UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-20709
D & E Communications, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
I.R.S. Employer Identification Number: 23-2837108
Brossman Business Complex
124 East Main Street
Ephrata, Pennsylvania 17522
(Address of principal executive offices)
Registrant's Telephone Number: (717) 733-4101
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 __
(D & E Communications, Inc. is the successor registrant to Denver and Ephrata
Telephone and Telegraph Company by virtue of a share exchange effective
June 7, 1996.)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 9, 1997
- -------------------------------------- ---------------------------
Common Stock, par value $.16 per share 6,109,461 Shares
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income --
For the three months ended
March 31, 1997 and 1996 ........................... 1
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 ............... 2
Consolidated Statements of Cash Flows --
For the three months ended
March 31, 1997 and 1996 ............................ 3
Notes to Consolidated Financial Statements ........... 4-6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 7-12
3. Quantitative and Qualitative Disclosure
about Market Risks ................................... 13
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K ..................... 14-15
SIGNATURES ........................................... 16
i
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Statements Of Income
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
OPERATING REVENUES 1997 1996
---- ----
<S> <C> <C>
Local network services.............................................. $ 2,221,752 $ 2,112,045
Network access services............................................. 4,094,731 3,916,975
Long distance network services...................................... 1,055,747 1,109,400
Directory advertising............................................... 732,256 730,319
Sales & services.................................................... 3,168,498 2,614,817
Other............................................................... 505,426 408,785
------------ ------------
Total operating revenues......................................... 11,778,410 10,892,341
OPERATING EXPENSES
Network operations.................................................. 1,285,511 1,534,069
Network access...................................................... 490,519 492,156
Depreciation........................................................ 1,886,530 1,781,873
Customer services................................................... 417,718 428,931
Financial and administrative services............................... 1,434,856 1,184,839
Directory........................................................... 502,519 472,912
Operating taxes, other than income.................................. 386,335 361,062
Costs of products sold.............................................. 1,587,435 1,203,297
Other expenses...................................................... 1,593,991 1,235,438
------------ ------------
Total operating expenses......................................... 9,585,414 8,694,577
------------ ------------
Operating income............................................ 2,192,996 2,197,764
------------ ------------
OTHER INCOME (EXPENSE)
Allowance for funds used during construction........................ 19,950 34,579
Equity in net income (loss) of affiliates........................... (159,758) 71,553
Interest expense.................................................... (617,988) (630,793)
Other, net.......................................................... 28,247 11,466
------------ ------------
Total other income (expense)..................................... (729,549) (513,195)
------------ ------------
Income before minority interest, income taxes
and dividends on utility series preferred stock........... 1,463,447 1,684,569
MINORITY INTEREST..................................................... 50,407 864
------------ ------------
Income before income taxes and dividends
on utility series preferred stock......................... 1,513,854 1,685,433
INCOME TAXES AND DIVIDENDS ON
UTILITY SERIES PREFERRED STOCK....................................
Income taxes................................................ 607,400 657,412
Dividends on utility series preferred stock................. 16,263 0
------------ ------------
Total income taxes and dividends on
utility series preferred stock..................... 623,663 657,412
------------ ------------
NET INCOME............................................................ 890,191 1,028,021
============ ============
Average common shares outstanding................................... 5,804,482 5,718,996
Earnings per common share........................................... $ .15 $ .18
============ ============
Dividends per common share.......................................... $ .10 $ .10
============ ============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1997 December 31,
ASSETS (unaudited) 1996
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 347,166 $ 312,125
Accounts receivable........................................................ 6,695,234 8,454,775
Accounts receivable and notes receivable - affiliated companies............ 1,613,759 1,028,780
Inventories, lower of cost or market, at average cost ..................... 931,192 1,009,904
Prepaid expenses........................................................... 2,346,358 2,406,465
Other current assets....................................................... 824,831 1,393,336
------------- ------------
TOTAL CURRENT ASSETS................................................ 12,758,540 14,605,385
------------- ------------
INVESTMENTS
Investments in affiliated companies........................................ 9,627,228 9,580,320
Other...................................................................... 327,403 327,403
------------- ------------
9,954,631 9,907,723
------------- ------------
PROPERTY, PLANT AND EQUIPMENT
Telephone plant in service................................................. 112,197,960 110,961,586
Under construction......................................................... 955,805 1,233,340
------------- ------------
113,153,765 112,194,926
Less accumulated depreciation.............................................. 49,060,236 47,207,238
------------- ------------
64,093,529 64,987,688
------------- ------------
OTHER ASSETS
Unamortized software costs................................................. 95,118 126,825
Accounts receivable-affiliated company..................................... 104,627 101,342
PCS license................................................................ 21,122,795 0
Other...................................................................... 1,819,320 1,826,978
------------- ------------
23,141,860 2,055,145
------------- ------------
TOTAL ASSETS.................................................................... $ 109,948,560 $ 91,555,941
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.............................................................. $ 7,318,000 $ 7,140,000
Long-term debt maturing within one year.................................... 1,222,453 1,220,158
Accounts payable........................................................... 4,392,963 6,499,496
Accounts payable - affiliated companies..................................... 376,507 196,941
Accrued taxes.............................................................. 1,039,467 493,546
Accrued interest and dividends............................................. 862,049 468,780
Advance billings, customer deposits and other.............................. 2,417,397 2,842,432
------------- ------------
TOTAL CURRENT LIABILITIES.......................................... 17,628,836 18,861,353
------------- ------------
LONG-TERM DEBT.................................................................. 36,766,767 24,888,193
------------- ------------
OTHER LIABILITIES
Deferred income taxes...................................................... 6,262,636 6,545,013
Regulatory liability, net.................................................. 745,958 778,783
Accrued retirement benefits................................................ 1,565,438 1,565,438
Other...................................................................... 99,353 108,835
------------- ------------
8,673,385 8,998,069
------------- ------------
MINORITY INTEREST............................................................... 0 229,973
------------- ------------
PREFERRED STOCK OF UTILITY SUBSIDIARY par value $100,
cumulative, callable at par, at the option of the Company,
authorized 20,000 shares, outstanding:
Series A 4 1/2%: 14,456 shares....................................... 1,445,600 1,445,600
------------- ------------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, par value $.16, authorized shares 30,000,000................. 922,676 918,508
Outstanding shares, 5,766,726 at March 31, 1997
5,740,674 at December 31, 1996
Common stock issuable for merger, 317,667 shares......................... 7,307,372 0
Additional paid-in capital................................................. 2,673,083 2,020,656
Unearned ESOP compensation................................................. (950,740) (950,740)
Retained earnings.......................................................... 35,481,581 35,144,329
------------- ------------
45,433,972 37,132,753
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 109,948,560 $ 91,555,941
============= ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 890,191 $ 1,028,021
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization......................................... 2,037,613 1,896,699
Deferred income taxes................................................. (315,202) (97,385)
Undistributed (earnings) losses of affiliates......................... 159,758 (71,553)
Distribution from affiliates.......................................... 0 230,000
Tax benefits applicable to ESOP....................................... 4,306 5,419
Loss on retirement of property, plant and equipment .................. 43,818 1,756
Allowance for funds used during construction.......................... (19,950) (34,579)
Losses applicable to minority interest................................ (50,407) (864)
Changes in operating assets and liabilities
Accounts receivable................................................... 200,501 140,853
Inventories........................................................... 78,712 (56,383)
Prepaid expenses...................................................... 60,107 71,044
Accounts payable...................................................... (1,555,491) (191,198)
Accrued taxes and accrued interest ................................... 939,190 664,763
Advance billings, customer deposits and other......................... (425,035) (255,702)
Other, net............................................................ (415,162) (524,651)
---------- -----------
Net Cash Provided by Operating Activities................. 1,632,949 2,806,240
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................................ (1,129,531) (1,352,025)
Allowance for funds used during construction................................ 19,950 34,579
Proceeds from sale of assets................................................ 36,091 24,838
Cost of removal of plant retired............................................ (17,810) (26,264)
Acquisition of other assets................................................. (430,784) (159,742)
Increase in investments and advances to affiliates.......................... (876,523) (1,557,852)
Decrease in investments and repayments from affiliates................. .... 1,074,393 494,019
---------- -----------
Net Cash Used In Investing Activities..................... (1,324,214) (2,542,447)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock................................................... (492,994) (528,126)
Net proceeds from (payments on) revolving lines of credit................... 178,000 160,000
Net contributions from minority interest.................................... 0 1,500
Proceeds from issuance of common stock...................................... 41,300 75,153
---------- -----------
Net Cash Provided by (Used in) Financing Activities....... (273,694) (291,473)
---------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........................................................ 35,041 (27,680)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR........................................................... 312,125 50,911
---------- ------------
END OF PERIOD............................................................... $ 347,166 $ 23,231
========== ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 1. Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
D & E Communications, Inc. is a telecommunications holding company
which became the successor parent company to its telephone operating
subsidiary, Denver and Ephrata Telephone and Telegraph Company ("Telco")
through a Restructuring (the "Restructuring") resulting from that certain
Agreement and Plan of Exchange (the "Plan of Exchange") whereby each
outstanding Common Share, $0.50 par value of Telco was exchanged (the
"Share Exchange") for three Common Shares, $0.16 par value of D & E
Communications, Inc. in June 1996. The accompanying consolidated financial
statements include the accounts of D & E Communications, Inc. and its
subsidiary companies("D&E").
The accompanying financial statements are unaudited and have been
prepared by D&E pursuant to generally accepted accounting principals and
the rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of management, the financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the results of operations, financial position and cash flows
of D&E for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The use of
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Certain items in the financial statements for the three
months ended March 31, 1996 have been reclassified for comparative purposes
and to reflect the three-for-one stock-split effect of the Share Exchange
effective June 7, 1996. D&E believes that the disclosures made are adequate
to make the information presented not misleading. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the D&E Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
(2) NON-CASH FINANCING AND INVESTING ACTIVITIES
D&E recorded non-cash transactions for shares of common stock issued or
issuable in connection with two acquisitions. The deferred payment of
$551,000 for Com Tech Technical Services ("Com Tech") was paid by issuance
of 21,408 shares of D&E common stock in January 1997. Separately,
$7,307,000 of the cost for the acquisition of PCS One, Inc.("PCS One") was
paid by the issuance of 317,667 shares of D&E common stock. D&E also
assumed a long-term note payable to the Federal Communications Commission
("FCC") for $11,879,000 as part of the PCS One acquisition. See Note 3.
4
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 1. Notes to Consolidated Financial Statements
(Unaudited)
(3) ACQUISITIONS AND DISPOSITIONS OF AFFILIATED COMPANIES
D&E is positioning itself to participate in a new generation of
wireless services known as Personal Communications Services ("PCS"). On
March 21, 1997 D&E merged with PCS One, the owner of the C-Block broadband
PCS license to operate in the Lancaster, Pennsylvania market. The merger
was accounted for as a purchase with no material effect on the consolidated
net income in the first quarter. D&E recorded a cost of $21,123,000 for the
PCS license acquired with the PCS One merger. D&E also recorded $7,307,000
for 316,667 shares of D&E common stock issuable to PCS One shareholders.
Long-term debt to the FCC of $11,879,000 was assumed and a note payable to
The D and E Group of $1,559,000 was assumed and eliminated in
consolidation. D&E dissolved its 80% owned partnership, The D and E Group,
which held a part interest in PCS One. D&E then formed a subsidiary
corporation, D & E Investments, Inc. ("Investments") to hold the Lancaster
C-Block license acquired as part of the merger with PCS One. No goodwill or
additional contingent payments were recorded as part of the transactions.
(4) SUBSEQUENT EVENTS
On April 4, 1997, D&E formed an operating company, D & E Wireless, Inc.
("Wireless") to design, construct and operate the PCS network for the
Lancaster, Harrisburg, and York market areas.
(5) NOTES PAYABLE AND LONG-TERM DEBT
As a result of the Restructuring, Telco negotiated amendments,
effective June 7, 1996, to the financial covenants stipulated in each of
the following Allstate Life Insurance Company ("Allstate") Senior Note
Agreements: 9.18% Senior Note due November 15, 2021, 7.55% Senior Note due
November 15, 2007 and 6.49% Senior Note due January 14, 2004. Prior to the
Restructuring, the covenants contained in these note agreements were
calculated based upon consolidated Telco financial data. In connection with
the restructuring, Telco transferred all the capital stock of its
subsidiaries to D&E. The amendments changed the limit on accumulated
distributions and restricted investments from $9,000,000 plus 75% of
accumulated consolidated net income of Telco, to $5,000,000 plus 75% of
accumulated net income of Telco. The distributions, restricted investments
and net income are cumulative since June 30, 1991. These Senior Note
Agreements of Telco are guaranteed by D&E.
On February 2, 1995, Telco and the other investors in the Monor
Communications Group ("MCG") entered into a Project Completion Agreement
with the Overseas Private Investment Corporation ("OPIC") as a condition to
OPIC's Finance Agreement with Monor Telephone Company ("MTT"). The Finance
5
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 1. Notes to Consolidated Financial Statements
(Unaudited)
Agreement provides a credit facility to MTT in an amount up to $30,000,000.
