<PAGE>
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, 1994
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 0-11053
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2093008
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
46 Public Square
P.O. Box 3000
Wilkes-Barre, Pennsylvania 18703-3000
(Address of principal executive offices)
(Zip Code)
(717) 825-1100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
requirement for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock ($1.00 par value), as of March
31, 1994.
Common Stock 7,962,266
Class B Common Stock 8,547,327
- - -1-
<PAGE>
C-TEC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations-Quarters Ended March 31,
1994 and 1993 3-4
Condensed Consolidated Balance Sheets-
March 31, 1994 and December 31, 1993 5-6
Condensed Consolidated Statements of
Cash Flows-Quarters Ended March 31,
1994 and 1993 7
Notes to Condensed Consolidated Financial
Statements 8-10
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 11-18
PART II. Other Information
Results of Votes of Security Holders 19
Exhibits and Reports on Form 8-K 19
SIGNATURE 20
- - -2-
<PAGE>
I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1994
1993
<S> <C>
<C>
SALES $ 71,987 $ 67,943
COSTS & EXPENSES 59,294 59,259
________ ________
OPERATING INCOME 12,693 8,684
INTEREST INCOME 372 408
INTEREST EXPENSE (8,290) (8,557)
GAIN ON SALE OF PENNSYLVANIA
CABLE PROPERTIES 893 -
GAIN ON SALE OF MARKETABLE
EQUITY SECURITIES - 1,988
OTHER INCOME, NET 268 10
________ ________
INCOME BEFORE INCOME TAXES 5,936 2,533
PROVISION FOR INCOME TAXES 2,690 2,328
________ ________
INCOME BEFORE MINORITY INTEREST
AND EQUITY IN UNCONSOLIDATED ENTITIES 3,246 205
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED ENTITIES (216) (78)
EQUITY IN (LOSS) INCOME OF
UNCONSOLIDATED ENTITIES (201) (222)
________ ________
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE
AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGES 2,829 (95)
EXTRAORDINARY CHARGE - DEBT
PREPAYMENT PENALTY (2,861) - CUMULATIVE EFFECT ON PRIOR YEARS
OF
CHANGES IN ACCOUNTING PRINCIPLES FOR:
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (1,448) INCOME
TAXES - (53)
POSTEMPLOYMENT BENEFITS (393) -
________ ________
NET LOSS $ (425) $ (1,596)
________ ________
________ ________
</TABLE>
- - -3-
<PAGE>
I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1994
1993
<S> <C> <C>
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Income (loss) before extraordinary charge
and cumulative effect of accounting
principle changes $.17 $(.01)
Extraordinary charge (.17) -
Cumulative effect on prior years
of changes in accounting principles (.03) (.09)
__________
__________
Net Loss $(.03) $(.10)
__________
__________
__________
__________
AVERAGE COMMON SHARES OUTSTANDING 16,509,593 16,498,160
__________ __________
__________ __________
</TABLE>
See accompanying notes to Condensed Consolidated Financial
Statements.
- - -4-
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31 December 31
1994 1993
<S> <C> <C>
ASSETS (Unaudited)
(Audited)
CURRENT ASSETS:
Cash and temporary cash investments $ 52,526 $
60,182 Other current assets 45,939 40,874 Deferred income taxes
2,459 2,125 ________ ________
Total current assets 100,924 103,181
________ ________
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant 384,586 381,411
Cable Plant 177,905 176,297
Cellular Plant 27,893 25,513
Other Property, Plant and Equipment 11,663 11,219
________ ________
Total Property, Plant and Equipment 602,047 594,440
Accumulated Depreciation 257,852 250,632
________ ________
Net Property, Plant and Equipment 344,195 343,808
________ ________
INVESTMENTS 14,578 16,253
________ ________
INTANGIBLE ASSETS, NET 99,166 106,677
________ ________
DEFERRED CHARGES 11,149 9,645
________ ________
TOTAL ASSETS $570,012 $579,564
________ ________
________ ________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 826 $ -
Current maturities of long-term
debt and preferred stock 9,444 6,675 Advance billings &
customer deposits 7,976 7,698
Accrued taxes 11,760 11,295 Accrued interest 4,286 6,431
Other current liabilities 35,956 32,004
________ ________
Total current liabilities 70,248 64,103
________ ________
</TABLE>
- - -5-
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31
December 31
1994 1993
(Unaudited)
(Audited)
<S> <C> <C>
LONG-TERM DEBT 392,538 409,293
________ ________
DEFERRED INCOME TAXES AND INVESTMENT
TAX CREDITS 32,125 30,965
________ ________
OTHER DEFERRED CREDITS 12,680 12,545
________ ________
MINORITY INTEREST 2,209 2,019
________ ________
REDEEMABLE PREFERRED STOCK 274 276
________ ________
COMMON SHAREHOLDERS' EQUITY:
Common Stock 16,887 16,887
Additional Paid-in Capital 20,635 20,635
Retained Earnings 27,704 28,129
Treasury Stock at cost, 377,842 shares
at March 31, 1994 and December 31, 1993 (5,288) (5,288)
________ ________
Total Common Shareholders' Equity 59,938 60,363
________ ________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 570,012 579,564
________ ________
________ ________
</TABLE>
See accompanying notes to Condensed Consolidated Financial
Statements.
- - -6-
<PAGE> C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter
Ended
March 31,
1994
1993
<S> <C>
<C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 16,910 $ 16,223
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant & Equipment (11,905) (20,561)
Proceeds from sale of Pennsylvania
cable properties 1,200 -
Proceeds from redemption of investment in
RTB Stock 1,141 -
Proceeds from sale of marketable
equity securities - 2,063
Acquisitions - (59)
Other 806 (609)
________ ________
Net Cash Used in Investing Activities (8,758) (19,166)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Penalty on early retirement of debt (2,861) -
Issuance of Long-Term Debt 135,143 12,000 Redemption of
Long-Term Debt (149,132) (13,147)
Net Short-Term Borrowings 826 1,106
Other 216 202
________ ________ Net Cash (Used in) Provided by
Financing Activities (15,808) 161
________ ________
Net Decrease in Cash and
Temporary Cash Investments (7,656) (2,782)
Cash and Temporary Cash Investments at
Beginning of Year 60,182 58,837
________ ________
Cash and Temporary Cash Investments at
March 31, $52,526 $56,055
________ ________
________ ________
Supplemental Disclosures of Cash Flow
Information
Cash paid during the periods for:
Interest (net of amounts capitalized) $10,435 $10,186
________ ________
________ ________
Income taxes $ 867 $ 1,072
________ ________
________ ________
</TABLE>
See accompanying notes to Condensed Consolidated Financial
Statements.
- - -7-
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars, except per share amounts)
1. The Condensed Consolidated Financial Statements included
herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. 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 rules and
regulations. However, in the opinion of the Management of the
Company, the Condensed Consolidated Financial Statements include
all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial
information. The Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's 1993 Annual Report to
Shareholders.
2. Certain amounts relating to 1993 have been restated to
conform with the 1994 reporting format.
3. In September 1993, the Company received a Notice of
Deficiency from the Internal Revenue Service relating to the
examination of the Company's consolidated federal income tax
returns for 1989, 1990, and 1991. The most significant of these
adjustments relate to the disallowance of the claimed
amortization of certain intangible assets. Through March 1994,
approximately $139,021 in amortization of these assets has been
deducted for tax purposes. Management believes that its
position is supportable and intends to vigorously oppose these
adjustments. Management has filed a petition for
redetermination of the deficiencies and additions to tax as set
forth in the Notice of Deficiency. In the opinion of
management, adequate provision has been made for all income
taxes and interest which may ultimately be due as a result of
the proposed adjustments. Management believes that the ultimate
resolution of this matter will not have a material adverse
effect on the financial position of the Company.
4. During the first quarter of 1994, the Company adopted
Statement of Financial Accounting Standards No. 112-Employers'
Accounting for Postemployment Benefits ("SFAS 112"). Under SFAS
112, the Company is required to accrue the cost of certain
self-insured postemployment benefits. Previously, the cost of
these benefits was accounted for on a pay-as-you-go basis. The
Company elected to immediately recognize the cumulative effect
on prior years of the change in accounting for postemployment
benefits of $393, which is net of income tax benefits of $280.
The Company continues to fund the cost of these benefits on a
pay-as-you-go basis.
5. On April 1, 1994, the Company signed a definitive
agreement for the sale of its cellular properties to Independent
Cellular Network, Inc. for approximately $182.5 million. The
sale is subject to FCC, Hart-Scott-Rodino and other regulatory
approvals. The Company expects the sale to result in a
significant nonrecurring gain. The Cellular group had sales of
$7,062 and $4,932 for the quarters ended March 31, 1994 and
1993, respectively.
- - -8-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Thousands of dollars, except per share amounts)
6. In March 1994, the Telephone Group prepaid approximately
$135 million mortgage notes payable to the United States through
the Rural Electrification Administration, The Rural Telephone
Bank and The Federal Financing Bank. The Company borrowed an
equal amount from the National Bank for Cooperatives. The most
restrictive covenants of the new agreement provide that the
Telephone Group must maintain specified ratios for total
leverage, interest coverage, and equity to total capitalization.
The transaction resulted in an extraordinary loss of $2,861, or
$.17 per average common share, net of income tax benefits of
$2,154.
7. The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994
1993
<S> <C> <C>
Currently payable $ 2,642 $1,608
Deferred 232 961
Investment Tax Credits (184) (241)
_______ _______
Total provision $2,690 $2,328
_______ _______
_______ _______
</TABLE>
The provision for income taxes is different than the amounts
computed by applying the U.S. statutory federal tax rate (35% in
1994 and 34% in 1993). The differences are as follows:
<TABLE>
<CAPTION>
1994
1993
<S> <C> <C>
Income before provision for income taxes and
cumulative effect of accounting principle
changes $ 5,519 $ 2,233
_______ _______
_______ _______
Federal tax provision at statutory rate $ 1,932 $ 759
Increase (reduction) due to:
State income taxes, net of federal benefit 1,007 659
Amortization of investment tax credits (184) (241)
Rate differential applied
to reversing timing differences (119) 8
Estimated nondeductible expenses 375 1,000
Non-deductible goodwill 131 129
Tax-exempt interest (77) (100)
Equity in unconsolidated entities 138 109
Adjustments to prior years (121) 65
Regulatory flow through of taxes (482) -
Other, net 90 (60)
______ ______
Provision for income taxes $2,690 $2,328
______ ______ ______ ______
</TABLE>
- - -9-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Thousands of dollars, except per share amounts)
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities are
as follows:
[/TABLE]
[CAPTION]
March 31, 1994 December
31, 1993
Deferred Tax Deferred Tax Deferred Tax
Deferred Tax
Assets Liabilities Assets
Liabilities
[S] [C] [C] [C]
[C]
Net operating loss
carryovers $25,266 - $25,785 -
Alternative minimum
tax credits 11,916 - 11,052 -
Regulatory liability
deferred taxes 1,826 - 2,260 -
Benefit plans 1,911 1,309 1,940 1,280
Property, plant and
equipment 1,407 57,941 1,785 57,670
Intangible assets 56 3,652 66 3,453
Prior business
combinations - 1,890 - 1,890
Accruals for nonrecurring
charges 1,444 - 1,235 -
All other 1,395 2,094 1,406 2,113
______ _____ ______ ______
Subtotal 45,221 66,886 45,529 66,406
Valuation allowance (6,336) - (6,114) -
______ ______ ______ ______
Total deferred taxes $38,885 $66,886 $39,415 $66,406
______ ______ ______ ______
______ ______ ______ ______
[/TABLE]
In the opinion of management, based on the future reversal
of existing taxable temporary differences, primarily
depreciation, and its expectations of future operating results,
the Company will more likely than not be able to realize
substantially all of its deferred tax assets.
The net change in the valuation allowance for deferred tax
assets during 1994 was an increase of $222.
- - -10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of Dollars, except per share amounts)
The following discussion should be read in conjunction with the
attached condensed consolidated financial statements and notes
thereto, and with the Company's audited financial statements and
notes thereto for the year ended December 31, 1993.
Results of Operations
C-TEC Corporation and subsidiaries' (the "Company") income
(loss) before extraordinary charge and cumulative effect of
accounting principle changes was $2,829, or $.17 per average
common share, for the three months ended March 31, 1994 as
compared to ($95), or $(.01) per average common share, for the
same period in 1993. Net loss was $425, or $.03 per average
common share, for the quarter ended March 31, 1994, including an
extraordinary charge of $2,861, ($.17 per average common share),
net of income taxes, for penalties on the early repayment of
debt of the Telephone Group incurred in connection with a
refinancing, and a charge of $393, ($.03 per average common
share) for the cumulative effect on prior years of a change in
the method of accounting for postemployment benefits. Net loss
was $1,596, or $.10 per average common share, for the quarter
ended March 31, 1993, including an after-tax gain of $1,312, on
the sale of marketable securities and a one-time charge of
$1,448, ($.09 per average common share) for the effect on prior
years of a required change in accounting for the costs of
medical and life insurance benefits provided to retired
employees.
The improved results before extraordinary charges and
cumulative effect of accounting principle changes are
attributable to the following:
Telephone Group
For the quarter ended March 31, 1994, the Telephone Group
incurred lower central office software costs of $1,636 as
compared to the same period in 1993 due to differences in the
timing of replacement.
Long Distance Group
Sales of the Long Distance Group increased $1,196 for the three
months ended March 31, 1994, as compared to the same period in
the prior year primarily due to a 14% increase in minutes and a
1% increase in the average price per minute of switched service.
Carrier expense increased due to increases in sales volume,
partially offset by a 4% decrease in average carrier cost per
minute. Advertising and salaries expense for sales and
marketing personnel increased $371 and $396, respectively, due
to expansion in new territories of Harrisburg, Allentown,
Philadelphia, and Pittsburgh.
- - -11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of Dollars, except per share amounts)
Mobile Services Group
For the three months ended March 31, 1994, sales increased
$2,130 over the comparable period in 1993. The increase is due
primarily to higher access and usage revenue of $1,183 and
higher foreign roaming revenue of $456. Access and usage
revenue increased primarily due to approximately 14,000
additional subscribers. Increased roaming by other carriers'
customers and additional cellular sites account for the increase
in foreign roaming revenue. Additionally, equipment sales
increased $212.
Operating expenses increased primarily due to higher equipment
costs of $375 and higher commissions of $181 associated with the
increase in equipment sales; higher roaming expense of $334; and
higher salaries and benefits.
Cable Group
Sales of the Cable Group increased approximately $865 for the
three months ended March 31, 1994 as compared to the same period
in 1993 primarily as a result of approximately 6,000 additional
subscribers. Additional revenue sources, including higher pay
per view resulting from additional events in 1994, offset lower
rental revenue of approximately $421 due to changes in FCC
pricing regulations for the cable industry.
Other income sources declined as during the quarter ended March
31, 1994 the Cable Group sold its Pennsylvania cable properties
at a gain of $893 while the pretax gain on the sale of
marketable securities realized during the first quarter of 1993
was $1,988.
Other
Allocated corporate charges decreased approximately $1,051
during the three months ended March 31, 1994 as compared to the
same period in 1993 primarily due to a decrease in salary and
bonus expense as a result of the change in control of the
Company in October 1993.
Interest
There were no significant changes in interest income or
interest expense during the three months ended March 31, 1994 as
compared to the same period in 1993.
Income Taxes
For an analysis of the change in income taxes, see the
reconciliation of the effective income tax rate in footnote 7 to
this quarterly report.
Financial Condition
Other current assets increased primarily due to a one day delay
in timing of receipt of a $2,514 payment to the Telephone Group
from a major interexchange carrier. Additionally, current
assets increased as a result of the required prepayment by the
Telephone Group of its 1994 Pennsylvania Gross Receipts Tax.
The unamortized balance was $1,592 at March 31, 1994.
- - -12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of Dollars, except per share amounts)
Financial Condition, continued
Other than changes resulting from equity pick-ups, investments
decreased by $1,141 as a result of the refund of Rural Telephone
Bank stock on the unexpended portion of borrowings refinanced
during the first quarter of 1994 with the National Bank for
Cooperatives.
Deferred charges increased primarily as a result of the
agreement reached by the Telephone Group in 1993 with the
Pennsylvania Public Utility Commission that the Telephone Group
will be permitted to recognize only state income taxes actually
paid as a cost of service. Accordingly, a regulatory asset has
been established for taxes expected to be recovered from
ratepayers when such taxes are actually paid.
Other current liabilities increased primarily as a result of
accruals for costs associated with construction projects of the
Telephone Group which were delayed throughout the winter due to
poor weather conditions.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
March 31 December 31
1994 1993
<S> <C>
<C>
Cash and Temporary Cash Investments $ 52,526 $ 60,182
________ ________
________ ________
Working Capital $ 30,676 $ 39,078
________ ________
________ ________
Long-Term Debt $392,538 $409,293
________ ________
________ ________
Three Months Ended March 31
1994 1993
Net cash provided by
operating activities $ 16,910 $ 16,223
________ ________
________ ________
Operating income before depreciation
and amortization $ 30,890 $ 27,054
________ ________
________ ________
Investing Activities:
Additions to property, plant
and equipment $ 11,905 $ 20,561
Acquisitions - 59
________ ________
Total $ 11,905 $ 20,620
________ ________
________ ________
</TABLE>
- - -13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of dollars, except per share amounts)
Liquidity and Capital Resources, continued
The Company's cash and temporary cash investments decreased
$7,656 over December 31, 1993, primarily due to a reduction of
approximately $13,000 in the Cable group's revolving lines of
credit, offset by an excess of $5,000 cash generated by
operations over capital additions.
Net cash provided by operating activities represented 142.0%
and 78.9% of additions to property, plant and equipment for the
three months ended March 31, 1994 and 1993, respectively. Since
the nature of the Company's business is capital intensive,
management believes that the Company's ability to generate cash
in excess of capital additions is a significant factor in
providing discretionary resources for acquisitions and other
investment opportunities as well as to meet scheduled debt
payments.
The Company has additional credit facilities to be drawn upon
if needed. Unused credit facilities aggregated $62,000 and
$21,654 for C-TEC and its Cable subsidiary, respectively, at
March 31, 1994.
The Company's liquidity position has been further strengthened
as a result of the Telephone Group's prepayment of mortgage
notes payable to the United States of America. As discussed in
Footnote 6, this debt was replaced with an equal amount of debt
with the National Bank for Cooperatives. This refinancing eased
certain restrictions on the amount of dividends and other
distributions of capital which may be paid to the Company by the
Telephone Group.
Additionally, as discussed in Footnote 5, the Company has
entered into a definitive agreement for the sale of its cellular
properties for approximately $182.5 million.
The Company has adequate resources to meet its short term
obligations, including any liability which may arise as a result
of the IRS audit referred to in Note 3. Management estimates
that the Company will continue to generate cash from operations
in order to meet its long-term obligations.
- - -14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of dollars, except per share amounts)
REGULATORY ISSUES
CABLE TELEVISION CONSUMER PROTECTION
AND COMPETITION ACT
The Cable Television Consumer Protection and Competition Act of
1992 (the "Act"), enacted on October 5, 1992 and effective April
3, 1993, regulates the cable television industry.
Basic Rate Regulation
The most significant provision of the Act requires the FCC to
establish rules to ensure that rates for basic services are
reasonable for subscribers in areas without effective
competition. Basic service is the level of programming which
must be subscribed to in order to receive access to any other
tier of service. The basic service tier must, at a minimum,
include all "must-carry" channels; any public, educational, or
governmental access channels required by the franchisor; and all
television signals other than non-local satellite-delivered
superstations. The FCC must determine whether each cable system
is subject to effective competition.
Effective competition is defined by the Act to exist if: (1)
fewer than 30 percent of the households in the franchise area
subscribe to the service of the current cable system; (2) the
franchise area is served by at least two unaffiliated
multichannel video programming distributors, each of which
offers programming to at least 50 percent of the households and
is subscribed to by at least 15 percent of such households; or
(3) a multichannel video operator owned by a franchise authority
offers service to at least 50 percent of the households in the
franchise area. The FCC has announced that for those systems
not subject to effective competition, rates will be regulated
jointly by the FCC and state and local governments. The FCC has
delegated the responsibility of regulation of the basic service
tier to the applicable local franchise authority. In order to
regulate rates, such authority must be certified by the FCC. In
order to be certified, the authority must apply for
certification; have the legal authority to regulate; and the
franchise area must lack effective competition. A franchise
authority may choose not to regulate rates. A local franchise
authority that is certified must apply the FCC's benchmark
formula. A local franchise authority that lacks the legal
authority to regulate or the personnel to administer the
regulation may request the FCC to regulate basic rates.
