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O83-13AN ORDINANCE OF THE CITY OF BOYNTON BEACH, FLORIDA, GRANTING A NON-EXCLUSIVE LICENSE TO CENTEL CABLE TELEVISION coMPAI~Y OF FLORIDA TO OPERATE A COI~-~UNITY ANTENNA TELEVISION SYSTEM WITHIN CERTAIN AP, EAS OF THE MUNICIPAL LIMITS OF THE CITY OF BOYNTON BEACH; PROVIDING THE TEPeeS OF SAID LICENSE; PROVIDING FOR A REPEALING CLAUSE; PRO- VIDING AN EFFECTIVE DATE; AND FOR OTHER PURPOSES. I~{EREAS, the CENTEL CABLE TELEVISION COMPANY OF FLORIDA has requested a non-exclusive easement to fur{ish cable television to certain areas in the City of Boynton Beach. WHEREAS, the City Council of the City of Boynton 'Beach has therefore determined that it is the best interest to the municipality authorizing installation of a community antenna television system for the use of residence and inhabitants of said city; and ~EREAS, the application attached to this Ordinance Exhibit "A'~' has been reviewed by the City Council; and WHEREAS, the City Council has determined that it is in the best interest for the municipality to authorize installation of a community antenna television system for the use of residents and inhabitants of said city; and WHEREAS, a review of the application is found to be in conformity with the provisions of Chapter 7A of the codified ordinances for the City of Boynton Beach, Florida. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BOYNTON BEACH, FLORIDA: Section 1~ The CENTEL CABLE TELEVISION COMPANY OF FLORIDA has submitted an application for the privilege of con- ducting community antenna television systems within the City of Boynton Beach (said application is attached hereto as Exhibit "A" of said ordinances and made a part hereof by reference). Said CENTEL CABLE TELEVISION COMPA~CY OF FLORIDA is hereby granted and awarded a non-exclusive license to construct, license, operate and maintain a community antenna television system within certain area of municipal limits of the City of Boynton Beach (as described in Exhibit "A" of this ordinance) for a period of twenty (20) years from the effective date of this ordinance, in strict accordance with the terms and pro- visions of the aforedescribed application and in strict accord- ance with the provision of Chapter 7 of the codified ordinance of the Ciny of Boynton Beach, Florida: which provisions are hereby also adopted by reference and made a part of this ordinance and the license is hereby awarded. Section 2. That all ordinances or parts of ordinances in conflict herewith are hereby repealed. Section 3. That should any section or provision of this ordinanc~ or any portion hereof be declared by a Court competent jurisdiction to be invalid, such decision shall not the remainder of this ordinance. Section 4. That this ordinance shall be effective ately upon its passage. Section 5. That authority is hereby granted to codify this ordinance. FIRST READING this /-~day °f ~ 1983. SECOND READING AND FINAL PASSAGE this~day of , 1983. ~it~ ~- - (Corp. Seal) CITY OF BOYNTON BEACH, FLORIDA By~~ - 2 - EXHIBIT To ORDINANCE NOo ~83-13 APPLICATION for CATV FRANCHISE CITY OF BOYNTON BEACH March 25, 1983 EXHIBIT "A" _ NAME AND ADDRESS OF APPLICANT Centel Cable Television Company of Florida 5384 South Florida Avenue Lakeland, Florida 33803 813 644-2478 Centel's Lake Worth, Florida office: 305 964-0709 3959B Lake Worth Rd., Lake Worth, Fla. 33461 OFFICERS AND DIRECTORS Centel Cable Television Company of Florida is a subsidiary of Centel Communication Company, Centel Communication is an operating unit of Centel Corporation. Thomas G. Wehling - President Centel Cable Television Company of Florida 5725 N. East River Road Chicago, Illinois 60631 G. N. Hutton, IV - Vice President & General Manager Centel Cable Television Company of Florida 5384 South Florida Avenue Lakeland, Florida 33803 Earl Holtz - Secretary/Treasurer Centel Cable Television Company of Florida 5725 N. East River Road Chicago, ILlinois 60631 Dale I. Parker - Assisant Secretary/Treasurer Centel Cable Televlszon Company of Florida 5384 South Florida Avenue Lakeland, Florida 33803 David A. Bohmer - Vice President Centel Cable Televzsmon Company of Florida 5725 N. East River Road Chicago, Illinois 60631 Karl Berolzheimer - Director Centel Cable TelevIsion Company of Florida 5384 South Florida Avenue Chicago, Illinois 60631 Centel Corporation is listed on the New York Stock Exchange as well as the Midwest Exchange. The company has over 26,000 shares of common stock outstanding. To the best of our knowledge no person is the beneficial owner of more than 3% of the common stock. The applicant is proposing to extend its existing cable system now operating in the Village of Golf. This system is a 400 MHz system which is the latest "state of the art." We propose to construct an extension following all Centel's practices and the following: a. The National Electrical Code, 1980 edition, the National Fire Protection Association, the National Electrical Safety Code, 1977 edition, American National Standards Institute ANSI-C2, and the National Bureau of Standards Handbook ~81. b. The safety and construction practices and procedures of local utilities. c. "The Standards and Practices Code" of the N.C.T.A.· The proposed system as stated will be an extension of the Village of Golf. The major components of this system are made up of the following: The subscriber system is spaced for 400 MHz, which will allow up to 54 channels to be programmed. The aerial and underground cable will be jacketed and flooded. All amplifying equipment is Gardiner and Phase Comm. Trunk cable will be .750 O.D. Comscope with .500 O. D. for distribution. There is a 5.6 meter Gardiner earth station with another to be added within 90 days. All cable used for trunk and feeder is of low loss variety. Centel Cable Television Company of Florida has been selected by the Cable Committee of Boynton Leisureville Unit #10 to provide them with service. This area has several streets that are under the control of the City. As of this date we feel that we would only be using these streets to make crossing from one block to the next. Centel will, however, provide a detailed layout before construction begins and also a set of as built drawings when completed. Attached is a copy of Centel Corporation's 1981 annual report. As shown, Centel is a broad based communications company that owns and operates several companies rela~ing to manufacturing, distribution and service of communication related products and services Our F~usiness Cente~ [Central Telephone & Utilities Corpora- ~ tion] headquartered in Chicago provides~ thro~,gh ~s ~e~ephone operating compan~es~ distribution of telecommunications equipment and ~aterials. In addition~ the company is a nationat wholes~e distributor of co~muni- cations e~uipment and supplies through its sUpPlY d~sion. ~deo S~ces, through its cable ;e]evision companies, sewes over fl~,OOO households ~n six $~a~es. Through Centet ~d~path. the company will provide a e~or~ ~o int~rconnec; cable-W systems, entel aJ~o has electric companies in Colorado and ~ansas. Annual Meeting The annual meeting of shareholders will be held at 10 a.m., Friday, April 30, 1982 at American National E~an~: & Trust Company of Chicago, Chicago~ Illinois. The notice of the annual meet- lng, .proxy statement and pro~ will be mailed to each shareholder on or about March 30~ 1982. Form A copy of Centel's fD~f Annua~. Report to the Securities and Exchange Commi~ion on For.~ 1O-K ~s a~aitabie to shareholders without Vice ~res~dent and Sec~e~a~ Treasurer~ Cent~! Telephone & U~iliti~ Co~=or~tion, 5725 ~. East The Cover Centel--a new image for ~ changing company. Center's gro~h and e~pansion into communi- cations-reta~ businesses ~n the last five years has chan~ed the scope of our company. The s~zed Cent~i on the cover is symbolic of the co~pany's fresh~ new slance in communi- our c~rr~n~ name or the news proposed name~ C~t~] Corpo~ation~ which ~ill be vo~ed on at the ~ri~30 shareholders' meeting. ,Centra 'T&!ephone & Utilities Corporation Highlights ~:?' .,venuses and Sales Increase 1981 1980 (Decrease) --'Telephone $ 634,432,000 $ 568,683,000 $ 65,749.000 11.6% 3ommunications 247,243,000 198,527,000 48,716,000 24.5 :-Iectric 138,701,000 128,048,000 10,653,000 8.3 rotal $1,020,376,000 $ 895,258,000 $125,118,000 14.0% Net Income $ 92,940,000 $ 80,893,000 $ 12,047,000 14.9% ,.~ Telephone 3mmunlcatlons 10,752,000 8,779,000 1,973,000 22.5 Electric 10,243,000 9,215,000 1,028,000 11.2 Corporate and Eliminations (9,413,000) (6,957,000) (2,456,000) (35.3) Total $ 104,522,000 $ 91,930,000 $ 12,592,000 :13.7~/,, f~arnings Available for Common Shareh alders $ 103,255,000 $ 90,635;000 $ 12,620,000 13.9% werage Common Shares Outstanding 26,531,000 26,157,000 374,000 1.4% Earnings Per Share Primary $ 3.89 $ 3.46 $ .43 12.4% Ful y Diluted $ 3.86 $ 3.43 $ .43 12.5% )ividends Paid Per Common Share $ 2.10 $ 2.00 $ .10 5.0% 3ommon Shareholders' Investment Per Sh are $22.70 $20.84 $1.86 8.9% ~,onstruction Expenditures 250,652,000 $ 226,507,000 $ 24,145,000 10.7% r~lant, Property and Equipment, net $1,729,483,000 $1,613,333,000 $116,150,000 7.2% Employees 13,779 13,153 626 4.8% ~.ta for 1980 have been restated (see Notes 2 and 9 of the Notes to Financial Statements). Contents Letter to the Shareholders 2 i.,~Telephone Operations 5 entel'Communications Company 9 .~usiness Systems 11 Communications Products 13 Video Services 15 _. ~Electric Operations 17 .~onsolidated Map of Operations 18 qnancial Matters and Operations 19 3onsotidated Statements of Income 22 ;onsolidated Statements of Changes in Financial Position 23 Consolidated Balance Sheets 24 Consolidated Statements of Common Shareholders' Investment 25 Consolidated Statements of Long-Term Debt 26 /~ Notes to Financial ,Statements 27 ~onsolidated Se ected F nancial Data 30 ~esponsibility for Financial Statements 31 Report of Independent Public Accountants 31 Selected 1981 Financial Data Adjusted for Changing Prices 32 Five Year Comparison of Selected Supplementary Data Adjusted for the Effects of Changin9 Prices 33 ~,usiness Segment Information 34 ,~estor Information 36 Directors 37 Corporate Officers 38 Organization Heads 39 --~ -Centel Operating Companies 40 · elephone Opera;ions ?Je, phone Operations Highlights "":t'housand~ of Dollars 1981 1980 Increase $ 267,453 $ 254,097 5.3% - -~oll Service 334,319 287,046 16.5 r vliscellaneous 32,660 27,540 18.6 .~otal $ 634,432 $ 568,683 11.6% !xpenses $ 405,145 $ 352,307 15.0% -'Net Income $ 92,940 $ 80,893 14.9% Construction Expenditures $ 194,413 $ 192,278 1.1% Toll Messages. including WATS (thousands) 195,476 180,593 8.2% Lines Served 1,153,448 1.110,026 3.9% Centel personnel check computer printouts as they complete test procedures for cutover to a DMS-200 switching office. Last year, ~ ~h~2 digital central offices ~ere placed in service. With '- the addition of 21 offices scheduled for conversion during 1982, Centel's num- ber of customer lines served · "'~*~'by digital systems will reach ~early 30 percent. Served I I I Telephone operations showed steady gains during 1981. More successful marketing programs, acceler- ated capital recovery through higher depreciation rates, improved operating productivity, plant mod- ernization and new service offerings were all con- tributing factors. At year-end, however, growth in demand was slackening as the national economy dipped further into recession. The 43,400 customer lines added by Centel compa- nies during the year was somewhat below the prior year growth rate. However, toll message volume, up 8.2 percent, improved. Revenues benefitted sub- stantially from both higher interstate long-distance rates approved by the Federal Communications Commission (FCC) at mid-year and increased local servme rates which were granted in seven states. Second Computer.lnquiry/AT&T Settlement In October, the FCC modified its Second Computer Inquiry ruling. The Commission delayed the effective date for deregulation of new customer premises terminal equipment from March 1, 1982 to January 1, t983, and affirmed its decision to use a phased-in approach to deregulation However, the well-publicized settlement of the antitrust litigation between the United States Department of Justice and American Telephone & Telegraph Company may affect the timing and mn plementation of the Commission's order. In either case, Centel's transition problems will be minim ized in view of gu r wetl-establis h ed direct sales programs and a 1979 policy decision to remove certain terminal equipment from leased service offerings in a number of states. The agreement reached by AT&T and the Justice Department makes a distinction and separation between local distribution network functions and the rest of the business while, at the same time, it enhances competition in intercity services. We do not believe the proposed settlement contains major competitive implications which Centel had not already contem plated. The Company will con- tinue to reposition itself to take maximum advantage of the new opportunities. We also will keep working for passage of legislation which is necessary to reestablish a clear and stable national telecommu- nications policy and validate and clarify deregula- tion actions taken by the FCC and other govem- mental agencies. Marketing The Company expanded~ its residence terminal equipment sales program during 1981 with excellent results. More than 95,000 telephones were sold to customers, representing 25 percent of all single-line telephones placed in service by Centel during the year. Moreover, 30,000 of the telephones sold were refurbished sets--equipment which was formerly leased under tariff and returned by customers who moved or disconnected service. The growing success of the direct s~les program has brought faster recovery of c~pital investment and significantly lowered new investment requirements. Pick-A-Phone Centers continue to be an effective marketing outlet for both products and services and help reduce maintenance costs. Customer use of the "Pick-up and Return" and "Return-for-Repair" programs is increasing steadily as we convert more of our residence teleph~ones to jack and plug con- nections. Eighty-one percent of CenteFs residence customers' premises are now modular equipped. In 1981, one out of five customers with modular equip- ment repair problems brought their sets to a repair center rather than have a repairman sent to their home. Using Install-A-Phone kits introduced during 1981 customers can purchase, at a nominal price, Contel aoae3 two, 900 pa~r ~'~bles bet¥:een Okaloosa mc, and the mainland a~ __ Walton Beach FIoridato meet the growing and future rvmand for tole phone ~ce for the new condo- -~m.m~ums. h~gmnse apad- ams and second homes the slant:. The cables ;re oiowec ~nto the bottom Santa-Rosa Sound by a ~aue submarine sled. ?towing m" adds appre- ciably [o the reliability of telephone se,vice. all the materials they need to wire and hook up their phones. Both the Company and its customers benefit from these types of "do-it-yourself" programs. We send out fewer repair and installation people, the work is done at the customer's convenience and the customer saves on installation charges. New Technology for Effective Corn petition Communications technology continues to evolve rapidly, obsoleting products while opening up new marketing opportunities with virtually each advance. Centel views technology as the kay'to improving customer serv~ ce and enhancing our competitive position as a lower-cost provider of services. A primary way the Company is improving and ex- panding customer services is through conversion of electromechanical central office switching equip- ment to digital electronic systems. The digital offices are more efficient, require lower initial capital investment, need less maintenance and generate additional revenues from custom services such as call forwarding and conferencing. Last year, the number of Centel's digital central offices in service nearly doubled with the installation of 32 new switching systems. At year-end, digital electronic systems served 21 percent of our 1.2 mil- lion customer lines, and analog electronic systems an additional 14 percent. In 1982, the addition of 21 offices will raise the number of customer lines served by digital systems to 29~5 percent. Among the major digital conversions last year was the installation of a DMS-200 Traffic Operator Position System in Las Vegas. Equipped with 56 operator positions to handle toll calls, it is one of the largest of its kind in operation. The DMS-200 system's 2,000 trunks are capable of processing 11,800 calls an hour. Contel companies also installed new digital switching units last year in Florida, Illinois, North Carolina and Texas. Digital switching's compatibility with fiber-optic cable technology led Contel to undertake a major addition to transmission trunking facilities in Las Vegas. Work began in December to link seven central offices with a 90-megabit fiber optic system. When completed in early 1982, the new system will provide 9,400 separate voice channels over a 30-mile route, one of the largest in the country. A single three-quarter-inch fiber optic cable with 15 hair-thin glass fibers carries as many calls as six three-inch cables containing 3,000 copper wires each. Fiber optic transmission is virtually noise-free and vastly superior to wire cable for transmitting high-speed data. Local Measured Service Contel continues to advocate the use of Local Measured Service (LMS) pricing concepts through- out its system in place of the historical flat-rate method of charging for local service. LMS matches cost with usage and produces revenues according to demand, tn short, customers have more control over charge, s for their local tel ephone service since they are billed according to ~heir level of usage. LMS studies or proposals are underway in six'of the 10 states Centel serves. After a year-tong experf- ment, the Texas Public Utility Commission in 1981 authorized LMS pricing as a permanent offering in the Kingwood exchange, our first regulatory approval of the service outside of the Chicago - metropolitan area. LMS pricing has since been approved at Martinsville, Virginia. Operating Improvements Automation of all service order processing was , completed last year. It has reduced paperwork, speeded up the internal flow of service orders and provided m ore accurate records. The automated system also laid the groundwork for a more versatile computerized customer records program, which will be pilot-tested in, 1982. Regulatory Matters Increases of $14.8 million in new annual local service revenues were approved in 1981 of which S7.0 million was reflected in 1981 revenues. The interstate rate increase which went into effect at midyear, coupled with changes in the Belt System's operating expenses and investment levels, generated an additional $9.0 million in toll revenues. In Florida, Centel made a one-time refund of $1.0 million in July 1981 after negotiations with the state utility commission relative to the level of company earnings. A rate increase application pending at year-end in Virginia was approved in January with an award of $3.7 million in additional annual revenues. Rate requests total ing $4.3 million an nually were pending at year-end of which $1.5 million was being col- lected subject to'refund. Capital Recovery Regulatory agencies authorized an additional $20.5 million in annual depreciation expense, of which $13.6 million was reflected in 1981 business. Also adopted were changes in accounting procedures under which station connection costs are being expensed currently rather than capitalized. Due to the' change, 1981 expenses were increased by about $2.0 million, or $7.1 million annually. Approvals for higher depreciation rates have come as a result of Centel's initiative to persuade'regulators that tech- nology and market competition are shortening the economically useful lives of the telecommunications facilities in which we invest. Consolidation of Operations During 1981, operations in Iowa, Missouri and Minnesota were grouped into one administrative organization. Ohio and Illinois activities were also consolidated. These internal changes will increase operating efficiency through better utilization of management personnel and reduced administrative costs. 