Term..........................................................9
ARTICLE 9. STOCK APPRECIATION RIGHTS...........................10
9.1 SAR Agreement................................................10
9.2 Number of Shares.............................................10
9.3 Exercise Price...............................................10
9.4 Exercisability and Term......................................10
9.5 Effect of Change in Control..................................10
9.6 Exercise of SARs.............................................10
9.7 Modification or Assumption of SARs...........................11
ARTICLE 10. RESTRICTED SHARES............................................11
10.1 Restricted Stock Agreement...................................11
10.2 Payment for Awards...........................................11
10.3 Vesting Conditions...........................................11
10.4 Voting and Dividend Rights...................................11
ARTICLE 11. STOCK UNITS..................................................12
11.1 Stock Unit Agreement.........................................12
11.2 Payment for Awards...........................................12
11.3 Vesting Conditions...........................................12
11.4 Voting and Dividend Rights...................................12
11.5 Form and Time of Settlement of Stock Units...................12
11.6 Death of Recipient...........................................13
11.7 Creditors' Rights............................................13
ARTICLE 12. PERFORMANCE SHARES...........................................13
12.1 Performance Share Agreement..................................13
12.2 Grant of Performance Shares..................................13
12.3 Modification of Grant........................................14
12.4 Terms of the Grant...........................................14
12.5 Payment of Performance Shares................................14
ARTICLE 13. PROTECTION AGAINST DILUTION..................................15
13.1 Adjustments..................................................15
13.2 Dissolution or Liquidation...................................16
13.3 Reorganizations..............................................16
ARTICLE 14. DEFERRAL OF AWARDS...........................................16
ARTICLE 15. AWARDS UNDER OTHER PLANS.....................................17
ARTICLE 16. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.....................17
16.1 Effective Date...............................................17
16.2 Elections to Receive NSOs, Restricted Shares or Stock Units..18
16.3 Number and Terms of NSOs, Restricted Shares or Stock Units...18
ARTICLE 17. LIMITATION ON RIGHTS.........................................18
17.1 Retention Rights.............................................18
17.2 Shareholders' Rights.........................................18
17.3 Regulatory Requirements......................................18
ARTICLE 18. WITHHOLDING TAXES............................................19
18.1 General......................................................19
18.2 Share Withholding............................................19
ARTICLE 19. FUTURE OF THE PLAN...........................................19
19.1 Term of the Plan.............................................19
19.2 Amendment or Termination.....................................19
ARTICLE 20. LIMITATION ON PARACHUTE PAYMENTS.............................19
20.1 Scope of Limitation..........................................19
20.2 Basic Rule...................................................20
20.3 Reduction of Payments........................................20
20.4 Overpayments and Underpayments...............................21
20.5 Related Corporations.........................................21
ARTICLE 21. EXECUTION. .....................................................21
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
2000 EQUITY INCENTIVE PLAN
EXHIBIT 10 (f)
ARTICLE 1......... INTRODUCTION.
The Plan was adopted by the Board effective January 31, 2000. The
purpose of the Plan is to promote the long-term success of the Company and
creation of shareholder value by (a) encouraging Employees, Outside Directors
and Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to shareholder interests through increased share ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Performance Shares, Options (which may
constitute incentive stock options or nonstatutory stock options) or stock
appreciation rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of California (except their choice-of-law provisions).
ARTICLE 2......... DEFINITIONS.
2.1......"Affiliate" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
2.2......"'Award" means any award of an Option, an SAR, a Restricted
Share, a Stock Unit or a Performance Share under the Plan.
2.3......"Board" means the Company's Board of Directors, as
constituted from time to time.
2.4......A "Change in Control" shall be deemed to have occurred if (A)
any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange
Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing Twenty percent (20%) or more of the
combined voting power of the Company's then outstanding voting securities; (B)
there is a merger or consolidation of the Company in which the Company does not
survive as an independent public company; or (C) the business or businesses of
the Company for which a Participant's services are principally performed are
disposed of by the Company pursuant to a partial or complete liquidation of the
Company, a sale of assets (including stock of a Subsidiary) of the Company, or
otherwise. A transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Company's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
2.5......"Code" means the Internal Revenue Code of 1986, as amended.
