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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____to____
Commission File No. 0-11174
WARWICK VALLEY TELEPHONE COMPANY
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(Exact name of registrant as specified in its charter)
New York 14-1160510
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
47-49 Main Street, Warwick, New York 10990
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 986-1101
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Without Par Value)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any ammendment to
this form 10-K. |X|
Aggregate market value of voting stock held by non-affiliates as of March 20,
2000 - $81,814,950.
Common shares outstanding, March 20, 2000 - 1,818,110
DOCUMENTS INCORPORATED BY REFERENCE
Name Incorporated Into
Annual Report to Shareholders for the year
ended December 31, 1999 Parts II
Proxy statement for the 2000 Annual Meeting
of Shareholders Part III
The Exhibit Index for this report is located on page 11. The total number of
pages contained in this report is 34.
Part 1.
Item 1. BUSINESS.
Warwick Valley Telephone Company (the 'Company') was incorporated in New
York on January 16, 1902 and is qualified to do business as a foreign
corporation in New Jersey. The Company's executive offices are located at 47
Main Street, Warwick, New York 10990 (Tel. No. 914-986-8080).
The Company is an independent telephone company with 18,083 access lines in
New York State and 10,424 in New Jersey at December 31, 1999. The Company
manages its operations as two business segments, telephone service (including
local, long distance and cellular) and internet service. Financial information
regarding the Company's two business segments is found in Note 16 to the
Consolidated Financial Statements incorporated in Part II hereof by reference.
The Company provides telephone service to customers in the contiguous towns of
Warwick and Goshen, New York, and the townships of West Milford and Vernon, New
Jersey. The Company operates exchanges in Warwick (12,372 access lines), Florida
(3,838 access lines) Pine Island (1,651 access lines) and Middletown (222), New
York and Vernon (7,272 access lines) and Upper Greenwood Lake (3,152 access
lines), New Jersey. On February 10, 1999 the Company activated its new switch in
Middletown, New York and began to provide extended local service June 10, 1999.
The Company's service area is primarily rural and has an estimated population of
50,000.
In 1999, 13,275,178 toll calls were made on the Company's system,
representing an decrease of 4.8% from 13,947,492 in 1998. Business customers
represent 18.9% of total access lines, and no single customer's annual billings
represent a significant portion of the Company's gross revenues.
The Company has installed advanced digital switching equipment in all of
its exchanges and fiber optic routes between central offices and to all
neighboring telephone companies, and is currently constructing fiber optic
routes in other locations.
The Company sells, as well as leases, telephone equipment both within its
territory and within the territories of other telephone companies. Residential
telephone equipment sales are made through the Company's retail stores, which
are located in the Company's main office in Warwick, New York and at Route 515
and Guthrie Drive in Vernon, New Jersey. The Company also sells and leases
business telephone systems both in its own territory and elsewhere. At present,
the sale of telephone and other equipment does not constitute a material part of
the Company's business.
The Company holds a 7.5% limited partnership interest in a cellular mobile
telephone partnership which is licensed to operate as the wire-line licensee in
both Orange and Dutchess Counties, New York. The general partner is New York
Cellular Geographic Service Area, Inc. (an affiliate of Bell Atlantic Mobile),
and the other limited partners are Frontier Telephone Company and Taconic
Telephone Corporation. Since the inception of the partnership, the Company has
made capital contributions of $249,750; no further capital contributions are
expected to be required in 2000. The partnership began offering cellular service
in both counties in February 1988. The partnership's pre-tax income for the year
ended December 31, 1999 was $31,184,573, and the Company's share of that pre-tax
income was $2,338,843.
The Company has four wholly-owned subsidiaries, three of which belong to
the telephone segment of its operations. Warwick Valley Mobile Telephone
Company, Inc. ('WVMT') resells cellular telephone service to the Company's
subscribers as well as to others. WVMT also sells and installs cellular
telephone sets. For the year ended December 31, 1999, WVMT had a pre-tax profit
of $108,035. Warwick Valley Long Distance Company, Inc. ('WVLD') resells toll
telephone service to the Company's subscribers. WVLD commenced operation in New
Jersey in December, 1993 and in New York in May, 1994. WVLD had a pre-tax profit
in 1999 of $648,548 . Warwick Valley Networks, Inc. ('WVN') was established
during 1994 and is a partner in the New York State Independent Network
('NYSINET'), which was created by the independent telephone companies of New
York to build and operate a data connections network. NYSINET makes it
unnecessary
for its member companies to rely on outside companies for these services and may
also offer services to companies who are not members, creating a potential
source of additional revenue. The NYSINET network was in operation during 1997
although not all members have become part of the system to date. NYSINET had a
net loss of $32,559 during 1999, of which Warwick Valley Networks' (WVN) share
was $1,387 .