7 Contel Communications Company 3ommunications Group Highlights Thousands of Dollars 1981 lg80 Increase. _.Sales and Revenues :_ ~,.~-~ -come,Before~ Interest and Taxes $247,243 $198,527 24.5% · Construction Expenditures $ 23,820 $ 19,375 22.9% $ 24,825 $ 12,898 92.5% Total Assets $209,900 $150,100 39.,R% Employees 2,262 1,683 34.4% Top Among the major contracts negotiated by Cente[ Business Systems '~zas a $17.4 mil ion contract )r the replacement of the .elephone system at Fod Hood, Texas. the largest military post in the Free World. Center Centel Supply Company's new corn puter- .~ized inventory and order :ontrot system provides as[er 0rocessing of gus- tomer orders and continuous ~nventory control. ~Bottom Loca programming ~s proving to be one of the most popular features in Centel's franchise pack- ages. Civic programs, local soorts activities and other ndividual community activi- [[es are some of those featured. ri · I To accommodate the growth and increasing impor- tance of nonregulated businesses, Centel Commu- nications Company was reorganized in March 1981. Three operating units, each under a group vice .president, were established: Business Systems, Communications Products and Video Services. The Business Systems group is responsible for designing, rnarketing and servicing private business telephone systems to customers through a distri- bution organization with offices throughout the United States. The Communications Products group includes sub- sidiaries which manufacture and distribute propri- etary products to the communications market and a supply company which warehouses and distributes products to 3entel's telephone and cable television operations, as well as unaffiliated companies. A third element of tMs group provides construction and engineering services to both affiliated and non- affiliated customers. The Video Services group was formed to capitalize on a wide range of opportunities, including cable television, satellite master antenna systems and new video networks. Each of Centel Com munications Company's operating groups was strengthened by acquisitions which expanded product lines or market base. Centel Business Systems added four offices in Tennessee with the purchase of General Communi- cations &.Electronics, Inc. Based in Nashville, GC&E had sales of about $6.0 million in 1981. The Communications Products group added both new products and broadened its line of supplies- through the acquisition of Diamond Communication Products, Garwood, New Jersey, a leading manu- facturer of hardware for th e telecommunications and cable television industries. As in 1980, howeyer, the largest number of acqui- sitions came in cable television. Seven new cable systems joined Centel Video Services in 1981, and since the beginning of this year four more systems have been acquired. Agreements are pending for two additional systems. Acquisitions Completed or pending add some 36,000 subscribers to Centel's customer base. Our efforts continue to be concentrated in five mid- western and southern states--Illinois, Ohio, Michigan, Kentuoky and Flodda. Business Systems ~u~ines~, Systems Highlights Thousands of Dollars 1981 1980 . increasn Sales $112,081 $76,407' 46.7% .~ ,~come Before Interest and Taxes $ 10,160 $ 6.972 45.7% Order Backlog $ 51,731 $38,803 33.3% Assets $ 81,063 $64,503 25.7% Employees 1,197 910 31.5% Cente~ Business Systems is becoming recognized as the ~? .nation's leader in ous~ness rhone sales through its ales efforts and par~cipa- --~on in leading communica- tions exhibitions held throughout the United States. such as this one. held in Chicago in 1981. Centel Business Systems sales topped $112.0 million del phia. FMC projects the system Will cut annual last year, up 47 percent from 1980 and ranking the group among the nation's largest marketers and distributors of business comm Unications systems to the end user. It ended 1981 with a $51.7 million backlog of orders, well above the earlier year's $38.8 million backlog. CenteI-Business Systems' organization strength- ened last year with consolidation of all operating units into a national marketing organization. New sales offices opened in 1981 gave the group a total of 56 offices in 20 states, Plans for 1982 call for 20 additional offices. The group will begin marketing a proprietary line of electronic key systems, the first product merchan- dised under a Centel brand name label. Manufac- tured by TIE Communications, it will be distributed through Centel Supply Company. A supply agree- ment with Northern Telecom, Inc. for digital elec- tronic PBX systems is in its second year. With an expanding network of sales and service offices and a broad range of quality products, Centel Business Systems expects to increase mar- ket share again in 1982. Expertise in meeting the specialized communications needs of hotels, the health care and petrochemical industries and gov- ernment installations is a strategical element. Major Installations Completed in 1981 A $5.8 million communications network began serving FMC Corporation. The nationwide, three- node switched network provides communications links between FMC's corporate headquarters in Chicago and major divisions in San Jose and Phila- communications costs as much as $3.0 million. ~ Centel Business Systems designed, engineered and installed the 4,200-1ina system, which incorporates state-of-the-art programming for automatic call routing to 147 FMC network locations and a Com- munications Mapagement Center for network management and optimization. Centel is installing a $4.2 million system for the General Services Administration. It encompasses the communications of all federal agencies in Houston and several surrounding areas, serving 4,000 telephones from eight PBX locations. Other major installations during 1981 included a system at the Las Vegas Hilton providing 4,075 lines and 18 operator stations, and a $5;0 million project for Shell Oil Company in Houston. Fort Hood Installatioh Begun In August, Centel was awarded a $17.4 million con- tract to replace the corem unications system at Fort ~Hood, Texas, the largest military post in the free world. The project includes construction of a new central office, rehabilitation of outside cable distri- bution facilities and 11,000 new telephones. Corn ple- tion is expected in early 1983. Florida Power Signs Letter of Intent tn early 1982, Florida Power & Light Company signed a letter of intent to purchase a $5.0 million system which will provide an integrated communications network [or power generating stations*throughout the state. 11' Communications Products Joi-nmunications Products Highlights ~F"Thousands of Dollars Increase 1981 t980 (Decrease) To Regut[ated Affiliates $ 59,871 $ 64.672 (7.4%) To Other Customers 79,660 56,308 41.5% Total $139,531 $120,980 15.3% ncomeBeforelnterestandTa~'es $ 16,364 $ 14,674 11.5% Assets $ 59,447 $ 41,305 43.9% Em ptoyees 665 489 36.0% completely new look in :e!eonone ~3ooths ~s what[ :.ne Houston. Texas airport architect wanted and Acoustics Development Corcoration delivered. Adco oootns are m most of the ~" ation's largest airports as eft as high-rise office Cuitd;ngs, hospitals and many other iocatiens all :ve¢ '.ne Un,ted States and r-, scme foreign countnes. . es Offices Continued market expansion and product develop- ment by the Communications Products Group should support higher earnings over the long-term. In 1981, the group's three principal operating units-- Acoustics Development Corporation (ADCO), Digitech Industries and Centel Supply Company-- posted a 13.6 percent increase in sales. ADCO ^ pioneer in the development of acoustically designed telephone booths, ADCO introduced several new products in 1981. Production began on a new enclosure which expands the outdoor line and will ultimately replace ^DCO's pedestal booth. The enclosure meets government guidelines for use by handicapped persons and incorporates several new features, including a recessed vandaPresistant security pedestal which will become common to all outdoor enclosures. ^ significant portion of ADCO's business is design of public telephone calling centers in major airports. Contracts completed in 1981 included the inter- national air terminals in Chicago, San Francisco, Houston and Washington, D.C. A major expansion program was completed last year with replacement of 50 percent of the manu- facturing machinery at the St. Joseph, Missouri plant anda'building addition which doubled pro- duction capacity. Digitech As data processing communications systems become more complex and sophisticated, Digitech is keeping pace with a growing line of diagnostic I I I tools which incorporate the latest technology. An important addition to Digitech's diagnostic hard- ware line during 1981 was the ENCORE 200 portable network analyzer. Improving on a model intro- duced two years earlier, the ENCORE 200 makes it easier to identify problems at a location other than a network's central computer. More compact and powerful, it can perform analysis at quicker speeds. The newest software package diagnoses computer protocol problems in the X.25 packet-switched net- work, an international system widely used in Europe and Canada. Digitech's introduction of the X.25 software package was timely in light of the growing use of this network in the U.S. Centel Supply In the three years since it began marketing tele- phone equipment and supplies to the interconnect market, Centel Supply has built a substantia! customer base. Sales last year to companies not affiliated with Centel rose approximately two- thirds. Contributing to the gains were new distribu- tion centers in Moonachie, New Jersey and Dallas, Texas and expansion of the national sales force. Service capabilities were also improved by a new computerized inventory and order control system. Orders can now be shipped and billed the same day they are received, n addition, affiliated companies are able To order direct via computer terminals linked to the system. Wilco Wilco provides expertise in the design and con- struction of communications distribution networks. Presently concentrated in TeX~s and surrounding states, operations are being expanded for a lar- ger share of the market for construction of new, advanced communications systems as well as demand for re-builds of older cable television systems. Diamond Acquisition Diamond Communication Products is a well-estab- lished company with annual sales of S12.0 million. Its principal produotsare fasteners and other pole line hardware used throughout the communications industw. The one-piece Tap Bracket fastener is widely used in constructing cable television systems. Known for the high quality of its specialty fasteners, Diamond's product lines were further strengthened in 1981 by a new mechanical plating process which galvanizes products with an im proved rustproof zinc coating. 13 Video Services Vi,cleo Services Highlights Thousands Of Dollars ¢~._~ Revenues 1981 1980 Increase income From Operations $16,262 $ 8.457 92.3% $ 4,750 $ 2.675 77.6% Depreciation and Amortization $ 3,770 $ 2,298 64.1% Income Before Interest and Taxes $ 980 $ 377 Assets $78,188 $30,117 ConsTruction Expenditures $19,818 $ 9,369 Employees 400 284 40.8% Basic Subscribers 116,510 94,212 23.7% Premium Subscribers 55,760 34,585 61.2% excess of 100% Centel brings a wide variety of satellite programming to condominium and apart- ment residents, as well as cable TV customers in 6 states. Jer~,,ed The activities of Centel Video Services during 1981 were concentrated in three major areas: cable tele- vision; master amenna services; and a new venture being pioneered by Centel named Videopath--a microwave network to deliver programming and advertising to and from Chicago-area cable tele- vision systems. Cable Television Expansion Cable television operations continued to expand rapidly through acquisitions, franchising activities and marketing programs which stimulated internal growth. In addition, 822 miles of new and acquired plant were added to extend systems past more homes, a 49 percent increase from 1980. Franchise Activity Franchising activity has been concentrated in suburban Chicago, on the Rorida Gulf Coast and in Kentucky and Ohio. With the 30 franchises awarded during 1981, Centel now has cable TV franchises in 7.8 communities. At year-end, franchise applications were pending in 19 communities with a potential subscriber base of more than 150,000 homes. -Most new systems built by Centel are designed to accommodate a variety of two-way interactive services, such as electronic banking, home shopping and security. New Services Added . Locally-produced community programming was expanded by many Centel systems during the year. tn addition to local news, weather coverage and interview programs, several features were intro- duced on local origination channels. Much of this programming--particularly coverage of high school sports--has drawn support from local advertisers. The advertising potential is expected to be an important source of future revenues. 1~1981 Centel began experimenting with pay-per- view programs such as major sports events. In the past, these programs could only be seen by attending live events or via closed-circuit television coverage. Satellite & Master Antenna Programming Service One of Chicago's largest master antenna operators, Coreco Electronics serves more than 10,000 cus- tomers in multi-family residential highrise buildings on Chicago's Gold Coast lakefront, as well as large condominium and apartment complexes in the suburbs. Comco also began offering satellite pro- gramming services in 11 Chicago-area apartment and condominium complexes. Regional Cable Interconnect Network Designed to operateover microwave radio links with a two-way transmission capability, Videopath will make Chicago and its suburbs the nation's first major metropolitan area to routinely exchange cabie programs and other broadband communications. It is schedu led to begin operation in 1982. Programming, advertising and other communica- tions can be originated at the hub site (control cemer) or from any of the participating cable TV systems on the network and relayed by microwave radio link to the hub site for (~istribution along the network. The two-way switching capability permits trans- mission to a pre-selected number of head-end sites, distribution to all points along the netwerk, or discrete connections between as few as two points. The earth station-satellite links at the hub site are available for transmission to other facilities through- out the country. Videopath offers broad opportunities for local and regional program distribution, regional advertising, video conferencing, and data transmission along a metropolitan network expected to eventuall'y reach 2 mil ion homes. The versatility of the concept anticipates the addition of new communications applications and we expect to build comparable systems in other cities. 15 Electric Operations Highlights ; h'ousands of Dollars 1981 1980 Increasn ~'~'~ :levenues $138,701 $128,048 8.3% ~:~:~-Expenses $ 32,989 $ 29,325 12.5% FueICosts $ 36,329 $ 36,572 (0.7%) Purchased Power Costs $ 42,461 $ 34,571 22.8% ; Net Income $ 10,243 $ 9,215 11.2% Construction Expenditures $ 26,534 $ 20,889 27.0% Customers 131,868 130,519 1.0% ;ou~hern Colorado Power's frogramable Load Controfler. installed in 1981. s the first · to be insta! ed by a utility. "" tt monitors oower use at two substations, reports mai- ' functions and contros c~rcu t ,,.',, '~,breakers and disturbances dfecting power lines· Despite the combined effects of a cool summer and mild weather in the final quarter, net income for 198t showed a modest increase over 1980. Ki owatt-hour sales were 7.2 percent below 1980, but critical rate case decisions and close monitoring of expenses offset the decline in demand. Regulatory Matters In order to restore earnings to an acceptable level, the company stepped up efforts to obtain regulatory approval of higher rates to cover increased costs and improve the return on our investment in generating plant and transmission facilities. Final rate orders were received in three cases filed during the 1980-81 period. Together, they are expected to produce $t7.6 million in additional annual revenues of which $5.7 million was collected under bond in 1980, with $7.3 million of additional revenue reflected in 1981. An additional $4.6 million of the total will be reflected for the first time in 1982 revenues. A wholesale rate increase of $1.2 million went into effect, subject to refund, in February, 1982. After year-end, the Colorado operating unit requested increased rates to produce additional annual revenues of about $7.3 million. During 1981, several hearings held by the Kansas State Corporation Commission focused on various utility practices and policies required by the Public Utility Regulatory Policies Act of 1978 (PURPA). Rate-m aking standards, model bill format, utility load management and control programs, and co- generation and small power production were targets of Commission study. The Company maintains active partici patton in such forums to assure estab- lishment of equitable policies. Progress on New Plant Addition in Kansas Construction of the third coal-fired generating unit .at the Jeffrey Energy Center in Kansas is proceeding on schedule. Approximately 45 percent cam pleted, the 680-megawatt unit is scheduled to begin com- mercial .operation in June, 1983. Unit 3 will boost Jeffrey's total generating capacity to 2,040 mega- watts, making it the largest power generating complex inthe state. The Company's eight percent ownership interest in the Jeffrey Center significantly reduces our depen- dence on gas and oil fuels for base-load power generation. In addition, Centel has contracted through 1993 to purchase 65 megawatts of power ann ually from each of Jeffrey's first two operating units. A fourth 680-megawatt unit had been planned for service in 1986. However, an assessment of currently available generating capacity in Kansas, when coupled with lower growth rates, indicates that additional capacity is not needed at this time. Therefore, construction of the fourth unit has been deferred indefinitely. Preliminary Solar Energy Study Complete The feasibility of using solar energy to produce about 50 percent of the 60-megawatt capacity at the Company's Cimarron River generating plant near Liberal, Kansas was considered during 1981. Prelim- inary cost estimates of th e conceptual design study,. initiated and funded by the Department of Energy, indicate the project is not economically justifiable. 