The FCC has broad authority in adopting regulations to ensure
that rates are reasonable. The Act permits the FCC to determine
what is a "reasonable profit" for the cable operator. The
factors which the FCC must take into account in making this
determination include, among other things, rates for cable
systems subject to effective competition; direct costs of
obtaining and providing basic tier service; capital and
operating costs of the cable operators, including programming
costs; advertising revenues received by the cable operator from
basic tier service programming; and certain franchise expenses.
The FCC must establish criteria for determining whether rates
for service other than basic tier are reasonable and must
develop procedures for resolution of complaints and refund of
rates determined to be unreasonable.
- - -15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of dollars, except per share amounts)
On April 1, 1993, the FCC adopted its initial rules regulating
cable television rates. All cable television rates except
pay-per-view and premium channels are frozen until May 15, 1994.
The initial rules, which are in effect until May 15, 1994,
permit the retiering and unbundling of services as long as the
overall rate per subscriber is not increased. Rates for basic
and tiered services are subject to benchmarks. A cable system
with rates above the benchmark will be required to roll back its
rates to the systems rates as of September 30, 1992, plus an
adjustment for inflation since then. If the September 30, 1992
rate exceeds the benchmark, the maximum rate reduction is ten
percent of the rates in effect at September 30, 1992. This ten
percent reduction represents the competitive differential
calculated by the FCC in the initial rate order between the
rates charged by competitive and non-competitive cable systems.
A system with rates above the benchmark may utilize a
cost-of-service showing to justify its rates and avoid the rate
reduction.
Equipment charges for basic tier service are also subject to
rollback to the level representing the cost of the equipment
including a reasonable profit (to be determined by the local
franchise authority). In cases where equipment has been
included as part of a service tier at no additional cost, it
must be unbundled and a separate charge will be allowed.
On February 22, 1994, the FCC adopted revised regulations that
will become effective on May 15, 1994. Regulated cable rates
that are in place after May 15, 1994 will be evaluated under the
new rules. Rates in effect before that date will be evaluated
using the FCC's initial rules described above. These new
regulations will require cable operators to reduce their
September 30, 1992 regulated rates to a new benchmark based on
the FCC's revised calculation of a 17 percent competitive
differential. Adjustments to the competitive differential may
be made for (1) inflation occurring between October 1, 1992 and
September 30, 1993, (2) changes in external costs that have
occurred since the system became subject to initial regulation
at either the local or federal level; or February 28, 1994,
whichever date is earliest and (3) changes that have resulted
from the addition or deletion of programming channels to
regulated tiers since September 30, 1992.
As a result of these revised rules, regulated cable operators
will have to apply the revised competitive differential by May
15, 1994, or, subject to certain restrictions, by July 14, 1994.
Cable systems that relied on the benchmark approach to
rate-setting under the initial rate regulation structure may
choose the benchmark approach or a cost-of-service approach to
justify their rates under the new rate regulation scheme.
Systems that do not make the rate reductions needed to bring
their rates down to the full reduction rate by May 15, 1994 will
be subject to refund liability unless they can successfully
show, through a cost-of-service showing, that their costs
justify higher rates.
- - -16-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of dollars, except per share amounts)
Anti-Buy Through
The Act prohibits cable operators from requiring subscribers to
buy any level of service other than basic tier to receive
programming offered on a per-channel or per-program basis.
Must-Carry
Cable operators are required by the Act to carry the signals of
qualified local commercial and non-commercial television
stations which demand carriage.
Retransmission Consent
The FCC requires cable operators to negotiate licenses with the
local commercial television stations whose programming the
operator desires the right to carry but which do not demand
carriage.
Other Provisions
Other regulations under the Act include: (1) cable operators
customer service requirements; (2) limitations on indecent and
objectionable programming; (3) resolution of complaints relative
to unreasonable rates; (4) signal quality; (5) disposition of
home wiring; (6) limitations on ownership of cable systems; and
(7) consumer electronics equipment compatibility.
Various legal proceedings by other cable operators have
commenced regarding the constitutionality of several of the
Act's provisions.
Impact to the Company
In determining the impact of the initial FCC basic rate
benchmark rules on a Company's current system revenues, cable
companies were permitted, prior to September 1, 1993, to
restructure their rates and channel offerings as long as the
overall rate per subscriber was not increased. Management does
not believe that the Company's current restructured rates will
be significantly affected by the initial rate regulation because
its systems are below the original FCC benchmarks and the
average rate per subscriber did not increase after
restructuring, based on operating results which have occurred
subsequent to the September 1, 1993 effective date.
In November, 1993 the FCC issued letters of inquiry to the
Company and other cable operators to investigate the way in
which regulated program services were moved to unregulated A la
carte offerings and whether these and other changes were in
compliance with the Act. The Company believes that it is full
compliance with the original Act. The Company has responded to
the letters of inquiry; however, to date there has been no
response from the FCC.
- - -17-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations, continued
(Thousands of dollars, except per share amounts)
Impact To Company, continued
The franchise certification process to regulate rates began
September 1, 1993. To date approximately 48% of the Company's
municipalities have filed to regulate basic cable service rates
with 32% of these municipalities currently certified to regulate
basic rates. Although the Company believes that there will be
challenges to its regulated rate structure, the Company does not
believe that these challenges will be significant based on
complaints received to date.
The Company is currently evaluating the effect of the latest
FCC regulations on it's rates. Cable rates subject to federal
regulation may be raised in the future annually to recover
inflationary increases, and quarterly to recover increases in
certain external costs including programming costs, excluding
retransmission consent fees prior to October 6, 1994, as well as
subscriber related taxes and franchise fees and other franchise
requirements. All rate increases on basic service must be
approved by the local municipality if it has certified to
regulate basic cable service rates. Rate increases on cable
programming tier services may be passed through automatically
after giving the FCC 30 days' notice. The Company also has the
option of raising rates higher than the above formula with a
cost-of-service showing. The Company is exploring all of the
rate options outlined in the current regulations. It is
impossible at this time to definitively project the impact of
this new regulatory environment on the Company's regulated cable
rates in the future. However, it is likely that lower operating
margins will exist due to the financial impact to the Company of
other provisions of the Act, including increased operating
expenses related to retransmission consent prior to October 6,
1994, and to increased costs associated with customer service
and technical standards.
PENNSYLVANIA PUBLIC UTILITY COMMISSION
The Company's local exchange telephone subsidiary, Commonwealth
Telephone Company (CTCo"), is subject to a rate-making process
regulated by the Pennsylvania Public Utility Commission.
Consequently, the ability of the Telephone Group to generate
increased income and cash flow is largely dependent on its
ability to increase its subscriber base, obtain higher message
volumes and control its expenses.
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders
The annual meeting of Shareholders was held on April 21, 1994.
Matters submitted to and approved by Shareholders included the
election of the following Directors:
<TABLE>
<CAPTION>
Nominee In Favor Against
Withheld
<S> <C> <C> <C>
<C>
David C. McCourt 116,612,528 129,885 7,580
David C. Mitchell 116,612,528 129,885 7,580
Donald G. Reinhard 116,560,662 181,751 7,580
Walter Scott, Jr. 116,616,668 125,745 7,580
</TABLE>
- - -18-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders, continued
Additional Directors whose term of office as a Director
continued after the meeting included:
James Q. Crowe
Stuart E. Graham
Frank M. Henry
Richard R. Jaros
Robert E. Julian
Eugene Roth
Thomas C. Stortz
Additional matters submitted to and approved by shareholders
included the ratification of the selection of Coopers & Lybrand
as the Company's independent auditors for the year ending
December 31, 1994.
The shareholders also approved the Company's 1994 Stock Option
Plan.
The votes of stockholders on these matters were as follows:
<TABLE>
<CAPTION>
In Favor Against
Withheld
<S> <C> <C> <C>
<C>
Auditors 101,442,671 4,060,870 614,837
Stock Option Plan 88,396,084 6,830 7,578
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a.(3) Exhibits
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(u) Loan Agreement dated as of March 29, 1994,
made by and between Commonwealth Telephone
Company and the National Bank for
Cooperatives
(10) Material Contracts
(f) C-TEC Corporation, 1994 Stock Option Plan
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended March 31, 1994.
- - -19-
<PAGE>
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.
C-TEC CORPORATION
DATE: May 13, 1994 /s/ Bruce C.
Godfrey
________________________
Bruce C. Godfrey
Executive Vice President and
Chief Financial Officer
- - -20-
<PAGE>
Loan No. T0268
NATIONAL BANK FOR COOPERATIVES
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and
entered into as of March 29, 1994, by and between the NATIONAL
BANK FOR COOPERATIVES ("CoBank") and COMMONWEALTH TELEPHONE
COMPANY (the "Borrower").
SECTION 1. The Loan. On the terms and conditions set
forth in this Agreement, and subject to Section 11, CoBank
agrees to lend to the Borrower an amount up to $135,142,533 (the
"Loan").
SECTION 2. Purposes and Use of Proceeds. The proceeds of
the Loan shall be applied by the Borrower (i) to the prepayment
in full of all indebtedness of the Borrower to (a) the United
States of America, acting through the Administrator of the Rural
Electrification Administration, (b) the Rural Telephone Bank,
and (c) the Federal Financing Bank, including the outstanding
principal balance of and accrued but unpaid interest on such
indebtedness; (ii) to the payment of fees and costs associated
with the Loan and the closing thereof and (iii) for capital
expenditures. The Borrower agrees that the proceeds of the Loan
shall be used for only the purposes set forth in this Section 2.
SECTION 3. Availability. Subject to Section 11, the Loan
will be made on any day on which CoBank is open for business (a
"Business Day"), except any day when Federal Reserve Banks are
closed, by wire transfer of immediately available funds to such
account or accounts as the Borrower may designate, provided that
(i) an authorized officer of the Borrower shall have provided
CoBank with at least one Business Days' prior written notice of
the date on which the Loan is to be made (the "Funding Date"),
unless the Borrower elects to have a portion of the Loan accrue
interest at a LIBOR Rate (as defined in Section 4(A)(2)(b)), in
which case the Borrower shall have provided such notice two
Banking Days (as defined below) prior to the Funding Date and
the Funding Date shall be a Banking Day, and (ii) the Funding
Date so designated shall not be later than March 31, 1994. A
"Banking Day" means a Business Day on which dealings in U.S.
dollar deposits are carried out in the London Interbank Market
and banks are open for business in New York, New York and
London, England.
SECTION 4. Interest Fees.
(A) The unpaid principal balance of the Loan shall
accrue interest at the rate or rates selected by the Borrower in
accordance with this Subsection (A).
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
(1) Floating Rate Option. As to any portion of the
unpaid principal balance of the Loan selected by the Borrower
(any such portion, and any portion selected pursuant to
Subsection (A)(2), is hereinafter referred to as a "Portion" of
the Loan), interest shall accrue pursuant to this floating rate
option at a floating annual interest rate (the "Floating Rate)
equal at all times to the National Variable Rate (as hereinafter
defined) minus 0.25%. The term "National Variable Rate" shall
mean the rate of interest established by CoBank from time to
time as its National Variable Rate. The National Variable Rate
is intended by CoBank to be a reference rate, and CoBank may
charge other borrowers rates at, above, or below that rate. Any
change in the National Variable Rate shall take effect on the
date established by CoBank as the effective date of such change,
and CoBank shall notify the Borrower promptly after any such
change.
(2) Fixed Rate Options.
(a) Treasury Rate Option. As to any Portion or
Portions of the Loan selected by the Borrower, interest shall
accrue pursuant to this treasury rate option at a fixed annual
interest rate (a 'Treasury Rate") equal to the sum of the U.S.
Treasury Rate (as hereinafter defined) plus a margin (the
"Treasury Margin") equal to the percentage determined in
accordance with this Subsection (A)(2)(a). Under this option,
the interest rate on any Portion of the Loan, in minimum amounts
of $100,000, may be fixed for a period (any such period, and any
period selected pursuant to Subsections (A)(2)(b) or (A)(2)(c),
is hereinafter referred to as an "Interest Period") of one year
or more but not beyond the Maturity Date (as defined in Section
5); provided, however, that such Interest Period may only expire
on a Business Day; and provided further, however, that each
Portion of the Loan accruing interest at a Treasury Rate shall
be repaid in part as provided in Section 5 on each Payment Date
(as defined in Section 5) occurring during such Interest Period.
The term "U.S. Treasury Rate" shall mean the yield to maturity
on U.S. Treasury instruments the maturity of which is the same
as the weighted average life over the selected Interest Period
of the Portion of the Loan subject to such Interest Period, as
indicated by Telerate (page 5) at approximately 9:30 a.m.,
Eastern time, on the date the interest rate is fixed. If,
however, no yield is available for the period selected, then the
interest rate shall be interpolated based on the interest rates
quoted for the next longest and shortest periods of time. In the
event Telerate ceases to provide such quotations or materially
changes the form or substance of page 5 (as determined by
CoBank), then CoBank will notify the Borrower and the parties
hereto will agree upon a substitute basis for obtaining such
quotations.
Subject to Subsection (B), the Treasury Margin for
each Portion of the Loan selected by the Borrower to accrue
interest at the
- - -2-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
Treasury Rate shall be determined on each date the interest rate
is fixed and shall be equal to the percentage specified below
for the weighted average life over the selected Interest Period
of such Portion.
Weighted Average Treasury
Life Margin
5 years or less 0.82%
Greater than
5 years 1.00%
Notwithstanding the foregoing, if the Borrower elects, in the
written notice of the Funding Date delivered pursuant to Section
3, the Treasury Rate for any Portion of the Loan for an Interest
Period such that the weighted average life of such Portion over
such Interest Period is greater than five years, the Treasury
Margin for such Portion shall be 0.95%.
For purposes of this Subsection (A)(2)(a) and
Section 6, the weighted average life over a period of time of
any Portion of the Loan, as determined at any date, shall mean
the number of years obtained by dividing:
(i) the sum of:
(a) the sum of the products obtained by multiplying:
(1) the amount of each principal repayment of such Portion to
be made pursuant to Section 5 during such period, by
(2) the number of months that will elapse between such date
and the making of such repayment divided by 12, plus
(b) the product obtained by multiplying:
(1) the principal balance of such Portion to be outstanding
at the end of such period, by
(2) the number of months that will elapse between such
date and the end of such period divided by 12, by
(ii) the then outstanding principal balance of such
Portion.
- - -3-<PAGE>
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
For purposes of any calculation provided for in this paragraph,
the result shall be rounded, if necessary, to the nearest one
hundredth (e.g. 9.745 being rounded up to 9.75 and 9.742 being
rounded down to 9.74).
(b) LIBOR Option. As to any Portion or Portions of the
Loan selected by the Borrower, interest shall accrue pursuant to
this LIBOR option at a fixed annual interest (a "LIBOR Rate")
equal to the sum of LIBOR (as hereinafter defined) plus a margin
(the "LIBOR Margin") equal to 0.70% (subject to Subsection (B)).
Under this option, the interest rate on any Portion of the
Loan, in minimum amounts of $1000,000, may be fixed for an
Interest Period of 1 month, 2 month, 3 month, 6 months, 9 months
or 12 months but no beyond the Maturity Date; provided, however,
that each Portion of the Loan accruing interest at a LIBOR Rate
shall be repaid in part as provided in Section 5 on each payment
Date occurring during such Interest Period. The term "LIBOR"
shall mean the interest rate indicated by Telerate as having
been quoted by the British Bankers Association at 11:00 a.m.,
London time, on the date (which must be a Banking Day) the
Borrower elects to fix a rate under this LIBOR option, for the
offering of U.S. dollar deposits in the London Interbank Market
for the Interest Period selected by the Borrower. The term
"month" or "months" shall mean a period commencing two Banking
Days after the date the Borrower elects to fix a rate under this
LIBOR option and ending on the numerically corresponding day in
the next calendar month or the month that is 2,3,6,9 or 12
months thereafter, as the case may be: provided, however, that
(i) in the event such ending date is not a Banking Day, such
period shall be extended to the next Banking Day unless such
next Banking Day falls in the next calendar month, in case such
period shall end on the next preceding Banking Day; and (ii) if
there is no numerically corresponding day in the ending month,
then such period shall end on the last Banking Day in such month.
(c) Quoted Rate Option. As to any Portion or Portions of the
Loan selected by the Borrower, interest shall accrue pursuant to
this quoted rate option at a fixed annual interest rate (the
"Quoted Rate:) to be quoted by CoBank in its sole and absolute
discretion. Under this option, the interest rate on any Portion
of the Loan, in minimum amounts of $100,000 may be fixed for an
Interest Period of 30 days or more; provided, however, that such
Interest Period may only expire on a Business Day; and provided
further, however, that each portion of the Loan accruing
interest at a Quoted Rate shall be repaid in part as provided in
Section 5 on each Payment Date occurring during such Interest
Period.
(3) Selection And Changes of Rates. The Borrower shall
select the applicable interest rate or rates at the time it
gives CoBank written notice of the Funding Date pursuant to
Section 3. The Borrower may, on any Business
- - -4-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
Day, elect to have the Treasury Rate or the Quoted Rate, and on
any Banking Day, elect to have the LIBOR Rate, apply to any
Portion of the Loan then accruing interest at the Floating Rate.
In addition, with respect to any Portion of the Loan accruing
interest pursuant to one of the fixed rate options, the Borrower
may, subject to Subsection (A)(2), (i) on the last day of the
Interest Period for such Portion, elect to fix the interest rate
accruing on such Portion for an Interest Period at a Treasury
Rate or a Quoted Rate or (ii) two Banking Days prior to the last
day of the Interest Period for such Portion, elect to fix the
interest rate accruing on such Portion for an Interest Period at
a LIBOR Rate. In the absence of any such refix, interest shall
automatically accrue on such Portion of the Loan at the Floating
Rate. Notwithstanding the foregoing, in the event the Borrower
elects to have any Portion of the Loan accruing interest at a
Treasury Rate or a Quoted Rate accrue interest at a LIBOR Rate
and the last day of the Interest Period for such Portion is not
a Banking Day, then interest shall accrue on such Portion at the
Floating Rate until the LIBOR Rate becomes effective. From time
to time the Borrower may elect on a Business Day and upon
payment of the Surcharge (as defined in, and calculated pursuant
to, Section 6), to convert all, but not part, of any Portion of
the Loan accruing interest pursuant to one of the fixed rate
options to accrue interest at the Floating Rate or pursuant to
another fixed rate option for an Interest Period selected in
accordance with Subsection (A)(2); provided, however, that any
such conversion to a LIBOR Rate shall not be effective until two
Banking Days after such election, which can only be made on a
Banking Day. Except for the initial selection, all interest rate
selections provided for herein shall be made by telephonic or
written request of an authorized employee of the Borrower by
12:00 noon, Eastern time, on the relevant day.
(4) Accrual of Interest. Interest shall accrue
pursuant to any of the fixed rate options selected by the
Borrower from and including the first day of the applicable
Interest Period to but excluding the last day of the Interest
Period. If the Borrower elects to refix the interest rate on any
Portion of the Loan pursuant to Subsection (A)(3), the first day
of the new Interest Period shall be the last day of the
preceding Interest Period. In the absence of any such refix,
interest shall accrue on such Portion at the Floating Rate from
and including the last day of such Interest Period. If the
Borrower elects to convert from one fixed rate option to the
Floating Rate or to another fixed rate option upon payment of
the Surcharge as provided in Subsection (A)(3), interest at the
existing fixed rate shall accrue through the day before such
conversion and either (i) the first day of any new Interest
Period shall be the date of such conversion, or (ii) interest at
the Floating Rate shall accrue on the Portion of the Loan so
converted from and including the date of conversion.
(B) Margin Adjustments. Notwithstanding the
foregoing, if the spread between CoBank's cost of funds (as
determined by CoBank in accordance with its methodology) and the
U.S. Treasury Rate or LIBOR for any Interest Period selected by
the Borrower pursuant to Subsection (A) should widen
- - -5-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
(or lessen) from the spread in effect for the same period of
time on December 29, 1993, then the Treasury Margin or the LIBOR
Margin, as applicable, may be adjusted upward (or downward) at
CoBank's discretion to reflect any such change. A hypothetical
example of such an adjustment is attached as Schedule 2 hereto.