The Company's fourth subsidiary, Hometown Online, Inc.('Online'), was
established to provide connectivity to the Internet as well as local and
regional information services to personal computer users. All of the activities
of the Company's internet service segment are conducted through Online. Service
is offered within WVTC's service area as well as in nearby areas in New York,
New Jersey and Pennsylvania. Online, which began business in July, 1995, had a
pre-tax profit of $1,379,365 in 1999 and has approximately 22,000 customers.
The Company incurred costs of approximately $700,000 to address the impact
of the Year 2000 problem on its information systems, internet service and
telephone service.
Since 1994, the Company has been making the necessary modifications in all
software that it has generated internally. In 1997, it began a broader program
to address the readiness of its systems for Year 2000 date-change issues. In the
second quarter of 1997, the Company created a continually updated document that
was intended to contain all procedures and plans related to the Company's Year
2000 remediation efforts. The management of the Company reviewed and adopted
this document in the third quarter of 1997. In the fourth quarter of 1997, the
Company's Management Information Systems Department began a more detailed
analysis of the software and hardware in each of the applications identified in
the inventory. This analysis was completed in the second quarter of 1998. In the
third quarter of 1998, the Company began making the software modifications
identified as being necessary and replaced all date-dependent computer chips in
its personal computers. In the first quarter of 1999 the Management Information
Systems Department finished making all necessary modifications to the software
programs for which upgrades were not purchased from outside suppliers. During
the second quarter of 1999 the Company updated its Nortel Switching Equipment to
Year 2000 compliance. The Company did not experience any service interruptions
or operational system failures resulting from the Year 2000.
COMPETITION
Residential customers can purchase telephone sets (including cellular sets)
and equipment compatible and operational with the Company's telephone and
cellular systems at other retail outlets inside and outside the Company's
territory and not affiliated with the Company. Such outlets include other
telephone company telephone stores, department stores, discount stores,
mail-order services and internet websites. Businesses in the Company's service
area are also allowed to purchase equipment compatible and operational with the
Company's system from other telephone and 'interconnect' companies. The
Company's territory is surrounded by the territories of Bell Atlantic, Citizens
Utilities, Sprint-United Telephone and Frontier Telephone, all of which offer
residential and business telephone equipment. There are also several
interconnect companies located within a 30-mile radius of Warwick, New York.
WVMT competes against Bell Atlantic Mobile Communication Retail Company,
Cellular One, Nextel and others offering either cellular service, the sale and
installation of cellular equipment or wireless service.
The Telecommunications Act of 1996 (the 'Act') creates a nationwide
structure in which competition is allowed and encouraged between local exchange
carriers, interexchange carriers, competitive access providers, cable TV
companies and other entities. The markets affected first have been the regional
toll areas in both states. Regional toll competition was implemented in New York
on January 1, 1997 and in New Jersey in May 1997. The competition in these areas
has had the effect of reducing Warwick's revenues. The reduction in regional
toll revenues for 1999 was 11.3% in New York and 10.2% in New Jersey. Under the
Act the Company itself can provide competitive local exchange telephone service
outside its franchised territory.
2
Certification as a common carrier in the State of New York was received on
October 2, 1998 and in the State of New Jersey on March 3, 1999. As a result,
the Company negotiated agreements for local wireline network interconnection
with Citizens Telecommunications of New York, Inc. in the Middletown, New York
area. The New York State Public Service Commission ("NYSPSC") approved the
Company's application on December 23, 1998. Based upon this agreement the
Company installed a central office at 24 John Street in Middletown, New York on
February 10, 1999, where it began providing extended local service on June 10,
1999. The Company is reviewing plans to provide limited service in other
surrounding areas in both New York and New Jersey. There can be no assurances
that the Company will implore any such additional plans, or that other companies
will not begin providing competitive local exchange telephone service in the
Company's franchise territory.