The Project Completion Agreement provides that Telco will guarantee
payments to MTT or MCG in an amount determined by OPIC, not to exceed
$3,333,000, if, in the opinion of OPIC, MTT has insufficient funds to
achieve project completion or to meet its obligations as they become due
and payable.
The loan agreements with Allstate described above have waived
consideration of the guarantee as part of Telco debt in calculating certain
covenant conditions of the notes. The waivers which expired on April 1,
1997 have been extended to November 30, 1997 by amendments dated April 1,
1997.
(6) STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common
stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented. D&E currently estimates there will be no impact on its financial
statements upon the adoption of SFAS No. 128.
6
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Monetary amounts presented in the following discussion are rounded to the
nearest thousand dollars. Certain items in the financial statements for the
three months ended March 31, 1996 have been reclassified for comparative
purposes and to reflect the three-for-one stock-split effect of the Share
Exchange.
RESULTS OF OPERATIONS
Net Income. Net income for the three months ended March 31, 1997 was
$890,000, 13.4% less than the net income of $1,028,000 recorded in the
corresponding period in 1996. The decrease occurred primarily due to a decrease
in equity in net income of affiliates of $231,000. Earnings per common share
totaled $.15, as compared with earnings per common share of $.18 in the first
quarter of last year.
Operating Revenues. Total operating revenues for the first quarter of 1997
were $11,778,000, an increase of $886,000 or 8.1% from the corresponding period
last year.
Local network services revenues are generated from providing local exchange
and local private line services. Local network revenues for the three months
ended March 31, 1997 were $2,222,000 an increase of $110,000 or 5.0% as compared
to the same period in 1996. Revenues for the first quarter, increased primarily
as a result of growth in access lines and local private lines and an increase in
revenues from custom calling features. The number of access lines in service at
March 31, 1997 increased 5.3% compared to March 31, 1996. The increase in access
lines plus other local private lines, accounts for approximately $99,000 of the
increase in local network service revenues for the three months ended March 31,
1997 over March 31, 1996. The increase in revenues from custom calling features
for the three months ended March 31, 1997 over March 31, 1996 of $17,000 was
primarily due to the increased number of customers subscribing to Caller
Identification ("Caller ID") Deluxe. These increases were offset by small
decreases in various other services.
Network access services revenues are received from Telco's subscribers,
from local exchange carriers, interexchange carriers ("IXCs") and cellular
companies for their use of local exchange facilities in providing interstate and
intrastate long distance services to their customers and from settlement pools
administered by the National Exchange Carrier Association, Inc. ("NECA").
Revenues in this category for the first quarter of 1997 were $4,095,000, an
increase of $178,000 or 4.5% over the corresponding period in 1996. The increase
in the first quarter was primarily due to an increase in the number of access
lines generating approximately $87,000; a related increase in the minutes of use
of cellular traffic generating approximately $46,000 of revenues; and an
increased number of Local Exchange Carrier ports and other services accounting
for $45,000 of the increase.
7
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Long distance network services revenues are received from long distance
calls made by residential and business customers within the Capital
(southcentral) Region of Pennsylvania. Revenues in this category were $1,056,000
a decrease of $54,000 or 4.8% in the first quarter 1997 compared with the
corresponding period in 1996. The decrease was primarily due to a decrease in
minutes of use.
Sales & services revenues consist primarily of the following services
furnished by Red Rose Communications, Inc. ("Red Rose"): sales and service of
business telephone systems and communications products, revenue from work at
customers' sites and revenue from the long distance calling service, D and E
Long Distance ("DELD"). Revenues in this category were $3,168,000, an increase
of $554,000 or 21.2% for the first quarter of 1997 over the first quarter of
1996. The increase was primarily related to $424,000 in revenues generated from
installation and maintenance of local area networks and wide area networks
generated as a result of the acquisition of Com Tech in the fourth quarter of
1996 and $116,000 from new client sales of telephone systems completed.
Miscellaneous revenues from a variety of services, increased $97,000 in the
first quarter of 1997 compared to the prior year primarily as the result of
software development services of approximately $64,000 performed in 1997.
Operating Expenses. Total operating expenses for the three month period
ended March 31, 1997 were $9,585,000. This amount represents an increase of
$891,000 or 10.2% over the same period in 1996.
Network operations expenses are incurred in maintaining D and E's switching
and transmission facilities, including digital central office switching
equipment and outside plant cable and trunk facilities. Network operations
include related employee costs, engineering expense, maintenance of land and
buildings, testing, general purpose computers, office equipment, video
conferencing and other materials and supplies. Expenses in this category were
$1,286,000 a decrease of $249,000 or 16.2% for the first quarter of 1997
compared with the corresponding period in 1996. The first quarter reduction was
primarily due to a decrease in wages and benefits, partially attributable to the
early retirement staff reduction in December 1996.
Depreciation expense was $1,887,000 an increase of $105,000 or 5.9% in the
first quarter of 1997, over the corresponding period in 1996. The majority of
the increase was attributable to an increase in plant in service in 1997 and new
depreciation rates that were revised in April 1996.
Financial and administrative services expenses were $1,435,000 an increase
of $250,000 or 21.1% for the three month period ended March 31, 1997, over the
corresponding period in the previous year. The increase was primarily due to an
increase in wages and benefits.
8
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Directory expenses were $503,000 an increase of $30,000 or 6.3% for the
three months ended March 31, 1997 over the comparable period in 1996. The
increase is primarily related to increased production costs of the phone
directory.
Costs of products sold consists primarily of the material costs of
equipment sales. The costs of products sold were $1,587,000 an increase of
$384,000 or 31.9% during the three month period ended March 31, 1997 compared to
1996. This increase was primarily related to $282,000 in material costs from
installation and maintenance of local area networks and wide area networks
generated as a result of the acquisition of Com Tech in the fourth quarter of
1996 and to new client equipment costs of approximately $79,000.
Other expenses primarily include all operating expenses incurred by Red
Rose and D & E Marketing Corp. ("Marketing") in the course of their business
activities, excluding material costs and operating taxes other than income
taxes. These expenses were $1,594,000 an increase of $359,000 or 29.0% for the
three month period ended March 31, 1997, over the comparable period last year.
This increase is primarily attributable to 1997 PCS development expenses of
$249,000 and an increase in sales commissions and expenses associated with
Marketing's investment in MCG.
Other Income (Expense). Other income (expense) for the three months ended
March 31, 1997 was $730,000 in net expenses, an increase of $216,000 over the
net expense of the same period in 1996. The change in the first quarter was
primarily related to a decreases in equity in net income of affiliates of
$231,000. Equity in net income of affiliates decreased primarily due to a
$226,000 increase in the first quarter in the losses of MCG.
MCG is a domestic corporate joint venture which owns 88.7% of MTT, which
operates a telephone company in Hungary. Marketing owns 16.5% of MCG. The net
losses reported by MCG are directly related to the losses of MTT. These result
primarily from the foreign currency translation losses related to the strength
of the United States dollar in relation to other currencies. The foreign
currency losses relate to the use by MTT of the Hungarian Forint ("HUF") as the
functional currency for accounting purposes. These losses are expected to be
countered by MTT's ability to raise rates to customers in order to repay the
OPIC loan with devalued HUFs. The telecommunications rate regulation in Hungary
permits MTT to make certain inflation adjustments based upon the Producer Price
Index ("PPI"), and, in fact, MTT raised rates in January 1997. Therefore,
management has decided the cost of foreign currency hedging is not currently
warranted. The Hungarian government has been receptive to the conversion of HUFs
to U.S. Dollars, and MTT has not experienced, and does not expect to experience,
any difficulties in making the necessary currency conversions.
Income Taxes. The federal and state income taxes decreased by $50,000 or
7.6% for the quarter ended March 31, 1997 over the corresponding period in 1996.
The decrease in income taxes was primarily due to a decrease in pre-tax income.
The effective income tax rate for the three months ended March 31,
9
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 was 40.6%, compared to 39.0% for the corresponding period last year. The
rate increased partially as a result of larger losses from MTT which do not
benefit the state tax provision.
FINANCIAL CONDITION
Liquidity and Capital Resources. D&E believes that it has adequate internal
and external resources available to meet ongoing operating requirements
including expansion and modernization of the network and business development.
D&E expects that foreseeable capital requirements for its existing business will
be financed primarily through internally generated funds and additional debt.
Additional short or long-term debt or equity financing will be needed to fund
new business development activities and to enhance D&E's capital structure.
The primary source of funds to support ongoing business activities was
$1,633,000 cash provided by operating activities during the three months ended
March 31, 1997. The major working capital change which affected funds from
operations was an accounts payable decrease primarily from the continued
reduction of payables to Northern Telecom for equipment purchased and from a
decrease in the payable of $551,000 recorded in 1996 for the deferred payment
portion of the acquisition of Com Tech. The deferred payment for Com Tech was
paid by the issuance of 21,408 shares of D&E common stock in January 1997.
The investing activity included $1,130,000 in capital additions primarily
for telephone plant in service. The major new investment was the acquisition of
the C-Block broadband PCS license for the Lancaster, PA market area which was
owned by PCS One, Inc. at the time of the merger. The total price of
approximately $21,123,000 was primarily a non-cash transaction.
The cash balance at March 31, 1997 was $347,000 and $5,682,000 was
available from the $13,000,000 of short-term credit lines available at the end
of the quarter. D&E is negotiating a financing arrangement with two local banks
to obtain additional funds for the development and construction of the PCS
network. D&E also expects to establish an additional $3,000,000 line of credit
with a local bank for general business use. Subsequent to March 31, 1997 D&E
entered into a Network Product Purchase Agreement with Northern Telecom Inc. to
acquire approximately $8,000,000 of PCS equipment to be used in building the
wireless network.
D&E's ratio of total debt to total debt plus capital increased to 49.1% at
March 31, 1997 from 46.3% at December 31, 1996. This increase resulted primarily
from the increase in long-term debt to the FCC for the PCS license.
10
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
OTHER
During the third quarter of 1996, Telco exceeded 50,000 access lines.
Therefore, on July 1, 1997 when the current traffic-sensitive access rates
expire under the FCC Small Company Incentive regulation, Telco will be required
to follow another method of determining these rates. Accordingly, in December
1996, Telco elected to rejoin NECA's Traffic Sensitive Pool and effective July
1, 1997, will revise its traffic-sensitive access rates and apply the rates from
the NECA Interstate Access Tariff. Telco anticipates a decline of approximately
$450,000 quarterly thereafter in interstate access revenue derived from
interstate pool settlements. The interstate revenues that will be generated
through participating in NECA access rates and settlements are more favorable
than if Telco established rates based on its costs.
D&E expanded its corporate organization through its merger with PCS One. In
addition to liquidating The D and E Group, D&E formed two new subsidiaries. D &
E Investments, Inc., a Nevada holding company, was formed in March to hold the
C-Block broadband PCS license for the Lancaster, PA market acquired from PCS
One, as well as the Harrisburg, PA D-Block and the York, PA E-Block PCS licenses
acquired by Telco through the FCC's auction bidding process. D & E Wireless,
Inc., a Pennsylvania company, was formed in April to design, construct and
operate the PCS network.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock. This Statement is
effective for financial statements issued for periods ending after December 15,
1997. Earlier application is not permitted. This Statement requires restatement
of all prior-period EPS data presented. D&E currently estimates there will be no
impact on its financial statements upon the adoption of SFAS No. 128.
On May 7, 1997 the FCC released several orders as part of the process
toward promoting competition by revising access charges and subsidies used to
provide universal telephone service. The bulk of the orders have a near-term
impact on price cap companies while retaining transition provisions for rural
companies, such as Telco. D&E is reviewing the detail of these orders to assess
the impact on future Telco operations.
11
<PAGE>
D & E COMMUNICATIONS, INC AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements as to the
future performance of D&E and its various domestic and international investments
and long term contracts, including MCG, MTT, Investments and Wireless. Actual
results may differ as a result of factors over which D&E has no control,
including but not limited to, regulatory factors, uncertainties and economic
fluctuations in the domestic and foreign markets in which the companies compete,
foreign-currency risks and increased competition in domestic markets due in
large part to continued deregulation of the telecommunications industry.
12
<PAGE>
D & E COMMUNICATIONS, INC AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION (continued)
Item 3. Quantitative and Qualitative
Disclosure About Market Risks
D&E does not invest excess funds in derivative financial instruments or
other market risk sensitive instruments for the purpose of managing its foreign
currency exchange rate risk or for any other purpose.
13
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Identification
No. of Exhibit Reference
- ------- -------------- ---------
10.1 Network Product Purchase Agreement Filed herewith. *
between Northern Telecom, Inc. and
D & E Communications, Inc. dated
April 10, 1997.
10.2 Federal Communications Commission, Filed herewith.
Radio Station Authorization of a
Personal Communication Service-Broadband
for the C-Block in Lancaster, PA issued
March 28, 1997 to D & E Investments, Inc.
10.3 Installment Payment Plan Note between Filed herewith.
D & E Investments, Inc. and the Federal
Communications Commission dated as of
March 28, 1997, Re: $11,878,574 7.00%
note due September 17, 2006.
10.4 Security Agreement dated March 28, 1997 Filed herewith.
between D & E Investments, Inc. and the
Federal Communciations Commission Re:
the Installment Payment Plan Note due
September 17, 2006.