2.6......"Committee" means the Compensation Committee of the Board, as
described in Article 3.
2.7......"Company" means Roseville Communications Company, a
California corporation.
2.8......"Consultant" means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 5.1.
2.9......"Employee" means a common law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
2.10....."Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11....."Exercise Price," in the case of an Option, means the amount
for which one Share may be purchased upon exercise of such Option, as specified
in the applicable Stock Option Agreement. "Exercise Price," in the case of an
SAR, means an amount, as specified in the applicable SAR Agreement, which is
subtracted from the Fair Market Value of one Share in determining the amount
payable upon exercise of such SAR.
2.12....."Fair Market Value" means the market price of Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Fair Market Value may mean (i) if the Company's common stock is listed on a
securities exchange or is traded over the NASDAQ National Market System, the
closing sales price of one Share on such exchange or other such system on an
applicable date or, in the absence of reported sales on such date, the closing
sales price on the immediately preceding date on which sales were reported, or
(ii) if the Company's common stock is not listed on a securities exchange or
traded over the NASDAQ National Market System, the mean between the bid and
offered prices of the Share as quoted by the National Association of Securities
Dealer through NASDAQ, provided, that if the Committee determines that the fair
market value is not properly reflected by such NASDAQ quotations, the Fair
Market Value will mean the fair market value as determined by such other method
as the Committee determines in good faith to be reasonable. Such determination
shall be conclusive and binding on all persons.
2.13....."ISO" means an incentive stock option described in Section
422(b) of the Code.
2.14....."NSO" means a stock option not described in Sections 422 or
423 of the Code.
2.15....."Option" means an ISO or NSO granted under the Plan and
entitling the holder to purchase Shares.
2.16....."Optionee" means an individual or estate who holds an Option
or SAR.
2.17....."Outside Director" means a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 5.1.
2.18....."Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
2.19....."Participant" means an individual or estate who holds an Award
2.20....."Performance Share" means an Award to a Participant under
Article 12.
2.21....."Performance Share Agreement" means the agreement between the
Company and a Participant which contains the terms, conditions and restrictions
pertaining to such Performance Share.
2.22....."Plan" means this Roseville Communications Company 2000 Equity
Incentive Plan, as amended from time to time.
2.23....."Restricted Share" means a Share awarded under the Plan.
2.24....."Restricted Stock Agreement" means the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
2.25....."SAR" means a stock appreciation right granted under the Plan.
2.26....."SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
2.27....."Share" means one share of the common stock of the Company.
2.28....."Stock Option Agreement" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
2.29....."Stock Unit" means a bookkeeping entry representing the
equivalent of one Share, as awarded under the Plan.
2.30....."Stock Unit Agreement" means the agreement between the Company
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
2.31....."Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 3......... ADMINISTRATION.
3.1......Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended
to quality for exemption under Rule 16b-3 (or its successor) under the
Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for Outside Directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
3.2......Committee Responsibilities. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
3.3......Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of two or more
directors of the Company who need not satisfy the requirements of Section 3.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 3.3, any reference in the Plan to
the Committee shall include such secondary committee.
ARTICLE 4......... SHARES AVAILABLE FOR GRANTS.
4.1......Basic Limitation. Shares issued pursuant to the Plan shall be
authorized but unissued shares. The aggregate number of Options, SARs, Stock
Units, Restricted Shares and Performance Shares awarded under the Plan shall not
exceed Eight Hundred Thousand (800,000) Shares. The limitation of this Section
4.1 shall be subject to adjustment pursuant to Article 13.
4.2......Forfeited Shares. If Restricted Shares, Performance Shares or
Shares issued upon the exercise of Options are forfeited, then such Shares shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding Shares shall again become available for Awards under the
Plan. If Stock Units are settled, then only the number of Shares (if any)
actually issued in settlement of such Stock Units shall reduce the number
available under Section 4.1 and the balance shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of Shares (if
any) actually issued in settlement of such SARs shall reduce the number
available under Section 4.1 and the balance shall again become available for
Awards under the Plan. The foregoing notwithstanding, the aggregate number of
Shares that may be issued under the Plan upon the exercise of ISOs shall not be
increased when Restricted Shares, Performance Shares or other Shares are
forfeited.