No Treasury Margin adjustment may be made prior to March 31,
1994. No LIBOR Margin adjustment may be made prior to March 31,
2001. No adjustment shall be applied retroactively to any
Portion of the Loan accruing interest pursuant to one of the
fixed rate options prior to the end of the Interest Period for
such Portion. CoBank shall advise the Borrower of any change in
such spread and shall provide the Borrower with such information
relating to such change as the Borrower may reasonably request.
(C) Payment and Calculation. Interest shall be
payable monthly in arrears by the twentieth (20th) day of the
following month, upon any prepayment and at maturity, and shall
be calculated on the actual number of days the Loan is
outstanding on the basis of a year consisting of 360 days. In
calculating accrued interest, the date the Loan is made shall be
included and the date any principal amount of the Loan is repaid
or prepaid shall be excluded as to such amount.
(D) Default Rate. If prior to maturity the Borrower
fails to make any payment or investment required to be made
under the terms of this Agreement or the Note (including this
Section 4), then, at CoBank's option in each instance, such
payment or investment shall accrue interest at 2% per annum in
excess of the Floating Rate. After maturity, whether by reason
of acceleration or otherwise, the unpaid principal balance of
the Loan shall automatically accrue interest at 2% per annum in
excess of the Floating Rate. All interest provided for in this
Subsection (D) shall be payable on demand and shall be
calculated from and including the date such payment was due to
but excluding the date paid on the basis of a year consisting of
360 days.
(E) Origination Fee. On the Funding Date, the
Borrower shall pay to CoBank a nonrefundable origination fee in
the amount of $350,000.
SECTION 5. Principal Repayment and Maturity. The
principal balance of the Loan shall be repaid in 180 consecutive
equal monthly installments of $750,791.85 due on the twentieth
day of each calendar month (each, a "Payment Date"), commencing
on April 20, 1994, and ending on March 20, 2009 (the "Maturity
Date"). Any Portion of the Loan accruing interest at the
Floating Rate and each Portion of the Loan accruing interest
pursuant to one of the fixed rate options shall be reduced by an
amount equal to the amount of each installment payment made
pursuant to this Section 5 multiplied by a fraction, the
numerator of which is the outstanding principal balance of such
Portion immediately prior to such payment and the denominator of
which is the total outstanding principal balance of the Loan
immediately prior to such payment. On the Maturity Date, the
amount of the then unpaid principal balance of the Loan and any
and all other amounts due and owing hereunder or under any other
Loan Document shall be due and payable. If any Payment Date is
not a Business
- - -6-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
Day, then the principal installment then due shall be paid on
the next Business Day and shall continue to accrue interest
until paid.
SECTION 6. Prepayment. The Borrower may, on one Business
Day's prior written notice, (i) prepay in full or in part any
Portion of the Loan accruing interest at the Floating Rate, and
(ii) prepay in full (but not in part) any Portion of the Loan
accruing interest pursuant to one of the fixed rate options. Any
prepayment shall be applied in such a manner as to reduce the
amount owing on each remaining principal installment due
pursuant to Section 5 by a percentage determined by dividing the
amount prepaid by the total unpaid principal balance of the Loan
immediately prior to such prepayment. Notwithstanding the
foregoing, the Borrower's right to prepay any Portion of the
Loan accruing interest pursuant to one of the fixed rate options
shall be conditioned upon the payment of a surcharge (the
"Surcharge") equal to the present value of any funding losses
incurred by CoBank as a result of such prepayment. The
Surcharge, including the amount of any funding losses, shall be
determined and calculated as follows:
(A) Determine the difference between: (i) CoBank's
cost of funds (determined in accordance with its standard
methodology) on the date the interest rate was fixed to fund the
Portion of the Loan being prepaid; minus (ii) CoBank's cost of
funds (determined in accordance with such methodology) on the
date of prepayment to fund a new loan with a weighted average
life equal to the weighted average life over the remainder of
the selected Interest Period of the Portion of the Loan being
prepaid. If such difference is negative, then no Surcharge is
payable.
(B) If such difference is positive, divide the
result determined in Subsection (A) by 12.
(C) For each month or part thereof during which the
Portion of the Loan prepaid was scheduled to have been
outstanding, multiply the amount determined in Subsection (B) by
that part of the Portion of the Loan prepaid that was scheduled
to have been outstanding during such month (such that there is a
monthly calculation for each month during which the Portion of
the Loan prepaid was scheduled to have been outstanding).
(D) Determine the present value of each monthly
calculation made under Subsection (C) based upon the scheduled
time that interest on the Portion of the Loan prepaid would have
been payable and a discount rate equal to the rate set forth in
Subsection (A)(ii).
(E) Add all of the calculations made under
Subsection (D). The result shall be the Surcharge.
- - -7-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
A hypothetical example illustrating the above described
calculation of the Surcharge is attached as Schedule 3 hereto.
SECTION 7. Note. The Borrower's obligation to repay the
Loan shall be evidenced by a promissory note in form and content
acceptable to CoBank (as the same may be amended, modified,
supplemented, extended or restated from time to time and any
promissory note that may be issued from time to time in
substitution, renewal, extension, replacement or exchange
therefor, the "Note").
SECTlON 8. Manner and Time of Payment. If any date on
which payment is due hereunder is not a Business Day, the
payment shall be made on the next succeeding Business Day. The
Borrower shall make each payment under this Agreement and under
the Note by wire transfer of immediately available funds or by
check. Wire transfers shall be made to the Federal Reserve Bank
of Atlanta for advice to and credit of NATL BK COOPS, Federal
Reserve Bank account number 0619-0193-1 (or to such other
account as CoBank may designate by notice) with sufficient
information to identify the source and application of such
funds. The Borrower shall give CoBank telephonic notice no later
than 12:00 noon, Eastern time, of its intent to pay by wire
transfer. Wire transfers received after 3:00 p.m., Eastern time,
shall be credited on the next Business Day. Checks shall be
mailed or delivered to CoBank at Drawer CS 198552, Atlanta,
Georgia 303848552 (or to such other address as CoBank may
designate by notice). Credit for payment by check will not be
given until the next Business Day after receipt of the check or
the actual receipt of immediately available funds, whichever is
later.
SECTION 9. Capitalization. The Borrower agrees to
purchase such equity in CoBank as CoBank may from time to time
require in accordance with its bylaws and capital plan;
provided, however, that CoBank may not require the Borrower to
purchase equity in CoBank in an amount greater than 13% of the
portion of CoBank's five year average risk adjusted asset base
attributable to loans made by CoBank to the Borrower. In
connection with the foregoing, the Borrower hereby acknowledges
receipt, prior to the execution of this Agreement, of CoBank's
bylaws, a written description of the terms and conditions under
which the equity is issued, CoBank's Loan-Based Capital Plan,
CoBank's most recent annual report, and if more recent than
CoBank's latest annual report, its latest quarterly report. All
such investments and all other equities which the Borrower may
now own or hereafter acquire or be allocated in CoBank shall be
subject to a statutory first lien in favor of CoBank.
SECIION 10. Security. The Loan shall be secured by that
certain (i) Mortgage and Security Agreement, dated as of even
date herewith, made by the Borrower to CoBank (as the same may
be amended, modified, supplemented or restated from time to
time, the "Mortgage") pursuant to which the Borrower
- - -8-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
shall grant to CoBank a first priority mortgage lien on all of
its now owned or hereafter acquired real and personal property;
and (ii) Security Agreement, dated as of even date herewith,
made by the Borrower to CoBank (as the same may be amended,
modified, supplemented or restated from time to time, the
"Security Agreement") pursuant to which the Borrower shall grant
to Cobank a first priority security interest in substantially
all of its now owned or hereafter acquired tangible and
intangible personal property.
SECTION 11. Conditions Precedent. CoBank's obligation to
make the Loan hereunder is subject to satisfaction of each of
the following conditions precedent on or before the Funding Date:
(A) Loan Documents. That CoBank receive duly
executed originals of this Agreement, the Note, the Mortgage,
the Security Agreement, and all other instruments and documents
contemplated hereby or thereby (collectively, the "Loan
Documents").
(B) Authorization. That CoBank receive copies of
all corporate documents and proceedings of the Borrower
authorizing the execution, delivery, and performance of the Loan
Documents, certified by the Secretary of the Borrower.
(C) Approvals. That CoBank receive evidence
satisfactory to it that all federal and state consents and
approvals (including, without limitation, all regulatory
approvals) which are necessary for, or required as a condition
of, the validity and enforceability of the Loan Documents or the
creation or perfection of the liens and security interests
identified in Section 10 have been obtained and are in full
force and effect.
(D) Opinions of Counsel. That CoBank receive
opinions of counsel for the Borrower (who shall be acceptable to
CoBank) in form and content acceptable to CoBank.
(E) Fees, Expenses and Capital. That the Borrower
(i) pay the fee set forth in Section 4(E) hereof and the costs
and expenses required by Section 20 hereof to be paid by the
Borrower and (ii) make an initial capital contribution in CoBank
in the amount of $1,000.
(F) Environmental Checklist. That CoBank receive
from the Borrower an environmental checklist on a form
prescribed by CoBank covering all real property which is to be
subject to a CoBank mortgage lien, the Borrower's environmental
records and procedures, and a chain of title for at least 40
years showing the past ownership of all real property identified
on Schedule 1 hereto, all of such information to be satisfactory
to CoBank in its sole discretion.
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(G) Perfection and Priority of Liens. That CoBank
receive (i) an opinion of counsel in form and content acceptable
to it to the effect that, as of the Funding Date, CoBank has a
duly perfected security interest in all collateral covered by
the Security Agreement subject to no prior liens other than
liens not subject to the restriction of Section 14(B) or such
liens as may be acceptable to CoBank in connection with the
indebtedness described in Section 2; and (ii) a policy or
policies of title insurance in such amount or amounts and
containing such terms and endorsements as CoBank shall, in its
sole discretion, require, insuring that, as of the Funding Date,
the Mortgage constitutes a first mortgage lien on the real
property identified on Schedule 1 hereto.
(H) Refinanced Indebtedness. That concurrently with
the making of the Loan, all of the indebtedness described in
Section 2 be paid in full and all liens and security interests
relating to such indebtedness be fully released or provisions
satisfactory to CoBank be made for full release thereof and that
CoBank receive evidence to such effect satisfactory to it.
(I) Event of Default. That no Event of Default (as
that term is defined in Section 15) exists, and that there has
occurred no event which with the passage of time or the giving
of notice, or both, could become an Event of Default (each such
event, a "Default").
(J) Representations and Warranties. That the
representations and warranties of the Borrower contained in this
Agreement and any other Loan Document be true and correct in all
material respects on and as of the Funding Date, as though made
on and as of such date.
(K) No Material Adverse Change. That from December
31, 1992 to the Funding Date there shall not have occurred any
material adverse change in the business, financial condition or
results of operations of the Borrower; provided, however, that
any special dividend made pursuant to Section 14(H) shall not be
taken into consideration in determining whether such a material
adverse change has occurred (any such material adverse change is
hereinafter referred to as a "Material Adverse Change").
(L) No Injunction. That no court or other
government body or public authority shall have issued an order
which shall then be in effect restraining or prohibiting the
completion of the transactions contemplated hereby.
(M) Closing Certificate. That CoBank receive a
certificate, in the form attached hereto as Exhibit A, dated the
Funding Date, signed by the President, Chief Financial Officer
or Treasurer of the Borrower, certifying as to the truth and
accuracy of the representations and warranties of the Borrower
under the Loan Documents and the satisfaction of each of the
conditions applicable to the making of the Loan specified herein
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(N) Factual Matters. That CoBank receive a
certificate (the "Factual Matters Certificate"), in the form
attached hereto as Exhibit B, dated the Funding Date, signed by
the President, Chief Financial Officer or Treasurer of the
Borrower, certifying as to the matters set forth therein.
SECTION 12. Representations and Warranties. To induce
CoBank to make advances hereunder, and recognizing that CoBank
is relying hereon, the Borrower represents and warrants, as of
the date of this Agreement and as of the Funding Date, as
follows:
(A) Organization; Power, Etc. The Borrower (i) is
duly organized, validly existing, and in good standing under the
laws of its state of incorporation; (ii) is duly qualified to do
business and is in good standing in each jurisdiction in which
the character of its properties or the nature of its business
requires such qualification; (iii) has all requisite corporate
and legal power to own and operate its assets and to carry on
its business and to enter into and perform its obligations under
the Loan Documents; (iv) has duly and lawfully obtained and
maintained all licenses, certificates, permits, authorizations,
approvals, and the like which are necessary in the conduct of
its business or which may be otherwise required by law; and (v)
is eligible to borrow from CoBank.
(B) Due Authorization; No Violations; Etc. The
execution and delivery by the Borrower of, and the performance
by the Borrower of its obligations under, the Loan Documents
have been duly authorized by all requisite corporate action on
the part of the Borrower and do not and will not (i) violate any
provision of any law, rule or regulation, any judgment, order or
ruling of any court or governmental agency, the articles of
incorporation or bylaws of the Borrower, or any agreement,
indenture, mortgage, or other instrument to which the Borrower
is a party or by which the Borrower or any of its properties is
bound, or (ii) be in conflict with, result in a breach of, or
constitute with the giving of notice or lapse of time, or both,
a default under any such agreement, indenture, mortgage, or
other instrument. All actions on the part of the shareholders of
the Borrower necessary in connection with the execution and
delivery by the Borrower of, and the performance by the Borrower
of its obligations under, the Loan Documents have been taken and
remain in full force and effect as of the date hereof.
(C) Consents. No consent, permission,
authorization, order, or license of any governmental authority
is necessary in connection with the execution, delivery,
performance, or enforcement of the Loan Documents except such as
have been obtained and are in full force and effect.
(D) Binding Agreement. Each of the Loan Documents
is, or when executed and delivered will be, the legal, valid,
and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, subject only to
limitations on enforceability imposed by (i) applicable
bankruptcy, insolvency, reorganization,
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moratorium, or similar laws affecting creditors' rights
generally, and (ii) general equitable principles.
(E) Compliance with Laws. The Borrower is in
compliance in all material respects with all federal, state, and
local laws, rules, regulations, ordinances, codes, and orders
(collectively, "Laws"), the failure to comply with which could
have a material adverse effect on the condition, financial or
otherwise, operations, properties, or business of the Borrower,
or on the ability of the Borrower to perform its obligations
under the Loan Documents, except as the Borrower has disclosed
on Schedule 1 hereto.
(F) Environmental Compliance. Without limiting the
provisions of Subsection (E), all property owned or leased by
the Borrower and all operations conducted by it are in
compliance in all material respects with all Laws relating to
environmental protection, the failure to comply with which could
have a material adverse effect on the condition, financial or
otherwise, operations, properties, or business of the Borrower,
or on the ability of the Borrower to perform its obligations
under the Loan Documents, except as the Borrower has disclosed
on Schedule 1 hereto.
(G) Litigation. There are no existing legal,
arbitration, or governmental actions or proceedings to which the
Borrower is a party or to which any of its property is subject
which could have a material adverse effect on the condition,
financial or otherwise, operations, properties or business of
the Borrower or on the ability of the Borrower to perform its
obligations under the Loan Documents, and to the best of the
Borrower's knowledge, no such actions or proceedings are
threatened or contemplated.
(H) Financial Statements; No Material Adverse
Change; Etc. The audited financial statements of the Borrower
for the fiscal year ended December 31, 1992, and the unaudited
financial statements of the Borrower for the period ended
September 30, 1993 and for the fiscal year ended December 31,
1993, submitted to CoBank in connection with the Loan fairly and
fully present in all material respects the financial condition
of the Borrower, and the results of the Borrower's operations
for the periods covered thereby and were prepared in accordance
with generally accepted accounting principles ("GAAP")
consistently applied and any system of accounts to which the
Borrower is subject (except as otherwise disclosed therein).
Since December 31, 1992, there has been no Material Adverse
Change. All budgets, projections, feasibility studies, and other
documentation submitted by the Borrower to CoBank were based
upon assumptions that management of the Borrower believed were
reasonable and realistic at the time submitted, and as of the
date hereof, no fact has come to light, and no event or
transaction has occurred, which would cause any assumption made
therein not to be reasonable or realistic.
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Loan No. T0268
(I) Principal Place of Business; Records. The
principal place of business and chief executive office of the
Borrower and the place where the records required by Section
13(G) are kept is at the address of the Borrower shown in
Section 19.
(n) Subsidiaries. The Borrower has no subsidiaries.
(K) Employee Benefit Plans. Except as disclosed on
Schedule 1 hereto, the Borrower is in compliance in all material
respects with the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder.
(L) Taxes. The Borrower has filed or caused to be
filed all federal state and local tax returns that are required
to be filled, and has paid all taxes as shown on said returns or
on any assessment received by the Borrower to the extent that
such taxes have become due, or are being contested by the
Borrower in good faith and by appropriate proceedings and then
only to the extent adequate reserves have been set aside on the
Borrower's books therefor.
(M) Investment Company Act; Public Utility Holding
Company Act. The Borrower is not an "investment company" as that
term is defined in, and is not otherwise subject to regulation
under, the Investment Company Act of 1940, as amended. The
Borrower is not a "holding company" as that term is defined in,
and is not otherwise subject to regulation under, the Public
Utility Holding Company Act of 1935, as amended.
(N) Use of Proceeds. The funds to be borrowed
hereunder will be used only as contemplated hereby. No part of
such funds will be used to purchase any "margin securities" or
otherwise in violation of the regulations of the Federal Reserve
System.
(O) Factual Matters Certificate. The information
about the Borrower contained in paragraphs 2 through 9 of the
Factual Matters Certificate delivered to CoBank will be true and
complete with respect to the matters addressed therein as of the
Funding Date. Notwithstanding paragraph 1 of such Factual
Matters Certificate, the representations made in this Subsection
(O) are not limited by the Borrower's knowledge.
SECTION 13. Affirmative Covenants. Unless otherwise agreed
to in writing by CoBank, while this Agreement is in effect the
Borrower agrees to:
(A) Corporate Existence. Preserve and keep in full
force and effect its corporate existence and good standing in
the jurisdiction of its incorporation, and its qualification to
transact business and good standing in all places in which the
character of its properties or the nature of its business
requires such qualification.
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Loan No. T0268
(B) Compliance with Laws and Agreements. Comply in all
material respects with (i) all Laws, the failure to comply with
which could have a material adverse effect on its condition,
financial or otherwise, operations, properties, or business, or
on its ability to perform its obligations under the Loan
Documents; and (ii) all agreements, indentures, mortgages, and
other instruments to which it is a party or by which it or any
of its property is bound.
(C) Compliance with Environmental Laws. Without
limiting the provisions of Subsection (B), comply in all
material respects with, and cause all persons occupying or
present on any properties owned or leased by it to so comply
with, all Laws relating to environmental protection, the failure
to comply with which could have a material adverse effect on its
condition, financial or otherwise, operations, properties, or
business, or on its ability to perform its obligations under the
Loan Documents.
(D) Licenses; Permits; Etc. Duly and lawfully
obtain and maintain in full force and effect all licenses,
certificates, permits, authorizations, approvals, and the like
which are material to the conduct of its business or which may
be required by Law.
(E) Insurance. Maintain insurance with insurance
companies or associations reasonably acceptable to CoBank in
such amounts and covering such risks as are usually carried by
companies engaged in the same or similar business and similarly
situated, and make such increases in the type or amount of
coverage as CoBank may request. All such policies insuring any
collateral provided for in any Loan Document shall provide for
loss payable clauses or endorsements in form and content
acceptable to CoBank. At the request of CoBank, all policies (or
such other proof of compliance with this Section 13(E) as may be
reasonably satisfactory) shall be delivered to CoBank.
(F) Property Maintenance. Maintain and preserve at
all times its property, and each and every part and parcel
thereof, in good repair, working order and condition, ordinary
wear and tear excepted.
(G) Books and Records. Keep adequate records and
books of account in accordance with GAAP consistently applied
and any system of accounts to which the Borrower is subject.
(H) Inspection. Permit CoBank or its agents, during
normal business hours or at such other times as the parties may
agree, to examine its properties, books, and records, and to
discuss its affairs, finances, operations, and accounts with its
officers, directors, employees, and independent certified public
accountants. Notwithstanding the provisions of Section 20, any
such examination not made in connection with the preservation or
enforcement of CoBank's rights and remedies hereunder and under
the other Loan Documents shall be made at CoBank's expense.