10.5 Fifth Amendment to Note Agreement dated Filed herewith.
as of November 15, 1991 between Allstate
Life Insurance Company, Allstate Life
Insurance Company of New york, and Denver
and Ephrata Telephone and Telegraph
Company, dated as of April 1, 1997,
Re: $10,000,000 9.18% Senior Notes due
November 15, 2021.
10.6 Fourth Amendment to Note Agreement dated Filed herewith.
as of January 14, 1994 between Allstate
Life Insurance Company and Denver and
Ephrata Telephone and Telegraph Company
dated as of April 1, 1997, Re: $10,000,000
6.49% Senior Notes due January 14, 2004.
27 Financial Data Schedule. Filed herewith.
14
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (continued)
(b) Reports on Form 8-K:
A Form 8-K was filed on April 7, 1997 in regard to the merger with PCS
One, Inc.
- ------------------
* Confidential treatment requested with respect to portions thereof.
15
<PAGE>
Form 10-Q
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
D & E COMMUNICATIONS, INC.
(Registrant)
Date: May 13, 1997 By: /s/ Thomas E. Morell
-------------------------
Thomas E. Morell
Vice President, Chief Financial Officer
and Treasurer
(On Behalf of the Registrant and
as Principal Financial Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 13, 1997.
16
<PAGE>
INDEX TO EXHIBITS
Exhibit Identification
No. of Exhibit Reference
- ------- -------------- ---------
10.1 Network Product Purchase Agreement Filed herewith. *
between Northern Telecom, Inc. and
D & E Communications, Inc. dated
April 10, 1997.
10.2 Federal Communications Commission, Filed herewith.
Radio Station Authorization of a
Personal Communication Service-Broadband
for the C-Block in Lancaster, PA issued
March 28, 1997 to D & E Investments, Inc.
10.3 Installment Payment Plan Note between Filed herewith.
D & E Investments, Inc. and the Federal
Communications Commission dated as of
March 28, 1997, Re: $11,878,574 7.00%
note due September 17, 2006.
10.4 Security Agreement dated March 28, 1997 Filed herewith.
between D & E Investments, Inc. and the
Federal Communications Commission Re:
the Installment Payment Plan Note due
September 17, 2006.
10.5 Fifth Amendment to Note Agreement dated Filed herewith.
as of November 15, 1991 between Allstate
Life Insurance Company, Allstate Life
Insurance Company of New york, and Denver
and Ephrata Telephone and Telegraph
Company, dated as of April 1, 1997,
Re: $10,000,000 9.18% Senior Notes due
November 15, 2021.
10.6 Fourth Amendment to Note Agreement dated Filed herewith.
as of January 14, 1994 between Allstate
Life Insurance Company and Denver and
Ephrata Telephone and Telegraph Company
dated as of April 1, 1997, Re: $10,000,000
6.49% Senior Notes due January 14, 2004.
27 Financial Data Schedule. Filed herewith.
- ------------------
* Confidential treatment requested with respect to portions thereof.
Network Product Purchase Agreement
Page 1
Exhibit 10.1
NETWORK PRODUCTS PURCHASE AGREEMENT
Northern Telecom Inc., a Delaware corporation having offices at 4001 East Chapel
Hill-Nelson Highway, Research Triangle Park, North Carolina 27709 ("Nortel") and
D & E Communications, Inc., a Pennsylvania corporation, having its principal
offices and place of business at 130 East Main Street, Ephrata, Pennsylvania
17522-0458 ("Buyer") agree as follows:
1. SCOPE
1.1 Certain terms used in this Agreement shall be defined as set
forth in Exhibit A.
1.2 The terms and conditions of this Agreement shall apply to the
purchase by Buyer and the sale by Nortel of Equipment and
Services and the licensing of Software furnished in connection
with such Equipment. The terms and conditions contained in a
Product Attachment shall modify and/or supplement the other
terms and conditions of this Agreement, only with respect to
the Product Line and Services described in the Product
Attachment.
1.3 All Products and Services obtained by Buyer pursuant to this
Agreement shall be obtained by Buyer solely for initial use by
Buyer in its internal business to provide services available
through its networks, and not as stock in trade or inventory
which is intended for resale by Buyer to any third party as
new and unused material. All such Products shall be installed
in the United States.
2. TERM
2.1 This Agreement shall be in effect during the period that any
Product Attachment is in effect. Each Product Attachment shall
be in effect during its Product Attachment Term. This
Agreement or any part thereof may be terminated in accordance
with the express provisions of this Agreement concerning
termination or by written agreement of the parties.
2.2 The termination of this Agreement or any part thereof shall
not affect the obligations of either party thereunder which
have not been fully performed with respect to any accepted
Order, unless such Order is expressly terminated in accordance
with this Agreement or by written agreement of the parties.
<PAGE>
Network Product Purchase Agreement
Page 2
3. ORDERING
All purchases pursuant to this Agreement shall be made by means of
Orders issued from time to time by Buyer and accepted by Nortel in
writing within fifteen (15) days. Otherwise, any such Order shall be
deemed to be void. All Orders shall reference this Agreement and the
applicable Product Attachment and shall be governed solely by the terms
and conditions set forth herein as modified and/or supplemented
pursuant to Section 1.2 by the terms and conditions of any applicable
Product Attachments.
4. PRICES
4.1 The prices, charges, and fees applicable to Orders shall be
set forth in the appropriate Product Attachments and may be
revised in accordance with the provisions stated therein.
Buyer shall pay transportation charges, including insurance,
in accordance with the applicable Product Attachment.
4.2 Buyer shall not sell, lease or otherwise transfer such
Products or any portion thereof or allow any liens or
encumbrances to attach to such Products or any portion thereof
prior to payment in full to Nortel of the total of all such
prices, charges, and fees.
5. TERMS OF PAYMENT
5.1 The amounts payable for Products and/or Services may be
invoiced by Nortel to Buyer in accordance with the applicable
Product Attachments. All amounts payable and properly invoiced
pursuant to this Agreement shall be paid by Buyer to Nortel
within thirty (30) days from the date of Nortel's invoice in
accordance with the payment instructions contained in such
invoice.
5.2 Overdue payments, excluding those which are the subject of a
good faith dispute, shall be subject to interest charges,
calculated daily commencing on the 31st day after the date of
the invoice, at one and one half percent (1-1/2%) per month or
such lesser rate as may be the maximum permissible rate under
applicable law.
6. TAXES
Buyer shall at Nortel's direction promptly reimburse Nortel or pay
directly to the applicable government or taxing authority all taxes and
charges arising hereunder, including, without limitation, penalties and
interest, except for taxes computed upon the net income of Nortel.
Buyer's obligations pursuant to this Section 6 shall survive any
termination of this Agreement.
<PAGE>
Network Product Purchase Agreement
Page 3
7. RISK OF LOSS, TITLE
7.1 Risk of loss or damage to Products shall pass to Buyer upon
delivery to the loading dock at the installation site or other
delivery location specified by Buyer in its Order, and Buyer
shall keep such Products fully insured for the total amount
then due Nortel for such Products.
7.2 Good title to Equipment furnished hereunder which shall be
free and clear of all liens and encumbrances shall vest in
Buyer upon full payment by Buyer of the total prices, charges
and fees payable by Buyer for such Equipment and any related
Software or Services furnished by Nortel in connection with
such Equipment.
7.3 Buyer shall receive a license to use Software subject to the
terms set forth in Exhibit B.
8. TESTING, TURNOVER AND ACCEPTANCE
8.1 If Nortel installs any Products furnished hereunder, the
rights and obligations of the parties with respect to testing,
turnover and acceptance of such Products shall be as set forth
in the applicable Product Attachment.
8.2 If Nortel does not install Products furnished hereunder,
Nortel shall prior to delivery of the Products perform such
factory tests as Nortel determines to be appropriate in order
to confirm that such Products shall be in accordance with the
applicable Specifications. Buyer shall be deemed to have
accepted the Products upon completion of such tests.
8.3 In the event that Buyer places Products into
revenue-generating service, such Products shall be deemed to
have been accepted by Buyer without limitation or restriction.
9. DISCLAIMERS OF WARRANTIES AND REMEDIES
THE WARRANTIES AND REMEDIES SET FORTH IN EXHIBIT D AND IN ANY
PRODUCT ATTACHMENT CONSTITUTE THE ONLY WARRANTIES OF NORTEL WITH
RESPECT TO THE PRODUCTS AND SERVICES AND BUYER'S EXCLUSIVE
REMEDIES IN THE EVENT SUCH WARRANTIES ARE BREACHED. THEY ARE IN
LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NORTEL SHALL
NOT BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
NATURE WHATSOEVER, BEFORE OR AFTER THE PLACING OF ANY PRODUCT INTO
SERVICE.
<PAGE>
Network Product Purchase Agreement
Page 4
10. LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT
INFRINGEMENT
10.1 A party hereto shall defend the other party against any suit,
claim, or proceeding brought against the other party for
direct damages due to personal injuries (including death) or
damage to tangible property which allegedly result from the
negligence or willful misconduct of the defending party in the
performance of this Agreement. The defending party shall pay
all litigation costs, reasonable attorney's fees, settlement
payments and such direct damages awarded or resulting from any
such suit, claim or proceeding.
10.2 Nortel shall defend Buyer against any suit, claim or
proceeding brought against Buyer alleging that any Products,
excluding Vendor Items, furnished hereunder infringe any
United States patent. Nortel shall pay all litigation costs,
reasonable attorney's fees, settlement payments and any
damages awarded or resulting from any such suit, claim or
proceeding. With respect to Vendor Items, Nortel shall assign
any rights with respect to infringement of U.S. patents
granted to Nortel by the supplier of such Vendor Items to the
extent of Nortel's right to do so. In addition, Nortel shall
indemnify Buyer with respect to the cost of defending any
infringement claim brought in the U.S. by any third party
against Buyer.
Redacted. Confidential treatment requested.
10.3 The party entitled to defense pursuant to Section 10.1 or 10.2
shall promptly advise the party required to provide such
defense of the applicable suit, claim, or proceeding and shall
cooperate with such party in the defense or settlement
thereof. The party required to provide such defense shall have
sole control of the defense of the applicable suit, claim, or
proceeding and of all negotiations for its settlement or
compromise.
10.4 If an injunction is obtained against Buyer's use of any
Products as a result of any suit, claim, or proceeding
described in Section 10.2, Nortel shall at Nortel's option use
its reasonable efforts to either:
10.4.1 procure for Buyer the right to continue using the
portions of the Products enjoined from use; or
10.4.2 replace or modify the same with equivalent or better
Products so that Buyer's use is not subject to any
such injunction.
<PAGE>
Network Product Purchase Agreement
Page 5
10.5 If Nortel cannot perform under Section 10.4.1 or 10.4.2, Buyer
shall have the right to return the infringing Products to
Nortel upon written notice to Nortel, and in the event of such
return, neither party shall have any further liabilities or
obligations under this Agreement on account of such
infringement or return, except during the first year of the
Term, Nortel shall refund to Buyer the purchase price of such
Products and after the first year of the Term, Nortel shall
refund the depreciated value of such Products carried on
Buyer's books at the time of such return, less any outstanding
monies due Nortel hereunder.
10.6 The obligations of Nortel hereunder with respect to any suit,
claim, or proceeding described in Section 10.2 shall not apply
with respect to Products which are (a) manufactured or
supplied by Nortel in accordance with any design or any
special instruction furnished by Buyer, (b) used by Buyer in a
manner or for a purpose not contemplated by this Agreement,
(c) located by Buyer outside the United States, or (d) used by
Buyer in combination with other products not provided by
Nortel, including, without limitation, any software developed
solely by Buyer through the permitted use of Products
furnished hereunder, provided the infringement arises from
such combination or the use thereof. Buyer shall indemnify and
hold Nortel harmless against any loss, cost, expense, damage,
settlement or other liability, including, but not limited to,
attorneys' fees, which may be incurred by Nortel with respect
to any suit, claim, or proceeding described in this Section
10.6.
10.7 Notwithstanding the above, Nortel shall have no obligation or
liability with regard to any patent infringement suit, claim,
or proceeding that may be made or brought against Buyer (i)
alleging that method of use claims in such patent are
infringed by any service offering and/or by any use by Buyer
of Products furnished hereunder to make such service offering
available or (ii) resulting in a settlement payment, or award
of damages, or accounting of profits, where such settlement,
award, or accounting is based on the revenues or profits
earned or other value obtained by Buyer from its use of such
Products and/or is based on the lost revenues or profits of
third parties arising from Buyer's use of such Products.
10.8 If Nortel determines that any Products are or may become the
subject of a suit, claim, or proceeding as described in
Section 10.7, Nortel may provide Buyer with notice to that
effect. Nortel shall have no liability to Buyer pursuant to
Section 10.2, 10.4, or 10.5 with respect to Buyer's use of
such Products which occurs subsequent to such notice. In
addition to its obligations pursuant to Section 10.3, if Buyer
becomes aware that any Products may become the subject of any
such suit, claim, or proceeding before receiving any such
notice from Nortel, Buyer shall provide Nortel with notice to
that effect.
<PAGE>
Network Product Purchase Agreement
Page 6
10.9 After receipt of notice from Nortel pursuant to Section 10.8,
Buyer shall have the option to return to Nortel the applicable
Products identified in such notice and Nortel shall refund the
depreciated value (as carried on the books of Buyer) of the
returned Products to Buyer as more fully set forth in Section
10.5.