17 Telephone Network Service Areas Centel provides telephone service through its operating companies in 10 states. These operations comprise the fifth largest telephone system in the United States, serving 1,153,000 customer lines. Centel Business Systems Sales Offices Centel markets business communications systems in the midwest, south and south- west and through its operating telephone companies in ten states. Together these operations compdse 56 marketing and service locations in 20 states. oducts Group Sales Offices Cable Television Service Arenas· Acoustics Development Corporation (ADCO) designs and markets acoustical public telephone enclosures. It is a leader in its market and its products are in use in over 100 domestic airports and many major public buildings. Digitech Industries designs and markets test equipment for the data communica- tions market. They are recognized as a technical leader in the market. Diamond Communication Products manufactures fasteners and other pole line hardware used throughout the communications in dustry. Cable Television service is provided to ~¢~ over 115,000 customers in 6 states. In addition to existing cal~le television service, Centel has been awarded 30 new franchises. Contel is also actively seeking new franchises in approximately 19 other communities encompassing over 150,000 homes. Electric Service Areas Southern Colorado Power, headquartered irt Pueblo, Colorado and Western Power in 'Great Bend, Kansas provide electric service to 131,800 commercial and residential customers. Centei Supply Distribution Centers Centel Supply maintains warehouses in seven states. Telecommunications mate- rials and supplies are sold to affiliated teleph one, busi ness systems and cable television companies and to nonaffiliated telecommunications companies. Corporate Headquarters Centel's corporate headquarters in Chicago encompasses policy-making strategic planning and corporate admin- istrative functions. Toronto 18 Financial Matters and Operations 'Consc~lidated Operations The Company's earnings improved sub- ~stantially in 1981 despite weakened economic cond tions, increases in oper- ating expenses resulting from capital recovery improvements authorized by regulatory agencies and inflationary pressures. Earnings per share increased 12.4% in 1981 and 6.8% in 1980. Earnings for 1980 were restated to reflect an acquisition in 1981 and the effect of recognizing the costs of employee compensated absences when they are earned rather than when paid. Net income increased 13.7% in 1981 and 8.5% in 1980. Revenues and sales increased 14.0% to over $1 bil- lion in 1981 and 12.7% in 1980. Telephone Operations Telephone revenues increased 11.6% in 1981 and 8.1% in t980. The growth in revenues is attributable to increases in customer lines served, increases in local service rates and improvements in toll revenues. Increase in Net Investment in Millions $125 The number of customer lines served increased 3.9% in 1981, 4.4% in 1980 and 4.8% in 1979. The rate of increase in customer lines served diminished due to the generally adverse economic climate. Several of the telephone companies obtained approval from their respective state regulatory agencies to increase local service rates to produce additional annual revenues of $14.8 million in 1981, $1.1 million in 1980 and $1.0 million in 1979. 1981 revenues include $7.0 million of the amounts approved in 1@81, 1980 revenues include $753,000 of the amounts approved in 1980, and 1979 revenues include $464,000 of the amounts approved in 1979. An order was received January 8, 1982, authorizing additional annual revenues of $3.7 million. Rate requests totaling $4.3 million annu- ally were pending at year-end of which $1.5 million was being collected subject to refund. The Company's Florida operating unit made a one-time refund of $1.0 million in 1981 because it was earning a rate of return higher than authorized by the state regulatory agency. The effects of competition in the terminal equipment markets, predominately business systems and business and resi- Revenues and Sales in Millions $1200 1000 800 400 200 dential telephones, continue to erode the growth rate in local service revenues. This also resulted in reduced operating expenses and capital investment require- m ants for terminal equipment. Active selling of terminal equipment by the tele- phone companies hastens recovery of the investment and reduces the risks of changing technology. Revenues from terminal equipment rentals decreased 5.2% from 1980 due primarily to customer ownership. Revenues from network access lines, measured telephone usa~ge within local exchanges and serv~ ce connections increased 8:5% in 1981. Due in part to revenue recovery relating to expensing of service connection costs, service connection revenues increased by 7.1% from 1980, accelerating to nearly 17% during the last half of 1981 over the like period in 1980. Toll revenues increased t6.5% in 1981, 9.6% in 1980 and 18.1% in 1979. In April, 1981, the Federal Communications Com- mission approved increased interstate long distance rates. This rate increase, coupled with changes in the Bell System's operating expenses and invest- ment levels, increased the Company's toll revenues by about $9.0 million. Earnings and Dividends Paid per Common Share ;977 1978 1979 1980 1981 CommUnications 0 1977 i978 1979 1980 1981 0 Communications E,fectric Telephone '3.00 2.00 1.00 1977 1978 1979 1980 1981 0 Earnings Dividends 19 C~anges in toll settlement' agreements in several companies increased 1981 reve- nues by $2.0 million. Adjustments to estimates of prior years' toll revenues increased toll revenues $4.1 million in 1981, decreased toll revenues $472,000 in 1980 and increased toll revenues $2.0 million in 1979. Operating expenses increased due to general inflationary pressures, a greater volume of business and a change in cer- tain jurisdictions in accounting for costs related to service connections. Operating expenses included increases in wages of $7.9 million in 1981 and $6.7 million in 1980 largely resulting from wage adjust- ments under union contracts. These increases have been partially offset by increased productivity as illustrated by the continuing decrease in the number of employees per 10,000 customer lines served from 91.7 at December 31, 1979, to 82.8 at December 31, 1981. The accounting change for service con- nection costs is to comply with regula- tory agencies' rulings that these costs be expensed rather than treated as capital expenditures. Due to the change, 1981 expenses were increased by about $2.0 million, or $7.1 million annually. The 1981 effect includes an increase in ' operating expense, mainly maintenance, of $10.O million and a decrease in d epre- clarion expense of $8.0 million. These increases in expense have been sub- stantially recovered through increases in rates authorized by regulatory agencies. Requests in other jurisdictions to expense station connection costs, which will increase annual operating expenses by about $5.8 million, were approved in January, 1982. Because of growing competitive pres- sures, the Company continues to ask state regulatory agencies for higher depreciation rates to insure timely recovery of their capital investment. Regulatory agencies granted increases in depreciation rates, exclusive of [he effect of the change in accounting for service connection costs, to provide annual increases in de preciation expense of approximately $20.5 million in 1981, $700,000 in 1980 and $14.8 million in 1979. 1981 expenses include $13.6 mil- lion of the amounts granted in 1981, 1980 expenses include the $700,000 granted in 1980 and 1979 expenses include S12.6 million of the amount granted in 1979. Communications Operations Communications sales and raven ues continued to increase at an annual rate over 24% with a 24.5% increase in 1981 and a 24.2% increase in 1980. The ratio to consolidated revenues and sales in- creased to 24% in 1981 from 20% in 1979. Sales of business communications sys- tems increased 46.7% in 1981 to $112.1 million from $76.4 million in 1980 and $54.5 million in 1979. Continued manage- ment emphasis to expand in the busi- ness systems market is the major reason for this dramatic growth. Increased customer acceptance of ownership of business systems instead of leasing the systems from tel ephone companies and the introduction of more advanced terminal equipment have also added to the growth. Sales of communications products in- creased at a rate of about 15O/o in the past two years principally due to increased sales to unaffiliated telecommunications customers. Sa!es to affiliated telephone companies decreased 7.4% in 1981 and 5.7% in 1980 largely because of reduced requirements for terminal equipment. Cable television revenues increased to $16.3 million in 1981 from $8.5 million in 1980 and $2.7 million in 1979. The number of subscribers increased to 116,510 at the end of 1981 from 26,617 in 1979 due to the acquisition of cable tel evision companies and expansion of the subscriber base in new and existing areas. Premium service revenues increased to $5.1 million in 198t from $2.2 million in 1980 and $800,000 in 1979. Operating expenses generally increased because of the greater volume of busi- ness. Th 9 costs of expanding the. central- ized staff support groups, increased marketing efforts and expanding the cable( televisl'on operations had an increasing effect on operating expenses. Electric Operations - The rate of growth in Electric revenues slowed to 8.3% in 1981 from 18.6% in 1980. Growth in revehues is affected by customer usage, rate increases and recovery of energy costs through fuel adjustment clauses. Kil owatt-hours sold decreased 7.2% in 1981 partially due to the reduction of energy and demand requirements of a large wholesale custo- mer, increased 10. 8% in 1980 largely due to changes in weath er and decreased 2.7% in 1979 primarily due to conservation by customers. Rate increases and fuel adjustment clauses increased revenues over th e preceding year by $16,7 million in 1981, S7.9 million in 1980 and $2.4 million in 1979. In February, 1982, the Federal Energy Regulatory Commission authorized the Company to implement, subject to refund, higher rates which will produce additional annual revenues of $1.2 million. Increases in purchased power and fuel costs continue to affect electric operating~ expenses; however, these increases are ~-~ substantially recovered through fuel adjustments allowed by regulatory agencies. Operating expenses included increases in wages of $385,000 in 1981 and S380.000 in 1980 resulting from wage adjustments under union contracts and increases of $876,000 in 198t and $734,000 in t980 resulting from opera- tions of the Jeffrey Energy Center Unit No. 2, completed in mid 1980. The wage adjustments have been partially offset by increased productivity as illustrated by the decrease in the number of employees per 10,000 meters from 60.2 at the end of 1979 to 56.4, at Decamp)er 31, 1981. 2O Capital Resources and Liquidity .The major uses of the Company's capital resour,ces are for expansion and modern- ization of utility plant, communications property and equipment and working capital. While a growing percentage of capital assets is being deployed into higher growth communications-related businesses, the Company will continue to meet commitments to the telephone and electric utility customers. In 1982, the Corn pany expects to spend approximately $265.6 million for replace- ment, expansion and modernization, up 5.9% from 1981 capital expenditures of S250.7 million. Over 90% of the 1982 capital outlays are expected to be financed from internally generated funds. The major changes in the Company's financial position during 1981 were an improvement in the ratio of equity to debt and a reduction in cash and temporary cash investments. Common share- holders' investment increased to 41.4% of total capital'including notes payable at December 31, 1981, from 39.8% at the end of 1979. This trend recognizes the changing nature of the Company's business. Th ~ Company received $10.3 million in · .~¢i~, new equity capital during 1981 cbmpared ~_~; v¢ th $8 9 mi lion in 1980 and $8 3 mil- lion in 1979, principally from the issuance of common stock under the dividend reinvestment and employee stock plans. Retained earnings also increased $46.7 million in 1981, $37.9 million in 1980 and $37.5 million in 1979. discontinue issuing new shares to satisfy requirements of the above plans. Instead, it will make systematic purchases Of common stock in the open market. Purchases m any one year are expected to amount to less than 2% of the shares outstanding. Since the shares purchased will be reissued to the plans, the num- bar of shares outstanding wilt remain unchanged. Long-term debt borrowings totaled $64.7 million in 198t of which $30.2 million was used to replace maturing debt. Long-term borrowings amounted to $125.2 million in 1980 and $37.9 million in 1979. At year-end, the Company replaced most of its existing lines of credit with a ,$101 million revolving credit ,.,,,~.agreement with a group of eight banks. ~'Borrowings under the revolving credit agreement can be made through December 31, 1984. The first mortgage bonds of the Company and its principal subsidiaries are rated A to Aa by Moody's Investment Services and A to A+ by Standard & Poor's. Commercial paper of the Company and Central Telephone Company is rated P-1 by Moody's and A-1 by Standard & Poor's, the highest ratings attainable. Internally generated funds continue to provide the majority of financing for new capital investment to construct tele- phone, electric and cable television plant facilities. Funds from internal sources financed 88.8% of the 1981 construction program, compared with 87.5% in 1980 and 89.7% in 1979. Although inflation has adversely im- pacted operating and capital costs, the Company is achieving above-average returns on common shareholders' invest- ment. The Consolidated return on average common, shareholders' investment in 1981 increased to 17.9% from 17.2% in 1980 and 17.4% in 1979. While the per- centage of dividends declared relative to earnings available to common share- holders has remained fairly constant-- 55% in 1981 versus 58% in 1980 and 55% in 1979--consistent year-to-year gains in earnings have allowed successive increases in the dividend. Dividends paid in 1981 amounted to $2.10 per share, up from $2.00 in 1980 and $1.84 in 1979. In December, 1981, the Board of Directors raised the quarterly dividend to 55¢ per share, or an indicated annual rate of $2.20 per share in 1982. Impact of Inflation The Selected 1981 Financial Data Adjusted for Changing Prices included elsewhere in this report discusses the effects of inflation on the Company. II Year Ended December 31, 1981 1980 Central Telep hone & Utilities Corporation Consolidated Statements of Income Thousands of Dollars (Note 2) (Note Revenues and Sales Telephone $ 634,432 $568,683 $526,192 Communications Regulated Affiliates 59,871 64,672 68,55U Other 187,372 133,855 91,31 Electric 138,701 128.048 107,99[ $1,020,376 ' $895,25~ Total Revenues and Sales Expenses Operating Expenses $ 310,069 $263,405 $226,764 Cost of Products Sold 170,144 1-43;586 ' " 121,048 Maintenance 127,845 '106,171 100,87b 133,41{) 119,203 108,719' 46,584 44,265 39,24:~ Depreciation Taxes, other than income taxes . · $ 788,061 Total Expenses Operating Income . . , ' , $ 232,315 Other Income Allowance for Equity Funds Used During Construction $ 2,048 '$676,630 $596,648 $218;628 "$19~,40~ $ 1,249 '-": $' i,50~ Miscellaneous, net 9,640. 5,821 ..... 2,15~ Total other Income ' $ 11,688 $ 7,070, $ 3,66~ Income Before Interest Expense and Income Taxes. $ 244,003 $225,~98 , '. ' ', $201,074 Interest Expense _ Long-Term Debt $ 61,310 $ 54,033 $ 48,17b · Other 4,480 7,185 TOtal Interest Expense $ 65,790 $ 61,218 $ 52,49 Income Before IncomeTaxes $ 178,213 ' $164,480, ' "' $~481583 'Income Taxes State $ 5,915 $ 5,673 $ 4,96 Federal 67,776 66,877, , 58,85~ Total income Taxes $ 73,691 $ 72.550 $ 63,82b Net Income $ 104,522 $ 91,930 $ 84,75~ Preferred Stock Dividends Earnings Available for Common Shareholders Earnings Per Share 1,267 1,295 1,32~ $ 103,255' $ 90,635 $ 83,4~3z Pdmary $3.89 $3.46 $3.24 Fully Diluted $3.86 $3,43 $3.21 The accompanying Notes to Financial Statements are an integral part of these statements. 22 Central Telephone & Utilities Corporation .. Consotidrated Statements of Changes in Financial Position Thousands of Dollars Year Ended December 31, 1981 1980 1979 (Note 2) (Note 2) Sources of Funds . Funds Generated Internally Net lncome $104,522 $ 91,930 $ 84,758 Depreciation 133,419 119,203 108,719 Deferred Income Taxes and Investment Tax Credits. net 41,075 42,441 40,788 Allowance for Equity Funds Used During Construction (2,048) (1,249) . . (1~507). ,~'~" ~ Other 3,323 360 (1,197) --unds Provided from Operations $280,291 $252,685 $231,561 'Dividends Declared on Preferred Stock . .. (1,267) (1,295) (1,326) Common Stock (56,470) (52,705) (45,806) Net FUr~ds Generated Internally · Funds Obtained from OtherSources Common Stock Issuances ". _ $ 10,295 $ 8,902 $ 8,328 $222,554. $198.685 $184,429 Long-Term Debt Borrowings- 64,651 125,235 37,916' lncr, ease (Decrease,) in Notes Payable Total Funds Obtained from Other Sources Total Sc~urces of Funds r 112 (30,354) 25,737 $ 75,058 $103,783 $ 71,981 · ' $297,612 $302,468 '- $256,410 Uses of Funds Increase (Decrease) $(34,997) $ 31,163 $ (1,259) !~,~ .Cash and Temporary Cash Investments . . Accounts Receivable and Unbdled Revenue 18,711 18,101 22,389 Materials and Supplies and Product Inventories : ~'. 17,838 _ . - : [779)'. 17,833 Other Current Assets 5,887 3,775 6,400 Accounts Payable - 2,807 (15,756) (7,510) Accrued Taxes and Interest 5,367 (10,156) 1,098 Advance Billings and Customers' Deposits (1,711) (2,361) (1,284) Accrued Compensated Absences (3,302) (1.214) (1,076) Other Current Liabilities Net Increase in Working Capital (5,822) ' , '(16,529) , , (12,,532) 4,778 $ 6,244 $ 24,059 Additions to Plant, Property and Equipment 250,652 226,507 205,073 Allowance for Equity Funds Used Dudng Construction /~';~;'~ · (2,048) (1,249) (1,507) Net Amount Paid in Exchange for Telephone Properties ~: -~:-: -- 8,286 -- Acquisitions, net of working capital acquired 12,923 19,095 1'876 Convertible Secu riti es Exchanged for Corn mort Stock 1,554 1';,040 1,225 Retirements of Long-Term Debt and Preferred Stock 31,807 40,945 22,267 Other Uses (Sources) of Funds, net (2,054) 1,600 3,417 /~ Total Uses of Funds $297,612 $302.468 $256,410 The accompanying Notes to Financial Statements are an integral part of these statements. 