The cellular partnership referred to above is in competition with two
non-wire-line licensees, one of which is currently operating a cellular system
in Dutchess County, New York, and the other in Orange County, New York and with
personal communication service (PCS) providers.
The Company currently provides access to the national and international
calling markets as well as a significant portion of the intrastate calling
markets through all interested inter-exchange carriers, including WVLD. Equal
access ('one-plus') service to all toll carriers has been available to the
Company's customers since August 1, 1991. Access to the remainder of the
intrastate calling markets is provided through Bell Atlantic. WVLD, as an
inter-exchange carrier, competes against all such other carriers, providing full
toll services to its customers at discounted rates.
There are numerous competitors throughout Online's market area whose
services are available to customers. Online competes both on the basis of
service and price. Despite the presence of many competitors, it is experiencing
rapid growth. Whether growth and pricing levels can be maintained depends, in
part, on the actions of existing competitors, the possible entry into the market
of new competitors, the rate of technological change and the level of demand for
services.
Should NYSINET offer services to non-members, WVN will indirectly be
competing against Bell Atlantic and others.
STATE AND FEDERAL REGULATION
The Company's New York telephone service operations are subject to the
jurisdiction of the the NYSPSC; its New Jersey telephone service operations, to
the jurisdiction of the New Jersey Board of Public Utilities (the 'NJBPU').
These two bodies have regulatory authority over the Company with respect to
rates, facilities, services, reports, issuance of securities and other matters.
Interstate toll and access services are subject to the jurisdiction of the FCC.
The Company, like many other telephone companies of its size, depends
heavily for its revenues on inter- and intrastate toll usage, receiving
approximately 57.1% of its revenues from these sources.
With regard to interstate toll calls, the Company receives reimbursement
from toll carriers in the form of charges for providing toll carriers access to
and from the Company's local network.
Pursuant to FCC requirements, the Company was obligated to make
contributions to a long-term support fund of the National Exchange Carrier
Association. On January 1, 1998, a new funding mechanism went into effect,
pursuant to which all carriers contribute to a Universal Service Fund
established by the FCC to cover high cost areas, low income customers, schools,
libraries and rural health care providers. The Company's obligation to this fund
for 1999 was $78,343 and for 2000 will be approximately $87,000. Quarterly
updates modify the amounts contributed. Management does not currently expect
that the amount contributed by the Company will change significantly.
3
Also as of January 1, 1998, the Company began receiving substantial funds
from the Universal Service Fund. As a result of the FCC order establishing the
Fund, all local exchange carriers were required to reduce access charges billed
to toll carriers. To offset this revenue reduction, the high cost portion of the
Universal Service Fund provides payments monthly to carriers satisfying the
characteristics set forth in the order. At the current level of support, the
Company received $2.3 million in 1999 and expects to receive $2.4 million in
2000.
The Company also receives access charges from toll carriers for all
intrastate toll usage. The Company is obligated to make contributions to the New
York State Access Settlement Pool (the 'NYSASP') but does not pool its toll or
access revenues therein. The NYSASP began operations on October 1,1992 and
supports the operations of certain telephone companies other than the Company.
The Company contributed approximately $222,000 to the NYSASP for 1999 and is
expected to contribute approximately $191,000 for 2000.
In October 1998, the NYSPSC implemented the Targeted Accessibility Fund
("TAF") of New York to provide universal service in rural, high costs areas of
the state. The Company's contribution to the TAF for 1999 was $16,287 and is
expected to be approximately $27,000 for 2000.
In the Company's two New Jersey exchanges, intrastate toll revenues are
retained by toll carriers, of which the Company is one. The associated access
charges are retained by the Company. Revenues resulting from traffic between the
Company and Bell Atlantic and United Telephone are adjusted by charges payable
to each company for terminating traffic.
In addition to charging for access to and from the Company's local network,
the Company bills and collects charges for most inter- and intrastate toll
messages carried on its facilities. Interstate billing and collection services
provided by the Company are not regulated. They are provided under contract by
the Company. Intrastate billing and collection remain partly regulated in New
York and fully regulated in New Jersey. The regulated services are provided
under tariff. Some carriers provide their own billing and collection services.