10.10 The provisions of Sections 10.2 through 10.9 state the entire
liability of Nortel and its suppliers and the exclusive remedy
of Buyer with respect to any suits, claims, or proceedings of
the nature described in Section 10.2.
10.11 Each party's respective obligations pursuant to this Section
shall survive any termination of this Agreement.
11. REMEDIES AND LIMITATION OF LIABILITY
11.1 Nortel shall have the right to suspend its performance by
written notice to Buyer and forthwith remove and take
possession of all Products that shall have been delivered to
Buyer, if, prior to payment to Nortel of any amounts due
pursuant to this Agreement with respect to such Products,
Buyer shall (a) become insolvent or bankrupt or cease, be
unable, or admit in writing its inability, to pay all debts as
they mature, or make a general assignment for the benefit of,
or enter into any arrangement with, creditors, (b) authorize,
apply for, or consent to the appointment of, a receiver,
trustee, or liquidator of all or a substantial part of its
assets or have proceedings seeking such appointment commenced
against it which are not terminated within ninety (90) days of
such commencement, or (c) file a voluntary petition under any
bankruptcy or insolvency law or under the reorganization or
arrangement provisions of the United States Bankruptcy Code or
any similar law of any jurisdiction or have proceedings under
any such law instituted against it which are not terminated
within ninety (90) days of such commencement.
11.2 In the event of any material breach of this Agreement which
shall continue for thirty (30) or more days after written
notice of such breach (including a reasonably detailed
statement of the nature of such breach) shall have been given
to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to avail itself of any
and all remedies available at law or equity, except as
otherwise provided in this Agreement.
11.3 Nothing contained in Section 11.2 or elsewhere in this
Agreement shall make Nortel liable for any incidental,
indirect, consequential or special damages of any nature
whatsoever for any breach of this Agreement whether the claims
for such damages arise in tort, contract, or otherwise, or
shall increase the liability of Nortel under Section 9 or 10
or Exhibit D beyond that prescribed therein.
<PAGE>
Network Product Purchase Agreement
Page 7
11.4 Nortel shall not be liable for any additional costs, expenses,
losses or damages resulting from errors, acts or omissions of
Buyer, including, but not limited to, inaccuracy,
incompleteness or untimeliness in the provision of information
by Buyer to Nortel or fulfillment by Buyer of any of its
obligations under this Agreement. Buyer shall pay Nortel the
amount of any such costs, expenses, losses or damage incurred
by Nortel.
11.5 Any action for breach of this Agreement or to enforce any
right hereunder shall be commenced within two (2) years after
the cause of action accrues or it shall be deemed waived and
barred, except any action for nonpayment by Buyer of any
prices, charges, or fees payable hereunder may be brought by
Nortel at any time permitted by applicable law.
11.6 The limitations on Nortel's liability and other obligations
set forth in Sections 9, 10, and 11 shall survive any
termination of this Agreement.
12. FORCE MAJEURE
If the performance by a party of any of its obligations under this
Agreement shall be interfered with by reason of any circumstances
beyond the reasonable control of that party, including without
limitation, unavailability of supplies or sources of energy, power
failure, breakdown of machinery, or labor difficulties, including
without limitation, strikes, slowdowns, picketing or boycotts, then
that party shall be excused from such performance for a period equal to
the delay resulting from the applicable circumstances and such
additional period as may be reasonably necessary to allow that party to
resume its performance. With respect to labor difficulties as described
above, a party shall not be obligated to accede to any demands being
made by employees or other personnel.
13. CONFIDENTIAL INFORMATION
13.1 Each party which receives the other party's Confidential
Information shall use reasonable care to hold such
Confidential Information in confidence and not disclose such
Confidential Information to anyone other than to its employees
and employees of its affiliates with a need to know. A party
that receives the other party's Confidential Information shall
not reproduce such Confidential Information, except to the
extent reasonably required for the performance of its
obligations pursuant to this Agreement and in connection with
any permitted use of such Confidential Information.
13.2 Buyer shall take reasonable care to use Nortel's Confidential
Information only for study, operating, or maintenance purposes
in connection with Buyer's use of Products furnished by Nortel
pursuant to this Agreement.
<PAGE>
Network Product Purchase Agreement
Page 8
13.3 Nortel shall take reasonable care to use Buyer's Confidential
Information only to perform Nortel's obligations to provide
Products and/or Services to Buyer, provided Nortel may use any
of Buyer's Confidential Information for the development,
manufacture, marketing and maintenance of new products and/or
services and/or changes or modifications to the existing
Products and/or Services, which Nortel may, in either case,
provide to third parties without restriction.
13.4 The obligations of either party pursuant to this Section 13
shall not extend to any Confidential Information which
recipient can demonstrate through written documentation was
already known to the recipient prior to its disclosure to the
recipient, was known or generally available to the public at
the time of disclosure to the recipient, becomes known or
generally available to the public (other than by act of the
recipient) subsequent to its disclosure to the recipient, is
disclosed or made available in writing to the recipient by a
third party having a bona fide right to do so, or is required
to be disclosed by process of law, provided that the recipient
shall notify the disclosing party promptly upon any request or
demand for such disclosure.
13.5 The parties' obligations pursuant to this Section 13 shall
survive any termination of this Agreement.
14. BUYER'S RESPONSIBILITIES
14.1 All sites at which the Products shall be delivered or
installed shall be prepared by Buyer in accordance with
Nortel's standards, including, without limitation,
environmental requirements.
14.2 Buyer shall provide Nortel-designated personnel access to the
Products during the times deemed necessary by Nortel to
install, maintain and service the Products in accordance with
Nortel's obligations. Nortel personnel shall comply with
Buyer's reasonable site and security regulations, provided
Nortel receives written notice of any such regulations
reasonably in advance of the arrival of Nortel's personnel at
the site.
14.3 Buyer shall provide reasonable working space and facilities,
including heat, light, ventilation, telephones, electrical
current, trash removal and other necessary utilities for use
by Nortel-designated maintenance personnel, and adequate
secure storage space, if required by Nortel, for Products and
materials. Buyer shall also provide adequate security for the
Products while on Buyer's site.
14.4 Buyer shall obtain all necessary governmental permits
applicable to Buyer in connection with the installation,
operation, and maintenance of Products furnished hereunder,
excluding any applicable permits required in the normal course
of Nortel's doing business.
<PAGE>
Network Product Purchase Agreement
Page 9
14.5 Any information which Nortel reasonably requests from Buyer
and which is necessary for Nortel to properly install or
maintain the Products shall be provided by Buyer to Nortel in
a timely fashion and in a form reasonably specified by Nortel.
15. HAZARDOUS MATERIALS
15.1 Prior to issuing any Order for Services to be performed at
Buyer's facilities, Buyer shall identify and notify Nortel in
writing of the existence of all Hazardous Materials which
Nortel may encounter during the performance of such Services,
including, without limitation, any Hazardous Materials
contained within any equipment to be removed by Nortel.
15.2 If Buyer breaches its obligations pursuant to Section 15.1,
(a) Nortel may discontinue the performance of the appropriate
Services until all the applicable Hazardous Materials have
been removed or abated to Nortel's satisfaction by Buyer at
Buyer's sole expense, and (b) Buyer shall defend, indemnify
and hold Nortel harmless from any and all damages, claims,
losses, liabilities and expenses, including, without
limitation, attorneys' fees, which arise out of Buyer's breach
of such obligations. Buyer's obligations pursuant to this
Section 15.2 shall survive any termination of this Agreement.
16. SUBCONTRACTING
Nortel may subcontract any of its obligations under this Agreement, but
no such subcontract shall relieve Nortel of primary responsibility for
performance of its obligations.
17. REGULATORY COMPLIANCE
In the event of any change in the Specifications or Nortel's
manufacturing or delivery processes for any Products as a result of the
imposition of requirements by any government, Nortel may upon notice to
Buyer, increase its prices, charges and fees to cover the added costs
and expenses directly and indirectly incurred by Nortel as a result of
such change.
<PAGE>
Network Product Purchase Agreement
Page 10
18. GENERAL
18.1 If any of the provisions of this Agreement shall be invalid or
unenforceable under applicable law and a party deems such
provisions to be material, that party may terminate this
Agreement upon notice to the other party. Otherwise, such
invalidity or unenforceability shall not invalidate or render
this Agreement unenforceable, but this Agreement shall be
construed as if not containing the particular invalid or
unenforceable provision and the rights and obligations of the
parties shall be construed and enforced accordingly.
18.2 A party shall not release without the prior written approval
of the other party any advertising or other publicity relating
to this Agreement wherein such other party may reasonably be
identified. In addition each party shall take reasonable
precautions to keep the existence and the contents of this
Agreement confidential so long as this Agreement remains in
effect and for a period of three (3) years thereafter, except
as may be reasonably required to enforce this Agreement or by
law.
18.3 The construction, interpretation and performance of this
Agreement shall be governed by the laws of the State of North
Carolina, except for its rules with respect to the conflict of
laws.
18.4 Neither party may assign or transfer this Agreement or any of
its rights hereunder without the prior written consent of the
other party, such consent not to be unreasonably withheld,
except Nortel may assign or transfer all or any part of this
Agreement or of its rights hereunder to any Affiliate without
Buyer's consent.
<PAGE>
Network Product Purchase Agreement
Page 11
18.5 Notices and other communications shall be transmitted in
writing by certified United States Mail, postage prepaid,
return receipt requested, by guaranteed overnight delivery, or
by facsimile addressed to the parties as follows:
To Buyer: D & E Communications, Inc.
130 East Main Street
P.O. Box 458
Ephrata, Pennsylvania 17522-0458
Attention: Mr. Greg Strunk
To Nortel: Northern Telecom Inc.
4001 East Chapel Hill-Nelson Highway
Research Triangle Park, North Carolina 27709
Attention: Vice President Marketing-IOC/CNG
Facsimile: (919) 992-5985
In addition, notices submitted by Buyer to Nortel specific to
any Product Attachment shall be delivered to the address
stated in the applicable Product Attachment along with a copy
submitted to Nortel at the address stated above.
Any notice or communication sent under this Agreement shall be
deemed given upon receipt, as evidenced by the United States
Postal Service return receipt Mail if given by certified
United States Mail, on the following business day if sent by
guaranteed overnight delivery, or on the transmission date if
given by facsimile during the receiving party's normal
business hours.
The address information listed for a party in this Section or
any Product Attachment may be changed from time to time by
that party by giving notice to the other as provided above.
18.6 In the event of a conflict between the provisions of this
Agreement which are not contained in a Product Attachment and
the provisions of a Product Attachment, the provisions of the
Product Attachment shall prevail with respect to the Product
Line and Services described in that Product Attachment.
18.7 All headings used herein are for index and reference purposes
only, and shall not be given any substantive effect. This
Agreement has been created jointly by the parties, and no rule
of construction requiring interpretation against the drafter
of this Agreement shall apply in its interpretation.
18.8 Buyer shall not export any technical data received from Nortel
pursuant to this Agreement, or release any such technical data
with the knowledge or intent that such technical data will be
exported or transmitted to any country or to foreign
<PAGE>
Network Product Purchase Agreement
Page 12
nationals of any country, except in accordance with applicable
U.S. law concerning the exporting of such technical data.
Buyer shall obtain all authorizations from the U.S. government
in accordance with applicable law prior to exporting or
transmitting any such technical data as described above.
18.9 Any changes to this Agreement may only be effected if agreed
upon in writing by duly authorized representatives of the
parties hereto. No agency, partnership, joint venture, or
other similar business relationship shall be or is created by
this Agreement.
18.10 This Agreement, including all Product Attachments and Exhibits
constitutes the entire agreement of the parties with respect
to the subject matter hereof.
NORTHERN TELECOM INC. D & E COMMUNICATIONS, INC.
By: /s/ Matthew J. Desch By: /s/ Robert M. Lauman
------------------------------- -------------------------------
(Signature) (Signature)
Name: Matthew J. Desch Name: Robert M. Lauman
----------------------------- -------------------------------
(Print) (Print)
Title: President Title: Executive Vice President, COO
---------------------------- ------------------------------
Date: 4/10/97 Date: March 20, 1997
----------------------------- -------------------------------
<PAGE>
Network Product Purchase Agreement
Page 1
EXHIBIT A
DEFINITIONS
As used in the Agreement (as defined below), the following initially
capitalized terms shall have the following meanings:
"Affiliate" shall mean Nortel's parent corporation, Northern Telecom
Limited and any corporation controlled directly or indirectly by
Northern Telecom Limited through the ownership or control of shares or
other securities in such corporation.
"Agreement" shall mean the Agreement to which this Exhibit is attached,
and all Exhibits and Product Attachments.
"Confidential Information" shall mean all information, including,
without limitation, specifications, drawings, documentation, know-how
and pricing information, of every kind or description which may be
disclosed by either party or an Affiliate to the other party in
connection with this Agreement, provided the disclosing party shall
clearly mark any such information which is disclosed in writing as the
confidential property of the disclosing party and the disclosing party
shall identify the confidential nature of any such information which it
orally discloses at the time of such disclosure and shall provide a
written summary of the orally disclosed information to the recipient
within fifteen (15) days of such disclosure.