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(I) Reports and Notices. Furnish to CoBank:
(1) Annual Financial Statements. As soon as
available, but in no event later than 90 days after the end of
each fiscal year of the Borrower occurring during the term
hereof, annual financial statements of the Borrower and all of
its subsidiaries whose accounts are at the time in question, in
accordance with GAAP, consolidated with those of the Borrower
(such subsidiaries, together with the Borrower, collectively,
the "Companies") prepared on a consolidated basis (on a
"Consolidated Basis") in accordance with GAAP consistently
applied and any system of accounts to which the Companies are
subject. Such financial statements shall: (i) be audited by
independent certified public accountants selected by the
Borrower and acceptable to CoBank; (ii) be accompanied by a
report of such accountants containing an opinion acceptable to
CoBank; (iii) be prepared in reasonable detail and in
comparative form for the preceding fiscal year; and (iv) include
a balance sheet, a statement of income, a statement of retained
earnings, a statement of cash flows, and all notes and schedules
relating thereto. In addition, such audited consolidated annual
financial statements shall be accompanied by unaudited
consolidating annual financial statements, including a balance
sheet, a statement of income, a statement of retained earnings,
and a statement of cash flows, each likewise set forth in
comparative form.
(2) Quarterly Financial Statements. As soon as
available but in no event later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of
the Borrower occurring during the term hereof, unaudited
quarterly financial statements of each of the Companies and
unaudited quarterly financial statements of the Companies
prepared on a Consolidated Basis, in each case in accordance
with GAAP consistently applied and any system of accounts to
which the Companies are subject (except for the omission of
footnotes and for the effect of normal year-end audit
adjustments). Such financial statements shall: (i) be prepared
in reasonable detail and set forth in comparative form
corresponding figures for the corresponding period of the
preceding fiscal year, and (ii) include a balance sheet, a
statement of income for such quarter and for the period
year-to-date, a statement of cash flows, and such other
quarterly statements of the Companies as CoBank may specifically
request, which quarterly statements shall include any and all
supplements thereto.
(3) Notice of Default. Promptly after becoming
aware thereof, notice of (i) the occurrence of any Default or
Event of Default hereunder or under any other Loan Document, or
(ii) the occurrence of any breach, default, event of default, or
other event which with the giving of notice or lapse of time, or
both, could become a breach, default, or event of default under
any agreement, indenture, mortgage, or other instrument (other
than the Loan Documents) to which it is a party or by which it
or any of its property is bound or affected if the effect of
such breach, default, event of default, or other event is to
accelerate, or to permit the acceleration of, the maturity
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of any indebtedness under such agreement, indenture, mortgage,
or other instrument; provided, however, that the failure to give
such notice shall not affect the right and power of CoBank to
exercise any and all of the remedies specified herein.
(4) Notice of Non-Environmental Litigation.
Promptly after the commencement thereof, notice of the
commencement of all actions, suits, or proceedings before any
court, arbitrator, or governmental department, commission,
board, bureau, agency, or instrumentality affecting the Borrower
which could have a material adverse effect on its condition,
financial or otherwise, operations, properties, or business or
on its ability to perform its obligations under the Loan
Documents.
(5) Notice of Environmental Litigation. Without
limiting the provisions of Subsection (I)(4), promptly after
receipt thereof, notice of the receipt of all pleadings, orders,
complaints, indictments, or other communications alleging a
condition that may require the Borrower to undertake or to
contribute to a cleanup or other response under Laws relating to
environmental protection, or which seeks penalties, damages,
injunctive relief, or criminal sanctions related to alleged
violations of such Laws, or which claims personal injury or
property damage to any person as a result of environmental
factors or conditions or which could have a material adverse
effect on the condition, financial or otherwise, operations,
properties, or business of the Borrower or on its ability to
perform its obligations under the Loan Documents.
(6) Regulatory and Other Notices. Promptly after
receipt thereof, copies of any filings or communications sent to
or notices or other communications received from any
governmental authority, including without limitation, the
Pennsylvania Public Utility Commission (the "Commission"), the
Federal Communications Commission (the "FCC'), and the
Securities and Exchange Commission (the "SEC'), relating to any
noncompliance by the Borrower with any Law or with respect to
any matter or proceeding the effect of which could have a
material adverse effect on its condition, financial or
otherwise, operations, properties, or business or on its ability
to perform its obligations under the Loan Documents.
(7) Material Adverse Change. Prompt notice of any
matter which has resulted or could result in a material adverse
effect on the condition, financial or otherwise, operations,
properties, or business of the Borrower or on its ability to
perform its obligations under the Loan Documents.
(8) Compliance Certificates. Concurrently with each
statement required to be furnished pursuant to Subsections
(r)(1) and (I)(2), a certificate in the form attached hereto as
Exhibit C executed by the President, Chief Financial Officer or
Treasurer of the Borrower.
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(9) ERISA Reportable Events. Within 10 days after
the Borrower becomes aware of the occurrence of any Reportable
Event (as defined in Section 4043 of ERISA) with respect to any
of the Companies, a statement describing such Reportable Event
and the actions proposed to be taken in response to such
Reportable Event.
(10) SEC Filings. Promptly upon the filing thereof,
copies of any and all reports on Forms 10-K, 10-Q and 8-K and
any and all proxy statements filed by C-TEC Corporation with the
SEC
(11) Other Information. Such other information
regarding the financial or operational condition of the Borrower
as CoBank may, from time to time, reasonably request.
(J) Financial Covenants.
(1) Total Leverage Ratio. Maintain at all times, on
a Consolidated Basis, a Total Leverage Ratio not in excess of
3.5:1.0. The term "Total Leverage Ratio" shall mean the ratio of
Indebtedness to Operating Cash Flow. The term "Indebtedness"
shall mean, without duplication, (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price
of property or services other than accounts payable arising in
connection with the purchase of inventory on terms customary in
the trade, (iii) obligations, whether or not assumed, secured by
liens or payable out of the proceeds or production from property
now or hereafter owned or acquired, (iv) obligations which are
evidenced by notes, acceptances, or other instruments, (v)
capitalized agreements, (vi) fixed rate hedging obligations that
are due (after giving effect to any period of grace or notice
requirement applicable thereto) and remain unpaid, and (vii)
fixed payment obligations under guaranties that are due and
remain unpaid, all calculated on a Consolidated Basis. The term
"Operating Cash Flow" shall mean the sum of (a) pretax income,
or deficit, as the case may be, excluding extraordinary gains
and the write up of any asset, (b) total interest expense
(including non-cash interest), (c) depreciation and amortization
expense, (d) accrued and unpaid management fees, (e) minority
interest, to the extent deducted in the calculation of pre-tax
income, or deficit, and (f) non-recurring transaction expenses
incurred in connection with the negotiation and execution of the
Loan Documents, all calculated on a Consolidated Basis. For
purposes of determining any applicable ratio, Operating Cash
Flow shall be measured for the then most recently completed four
fiscal quarters, adjusted to give effect to any acquisition,
sale, or other disposition of any operation during the period of
calculation, as if such acquisition, sale, or other disposition
occurred on the first day of such period of calculation.
(2) Interest Coverage Ratio. Maintain at all times,
on a Consolidated Basis, an Interest Coverage Ratio of at least
2.0:1.0. The term
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Loan No. T0268
"Interest Coverage Ratio" shall mean the ratio derived by
dividing (i)
Operating Cash Flow by (ii) cumulative cash interest expense for
the then most recently completed four fiscal quarters
(determined in accordance with GAAP consistently applied).
(3) Equity to Total Capitalization Ratio. Maintain
at all times, on a Consolidated Basis, an Equity to Total
Capitalization Ratio of not less than 30.0%. The term "Equity to
Total Capitalization Ratio" shall mean the ratio derived by
dividing (i) the amount derived by subtracting total liabilities
from total assets by (ii) the amount derived by subtracting
total liabilities from total assets and adding total
Indebtedness (determined in accordance with GAAP consistently
applied).
SECTION 14. Negative Covenants. Unless otherwise agreed to
in writing by CoBank, while this Agreement is in effect, the
Borrower shall not:
(A) Borrowings. Create, incur, assume, or allow to
exist, directly or indirectly, any indebtedness or liability for
borrowed money, for the deferred purchase price of property or
services, or for the lease of real or personal property which
lease is required to be capitalized under GAAP or which is
treated as an operating lease under regulations applicable to it
but which otherwise would be required to be capitalized under
GAAP (a "Capital Lease"), except for (i) obligations to CoBank,
(ii) accounts payable to trade creditors and current operating
liabilities (other than for borrowed money) incurred in the
ordinary course of its business, and (iii) (a) other unsecured
obligations and (b) Capital Leases, so long as no Default or
Event of Default exists at the time of, or would result from,
the creation, incurrence, assumption, or existence of any such
obligation or Capital Lease referred to in this clause (iii).
(B) Liens. Create, incur, assume, or allow to exist
any mortgage, deed of trust, deed to secure debt, pledge, lien
(including the lien of an attachment, judgment, or execution),
security interest, or other encumbrance of any kind upon any of
its property, real or personal. The foregoing restrictions shall
not apply to (i) liens in favor of CoBank; (ii) liens for taxes,
assessments, or governmental charges that are not past due, or
are being contested in good faith and by appropriate proceedings
and then only to the extent adequate reserves have been set
aside therefor; (iii) liens, pledges, and deposits under
workers' compensation, unemployment insurance, and social
security laws; (iv) liens, deposits, and pledges to secure the
performance of bids, tenders, contracts (other than contracts
for the payment of money), and like obligations arising in the
ordinary course of its business as conducted on the date hereof;
(v) liens imposed by law in favor of mechanics, materialmen,
warehousemen, lessors and like persons that secure obligations
that are not past due, or are being contested in good faith and
by
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Loan No. T0268
appropriate proceedings and then only to the extent adequate
reserves have been set aside therefor; (vi) liens constituting
encumbrances in the nature of zoning restrictions, easements,
and rights or restrictions of record on the use of real property
of the Borrower that do not materially detract from the value of
such real property or impair the use thereof in the business of
the Borrower; and (vii) Capital Leases not secured by any
property which is not subject to such lease.
(C) Mergers; Acquisitions; Etc. (i) Merge or
consolidate with any other entity or (ii) acquire all or
substantially all of the assets of any person or entity, or form
or create any new subsidiary, or commence operations under any
other name, organization, or entity, including any joint
venture; provided, however, that the Borrower may enter into any
such transaction described in this clause (ii) involving any
entity or entities engaged in, or assets to be used by the
Borrower in, the telecommunications business without the written
agreement of CoBank if no Default or Event of Default exists at
the time of, or would occur as the result of, any such
transaction, including, without limitation, any Event of Default
as described in Section 15(J) and any Default occurring as the
result of a breach of Subsection (F) or Section 13(J).
(D) Transfer of Assets. Sell, transfer, lease,
enter into any contract for the sale, transfer or lease of, or
otherwise dispose of, any of its assets, except as provided in
the Mortgage or the Security Agreement, as the case may be.
(E) Loans and Investments. After the date hereof,
make any loan or advance to, invest in, purchase, or make any
commitment to purchase any stock, bonds, notes, or other
securities of, or guarantee, assume, or otherwise become
obligated or liable with respect to the obligations of, any
person or entity (each, whether made directly or indirectly, an
"Investment") in an amount in excess of S1,000,000 as to any
single Investment or in excess of $5,000,000 as to all such
Investments existing at any time, determined for the Companies,
on a Consolidated Basis, other than (i) stock or other
securities of CoBank; (ii) Class C stock of the Rural Telephone
Bank; (iii) securities or deposits issued, guaranteed, or fully
insured as to payment by the United States of America or any
agency or instrumentality thereof; (iv) interest bearing deposit
accounts (which may be represented by certificates of deposit)
in national or state banks or savings and loan associations
which have (or the parent of which has) outstanding securities
rated by a nationally recognized rating organization (a "Rating
Agency") in either of the two highest rating categories (without
regard to modifiers) for short term securities or in any of the
three highest rating categories (without regard to modifiers)
for long term securities or any equivalent successor rating
category; (v) bankers' acceptances drawn on and accepted by
commercial banks which have (or the parent of which has)
outstanding securities rated by a
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Loan No. T0268
Rating Agency in either of the two highest rating categories
(without regard to modifiers) for short term securities or in
any of the three highest rating categories (without regard to
modifiers) for long term securities or any equivalent successor
rating categories; (vi) direct obligations of, or obligations
the principal of and interest on which are unconditionally
guaranteed by, any State or Territory of the United States of
America or the District of Columbia, or any political
subdivision of any of the foregoing, which are rated by a Rating
Agency in either of the two highest rating categories (without
regard to modifiers) for short term securities or in any of the
three highest rating categories (without regard to modifiers)
for long term securities or any equivalent successor rating
categories; (vii) commercial or finance company paper which is
rated by a Rating Agency rated in any of the two highest rating
categories (without regard to modifiers) for short term
securities or any equivalent successor rating categories; (viii)
corporate debt securities or preferred stock rated by a Rating
Agency in any of the three highest rating categories (without
regard to modifiers) for long term securities or any equivalent
successor rating categories; and (ix) repurchase agreements with
banking or financial institutions which have (or the parent of
which has) outstanding securities rated by a Rating Agency in
either of the two highest rating categories (without regard to
modifiers) for short term securities or in any of the three
highest rating categories (without regard to modifiers) for long
term securities or any equivalent successor rating categories
with respect to any of the foregoing obligations or securities.
(F) Change in Business. Engage in any business
activities or operations substantially different from or
unrelated to the Borrower's current business activities or
operations.
(G) Disposition of Licenses. Sell, assign,
transfer, or otherwise dispose of, or attempt to dispose of, in
any way, any registrations, licenses, franchises, grants,
permits, or other governmental approvals necessary or useful in
the operation of its business.
(H) Dividends and Distributions. Make, declare, or
pay any dividend or other distribution of assets to shareholders
of the Borrower during any fiscal year (i) if a Default or Event
of Default then exists or would occur as the result thereof, or
(ii) which, in the aggregate with all other such dividends or
distributions during such fiscal year, exceeds the amount of the
after tax net income of the Borrower for the immediately
preceding fiscal year (determined in accordance with GAAP
consistently applied), provided, however, that the limitation in
this clause (ii) shall not apply to any special dividends paid
on or before October 1, 1994 in an aggregate amount not to
exceed $40,000,000.
SECTION 15. Events of Default. Each of the following shall
constitute an "Event of Default" hereunder:
- - -20-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
(A) Payment Default. The failure by the Borrower to
make any payment or investment required to be made hereunder,
under the Note, or under any other Loan Document when due, and
such payment or investment is not made within five (5) Business
Days thereafter.
(B) Representations and Warranties. Any
representation or warranty made by the Borrower herein or in any
other Loan Document, or any factual statement made in the
Factual Matters Certificate, shall prove to have been false or
misleading in any material respect on or as of the date made.
(C) Certain Affirmative Covenants. The failure by
the Borrower to perform or comply with any covenant set forth in
Section 13 (other than Sections 13(A) and 13(I)(3), (4), (5),
(6) and (7)), and such failure continues for thirty (30) days
after written notice thereof shall have been delivered by CoBank
to the Borrower.
(D) Other Covenants and Agreements. The failure by
the Borrower to perform or comply with any other covenant or
agreement contained herein, including, without limitation, any
covenant excluded under Subsection (C).
(E) Cross-Default. The occurrence of any breach,
default, event of default, or event which with the giving of
notice or lapse of time, or both, could become a default or
event of default under (i) any Loan Document other than this
Agreement, or (ii) the terms of any agreement (other than the
Loan Documents) between the Borrower and CoBank, including,
without limitation, any guaranty, loan agreement, security
agreement, mortgage, deed to secure debt, or deed of trust.
(F) Other Indebtedness. The occurrence of any
breach, default, event of default, or event which with the
giving of notice or lapse of time, or both, could become a
default or event of default under any agreement, indenture,
mortgage, or other instrument by which the Borrower or any of
its property is bound or affected (other than the Loan
Documents) if the effect of such breach, default, event of
default, or event is to accelerate, or to permit the
acceleration of, the maturity of any indebtedness in excess of
$1,000,000 under such agreement, indenture, mortgage, or other
instrument.
(G) Judgments. Judgments, decrees, or orders for
the payment of money in an aggregate amount in excess of
$1,000,000 shall be rendered against any of the Borrower and
either (i) enforcement proceedings shall have been commenced; or
(ii) such judgments, decrees, and orders shall continue
unsatisfied and in effect for a period of forty-five (45)
consecutive days without being vacated, discharged, satisfied,
or stayed pending appeal.
(H) Insolvency, Etc. The Borrower (i) shall become
insolvent or shall generally not, or shall be unable to, or
shall admit in writing its
- - -21-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
inability to, pay its debts as they come due; or (ii) shall
suspend its business operations or a material part thereof or
make an assignment for the benefit of creditors; or (iii) shall
apply for, consent to, or acquiesce in the appointment of a
trustee, receiver, or other custodian for it or any of its
property or, in the absence of such application, consent, or
acquiescence, a trustee, receiver, or other custodian is so
appointed; or (iv) shall commence with respect to it or have
commenced against it any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution,
or liquidation law or statute of any jurisdiction; provided,
however, that, with respect to any proceeding commenced against
the Borrower, the Borrower shall have failed to obtain a
dismissal, stay, or other nullification within sixty (60) days
after such commencement.
(I) Eligibility. The failure by the Borrower to
maintain its eligibility to borrow from CoBank.
(J) Security. The Mortgage or the Security
Agreement and the filings contemplated thereby shall for any
reason fail (i) to create a valid and perfected first priority
lien, security interest, or security title (subject only to such
exceptions as are therein permitted) on any of the property of
the Borrower identified therein, or (ii) to secure thereunder
the obligations evidenced by the Note and this Agreement.
SECTION 16. Remedies Upon Event of Default.
(A) Automatic Acceleration. Upon the occurrence of
an Event of Default under Section 15(H), the entire unpaid
principal balance of the Note, all accrued interest thereon, and
all other amounts payable under this Agreement, the Note, and
all other agreements between CoBank and the Borrower shall
become immediately due and payable without protest, presentment,
demand, or further notice of any kind, all of which are hereby
expressly waived by the Borrower.
(B) Acceleration; Etc. Upon the occurrence of an
Event of Default other than under Section 15(H), upon notice to
the Borrower, CoBank may declare the entire unpaid principal
balance of the Note, all accrued interest thereon, and all other
amounts payable under this Agreement and all other agreements
between CoBank and the Borrower, to be immediately due and
payable. Upon such a declaration, the unpaid principal balance
of the Note and all such other amounts shall become immediately
due and payable, without protest, presentment, demand, or
further notice of any kind, all of which are hereby expressly
waived by the Borrower.
(C) Enforcement. Upon the occurrence of an Event of
Default, CoBank may proceed to protect, exercise, and enforce
such rights and remedies
- - -22-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
as may be provided by agreement or under law including, without
limitation, the rights and remedies provided for in the Note and
any of the other Loan Documents. Each and every one of such
rights and remedies shall be cumulative and may be exercised
from time to time, and no failure on the part of CoBank to
exercise, and no delay in exercising, any right or remedy shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right or remedy preclude any other or future
exercise thereof, or the exercise of any other right. In
addition, CoBank may hold and/or set off and apply against the
Borrower's indebtedness any and all cash, accounts, securities,
or other property in CoBank's possession or under its control.
(D) Application of Payments. After acceleration of
the Loan, all amounts received by CoBank shall be applied to the
amounts owing hereunder, under the Note, and the other Loan
Documents in whatever order and manner as CoBank shall elect.
(E) Regulatory Approvals. Upon any action by CoBank
to commence the exercise of remedies hereunder or under the
Mortgage or the Security Agreement, the Borrower hereby
undertakes and agrees to cooperate and join with CoBank in any
application to the Commission, the FCC or any other regulatory
body, administrative agency, court or other forum (any such
entity, a "Governmental Authority") with respect thereto and to
provide such assistance in connection therewith as CoBank may
request, including, without limitation, the preparation of
filings and appearances of employees of the Borrower before such
Governmental Authority, in each case in support of any such
application made by CoBank, and the Borrower shall not, directly
or indirectly, oppose any such action by CoBank before any such
Governmental Authority.