EMPLOYEES
The Company has 133 full-time and part-time employees, including 109 non-
management employees. Sixty-one of the non-management employees (primarily the
office staff and operators) are represented by the Warwick Valley Telephone
Company Employees' Association ('WVTEA'). The current three-year contract
between the Company and WVTEA expires November 4, 2001.
Thirty non-management employees (primarily plant employees) are represented
by Local 503 of the International Brotherhood of Electrical Workers (IBEW). The
current five-year agreement between the Company and IBEW Local 503 expires April
30, 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position and Period Served
M. Lynn Pike 52 President since January 2000
Fred M. Knipp 69 President 1988 - January 2000
Herbert Gareiss, Jr. 54 Vice President since 1989;
Assistant Treasurer 1989-1997;
Assistant Secretary 1980-1997;
4
Larry D. Drake 56 Vice President since August 1998;
Brenda Schadt 55 Vice President since September 1999
Barbara Barber 57 Secretary since April 1998
Assistant Secretary 1997-1998;
Robert A. Sieczek 56 Treasurer since April 1998
Assistant Treasurer 1997-1998;
Bonnie A. Jackowitz 53 Assistant Secretary since 1998;
Colleen Shannon 43 Assistant Secretary since 1998;
Dorinda M. Masker 48 Assistant Treasurer since 1998;
There are no arrangements between any officer and any other person pursuant
to which he was selected an officer.
Item 2. PROPERTIES.
The Company owns an approximately 22,000 square-foot building in Warwick,
New York, which houses its general offices, operators, data processing equipment
and the central office switch for the Warwick exchange. In addition, the Company
owns several smaller buildings which serve as workshops, storage space or
garages or which house switching equipment at the Company's other exchanges. The
Company purchased a building at 24 John Street in Middletown, New York in order
to support its expanded dial tone operations in its Middletown exchange. Of the
Company's investment in telephone plant in service, central office equipment
represents approximately 43.0%; connecting lines and related equipment, 35.3%;
telephone instruments and related equipment, 2.9%; land and buildings, 5.1%; and
other plant equipment, 13.7%. A substantial portion of the Company's properties
is subject to the lien of the Company's Indenture of Mortgage.
Item 3. LEGAL PROCEEDINGS
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Part II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS. (1)
Item 6. SELECTED FINANCIAL DATA. (1)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (1)
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
5
The Company does not hold or issue derivatives instruments for any purposes
or other financial instruments for trading purposes. The Company's only assets
exposed to market risk are its interest bearing bank accounts, into which the
Company deposits its excess operating funds on a daily basis. The Company's
mortgage liabilities currently bear interest at a fixed rates. If the Company
refinances its liabilities when they mature the nature and amount of the
applicable interest rate or rates will be determined at that time. The Company
also has a line of credit which accrues interest at 1.0% below prime rate.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (1)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable
Part III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (2)
Item 11. EXECUTIVE COMPENSATION. (2)
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.(2)
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (2)
1 The material called for by Items 5, 6, 7, and 8 is included on the
Company's Annual Report to its Shareholders for the year ended December 31,
1999, the relevant pages of which are incorporated by reference herein.
2 With the exception of the identification of executive officers as listed on
page 4, the material called for by Items 10-13 is included in the Company's
definitive proxy statement, incorporated by reference herein, for its 1999
Annual Meeting of Shareholders, to be filed pursuant to Section 14(a) of
the Securities Exchange Act of 1934.
Part IV.