4.3......Dividend Equivalents. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Performance Shares, Stock Units, Options or SARs available for Awards,
whether or not such dividend equivalents are converted into Stock Units.
ARTICLE 5......... ELIGIBILITY.
5.1......Incentive Stock Options. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
5.2......Other Grants. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Performance
Shares, Stock Units, NSOs or SARs.
ARTICLE 6......... OPTIONS.
6.1......Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 7.2.
6.2......Number of Shares. Each Stock Option Agreement shall specify
the number of Shares subject to the Option and shall provide for the adjustment
of such number in accordance with Article 13. Options granted to any Optionee in
a single fiscal year of the Company shall not cover more than 200,000 Shares,
except that Options granted to a new Employee in the fiscal year of the Company
in which his or her service as an Employee first commences shall not cover more
than 25,000 Shares. The limitations set forth in the preceding sentence shall be
subject to adjustment in accordance with Article 13.
6.3......Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Share on the date of grant and
the Exercise Price under an NSO shall in no event be less than 85% of the Fair
Market Value of a Share on the date of grant. In the case of an NSO, a Stock
Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.
6.4......Exercisability and Term. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
6.5......Effect of Change in Control. The Committee may determine, at
the time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Shares subject to such Option in the event
that a Change in Control occurs with respect to the Company, subject to the
limitations that, in the case of an ISO, the acceleration of exercisability
shall not occur without the Optionee's written consent.
6.6......Modification or Assumption of Options. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options or
may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
6.7......Buyout Provisions. The Committee may at any time (a) offer to
buy out for a payment in cash or cash equivalents an Option previously granted
or (b) authorize an Optionee to elect to cash out an Option previously granted,
in either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 7......... PAYMENT FOR OPTION SHARES.
7.1......General Rule. The entire Exercise Price of Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify that
payment may be made in any form(s) described in this Article 7.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this
Article 7.
7.2......Surrender of Stock. To the extent that this Section 7.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be valued at their Fair Market Value on the date when the new
Shares are purchased under the Plan. The Optionee shall not surrender, or attest
to the ownership of, Shares in payment of the Exercise Price if such action
would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
7.3......Exercise/Sale. To the extent that this Section 7.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Shares being purchased under the Plan and to deliver all or part of the
sales proceeds to the Company.
7.4......Exercise/Pledge. To the extent that this Section 7.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to pledge all or part of the Shares being purchased under the Plan to
a securities broker or lender approved by the Company, as security for a loan,
and to deliver all or part of the loan proceeds to the Company.
7.5......Promissory Note. To the extent that this Section 7.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note.
7.6......Other Forms of Payment. To the extent that this Section 7.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 8. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
8.1......Annual Grants. Upon the conclusion of each regular annual
meeting of the Company's stockholders held in the year 2000 or thereafter, each
Outside Director who will continue serving as a member of the Board thereafter
shall receive an NSO covering 1,250 Shares (subject to adjustment under Article
12). NSOs granted under this Section 8.1 shall become exercisable in full on the
first anniversary of the date of grant.
8.2......Accelerated Exercisability. All NSOs granted to an Outside
Director under this Article 8 shall also become exercisable in full in the event
of:
(a) The termination of such Outside Director's service
because of death, total and permanent disability or retirement at or after
age 70 and 1/2 ; or
(b) A Change in Control with respect to the Company.
8.3......Exercise Price. The Exercise Price under all NSOs granted to
an Outside Director under this Article 8 shall be equal to 100% of the Fair
Market Value of a Share on the date of grant, payable in one of the forms
described in Sections 7.1, 7.2, 7.3 and 7.4.
8.4......Term. All NSOs granted to an Outside Director under this
Article 8 shall terminate on the earliest of (a) the 10th anniversary of the
date of grant, (b) the date three (3) months after the termination of such
Outside Director's service for any reason other than death or total and
permanent disability or (c) the date six (6) months after the termination of
such Outside Director's service because of death or total and permanent
disability.
ARTICLE 9......... STOCK APPRECIATION RIGHTS.