SECTION 17. Complete Agreement; Amendment. This Agreement,
the Note, and the other Loan Documents are intended by the
parties to be a complete and final expression of their
agreement. No amendment, modification, or waiver of any
provision hereof or thereof, nor any consent to any departure of
the Borrower herefrom or therefrom, shall be effective unless
approved by CoBank and contained in a writing signed by or on
behalf of CoBank, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
SECTION 18. Applicable Law. Except to the extent governed
by applicable federal law, this Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania, without reference to choice of law doctrine.
SECTION 19. Notices. All notices hereunder shall be in
writing and shall be deemed to be duly given upon delivery, if
delivered by ' Express Mail,"
- - -23-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
overnight courier, messenger or other form of hand delivery or
sent by telegram or facsimile transmission, or three (3) days
after mailing if sent by certified or registered mail, to the
parties at the following addresses (or such other address for a
party as shall be specified by like notice):
If to CoBank, as follows: If to the Borrower, as follows:
National Bank for Cooperatives Commonwealth Telephone Company
200 Galleria Parkway 46 Public Square
Suite 1900 Wilkes-Barre, Pennsylvania 18703-3000
Atlanta, Georgia 30339 Attn: Treasurer
Attn: Rural Utility Banking Group Fax No,: (717) 825-1942
Fax No.: (404) 618-3202
SECTION 20. Costs and Expenses. The Borrower shall
reimburse CoBank on demand for all reasonable out-of-pocket
costs and expenses incurred by CoBank in connection with the
origination, negotiation, preparation and administration of this
Agreement and all other Loan Documents, and the preservation and
enforcement of CoBank's rights and remedies hereunder and
thereunder, including, without limitation: (i) costs and
expenses (including intangible and other taxes and any recording
fees or expenses) incurred by CoBank to obtain, perfect,
maintain, determine the priority of, or release any security
contemplated hereunder, (ii) fees and expenses of any outside
counsel retained by CoBank to assist CoBank with respect to any
matter contemplated by this Section or to review this Agreement
and all other Loan Documents and advise CoBank as to its rights
and remedies hereunder or thereunder; (iii) fees and expenses of
any outside counsel retained by CoBank to represent it in any
litigation involving the parties hereto, including but not
limited to, bankruptcy, receivership, or similar proceedings;
and (iv) fees, costs and expenses incurred in connection with
obtaining surveys and appraisals, if any, required under this
Agreement or any other Loan Document; provided, however, that so
long as the Borrower's requests of such counsel are commercially
reasonable, the Borrower shall not be obligated to reimburse
CoBank for any legal fees incurred by CoBank in connection with
the negotiation and preparation of the Loan Documents and the
closing of the Loan in excess of $50,000.
SECTION 21. Effectiveness; Severability. This Agreement
shall continue in effect until all indebtedness and obligations
of the Borrower hereunder and under all other Loan Documents
shall have been fully and finally repaid or the Maturity Date,
whichever is later. Any provision of the Loan Documents which 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 or thereof.
- - -24-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
SECTION 22. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the Borrower and
CoBank and their respective successors and assigns, except that
the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of
CoBank. Without the consent of, but with notice to, the
Borrower, CoBank may (i) sell participations to one or more
banks or other entities in all or a portion of its rights and
obligations under this Agreement, provided, however, that after
any such sale of participations, the Borrower shall continue to
deal solely and directly with CoBank with respect to this
Agreement and the other Loan Documents, or (ii) assign to one or
more banks or other entities all or a portion of its rights and
obligations under this Agreement.
SECTION 23. Consent to Jurisdiction. To the maximum extent
permitted by law, the Borrower agrees that any legal action or
proceeding with respect to this Agreement or any of the other
Loan Documents may be brought in the courts of the Commonwealth
of Pennsylvania or of the United States of America for the
Middle District of Pennsylvania, all as CoBank may elect. By
execution of this Agreement, the Borrower hereby irrevocably
submits to each such jurisdiction, expressly waiving any
objection it may have to the laying of venue by reason of its
present or future domicile. Nothing contained herein shall
affect the right of CoBank to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction
or to serve process in any manner permitted or required by law.
SECTION 24. Obligations Absolute. The obligation of the
Borrower to make all payments required to be made under this
Agreement shall be independent of any action by the Commission
with respect to rates and/or disallowance of debt.
SECTION 25. Defined Terms. For convenience of reference,
set forth below opposite each defined term used in this
Agreement is the location in this Agreement of the definition of
such term:
Defined Term Location
Agreement Introduction Paragraph
Banking Day Section 3
Borrower Introductory Paragraph
Business Day Section 3
Capital Lease Section 14(A)
CoBank Introductory Paragraph
Commission Section 13(I)(6)
Companies Section 13(I)(1)
Consolidated Basis Section 13(I)(1)
Default Section 11(I)
Equity to Total Capital Ratio Section 13(J)(3)
Event of Default Section 15
Factual Matters Certificate Section 11(N)
- - -25-
<PAGE>
Loan Agreement/Commonwealth
Loan No. T0268
Defined Term Location
FCC Section 13(I)(6)
Floating Rate Section 4(A)(1)
Funding Date Section 3
GAAP Section 12(H)
Governmental Authority Section 16(E)
Indebtedness Section 13(J)(1)
Interest Coverage Ratio Section (J)(2)
Interest Period Section 4(A)(2)(a)
Investment Section 14(E)
Laws Section 12(E)
LIBOR Section 4(A)(2)(b)
LIBOR Rate Section 4(A)(2)(b)
LIBOR Margin Section 4(A)(2)(b)
Loan Section 1
Loan Documents Section 11(A)
Material Adverse Change Section 11(K)
Maturity Date Section 5
Mortgage Section 10
National Variable Rate Section 4(A)(1)
Note Section 7
Operating Cash Flow Section 13(J)(1)
Quoted Rate Section 4(A)(2)(c)
Payment Date Section 5
Portion Section 4(A)(1)
Rating Agency Section 14(E)
SEC Section 13(I)(6)
Security Agreement Section 10
Surcharge Section 6
Total Leverage Ratio Section 13(J)(1)
Treasury Margin Section 4(A)(2)(a)
Treasury Rate Section 4(A)(2)(a)
U.S. Treasury Rate Section 4(A)(2)(a)
IN WITNESS WHEREOF, the Borrower has caused this Agreement
to be executed, attested, sealed, and delivered and CoBank has
caused this Agreement to be executed and delivered, each by its
duly authorized officers, as of the date first shown above.
NATIONAL BANK FOR COMMONWEALTH TELEPHONE
COOPERATIVES COMPANY
By: By: /s/ Michael J. Mahoney
Title: President
Attest: /s/ Raymond B. Ostroski
Secretary
(CORPORATE SEAL)
- - -26-
<PAGE>
SCHEDULE 1
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
AND OTHER MATTERS
Section 11(G) Identification of Real Property to be covered by
title insurance:
Section 12(E) "Compliance with Laws":
None
Section 12(F) "Environmental Compliance":
None
Section 12(K) "Employee Benefit Plans":
None
<PAGE>
<PAGE>
Schedule 2
To: John Butler
From: Antony Bahr
Subject: Basis Adjustment in Loans
The standard CoBank Treasury-based pricing option allows for a
change in a borrower's credit spread if CoBank's funding cost in
relation to Treasuries changes significantly. Typically a
borrower has a 90 day window to fix an interest rate based on
the Treasury option with no spread adjustment. If the borrower
elects to fix a Treasury-based rate after the 90 days, then the
following adjustment is made.
CoBank's funding cost spread in relation to Treasuries on the
day the fixed rate is executed is compared to the comparable
funding cost relationship as of the date of the signing of the
loan commitment letter. If CoBank's funding spread over
Treasuries has increased during this period of time, the spread
over Treasuries used to determine the loan interest rate will be
increased by a like amount. For instance, if the borrower wanted
a five year average life loan priced at Treasuries plus 100
basis points we would compare CoBank's spread over the five year
Treasury as of the date the commitment letter was signed versus
the CoBank five year funding spread as of the date of the fixed
rate desired by the customer. If CoBank was funding at 30 basis
points over the five year Treasury for a five year maturity on
the date the commitment letter was signed, and this spread
widened out to 35 basis points as of the date of the fixed rate
loan, then CoBank would increase the borrower's credit spread
from l00 to 105 basis points. This process is done to confine
CoBank's funding risk in relation to Treasuries to the first 90
days after the commitment letter is executed.
<PAGE>
<PAGE>
February 25, 1994 SCHEDULE 3
CoBANK MEMORANDUM
TO: John Butler
(Atlanta)
FROM: Shane Matson
(Corporate Finance - Denver)
SUBJECT: C-TEC PREPAYMENT EXAMPLE:
The attached schedule calculates a hypothetical prepayment
penalty for C-TEC Corporation based on their loan agreement.
The example represents an initial five year loan after one year
has elapsed, if interest rates fall. The penalty amount of
$2,023,574 is based on the following assumptions:
Original Loan Amount: $140,000,000
Loan Disbursement Date: March 1, 1994
Loan Maturity Date: March 1, 1999
Original CoBank Cost of Funds: 6.50%
Loan Amount on 03/01/95: $131,444,444
CoBank Cost of Funds 03/01/95: 6.00%
(Based on Remaining Average Life of Loan)
Change From Original Cost of Funds: 0.50%
Present Value of Difference (0.50%): $2,023,574
(Represents CoBank's Funding Loss)
The cost of funds, based on the remaining average life,
decreased by 50 basis points. This difference would be applied
to the scheduled outstanding balances for each period until the
end of the fixation. These amounts would be present valued for
each period at the cost of funds based on the remaining average
life of the loan (6.00% in this case). The summation of the
present values for each scheduled period of the fixation will
total CoBank's funding loss.
<PAGE>
<TABLE>
INPUT PAGE PREPAYMENT MODEL
AMORATION/CASH FLOW SCHEDULE ON PAGE 8
PRESS "CTRL M" FOR MENU
Borrower: C-TEC 5 Year Loan Prepayment Example
STEP 1: ENTER PREPAYMENT CALCULATION PARAMETERS
Calculation Date03/01/95 Prepayment Penalty Amount:
$2,023,574
<S> <C> <C>
<C>
Loan Amount: $131,444,444 Original Cost
6.500%
Loan Rate: (B.E.) 7.500% Current Cost 6.000%
Loan Type: 3 Irregular Principal Basis Point Adder
0
Day Count Basis: 1 Act/365 Basis Point Difference
50
Payments/Year: 12
Curr Cost Pricing Index:1 Cost of Funds Remaining Loan
Maturity 4.00
Loan Maturity Date: 03/01/99 Remaining Loan Average
Life: 3.44
Current COF (Avg. Life) 6.000%
Principal Pmt. Day of the Mo. 20 Current COF (Compound)
5.926%
Interest Pmt. Lag (Days): 0 Current IRR of Costs
5.926%
First Int. Payment Date: 03/20/95 IRR vs Avg Life COF
-0.000%
First Principal Pmt. Date 03/20/95
Days To Next Period 19 Total Periods Remaining
49
Interest Only Periods: N/A
Use Today's DRS for Current Cost? YES
Discount Rate for
Interest Only End Date: 09/20/93 Recovery
Period(Act/365): 6.000%
(Loan Type 5 Only)
Does Amortization Schedule
Match Input Parameters: YES
</TABLE>
STEP 2: RUN MACRO TO GENERATE AMORTIZATION -
CASH FLOW SCHEDULE - CLICK MENU BUTTON
<PAGE>
<TABLE> AMORTIZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 5 Year Loan
Prepayment Example
Prepayment Priority: $2,023,574
Loan Type: Irregular Principal Calculation Date:
03/01/95
<S> <C> <C> <C> <C> <C>
<C> Payment Total Pay
Number Date Amount Principal Interest
Balance
0 01-Mar-95 ($131,444,444) ($131,444,444) 0
$131,444,444
1 20-Mar-95 $1,290,952 $777,778 $513,174
$130,666,666
2 20-Apr-95 $1,610,107 $777,778 $832,329
$129,888,888
3 20-May-95 $1,578,463 $777,778 $800,685
$129,111,110
4 20-Jun-95 $1,600,198 $777,778 $822,420
$128,333,332
5 20-Jul-95 $1,568,874 $777,778 $791,096
$127,555,554
6 20-Aug-95 $1,590,289 $777,778 $812,511
$126,777,776
7 20-Sep-95 $1,585,335 $777,778 $807,557
$125,999,998
8 20-Oct-95 $1,554,490 $777,778 $776,712
$125,222,220
9 20-Nov-95 $1,575,426 $777,778 $797,648
$124,444,442
10 20-Dec-95 $1,544,901 $777,778 $767,123
$123,666,664
11 20-Jan-96 $1,565,518 $777,778 $787,740
$122,888,886
12 20-Feb-96 $1,560,563 $777,778 $782,785
$122,111,108
13 20-Mar-96 $1,505,426 $777,778 $727,648
$121,333,330
14 20-Apr-96 $1,550,655 $777,778 $772,877
$120,555,552
15 20-May-96 $1,520,929 $777,778 $743,151
$119,777,774
16 20-Jun-96 $1,540,746 $777,778 $762,968
$118,999,996
17 20-Jul-96 $1,511,340 $777,778 $733,562
$118,222,218
18 20-Aug-96 $1,530,837 $777,778 $753,059
$117,444,440
19 20-Sep-96 $1,525,883 $777,778 $748,105
$116,666,662
20 20-Oct-96 $1,496,956 $777,778 $719,178
$115,888,884
21 20-Nov-96 $1,515,974 $777,778 $738,195
$115,111,106
22 20-Dec-96 $1,487,367 $777,778 $709,589
$114,333,328
23 20-Jan-97 $1,506,066 $777,778 $728,288
$113,555,550
24 20-Feb-97 $1,510,111 $777,778 $723,333
$112,777,772
25 20-Mar-97 $1,426,636 $777,778 $648,858
$111,999,994
26 20-Apr-97 $1,491,203 $777,778 $713,425
$111,222,216
27 20-May-97 $1,463,394 $777,778 $685,616
$110,444,438
28 20-Jun-97 $1,481,294 $777,778 $703,516
$109,666,660
29 20-Jul-97 $1,453,805 $777,778 $676,027
$108,888,882
30 20-Aug-97 $1,471,385 $777,778 $693,607
$108,111,104
31 20-Sep-97 $1,466,431 $777,778 $688,653
$107,333,326
32 20-Oct-97 $1,439,422 $777,778 $661,644
$106,555,548
33 20-Nov-97 $1,456,522 $777,778 $678,744
$105,777,770
34 20-Dec-97 $1,429,833 $777,778 $652,055
$104,999,992
35 20-Jan-98 $1,446,614 $777,778 $668,836
$104,222,214
36 20-Feb-98 $1,441,659 $777,778 $663,881
$103,444,436
37 20-Mar-98 $1,372,938 $777,778 $595,160
$102,666,658
38 20-Apr-98 $1,431,751 $777,778 $653,973
$101,888,880
39 20-May-98 $1,405,860 $777,778 $628,082
$101,111,102
40 20-Jun-98 $1,421,842 $777,778 $644,064
$100,333,324
41 20-Jul-98 $1,396,271 $777,778 $618,493
$99,555,546
42 20-Aug-98 $1,411,933 $777,778 $634,155
$98,777,768
43 20-Sep-98 $1,406,979 $777,778 $629,201
$97,999,990
44 20-Oct-98 $1,381,888 $777,778 $604,110
$97,222,212
45 20-Nov-98 $1,397,070 $777,778 $619,292
$96,444,434
46 20-Dec-98 $1,372,298 $777,778 $594,520
$95,666,656
47 20-Jan-99 $1,387,161 $777,778 $609,383
$94,888,878
48 20-Feb-99 $1,382,207 $777,778 $604,429
$94,111,100
49 01-Mar-99 $94,285,141 $94,111,110 $174,041
$0
Totals $165,339,945 $131,444,444 $33,895,501
</TABLE>
<PAGE><TABLE>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 5 Year Loan
Prepayment Example
Prepayment Priority: $2,023,574
Loan Type: Irregular Principa Calculation Date: 03/01/95
<CAPTION> Present Value of Loan Only
Payment Nominal Nominal Loss Mov Average
Number Loss (to Calc Date) Life (Yrs)
<S> <C> <C> <C>
<C>
1 $34,212 $34,107.96 0.0521
2 $55,489 $55,047.43 0.1365
3 $53,379 $52,701.61 0.2177
4 $54,828 $53,865.00 0.3011
5 $52,740 $51,565.85 0.3814
6 $54,167 $52,700.32 0.4638
7 $53,837 $52,120,40 0.5457
8 $51,781 $49,890.15 0.6245
9 $53,177 $50,981.99 0.7054
10 $51,142 $48,796.71 0.7832
11 $52,516 $49,860.76 0.8629
12 $52,186 $49,302.57 0.9421
13 $48,510 $45,618.17 1.0157
14 $51,525 $48,214.45 1.0939
15 $49,543 $46,138.55 1.1691
16 $50,865 $47,135.07 1.2462
17 $48,904 $45,101.86 1.3205
18 $50,204 $46,072.08 1.3966
19 $49,874 $45,543.03 1.4723
20 $47,945 $43,572.93 1.5451
21 $49,213 $44,504.30 1.6197
22 $47,305 $42,575.24 1.6915
23 $48,553 $43,481.43 1.7654
24 $48,222 $42,972.45 1.8388
25 $43,257 $38,376.06 1.9046
26 $47,562 $41,986.48 1.9770
27 $45,708 $40,157.10 2.0465
28 $46,901 $41,002.08 2.1179
29 $45,068 $39,211.75 2.1864
30 $46,240 $40,032.84 2.2568
31 $45,910 $39,550.67 2.3267
32 $44,110 $37,817.93 2.3938
33 $45,250 $38,603.83 2.4626
34 $43,470 $36,908.67 2.5288
35 $44,589 $37,671.63 2.5966
36 $44,259 $37,207.99 2.6639
37 $39,677 $33,207.65 2.7243
38 $43,596 $36,309.04 2.7907
39 $41,872 $34,704.98 2.8544
40 $42,938 $35,412.37 2.9197
41 $41,233 $33,843.94 2.9824
42 $42,277 $34,529.67 3.0468
43 $41,947 $34,090.78 3.1106
44 $40,274 $32,574.92 3.1719
45 $41,286 $33,228.75 3.2347
46 $39,635 $31,747.19 3.2950