"Equipment" shall mean the hardware listed or otherwise identified in,
or pursuant to, any Product Attachment.
"Exhibits" shall mean Exhibits A, B, C, and D attached hereto, and any
additional Exhibits which Nortel and Buyer subsequently agree in
writing shall be incorporated into, and made a part of the Agreement by
reference.
"Hazardous Materials" shall mean any pollutants or dangerous, toxic or
hazardous substances (including, without limitation, asbestos) as
defined in, or pursuant to, the OSHA Hazard Communication Standard (29
CFR Part 1910, Subpart Z), the Resource Conservation and Recovery Act
of 1976 (42 USC Section 6901, et seq.), the Toxic Substances Control
Act (15 USC Section 2601, et seq.), the Comprehensive Environmental
Response Compensation and Liability Act (42 USC Section 9601, et seq.),
and any other federal, state or local environmental law, ordinance,
rule or regulation.
"Order" shall mean a written purchase order issued by Buyer to Nortel.
Each Order shall specify on the face of the Order the types and
quantities of Products and/or Services to be furnished by Nortel
pursuant to the Order, the applicable prices, charges and/or fees with
respect to such Products and/or Services, Buyer's facility to which the
Products are to be
<PAGE>
Network Product Purchase Agreement
Page 2
delivered, the delivery and/or completion schedule, and any other
information which may be required to be included in an Order in
accordance with the provisions of this Agreement.
"Product Attachments" shall mean any Product Attachments which the
parties agree in writing shall be incorporated into, and made a part
of, this Agreement.
"Product Attachment Term" shall mean the period specified in a Product
Attachment during which that Product Attachment shall be in effect.
"Product Line" shall mean the Products described in and which may be
furnished pursuant to a specific Product Attachment.
"Products" shall mean any Equipment and/or Software which may be
provided under this Agreement.
"Services" shall mean all services listed or otherwise identified in,
or pursuant to, any Product Attachment which may be purchased from or
provided by Nortel and which are associated with the Product Line
described in that Product Attachment.
"Software" shall mean (a) programs in machine-readable code or firmware
which (i) are owned by, or licensed to, Nortel or any of its
Affiliates, (ii) reside in Equipment memories, tapes, disks or other
media, and (iii) provide basic logic operating instructions and user-
related application instructions, and (b) documentation associated with
any such programs which may be furnished by Nortel to Buyer from time
to time.
"Specifications" shall mean, with respect to any Product Line, the
specifications identified in the applicable Product Attachment,
provided Nortel shall have the right at its sole discretion to modify,
change or amend such specifications at any time.
"Third Party Software Vendor" shall mean any supplier of programs
contained in the Software which is not an Affiliate.
"Vendor Items" shall mean, with respect to a Product Line, those
portions of the Product which are identified in the applicable Product
Attachment as Vendor Items.
"Warranty Period" shall mean, with respect to a Product Line, the
Warranty Period specified in the applicable Product Attachment.
<PAGE>
Network Product Purchase Agreement
Page 1
EXHIBIT B
SOFTWARE LICENSE
1. Buyer acknowledges that the Software may contain programs which
have been supplied by, and are proprietary to, Third Party
Software Vendors. In addition to the terms and conditions herein,
Buyer shall abide by any additional terms and conditions provided
by Nortel to Buyer with respect to any Software provided by any
Third Party Software Vendor.
2. Upon Buyer's payment to Nortel of the applicable fees with
respect to any Software furnished to Buyer pursuant to this
Agreement, Buyer shall be granted a personal, non-exclusive,
paid-up license to use the version of the Software furnished
to Buyer only in conjunction with Buyer's use of the Equipment
with respect to which such Software was furnished for the life
of that Equipment as it may be repaired or modified. Buyer
shall be granted no title or ownership rights to the Software,
which rights shall remain in Nortel or its suppliers.
3. As a condition precedent to this license and to the supply of
Software by Nortel pursuant to the Agreement, Nortel requires
Buyer to give proper assurances to Nortel for the protection of
the Software. Accordingly, all Software supplied by Nortel under
or in implementation of the Agreement shall be treated by Buyer
as the exclusive property, and as proprietary and a TRADE SECRET,
of Nortel and/or its suppliers, as appropriate, and Buyer shall:
a) hold the Software, including, without limitation, any methods
or concepts utilized therein in confidence for the benefit of
Nortel and/or its suppliers, as appropriate; b) not provide or
make the Software available to any person except to its employees
on a 'need to know' basis; c) not reproduce, copy, or modify the
Software in whole or in part except as authorized by Nortel; d)
not attempt to decompile, reverse engineer, disassemble, reverse
translate, or in any other manner decode the Software; e) issue
adequate instructions to all persons, and take all actions
reasonably necessary to satisfy Buyer's obligations under this
license; and f) forthwith return to Nortel, or with Nortel's
consent destroy, any magnetic tape, disc, semiconductor device or
other memory device or system and/or documentation or other
material, including, but not limited to all printed material
furnished by Nortel to Buyer which shall be replaced, modified or
updated.
4. The obligations of Buyer hereunder shall not extend to any
information or data relating to the Software which is now
available to the general public or becomes available by reason of
acts or failures to act not attributable to Buyer.
<PAGE>
Network Product Purchase Agreement
Page 2
5. Buyer shall not assign this license or sublicense any rights
herein granted to any other party without Nortel's prior written
consent.
6. Buyer shall indemnify and hold Nortel and its suppliers, as
appropriate, harmless from any loss or damage resulting from a
breach of this Exhibit B. The obligations of Buyer under this
Exhibit B shall survive the termination of the Agreement and
shall continue if the Software is removed from service.
<PAGE>
Network Product Purchase Agreement
Page 1
EXHIBIT C
STORAGE
If Buyer notifies Nortel prior to the scheduled shipment date of Products that
Buyer does not wish to receive such Products on the date agreed by the parties,
or the installation site or other delivery location is not prepared in
sufficient time for Nortel to make delivery in accordance with such date, or
Buyer fails to take delivery of any portion of such Products, Nortel may place
the applicable Products in storage. In that event Buyer shall be liable for all
additional costs thereby incurred by Nortel. Delivery by Nortel of any Products
to a storage location as provided above shall be deemed to constitute delivery
of the Products to Buyer for purposes of this Agreement, including, without
limitation, provisions for payment, invoicing, passage of risk of loss, and
commencement of the Warranty Period.
<PAGE>
Network Product Purchase Agreement
Page 1
EXHIBIT D
LIMITED WARRANTIES AND REMEDIES
1. Nortel warrants that the Equipment supplied hereunder will under normal
use and service be free from defective material and faulty workmanship and
will conform to the applicable Specifications for the Warranty Period
specified in the Product Attachment with respect to such Equipment. The
foregoing warranty shall not apply to items normally consumed in
operation, such as, but not limited to, lamps and fuses or to Vendor
Items. Any installation Services performed by Nortel with respect to such
Equipment shall be free from defects in workmanship for the Warranty
Period set forth in the applicable Product Attachment.
2. Nortel's sole obligation and Buyer's exclusive remedy under the warranty
set forth in Section 1 above shall be limited to the replacement or
repair, at Nortel's option and expense, of the defective Equipment, or
correction of the defective installation Services. Replacement Equipment
may be new or reconditioned at Nortel's option.
3. Nortel warrants that any Software licensed by Nortel to Buyer under this
Agreement shall function during the Warranty Period of the Equipment with
respect to which such Software is furnished without any material,
service-affecting nonconformance to the applicable Specifications,
provided that Buyer shall have paid all Software support fees specified in
the applicable Product Attachment. If the Software fails to so function,
Buyer's sole remedy and Nortel's sole obligation under this warranty is
for Nortel to correct such failure through, at Nortel's option, the
replacement or modification of the Software or such other actions as
Nortel reasonably determines to be appropriate.
4. Unless otherwise stated in a Product Attachment, (a) Nortel's warranties
in Section 3 above shall only apply to the portion of the Software
actually developed by Nortel or its Affiliates, (b) all other Software
shall be provided by Nortel "AS IS", (c) Nortel shall assign to Buyer on a
nonexclusive basis any warranty on such other Software provided to Nortel
by the developer of such other Software to the extent of Nortel's legal
right to do so.
5. The obligations and remedies set forth in Sections 1, 2, and 3 above shall
be conditional upon: the Equipment not having been altered or repaired,
the Software not having been modified, and the Products not having been
installed outside the United States; any defect or nonconformance not
being the result of mishandling, abuse, misuse, improper storage, improper
performance of installation, other services, maintenance or operation by
other than Nortel (including use in conjunction with any product which is
incompatible with the applicable Equipment or Software or of inferior
performance), and/or any error, act, or omission of Buyer described in
Section 11.4; the Product not having been damaged by fire, explosion,
power failure, power surge, or other power irregularity, lightning,
failure
<PAGE>
Network Product Purchase Agreement
Page 2
to comply with all applicable environmental requirements for the Products
specified by Nortel or any other applicable supplier, such as but not
limited to temperature or humidity ranges, or any act of God, nature or
public enemy; and written notice of the defect having been given to Nortel
within the applicable Warranty Period.
6. The performance by Nortel of any of its obligations described in Section 2
or 3 of this Exhibit D shall not extend the applicable Warranty Period
except to the extent specified in the applicable Product Attachment.
7. Upon expiration of the applicable Warranty Period for Equipment
furnished hereunder, repair and replacement Service for such Equipment
shall be available to Buyer from Nortel in accordance with Nortel's
then-current terms, conditions and prices. Such repair and replacement
Service and notice of any discontinuance of such repair and replacement
Service shall be available for a minimum period set forth in the
Product Attachment applicable to such Equipment. This provision shall
survive the expiration of this Agreement.
8. Unless Nortel elects to repair or replace defective Equipment at Buyer's
facility, all Equipment to be repaired or replaced, whether in or out of
warranty, shall be packed by Buyer in accordance with Nortel's
instructions stated in the applicable Product Attachment and shipped at
Buyer's expense and risk of loss to a location designated by Nortel.
Replacement Equipment shall be returned to Buyer at Nortel's expense and
risk of loss. Buyer shall ship the defective Equipment to Nortel within
thirty (30) days of receipt of the replacement Equipment. In the event
Nortel fails to receive such defective Equipment within such thirty (30)
day period, Nortel shall invoice Buyer for the replacement Equipment at
the then-current price in effect therefor.
9. With respect to any Vendor Item furnished by Nortel to Buyer pursuant to
this Agreement, Nortel shall assign to Buyer on a nonexclusive basis any
warranty granted by the party that supplied such Vendor Item to Nortel to
the extent of Nortel's right to do so.
10. Neither Nortel nor Nortel's suppliers, as appropriate, shall have any
responsibility for warranties offered by Buyer to any of its customers.
Buyer shall indemnify Nortel and Nortel's suppliers, as appropriate, with
respect thereto.
Exhibit 10.2
United States of America
Federal Communications Commission
RADIO STATION AUTHORIZATION
Commercial Mobile Radio Services
Personal Communications Service - Broadband
D & E INVESTMENTS, INC.
124 East Main Street Call Sign: KNLF747
P.O. Box 458 Market: B240
Ephrata, PA 17522-0458
LANCASTER,PA
Channel Block: C
File Number: 00038-CW-L-96
................................................................................
The licensee hereof is authorized, for the period indicated, to construct and
operate radio transmitting facilities in accordance with the terms and
conditions hereinafter described. This authorization is subject to the
provisions of the Communications Act of 1934, as amended, subsequent Acts of
Congress, international treaties and agreements to which the United States is a
signatory, and all pertinent rules and regulations of the Federal Communications
Commission, contained in the Title 47 of the U.S. Code of Federal Regulations.
Initial Grant Date.......................................... September 17, 1996
Five-year Build Out Date.................................... September 17, 2001
Expiration Date............................................. September 17, 2006
CONDITIONS
Pursuant to Section 309(h) of the Communications Act of 1934, as amended, (47
U.S.C. ss. 309(h)), this license is subject to the following conditions: This
license does not vest in the licensee any right to operate a station nor any
right in the use of frequencies beyond the term thereof nor in any other manner
than authorized herein. Neither this license nor the right granted thereunder
shall be assigned or otherwise transferred in violation of the Communications
Act of 1934, as amended (47 U.S.C. ss. 15 1, et seq.). This license is subject
in terms to the right of use or control conferred by Section 706 of the
Communications Act of 1934, as amended (47 U.S.C. ss. 606).
Conditions continued on Page 2.
WAIVERS:
No waivers associated with this authorization.
Issue Date: March 28, 1997
FCC Form 463a Page 1 of 2
<PAGE>
D & E INVESTMENTS, INC. 00038-CW-L-96
CONDITIONS:
This authorization is subject to the condition that, in the event that systems
using the same frequencies as granted herein are authorized in an adjacent
foreign territory (Canada/United States), future coordination of any base
station transmitters within 72 km (45 miles) of the United States/Canada border
shall be required to eliminate any harmful interference to operations in the
adjacent foreign territory and to ensure continuance of equal access to the
frequencies by both countries.
This authorization is conditioned upon the full and timely payment of all monies
due pursuant to Sections 1.2110 and 24.711 of the Commission's Rules and the
terms of the Commission's installment plan as set forth in the Note and Security
Agreement executed by the licensee. Failure to comply with this condition will
result in the automatic cancellation of this authorization.
