Rural Telephone Bank

**Minutes of the 137^th^ Board Meeting**

**August 17, 2001**

[Time and Place of Meeting]{.underline}

The 137^th^ meeting of the Board of Directors (Board) of the Rural
Telephone Bank (Bank) was held Friday, August 17, 2001, in Conference
Room 104-A, U.S. Department of Agriculture, Washington, D.C., pursuant
to notice published in the [Federal Register]{.underline} on August 8,
2001*.*^1^ Acting Chairperson (Chair) Curtis Sampson called the meeting
to order at 9:15 a.m.

[Attendants]{.underline}

Directors present were: Curtis Sampson John McAllister

> David Crothers Larry Sevier
>
> John Dillard Robert Lee Stanton
>
> Michael Jensen

Among others present were Acting Governor Blaine Stockton and staff
members Roberta Purcell and Ken Ackerman. Also present was Frank Clover
from the Office of the General Counsel (OGC). (Directors not present:
Six vacancies.)

[Action on the Minutes]{.underline}

On motion duly made and seconded, the minutes of the May 11, 2001, board
meeting were adopted as prepared.^2^

[Report on the Allowance for Loan Losses Reserve]{.underline}

Assistant Governor Roberta Purcell reported that the current loan loss
reserve is \$5.8 million which staff believes is more than adequate to
account for the risk associated with current loans outstanding. Based
upon the staff's risk analysis, only one borrower was identified in the
high-risk category. That borrower experienced an ice storm the year
before last and was still experiencing some significant extraordinary
maintenance costs to re-install property as a result of that ice storm.
Additionally, the borrower invested in what proved to be an unprofitable
start-up company. The borrower has since exited that start-up company
and staff has reason to believe that this borrower's operations for 2001
will be significantly better. The current outstanding debt associated
with that one particular borrower is \$774,000.

In the second highest risk category, only two borrowers were cause for
concern. In both cases, their subsidiary operations were losing money.
Staff is continuing to monitor those borrowers, however, they do not
seem to pose any eminent risk. The Board took no action to change the
reserve balance.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

^1^ Exhibit 137-1

^2^ Exhibit 137-2

Minutes of the 137^th^ Board Meeting

August 17, 2001

# Consideration of Resolution to Retire Class A Stock in FY 2001 

On motion made by Mr. Crothers and seconded by Mr. Jensen, the Board
approved the retirement of \$23,835,025 in Class A stock, the maximum
amount possible this fiscal year. The following resolution was
unanimously approved. ^3^

Resolution No. 2001-2

> WHEREAS, Section 406(c) of the Rural Electrification Act of 1936, as
> amended, provides, in part, that:
>
> > Class A stock shall be redeemed and retired by the Telephone Bank as
> > soon as practicable after September 30, 1995, but not to the extent
> > that the Telephone Bank Board determines that such retirement will
> > impair the operations of the Telephone Bank: Provided, That the
> > minimum amount of Class A stock that shall be retired each year
> > after said date shall equal the amount of Class B stock sold by the
> > Telephone Bank during such year\...;
>
> and
>
> WHEREAS, the United States Government purchased a maximum amount of
> \$592,079,627 of Class A stock of the Rural Telephone Bank (Telephone
> Bank); and
>
> WHEREAS, for the past five consecutive years, the Telephone Bank has
> repurchased \$115,379,127 of its Class A stock, leaving \$476,700,500
> outstanding; and
>
> WHEREAS, the Agriculture Appropriations Act of 2001 provides that, in
> fiscal year 2001 no more than five percent of the Class A stock of the
> Telephone Bank may be retired: an amount equal to approximately
> \$23,835,025 and
>
> WHEREAS, the Telephone Bank Board has received and had explained to it
> the attached study entitled *Retirement of Class A Stock of the Rural
> Telephone Bank,* which demonstrates that the Telephone Bank has
> sufficient funds to retire \$23,835,025 of Class A stock without
> impairing the Telephone Bank's operations (see attachment); and
>
> THEREFORE, BE IT RESOLVED, the Telephone Bank Board determines that
> the retirement of \$23,835,025 will not impair the operations of the
> Telephone Bank based on the attachment; and
>
> RESOLVED, That for fiscal year 2001 the Telephone Bank Board directs
> that \$23,835,025 of Class A stock be retired prior to October 1,
> 2001.