9.1......SAR Agreement. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
9.2......Number of Shares. Each SAR Agreement shall specify the number
of Shares to which the SAR pertains and shall provide for the adjustment of such
number in accordance with Article 13. SARs granted to any Optionee in a single
calendar year shall in no event pertain to more than 200,000 Shares, except that
SARs granted to a new Employee in the fiscal year of the Company in which his or
her service as an Employee first commences shall not pertain to more than 25,000
Shares. The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 13.
9.3......Exercise Price. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
9.4......Exercisability and Term. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
9.5......Effect of Change in Control. The Committee may determine, at
the time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Shares subject to such SAR in the event that a Change in
Control occurs with respect to the Company.
9.6......Exercise of SARs. Upon exercise of an SAR, the Optionee (or
any person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Shares, (b) cash or (c) a combination of Shares and
cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Shares received upon exercise of SARs shall, in the aggregate,
be equal to the amount by which the Fair Market Value (on the date of surrender)
of the Shares subject to the SARs exceeds the Exercise Price. If, on the date
when an SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.
9.7......Modification or Assumption of SARs. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under such
SAR.
ARTICLE 10........RESTRICTED SHARES.
10.1.....Restricted Stock Agreement. Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
10.2.....Payment for Awards. Restricted Shares may be sold or awarded
under the Plan for such consideration as the Committee may determine, including
(without limitation) cash, cash equivalents, full-recourse promissory notes,
past services and future services.
10.3.....Vesting Conditions. Each Award of Restricted Shares may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. The Committee
may determine, at the time of granting Restricted Shares or thereafter, that all
or part of such Restricted Shares shall become vested in the event that a Change
in Control occurs with respect to the Company.
10.4.....Voting and Dividend Rights. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other shareholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 11........STOCK UNITS.
11.1.....Stock Unit Agreement. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
11.2.....Payment for Awards. To the extent that an Award is granted in
the form of Stock Units, no cash consideration shall be required of the Award
recipients.
11.3.....Vesting Conditions. Each Award of Stock Units may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company.
11.4.....Voting and Dividend Rights. The holders of Stock Units shall
have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Shares, or in a combination of both. Prior to distribution, any dividend
equivalents which are not paid shall be subject to the same conditions and
restrictions as the Stock Units to which they attach.
11.5.....Form and Time of Settlement of Stock Units. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Shares over a series of trading days. Vested
Stock Units may be settled in a lump sum or in installments. The distribution
may occur or commence when all vesting conditions applicable to the Stock Units
have been satisfied or have lapsed, or it may be deferred to any later date. The
amount of a deferred distribution may be increased by an interest factor or by
dividend equivalents. Until an Award of Stock Units is settled, the number of
such Stock Units shall be subject to adjustment pursuant to Article 13.
11.6.....Death of Recipient. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
11.7.....Creditors' Rights. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Unit Agreement.
ARTICLE 12........PERFORMANCE SHARES
12.1.....Performance Share Agreement. Each grant of Performance Shares
under the Plan shall be evidenced by a Performance Share Agreement between the
Participant and the Company. Such Performance Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Performance Share
Agreements entered into under the Plan need not be identical.
12.2.....Grant of Performance Shares. Before the grant of Performance
Shares, the Committee shall:
(a) determine objective performance goals, which may consist
of any one or more of the following goals deemed appropriate by the
Committee: earnings (either in the aggregate or on a per-share basis),
operating income, cash flow, including EBITDA (earnings before
interest, taxes, depreciation and amortization), return on equity, per
share rate of return on the Shares (including dividends), general
indices relative to levels of general customer service satisfaction, as
measured through various randomly-generated customer service surveys,
market share (in one or more markets), customer retention rates, market
penetration rates, revenues, reductions in expense levels, and the
attainment by the Shares of a specified market value for a specified
period of time, in each case where applicable to be determined either
on a Company-wide basis or in respect of any one or more business
units, and the amount of compensation under the goals applicable to
such grant;
(b) designate a period for the measurement of the extent
to which performance goals are attained, which may
begin prior to the date of grant (the "Performance Period"); and
(c) assign a "Performance Percentage" to each level of
attainment of performance goals during the Performance Period, with the
percentage applicable to minimum attainment being zero percent and the
percentage applicable to maximum attainment to the determined by the
Committee from time to time, but not in excess of 250%.