23 Cerkral Telephone & Utilities Corporation Consolidated Balance Sheets I ] I ' I I Thousands of Dollar~ December 31, 1981 1980 Asset=, iNote Current Assets Cash S 1,684 $ 12,980 Temporary Cash investments 1,409 25,110 Accounts Receivable, net 106,030 89,187 Unbilled Revenue 24,59~ 22,726 Materials and Supplies, at average cost 25,248 21,444 Product Inventories 45,999 3 t ,965 Other . , 25,522 19,635 'Utility Plant, at cost ' S 230,486' $ 223,047 T~ephone $1,909,770 $1,785,525 Electric 320,296 294,874 $2,230,066 $21080,399 Less--Accumulated Depreciation 556,264 498,843 ...... $1,673,802 $~1,581,556 Communications ' ' ' ' ' ' -- Property and Equipment . $ 66.632 $ 37,936 Less--Accumulated Depreciation 10,951 6,159 S 55,681 $ 31,777 :Fran(~hise Costs and Other int, angibles, , 29,308 22.425 " $' 8~989 $ '~4,207 0therAssets ' ' S' 47,065 $ 40,20~ ~abH~ies and Shareholders, Investment $2,036,342' $1,899,01 ~ Current Liabilities- Long-Term Debt and Preferred Stockto be Retired Within One Year S 11,689 S 23,076 Notes Payable (Note 4) 1,266 1,154 Accounts Payable 62,995 65,802 Dividends Payable 15,123 13,992 . Accru ed, Taxes 25,316 31,335 Accrued Interest . 10,276 9,624 Advance Billings and Customers'~Deposits 18,196 16,485 Accrued Corn pensated Absences 14,021 10,719 Other ,, , 38,543 33,852 'Deferred Credits $ 197,425 ' , $ 20~',03R Deferred Income Taxes S 282,860 $ 256,495 Investment Tax Credits 94,800 80.903 Other 7,381 6,536 Long-Term Debt [Note 4) $ 385,041 $ 343,93-6 $ 801,~2~ $ 752,343 Preferred Stock (Note 8) Not Subject to Annual Redemption 16,456 $ 16,820 Subject to Annual Redemption . 28,951 30,512 $ 45,407 ~ '47,332 'CO~mon Sh,a.r,ehotders· inv,estment ' S. 606,643 $ 549,363,~.. $2,036,342 ~1,899,01~ The accompanying Notes to Financial Statements are an integral part of these balance sheets. Centr~[ Telephone & Utilities Corporation Consolidated Statements of Common Shareholders' Investment ~' -- nousar~ds of Dollars Balances it Dece'mber'31,1978, as previously reported Common Shares Outstanding 25,356,187 Additional Par Paid-In Retained Value Capital Earnings Total $63,390 $166,935 $229,107' $459,432 Effect of Acquisition Accounted for as a Pooling of Interests (Note 2) 189,998 475 450 ' 925 Accrual of Compensated Absences (Note 2) Balances at December 31,1978, as restated 25,546,185 -- -- (3,566) ,(~,566) $63,865 $167,385 $225,541 ' $456,791:~' Earnings Available for Common Shareholders Cash Divide nds Declared on Common Shares--S1.88 per share -- -- -- 83,432 ' 83,43? -- ' -- -- -(45,806) (45,'80R) Common Shares Issued at Indicated Average Per Share Prices-- Dividend Reinvestment Plan, $25.46 Employees' Stocl~ Plans, $26.12 73,600 184 1,690 199,970 500 4,723 Transactions of PooledCompanies, $4.21 3,334 9 (8) : .... 14 ..... 15 Pooling of Interests 49,997 125 (120) $18.88 64,894 party Other Balat~ce~"~t December 3:1, 1979 · EarningsAVaiiable for COmmon Shareholders Cash DiVidends Declared on Common Share's--S2.025 per share Common Shares Issued at Indicated Average Per Share Prices-- (2,698) (7) 25,935,282 $64,838 6 ~.~'' (126) 161 .-"-'= ~' (41)· $174,900 $263,026. - 90 - (52,705). Dividend Reinvestment Ptan~ $24.36 84,347 211 1,843 Employees' Stock Plans, $24.67 206,! 46 516 4;571. - -., ~- -- Transactions of Pooled Companies, $7.94 90,840 227 . 494 ~-'~.. ~-i_.~ - -- .-T 721 Conversions of Securities, $21.60 48,150. 120 920. · :~' --- ~tirement of Shares by Pooled-Company - _ - (300) '-- (300) ' ':-- " '- 67 :*"'~" -- '-:'" .... 67 .... ;i',' Balances'at,December 31, ~1980 26,364,765 $65,912 $300,956 $549,363" Esmings Available for Common Shareholders -' $182,495 -- -- -- 103,255 103,255 Cash Di~dends Declared on Common Shares--S2.125 pershare (56,470) (56,470) Common ShareslssuedatlndicatedAverage PerShare Prices-- Dividend Reinvestment Plan, $29.52 83,311 208 2,25~ -- 2,459 Employees' Stock Plans, $29.60 Conversions of Securities, Other - 212,248 '. - 531 5,751 : .~ , 66,976-:". 167 " i,387 . ' · ' 252 ,---(5.2) 26,727,300 $66,818 $192,136 $347,689 6,28, $606,642 Balances at December 31,1981 (Note 7) There are 40,000,000 shares of $2.50 par value common stock authorized of which 198,318 shares are reserved for conversions of a subsidiary's junior preferred stock, 59,588 shares are reserved for conversions of the Company's subordinated debentures and- : '~ 57,930 shares are reserved for issuance under an employee stock purchase program. The accompanying Notes to Financial Statements are an integral part of these, statements. 25 C~ntral Telephone & Utilities Corporation Consolidated Statements of Long-Term Debt Thousands of Dollars December 31, 1981 1980 ' ' (Note ~ Central Telephone & Utilities Corporation First Mortgage Bonds, due 1981 through 1989, 3% to 71/2% (average 5.32%) $ 18,498 $ 18,200 1990 through 1999, 41/2% to 8.10% (average 6.70%) 40,057 40,76g 2004 through 2007, 61/8% to 6.90% (average 6.50%) 11,681 11,624 Convertible Subordinated Debentures, due 1987, 4%% (convertible at $29.67) 1,768 2,95,9 Sinking Fund Notes, due 2002, 8.70% 30,000 30,000 2004, 111/4% 26,000 26,000 Sinking Fund Debentures, due 2005, 113/4% 40,000 40,000 .Other Notes, due 1981 to 1985, 91/2% to 9.60% ' 1990~ 151/2% 15,000 25,000 Commercial Paper (Note 4) 20,000 20,000 Total ' 33,215 (a~verage 9.49% and 9.44%) .... $214 5.~' $236,219 , Subsidiaries First M,)rtgage Bonds, due 1981 through 1989, 43/~% to 171/4% (average 7.77%) $ 64,463 $ 54,617 1994 through 1999, 2% to 103/4% (average 7.35%) 193,066 193,67 I 2000 through 2009, 7% to 123/8% (average 9.03%) 204,788 205,713 Sinki n Fund Debentures and Notes, due 1996 through 2000, 5% to 12%% (average 10.90%) 35,194 35,19 I Other'l~ otes, due 1981 through 2007, 2% to 15.20% (average 11.01%) 63,900 CommErcial Paper (Note 4) ' 14,325 Total (a Total Cz ,Less Ar ferage 8.65% and 8.06%) $575,736 ~nsolidated (average 8.88% and 8.44%) lounts Due Within One Year $811,955 10,129 21,516 Total L~ mg-Term Debt (average 8.89% and 8.46%) $801,826 $752,34,3 Maturities and Sinking Fund Requirements 70,11,~ ' '$559,3t0 '" $773,850 Year Ended December 31, 2% to 53/4% 6% to 7.95% 8% to 10% 10.20% to 171/4% Total 1982 /'*' $ 3,630 $ 951 $ 3,110 $ 2,438 $ 10,12,9 1983 11,079 6,279 11,507 2,851 31,716 1984 5,540 1,610 6,227 17,277 30,65,1 1985 5,240 1,797 21,223 4,182 32,442 ,1986. , 6,754 1,747 6,226 4,145 18,87;~ $ 32,243 $ 12,384 $ 48,293 ~ 30,893 $123,81,3 Due after 1986 73,940 140,032 301,483 172,687 688,14;, $203,580 $811,95b ~)utstanding at December 31, 1981' $106,183 $152,416 $349,776 The total average interest rates do not include the effect of the Corem ercial Paper interest rates. The accompanying Notes to Financial Statements are an integral part of these statements. !26 r ~tral Telephone & Utilities Corporation ~es. to Financial Statements '1: Summar~ of Accounting Policies ,~ Basis of consolidation. The financial statements include the -~counts of all subsidiaries. Ail significant intercompany items ~"" "~'/e been eliminated except the net income frOm sales to regu- ;d affiliates by Contel Communications Company. ; telePhone companies purchase materials for construction 'poses from Contel Communications.Company at pdces which .,~,,mpare favorably with those they could obtain individually from other suppliers. Such purchases are included as additions to .... an amount equal to the current income tax liability thus !eliminated is paid to the tele.,phone companies in proportion to their purchases. These payr~ents are added to the reserves for deferred income taxes and amortized over the approximate lives of the facilities in which the materials are used. [?~roduct inventories. Inventories of the communications group - telephone group merchandise held for resale are priced at ThOusands of Dollars 1981 rage Cost $23,343 t-in, First-out 17,531 1980 $16,541 10,022 t-in, First-out 5,125 5,402 $45,999 $31,965 If the first-in, first-out methodhad been used instead of the last- S, first-out methc~d, inventories would have been approximately :~_~..~273,000 and 5"1,374,000 greater than reported at December ; )81 and 1980, respectively.: c. ~epreciafi°n and maintenance..Depreciation is computed by .applying the straight-tine method to the monthly balances of all depreciable property. The average rates used were: - 1981 1980 1979 :,. .phone 7.01% .6.80% 6.88% Communications 9.64% 10.38% 9.81% ;n telephone and electdc properties are removed from ,ice, the original cost and cost Of removal .less salvage value charged to accumulated depreciation: When other properties sold, or otherwise disposed of, any resulting gain or loss is .,uded in the determination of income. Replacements, renewals and betterments of units of property are capitalized. Replace- ments of items not considered units of property and all repairs a~'-charged to maintenance expense. ~ owa~ce for funds used dudng construction and interest c~talized. Allowance for funds used during construction repre- sents the cost of funds used to finance the construction program of the telephone and electric entities and is capitalized at rates which are b~sed upon the cost of such funds for each entity. .The weighted average pre-tax rates were 12.6%, 11.0% and 9.8% ~?~.the total allowance was $4,669,000, $3,217,000 and ~' ~1,000 in 1981, 1~80 and 1979, respectively. Corresponding -~..ants of $2,620,000, $1,968,000 and $1,374,000 applicable to the debt c. omponent are classified as a reduction of interest on tong-term debt. In principle, regulatory agencies allow the ~.ffG.overy of such costs through annual provisiQns for deprecia- and allow a return on the Undepreciated balance. The cable television entities capitalized interest of $721,000 in 1981 applicable to amounts borrowed to finance the construction of cable plant. . e. Electric revenues and fuel used for electdc power generation. During 1981 and 1980, revenues were recorded based on metered customer usage. PriOr to 1980, revenues were recorded based on amounts billed to customers. This change did not have a significant effect on 1980 results. Increases in fuel costs are recovered through fuel adjustments allowed by regulatory authorities. Such increases are reflected in revenues when the costs are incurred except that in Colorado such increases are deferred and recognized in operating costs when the related revenues are recognized f. Telephone toll service revenues. In most states, revenues from long-distance toll service are determined through participation with connecting corn panies on the basis of estimates of current operating costs and investments in facilities to provide such service. Approximately $315,335,000, $260,376,000 and $233,392,000 of toll revenues in 1981, 1980 and 1979, respec- tively, were determined on this basis.. Several months following the close of a fiscal yearare customarily required to determine the final settlement of such reven, u~s, at which time any adjust- ments are recorded in the current period. g. Income recognition on sales of business communications systems. Income on contracts for the sale of business commu- nications systems is accounted for using the percentage-of- completion method of accounting for all major contracts. This method recognizes income based upo~ the proportion of labor costs of each contract actually incurred to the total estimated labor costs. h. Federal income taxes. All significant~ncome tax deferral methods available under the Internal Revenue Code are utilized including accelerated depreciation methods, shorter useful lives and the current deduction for tax purposes of the cost of removal of retired assets, certain taxes, payroll related expenses and certain costs of refinancing debt issues which are capitalized or deferred for financial reporting purposes.-Deferred income taxes are provided for all differences in timing of income and expense recognition for financial reporting and income tax purposes except where such deferred income taxes are not allowed by regulatory agencies as an expense for rate-making purposes. Investment tax credits are deferred when realized and amortized to income over the life of the property giving rise to the credits. The components of the provision for Federal income taxes are: Thousands of Dollars 1981 1980 1979 Payable Currently $27,946 $27,406 $19,507 Deferred 23,600 28,980 27,210 Investment Tax Credits Deferred 25,394 17,494 18,629 _ Amortized (9,164) (7,003) (6,488) Total $67,776 $66,877 $58,858 The provision for Federal income taxes before amortization of investment tax credits expressed as a percentage of income before such taxes was 44.7%, 46.5% and 45.5% for 1981, 1980 and t979, respectively. Central Telephone & Utilities Corporation Notes to Financial Statements (continued) /. 'Communications franchise costs and other intangibles. The costs of obtaining new cable television franchises are amortized over the lives of the franchises. Costs of unsuccessful attempts to obtain franchises are expensed when the franchises are denied. Other intangible costs, representing the excess of the purchase price over the fair market value of the net assets of acquired com parties, are amortized over 40 years. j. Earnings per share. Primary earnings per common share are. . ~omputed ~sing the'average shares outstan~ting p us shares iesuable under stock plans reduced by the shares which could be purchased with the assumed proceeds from such plans. Fully diluted earnings per share are computed by adjusting average shares oUtstanding to include shares which would have ::::' been issued if conversi°n rights on convertible securities had been exercised at the beginning of the year and by increasing earnings, available forcorrJi~-!on shareholders by the after-tax interest cost of the convertible debentures and by the dividends . paid. on the convertible Preferred stock .... 2; Acquisitiorr and Restatements During 1981, the Company issued 189,998 Common shares for the outstanding commor~.stock-of Troy Cable Communications, i~ lnc~ (Troy),'an'Ohio based ~abietelevision company. The financial '?!;~ statembn~s have. beer~ restated tO give effect to-this aCquisition which was accounted: for asa pooling of interests. Compensated: absences to be in compliance with Statement of .~ Fihancial Accounting Standards No. 43 which requires the recognition of the cost-ofemployee compensated absences when they are earned rather than when paid. Also in 1981, the ~ Company is presenUng ~J~ results of selling residential tele- phone equ[Pmentas a-comPOnent of Communications operating results~ These operations were previously presented as a com- ponent of telephone operating results in miscellaneous income, net. Data for periods prier to 1981 have been retroactively restated to reflect these changes. Data previously reported for the years ended December 31, 1980 and 1979, are restated as follows: Thousands of Dollars ~ 1980 1979 'Revenues'and Sales ' ' As Previously Reported $893,628 $792,647 Sales of Residential Telephone Equipment 1,100 1,386 '~,s Restated $895,258' $794,056 Net Income As Previously Reported $ 92,542 $ 85,321 Troy (38) (88) Compensated Absences (574) (475) AsRestated ' $ 91,930 $ 84,758 P~'imary Earnings Per Share As Reported $3.51 $3.28 As Restated $3.46 $3.24 3. Commitments and Contingencies Construction expenditures for 1982 are estimated at $265,575,000. Rents charged to operations aggregated $18,189,000, $14,026,000 and $12,874,000 in 1981, 1980 and 1979, respec~ tively. Commitments under, noncance able leases are not material to results of operations or financial position. A subsidiary of the Company has contracted' to purchase key telephone systems and equipment from a supplier amounting to a minimum of $10,000,000 through October.of 1982. Remaining commitments under this contract at December 31, 1981, are $9,000,000. Under a contract to purchase digital business communications equipment, the subsidiary is committed to pur~ chase $17,000,000 of such equipment in 1982. The Company has an 8% interest in the development and own~ ship of the Jeffrey Energy Center, a coal-fired generating plant:: Units one and two were placed in s~rvice-in July, 1978, and May 1980, respectively. Addi{ional expenditures for the third unit are estimated at $11,598,000, to be incurred over the next two year~; Odginal plans to construct a fourth unit have been deferred. :-~ indefinitely. The Company has contracted to purchase power from each of the first two units until 1993. Minimum charges:- ~ under the contracts are approximately $11,500,000 per year,: Total costs incurred under these contractswere S21,31 6;000;~.~. $15,871,000 and $9,453,000 in 1981, 1980 and 1979. respectivelY'. The Company has contracted to purchase all power require;~ ments for its Colorado service area in excess of its present erating capacity in that state until 1994. Purchases under contract were $19,865,000, $16,416,000 and $13,691,000in t9~ 1980 and 1979, respectively. --., :~ '~ In a case against Illinois Bell Telephone Company, ~ e Court of Appeals, in an opinion dated March 28,1981, reverse~;.,.~ the finding of the Cook County Circuit Court that interstate t0il~; revenue is subject tothe state messages tax. On June 1t 198~ the Illinois Supreme Court agreed to hear an appeal of the Court of Appeals decision. If the circuit court decision is ultimately~'~' sustained, final settlement of the matter for periods through. ':~:i~! December 31, 1981, could reduce net income by aboQt $3;500,000 ($.13 pershare). ': --' In 1979, MCI Communications Corporation filed an antit~g{ against the Company, other major independent telephone ~ panies and the Bell System foralleged monopolization of the!i~ market for i ntercity telecommunications services. · .... ;.~:!;~ The Company cannot predict the ultimate outcome of the abti~s~ described in the two preceding paragraphs, but will not have a material effect on financial position. .~ -'~ In 1973, prior to its acquisition by the Company, phone Company of Texas, in cooperation with an unaffiliated ~ estate developer, filed an antitrust suil refusal of Southwestern Bell Telephone Company to provide~;?~: connecting lines. On November 2 1981 Central Tetephone.:?~I::' Company of Texas entered into a ~ettle~ent with Southweste~ Bell, the effect Of which is immaterial to financial positi°n results of operations of the Company. 28. 4. NoteS~Payable and Long'Term Debt '~hort-term borrowings are in the form. of commercial paper or otes to banks with which lines of credit have been arranged. ,ne lines of credit are maintained by the payment of fees and/or with cash balances that are expressed as percentages of the .