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^3^ Exhibit 137-3

Minutes of the 137^th^ Board Meeting

August 17, 2001

[Consideration of Resolution to set Annual Class C Stock Dividend
Rate]{.underline}

After some discussion, Mr. Dillard moved and Mr. Sevier seconded the
adoption of an annual dividend rate for this fiscal year of 5.45
percent. The following resolution was unanimously approved. ^4^

Resolution No. 2001-3

> WHEREAS, it is the responsibility of the Board of Directors to
> annually review and declare the Class C stock dividend; and
>
> WHEREAS, the dividend by law may not exceed the average interest rate
> on the Rural Telephone Bank debt due to Treasury, which is presently
> about 6.43 percent; and
>
> NOW, THEREFORE BE IT RESOLVED, That a 5.45 percent annual dividend
> rate be declared on the Class C stock of the Rural Telephone Bank
> payable December 12 to the Class C stockholders of record during
> fiscal year 2001 on the basis of one-twelfth of the annual dividend
> for each full month, or portion of a month, the stock was held during
> fiscal year 2001.

[Action on Amendment to Bylaw Section 2.2(c)]{.underline}

Assistant Governor Roberta Purcell summarized the reason for the
proposed bylaw amendment. In response to the Board's May 11 request, Ms.
Purcell presented definitions of "control" and "eligible" for
consideration by the Board at today's meeting. *(Also, see May 11 and
February 6, 2001 Minutes for additional information.)* On motion made by
Mr. Crothers and seconded by Mr. Jensen, the following amendment to
bylaw section 2.2(c) was unanimously approved by the Board.^5^

Bylaw Amendment

[Changes Underlined]{.underline}

(Section 2.2, paragraph (c) was revised and re-designated as paragraphs
(c) and (d), and existing paragraph (d) was re-designated as (e).)

(c) Class C stock shall have a par value of one thousand dollars
    (\$1,000) per share, shall be issued only at par, shall be held only
    by borrowers or by corporations and public bodies eligible to borrow
    under section 408 of the Act, or by organizations controlled by such
    borrowers, corporations and public bodies, and shall be voting
    stock. [A corporation or public body is considered eligible to
    borrow if it is engaged in activities that the Bank determines could
    be financed under section 408 of the Act. An organization is
    considered controlled if (1) a majority of the voting stock or other
    controlling authority in the organization is held by borrowers or by
    corporations and public bodies eligible to borrow under section 408
    of the Act and (2) such borrowers, corporations, and public bodies
    are not prevented by any agreement or other restriction from
    exercising such controlling authority as they may
    desire.]{.underline}

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^4^ Exhibit 137-4

^5^ Exhibit 137-5

Minutes of the 137^th^ Board Meeting

August 17, 2001

**Bylaw Amendment** *(continued)*

(d) At such times and in such amounts as the Board may designate,
    dividends may be declared and paid to holders of Class C stock, but
    only from income of the Bank. Until all Class A stock is retired,
    the annual rate of any such dividend shall not exceed the current
    average rate payable on the bonds, debentures, notes and other
    evidences of indebtedness issued by the Bank (hereinafter
    collectively called \"telephone debentures\"). No dividend on Class
    C stock shall be paid at any time when any portion of the cumulative
    2 percent return on Class A stock required by section 406(c) of the
    Act remains unpaid. Prior to dissolution or liquidation of the Bank,
    Class C stock may be redeemed and retired only after all shares of
    Class A stock shall have been redeemed and retired. Upon dissolution
    or liquidation of the Bank, holders of Class C stock shall be
    entitled to retirement of their stock at par after payment of all
    liabilities of the Bank and after retirement of all Class A and
    Class B stock at par, but shall not be entitled to share in any
    remaining surpluses or contingency reserves, as provided in section
    411 of the Act. Class C stock shall not be transferable, absolutely
    or by way of collateral, except to a borrower, or a corporation or
    public body eligible to borrow under section 408 of the Act, or an
    organization controlled by such borrowers, corporations, or public
    bodies.

\(e\) Re-designated existing paragraph (d) as (e).

[Other Business]{.underline}

Mr. Sampson reported that the Privatization Committee participated in
the drafting of the requirements contained in the Request for Proposals
(RFP) for a Business Advisor. The Bank will be procuring the services of
an independent Business Advisor with expert banking, legal, and
telecommunications credentials to provide advice and written
recommendations to the Bank in preparation for privatization of the
Bank. The RFP will go out for bidding this month (August, 2001).

On motion made by Mr. Jensen and seconded by Mr. McAllister, the Board
thanked Mr. Stockton,\
Ms. Purcell, and staff for procuring funds for a Business Advisor and
for the continuation of a Legal Advisor, and for securing proxies for
the stockholders' meeting.

[Next Board Meeting in Washington, DC]{.underline}

> Staff Briefing: Thursday, November 8 at 2:00 p.m.
>
> Board Meeting: Friday, November 9 at 9:00 a.m.

[Adjournment]{.underline}

Whereupon motion to adjourn was made and the meeting was adjourned at
9:40 a.m.

Signed Curtis Sampson

Secretary