Issue Date: March 28, 1997
FCC Form 463a Page 2 of 2
Exhibit 10.3
INSTALLMENT PAYMENT PLAN NOTE
((Broadband Personal Communications Service, C Block): Auction Event No. 5)
US $11,878,574.40
Washington, D.C. March 28, 1997
License No.: PBB240C
FOR VALUE RECEIVED, the undersigned, D & E Investments, Inc., a Nevada
Corporation ("Maker"), promises to pay to the order of the FEDERAL
COMMUNICATIONS COMMISSION, an independent regulatory agency of the United States
("Payee" or "Commission"), the principal sum of $11,878,574.40 DOLLARS
("Principal Amount"), together with accrued interest, computed at the annual
rate of seven percent (7.00%) per annum ("Annual Rate") on the unpaid Principal
Amount hereof, from the date of this Note until the date the entire Principal
Amount has been paid in full.
Interest and principal shall be payable as set forth below and in
accordance with Schedule A attached hereto and made a part hereof:
Commencing March 31, 1997, Maker shall pay interest only at the Annual
Rate, in equal consecutive quarterly installments of $207,875.05, due on the
last day of the month and every ninety (90) days thereafter from March 31, 1997
through September 30, 2002.
Commencing December 31, 2002, Maker shall pay principal and in equal
quarterly installments of $857,628.04, due on the last day of each month ninety
(90) days hence through and including September 30, 2006.
The entire Principal Amount, together with accrued and unpaid interest
thereon, and all remaining obligations of Maker hereunder, shall be due and
payable on September 17, 2006 ("Maturity Date").
All interest shall be computed on the basis of a 360-day year for actual
days elapsed.
<PAGE>
All payments to be made hereunder, of principal, interest, costs,
expenses, or other sums due hereunder, shall be made to the holder of this Note
in lawful money of the United States of America, which at the time of payment
shall be legal tender for the payment of public and private debts, free and
clear and without reduction by reason of any present or future income, stamp or
other taxes, levies, imposts, deductions, charges, compulsory loans or
witbholdings whatsoever, including interest thereon or penalties with respect
thereto, if any imposed, assessed, levied or collected by any political
subdivision or taxing authority thereof or therein, on or in respect of this
Note or the obligations it evidences. All payments shall be made during normal
business hours at the Commission's designated lockbox location as set forth from
time to time in the Commission's then-applicable orders and regulations and/or
public notices.
This Note is secured by, and entitled to the benefits of, a Security
Agreement (the "Security Agreement") of even date between Maker and Payee. All
the terms, covenants, conditions and agreements contained in the Security
Agreement are hereby incorporated herein and made part of this Note to the same
extent and as if fully set forth herein. It is expressly understood by Maker
that all of the terms of the Security Agreement apply to this Note, and that
reference in the Security Agreement to "this Agreement" includes both the
Security Agreement and this Note.
IT IS HEREBY EXPRESSLY AGREED THAT TIME IS OF THE ESSENCE FOR
PERFORMANCE OF ALL TERMS AND CONDITIONS UNDER THIS NOTE AND THE
SECURITY AGREEMENT.
A default under this Note ("Event of Default") shall occur upon any or
all of the following:
a. non-payment by Maker of any Principal or Interest on the due date as
specified hereinabove if the, Maker remains delinquent for more than 90 days and
(1) Maker has not submitted a request, in writing, for a
grace Period or extension of payments, if any such grace
period or extension of payments is provided for in the
then-applicable orders and regulations of the Commission;
or
(2) Maker has submitted a request, in writing, for a grace
period or extension of payments, if any such grace period
or extension of payments is provided for in the
then-applicable orders and regulations of the Commission,
and following the
Page 2
<PAGE>
expiration of the grant of such grace period or extension
or upon denial of such a request for a grace period or
extension, Maker has not resumed payments of Interest and
Principal in accordance with the terms of this Note;
or;
b. Failure by Maker to comply with any other condition for holding the
above referenced License (as defined in the Security Agreement) as set forth in
the License or in the Communications Act of 1934, as amended, or the
then-applicable orders and regulations of the Commission; or
c. violation by Maker of any other covenant or term of this Note or the
Security Agreement.
Upon any Event of Default under this Note, Payee may assess a late fee and/or
administrative charge, plus the costs of collection, litigation, attorneys'
fees, and default payment as specified in the then-applicable orders and
regulations of the Commission, as amended, and Maker acknowledges that it is
liable and herein expressly promises to pay on demand such additional costs,
expenses, late charges, administrative charges, attorneys fees, and default
payment. Upon a default under this Note, the unpaid Principal Amount, plus all
unpaid interest accrued thereon, together with any late fee and/or
administrative charge, plus the costs of collection, litigation, attorneys'
fees, and default payment as specified in the then-applicable orders and
regulations of the Commission, as amended, shall become immediately due and
payable. The Maker hereby acknowledges that the Commission has issued Maker the
above referenced License pursuant to the Communications Act of 1934, as amended,
that is conditioned upon full and timely payment of financial obligations under
the Commission's installment payment plan as set forth in the then-applicable
orders and regulations of the Commission, as amended, and that the sanctions and
enforcement authority of the Commission shall remain applicable in the event of
a failure to comply with the terms and conditions of the License, regardless of
the enforceability of this Note or the Security Agreement.
No delay or omission on the part of Payee in exercising any right under
this Note, the Security Agreement, or any other instrument securing this Note,
shall operate as a waiver of such right or of any other right of Payee, nor
shall any waiver by Payee of any such right or rights on any one occasion be
deemed a bar to or waiver of the same right or rights on any future occasion.
Page 3
<PAGE>
Maker is liable for all costs of collection or enforcement of the
Payee's rights under this Note or under the Security Agreement or under any
other instrument now or hereafter executed by Maker in favor of Payee which in
any manner evidences or constitutes additional security for this Note, including
reasonable attorneys' fees, whether suit is brought or not, and all such costs
shall be paid by the Maker on demand, and whether or not such collection or
enforcement occurs in any bankruptcy, reorganization, receivership or other
proceedings involving creditors' rights or involving a claim under this Note or
any of the other loan documents.
Maker, all endorsers and guarantors hereof and any other party who may
become liable for all of any part of the obligation evidenced hereby, waive
presentment for payment, notice or dishonor, protest, notice of nonpayment and
any and all lack of diligence or delays in collection or enforcement of this
Note.
Maker may prepay all or any part of the Principal Amount without
premium or penalty upon ten (10) days' prior written notice to Payee, given in
the manner provided in the Security Agreement.
Partial prepayments shall not postpone or reduce regular payments to be
made hereunder. All such prepayments shall be applicable first to the payment of
late charges, if any, costs and expenses, and administrative penalties due
hereunder, then to accrued and unpaid interest, then to that portion of the
unpaid Principal Amount due on the Maturity Date and then, if applicable, to any
unpaid installments of principal in the inverse order of installment maturities.
The Payee may require that any partial prepayments be made on the dates
installments of principal and interest are due hereunder.
Anything to the contrary notwithstanding, Payee shall not charge, take
or receive, and Maker shall not be obligated to pay to Payee, any amounts
constituting interest on the Principal Amount in excess of the maximum rate
permitted by applicable law. If by reason of the acceleration of the unpaid
Principal Amount of otherwise, interest in excess of the highest legal contract
rate permitted by applicable law shall at any time be paid, any such excess
shall constitute and be treated as a payment of outstanding principal hereunder
and shall operate to reduce such outstanding Principal Amount.
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE, THE SECURITY
AGREEMENT, OR OTHER DOCUMENTS EVIDENCING OR SECURING THE DEBT TRANSACTION
EVIDENCED HEREBY MAY ONLY
Page 4
<PAGE>
BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA,
AND, BY EXECUTION AND DELIVERY OF THIS NOTE AND SECURITY AGREEMENT, THE MAKER
HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURT. THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN THE DISTRICT OF COLUMBIA.
THE MAKER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF THE
AFOREMENTIONED COURT IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF A COPY
THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO THE
MAKER AT ITS ADDRESS PROVIDED HEREIN. SUCH SERVICE SHALL BE DEEMED TO HAVE
OCCURRED ON THE THIRD DAY AFTER SUCH MAILING. NOTHING CONTAINED HEREIN SHALL
AFFECT THE RIGHT OF PAYEE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE MAKER IN ANY
OTHER JURISDICTION.
EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, WILLINGLY, VOLUNTARILY,
UNCONDITIONALLY, IRREVOCABLY AND INTENTIONALLY FOREVER WAIVES ANY RIGHT IT MAY
HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, OR OTHER
DOCUMENTS EVIDENCING OR SECURING THE DEBT TRANSACTION EVIDENCED HEREBY, ANY
COURSE OF CONDUCT, COURSE OF DEALING , STATEMENTS (VERBAL OR WRITTEN) OR ACTION
OF ANY PERSON OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THIS
TRANSACTION, DOCUMENT OR ANY RELATED DOCUMENT OF IN ANY WAY RELATING TO THE
COLLATERAL (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS
TRANSACTION OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS TRANSACTION, IN WHOLE
OR IN PART, WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). MAKER
REPRESENTS THAT NO ORAL OR WRITTEN
Page 5
<PAGE>
STATEMENTS HAVE BEEN MADE BY ANY PARTY TO INCLUDE THIS SUBMISSION OR
JURISDICTION AND WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS
STATED EFFECT. MAKER FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT COUNSEL, SELECTED BY ITS OWN FREE WILL, IN SIGNING THIS NOTE AND IN
THE MAKING OF THIS WAIVER AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS
WAIVER WITH SUCH COUNSEL. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE TO
ENTER INTO THIS TRANSACTION AND THE VARIOUS DOCUMENTS RELATED THERETO.
Maker acknowledges that this Note and Security Agreement (any
attachments affixed thereto by the Commission with the permission and knowledge
of the Maker/Debtor), along with the then-current applicable Commission orders
and regulations and the Communications Act of 1934, as amended, set forth the
entire agreement, written and oral, of the parties, and all inconsistent prior
statements, understandings, notices, representations and agreements between the
parties, oral or written, are superseded by and merged in the Note, the Security
Agreement or other documents evidencing or securing the debt transaction
evidenced hereby. Except as otherwise expressly provided herein, all of Payee's
representations, warranties, covenants and agreements in this Note and Security
Agreement shall merge in the documents and agreements executed by the Maker and
shall not survive said execution.
If any provision or part of this Note and/or the Security Agreement
shall for any reason be held or deemed to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein and
the remaining provisions of this Note shall remain in full force and effect. The
enforceability of the Note and/or the Security Agreement do not alter the rights
and obligations of the Maker and Payee under the Communications Act of 1934, as
amended, or under the then-applicable orders and regulations of the Commission,
as amended.
Any notice demand or request hereunder shall be given in the manner set
forth in the Security Agreement.
This Note shall be governed by and construed in accordance with the
Communications Act of 1934, as amended, the then-applicable orders and
regulations of the Commission, and federal law. Nothing in this Note shall be
deemed to modify
Page 6
<PAGE>
any then-applicable orders and regulations of the Commission, and nothing in
this Note shall be deemed to release the Maker from compliance therewith. This
Note may not be changed, modified, waived, terminated or discharged orally, but
only by an agreement in writing executed by the party against whom enforcement
of any such change, modification, waiver, termination, or discharge is sought.
Maker represents and warrants that any statements made by or on behalf
of Maker in connection with this Note: (i) are true and accurate in all material
respects; and (ii) do not omit any material facts or information that would make
such statement misleading in the context of Payee's evaluation of the note, and
acknowledges and agrees that Payee is entitled to and his relied on such
statements in agreeing to the Note.
Payee shall have the right at any time to assign, endorse, pledge,
convey or otherwise transfer this Note and all of the other loan documents to
any party. From and after the date of such assignment, endorsement, pledge,
conveyance or other transfer, such transferee shall be entitled to exercise and
all rights and remedies of Payee hereunder. Maker shall not assign, convey or
otherwise transfer its rights and obligations hereunder without the prior
written consent of the Commission.
Date: March 28, 1997 D & E Investments, Inc.
--------------- ----------------------------------
[NAME OF MAKER]
By: /s/ Donald R. Kaufmann
-------------------------------
Donald R. Kaufmann
Its: Chief Executive Officer and
Chairman of the Board
-----------------------------
Page 7
Exhibit 10.4
SECURITY AGREEMENT
(Broadband Personal Communications Service, C Block: Auction Event No. 5)
License No PBB240C
This SECURITY AGREEMENT DATED March 28, 1997, ("Agreement") between D&E
Investments, Inc. a Nevada Corporation ("Debtor"), and the FEDERAL
COMMUNICATIONS COMMISSION, an independent regulatory agency of the United States
("Commission" or "Secured Party")
WITNESSETH
WHEREAS, debtor has submitted the highest accepted bid for license
number PBB240C in the Broadband Personal Communications Service C Block auction
(hereinafter the "License") conducted by the Commission to assign such licenses;
WHEREAS, the Commission has duly determined to grant the License to
Debtor, subject to the terms and conditions set forth in the orders and
regulations of the Commission applicable to such licenses, and the
Communications Act of 1934, as amended;
WHEREAS, Debtor wishes to pay its auction price for the License by
installments through an Installment Payment Plan as provided by 47 C.F.R. ss.ss.