12.3.....Modification of Grant. If a Participant is promoted, demoted,
or transferred to a different business unit of the Company during a Performance
Period, then, to the extent the Committee determines any one or more of the
performance goals, Performance Period, or Performance Percentage are no longer
appropriate, the Committee may make any changes thereto as it deems appropriate
in order to make them appropriate.
12.4.....Terms of the Grant. When granted, Performance Shares may, but
need not, be identified with Shares subject to a specific Option, specific
Restricted Shares, or specific SARs of the Participant granted under the Plan in
a number equal to or different from the number of the Performance Shares so
granted. If Performance Shares are so identified, then, unless otherwise
provided in the applicable Award, the Participant's associated Performance
Shares shall terminate upon (a) the expiration, termination, forfeiture, or
cancellation of the Option, Restricted Shares, or SARs with which the
Performance Shares are identified, (b) the exercise of such Option or SARs, or
(c) the date Restricted Shares become nonforfeitable.
12.5.....Payment of Performance Shares. Unless otherwise provided in
the Performance Share Agreement, if the minimum performance goals applicable to
such Performance Shares have been achieved during the applicable Performance
Period, then the Company shall pay to the Participant that number of Shares
equal to the product of:
(a) the sum of (i) number of Performance Shares specified in
the applicable Award agreement and (ii) the number of Shares that would
have been issuable if such Performance Shares had been Shares
outstanding throughout the Performance Period and the stock dividends,
cash dividends (except as otherwise provided in the Performance Share
Agreement) and other property paid in respect of such shares had been
reinvested in additional Shares as of each dividend payment date,
multiplied by
(b) the Performance Percentage achieved during such
Performance Period.
The Committee may, in its discretion, determine that cash be paid in lieu of
some or all of such Shares. The amount of cash payable in lieu of a Share shall
be determined by valuing such shares at its Fair Market Value on the business
day next preceding the date such cash is to be paid. Payments pursuant to this
Section shall be made as soon as administratively practical after the end of the
applicable Performance Period. Any Performance Shares with respect to which the
performance goals shall not have been achieved by the end of the applicable
Performance period shall expire.
ARTICLE 13........PROTECTION AGAINST DILUTION.
13.1.....Adjustments. In the event of a subdivision of the outstanding
Shares, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in a form other than Shares in an amount that has a material
effect on the price of Shares, a combination or consolidation of the outstanding
Shares (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(a) The number of Options, SARs, Restricted Shares,
Performance Shares and Stock Units available for future
Awards under Article 4;
(b) The limitations set forth in Sections 6.2 and 9.2;
(c) The number of NSOs to be granted to Outside Directors
under Article 8;
(d) The number of Shares covered by each outstanding
Option and SAR;
(e) The Exercise Price under each outstanding Option and
SAR; or
(f) The number of Stock Units included in any prior Award
which has not yet been settled.
Except as provided in this Article 13, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
13.2.....Dissolution or Liquidation. To the extent not previously
exercised or settled, Options, SARs and Stock Units shall terminate immediately
prior to the dissolution or liquidation of the Company.
13.3.....Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization Such agreement shall provide for:
(a) The continuation of the outstanding Awards by the
Company, if the Company is a surviving corporation;
(b) The assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary;
(c) The substitution by the surviving corporation or
its parent or subsidiary of its own awards for the
outstanding Awards;
(d) Full exercisability or vesting and accelerated
expiration of the outstanding Awards; or
(e) Settlement of the full value of the outstanding
Awards in cash or cash equivalents followed by cancellation
of such Awards.
ARTICLE 14........DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant
as a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books;
(b) Have Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee
as an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Shares as of the date when
they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 14 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 14.
ARTICLE 15........AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Shares issued under this Plan. Such Shares shall
be treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Article 4.
ARTICLE 16........PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
16.1.....Effective Date. No provision of this Article 16 shall be
effective unless and until the Board has determined to implement such provision.
16.2.....Elections to Receive NSOs, Restricted Shares or Stock Units.