~es. Following is a summary of information regarding short-term :?-'~rrow~ngs: ' - . 'housands of Dollars 1981 1980 1979 )utstanding at End of Year $ 1,266 $ 1,154 $31,533 .~aily Average Borrowings '$ 12,958 $22,933 $19,881 Maximum Amount Outstanding ~. During the Year - -$ 48,806 $59,905 $50,508 ./'~"~.~es of:Credit at End of Year $ 6,500 $63,500 $54,750 ,volving Credit $101,000 $ -- $ -- -Cash Balance Requirements at ' - End of Year -~- $ 100 $ 1,020 $ 930 16.4% 12.1% 13.8% For'the Year 15.5% 13.4% ' 12.6% $t01,000,000 in the aggregate wi_th the option to convert the bor- -~ ..... Towings to long-term loans. The agreement replaces substantially I of the companies' lines.of credit and calls for a commitment e of .375% applied to the unused commitm ant. Commercial ~per of $47,54(3,000 outstanding at December 31, 1981, is assified as long-term debt reflecting the Company's intent to ~: ~;Onvert the commercial paper to'long-term loans. ~bstantiatly ali.of the utility plant is Subject to liens of mortgage '-: ~dentures securing long-term debt. =ension Plans' r'' : : : : .....e company and its Subsidiaries have pension plans for sub- .~'. stantiallyatl employees. Pension costs were $10,982,000, . . ~' $10,243,000 and $9,058,000 in 1981, 1980 and 1979, respectively. :.': COsts are funded currently including the amortization of unfunded . ,w~'~ service costs over 30 years. anges in actuarial assumptions with respect to expected · salary increases and rates of return on plan assets were approved - :effective January 1,1981, to reflect more current assumptions of ~.'~ f~uture events and conditions. These changes decreased 1981 ;nsion expense by approximately $1,800,000. ~e assets available for plan benefits for the Company's defined ;nefit plans at January1,1981, the date bf the latest actuarial ' udy, Were $111,981,000. The actuarial present values of accu- -.,,~ulated plan benefits at that date were as follows: For Determining /~-~"- "' '- As Required Annual !usan~ls of Dollars by FASB Pension Costs vested . $40,819 $110,922 'Nonvested 4,658 14,961 $45,477 $125,88,3 The determination of the actuarial present values of accumulated plan benefits, as required by the Financial Accounting Standards Board (FASB), assumes no future wage increases and anticipates that 10.4% will be earned on plan assets. The actuarial present value of accumulated plan benefits used to determine annual pension costs anticipates that pension benefits will be increased because of future wage increases and that 6.25% Will be earned on plan assets. -~ -. . ,: - 6. Jeffrey Energy Center ' Information concerning the Company's 8% ownership interest in the Jeffrey Energy Center included in the financial statements is as follows:· . ..... ' ';~i' ::i!i .:~- Thousands of Dollars 1981, 1980 Plant in Service " $48,412 ' r $48,332 Accumulated Depreciation $ 4,274 $ 2,549 Plant Under Construction . ' '. $21,862 ,:-: $8,752 Each participant must provide its own financing:The Company's share of the direct expenses of operating the plant is included in the corresponding expenses in the consolidated statements of income. Long-term commitments relating to this plant are -Provisions in the COmpany's note agreements, indentures, Adicles of Incorporation and the revolving credit agreement discussed in Note 4, restrict the payment of dividends. Under the most restrictive of these provisions, dividends are limited to net income accumulated since December 31,1978, plus $25,000,000, less amounts paid for purchases of shares of capital stock of the Company. Under this restriction, $145,495,000 of the Company's retained earnings at December 3!, 1981, are available for the payment of dividends. Approximately $70j?.79,000 of undistrib- uted retained earnings of subsidiaries included in retained earnings at December 31, 1981, are, because of vadous limita- tions, restricted against use to pay cash dividends on common stock:of said.subsidiaries. ..~. 8. Preferred Stock - Information with respect to preferred stock is not significant to consolidated financial position. L~ .. ' 9. Business Segment Information - ~ : :-:" ~:. ' ' Revenues and sales, net operating revenues, idaC'tillable ass~S~' depreciation expense and construction expenditures of the Company's business Segments are set forth in the Business Segment Information included elsewhere in this report. Data for -- periods prior to 1981 have been reclassified to present corporate and elimination amounts separatelY from the results of opera- tions of the individual operating segments and the results of selling residential telephone equipment as part of the Com- munications operating results. Corporate amounts include interest expense, interest income and related income tax effects. Ce?tral Telephone & Utilities Corporation Notes to Financial Statements (concluded) 10. Interim Financial Data (Unaudited) -Certain consolidated financial data for the four quarters of 1981 and 1980 are as follows: December 31, September 30, June 30, Ma'rch ~ Thousands of Dollars 1981 1980 1981 1980 1981 1980 1981 198(~ · Revenues and Sales , Telephone $162,475 $147,684 $166,755 $142,680 $154,494 $141,492 $150,70~ $136,827 Communications 69,603 52,449 63,369 52,068 63,570 53,977 50,701 40,033 Electric 35,749 32,634 36,473 41,003 34,620 26,497. 31,859 27,91,1 $267,827 $232,767 $266,597 $235,751 $252,684 $221,966 $233,268 $204,77,1 Total Operating Income $ 56,902 $ 56,435 $ 62,128 $ 57,284 $ 59,773 $ 54,875 $ 53,512 $ 50,03,1 Netlncome $ 26,946 $ 23,112 $ 28,167 $ 23,504 $ 26,400 $ 23,947 $ 23,009 $ 21,367 Earnings Available For Common Sharehol ders $ 26,630 $ 22,789 $ 27,850 $ 23,179 $ 26,083 $ 23,625 $ 22,692 $ 21,04;, Earnings per Share Primary $1.00 $ .87 $1.05 $ .88 $ .99 $ .90 $ .86 $ .81 Fully Diluted $ .99 $ .86 $1.04 $ .88 $ .98 $ .90 $ .85 $ 18~ The above amounts have been restated for the accrual of compensated absences and the inclusion in Revenues and Sales of the results of selling residential telephone equipment. The effect of the restatements on each quarter is insignificant. Consolidated Selected Financial Data Thousands of Dollars I [ I Revenues and Sales Net Income 1981 1980 1979 1978 19;,/ $1,020,376 $ 895,258 $ 794,056 $ 677,810 - $ 588,31',,'l $ 104,522 $ 91,930 $ 84,758 $ 75,500 $ 65, t~-~.~ $ 3.89 $ 2.~.~:-i Primary Earnings per Share $ 3.46 $ 3.24 $ 2.94 Total Assets $2,036,342 $1,899,013 $1,702,676 $1,553,773 $1,41 9,69~ Long-Term Debt and Preferred Stock Subject toAnnualRedemption $ 842,466 $ 805,931 $ 710,610 $ 695,384 $ 670;96~'~ Cash Dividends Declared per Common Share $ 2.125 $ 2.025 $ 1.88 $ 1.72 $ 1.50 30¸ =~sponsibility For Financial Statements · . Company is responsible for the financial statements included · ai~ report which the Company believes have been prepared in conformity with generally accepted accounting princi pies. _Some of the amounts included in the financial statements are ~fimates baSed on currently available information and judgment r example, toll service revenues are determined using esti- ~tes of current operating costs and investments in facilities orovide such service. The Company maintains a system of 9rnal accounting policies, procedures and controls, supported . an internal audit program, designed to provide reasonable, but not absolute, assurance that assets are safeguarded from toss or unauthorized use and that transactions are properly .~orded. The system includes, among other things, the training development of personnel, an organizational structure which , .nits delegation of authofityand responsibilities, an organized approach to documenting and evaluating the system of internal controls, written standards b'f conduct and the application.of uniform reporting standards and procedures. The Company believes its accounting controls provide rea- ~aable assurance that errors and irregularities that could be erial to.results of operat OhS or financial position are pre- ted or would be detected within a timely period by employees in the normal course of performing their assigned responsibilities. However, it must be recognized that errors Or irregularities may ~-~e~,ertheless occur. '~ Board of Directors pursues its responsibility for the financial :ements through its Audit Committee, which is composed ;ly of outside directors. The Audit committee meets period- ly with management, internal auditors and indePendent ,.public accou~ants to review_matters relating to financial reporting, internal accounting controls and auditing. The Audit i"~ommittee also meets separately with the independent public ~. ~'%untants to erasure their free access to the Audit Committee. Report of Independent Public Accountants To the Shareholder's of Central Telephone & Utilities Corporation: We have examined the consolidated-balance sheets and state- ments of long-term debt of Central Telephone & Utilities - Corporation (a Kansas corporation) and subsidiaries as of December 31, 1981 and 1980, and the related consolidated state- ments of income, common shareholders' investment and changes in financial position for each of the three years in the period ended December 31, 1981. Our examinations were made. in accordance with generally accepted auditing standards and, accordi~ngly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of the companies as of December 31, 1981 and 1980, and the results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1981, in conformity with generally accepted accounting principles applied on a consistent basis after giving retroactive effect tothe change (with which we concur) in the math od of accoUnting for compe, nsated absences, as explained in Note 2 of Notes to Financial Statements. Chicago, Illinois, February 12, 1982. Arthur Andersen & Co. 31 Central TelephOne & Utilities C(~rporation Selected 1981 Financial Data Adjusted for Changing Prices (Unaudited) Thousands of Dollars As reported Constant Erosion of Common Shareholde~cause of Changing Price"~--'- Cost in excess of the original cost of utility plant not recoverable in rates as depreciation- Reportable as an additional provision for depreciation -- . ~ : ·: Reportable as a reduction to net recoverable cost $103,2~5 $t03,25{ $103,435 $ 79,52~ ExceSSpdce CheXtges°f increase($164,307,000)~ -in the general level of prices ($215,565,000) over specific Total not specifically recoverable in rates Effect of inflation on communications operations of debt and preferred stock financing 36,1~09 8,764 $139,544 $139,544 4,435 3,873 Common Shareholders, ~ . '$ 45,973 $ 45,411 ,incl.uding the effect of debt and preferred stock financing2 .. . . $ 57,282 $ 57,844 plant, property and equipment, net of accumulated depreciation, was $2,710,698,000, and e through depreciation was $1,729,483,000. The current cost and historical cost of product $49,322,000 and $45,999,000, respectively. for common sharehorl ders would be ($4,615,000) on a constant dollar basis and $20,180,000 on a current table as an additional provision for depreciation and effect of increased prices on cost of products reported amount of such earnings as permitted by Statement of Financial Accounting Standards No. ~'an~ia! stater~ents, based on historica~ ~rices during timeS'of continuing , prepared in aCcordance Statement of FirmncialAccounting Standards No. 33, ' i in;the general price level (con- '" specific prices (current cost). as a~estimate of the effect of inflation rather ~ a precise measure-since both methods involve the use of Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power as measured by the Consumer Price Index ~or all Urban Consumers. The current cost .of plant, prOPerty and equipment and product inventories reflects :'prices from th~ During 1981, the Company was adversely affected by the com-:~.' bined effects of inflation and historical cost rate-making. Current ~te-making practices effectively limit recovery of the Company's ~nvestment in telephone and electric facilities to the historical cost of those facilities. However, the Company's obligations to ~ holders of debt and preferred stock are also limited to historical.? cost. As a result, the impact of inflation on the cost of telephone and electric facilities has been substantially reduced by the effect of inflation on the Company's debt and preferred stock. The net effect of inflation is borne by the Company's common shareholders. Therefore, the Company has included the reduc- tion to net recoverable cost and the effect of debt and preferred stock financing: in the determination of earningsavailabie for common shareholders. . '. . ;- , pUr~ by applying Since only historical Costs are deductible for income'tax .;.;~.,, to the indexed amounts, poses, income tax expense has not been adjusted for the effects -'The Current cost Of telenorma'and eleCtric plant was determined of inflation. As a result, the effective tax rate before amortization ~ng the Handy-Whitman Index 3t cost amounts differ :hat specific Prices ..... ' nore°r-tess rapidly than the general rate of inflation. Current cOSt information is based on the Costs to replace existing facilitieS With identical capacity and technology. at year-end. Cost of products Sold under current cost isthe estimated cost to replace inven- tories at the time of sale. Cost of products sold for inventories under the LIFO inventory method approximate current cost; therefore, no adjustment.was made. Fuel inventories and the cost of fuel used in power generation have not been restated from historical cost ahd are not included in cost of products sold The operation Of fuel adjustment clauses limits the recovery to historical fuel cost. ~ . of investment tax credits increased from 44.7% on a historical ' cost basis to 60.9% on a constant dollar basis and 60 6% on-a. . current, cost basis. ' .. -~.':i' -~. The Company believes that rate-making practices and income tax policies should more explicitly recognize the serious eroding effects of inflation, The regulatory process, based solely on historical costs, is no longer an appropriate basis for determin- ing the fairness and reas(~nableness ~f U[itity rates. It produces cash flows which are inadequate tO replace utility plant or to preserve the purchasing power of the capital invested. Current rate-making practices and income tax policies must be modified if utilities are to have a fair chance to recover the economic cost of their productive facilities and to earn a fair return on their investment in these facilities. "-ntral Telephone & Utilities Corporation Year Comparison of Selected Supplementary Data Adjusted for the Effects of Changing Prices ,,~naudite~l) Dollars :venues and Sales Year· Ended December 31, 1981 1980 1979 1978 ~ 1977" storical $1,020,376 $895,258 $794,056 $677,810 $588,319 adjusted* 1,020,376 988,122 994,944 944,909 882,965 Earnings Available for Common Shareholders Historical $ 103,255 $ 90,635 f~. adjuSted for the net erosion of common shareholders' investment*i-- $ 83,432 57,282 34,895 44,090 ;onstant dollar ." -'Current cost 57,844 36,534 44,400 · F--~rnings Per Share - ' ";' ~ -" ' $ 3.89 :ommon shareholders' im/estment*~-- ~-~wnmon Shareholders' Investment (Net Assets), at year-end ~oric~ $ 606,643 $549,363 $502,764 instantdolla~ 7~ 599,916 588,608 602,324~-:, trrent cost* ~. 602,421 590,552 602,593 Changes* $ 51,258 $ 14,294 $ 72,028- '~ act of Debt and Preferred Stock Financing* ·: Return on Average Common Shareholders' Investment :.:" Historical ~- $ 98,006 $138,167 $166,51 17.9% 17.2% 17.4%>-: . - ~' :~S adjustea for the net erosion of common shareholders' investment-- 9.9. · 6.6 -Historical ...... ~, adjusted* 2.111 2.212 2.33 $ : 1.72-:' $ 1.50 .-: ~rket Price Per Common Share, at ye~r-end storical · " $ 33.125 $ 24.50 $ 25.375 $ 23.875 $ 25.00 As adjusted* . 32.054 25.83 30.066 " 32.053 36.59 /A~erage Consumer Price Index 272.4 246.8 217.4 195.4 181.~ ted in Average 1981 Dollars ~Adjusted 1981 earnings available for common shareholders would be ($4,615,000) (($.17) per share) on a constant dollar basis and $20,180,000 ($.76 per share) on a current cost basis if only the amounts reportable as additional provision for depreciation and effect of increased prices on cost of products sold were deducted from the reported amount of such earnings as permitted by Statement.of Financial Accounting Standards No. 33. Corresponding amounts for 1980 and 1979, stated in average 1981 dollars, would be $10,218,000 ($.39 per share) and $24,457,000 ($.95 per share) on a constant dollar basis and $30,240,000 ($1.15 per share) /'~d $45,716,000, ($.1.77 per share) on'a current cost basis, respectively. 33 C~mtral Telephone & Utilities Corporation Business Segment Information. I II I III I . · Thousands of Dollars 1981 t980 1979 1978 1977 Telephone ~ Revenues Local Service $ 267,453 $ 254,097 $ 241,087 $ 220,345 $ 204,76R Toll Service 334,319 287,046 261,862 221,804 190,794 Miscellaneous 32,660 27,540 23,243 19,236 16,86,3. Total Revenues $ 634,432 $ 568,683 $ 526,192 $ 461,385 $' 412,425 '~:xpenses ~ ' ' Operating Expenses $ 166,337 $ 145,240 ' $ 130,816 $ 113,427 $-102,014 Maintenance 119,689 99,493 95,157 79,177 70,357 Depreciation 119,119 107,574 99,449 79,711 70,664 ~otafExpenses ' ' $ 405',:1~5 $ 352,307 $ 325,422 $ 272,3~5 ' $ 243,03,~ Net Operating Revenues ..... $ 229,287 $ ' 216,376 $ 200,770 $ 189,070 S'169,~90 ' Taxes 101,625 99,138 89~912 90,015 81,131 Net Operating ln~(~me ' ' $ 127,662 $ 1171238' '$'110,8'58 $ 99.055 .... $ 88,259 Other Income - 3,037 : 2,064 914 .... ~' 2,334 -' 1,727 Inc, om,e Deductions 37,759 38;409 38;368 37.280 ' ::' 33,409 ~,etlncome ' $ 92,940 ~ 80,893' $ '73,404 $' 64.109 "$' '56,577 ConstructionE~3enditures ~ 194,413'-, $ 192,278 $ 178,987 $ 176;751 ' $ 168,688 Identifiable Assets $1,571,474 $1,483,818 $1,393.476 $1,293,688 $I ,198,209 ' Customer Lines Served 1,153,448 1,110,026 1,063;254 · 1,014,779 962,39R Communications Sales .... - .... .~ ...... .,. .... .:.~ ~? ~.,, Communications Products $ 59,871 $ 64,672 $ 68,550 $ 67,707 To Regulated Affiliates To Other Customers 79,660 56,308 35;780 ' 21,682 17,633 Business Communications Systems 112,081 76,407 54,537 24,894 14,350 Cable Television Revenues 16,262 8,457 2,661 1,486 1,033 Eliminations (20,631) (7,317) (1,661) -- Total $ 247,243 $ 198,527 $ 159,867 $ 115,769 $ 88,172 income Before Interest and Taxes "" ' $ . ' 5,48R Communications Products Business Comm unications~Systems $ 16,364 $ 14,674 10,160 6,972 4,728 1,726 Cable Tel evision Operations " ' ' 4,750 . 2,675 585 465 Depreciation and Amortization (3,770) (2.298) (3,001) - (2,407) (477) · .~ (358) - ': (253) (1;062) - (417) . .:': - (4) Group Expenses, net Ehmmabons (683) (241) -- .~ -- ncome Before Interest andTaxes $ 23,820 $ 19,375 $ 15,268 $ 10,81'4 $ 6,754 Interest Expense 3,199 1,12R Income Taxes 9,869 :; .;-~ . 