24.711, 1.2110 (hereinafter the "Installment Payment Plan") and undertakes to
hold the License under the terms and conditions set forth in the Commission's
orders and regulations, as amended, applicable to such licenses, and the
Communications Act of 1934, as amended and the terms and conditions of this
Agreement;
WHEREAS, the Commission has agreed to permit the Debtor to make payment
of the auction price for the License through an Installment Payment Plan; and
WHEREAS, the Commission has agreed to permit the Debtor to make payment
of the auction price for the License through an Installment Payment Plan; and
WHEREAS, as a condition to such agreement, Debtor has agreed to execute
the Installment Payment Plan Note of even date ("Note") and to enter into this
Agreement and make the pledge and assignment of collateral contemplated herein.
NOW THEREFORE, in consideration of the premises, the mutual agreements
contained herein and for other good and valuable consideration, the receipt,
adequacy, and sufficiency of which is hereby acknowledged, and in order to
induce the Commission to permit Debtor to pay the auction price for the License
through the Installment Payment Plan, Debtor hereby agrees with the Commission
as follows:
1. Pledge and Assignment of Collateral for Obligations Under Note.
Debtor hereby pledges, assigns, hypothecates, delivers, and sets over to the
Commission and grants to the Commission a first lien on and continuing security
interest in all of the Debtor's rights and interest in the License and all
proceeds, profits and products of any sale of or other disposition thereof
(collectively the "Collateral"), all as collateral security for the prompt and
complete payment when due (whether in accordance with the schedule of payments,
at the
<PAGE>
stated maturity, by acceleration, or otherwise) of the unpaid principal and
interest due, and such other additional costs, expenses, late charges,
administrative charges, attorneys fees, and default payments assessable under
the terms of the Note (all collectively "Obligations"). It is expressly
understood by Debtor that all of the terms of the Note apply to this Agreement
and that reference herein to "this Agreement" includes both the Security
Agreement herein and the Note. For purposes of interpreting the terms used in
this Agreement shall have the meaning ascribed to them in the Uniform Commercial
Code (Official Text and Comments, American Law Institute).
2. Interest of Commission. It is understood and acknowledged by Debtor
that pursuant to Section 301 of the Communications Act of 1934, as amended, the
Commission is charged with the regulatory mandate to maintain control over all
channels of radio transmission (the Spectrum"), and to provide licenses for the
use of such radio channels, but not ownership thereof. Debtor understands and
acknowledges that it holds a mere conditional license to use the Spectrum with
no ownership interest in the Collateral (or any underlying right to use the
Spectrum), or any power to assign the License without the prior approval of the
Commission pursuant to Section 310(d) of the Communications Act of 1934, as
amended. Debtor further understands and acknowledges that it is giving a
security interest to the Commission in the Collateral only to assist the
Commission in protecting its ability to enforce the Commission's regulations
which condition holding the license in compliance with all then-applicable
orders and regulations of the Commission, including, but not limited to, full
and timely payment of all payments under the Installment Payment Plan. To that
end, and not in derogation of any of the Commission's regulatory authority over
the License, Debtor hereby acknowledges that the Commission has a first security
interest in the Collateral, and Debtor shall not dispute such first security
interest, or the Commission's rights as a secured party hereunder, in any legal
or equitable proceeding in which Debtor, or any assignee or trustee of the
estate of Debtor in bankruptcy, is a party. Nothing set forth herein shall
preclude the Debtor from granting to other parties a subordinated security
interest limited to a subordinated interest in the proceeds arising from an
authorized assignment or transfer of the License to a third party (hereinafter a
"Subordinated Security Interest"), provided however that any such Subordinated
Security Interest shall be subordinated to and in no way inconsistent with the
Commission's first security interest in the Collateral, including but not
limited to the proceeds of any disposition of the License, and further provided
that said Subordinated Security Interest shall not survive if the License is
rescinded, canceled, or revoked by regulatory action of the Commission for
violation of the terms and conditions of the License, including but not limited
to regulatory action upon a default under this Agreement pursuant to 47 C.F. R.
ss. 1.2110. The Debtor shall provide to the Commission upon request the name and
address of any party with a Subordinated Security Interest in the proceeds of
any disposition of the License, and a copy of any documents setting forth such a
Subordinated Security Interest.
3. Compliance with Commission Orders and Regulations. Nothing in this
Agreement shall be deemed to modify any then-applicable orders and regulations
of the Commission, and nothing in the Agreement shall be deemed to release
Debtor from compliance therewith.
Page 2
<PAGE>
4. Representations and Warranties of Debtor. Debtor represents and
warrants to the Commission as follows:
(a) It has full power, authority and legal right to execute,
deliver and perform this Agreement, the Note, and any other documents
delivered in connection with the Note, this Agreement and the
transactions contemplated therein, to make the debt transaction
evidenced by the Note, and to pledge the Collateral pursuant to this
Agreement.
(b) It is a duly organized corporation, existing in good
standing under the laws of Nevada and is duly qualified to do business
wherever necessary to carry on its present operations. Its principal
place of business and chief executive office are located at 124 East
Main Street, P.O. Box 458, Ephrata, PA 17522-0458.
(c) The representative of Debtor purporting to act on behalf
of Debtor in executing this Agreement, the Note and any other documents
delivered in connection with the Note, this Agreement and the
transactions contemplated therein, is duly authorized by Debtor to take
all such acts and to execute all such documents.
(d) No security agreements have been executed and delivered,
and no financing statements have been filed in any jurisdiction,
granting or purporting to grant a security interest in the Collateral
that would give any other person any right or interest in the
Collateral, or any portion thereof, except for a Subordinated Security
Interest, as defined herein, and that no person has a secured interest
that is or will be in any way inconsistent with the rights of the
Commission herein as the first secured party or the terms of this
Agreement.
(e) No consent of any other party and no consent, license,
approval or authorization of, exemption by, or registration or
declaration with, any governmental instrumentality, domestic or foreign
other than the Commission, is required to be obtained in connection
with the execution, delivery or performance of this Agreement, the Note
or any other document executed and delivered in connection with the
delivery of the Note or this Agreement.
(f) The execution, delivery and performance of this Agreement
and the Note does not and will not violate any provision of any
applicable law or regulation or any order, judgment, writ, award or
decree of any court, arbitrator, governmental instrumentality, domestic
or foreign, or of any indenture, contract, agreement or other
undertaking to which Debtor is a party or which purports to be binding
upon Debtor or upon any of Debtor's assets, and will not result in the
creation or imposition of any lien, charge or encumbrance on or
security interest in any of the assets of Debtor, except as
contemplated by this Agreement.
Page 3
<PAGE>
(g) Debtor will not permit any financing statement to be filed
with respect to the Collateral or any portion thereof or interest
therein that would give said any other person a right to any interest
in the Collateral, or any portion thereof, except that Debtor may
permit a third party to file a Subordinated Security Interest, as
defined herein, so long as said Subordinated Security Interest, is not
in any way inconsistent with the terms of this Agreement and the rights
of the Commission herein as the first secured party. Debtor will
promptly notify Secured Party of, and will defend the Collateral
against, all claims and demands of all persons at any time claiming the
same or any interest therein that would give any other person a right
or any interest in the Collateral not subordinated to the rights of the
Commission herein as the first secured party, or that is in any way
inconsistent with the terms of this Agreement.
5. Covenants of Debtor. Debtor hereby covenants and agrees as
follows:
(a) That it will defend the Commission's right, title and
security interest in and to the Collateral against the claims and
demands of all persons whomsoever.
(b) That it will execute all financing statements and other
instruments or documents related to the perfection of the Commission's
security interest, including but not limited to any renewal financing
statements or instruments as required to maintain the Commission's
security interest, or as otherwise reasonably requested by the
Commission, and to file and pay the cost of filing any such instruments
or documents as required under this paragraph in whichever public
office deemed advisable by the Commission.
(c) That it will not make any indenture, contract, agreement
or other undertaking to which Debtor is a party or which purports to be
binding upon Debtor, or upon any of Debtor's assets, that would result
in the creation or imposition of any lien, charge or encumbrance on or
security interest in any of the assets of Debtor that would give any
other person a right or any interest in the Collateral, or any portion
thereof, except for a Subordinated Security Interest, as defined
herein, provided that such Subordinated Security Agreement is not
inconsistent with the terms of this Agreement and interest of the
Commission as the first secured party.
(d) That it will pay all costs and expenses, including
reasonable attorney's fees, of the Commission incurred in connection
with the enforcement of this Agreement and any and all liability
incurred by the Commission resulting from any act or omission of Debtor
with respect to the Collateral and this Agreement.
(e) Debtor will execute, alone or with Secured Party, any
document, will procure any document and do all other acts and pay all
connected costs, in a timely and proper manner, which from the
character or use of the Collateral may be reasonably necessary to
protect the Collateral against the rights, claims or interests of third
persons, and will otherwise preserve the Collateral as security
hereunder. The specific undertakings required of Debtor in this
Agreement shall not be construed to exclude the aforementioned general
obligation.
Page 4
<PAGE>
6. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints the Commission and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in the Commission's discretion, for the
purpose of carrying out the terms of this Agreement and, to the extent permitted
by applicable law, to take any and all appropriate actions and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement. Such appointment is a power coupled
with an interest until all Obligations have been paid in full by Debtor.
7. Event of Default. Debtor shall be in default under this Agreement
if an Event of Default (as defined in the Note) has occurred.
8. Remedies. If an Event of Default shall occur, the Commission shall
thereafter have the following rights and remedies (to the extent permitted by
applicable law) in addition to the rights and remedies relating to the Note, all
such remedies being cumulative, not exclusive, and enforceable alternatively,
successively or concurrently at such time or times as Commission deems
expedient:
(a) the License shall be automatically canceled pursuant to
47 C.F.R. ss. 1,2110;
(b) all Obligations secured hereunder shall become immediately
due and payable without presentment, demand, protest, further notice,
or other requirements of any kind;
(c) the Commission may demand, sue for, and collect the
outstanding balance of the unpaid Obligations, and make any compromise,
or settlement the Commission deems suitable with respect to any
Collateral which may be held by it hereunder;
(d) Debtor hereby acknowledges the Commission's authority,
pursuant to the Communications Act of 1934, as amended, and the
Commission's orders and regulations then-applicable to such licenses,
to conduct another public auction or assign the License in the event
that the Commission rescinds, cancels, or revokes the License for any
default under this Agreement or any other violation of the terms and
conditions of the License. The Undersigned hereby waives all notices
prior to the conduct of said public auction or assignment by the
Commission or its agents. Debtor further acknowledges that in the event
that the Commission rescinds, cancels, or revokes the License for any
default under this Agreement or any other violation of the terms and
conditions of the License, Debtor has no right or interest in any
moneys or evidence of indebtedness given to the Commission by a
subsequent licensee of the Spectrum and that all such moneys or
evidence of indebtedness are, and shall remain, the full property of
the Federal Treasury, pursuant to Section 309(i) of the Communications
Act of 1934, as amended, and then-applicable Commission orders and
regulations.
Page 5
<PAGE>
(e) In addition to other remedies hereunder, Debtor shall
remain liable, and obligated to pay on demand, all costs of collection
and reasonable attorneys' fees and expenses incurred or paid by the
Commission in enforcing this Agreement including, without limitation,
all administrative fees and expenses of the Commission in attempting to
collect the Obligations or to enforce this Agreement, or the
prosecution or defense of any action or proceeding related to the
subject matter of this Agreement, and all payments assessed by the
Commission in the event of default as specified in Commission orders
and regulations applicable to such licenses.
(f) Debtor hereby acknowledges that the Commission has no
adequate remedy at law with respect to a breach of any covenant
contained in this Agreement and, as a consequence, agrees that each and
every covenant contained in this Agreement shall be specifically
enforceable against Debtor and Debtor hereby waives and agrees not to
assert any defense against an action for specific performance of such
covenants.
(g) Secured Party may exercise any and all of the rights and
remedies conferred upon Secured Party by this Agreement, and other loan
documents, or by applicable law, either concurrently or in such order
as Secured Party may determine.
(h) Secured Party may make such payments and do such acts as
Secured Party may deem necessary to protect its security interest in
the Collateral.
` (i) the Commission may exercise any remedies of a Secured Party under
the Uniform Commercial Code (Official Text and Comments, American Law
Institute), or any other applicable law.
(j) Secured Party shall have the right to enforce one or more
remedies hereunder or under the Note, successively or concurrently, and
such action shall not operate to estop or prevent Secured Party from
pursuing any further remedy which it may have.
9. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10. No Waiver: Cumulative Remedies. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Commission. The Commission shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies under this Agreement, and no waiver shall be valid unless in
writing, signed by the Commission, and then only to the extent herein set forth.
A waiver by the Commission of any right or remedy under this Agreement on any
one occasion shall not be construed as a bar to any right or remedy which the
Commission
Page 6
<PAGE>
would otherwise have on any future occasion. No failure to exercise nor any
delay in exercising on the part of the Commission, any right, power or privilege
under this Agreement shall operate as a waiver thereof; not shall any single or
partial exercise of any right, power or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right power
or privilege. The rights and remedies provided in this Agreement are cumulative
and may be exercised singly or concurrently and are not exclusive of any rights
or remedies provided by law.