47 $40,626 $32,380.23 3.3568
48 $40,295 $31,958.42 3.4181
49 $11,603 $9,188.99 3.4358
Totals $2,259,700 $2,023,574
3.4358
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
Assumed Rate: 6.9%
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Payment Tot Pay
Number Date Amount Principal Interest Balance
<S> <C> <C> <C> <C> <C>
<C>
0 01-Mar-94 ($140,000,000) ($140,000,000) 0
$140,000,000 1 20-Apr-94 $2,101,065 $777,778
$1,323,288 $139,222,222
2 20-May-94 $1,567,339 $777,778 $789,562
$138,444,444
3 20-Jun-94 $1,589,100 $777,778 $811,322
$137,666,667
4 20-Jul-94 $1,558,518 $777,778 $780,740
$136,888,889
5 20-Aug-94 $1,579,984 $777,778 $802,206
$136,111,111
6 20-Sep-94 $1,575,426 $777,778 $797,648
$135,333,333
7 20-Oct-94 $1,545,285 $777,778 $767,507
$134,555,556
8 20-Nov-94 $1,566,310 $777,778 $788,532
$133,777,778
9 20-Dec-94 $1,536,463 $777,778 $758,685
$133,000,000
10 01-Jan-95 $1,557,194 $777,778 $779,416
$132,222,222 11 20-Feb-95 $1,552,636 $777,778
$774,858 $131,444,444
12 20-Mar-95 $1,473,533 $777,778 $695,755
$130,666,667
13 20-Apr-95 $1,543,520 $777,778 $765,742
$129,888,889
14 20-May-95 $1,514,408 $777,778 $736,630
$129,111,111
15 20-Jun-95 $1,534,404 $777,778 $756,626
$128,333,333
16 20-Jul-95 $1,505,586 $777,778 $727,808
$127,555,556
17 20-Aug-95 $1,525,288 $777,778 $747,511
$126,777,778
18 20-Sep-95 $1,520,730 $777,778 $742,953
$126,000,000
19 20-Oct-95 $1,492,353 $777,778 $714,575
$125,222,222
20 20-Nov-95 $1,511,614 $777,778 $733,837
$124,444,444
21 20-Dec-95 $1,483,531 $777,778 $705,753
$123,666,667
22 20-Jan-96 $1,502,498 $777,778 $724,721
$122,888,889
23 20-Feb-96 $1,497,940 $777,778 $720,163
$122,111,111
24 20-Mar-96 $1,447,214 $777,778 $669,437
$121,333,333
25 20-Apr-96 $1,488,824 $777,778 $711,047
$120,555,556
26 20-May-96 $1,451,476 $777,778 $683,699
$119,777,778
27 20-Jun-96 $1,479,708 $777,778 $701,931
$119,000,000
28 20-Jul-96 $1,452,654 $777,778 $674,877
$118,222,222
29 20-Aug-96 $1,470,592 $777,778 $692,815
$117,444,444
30 20-Sep-96 $1,466,034 $777,778 $688,257
$116,666,667
31 20-Oct-96 $1,439,422 $777,778 $661,644
$115,888,889
32 20-Nov-96 $1,456,918 $777,778 $679,141
$115,111,111
33 20-Dec-96 $1,430,600 $777,778 $652,822
$114,333,333
34 20-Jan-97 $1,447,802 $777,778 $670,025
$113,555,555
35 20-Feb-97 $1,443,244 $777,778 $665,467
$112,777,778
36 20-Mar-97 $1,374,728 $777,778 $596,950
$112,000,000
37 20-Apr-97 $1,434,128 $777,778 $656,351
$111,222,222
38 20-May-97 $1,408,545 $777,778 $630,767
$110,444,444
39 20-Jun-97 $1,425,012 $777,778 $647,235
$109,666,667
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
Assumed Rate: 6.9%
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Payment Tot Pay
Number Date Amount Principal Interest Balance
<S> <C> <C> <C> <C> <C>
<C>
40 20-Jul-97 $1,399,723 $777,778 $621,945
$108,888,889
41 20-Aug-97 $1,415,897 $777,778 $638,119
$108,111,111
42 20-Sep-97 $1,411,339 $777,778 $633,561
$107,333,333
43 20-Oct-97 $1,386,490 $777,778 $608,712
$106,555,555
44 20-Nov-97 $1,402,223 $777,778 $624,445
$105,777,778
45 20-Dec-97 $1,377,668 $777,778 $599,890
$105,000,000
46 20-Jan-98 $1,393,107 $777,778 $615,329
$104,222,222
47 20-Feb-98 $1,388,549 $777,778 $610,771
$103,444,444
48 20-Mar-98 $1,325,325 $777,778 $547,547
$102,666,667
49 20-Apr-98 $1,379,433 $777,778 $601,655
$101,888,889
50 20-May-98 $1,355,613 $777,778 $577,836
$101,111,111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Quote Date) Life (Yrs)
<S> <C> <C> <C>
<C>
0 0 0
0
1 $0 $0.00
0.1370
2 $0 $0.00
0.2187
3 $0 $0.00
0.3027
4 $0 $0.00
0.3835
5 $0 $0.00
0.4666
6 $0 $0.00
0.5491
7 $0 $0.00
0.6286
8 $0 $0.00
0.7102
9 $0 $0.00
0.7888
10 $0 $0.00
0.8695
11 $0 $0.00
0.9497
12 $0 $0.00
1.0217
13 $0 $0.00
1.1010
14 $0 $0.00
1.1772
15 $0 $0.00
1.2555
16 $0 $0.00
1.3309
17 $0 $0.00
1.4083
18 $0 $0.00
1.4852
19 $0 $0.00
1.5591
20 $0 $0.00
1.6351
21 $0 $0.00
1.7082
22 $0 $0.00
1.7830
23 $0 $0.00
1.8573
24 $0 $0.00
1.9264
25 $0 $0.00
1.9999
26 $0 $0.00
2.0704
27 $0 $0.00
2.1429
28 $0 $0.00
2.2126
29 $0 $0.00
2.2841
30 $0 $0.00
2.3552
31 $0 $0.00
2.4235
32 $0 $0.00
2.4936
33 $0 $0.00
2.5610
34 $0 $0.00
2.6303
35 $0 $0.00
2.6992
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Quote Date) Life (Yrs)
<S> <C> <C> <C>
<C>
36 $0 $0.00
2.7610
37 $0 $0.00
2.8290
38 $0 $0.00
2.8943
39 $0 $0.00
2.9613
40 $0 $0.00
3.0256
41 $0 $0.00
3.0917
42 $0 $0.00
3.1573
43 $0 $0.00
3.2203
44 $0 $0.00
3.2849
45 $0 $0.00
3.3470
46 $0 $0.00
3.4107
47 $0 $0.00
3.4740
48 $0 $0.00
3.5306
49 $0 $0.00
3.5929
50 $0 $0.00
3.6527
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Total
Payment Payment
Number Date Amount Principal Interest
Balance
<S> <C> <C> <C> <C> <C>
<C>
51 20-Jun-98 $1,370,317 $777,778 $592,539
$100,333,333
52 20-Jul-98 $1,345,791 $777,778 $569,014
$99,555,555
53 20-Aug-98 $1,361,201 $777,778 $583,423
$98,777,778
54 20-Sep-98 $1,356,643 $777,778 $578,865
$98,000,000
55 20-Oct-98 $1,333,559 $777,778 $555,781
$97,222,222
56 20-Nov-98 $1,347,527 $777,778 $569,749
$96,444,444
57 20-Dec-98 $1,324,737 $777,778 $546,959
$95,666,667
58 20-Jan-99 $1,338,411 $777,778 $560,633
$94,888,889
59 20-Feb-99 $1,333,853 $777,778 $556,075
$94,111,111
60 20-Mar-99 $1,275,922 $777,778 $498,144
$93,333,333
61 20-Apr-99 $1,324,737 $777,778 $546,959
$92,555,555
62 20-May-99 $1,302,682 $777,778 $524,904
$91,777,777
63 20-Jun-99 $1,315,621 $777,778 $537,843
$91,000,000
64 20-Jul-99 $1,293,860 $777,778 $516,082
$90,222,222
65 20-Aug-99 $1,306,505 $777,778 $528,727
$89,444,444
66 20-Sep-99 $1,301,947 $777,778 $524,169
$88,666,667
67 20-Oct-99 $1,280,627 $777,778 $502,849
$87,888,889
68 20-Nov-99 $1,292,831 $777,778 $515,053
$87,111,111
69 20-Dec-99 $1,271,805 $777,778 $494,027
$86,333,333
70 20-Jan-2000 $1,283,715 $777,778 $505,937
$85,555,555
71 20-Feb-2000 $1,279,157 $777,778 $501,379
$84,777,778
72 20-Mar-2000 $1,242,546 $777,778 $464,768
$84,000,000
73 20-Apr-2000 $1,270,041 $777,778 $492,263
$83,222,222
74 20-May-2000 $1,249,750 $777,778 $471,973
$82,444,444
75 20-Jun-2000 $1,260,925 $777,778 $483,147
$81,666,667
76 20-Jul-2000 $1,240,928 $777,778 $463,151
$80,888,889
77 20-Aug-2000 $1,251,809 $777,778 $474,031
$80,111,111
78 20-Sep-2000 $1,247,251 $777,778 $469,473
$79,333,333
79 20-Oct-2000 $1,227,696 $777,778 $449,918
$78,555,555
80 20-Nov-2000 $1,238,135 $777,778 $460,357
$77,777,778
81 20-Dec-2000 $1,218,874 $777,778 $441,096
$77,000,000
82 20-Jan-2001 $1,229,019 $777,778 $451,241
$76,222,222
83 20-Feb-2001 $1,224,461 $777,778 $446,683
$75,444,444
84 20-Mar-2001 $1,177,117 $777,778 $399,339
$74,666,666
85 20-Apr-2001 $1,215,345 $777,778 $437,567
$73,888,889
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Total
Payment Payment
Number Date Amount Principal Interest
Balance
<S> <C> <C> <C> <C> <C>
<C>
86 20-May-2001 $1,196,819 $777,778 $419,041
$73,111,111 87 20-Jun-2001 $1,206,229 $777,778
$428,451 $72,333,333
88 20-Jul-2001 $1,187,997 $777,778 $410,219
$71,555,555
89 20-Aug-2001 $1,197,113 $777,778 $419,335
$70,777,778
90 20-Sep-2001 $1,192,555 $777,778 $414,777
$70,000,000
91 20-Oct-2001 $1,174,764 $777,778 $396,986
$69,222,222
92 20-Nov-2001 $1,183,439 $777,778 $405,661
$68,444,444
93 20-Dec-2001 $1,165,942 $777,778 $388,164
$67,666,666
94 20-Jan-2002 $1,174,323 $777,778 $396,545
$66,888,889
95 20-Feb-2002 $1,169,765 $777,778 $391,987
$66,111,111 96 20-Mar-2002 $1,127,714 $777,778
$349,936 $65,333,333
97 20-Apr-2002 $1,160,649 $777,778 $382,871
$64,555,555
98 20-May-2002 $1,143,887 $777,778 $366,110
$63,777,778
99 20-Jun-2002 $1,151,533 $777,778 $373,755
$63,000,000
100 20-Jul-2002 $1,135,065 $777,778 $357,288
$62,222,222
101 20-Aug-2002 $1,142,417 $777,778 $364,639
$61,444,444
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Customer Loan Amortization Schedules
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Calc Date) Life (Yrs)
<S> <C> <C> <C>
<C>
51 $0 $0.00
3.7141
52 $0 $0.00
3.7730
53 $0 $0.00
3.8334
54 $0 $0.00
3.8933
55 $0 $0.00
3.9508
56 $0 $0.00
4.0098
57 $0 $0.00
4.0664
58 $0 $0.00
4.1245
59 $0 $0.00
4.1820
60 $0 $0.00
4.2336
61 $0 $0.00
4.2902
62 $0 $0.00
4.3446
63 $0 $0.00
4.4003
64 $0 $0.00
4.4537
65 $0 $0.00
4.5084
66 $0 $0.00
4.5627
67 $0 $0.00
4.6147
68 $0 $0.00
4.6680
69 $0 $0.00
4.7192
70 $0 $0.00
4.7714
71 $0 $0.00
4.8232
72 $0 $0.00
4.8712
73 $0 $0.00
4.9220
74 $0 $0.00
4.9707
75 $0 $0.00
5.0206
76 $0 $0.00
5.0684
77 $0 $0.00
5.1173
78 $0 $0.00
5.1658
79 $0 $0.00
5.2122
80 $0 $0.00
5.2598
81 $0 $0.00
5.3053
82 $0 $0.00
5.3520
83 $0 $0.00
5.3983
84 $0 $0.00
5.4396
85 $0 $0.00
5.4849
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Customer Loan Amortization Schedules
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Calc Date) Life (Yrs)
<S> <C> <C> <C>
<C>
86 $0 $0.00
5.5283
87 $0 $0.00
5.5726
88 $0 $0.00
5.6151
89 $0 $0.00
5.6585
90 $0 $0.00
5.7014
91 $0 $0.00
5.7425
92 $0 $0.00
5.7845
93 $0 $0.00
5.8247
94 $0 $0.00
5.8658
95 $0 $0.00
5.9063
96 $0 $0.00
5.9426
97 $0 $0.00
5.9822
98 $0 $0.00
6.0201
99 $0 $0.00
6.0588
100 $0 $0.00
6.0958
101 40 $0.00
6.1335
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Total
Payment Payment
Number Date Amount Principal Interest Balance
<S> <C> <C> <C> <C> <C>
<C>
102 20-Sep-2002 $1,137,859 $777,778 $360,081
$60,666,666
103 20-Oct-2002 $1,121,833 $777,778 $344,055
$59,888,889
104 20-Nov-2002 $1,128,743 $777,778 $350,965
$59,111,111 105 20-Dec-2002 $1,113,011 $777,778
$335,233 $58,333,333
106 20-Jan-2003 $1,119,627 $777,778 $341,849
$57,555,555
107 20-Feb-2003 $1,115,069 $777,778 $337,291
$56,777,778
108 20-Mar-2003 $1,078,311 $777,778 $300,533
$56,000,000
109 20-Apr-2003 $1,105,953 $777,778 $328,175
$55,222,222
110 20-May-2003 $1,190,956 $777,778 $313,178
$54,444,444
111 20-Jun-2003 $1,096,837 $777,778 $319,059
$53,666,666
112 20-Jul-2003 $1,082,134 $777,778 $304,356
$52,888,889
113 20-Aug-2003 $1,087,721 $777,778 $309,943
$52,111,111 114 20-Sep-2003 $1,083,163 $777,778
$305,385 $51,333,333
115 20-Oct-2003 $1,068,901 $777,778 $291,123
$50,555,555
116 20-Nov-2003 $1,074,047 $777,778 $296,269
$49,777,778
117 20-Dec-2003 $1,060,079 $777,778 $282,301
$49,000,000
118 20-Jan-2004 $1,064,931 $777,778 $287,153
$48,222,222
119 20-Feb-2004 $1,060,373 $777,778 $282,595
$47,444,444
120 20-Mar-2004 $1,037,877 $777,778 $260,100
$46,666,666
121 20-Apr-2004 $1,051,257 $777,778 $273,479
$45,888,889
122 20-May-2004 $1,038,024 $777,778 $260,247
$45,111,111 123 20-Jun-2004 $1,042,141 $777,778
$264,363 $44,333,333
124 20-Jul-2004 $1,029,202 $777,778 $251,425
$43,555,555
125 20-Aug-2004 $1,033,025 $777,778 $255,247
$42,777,778
126 20-Sep-2004 $1,028,467 $777,778 $250,689
$42,000,000
127 20-Oct-2004 $1,015,970 $777,778 $238,192
$41,222,222
128 20-Nov-2004 $1,019,351 $777,778 $241,574
$40,444,444
129 20-Dec-2004 $1,007,148 $777,778 $229,370
$39,666,666
130 20-Jan-2005 $1,010,235 $777,778 $232,458
$38,888,889
131 20-Feb-2005 $1,005,677 $777,778 $227,900
$38,111,111 132 20-Mar-2005 $979,506 $777,778
$201,728 $37,333,333
133 20-Apr-2005 $996,561 $777,778 $218,784
$36,555,555
134 20-May-2005 $985,093 $777,778 $207,315
$35,777,777
135 20-Jun-2005 $987,445 $777,778 $209,668
$35,000,000
136 20-Jul-2005 $976,271 $777,778 $198,493
$34,222,222
137 20-Aug-2005 $978,329 $777,778 $200,552
$33,444,444
138 20-Sep-2005 $973,771 $777,778 $195,994
$32,666,666
139 20-Oct-2005 $963,038 $777,778 $185,260
$31,888,889
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Total
Payment Payment
Number Date Amount Principal Interest Balance
<S> <C> <C> <C> <C> <C>
<C>
140 20-Nov-2005 $964,655 $777,778 $186,876
$31,111,111 141 20-Dec-2005 $954,216 $777,778
$176,438 $30,333,333
142 20-Jan-2006 $955,539 $777,778 $177,762
$29,555,555
143 20-Feb-2006 $950,981 $777,778 $173,204
$28,777,777
144 20-Mar-2006 $930,103 $777,778 $152,325
$28,000,000
145 20-Apr-2006 $941,865 $777,778 $164,088
$27,222,222
146 20-May-2006 $932,161 $777,778 $154,384
$26,444,444
147 20-Jun-2006 $932,749 $777,778 $154,972
$25,666,666
148 20-Jul-2006 $923,339 $777,778 $145,562
$24,888,889
149 20-Aug-2006 $923,633 $777,778 $145,856
$24,111,111 150 20-Sep-2006 $919,075 $777,778
$141,298 $23,333,333
151 20-Oct-2006 $910,107 $777,778 $132,329
$22,555,555
152 20-Nov-2006 $909,960 $777,778 $132,182
$21,777,777
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Calc Date) Life (Yrs)
<S> <C> <C>
<C>
102 $0 $0.00
6.1708
103 $0 $0.00
6.2064
104 $0 $0.00
6.2428
105 $0 $0.00
6.2775
106 $0 $0.00
6.3128
107 $0 $0.00
6.3478
108 $0 $0.00
6.3789
109 $0 $0.00
6.4128
110 $0 $0.00
6.4453
111 $0 $0.00
6.4783
112 $0 $0.00
6.5098
113 $0 $0.00
6.5419
114 $0 $0.00
6.5735
115 $0 $0.00
6.6036
116 $0 $0.00
6.6343
117 $0 $0.00
6.6635
118 $0 $0.00
6.6932
119 $0 $0.00
6.7224
120 $0 $0.00
6.7492
121 $0 $0.00
6.7774
122 $0 $0.00
6.8043
123 $0 $0.00
6.8316
124 $0 $0.00
6.8576
125 $0 $0.00
6.8839
126 $0 $0.00
6.9098
127 $0 $0.00
6.9344
128 $0 $0.00
6.9593
129 $0 $0.00
7.9830
130 $0 $0.00
7.0071
131 $0 $0.00
7.0306
132 $0 $0.00
7.0515
133 $0 $0.00
7.0742
134 $0 $0.00
7.0956
135 $0 $0.00
7.1173
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Calc Date) Life (Yrs)
<S> <C> <C>
<C>
136 $0 $0.00
7.1379
137 $0 $0.00
7.1587
138 $0 $0.00
7.1789
139 $0 $0.00
7.1981
140 $0 $0.00
7.2175
141 $0 $0.00
7.2357
142 $0 $0.00
7.2541
143 $0 $0.00
7.2721
144 $0 $0.00
7.2878
145 $0 $0.00
7.3048
146 $0 $0.00
7.3208
147 $0 $0.00
7.3368
148 $0 $0.00
7.3519
149 $0 $0.00
7.3670
150 $0 $0.00
7.3816
151 $0 $0.00
7.3953
152 $0 $0.00
7.4090
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Total
Payment Payment
Number Date Amount Principal Interest Balance
<S><C> <C> <C> <C> <C>
<C>
153 20-Dec-2006 $901,285 $777,778 $123,507
$21,000,000
154 20-Jan-2007 $900,844 $777,778 $123,066
$20,222,222
155 20-Feb-2007 $896,286 $777,778 $116,506
$19,444,444
156 20-Mar-2007 $880,700 $777,778 $102,922
$18,666,666
157 20-Apr-2007 $887,170 $777,778 $109,392
$17,888,889
158 20-May-2007 $879,230 $777,778 $101,452
$17,111,111 159 20-Jun-2007 $878,054 $777,778
$100,276 $16,333,333
160 20-Jul-2007 $870,408 $777,778 $92,630
$15,555,555
161 20-Aug-2007 $868,938 $777,778 $91,160
$14,777,777
162 20-Sep-2007 $864,380 $777,778 $86,602
$14,000,000
163 20-Oct-2007 $857,175 $777,778 $79,397
$13,222,222
164 20-Nov-2007 $855,264 $777,778 $77,486
$12,444,444
165 20-Dec-2007 $848,353 $777,778 $70,575
$11,666,666
166 20-Jan-2008 $846,148 $777,778 $66,370
$10,888,889
167 20-Feb-2008 $841,590 $777,778 $63,812
$10,111,111 168 20-Mar-2008 $833,209 $777,778
$55,431 $9,333,333
169 20-Apr-2008 $832,474 $777,778 $54,696
$8,555,555
170 20-May-2008 $826,298 $777,778 $48,521
$7,777,777
171 20-Jun-2008 $823,358 $777,778 $45,580
$7,000,000
172 20-Jul-2008 $817,476 $777,778 $39,699
$6,222,222
173 20-Aug-2008 $814,242 $777,778 $36,464
$5,444,444
174 20-Sep-2008 $809,684 $777,778 $31,906
$6,666,666
175 20-Oct-2008 $804,244 $777,778 $26,466
$3,888,889
176 20-Nov-2008 $800,568 $777,778 $22,790
$3,111,111 177 20-Dec-2008 $795,422 $777,778
$17,644 $2,333,333
178 20-Jan-2009 $791,452 $777,778 $13,674
$1,555,555
179 20-Feb-2009 $786,894 $777,778 $9,116
$777,777
180 20-Mar-2009 $781,895 $777,778 $4,117
($0)
_________________________________________________________________
_____________
Totals $213,432,909 $140,000,000 $73,432,908
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMORITZATION CASH FLOW PAGE
Customer Loan Amortization Schedules: C-TEC 15 Year Loan
FROM TO YEARS
Loan Type: Irregular Principal Forward Period 01-Mar-94
01-Mar-94 0.00
Loan Only
Forward Present Value of Moving
Payment Funding Fwd. Fund. Cost Average
Number Cost (to Calc Date) Life (Yrs)
<S><C> <C> <C> <C>
153 $0 $0.00
7.4218
154 $0 $0.00
7.4345
155 $0 $0.00
7.4468
156 $0 $0.00
7.4575
157 $0 $0.00
7.4688
158 $0 $0.00
7.4793
159 $0 $0.00
7.4897
160 $0 $0.00
7.4993
161 $0 $0.00
7.5087
162 $0 $0.00
7.5177
163 $0 $0.00
7.5259
164 $0 $0.00
7.5339
165 $0 $0.00
7.5412
166 $0 $0.00
7.5483
167 $0 $0.00
7.5549
168 $0 $0.00
7.5606
169 $0 $0.00
7.5662
170 $0 $0.00
7.5712
171 $0 $0.00
7.5759
172 $0 $0.00
7.5800
173 $0 $0.00
7.5838
174 $0 $0.00
7.5871
175 $0 $0.00
7.5898
176 $0 $0.00
7.5922
177 $0 $0.00
7.5940
178 $0 $0.00
7.5954
179 $0 $0.00
7.5964
180 $0 $0.00
7.5968
_________________________________________________________________
______
Totals $0 $0.00
7.5968
</TABLE>
<PAGE>
Exhibit A
LOAN CERTIFICATE LOAN NO. T0268
THIS CERTIFICATE is given by Michael J. Mahoney, President
of COMMONWEALTH TELEPHONE COMPANY (the "Borrower"), pursuant to
Section 11(M) of that certain Loan Agreement, dated as of March
29, 1994, by and between the National Bank for Cooperatives and
the Borrower (the 'Loan Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Loan Agreement.