Item 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements: The following financial statements of the Company,
included in the Annual Report of the Company to its Shareholders for the year
ended December 31, 1999, are included in Exhibit Number 3, filed herewith:
6
Reference Pages
Annual Report
On Form 10-K
Consolidated Statement of Income - Years
Ended December 31, 1999, 1998 and 1997 7
Consolidated Balance Sheet - December 31,
1999 and 1998 6
Consolidated Statement of Stockholders'
Equity - Years Ended December 31, 1999,
1998 and 1997 8
Consolidated Statement of Cash Flows - Years 9
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 10-19
2. Financial Statement Schedules:
Report of Independent Certified 19
Public Accountants on Financial
Statement Schedules
Schedules:
VIII. Valuation and Qualifying Accounts 10
3. Exhibits:
Exhibit No. Description of Exhibit Reference
3(a) Articles of Incorporation, Incorporated by reference to
as amended Exhibit 3(a) to the Company's
Annual Report on Form 10-K
for 1997
3(b) By-Laws Incorporated by reference to
as amended Exhibit 3(b) to the Company's
Annual Report on Form 10-K
for 1997
4(a) Form of Common Stock Incorporated by reference to
Certificate, as amended Exhibit 4(a) to the Company's
Annual Report on Form 10-K
for 1997
7
4(b) Indenture of Mortgage, dated Incorporated by reference to
November 1, 1952, and all Exhibit 4(d) to the Company's
indentures supplemental Registration Statement on
thereto, except the Eighth Form 10 (File No. 0-11174),
Supplemental Indenture dated April 29, 1983
4(c) Eighth Supplemental Incorporated by reference to
Indenture, dated as of Exhibit 4(d) to the Company's
May 1, 1990, to the Annual Report on Form 10-K
Indenture of Mortgage, for 1995
dated November 1, 1952,
including form of 9.05%
First Mortgage Bond,
Series I, Due May 1, 2000
4(d) Ninth Supplemental Incorporated by reference to
Indenture, dated as of Exhibit 4(e) to the Company's
October 1, 1993, to the Annual Report on Form 10-K
Indenture of Mortgage, for 1997
dated November 1, 1952,
including form of 7.05%
First Mortgage Bond,
Series J, Due October 1, 2003
13 Annual Report to Share- Filed herewith
holders for the year ended
December 31, 1999, together
with separate manually
executed Independent
Auditor's Report.
23 Consent of Independent Filed herewith
Auditor
(b) No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1999.
8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARWICK VALLEY TELEPHONE COMPANY
Dated: March 29,2000 By /s/ M. LYNN PIKE
---------------------------------
M. Lynn Pike
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and on the 30 day of March, 2000.
Signature Title
--------- -----
/s/ HERBERT GAREISS, JR. Vice President and Director
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Herbert Gareiss, Jr.
/s/ ROBERT A, SIECZEK Treasurer
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Robert A. Sieczek (Principal Financial and Accounting
Officer)
/s/ FRED M. KNIPP Director
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Fred M. Knipp
/s/ WISNER H. BUCKBEE Director
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Wisner H. Buckbee
/s/ HOWARD CONKLIN, JR. Director
- ---------------------------------------
Howard Conklin, Jr.
/s/ JOSEPH E. DELUCA Director
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Joseph E. DeLuca
/s/ PHILIP S. DEMAREST Director
- ---------------------------------------
Philip S. Demarest
/s/ ROBERT J. DEVALENTINO Director
- ---------------------------------------
Robert J. DeValentino
Director
- ---------------------------------------
Corinna S. Lewis
/s/ HENRY L. NIELSEN, JR.
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Henry L. Nielsen, Jr. Director
9
WARWICK VALLEY TELEPHONE COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
(Note a) (Note b) (Note c)
Allowance for
Uncollectibles:
Year 1999 $65,155 $35,712 $74,325 ($110,037) $65,155
Year 1998 $65,155 $44,309 $58,780 $103,089 $65,155
Year 1997 $65,154 $46,289 $53,124 $99,412 $65,155
(a) Provision for uncollectibles as stated in statements of income.
(b) Amounts previously written off which were credited directly to this account
when recovered.
(c) Amounts written off as uncollectible.
10
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
13 Annual Report to Shareholders for the year 12
ended December 31, 1999
23 Consent of Independent Auditors 22
Exhibits 3(a), 3(b), 4(a) and 4(d) are incorporated by reference to Exhibits
3(a), 3(b), 4(a) and 4(e), respectively, to the Company's Annual Report on Form
10-K for the year ended December 31, 1997. Exhibit 4(b) is incorporated by
reference to Exhibit 4(d) to the Company's Registration Statement on Form 10
(File No. 0-11174), dated April 29, 1983. Exhibit 4(c) is incorporated by
reference to Exhibit 4(d) to the Company's Annual Report on Form 10-k for the
years ended December 31, 1995.
11