2,587 Net Income $ 10,752 $ 8,779 $ 7,424 $ 5,460 $ 3,038 ConstrUction Expenditures $ 24,825 $ 12,898 $ 6,641 $ 1,784 '$ 1,18R Depreciation Expense $ 4,890 $ 2,849 $ 1,074 $ 749 $ 58(3 Identifiable Assets $ 209,884 $ 150,118 $ 88,337 $ 51,570 $ 34,355 ~able Television Customers 116,510 94,212 26,617 12,163 9,861 1,825 ,,., 1,291 6,019" J ' .... ~4,063 34 Thousands of Dollars 1981 1980 1979 1978 19// Residential and Rural $ 40,756 $ 38,940 $ 31,930 $ 29,490 $ 26,67? Commercial and Industrial 65,793 58,586 50,924 45,341 41,21 ~ Other 32,152 30,522 25,143 25,825 19,83;_, Total Revenues $ 138,701 $ 128,048 $ 10~,997 $ 100,656 $ 87,72;; Costs 78,790 43~31 / 71,143 60,216 54,067 32;989 26,473 22,849 20,71~ Revenue $ $ 27,580 $ 21,308 $' ~3,740 $ 23,69~i . , 11,361 11,702 9,331 11,585 11;911' ncome $ 15,561 $ 15,878 $ 11,977 $ 12,155 $ 11,78d 934 ~nstruction Expenditures 451 !, 389 1,156 6,252 7,114 6,584 4,309 $ 10,243 $ 9,215 $ 6,782 $ 9,002 '$ $ 26,534 $ 20,889 $ 18,222 $ 26,234 $ $ 9,410 $ 8,780 $ 8,196 -J $ 6,893 $ 198,189 $ r __'.~ ~ilowatt Hours Sold (in thousands) 2,802,867 3,020,478 2,725,914 2,801,581 ustomers 131,868 130,519 129,169 126,786 orpo,-ate and Eliminations 1,58(~ 4, I1 I 9,25;1 22,4/? 6,20,'~ 178,62;'I 2,588,610 123~89;;' ;"0 · .~ nstruct~on E~penditures ! (9,413) $ (6,957) $ (2,852) $ (3,071) $ 16~958 - $ '38,239 $ 9,277 $ 1~,326 $ 4,880 $ 442 $ 1,223 $ 424 $ (3,71 ,' ~) 8,50,' ~ 41 ,' ', 35 C~qtral Telephone & Utilities Corporation Investor Information Stock Information Central Telephone & Utilities' common stock is listed on the New York and Midwest stock exchanges under the symbol "CTU" and may be traded on any U.S. exchange through the Intermarket Trading System. It is usually quoted as "Centel" in daily news- paper stock table listings. Total trading volume increased to 9,977,400 shares during 1981, up 56% from ]980 and averaging 39,400 shares daily. Centel had 40,127 shareh ciders of record at year's end. As of January 31, 1982, there were 26,821,141 shares of common stock outstanding. Central. Tetephrone Company, whose common stock is 100% owned by the parent company, had 141,656 shares outstanding of a $2 convertible junior preferred issue. Traded in the over-the- counter market, each share is convertible to 1.4 shares of Centel's common stock. The ranges of clc sing s[ock prices and the dividends paid on · the common and convertible junior preferred issues for the past two years, by qu~ rters, are. shown in the tables below. Two series of Ce~ ~tel's voting preferred stock, $25 par value per share, are autsta~ Iding:~During the past two years, dividends of 30¢ per share we,e paid quarterly on the 4.8% series, which is held by six insur~ nce companies; dividends of 311/4¢ per share were paid quartel ly on the 5% series, which is publicly held but not actively trade, ~. 'Centet intends to continue paying dividends Subject to the restrictions discussed in Note 7 of the Notes to Financial State- ments included elsewhere in thisreport. In 1982 Centel will begin, systematic'purchases of its common stock in the open market to satisfy the requirements of various employee benefit and sharehol der dividend reinvestment plans. · Those shares have previously been odginai issue. Purchases in any one year'are expected to amount to less than 2% of the shares outstanding. Since the shares purchased will be reissued to the ptans, the number of shares outstanding will ~.. remain unchanged. Common Stock Quarter 4th/ 3rd 2nd I st '~981 High $35.75 '$32.875 $33.875 $27.375 Low 29.75 29.00 25.50 23.12,~ Dividends Paid. .525 .525 .525 .525 1980 High $25.375 $27.875 $25.875 $26.00 Low 21.875 23.50 22.25 21.25 Dividends Paid .50 .50 .50 .50 Central Telephone Company Convertible Junior Preferred Quarter 4th 3rd 2nd .. 1st _ 1981 High (Bid) $48.50 $44.00 $45100 $35.5~11~,i Low (Asked) 40.50 40.00 35.00 32.5L!~. ii Dividends Paid ,50 .50 .50 ,50 1980 High (Bid) $33.50 $37.00 $35.00 $34.50 Low (Asked) 31.50 34.50 32.50 31.50 Dividends Paid .50 .50 .50 .50 Centel Dividend Reinvestment Plan A dividend reinvestment plan has been available since 1974 to provide common shareholders a convenient way to increase investment in Centel. Participants may elect to apply all or a portion of their quarterly cash dividends to purchase additional shares. Shares may'also be purchased on a monthly basis through optional cash pay- ments, up to a total of S5,000 in any calendar quarter. There is no service charge or brokerage commission. Altogether, 6,710 shareholders were enroll ed in the Plan at the end of 1981, or nearly 17% of Centel's owners of record. A total of $2,459,000 of reinvested dividends and optional cash payments were applied to purchase 83,311 shares. The average cost was $29.52 per share. The Plan is open to shareholders on a continuing basis, A pro- spectus describing the Plan and enrollment information may be obtained by wdting Shareholder Services, or by calling toll-freE from outside Illinois, 800-323-2174, or, within Illinois (cOllect), 312-399-2500. Corporate Headquarters 5725 N. East River Road Chicago, Illinois 60631 Transfer Agents and Registrars. for the Common Stock The First National Bank of Chicago Morgan Guaranty.Trust Company of New York Transfer Agents for the Preferred Stocks Company--The First National Bank of Chicago Central Telephone Company--Harris Trust and Savings Bank, Chicago Trustees-Company First Mortgage Bonds Continental Illinois National Bank and Trust Company of Chicago Convertible Subordinated Debentures The Northern Trust Company, Chicago 3'6 Directors Robert P. Reuss Chairman and Chief Executive Officer DuBose Ausley Partner Ausley, McMullen, McGehee, Carothers & Proctor law firm Kenneth J. Douglas Chairman and Chief Executive Officer Dean Foods Company processor and distributor of diversified food products Wilson B. Garnett Executive Vice President Central Telephone & Utilities Robert E. R. Huntley President Washington and Lee University private undergraduate college and school of law George N. Hutton President G. N. Hutton Company real estate development firm Daniel J. Krumm President and Chief Executive Officer The Maytag Company manufacturer of residential and commercial appliances William G. Mitchell President Central Telephone & Utilities Frank E. Reed Senior Vice President Morgan Guaranty Trust Company of New York commercial bank specializing in services to corporate, govern- mental and financial institutions Russell T. Tutt President El Pomar Investment Company investment management firm President Broadmoor Hotel, Inc. convention and resort hotel Robert H. Wellington President and Chief Executive Officer Amsted Industries Incorporated manufacturer of products for industry, construction and railroads II Directors Emeritus John H. Burns, Jr. Wichita, Kansas Leonard D. Densmore Lincoln, Nebraska Erhart D. Edquist Sun City, Arizona Harry S. Petersen Pueblo, Colorado i I II Board Committees Executive Committee Russell T. Tutt, Chairman George N. Hutton, V. Chairman Robert E. R. Huntley William G. Mitchell Robert P. Reuss Audit Committee George N. Hutton, Chairman DuBose Ausley Kenneth J. Douglas Frank E. Reed Robert H. Wellington Executive Compensation Committee Daniel J. Krumm, Chairman George N. Hutton Russell T. Tutt I Finance Committee Robert P. Reuss, Chairman Kenneth J. Douglas William G. Mitchell Frank E. Reed Russell T. Tuft Pension and Benefits Committee Robert E. R. Huntley, Chairman Wilson B. Garnett Daniel J. Krumm William G. Mitchell Nominating Committee Russell T. Tutt, Chairman George N. Hutton, V. Chairman Robert E. R. Huntley Two new members were elected to the Board of Directors, effective January 1,1982. DuBose Ausley is a partner in the Tallahassee, Florida law firm of Ausley, McMullen, McGehee, Carothers and Proctor. Mr. Ausley also is chairman of Capital City First National Bank and City National Bank and a director of four other Florida banks and Vindale Corporation. He serves as chairman of the Board of Regents of the State University System of Florida. Mr. Ausley holds a B.S. degree from Washington and Lee University and a J.D. degree from the University of Florida College of Law. Robert H. Wellington is presi- dent and chief executive officer of Amsted Industries Incorporated, Chicago. Mr. Welling[on serves asa director of the L. E. Myers Company, Signode Corporation and Money Mart Assets, Inc. Mr. Wellington earned a B.S. degree from Northwestern University and holds M.S. and M.B.A. degrees from the University of Chicago. 37 Corporate Officers Chairman and Chief Executive Officer Robert P. Reuss President William G. Mitchell Executive Vice President Wilson B. Garnett Vice President and Chief Financial Officer Thomas A. Owens, Jr. Vice President and General Counsel Karl Berolzheimer Vice President and Controller Eugene H. Irminger Vice President and Secretary-Treasurer Kenneth L. Poh Iman Group Vice Presidents John P. Frazee Jr. William J. Laggett Samuel E. Leftwich James A. Lovell IIi We were saddened by the death of Clarence Ross, Centel~s former chairman and chief executive officer. Mr. Ross, who died May 14, 1981, provided leadership to the Company during a key transitional pedod. Mr. Ross first became asso- ciated with Centel in 1926 when he served with the legal firm that organized Central West Public Service Co., the first predecessor company of Centel. He was elected a director of the Company in 1943 and in 1968 was named president, chairman and chief executive officer. i Mr. Ross relinquished the posts of president and chief executive officer in 1972 but remained as chairman of the board until his retirement in 1977. He continued to serve Centel as a director until April, 1980. Mr. Ross' active pursuit of technological improvements, his sound financial judgment and his emphasis on strong management have had great impact on the operations of the Company. Vice Presidents Eugene P. Alfonsin Lyle B. Fenstermaker Kenneth A. Grobe Richard L. Middleton Richard M. Smith J. Stephen Vanderwoude i ~ 0 o -r LLI ~-oo o o~ m~ 'o ..o m ~>, ,.~ ._ .~_.c_ :~;:: ,., ~.~ 0-Ia ~ 0_,- .,-. .- ~t~§~ ,e o~-'-'F:o=_'~-o E_ ,--= .so ~.-°00 . c~ ~ · ..... ~ C ~ C 0 ~ ~ ~ _ ~'~ O~'= ~0 0 ~ ='~'- o ~o~ ~o~ ~ o°'°:°~--~'-~=~m =o-~ ;:eA ~ ~0~:-- ~ o ¢ ~ o ~ °'~°~ ~"' ~ ~ ~ '-- ~ 0 - Or. _n;.-_ation Heads Tc;c~hone and Electric Operations Vice Presidents--Staff Charles P. Lamm Edward A. McKee Robert W. Mills Controller Richard S. Vanderwoude Telephone Operations Group Vice President Samuel E. Leftwich State Vice Presidents Ishmael L. Grogan Florida George B. Kemple North Carolina Witford R. Mc~ r~ew Nevada William J. Nesbit iowa, Minnesota, Missouri Wayne K. Norris Illinois, Ohio James D. Virginia Lee Roy Whitney Texas Electric Operations State Vice Presidents Lyle B. Fenstermaker Kansas Kenneth A. Grobe Colorado Centei Communications Company Business Systems Group Vice President James A. Lovell Vice Presidents Larry L Huber A. Allan Kurtze Operating Divisions J. Thomas Brown--President Southeast Division John W. Hinkle--President Fisk Division Max E. Biller--Executive Vice President Midwest Division Communications Products Group Vice President William J. Laggett Vice President Carl E. Agee Centet Supply Company Presidents of Operating Cam parties Charles J. Gardella Acoustics Development Corporation George H. Lake Digitech industries. Inc. Robert W. Muir Diamond Communication Products, Inc. Video Services Group Vice President Je hn P. Frazee, Jr. Vice President--Special Assignment Robert W. Nichols Vice President--Centel Videopath, Inc. James J. Hudey Vice Presidents--Ceatel Cable Television Allan J. Adow Thomas G. Wehling 39 Contel Operations Telephone Operations Central Telephone Company Central Telephone Company-- Iowa Foil Dodge, Iowa Central. Telephone Company Minnesota Bumsville, Minnesota Central Telephone Company-- Nevada Las Vegas, Nevada Central Telephone Corn party-- North Carolina Hickory, North Carolina Central Telephone Company of Florida Tallahassee, Florida Central Telephone Company of Illinois Des Plaines, Illinois Central Telephone Company of Missouri Jefferson City, Missouri Central Telephone Company of Virginia Charlottesville, Virginia Merchants and Farmers Telephone Company Central Telephone Company of Texas Kilteen Texas Clifton Telephone Company Garrison Teiephone Co., Inc. Home Telephone Company Mid-Slate Telephone Company Mid-Texas Telephon.e Co. United Telephone Co., Inc Wise County Telephone Company~ Lorain Telephone Company Lorain. Ohio C~n~e; Co,~niimications Company B~,=;nc-f~ Systems Contel Business Systems-- Fisk Division Houston, Texas Contel Business Systems-- Midwest Division Telecommun ications Service Bureau, inc. Bensenville, iltinois Centel Business Systems-- Southeast Division Tampa, Florida Communications Products Acoustics Development Corporation Northbrook, Illinois Centel Supply Company Lincoln, Nebraska Digitech Industries, Inc. Digitech International, Inc. Ridgefieldr, Connecticut Diamond Communication Products, Inc. Garwood, New Jersey Wilco, Inc. Killeen, Texas Video Services Cable Communications Operations, Inc. · Lima. Ohio Centel Cable Television Company of Illinois Des Plaines. t~linois Centel Videopath, inc. Chicago, illinois Coreco Electronics, lnc Chicago, illinois Lone Star Video, Inc. Houston. Texas Northside Cablevision, Inc. Lak sland. Florida OVC Telecommunications, Inc. Richmond. Kentucky Polk Cabtevision, Inc. Lakeland, Florida Rantoul CATV Company RantouL ~llinois Th omasboro CATV Company Thomasboro. ttlino}s Troy Cable Communications, Inc. Troy. Ohio I III Electric Ope~ilons Central Telephone & Utilities Southern Colorado Power Pueblo, Colorado Western Power Great Bend. Kansas 40 As mentioned in our response to Question 2, Centel will be serving the proposed area from our headend located at the Village of Golf.* The major components of this system are as follows: Headend: Gardiner Modulators and Receivers, Phase Comm processors. Trunk & Distribution: Comscope .750-trunk .500-disi~ribution Dish: 5.6 Gardiner * See map for location of headend. Map of proposed area to be served. See attached. Centel will offer service to the residents of Boynton Leisureville based on a final agreement with the Board of Directors of their association. We feel that, this being a basically private system, this is a negotia%ed arrangement between the Homeowners and Centel. Centel, as of this date, is not proposing to serve any area other than what we have shown. Centel does not now have contracts with any of the public utilities serving the City of Boynton Beach. ' This is because the operating system that we have at Village of Golf was built using all private easements or those granted under our franchise with the Village of Golf. Centel has been in contact with Florida Power and Light Corporation regarding permits and pole attachment agreements to serve Boynton Leisure- ville, should we be awarded a franchise. o Centel Cable Television Company of Florida, its parent company, Centel, nor any of its subsidiaries have any agreements, written, oral, or otherwise with any other firm, partnership, corporation or individual in regard to this application or in the operation of it if we were to be awarded same. Centel is the sole owner and operator of all of its systems. Attached you will find a copy of Centel's Revolving Credit Agreement. This agreement is in force until December 31, 1984 in the amount of $63 million dollars. You will also note by Centel's annual report and 4th quarter report that the company has over $2 billion dollars in assets. Centel can assure you that we will have the funds to build, operate and maintain any cable operation in the City of Boynton Beach. CREDIT AGREEMENT TO the Banks named on the signature pages hereof Gentlemen: The undersigned, Central Telephone & Utilities Corporation, / a Kansas corporation ("Cmn=el") , Central-Telephone Company, a /'Delaware corporation ("Central Telephone") and Cmn=el Communications Company, a Delaware corporation ("Communications," and collectively with Cmn=m! and Central Telephone, the "Companies" and individually each and all of the foregoing, the "Company"), apply to you for your several commitments, subject to all the terms and conditions hereof and on the basis of the representations and warranties hereinafter se= forth, to make a revolving credit available to each of the Companies, with the option on the part of each of the Companies to convert the revolving credit into a term credit, all as more-fully hereinafter se= forth. Each of you is hereinafter referred to as "Bank", all of you are hereinafter referred to collectively as "Banks", and Harris Trust and Savings Bank in its capacity as agent hereunder is hereinafter referred to as Agent. !. THE CREDIT. 1.1. The Revolvin~ C~edi=. (a) The aggregate principal amount of Revolving Credit Loans made hereunder shall no= exceed $101,000,000 a= any one time outstanding (the "Revolving Credit Commitment") (or the amount to which the same is reduced pursuant to Section 2.3 hereof) and shall be available to each of the Companies by means of either Domestic Dollar Revolving Credit Loans or Eurodollar Revolving Credit Loans, and may be availed of by each of the Companies in their respective discretions from time to t~m-, be repaid and used again, during the period from the date hereof to and including December 31, 1984, at which time the Revolving Credit Commitment and the respective commitments of the Banks hereunder shall expire. Without limiting the foregoing, to the ex=mn= t_ha= any one or more of the Companies borrows hereunder, the outstanding amount of such borrowings shall reduce the availability of ~the-Revolving Credit Commitment with regard to borrowings which may be made thereafter by the other Companies. The respective maximum aggregate principal amoun= of Revolving Credit Loans at any one time outstanding which each Bank by its a6ceptance hereof severally agrees to make available to the Companies is set forth opposite the signature of such Bank hereto. In order to borrow any Revolving Credit Loan hereunder there must be outstanding to the borrowing Company, after giving effect to -. ~3) ' ~he proposed Revolving Credit Loan, Revolving Credit Loans in an amount not less than $5,000,000. If the requirement of the immediately preceding sen:ante is met then each Domestic Dollar Revolving Credit Loan borrowed, continued or effected by conversion by such borrowing Company shall be in an amount no: less than $1,000,000 or a whole multiple thereof, or the then unused portion of the Revolving Credit Commitment (as t_he same may be reduced pursuant to Section 2.3 hereof). In order to borrow, continue or effect by conversion any Eurodollar Revolving Credit Loan hereunder there must be outstanding to the borrowinq Company, after qiving effect to the proposed borrowing, continuation or conversion, Eurodollar.Revolving Credit Loans in an amount not less than $5,000,000. If the requirement of the immediately preceding sentence is met each Eurodollar .Revolving Credit Loan borrowed, continued or effected by conversion by such borrowing Company shall be in an amount not less than $1,000,000 or a whole multiple thereof, or the then unused portion of the Revolving Credit Commitment (as the same may be reduced pursuant to Section 2.3 hereof). Each Revolving Credit Loan hereunder shall be made from each Bank in proportion to its respective co~itment referred to above. (b) Each Bank's Domestic Dollar Revolving Credit Loans shall be evidenced by a Note of the borrowing Company, substantially in'the form (with appropriate insertions) attached hereto as Exhibit A, each such Note to be payable to the order of such Bank in the principal amount of its commitment and to be expressed to mature on December 31, 1984. Each Domestic Dollar Revolving Credit Loan shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) prior to t_he maturity t-hereof on the unpaid principal amount thereof from time to time outstanding at a rate per ann,~ equal to the greater of: (i) the Prime Rate from time to time in effect; (ii) the sum of (A) one-half of one pe, rc~nt (I/2 Of 1%) plus (B) the Average CD Rate from time to time in effect. Such interest shall be'payable quarter-annually on the last day of the months of March, June, September.