I hereby certify as follows:
1. I am the President of the Borrower and as such possess
the knowledge and authority to certify to the matters herein set
forth, and the matters herein set forth are true and accurate to
the best of my present knowledge, information and belief after
due inquiry;
2. The representations and warranties of the Borrower
contained in the Loan Agreement and any other Loan Document are
true and correct in all material respects on and as of the date
hereof; and
3. Each of the conditions specified in Section 11 of the
Loan Agreement required to be satisfied on or prior to the date
of the making of the Loan under the Loan Agreement has been
fulfilled as of the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate as
of March 29, 1994.
/s/ Michael J. Mahoney
____________________________
Michael J. Mahoney, President
<PAGE>
EXHIBIT B
FACTUAL MATTERS CERTIFICATE - LOAN NO. T0268
This CERTIFICATE is given by Michael J. Mahoney, the
President of COMMONWEALTH TELEPHONE COMPANY ("Commonwealth"),
pursuant to Section ll(N) of that certain Loan Agreement, dated
as of March 29, 1994, by and between the National Bank for
Cooperatives ("CoBank") and Commonwealth (the "Loan Agreement").
Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
I hereby certify that as of the date of this Certificate.
1. I am the President of Commonwealth and as such I (i) am
familiar with the Loan Agreement and all other Loan Documents
and (ii) possess the authority to certify to the matters herein
set forth, and the matters herein set forth are true and
accurate to the best of my present knowledge, information and
belief after due inquiry.
2. Commonwealth does not own or lease any real property,
maintain any office or transact any business outside of the
Commonwealth of Pennsylvania or in any county in Pennsylvania
other than Berks, Bradford, Bucks, Chester, Columbia, Dauphin,
Lackawanna, Lancaster, Lehigh, Luzerne, Lycoming, Monroe,
Northampton, Schuylkill, Sullivan, Susquehanna, Tioga, York and
Wyoming Counties.
3. Attached hereto as Annex A are copies of all orders,
writs, judgments, injunctions or decrees of any court,
arbitrator or governmental agency or body, (i) the terms of
which could be violated by the execution, delivery and
performance of, or (ii) which could in any way affect or purport
to affect the validity and binding effect of, or the ability of
Commonwealth to perform its obligations under, the Loan
Documents.
4. Attached hereto as Annex B is a list of all actions,
suits, proceedings, inquiries or investigations, at law or in
equity, before or by any court, arbitrator or governmental
agency or body against or affecting Commonwealth (and are any
such actions, suits, proceedings, inquiries or investigations
threatened or for which there is any reasonable basis), (i)
which could enjoin, restrain or prohibit or obtain damages in
respect of the execution, delivery and performance of the Loan
Documents or (ii) which could in any way affect or purport to
affect the validity and binding effect of Commonwealth's
obligations under the Loan Documents or the ability of
Commonwealth to perform its obligations thereunder.
5. Attached hereto as Annex C is a list of all indentures,
loan or credit agreements, leases, mortgages, security
agreements, bonds, notes, obligations and other contracts,
agreements or instruments to which Commonwealth is a party, or
by which it or any of its property is bound or which could in
any way affect or purport to affect the validity and binding
<PAGE>
effect of the obligations under the Loan Documents or the
ability of Commonwealth to perform its obligations thereunder.
6. Attached hereto as Annex D is a true, correct and
complete copy of the [Securities Certificate] (the "Application)
filed by Commonwealth with the Pennsylvania Public Utilities
Commission (the "Commission") on February l, 1994, together with
true, correct and complete copies of all supporting
documentation and correspondence filed with or otherwise
supplied to the Commission or its staff in connection with the
Application.
7. Attached hereto an Annex E is a true, correct and
complete copy of the [Order] dated February 28, l994 (the
"Order"), from the Commission.
8. Except as set forth on the reports of the searches of
UCC filings with the Secretary of the Commonwealth and the
Prothonotary of Luzerne County attached hereto as Annex F, there
exists no lien, security interest, security title, pledge,
charge or other encumbrance of any kind on any of the real or
tangible or intangible personal property of Commonwealth. Other
than the financing statements designated as file numbers ____
and ____ on Annex F describes or relates to any lien other than
a Capital Lease.
9. The authorized capital stock of Commonwealth
consists of 184,222 shares of Series Preferred Stock $100 par
value, of which 2,922 shares are issued and outstanding as shown
on Annex G, and 2,000,000 shares of common stock $6.662/3 par
value, of which 1,267,629 shares are issued and outstanding. All
of the issued and outstanding shares of capital stock of
Commonwealth have been duly authorized and validly issued, are
fully paid and non-assessable, and there are no outstanding
options, warrants, rights, calls, commitments, conversion
rights, plans or other agreements providing for the purchase or
issuance of any authorized but unissued shares of capital stock
of Commonwealth. None of the issued and outstanding shares of
capital stock of Commonwealth were issued in violation of
preemptive rights.
IN WlTNESS WHEREOF, I have executed this Certificate as of
March 29, 1994, for the purpose of inducing CoBank to make the
Loan and with the understanding that CoBank has relied on the
truth and accuracy of the statements made herein.
/s/ Michael J. Mahoney
_________________________
Michael J. Mahoney, President
<PAGE>
<PAGE>
Annex A
None
<PAGE>
Annex B
None
<PAGE>
Annex C
None
<PAGE>
<PAGE>
Annex D
Public Utilities Commission
Application, attached hereto
<PAGE>
<PAGE>
Annex E
Public Utilities Order, attached hereto
<PAGE>
<PAGE>
Annex F
UCC Filings
<PAGE>
<PAGE>
Annex G
Commonwealth Telephone Company
Preferred Stockholders
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
2/1/94
COMMONWEALTH TELEPHONE COMPANY
Preferred Stock
Preferred
Number of
Series Shares
<S> <C>
<C>
1. FRIEND & CO. C 120
The First National Bank of Chicago E 75
c/o Trust Department 10-71474
Suite 0114
One First National Plaza
Chicago, IL 60670
2. BLOOM AND COMPANY C 240
The First National Bank of Chicago E 150
c/o Trust Department 10-71474
Suite 0114
One First National Plaza
Chicago, IL 60670
3. SERVE & CO. E 75
The First National Bank of Chicago
c/o Trust Department 10-71474
Suite 0114
One First National Plaza
Chicago, IL 60670
4. HAMAC & CO. C 960
c/o Crestar Bank E 525
Box 26246 F 777
Richmond, VA 23260
</TABLE>
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE - LOAN NO. T0268
This Certificate is given by Michael J. Mahoney, the
President of COMMONWEALTH TELEPHONE COMPANY (the "Borrower"),
pursuant to Section 13(I)(8) of that certain Loan Agreement,
dated as of March 29, 1994, by and between the National Bank for
Cooperatives ("CoBank") and the Borrower (the "Loan Agreement").
Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
I hereby certify as follows:
l . I am the President of the Borrower, respectively, and as
such possesses
the knowledge and authority to certify to the best of my
knowledge the matters set forth in this Certificate, and the
matters herein set forth are true and accurate to the best of my
present knowledge, information and belief after due inquiry;
2. Attached hereto as Annex A are the unaudited annual financial
statements of the Companies, for the fiscal year ended December
3l, 1994, as required by Section l3(I) [(l)/(2)] of the Loan
Agreement. Such financial statements were prepared in accordance
with GAAP consistently applied (except as may be noted therein)
and any system of accounts to which the Borrower is subject and
fairly present the financial condition of the Borrower, during
the periods covered thereby and as of the dates thereof
(subject, if applicable, to normal year-end adjustments);
3. As of the date of such financial statements, the Borrower is
in material compliance with the covenants set forth in Sections
l3(I)(l), 13(I)(2) and l3(I)(3) of the Loan Agreement. Attached
hereto as Annex B are calculations which demonstrate the
compliance by the Borrower with such covenants; and
4. I have reviewed the activities and consulted with appropriate
officers of the Borrower during the fiscal year ended December
31, l994, and reviewed the Loan Documents. As of the date of
this Certificate, there exists no material condition, event or
act which would constitute a Default or Event of Default under
the Loan Agreement, except as disclosed on Annex C hereto.
IN WITNESS WHEREOF, I have executed this Certificate as of March
29, 1994.
/s/ Michael J. Mahoney
_______________________
Michael J.
Mahoney, President
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE COMPANY
FINANCIAL RESULTS
EBIDAT
12/31/93
CURRENT MONTH
ACTUAL BUDGET
VARIANCE %
<S> <C> <C> <C>
<C>
OPERATING REVENUES
LOCAL NETWORK SERVICES 2,022,332 1,991,000 31,332
2%
NETWORK ACCESS SERVICES 5,616,667 5,376,000 240,667
4%
LONG DISTANCE NETWORK SVCS 2,323,409 2,136,000 187,409
9%
MISCELLANEOUS 390,954 498,000 (107,046)
- - -21%
UNCOLLECTIBLE (48,998) (48,000)
(998) 2%
NONREGULATED 643,957 667,000 (23,043)
- - -3%
TOTAL OPERATING REVENUES 10,948,321 10,620,000
328,321 3%
EBIDAT EXPENSES 4,705,745 4,613,000 92,745 2%
EBIDAT 6,242,576 6,007,000 235,576 4%
OTHER INCOME (EXPENSE) (55,553) 132,000 (187,553) -142%
ALLOCATED MANAGEMENT FEES 683,942 904,000 (220,058)
- - -24%
INTEREST EXPENSE 889,837 837,000 52,837 6%
DEPRECIATION 2,000,512 2,217,000 (216,488) -10%
INCOME TAXES 1,564,482 795,000 769,482 97%
NET INCOME BEF CUM EFFECT 1,048,250 1,386,000 (337,750)
- - -24%
CUM EFF OF CHG IN ACCTG PRINC (77,028) 0 (77,028)
NET INCOME 971,222 1,386,000 (414,778) -30%
PREFERRED DIVIDENDS 1,278 2,000 (722) -36%
NET INC AVAIL FOR COMMON 969,944 1,384,000 414,056 -30%
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE COMPANY
FINANCIAL RESULTS
EBIDAT
12/31/93
YEAR TO DATE
ACTUAL BUDGET
VARIANCE %
<S> <C> <C> <C>
<C>
OPERATING REVENUES
LOCAL NETWORK SERVICES 23,723,841 23,425,000 298,841
1%
NETWORK ACCESS SERVICES 66,132,239 64,941,000
1,191,239 2%
LONG DISTANCE NETWORK SVCS 25,742,095 26,583,000
(840,905) -3%
MISCELLANEOUS 5,124,530 5,340,000 (215,470) -4%
UNCOLLECTIBLE (653,459) (587,000) (66,459) 11%
NONREGULATED 7,857,344 7,879,000
(21,656) -0%
TOTAL OPERATING REVENUES 127,926,590 127,581,000
345,590 0%
EBIDAT EXPENSES 6,574,117
59,219,000 (2,644,883) -4%
EBIDAT 71,352,473 68,362,000
2,990,473 4%
OTHER INCOME (EXPENSE) 844,039 1,155,000
(310,961) -27%
ALLOCATED MANAGEMENT FEES 10,004,945 9,928,000 76,945
1%
INTEREST EXPENSE 8,702,911 8,871,000 (168,089)
-2%
DEPRECIATION 22,977,830
25,807,000 (2,829,170) -11%
INCOME TAXES 12,528,631 9,004,000 3,484,631
39%
NET INCOME BEF CUM EFFECT 17,982,195 15,867,000
2,115,195) -13%
CUM EFF OF CHG IN ACCTG PRINC1(1,362,815) 0 (1,362,815)
NET INCOME 16,619,380 15,867,000
752,380 5%
PREFERRED DIVIDENDS 15,751 18,000 (2,249) -12%
NET INC AVAIL FOR COMMON 16,603,629 15,849,000
754,629 5%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE COMPANY
FINANCIAL RESULTS
EBIDAT
12/31/93
THIS YEAR SAME PERIOD
TO DATE LAST YEAR
VARIANCE %
<S> <C> <C>
<C> <C>
OPERATING REVENUES
LOCAL NETWORK SERVICES 2,022,332 1,898,228
124,104 7%
NETWORK ACCESS SERVICES 5,616,667 5,332,068
284,599 7%
LONG DISTANCE NETWORK SVCS 2,323,409 2,173,708
149,701 7%
MISCELLANEOUS 390,954 476,806 (85,852) -18%
UNCOLLECTIBLE (48,998) (51,781) 2,783 -5%
NONREGULATED 643,957 336,599 307,358 91%
TOTAL OPERATING REVENUES 10,948,321 10,165,628
782,693 8%
EBIDAT EXPENSES 4,705,745 4,866,555
(160,810) -3%
EBIDAT 6,242,576 5,299,073
943,503 18%
OTHER INCOME (EXPENSE) (55,553) (47,126) (8,427) 18%
ALLOCATED MANAGEMENT FEES 683,942 1,001,076
(317,134) -32%
INTEREST EXPENSE 889,837 682,751 207,086 30%
DEPRECIATION 2,000,512 1,798,122
203,390 11%
INCOME TAXES 1,664,482 422,856
1,141,626 270%
NET INCOME BEF CUM EFFECT 1,048,250 1,347,142
(298,892) -22%
CUM EFF OF CHG IN ACCTG PRINC (77,028) 0
(77,028)
NET INCOME 917,222 1,347,142
(375,920) -28%
PREFERRED DIVIDENDS 1,278 1,358 (80) -6%
NET INC AVAIL FOR COMMON 969,944 1,345,784
(375,840 ) -28%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE COMPANY
FINANCIAL RESULTS
EBIDAT
12/31/93
THIS YEAR SAME PERIOD
TO DATE LAST YEAR
VARIANCE %
<S> <C> <C> <C>
<C>
OPERATING REVENUES
LOCAL NETWORK SERVICES 23,723,841 22,501,173
1,222,668 5%
NETWORK ACCESS SERVICES 66,132,239 64,523,898
1,608,341 2%
LONG DISTANCE NETWORK SVCS 25,742,095 24,811,810
930,285 4%
MISCELLANEOUS 5,124,530 5,461,573 (337,043) -6%
UNCOLLECTIBLE (653,459) (608,413) (45,046) 7%
NONREGULATED 7,857,344 8,227,386 370,042 -4%
TOTAL OPERATING REVENUES 127,926,690 124,917,427
3,009,163 2%
EBIDAT EXPENSES 56,574,117 53,722,634
2,851,483 -5%
EBIDAT 71,352,473 71,194,793
157,680 0%
OTHER INCOME (EXPENSE) 844,039 918,899 74,860
-8%
ALLOCATED MANAGEMENT FEES 10,004,945
11,871,043 (1,666,098) -16%
INTEREST EXPENSE 8,702,911 8,387,384
315,527 4%
DEPRECIATION 2,977,830 20,749,696
2,228,134 11%
INCOME TAXES 12,528,631 11,455,451
1,073,216 9%
NET INCOME BEF CUM EFFECT 17,982,195
19,650,154 (1,667,959) -8%
CUM EF OF CHG IN ACCT PRINC (1,362,815) 0 (1,362,815)
NET INCOME 16,619,380
19,650,154 (3,030,774) -15%
PREFERRED DIVIDENDS 15,751 16,716
(965) -6%
NET INC AVAIL FOR COMMON 16,603,629
19,633,438 (3,029,809) -15%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE COMPANY
FINANCIAL RESULTS
EBIDAT
12/31/93
TWELVE
MONTHS
TO DATE
<S> <C>
OPERATING REVENUES
LOCAL NETWORK SERVICES 23,723,841
NETWORK ACCESS SERVICES 66,132,239
LONG DISTANCE NETWORK SVCS 25,742,095
MISCELLANEOUS 5,124,530
UNCOLLECTIBLE (653,459)
NONREGULATED 7,857,344
TOTAL OPERATING REVENUES 127,926,690
EBIDAT EXPENSES 56,574,117
EBIDAT 71,352,473
OTHER INCOME (EXPENSE) 844,039
ALLOCATED MANAGEMENT FEES 10,004,945
INTEREST EXPENSE 8,702,911
DEPRECIATION 22,977,830
INCOME TAXES 12,528,631
NET INCOME BEF CUM EFFECT 17,982,195
CUM EFF OF CHG IN ACCTG PRINC (1,362,815)
NET INCOME 16,619,380
PREFERRED DIVIDENDS 15,751
NET INC AVAIL FOR COMMON 16,603,629
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
REPORT 00201 FOR 12/31/93
AMOUNT END
OF MONTH LAST MONTH LAST DEC.31
<S> <C> <C>
<C>
CURRENT ASSETS
CASH & EQUIVALENTS
CASH 1,935,317- 289,717 34,258
WORKING CASH ADVANCES 10,765 12,834 17,608
TEMPORARY CASH INVESTMENTS 41,762,628 39,285,433 45,150,623
TOTAL CASH & EQUIVALENTS
39,838,076 39,587,984 45,202,489
RECEIVABLES
TELECOM. ACCTS. REC. 12,813,154 12,190,308 12,516,097 ACCTS.
REC. FROM AFFIL COS. 2,268,360 2,749,190 2,154,836 OTHER ACCTS.