An Outside Director may elect to receive his or her annual retainer payments
and/or meeting fees from the Company in the form of cash, NSOs, Restricted
Shares or Stock Units, or a combination thereof, as determined by the Board.
Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 16 shall be filed with the Company on the prescribed
form.
16.3.....Number and Terms of NSOs, Restricted Shares or Stock Units.
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 17........LIMITATION ON RIGHTS.
17.1.....Retention Rights. Neither the Plan nor any Award granted under
the Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's articles of incorporation and bylaws and a written
employment agreement (if any).
17.2.....Shareholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a shareholder with respect to any
Shares covered by his or her Award prior to the time when a stock certificate
for such Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Shares by filing any required notice of exercise and
paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
17.3.....Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Shares under the Plan
shall be subject to all applicable laws, rules and regulations and such approval
by any regulatory body as may be required. The Company reserves the right to
restrict, in whole or in part, the delivery of Shares pursuant to any Award
prior to the satisfaction of all legal requirements relating to the issuance of
such Shares, to their registration, qualification or listing or to an exemption
from registration, qualification or listing.
ARTICLE 18........WITHHOLDING TAXES.
18.1.....General. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.
18.2.....Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Shares that otherwise would
be issued to his or her or by surrendering all or a portion of any Shares that
he or she previously acquired. Such Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 19........FUTURE OF THE PLAN.
19.1.....Term of the Plan. The Plan, as set forth herein, shall become
effective on January 31, 2000. The Plan shall remain in effect until it is
terminated under Section 19.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of Shares available under Article 4 which was approved by the Company's
shareholders.
19.2.....Amendment or Termination. The Board may, at any time and for
any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.
ARTICLE 20........LIMITATION ON PARACHUTE PAYMENTS.
20.1.....Scope of Limitation. This Article 20 shall apply to an Award
only if:
(a) The independent auditors most recently selected by the
Board (the "Auditors") determine that the after-tax value of such Award
to the Participant, taking into account the effect of all federal,
state and local income taxes, employment taxes and excise taxes
applicable to the Participant (including the excise tax under section
4999 of the Code), will be greater after the application of this
Article 20 than it was before the application of this Article 20, or
(b) The Committee, at the time of making an Award under the
Plan or at any time thereafter, specifies in writing that such Award
shall be subject to this Article 20 (regardless of the after-tax value
of such Award to the Participant).
If this Article 20 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
20.2.....Basic Rule. In the event that the independent auditors most
recently selected by the Board (the "Auditors") determine that any payment or
transfer by the Company under the Plan to or for the benefit of a Participant (a
"Payment") would be nondeductible by the Company for federal income tax purposes
because of the provisions concerning "excess parachute payments" in Section 28OG
of the Code, then the aggregate present value of all Payments shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this Article 20, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of Section 28OG of the Code.
20.3.....Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Company because of Section 28OG of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 20, present
value shall be determined in accordance with Section 28OG(d)(4) of the Code. All
determinations made by the Auditors under this Article 20 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
20.4.....Overpayments and Underpayments. As a result of uncertainty in
the application of Section 28OG of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company that should not have been made (an "Overpayment") or
that additional Payments that will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant that the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount subject to taxation under Section 4999 of the Code.
In the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the
benefit of the Participant, together with interest at the applicable federal
rate provided in Section 7872(f)(2) of the Code.
20.5.....Related Corporations. For purposes of this Article 20, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 28OG(d)(5) of the Code.
ARTICLE 21. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to execute this document in the name of the Company.
ROSEVILLE COMMUNICATIONS COMPANY
By: -----------------------------
Title:----------------------------
ROSEVILLE COMMUNICATIONS COMPANY
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21 (a)
Percentage of Voting
State of Securities Owned by
Subsidiary Incorporation or Immediate Parent
---------- ---------------- ----------------
Roseville Telephone Company California 100.00
Roseville PCS, Inc. California 100.00
West Coast PCS LLC California 98.00
RTC Communications Corporation California 100.00
Sacramento-Valley Limited Partnership California 23.50
Roseville Directory Company California 100.00
Roseville Long Distance California 100.00
RCS Internet Services California 100.00
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