~nd ~December in each year, ccnvnencing on the first of such dates occurring after the date hereof, and at ma=urity (whether by acceleration or otherwise). Each Bank shall record on its books or records or on a schedule to t_he-apprcpriate Note held by it-the-principal amount of each Domestic Dollar Revolving Credit-Loan to each of the Companies made or effected by conversion hereunder, together with all payments of principal and interest and the principal balances from time to time outstanding, provided that prior to transfer of any such Note all such amounts shall be recorded on the schedule to such Note. The record thereof, whether shown on such. books or records or the schedule to the Note, shall be rebuttably presumptive evidence of the same, provided, however, aha: the failure of such Bank to record any of the foregoing shall not limit or otherwise affec~ the obligation of the borrowing Company to repay all Domestic Doll~r Revolving Credit Loans made or effected by conversion hereunder together with accrued interest thereon. Exhibit Bi each such Note to be pay in the principal amount of its comm mature on December 31, 1984. Each Loan made hereunder shall bear inte a year of 360 days and actual days thereof on the unpaid principal amo outstanding at a rate per annum equ eighths of one percent (3/8%) (the Margin") plus (ii) the Adjusted LIB Interest Payment Date applicabie th by acceleration or otherwise). Each books or records or on a schedule t it the principal amount of each Eur made, continued or effected by cony Interest Period and interest rate a with all payments of principal and balances from,time to t~me outstand (c) Each Bank's Edrodo!!ar Revolving Credit Loans shall be evidenced by a Note of the borrowing Company substantially in the form (with appropriate insertions) attached hereto as able to the order of such Bank itment and to be expressed to Eurodollar Revolving Credit rest (computed on the basis of elapsed) prior to =h~ maturity unt thereof from time to t~, al to the sum of (i) three- "Eurodollar Revolving Credit OR Rate, payable on each Ireto and at maturity (whether Bank shall record on its the appropriate Note held by odol!ar Revolving Credit Loan ersion hereunder and the lplicable thereto, together .nterest and the principal lng, provided that prior to transfer of any suoh Note all sUch amounts shall be recorded on the schedule to such Note. The record thereof, whether shown on such books or records or the schedule to t_he Note, shall be rebuttably presumptive evidence of the same, provided, however, t~hat the fa%lure of such Bank to re~ord.any of the foregoing ~hall not limit or otherwise affect the obligation of the borrowing uompany to repay all Eurodollar RevOlving Credit Loans made, continued or effected by conversion hereunder together with accrued interest thereon. (d) The borrowing Compan any Eurodollar Revolving Credit Lot only in an aggregate amoun~ suffici of Section !.!(a) hereof) from any. subsequent Interest Period which sh for such current Interest Period, ( Day, in whole or in part (but only to meet the requirements of Section Dollar Revolving Credit Loan into a Loan, or (iii) to convert, on the P ~ may elect (i) to continue · , in whole or in par~ (but =_nt to meet the requirements .~rrent Interest Period into a all begin on t. he Payment Date ii) to convert, on any Banking in an aggregate amount sufficient 1.i (a) hereof) any Domestic Eurodollar Revolving Credit · yment Date applicable /~.t_he Companies' option, it being understood .may-not be outstanding at t_he same time. thereto, in whole or in par~ (but only in an amount sufficienu to meen the requirements of Section 1.!(a) hereof) any Eurodollar' Revolving Credit Loan into a Domestic Dollar Revolving Credit ~Loan. Absen= no=ice pursuant to Section 1.3 hereof of :he continuation ~of any Eurodollar Revolving Credit Loan or the Company's failure to specify the Interes= Period applicable thereto, such Eurodollar Revolving Credit Loan shall automatically be continued into a subsequent Interest Period of .one month. 1.2. The Term Credit. (a) Each of the Companies shall have the option on bu: not prior to 'December 31, 1984, to ....... convert all or any part (but, if in part, then as to each borrowing Company in an amount no= less than $2,000,000 or a whole multiple ~hereof) of the then outstanding Revolving Credit Loans and/or __ the unused portion of the Revolving Credit Commitmen= (as it may be reduced pursuant to Section 2.3) into Term Loans. i-k is specifically understood that the conversion of any portion of the Revolving Credit Commitment into a Term Loan by any of the Companies reduces to the e~ent of such conversion the availability of t~he other Companies to convert the Revolving Credit Commitment into a Term Loan.' Each Bank by its acceptance hereof severally agrees to make Term Loans to the Companies, available in one drawdown per Company, in an amount in proportion to its respective co~,~,~tment under t_he Revolving Credit Commitment but in no event in an amount greater than such commitment (as reduced pursuant to Section 2.3 hereof). The Term Loans shall be available by means of either Domestic Dollar Term Loans or Eurodollar Term Loans, at that such Term Loans (b) Each Bank's Term Loans shall be evidenced by a Note of the borrowing Company substantially in the form (with appropriate insertions) attached hereto as Exhibit C, dated as of t_he date of conversion and payable to the order of such Bank in ~"~ the principal amount of such Term Loan. The principal amount of t_he Term Loan shall be payable in four consecutive annual installments each in an amount equal' to 25% of the face amount of such Note, with t_he first installment due and payable one year after the date each Term Loan is made. ' (c) At any time a borrowing Company elects that a Term Loan be made available to it by means of a Domestic Dollar Term Loan, the same shall bear interes= (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from time to time outstanding at a rate per annum equal to ~he greater of: (i) the sum of (A) one-quarter of one percent (1/4 of 1%) plus (B) the Prime Rate from time to time in effec-.; or (ii) the sum of (A) three-quarters of one percent (3/4 of 1%) plus (B) the Average CD Rate from time to time in effect. Such interest shall be payabim quar~er-annuilly on the last day of the months of March, June, September and December in each year after ~the date of the Notes described in SectiOn 1.2 (b) hereof, commencing on March 31, 1985 and at maturity (whether by acceleration or otherwise). (d) At any time a borrowing Company elects that a Term Loan be made available to it by means of a Eurodollar Term Loan pursuant to t_he terms of this Agreement, the Term Loan shall bear interest (computed on t. he basis of a year of 360 days and actual days elapsed)'on the unpaid principal amount thereof from time to time outstanding at a rate per ann~m equal Do: (i) during the first two years thereof, the sum of (Z) one-half of one percent (!/2%) plus (Y) t. he Adjusted LIBOR Rate; and (ii) thereafter, the sum of (X) five-eighths of one percent (5/8%) plus (W) the Adjusted Libor Rate. Said 1/2% and 5/8% during such periods are hereinafter referred to as the "Eurodollar Term Loan Margin". Such interest shall be payable on each Interest Payment Date applicable ~-hereto and at maturity (whet_her by acceleration or otherwise). (e) A borrowing Company may elect (subject to the requirement stated in Section 1.2(a) hereof that both-Domestic Dollar Term Loans and Eurodollar. Term Loans may not be outstanding a= the same time hereunder) to convert, in whole but not in part, (i) any Eurodollar-Term Loan to a Domestic Dollar Term Loan on the Payment Date of the then applicable Interest Period and (ii) to convert any Domestic Dollar Term Loan to a Eurodollar Term Loan on any interest payment date applicable to the Domestic Dollar Term Loan, which date shall be a Banking Day. In the event the Company fails to give notice of any Interest Period applicable to the Eurodollar Term Loan pursuant to Section 1.3 hereof, such Eurodollar Term Loan shall be continued into a subsequent Interest Period of one month as defined in Section 4.24 hereof. 1.3. Manner of Borrowing. (a) The borrowing Company shall give to the Agent by no later than 11:00 a.m. Chicago, Illinois time at least three (3) Banking Days' prior telephonic, telex or telegraphic notice (which notice shall be irrevocable (7) once given, and shall be prcmpt!y confirmed in writing) (i) cf each Eurodollar Revolving Credit Loan which the Banks are requested to make, continue or effect By means of conversion, (ii) of conversion of any Eurodollar Revolving Credit Loan in~o a Domestic Dollar Revolving Credit Loan, (iii) of the conversion of the then outstanding Revolving Credit Loans and/or the unused portion of the Revolving Credit Commitmen~ into a Term Loan where such Term Loan is to be made available by means of a Eurodollar Term Loan, (iv) of the conversion of the then outstanding Eurodollar Revolving Credit Loans into a Domestic Dollar Term Loan; (v) of the conver'sion of a Eurodollar Term Loan into a Domestic Dollar Term Loan or vice versa and (vi) of each Interest Period applicable to a ~urodol!ar Loan. The borrowing Company shall give to t_he Agent by no later than 10:00 a.m. Chicago, Illinois time at least three (3) Business Days' prior telephonic, telex or telegraphic notice (which notice shall be promptly confirmed in writing) (i) of each Domestic Dollar Revolving Credit Loan which the Banks are requested to make and (ii) the conversion of the then outstanding Domestic Dollar Revolving Credit Loans and/or the unused portion of the Revolving Credit Commitment into a Domestic Dollar Term Loan, that in the event a Domestic Dollar Revolving ~rovided, however, Credit ~oan is to be used by the borrowing Company to pay its ou=standing commercial paper, and provided the Agent is specifically notified by the borrowing Company that such is the purpose of the borrowing, then' notwithstanding the foregoing the borrowing Company may give to the Agent prior telephone, telex or telegraphic notice (which notice shall be promptly confirmed in writing) by no later than 10:00 a.m. Chicago, Illinois time on any Business Day of each Domestic Dollar Revolving Credit Loan which the Banks are requested to make in order to pay such co~erciai paper. Each such notice shall specify the date of the Loan requested (which shall he a Banking Day for Eurodollar Loans and a Business Day for Domestic Dollar Loans), the amount of such Loans or t_he amount to. be continued or converted, as the case may be, whet. her t_he Loan is a Eurodollar or Domestic Dollar Loan and, if the Loan is a Eurodollar Loan, the Interest Period applicable thereto. If notices as aforesaid are received by the Agent from any Company which would requ.ire that Eurodollar Term Loans and Domestic Dollar Term Loans be outstanding a: the same time, the request first received by the Agent shall be the controlling request and the Agent shall immediately inform the Company'(s) whose request cannot therefore be honored hereunder of the s~me. The notices of the Company(s) which cannot be honored may be amended by such Company(s) to provide for borrowings of the same type as the borrowing .of the Company which was first received by the ~'he Companies agree that the Agent may rely on any such telephonic, tm!ex or telegraphic notice given by any person it reasonably believes is authorized to give such notice without the necessity of independent investigation and in the event any notice by such means conflicts with the written confirmation or if such written confirmation-is never received, such notice shall govern if any Bank has acted in reliance r/nereono (b) The Agent shall glve prompt telephonic, ~elex or ~elegraphic notice of t_~e receipt of any notice required by subparagraph (a) .above to each of r_he Banks and, if such notice requests the Banks to make, continue or effect by conversion a zurodoi!ar Loan, t_he Agent shall give notice to the borrowing Company and each of the Banks by like means of t_be interest rate applicable thereto (but, if such ~notice is given by teiephone, the Agent shall confirm such rate in writing) promptly after the Agent has made such determinat-ion. Subject to the provisions of Section 6 hereof, =he proceeds of each Loan shall be made available to the borrowing Company at the principal office of t. he Agent in Chicago, Illinois, in immediately available funds, except (i) to =he ex=mn= such Loan represents the continuation or conversion of a Revolving Credit Loan previously made to the borrowing Company, in which case each Bank shall record such continuation or conversion on its books or records or on t_he schedule to the Notes held by it, as appropriate or (ii) to the extent that such Loan hereunder represents =he conversion of any Revolving Credit =cans into a Term Loan, such Loan to such extent will be accomplished by surrender, cancellation and return to t_he borrowing Company of its Notes evidencing such Revolving Credit Loans. Not later than I1:00 a.m. Chicago ~4me, on the date specified for any Loan to be made hereunder, (except in t_he case of a Domestic Dollar Revolving Credit Loan the proceeds of which are ~o be used to pay the borrowing Company's outstanding commercial paper and notice of which was given to the Agent by the Company pursuant t~ Section 1.3(a) hereof, in which event not later than I:00 p.m. Chicago t.ime on the date specified for such loan to be made hereunder) each Bank shall make available its portion of such Loan in funds immediately available in Chicago, Illinois, at the principal office of t_he Agent except as otherwise provided above, or to the extent applicable shall deposit with the Agent such Notes held by such Bank for surrender to the borrowing Company. 1.4. Chan~e of Law. Notwithstanding any other provision of this Agreement or the Notes, if at any time any Bank shall determine in good faith t_ha= any change in applicable law or r~gula~ion or Ln the interpretation thereof makes it unlawful or imprac~icabie for such B~nk to make or continue to maintain Eurodollar Loans, such Bank shall promptly giv~ notice thereof to the Companies and the Agent, and such Bank's obligation tm make, continue or effect by conversion any Eurodollar Loans under 'this Agreement shall terminate until it is no longer unlawful or impracticable for such Bank to make Eurodollar Loans. The Companies~ on demand, shall, prepay t.he outstanding principal amounu of such Bank's Eurodollar Loans, together with all interest. accrued thereon and all ot~er amounts payable to such Bank under t~is Agreement, provided, however, the Companies may then e!ec-_ to borrow the prlnclpal amount of such Eurodollar Loans by means of Domestic Dollar Loans, subject to the terms and conditions of this Agreement. If such determination is made after a Eurodollar Term Loan has been made and the Company elects to borrow the amount outstanding thereon by means of a Domestic Dollar Term Loan, the term of such Bank's Domestic Dollar Term Loan shall h~ equal to the balance of the term which was remaining on its Eurodollar Term Loan, with the remainin_g installments of principal to be paid on the same da~es and in the same amounts as specified in the Note evidencing such Eurodollar Te=~- Loan. 1.5. Unavailability of Eurodollar Deposits or Inability to Ascertain the Ad)usted LIBOR Ratp. Notwlthstanding any other Provision of this Agreemen= or ~he Notes, if prior to the commence- ment of any Interest Period any Bank shall detSrmine (i) that United States Dollar deposits in the amount of any Eurodollar Loan scheduled to be outstanding during such Interest Perio_d are not available to one or more of the Banks in the London interbank market or (ii) by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate, such 'Bank shall promptly give no=ice thereof to the borrowing Company and the Agent, and the obligations of t-he Banks to make, continue or effect by conversion any Eurodollar Loan in such amount and for such Interest Period shall terminate until United States Dollar deposits in such amount and for the Interest Per/~d selected by the borrowing Company shall again be readily available in the ondon inter, b.ank market.and adequ_~e and reasonable means exist or_asce.rtaln.l~, g _the Ad].usted LZBOR Rate. Upon the giving of ~uc.n.~o?.lce_, =ne c.o~anl, es my, o.n the ~a~ent Date of the then p~cu~e ~nterest Per~cds, elect to either (i) pa~ or prepay, as the case may be, such Eurodollar Loans or (ii) convert such Eurodollar Loans to Domestic Dollar Loans, subject to t. he terms and conditions of this Agreement. 