RECEIVABLE 6,832,467 11,094,897 8,799,559 NOTES RECEIVABLE 0 0 0
INTEREST & DIVIDENDS RECEIVABLE 141,594 117,361 134,822
TOTAL RECEIVABLES 22,055,575 26,151,756 23,605,314
INVENTORIES 1,646,219 1,697,567 2,511,648
PREPAYMENTS
PREPAID TAXES 0 255,658 0
PREPAID INSURANCE 140,373 163,033 113,027 PREPAID DIRECTORY
EXPENSES 0 0 0 OTHER PREPAYMENTS 254,458 294,785 104,671
TOTAL PREPAYMENTS 394,831 683,476 217,698
OTHER CURRENT ASSETS 81,501 62,805
0
TOTAL CURRENT ASSETS 64,016,202 68,183,588
71,537,149
NONCURRENT ASSETS
INVESTMENT IN AFFIL. C0S. 0 0
0 OTHER NONCURRENT ASSETS 11,672,687
11,796,688 9,459,259
DEFERRED CHARGES
REGULATORY DEFERRED CHARGE 1,494,150 0
0
DEFERRED MAIN. & RETIREMENTS 0 0
0
OTHER DEFERRED CHARGES 525,731 693,106
1,053,767
TOTAL DEFERRED CHARGES 2,019,881 693,106
1,053,767
TOTAL NONCURRENT ASSETS 13,692,568 12,489,794
10,513,026
PROPERTY, PLANT & EQUIPMENT
TELECOMM. PLANT IN SERVICE 379,727,795 377,845,129
356,162,112
PROPERTY HELD FOR FUTURE USE 774,095 489,144
504,104
TELECOMM. PLANT UNDER CONSTRUCT 1,950,180 5,938,545
6,119,484
TELECOMM. PLANT ACQUISITION ADJ. 1,298,664 1,307,9735
1,410,373
TOTAL TELECOMM. PLANT 383,750,734 385,580,791
364,196,073
ACCUM. DEPR. & AMORT. 163,234,248- 162,567,998-
156,967,118-
NET TELECOMMUNICATIONS PLANT 220,516,486 223,012,793
207,228,955
NONOPERATING PLANT, NET 1,583,285 265,054
265,098
TOTAL PROPERTY, PLANT & EQT. 222,099,771 223,277,847
207,494,053
TOTAL ASSETS 299,808,541 303,951,228
289,544,227
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
TOTAL
REPORT 00201 FOR12/31/93
AMOUNT END
OF MONTH LAST MONTH LAST DEC. 31
<S> <C> <C>
<C>
CURRENT LIABILITIES
ACCOUNTS PAYABLE TO AFFIL COS. 2,857,192 4,709,234
3,133,747
OTHER ACCOUNTS PAYABLE 6,971,938 11,300,378
11,237,221
NOTES PAYABLE CTEC 0 0
0
ADVANCE BILLINGS & PAYMENTS 759,745 799,762
730,329
CUSTOMER DEPOSITS 269,707 273,469
307,484
CURRENT MATURITIES 4,487,256 4,475,018
4,030,914
ACCRUED TAXES 628,144 1,503,757
167,107
CURRENT DEFERRED INCOME TAXES 10,507 55,244
150,923-
ACCRUED INTEREST 616,372 184,122
346,092
OTHER ACCRUED LIABILITIES 4,361,611 3,504,087
3,808,615
OTHER CURRENT LIABILITIES 0 0
0
TOTAL CURRENT LIABILITIES 20,962,442 26,805,071
23,610,586
LONG TERM DEBT 131,548,968 131,775,186 133,032,519
OTHER LIABILITIES & DEFERRED CREDITS
OTHER LONG TERM LIABILITIES 2,599,077 2,519,187
206,765
UNAMORT. INVESTMENT TAX CREDIT 1,374,821 1,423,025
2,069,956
NONCURRENT DEFERRED INCOME TAXES 37,494,392 36,991,070
36,647,406
OTHER DEFERRED CREDITS 30,174 38,408
9,545
DEFERRED REGULATORY LIABILITY 6,194,522 4,540,231
0
TOTAL OTHER LIAB & DEF CREDITS 47,692,986 45,511,921
38,933,672
TOTAL LIABILITIES 200,204,396 204,092,178
195,576,777
STOCKHOLDERS' EQUITY
COMMON STOCK 8,452,056 8,452,056
8,452,056
PREFERRED STOCK 294,500 294,500
313,300
ADDITIONAL PAID IN CAPITAL 12,652,064 12,652,064
12,652,064
RETAINED EARNINGS 78,205,525 78,460,428
72,550,029
TOTAL STOCKHOLDERS' EQUITY 99,604,145 99,859,048
93,967,449
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 299,808,541 303,951,228
289,544,227
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
TOTAL
REPORT 00250 FOR 12/31/93
TWELVE
THIS YEAR MONTHS
THIS MONTH TO DATE TO DATE
<S> <C> <C>
<C>
BALANCE AT BEGINNING OF PERIOD 78,460,428 72,550,029
72,550,029
NET INCOME 971,219 16,619,380
16,619,380
DIVIDENDS ON COMMON STOCK 1,224,844- 10,948,133-
10,948,133-
DIVIDENDS ON PREFERRED STOCK 1,278- 15,751-
15,751-
BALANCE AT END OF PERIOD 78,205,525 78,205,525
78,205,525
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNEX B
Commonwealth Telephone Company
Covenant Confirmation
As of
12/31/93
<S> <C>
Total Leverage Ratio
Indebtedness
Current Maturities $4,487,256
Long Term Debt 131,548,968
____________
Total Indebtedness $136,036,224
____________
____________
Operating Cash Flow
Pretax income $30,510,826
Interest Expense 8,702,911
Depreciation/Amortization 22,977,830
Accrued and unpaid management fees 0
Minority Interest 0
Nonrecurring transaction expenses 0
___________
Total Operating Cash Flow $62,191,567
___________
___________
Leverage Ratio (Not to exceed 3.5:1.0)
2.19
Interest Coverage Ratio
Operating Cash flow $62,191,567
Interest expense $8,702,911
Interest Coverage Ratio (Minimum of 2.0:1.0)
7.15
Equity to Total Capitalization Ratio
Equity
Total Assets $299,808,541
Total Liabilities 200,204,396
____________
Equity $99,604,145
___________
___________
Total Capitalization
Equity $99,604,145
Total Indebtedness 136,036,224
___________
Total Capitalization $235,640,369
___________
___________
Equity to Total Capitalization Ratio (Not less than
30.0%) 42.3%
</TABLE>
<PAGE>
<PAGE>
ANNEX B
<PAGE>
ANNEX C
None
<PAGE>
C-TEC CORPORATION
1994 STOCK OPTION PLAN
SECTION I. GENERAL PROVISIONS
1.1 Purposes of the Plan and Types of Grants
The purpose of this 1994 Stock Option Plan (the
"Plan") of C-TEC Corporation, a Pennsylvania corporation (the
"Company") is to advance the interests of the Company by
providing a means for the Company to attract and retain
well-qualified employees, provide to employees an incentive to
commence or continue service with the Company, and enable
employees to acquire or increase a proprietary interest in the
Company in order to promote a closer identity of interests
between such employees and the Company's shareholders. It is
intended that this purpose will be effected through the granting
of stock options. The term "option," as used in this Plan, shall
include incentive stock options ("Incentive Stock Options") and
non-qualified stock options ("Non-qualified Stock Options"). It
is intended that the Incentive Stock Options granted under the
Plan shall constitute "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986 as
now in effect or as later amended (the "Code") and shall be
subject to the tax treatment described in Section 421 of the
Code. Except as otherwise expressly provided herein, the term
Company shall include any "parent" and "subsidiary" of the
Company, as such terms are used in Sections 424(e) and 424(f),
respectively, of the Code.
1.2 Stock Subject to the Plan
The maximum number of shares which will be issuable in
respect of grants under the Plan shall be an aggregate of
1,350,000 shares of the Company's Common Stock, par value $1.00
per share (the "Common Stock"), subject to adjustment as
provided in Section 3 herein. Such shares may be authorized and
unissued shares, or shares which shall have been purchased or
acquired by the Company for this or any other purpose in
accordance with the Plan. In the event any options granted under
the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be
exercisable in whole or in part, those shares relating to an
unexercised option, shall again be available for the purposes of
the Plan.
1.3 Administration of the Plan
(a) The Plan shall be administered by the Board of
Directors, the Compensation Committee or such other committee as
may be designated by the Board of Directors (collectively
referred to herein as the "Committee"). The Committee shall
consist of at least two members of the Board of Directors and
each member of the Committee must be a "disinterested person"
within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act").
- - -1-
<PAGE>
(b) The Committee shall determine, within the
limits of the express provisions of the Plan, the individuals to
whom, and the time or times at which options shall be granted,
the number of shares to be subject to each option, the terms,
conditions, restrictions and limitations of each option to be
granted, the expiration date of each option (the "Expiration
Date"), whether and to what extent options granted under the
Plan shall be designated as Incentive Stock Options, the
exercise price of each option and the time or times within which
(during the term of the option) all or portions of each option
may be exercised. In making such determinations, the Committee
shall take into account such factors as the Committee in its
discretion shall deem relevant.
(c) Subject to the express provisions of the Plan,
the Committee may interpret the Plan; correct any defect, supply
any omission or reconcile any inconsistency in the Plan;
prescribe, amend and rescind rules and regulations relating to
the Plan; determine the terms and provisions of each option
(which need not be identical); and make all other determinations
necessary or advisable for the administration of the Plan.
1.4 Eligibility
Options may be granted only to persons who are
employees of the Company, including employees who are directors
and/or officers ("Eligible Persons"); provided, however, that
(i) employees subject to a collective bargaining agreement with
the Company and (ii) directors of the Company who are not
otherwise actively employed by the Company, shall not be
eligible.
SECTION II. STOCK OPTIONS
2.1 General Limitation on Incentive Stock Options and
Non-Qualified Stock Options
(a) The aggregate fair market value (determined as
of the date on which the option is granted) of stock with
respect to which options designated as Incentive Stock Options,
together with incentive stock options under any other plan of
the Company, are exercisable for the first time by any employee
in any calendar year shall not exceed $100,000. In addition, no
options designated as Incentive Stock Options may be granted
under the Plan if such grant, together with any other applicable
grant of Incentive Stock Options under the Plan or incentive
stock options under any other plan of the Company would exceed
any other applicable maximum established under Section 422 of
the Code for Incentive Stock Options. If an option granted under
the Plan which is designated as an Incentive Stock Option
exceeds such limitations, such option, to the extent of such
excess, shall be a separate Non-qualified Stock Option.
- - -2-
<PAGE>
(b) The maximum number of shares of Common Stock
subject to Non-qualified Stock Options that may be granted to
any Eligible Person during any ten year period shall not exceed,
subject to adjustment as provided in Section 3.1 herein,
1,350,000 shares. Solely for purposes of this Section 2. l(b),
if an outstanding Non-qualified Stock Option is cancelled, the
shares subject to such option shall continue to be counted
against said maximum number.
2.2 Exercise Price
The price at which shares of the Common Stock may
be purchased pursuant to the exercise of options granted under
the Plan ("Exercise Price") shall be established by the
Committee, but shall not be less than 100% of the fair market
value of the Common Stock on the date the option is granted.
However, if the option is intended to qualify as an Incentive
Stock Option, the Exercise Price must be not less than 110% of
the fair market value of the Common Stock on the date the option
is granted if an optionee owns (or is deemed to own under
applicable provisions of the Code and rules and regulations
promulgated thereunder) more than 10% of the combined voting
power of all classes of the stock of the Company. The fair
market value of the Common Stock on any day shall be the value
of a share of Common Stock as reported for stock exchange
(including an automated system of quotations) transactions
and/or determined in accordance with any applicable resolutions
or regulations of the Committee in effect at the relevant time.
2.3 Term of Each Option
The term of each option shall be for such period as
the Committee shall determine, but not more than ten years from
the date of the granting thereof, provided that if an optionee
owns (or is deemed to own under applicable provisions of the
Code and rules and regulations promulgated thereunder) more than
10% of the combined voting power of all classes of the stock of
the Company and an option granted to such optionee is intended
to qualify as an Incentive Stock Option, the term of such option
shall be no more than five years.
- - -3-
<PAGE>
<PAGE>
2.4 Exercise of Options
(a) Options granted under the Plan shall be
exercisable in cumulative annual increments of 20% commencing
one year from the date of grant, except as (i) otherwise
provided by the Committee and evidenced in the option agreement
or instrument or (ii) except in the event of a Change in Control
(as such term is defined in Section 2.4(d) herein) in which case
all of such options shall become exercisable immediately. No
fractional shares, or cash in lieu thereof, shall be issued
under this Plan or under any option granted hereunder.
(b) The Exercise Price of the shares as to which an
option shall be exercised shall be paid in full at the time of
exercise by one or any combination of the following methods, as
determined by the Committee: (i) in cash, certified check, bank
or cashier's check or money order (collectively referred to
herein as a "Check"), and/or (ii) by transferring to the Company
owned and unencumbered shares of Common Stock (to the extent the
Company is not then prohibited from purchasing or acquiring
shares of such stock), having a fair market value (determined in
accordance with the methods described in Section 2.2) equal to
or less than the aggregate exercise price of the options
exercised, with a Check for the remainder, if any, of the
exercise price. The Company shall not be required to deliver
certificates for such shares until such payment has been made.
(c) The Company may, in its sole discretion, if so
requested by an optionee, pay an optionee, in lieu of the
exercise of his option for all or a portion of the shares
covered by such option, whichever of the following is designated
by the Committee: (i) cash equal to the excess of the fair
market value of one share over the Exercise Price per share
specified in such option multiplied by the number of shares
called for by the option, or the specified portion of such
shares; or (ii) the nearest whole number of shares of Common
Stock having an aggregate value which is not greater than the
cash amount calculated in (i) above; or (iii) a combination of
(i) or (ii) above. The method of exercise provided in Section
2.4(c)(i), (ii) and (iii) are referred to herein collectively as
the "alternative settlement method." The Committee may specify
at any time by written notice to an optionee that the
alternative settlement method with respect to his option will be
available only for cash or for stock or for a specified
combination of each. The alternative settlement method shall be
available only to the extent that an option is exercisable and
only if the fair market value of a share of Common Stock on the
date a request for the alternative settlement method is granted
exceeds the Exercise Price per share specified in the option. An
option, or any portion thereof, with respect to which an
optionee's request for the alternative settlement method is
granted shall be surrendered to the Company. An option shall
cease to be exercisable to the extent that an optionee's request
for the alternative settlement method is granted, and the
underlying shares will not be regarded as available for new
option grants in the future.
- - -4-
<PAGE>
(d) The term "Change in Control" shall mean:
(i) any acquisition, beneficially or
otherwise, by any "Unrelated Party" (as such term is defined
below) of securities of the Company representing 30% or more of
the combined voting power of the Company securities issued and
outstanding immediately prior to such acquisition (a series of
acquisitions by an Unrelated Party shall be treated as a single
acquisition to the extent the aggregate number of shares
acquired in such series equals or exceeds 30%);
(ii) a voluntary or involuntary dissolution
or reorganization of the Company; or
(iii) a change in the majority of the Board
of Directors of the Company in connection with, or directly
resulting from, a merger, sale of assets or other reorganization
of the Company, an Unrelated Party tender offer or proxy
contest. Such a change in the majority of the Board of Directors
shall be deemed to have occurred if the persons who were the
Directors of the Company immediately before such event or
acquisition cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company at any
time within twelve months after such event or acquisition.
(e) The term "Unrelated Party" shall mean any party
or group of parties acting together; excluding, however, the
Company, any trustee under any employee benefit plan maintained
by the Company, and any nominee holder for a securities exchange
in which the capital stock of the Company may be traded, if any.
Notwithstanding anything contained herein to the contrary, a
Change in Control shall not include the reincorporation of the
Company in a state other than Pennsylvania or the restructuring
of the Company to create a holding company, provided that such
restructuring does not otherwise result in a Change in Control.
2.5 Non-Transferability of Options
No option granted under the Plan may be assigned or
transferred otherwise than by will or by the laws of descent and
distribution and during an optionee's lifetime shall be
exercisable only by the optionee, or in the event of an
optionee's legal incapacity, such optionee's court appointed
representative.
- - -5-
<PAGE>
2.6 Termination of Employment or Other Service
If an optionee ceases to be an Eligible Person for
any reason other than disability (as such term is defined below)
or death, then each outstanding option granted to such optionee
under the Plan will terminate on the date three months after the
date such optionee ceases to be an Eligible Person (or, if
earlier, the date specified in the option agreement or
instrument). If an optionee ceases to be an Eligible Person by
reason of death or disability (or if the optionee's eligibility
is terminated by reason of his or her disability and the
optionee dies within one year after such termination of
eligibility), then each outstanding option granted to the
optionee under the Plan will terminate on the date one year
after the date of such termination of eligibility (or one year
after the later death of a disabled optionee) or, if earlier,
the date specified in the option agreement or instrument. Such
options will be exercisable to the extent that the optionee was
able to exercise same as of the date the optionee ceased to be
an Eligible Person. Notwithstanding anything to the contrary
herein, an option may not, under any circumstances, be exercised
subsequent to its Expiration Date. For the purpose of this
Section 2.6, "disability" or "disabled" shall mean permanent
mental or physical disability as determined by the Committee
subject, in the case of an Incentive Stock Option, to the
requirements of Section 22(e)(3) of the Code.
2.7 Option Instruments
Options shall be evidenced by an instrument or
agreement dated the date the option is granted, and shall
contain such terms and conditions, consistent with the Plan, as
the Committee shall approve.
SECTION III. ANTI-DILUTION PROVISIONS
3.1 Adjustment in the Event of Change in Stock
In the event of changes in the outstanding Common
Stock of the Company by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups,
combinations or exchanges of shares and the like, the aggregate
number and class of shares available under the Plan, and the
number, class and the price of shares subject to outstanding
options shall be appropriately adjusted by the Committee, whose
determination shall be conclusive.
- - -6-
<PAGE>
SECTION IV. MISCELLANEOUS
4.1 Compliance with Securities Laws and Stock Exchange
Requirements
Each option granted under the Plan shall be subject to
the requirement that, if at any time the Committee shall
determine, in its sole discretion, that the registration,
qualification or listing of the shares subject to such option
upon a securities exchange (which for the purposes of this
Section 4.1 shall include NASDAQ or other similar automated
system of quotation) or under any state or federal law, or the
consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with,
the granting or exercise of such option, the Company shall not
be required to issue such shares unless such registration,
qualification, listing, consent or approval shall have been
effected or obtained free of any conditions not acceptable to
the Committee. Nothing in the Plan or any agreement or grant
hereunder shall obligate the Company to effect any such
registration, qualification or listing.
4.2 Withholdinq Taxes
The Company shall have the right to deduct any sums
that federal, state or local tax law requires to be withheld
with respect to the exercise of any option, or as otherwise may
be required by such laws. The Company may require as a condition
to issuing or delivering shares upon exercise of the option that
the holder of an option or other person exercising the option
pay any sums that federal, state, or local tax law requires to
be withheld with respect to such exercise. This authority shall
permit the Company to withhold or receive shares or other
property and to make cash payments in respect thereof in
satisfaction of the optionee's tax obligations, including tax
obligations in excess of mandatory withholding requirements,
subject to and only to the extent authorized by the Committee.
The Company shall not be obligated to advise any optionee of the
existence of the tax or the amount which the Company will be so
required to withhold.
4.3 Amendment and Termination
The Board of Directors may from time to time amend
and at any time rescind or terminate the Plan as it shall deem
advisable; provided, however, that no change that would impair
the rights of the optionees may be made in options theretofore
granted without the consent of the optionees; and provided
further, that no amendment which requires the approval of
shareholders in order for the Plan to comply with Rule 16b-3
under the Exchange Act shall be adopted without such approval of
shareholders.
4.4 No Rights Conferred
Nothing contained herein will be deemed to give any
individual any right to receive an option under the Plan or to
be retained in the employ or service of the Company nor shall
this Plan be construed as a contract of employment with any
Eligible Person.
- - -7-
<PAGE>
4.5 Governing Law
The Plan and each agreement or instrument
evidencing an option shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania
applicable to contracts made and performed within such state,
except as such laws may be supplanted by the federal laws of the
United States of America, which laws shall then govern its
effect and its construction to the extent they supplant
Pennsylvania law.
4.6 Compliance with Rule l6b-3
(a) Unless an optionee could otherwise transfer
shares issued upon exercise of an option or exercise a right to
receive cash under the Plan without incurring liability under
Section 16(b) of the Exchange Act, at least six months must
elapse from the date of acquisition of an option to the date of
disposition of the shares issued upon exercise of the option,
and no right to receive cash under the Plan may be exercised
within six months after the date of grant of such right.
(b) It is the intent of the Company that this Plan
comply in all respects with applicable provisions of Rule 16b-3
or Rule 16a-l (c)(3) under the Exchange Act in connection with
any grant of an option to or other transaction by a participant
who is subject to Section 16 of the Exchange Act (except for
transactions exempted under alternative Exchange Act rules or
acknowledged in writing to be nonexempt by such participant).
Accordingly, if any provision of the Plan or any instrument
relating to an option does not comply with the requirements of
Rule 16b-3 or Rule 16a-1 (c)(3) as then applicable to any such
transaction, such provision will be construed or deemed amended
to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-l(c)(3) so that such
participant shall avoid liability under Section 16(b)
4.7 Term of the Plan
The Plan shall become effective as of February 22,
1994 by action of the Board of Directors conditioned on and
subject to approval of the Plan, by a vote of the holders of a
majority of the shares of the Company present in person or by
proxy at a duly held shareholders meeting at which a quorum
representing a majority of all outstanding voting stock is
present. The Plan shall terminate on February 21, 2004, or at
such earlier date as may be determined by the Board of Directors
in accordance with Section 4.3.
- - -8-<PAGE>