11. Compliance With Other Applicable Orders and Regulations. Debtor
recognizes that its continued retention of the License, and rights to operate as
a Commission licensee thereunder, are conditioned upon compliance with all
Commission orders and regulations applicable to the License and the
Communications Act of 1934, as amended. Debtor further recognizes that full and
timely payment as set forth in the Note does not otherwise relieve it of its
obligations otherwise to comply with the then-applicable orders and regulations
of the Commission, and the Communications Act of 1934, as amended.
12. Applicable Law. This Agreement shall be governed by and construed
in accordance with Communications Act of 1934, as amended, then-applicable
Commission orders and regulations, as amended, and federal law.
13. Successors, Assigns, Designated Agents. Subject to the provision of
Section 2 of this Agreement regarding the restriction upon Debtor's ability to
assign the License, this Agreement shall be binding upon Debtor, its successors
and assigns and shall inure to the benefit of the Commission, and its successors
and assign. The Commission may designate agents other than the Commission to act
on its behalf with respect to any and all rights and remedies of the Commission
under this Agreement or the Note, and such designee shall have all of the
rights, powers and remedies available to the Commission within the scope of its
designation. Nothing herein, however, shall be construed as granting Debtor any
right to sell or assign the License.
14. Singular and Plural. Wherever used, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall be applicable to all genders.
15. Financing Statements. To the extent permitted by applicable law,
Debtor authorizes the Commission to sign and file financing statements at any
time with respect to any of the Collateral without the signature of Debtor.
Debtor will, however, at the same time and from time to time, execute such
financing statements, agreements and other instruments and perform such acts as
Commission may request in order to establish and maintain a validly perfected
first priority security interest in the Collateral. All reasonable costs of
filing and recording will be paid by Debtor.
16. Indemnification. Debtor hereby agrees to defend, indemnify and
hold harmless Secured Party and its employees, officers and agents, from and
against any and all liabilities, claims and obligations which may be incurred,
asserted or imposed upon them or any of them as a result of or in connection
with any use, operation, lease or consumption of any of the Collateral
Page 7
<PAGE>
or as a result of Secured Party's seeking to obtain performance of any of the
obligations due with respect to the Collateral.
17. Notices. All notices, requests and demands hereunder shall be in
writing and shall be deemed to have been duly given, made or served on the
earliest of (i) three (3) business days after the date mailed if sent by
first-class U.S. mail postage prepaid, (ii) actual delivery thereof if delivered
by hand to the party to be notified, (iii) receipt thereof if sent by express
mail or other overnight courier service, or (iv) transmission to the telecopier
number listed below for the party to be notified if sent within normal business
hours or, otherwise, on the next business day thereafter. In each case such
notification with respect to the Debtor and the Commission shall be addressed as
set forth below or as may be hereafter designed by the respective parties
hereto.
As to Debtor: With a copy to:
- ------------
D & E Investments, Inc. Robert E. Stup, Jr.
1325 Airnative Way Fleischman and Walsh, LLP
Suite 130 1400 Sixteenth St., NW
Reno, NV 89502 Suite 600
Attn: Janice C. George Washington, DC 20036
As to the Commission: U.S. DEPARTMENT OF TREASURY
- --------------------- P.O. BOX 44093
WASHINGTON, D.C. 20026-4093
ATTN: FCC-FMS/DEBT MANAGEMENT SERVICE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
DEBTOR: D & E Investments, Inc.
-------
Date: March 28, 1997 By: /s/ Donald R. Kaufmann
--------------------------------
Donald R. Kaufmann
Its: Chief Executive Officer and
Chairman of the Board
-------------------------------
FEDERAL COMMUNICATIONS COMMISSION
---------------------------------
Date: 3/28/97 By: /s/ Marilyn J. McDermott
--------- --------------------------------
Its: Associate Managing Director
for Operations (or Designee)
Page 8
Exhibit 10.5
FIFTH AMENDMENT TO NOTE AGREEMENT
---------------------------------
THIS FIFTH AMENDMENT dated as of April 1, 1997 (the "Fifth Amendment") to the
Note Agreement dated as of November 15, 1991 (the "Original Note Agreement") is
by and between DENVER AND EPHRATA TELEPHONE COMPANY, a Pennslyvania corporation
(the "Company" and ALLSTATE LIFE INSURANCE COMPANY (the "Noteholder").
RECITALS:
1. The Company and the Noteholder have heretofore entered into the Original
Note Agreement and various amendments thereto (the Original Note Agreement
and such various amendments being hereinafter collectively referred to as
the "Note Agreement").
2. The Company and the Noteholder now desire to amend the Note Agreement in the
respects, but only in the respects, hereinafter set forth.
3. Capitalized terms used herein shall have the respective meanings ascribed
thereto in the Note Agreement unless herein defined or the context shall
otherwise require.
4. All requirements of law have been fully complied with and all other acts and
things necessary to make this Fifth Amendment a valid, legal and binding
instrument according to its terms for the purposes therein expressed have
been done or performed.
NOW THEREFORE, the Company and the Noteholder, in consideration of $10.00 and
other good and valuable consideration the receipt whereof is hereby acknowledged
to hereby agree as follows:
Section 1. AMENDMENTS
Section 1.1 Limitations on Funded Debt
Section 5.7(a) of the Note Agreement is hereby amended in its entirety
to read as follows:
"The Company will keep and maintain Consolidated Funded Debt at an
aggregate amount that (1) at all times prior to November 30, 1997 shall not
exceed 55% of the sum of (a) Consolidated Funded Debt plus (b) Consolidated
Tangible Net worth and (2) at all times on or after November 30, 1997 shall not
exceed 50% of the sum of (a) Consolidated Funded Debt plus (b) Consolidated
Tangible Net Worth; provided that for purposes of any determination of
Consolidated Funded Debt pursuant to this Section 5.7, if there shall not have
been a period of 60 consecutive days during the twelve-month period immediately
preceding the date of any determination hereunder during which the Company and
its Subsidiaries shall have been free of all Consolidated Current Debt, then the
average of the aggregate unpaid principal amounts of Consolidated Current Debt
outstanding on the last day of each month of the fiscal year most recently ended
shall be deemed to constitute Consolidated Funded Debt for purposes of such
determination."
Section 1.2 Definition of Funded Debt
Section 8.1 definition of "Funded Debt" is amended to change the last
sentence of the definition as follows:
"But in any event the calculation of Funded Debt will not include up to
$3.4 million of debt guaranteed to Overseas Private Investment Corporation for
the Hungarian project until June 30, 1997."
<PAGE>
Section 2. MISCELLANEOUS
Section 2.1 The Fifth Amendment shall be construed in connection with and as
part of the Note Agreement, and all terms, conditions and covenants contained in
the Note Agreement shall be and remain in full force and effect.
Section 2.2 Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this Fifth Amendment
may refer to the Note Agreement without making specific reference to this Fifth
Amendment but nevertheless all such references shall include this Fifth
Amendment unless the context otherwise requires.
Section 2.3 The descriptive headings of the various Sections or parts of this
Fifth Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
Section 2.4 This Fifth Amendment shall be governed by and construed in
accordance with Pennsylvania law.
Section 2.5 The execution hereof by the undersigned shall constitute a contract
between the parties hereto for the uses and purposes hereinabove set forth, and
this Fifth Amendment may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
THE PARTIES HERETO execute this Fifth Amendment effective April 1, 1997.
DENVER AND EPHRATA TELEPHONE AND
TELEGRAPH COMPANY
BY: /s/ Thomas E. Morell
---------------------------------------
Its Treasurer
ALLSTATE LIFE INSURANCE COMPANY
BY:
--------------------------------------
BY: /s/ Judith P. Greffin
---------------------------------------
Its Authorized Signatories
Exhibit 10.6
FOURTH AMENDMENT TO NOTE AGREEMENT
THIS FOURTH AMENDMENT dated as of April 1, 1997 (the "Fourth Amendment") to the
Note Agreement dated as of January 14, 1994 (the "Original Note Agreement") is
by and between DENVER AND EPHRATA TELEPHONE COMPANY, a Pennsylvania corporation
(the "Company") and ALLSTATE LIFE INSURANCE COMPANY (the "Noteholder").
RECITALS:
1. The Company and the Noteholder have heretofore entered into the Original
Note Agreement and various amendments thereto (the Original Note Agreement
and such various amendments being hereinafter collectively referred to as
the "Note Agreement").
2. The Company and the Noteholder now desire to amend the Note Agreement in the
respects, but only in the respects, hereinafter set forth.
3. Capitalized terms used herein shall have the respective meanings ascribed
thereto in the Note Agreement unless herein defined or the context shall
otherwise require.
4. All requirements of law have been fully complied with and all other acts and
things necessary to make this Fourth Amendment a valid, legal and binding
instrument according to its terms for the purposes therein expresssed have
been done or performed.
NOW THEREFORE, the Company and the Noteholder, in consideration of $10.00 and
other good and valuable consideration the receipt whereof is hereby acknowledged
do hereby agree as follows:
Section 1. AMENDMENT
Section 1.1 Limitations on Funded Debt
Section 5.7(a) of the Note Agreement is hereby amended in its entirety
to read as follows:
"The Company will keep and maintain Consolidated Funded Debt at an
aggregate amount that (1) at all times prior to November 30, 1997 shall not
exceed 55% of the sum of (a) Consolidated Funded Debt plus (b) Consolidated
Tangible Net Worth and (2) at all times on or after November 30, 1997 shall not
exceed 50% of the sum of (a) Consolidated Funded Debt plus (b) Consolidated
Tangible Net Worth; provided that for purposes of any determination of
Consolidated Funded Debt pursuant to this Section 5.7, if there shall not have
been a period of 60 consecutive days during the twelve-month period immediately
preceding the date of any determination hereunder during which the Company and
its Subsidiaries shall have been free of all Consolidated Current Debt, then the
average of the aggregate unpaid principal amounts of Consolidated Current Debt
outstanding on the last day of each month of the fiscal year most recently ended
shall be deemed to constitute Consolidated Funded Debt for purposes of such
determination."
<PAGE>
Section 1.2 Definition of Funded Debt.
Section 8.1 definition of "Funded Debt" is amended to change the last
sentence of the definition as follows:
"But in any event the calculation of Funded Debt will not include up to
$3.4 million of debt guaranteed to Overseas Private Investment Corporation for
the Hungarian project until June 30, 1997."
<PAGE>
Section 2. MISCELLANEOUS
Section 2.1 The Fourth Amendment shall be construed in connection with and as
part of the Note Agreement, and all terms, conditions and covenants contained in
the Note Agreement shall be and remain in full force and effect.
Section 2.2 Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this Fourth Amendment
may refer to the Note Agreement without making specific reference to this Fourth
Amendment but nevertheless all such references shall include this Fourth
Amendment unless the context otherwise requires.
Section 2.3 The descriptive headings of the various Sections or parts of this
Fourth Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
Section 2.4 This Fourth Amendment shall be governed by and construed in
accordance with Pennsylvania law.
Section 2.5 The execution hereof by the undersigned shall constitute a contract
between the parties hereto for the uses and purposes hereinabove set forth, and
this Fourth Amendment may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
<PAGE>
THE PARTIES HERETO execute this Fourth Amendment effective April 1, 1997.
DENVER AND EPHRATA TELEPHONE AND
TELEGRAPH COMPANY
BY: /s/ Thomas E. Morell
---------------------------------
Its Treasurer
---------------------------
ALLSTATE LIFE INSURANCE COMPANY
BY:
---------------------------------
BY: /s/ Judith P. Greffin
---------------------------------
Its Authorized Signatories
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM STATEMENTS OF INCOME, BALANCE SHEETS AND
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 64,039,529
<OTHER-PROPERTY-AND-INVEST> 9,954,631
<TOTAL-CURRENT-ASSETS> 12,758,540
<TOTAL-DEFERRED-CHARGES> 370,328
<OTHER-ASSETS> 1,648,737
<TOTAL-ASSETS> 109,948,560
<COMMON> 922,676
<CAPITAL-SURPLUS-PAID-IN> 9,980,455
<RETAINED-EARNINGS> 35,481,581
<TOTAL-COMMON-STOCKHOLDERS-EQ> 45,433,972
0
1,445,600
<LONG-TERM-DEBT-NET> 36,768,767
<SHORT-TERM-NOTES> 7,318,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,222,453
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 17,761,768
<TOT-CAPITALIZATION-AND-LIAB> 109,948,560
<GROSS-OPERATING-REVENUE> 11,778,410
<INCOME-TAX-EXPENSE> 607,400
<OTHER-OPERATING-EXPENSES> 9,585,414
<TOTAL-OPERATING-EXPENSES> 10,192,814
<OPERATING-INCOME-LOSS> 1,585,596
<OTHER-INCOME-NET> 61,154
<INCOME-BEFORE-INTEREST-EXPEN> 1,524,442
<TOTAL-INTEREST-EXPENSE> 617,988
<NET-INCOME> 890,191
16,263
<EARNINGS-AVAILABLE-FOR-COMM> 890,191
<COMMON-STOCK-DIVIDENDS> 557,247
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 3,371,554
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