1.6. Taxes and Increased Costs. With respect to the Eurodol.lar .L.oan.s, if any Bank shall determine in good faith t_hat any applica~£e law, treaty, regulation or guideline (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or any law, treaty, regulation or guideline, or any interpretation of any of the foregoing by any governmpntal authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority having jurisdiction over such Bank or its lending branch or the Eurodollar Loans contemplated by this Agreement (whether or not having the force ~i0) .. of~ law) shall: (a) impose, modify or deem applicable any reserve, special deposit or similar requirements against assets held by, or deposits in or for the account of, or loans by, or any other acquisition of funds cr disbursements by, such Bank; (b) s~bject such Bank, the Eurodollar Loans or the Notes evidencing Eurodollar Loans to any tax (including, without limitation, any United States interest equa!izauion tax or similar tax however named applicable to the acquisition or holding of debt oblSgations and any interest or penalties with respec= thereto), duty, charge, stamp tax, fee, deduction or withholding in respect of this Agreement, any Eurodollar Loan or any Note evidencing a Eurodollar Loan, except such taxes as may be measured by the overall net income of such Bank or its lending branch and imposed by the jurisdiction, or any ~olitical subdivision or taxing authority thereof, in which such Bank's principal executive office or its lending branch is located; (c) change the basis of taxation of payments of principal and interest due from the borrowing Company to such Bank hereunder or under any Note evidencing a EurOdollar Loan (other than by a change in taxation of the overall net income of the Bank); or (d) impose on such Bank any penalty with respect to the foregoing or any other condition .regarding this Agreement, its disbursement, any Eurodollar Loan or any Note evidencing a Eurodollar Loan; and such Bank shall determine that the result of any of the foregoing is to increase the cost (whether by incurring a cost or adding to a cos~) to such Bank of making or maintaining any Eurodollar Loans hereunder or to reduce the amount of principal or interest received by such Bank (without benefit of, or credit for, any prorations, exemptions, credits or other offsets available under any such laws, treaties, regulations, guidelines or interpretations thereof), then the borrowing Company shall pay on demand to such Bank from t~m- to t~me as specified by such Bank such additional amounts as such Bank shall determine are sufficient to compensate and indemnify such Bank for such increased cost or reduced amount. If any Bank makes such a claim for compensation, it shall provide to the borrowing Company a certificate executed by an officer of such Bank setting forth such increased cost or reduced amount as · a result of any even: mentioned herein (including an explanation of =he basis for and the compute:ion of such increased cost or reduced amount and a copy of =he applicable law, treaty, regulationu quidline or interpre=ation ~o =he extent available) and such certificate shall be rebuttably presumptive evidence of =he same. 1.7. Substitute Rate. (a) If prior to any interest Period any Bank snell have de=ermined (which determination' shall be conclusive and binding upon the Companies) that =he method of computing the rate of interest applicable to any Eurodollar Loan does not accurately reflect =he Cost to such Bank of making, continuing or effecting by convemsion any such Eurodollar Loan, such Bank shall give prompt ~eiephonic, telex or ~legraphic not. ice of such determination ~o the Companies and the Agent. During =he 30 calendar days next succeeding the giving of such not.~ce, ~he Companies and any Banks so affected shall negotiate in good faith in order to arrive at a mutually satisfactory in=erest rate equal ~o (x) with respect ~o the Eurodollar Revolving Credit Loans, the applicable Eurodollar Revolving Credit Mar~in plus the cos: to each such Bank of maintaining its Eurodollar Revolving Credit Loans hereunder to be substituted for the interest rate sp. ecified in Section !.l(c) hereof or (y) with respect to ~he Eurodollar Term Loan, the applicable Eurodollar Term Loan Margin plus t_he cost to each such Bank of maintainin~g its Eurodollar erm Loan to be substituted for ~he interes= rate specified in ection 1.2(d) hereof. If. within such 30 day period the Companies and such Bazuks shall agree in writing upon a sL%bstituted interest rate such su~stit-atm.d, interest ra~e shall be effective from t_he first day of the teleran= Interest Period for such Eurodollar (b) If the Companies and such Banks are unable agree in. writ_tng upon a substitut~ rate within the above 30 day pe.riod, %he Companies shall on demand either (i) prepay the relevant Eurodollar Loans (including =he Eurodollar Loan of any other Bank having t_he same Interes~ Period .upon the request of such-Bank) in full or (ii) convert such Eurodollar Loans (including t. he Eurodollar Loan of any otherBank having, the same In=erest Period upon =he request of such B.~nk) into Domestic Dollar Loans and, in either case, shall pay ail accrued interest thereon at the rate per annum (rounded upward, if necessary, to =he nearest whole multiple of one eighth of one percent (1/8%)) which is eqUal to the sum of ~he effective cost as computed by each such Bank of maintaining such Eurodoll~.r Loans from offshore United States Dollar deposi=s plus (x) width respect to =he Revolving Credit Loans, the applicable Eurodollar Revolving Credit Margin or (y) with respect to =he Eur0do~lar Term Loans, ~,~e applicable ~urodollar Term Loan Margin toge~er with all other amounts payabl~ to such Banks under this Agreement. A certificate delivered to the Company and executed by an officer of such Bank as ~o such effective cost (includl. ng an explanation cf t~he basis for and the computation of such effective cost) shall be rebuttably presumptive evidence of the same. 1.8. Fundin~ Indemnity. In ~he event any Bank s~ha!l incur any loss, cos~ or expense (including, without limitation, any loss of profit and any loss, ..~os~ or expense incurred by reason of =he liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain any Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Bank) as a result of: (a) any prepayment of a Eurodollar Loan on a date other than =he Payment Date of =he =hen appiica~ie Interest Period, (b) any failure by any of the Companies to borrow, continue or effect by conversion a Eurodollar Loan on the date specified in =he notice given pursuant to Section 1.3 hereof, (c) any failure by any of the Companies to prepay a Eurodollar Loan on the date specified in the notice given pursuant to Section 2.2(b) hereof, (d) any failure by any of the Companies to make any payment of principal or interest when due on any Eurodollar Loan hereunder, whether at stated maturity, by acceleration or otherwise, or (e) any default under t_his Agreement; then upon =he demand of such Bank, the relevant Company shall pay to such Bank such amount as will reimburse such Bank for such loss, cost or'expense to =he extent such loss, cost o~ expense is not otherwise reimbursed by =he after maturity interest rate specified in Section !.9 hereof, as appropriate. If any Bank makes such a claim for compensation, it shall provide to such Company a certificate executed bY an officer of such Bank setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of =he basis for and ~he compu- tation of such loss, cost or expense) and such certificate shall be r~buttably presumptive evidence of =he same. · 1.9 Late Payment. (a) If any payment of principal on any Domes=lc 6ollar Loan is not made when due, whet_her at stated mat-/rity, By acceleration or otherwise, =he borrowing Company shall on demand pay interest =hereon (computed on =he basis of a year of 360 days and actual days elapsed) from and including =he date such payment was due until paid in full at a rate per annum equal to ~he sum of two percent (2%) plus the Prime Rate from time to time in effac~. (b) If any payment .of principal on any Eurodollar Loan is not made when due, whether at stated maturity, b~ acceleration- or otherwise, t_he borrowing Company shall on demand pay interes~ thereon for each day (computed on t_he basis of a year of 360 days and actual days elapsed) from and including the date such payment ~--'was due until paid in full at a rate per annum equal =o the .~higher of (i) the sum of one percent (1%) plus the rate of interest applicable to such Eurodollar Loan immediately prior to its due date or (ii) t_he sum of 1% plus the applicable Eurodollar Revolving Credit Margin or EurodOllar Term Loan Margin, as t_he case may ~e, plus a quotient, the numerator of which is equal to t_he rate of interest per annum as determined by the Agent (rounded upwards, if necessary, to the nearest whole multiple of one-eighth of one percent (1/8%)) at which overnight or weekend deposits of United States Dollars (or, if such amount due r~mains unpaid more than three Banking Days, then for such other period of time not longer t.han six months as the Required Banks may elect in their absolute discretion) for delivery in immediately available and freely transferable funds would be offered by t_he principal London office cf the Agent to major ~anks in the London interbank market upon request of such major banks for the applicable period as determined above and in an amount comparable to the unpaid principal amount of the Agent's Eurodollar Loans and the denominator of which shall be equal to 100% minus the Reserve Percentage (if United States Dollar deposits are not available in the London inter~ank market, the numerator of such quotient shall be equal to each Bank's cost of funds as reasonably de=ermined by such Bank) . 1.10. Lending Branch... Each Bank may, at its option, elect by written no=ice =o the Company and the Agent to make or maintain its Loans hereunder at the branch or office specified on t_he signature page hereto or such other of its branches or offices as such Bank may from =//ne to time elect. 2. COMMITMENT FE~, PREPAYMENTS AND REDUCTIONS. 2.1. Commitment Fee. For t_he period from the date hereof to a~nd including December 31, 1984, the Companies shall be jointly and severally obligated to pay to =he Agent for the account of the Banks a commitment fee at the rate of three- eighths of' one percent (3/8%) per annum (computed on t_he basis of a year of 360 days and actual days elapsed) on t_he average daily unused pOrtion of the Revolving Credit Commitment available hereunder, such fee to be payable on March 31, 1982, and quarter- annually thereafter to and including December 31, 1984, unless the Revolving Credit Commitment is terminated in whole on an earlier date, in which event t_he commit_men= fee for the period =o the date of such termination in whole sha.ll be paid on the date such termination. 2.2. Voluntary~. Prepayments. (a) Each Company shall have the privilege of prepaying without premium or penalty and in whole or in part' (but, if in 9ar=, then: (i) in an amount not less th~-~ $1,000,000 or a whole multiple of $i,000;000~. and (ii) in an amount such that t.he minimum amounts required pursuant to Section !.l{a) hereof remain outstanding) either its Domestic Dollar Revolving Credit Loans or its Domestic Dollar Term Loan at any time upon three Business Days' prior notice to =he Agent such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date fixed for prepayment. Any amount pre,aid on the Domestic Dollar Revolving Credit Loans may, subject to =he terms and conditions hereof, be borrowed, repaid and borrowed again. 9artiaI prepayments of any Domestic Dollar Term Loan shall be applied to the several install- ments thereof in the inverse order-of their maturity. (b) Each Company may prepay wit~hout premium or penalty in whole or in par~ (but, if in par~, then: (i) in an amount not less tha~ $1,000,000 or a whole mu!tiple of $1,000,000~ and (ii) in an a~ount such that the minimum amounts required pursuant to Section !.l(a) hereof r~main outstanding) any Eurodollar Loan on the Payment Date of the then applicable Interest Period, upon three Banking Days' prior notice to the Agent (which notice shall be irrevocable once given, must be received by =he Agent no later than 11:G0 a.m. Chicago time on the third Banking Day preceding the date of such prepayment and shall specify the principal amount ~o be prepaid). Any amount prepaid on the Eurodollar aev.olving Credit Loans may, sub~ect to the terms and conditions hereof, be borrowed, repaid' and borrowed again. Partial prepay- ments of the Eurodollar Term Loan shall be applied to the several installments thereof in the inverse order of their maturity. 2.3. Terminations. The Companies shall have =he right at any t/me and from time to time, upon three Business Days' prior w-ri=ten notice to the Agent executed by all the-Companies, to terminate without premium or penalty and in whole, or an par=, the Revolving Credit Commitment, any partial termination to 'be in an amount of $1,000,000 or a whole multiple thereof, (provided, however,, that in the event of any such partial termination there must re=ain outstanding as to each borrowing Company the minimum amounts required pursuant to Section 1.1(a) hereof) and any parnial termination to reduce ratably the respective commitments of each Bank, provided that the Revolving Credit Commitment may not be reduced to an amount less than the aggregate principal amount of the Revolving Credit Loans t_hen outstanding. Any ter- mination of the Revolving Credit Commitment pursuant to this Section 2.3 may not be reinstated. _ · 3. PLACE AND APPLICATION 'OF PAi/~ENTS. 3.1. Place and Ap.~licati0n of Payments. Ail payments of principal and'iint,e, rest and all ~ymen~s of commitment fees and all other amounts payable under, this Agreement shall be made to the Banks at the principal office of the Agent in Chicago, Illinois, for ~he ratable benefit of the Bank: any Notes. The Agent shall ratable portion of such payment. A2 in lawful money of the United State: available funds at the place of and without r~duction for, and free fur=re taxes, levies, imposts, duti~ wittlholdings, restrictions or condil any government or any political su~c thereof (but excluding any taxes income of the Banks). any other holder of to each Bank its payments shall be made America, in immediately without setoff or count~rc!aL~ any and all present or fees, charges, deductions, of any nature imposed by sion or taxing authority or mess=red by the net 4. DEFINITIONS. 4.1 'Adjusted LIBOR Rate' means a rate per annum determined p=rsuant to the following formula: Adjusted LIBOR Rate = LIBOR 100%-Rese.rve Percentage 'Reserve P.~rcentage" means the dail' r~quirement imposed by the Board of' Reserve Sys~m (or any successor) liabilities (as such' t~rm is define~ applicable Interest Period, subject reserve r~quirement by such Board account any transitional ad]ustment~ F' ~rithmetic average reserve Governors of the Federal ~der Regu!ation'D on Euroc=rrency ! ~ Regulation D) d=ring any to any amendments of such its successor, taking into thereto. For p=rposes of is definition,-the Loans shall be deemed to be Eurocurrency iabilities as defined in Regu!atio~ D without benefit of or. credit for prorations, exemptions or offsets under Regulation D. 4.2. 'Average CD Rate" ~ is to. be determined (which determ/~ Agent), the immediately ~receding d~ of secondary market offering Fates day certificates of deposit of ma]o: banks, on t/%e basis of such rates r~ deposit dealers to and published by if such publication shall be suspen, basis of quotations for such rates three certificate of deposit dealer: :ans as of each day the same ~tion shall be made by the ~Y'S reserve adjusted average ~.e United States for 30 United States money market .~ported by certifica%e of th~ Federal Reserve Bank or ed or terminated, on the ec~ived by the Agent from of recognized standing. 4.3. "Banking Day" means a day on which the Banks are - open for business in Chicago, Illinois, Houston, Texas, and New York, New York, and dealing in United States Dollar deposits in London, England. 4.4. ~Business Day" means, a day on which the Banks are open for business in Chicago, Illinois, Houston, Texas, and New York, New York. 4.5. 'Capital Lease' ~eans at any date any lease of Property which in accordance with generally accepted accounting principles at the time in effect would be required to be capitalized on the balance sheet of the lessee. ' 4.6. "Capitalized Lease Obligation' means the amount of the liability as shown on the balance sheet in respect of a Capital Lease as de=ermined at any date in accordance with generally accepted accounting principles. 4.7. 'Communications' Consolidated Net Income" for any peric~ means the sum of (a) net income (or loss) of Communications and its Subsidiaries after eliminating all portions of ne= income properly attributable to minority interests and after all payments of or provisions for taxes on or in respect of income, plus (b) all depreciation taken by Com~nications and its SUbsidiaries in accordance with generally accepted principles of accounting consistently applied during the period for which Communications' Consolidated Net Income is being computed; but exc!udinq (on an after tax basis): (a) any gain or loss arising from the sale of capital assets or any gain arising from any other extraordinary item; (b) any gain arising from any write-up of assets; (c) any gain arising from the acquisition of any Securities of Communications or its Subsidiaries other than the acquisition of Indebtedness of Communications or its Subsidiaries; and (d) any restoration to net income of any contingency or tax reserve except to =he extent that provision for such r~serve was made out of net income during the period for which Communications' Consolidated Net Income is being - computed. 4.8. "Consolidated Funded Indebtedness," "Consolidauad Ne~ Earnings," Consolidated Net Income Available for Dividends," and "Consolidated Total Capitalization" of the Company for which such term is being determined and its Subsidiaries shall mean Funded indebtedness, Net Earnings, Net Income Available for Dividends or Total Capitalizat-%on, as the case may be, of such Company and its Subsidiaries all consolidated in accordance with generally accepted accoun=ing principles. -"Consolidated Persons" is defined in Section 5.2 hereof. 4.10. hereof. "Controlled Group" is defined in Section 5.8 4.11. "Domestic Dollar Loan" or 'Domes=it Dollar Loans" means and includes both the Domestic Dollar Revolving Credit Loans and the Domestic Dollar Term Loans unless ~-~he context in which such ~erm is used shall otherwise require. 4.11. "Domestic Dollar Revolving Credit Loan" or "Domestic Dollar Revolving Credit Loans" means loans made on a revolving credit basis and bearing interest as specified in Sec=ion 1.!(b) hereof. 4.13. "Domestic Dollar Term Loan" or "Domestic Dollar Term Loans" means loans made on a term credit basis and bearing interest as specified in Section 1.2(c) hereof. 4.14. "Eurodollar Loan" or "Eurodollar Loans" means and includes both the Eurodollar Revolving Credit Loans and the Eurodollar Term Loans unless t_he context in which such term is used otherwise requires. 4.15. "Eurodollar Revolving Credit Loan" or "Eurodollar Revolving Credit Loans" means loans made on a revolving credit basis and bear{ng_interes= as specified in Section l.i(c) hereof. 4.16. "Eurodollar Revolving Credit Margin" is defined in Section 1.1lc) hereof. 4.17. "Eurodollar Term Loan" or "Eurodollar Term Loans" means loans made on a term credit basis .and bearing interest as specified in Section !.2(d) hereof. 4.18. "Eurodollar Term Loar~ Margin" is defined in Section 1.2(d) hereof. . 4.!~'. "Funded Indebtedness" of any corporation means as of any date all Indebtedness which by its terms matures more than one (1) year from the date of ~ts creation and any Indebtedness ex=~dable,'at ~e pio of =he debtor, to a data ~yond one (i) year from such date, ~cluding ~e present value of Capital Leases. 4.20. "Guaranty" by any Person means any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (t~he "Primary Obligor") in any manner, whet_her directly or indirectly, including obligations incurred through an agreement, contingent or ot~he~-~ise, by such Person:' (a) to purchase such Indebtedness or obligation or any Property constituting security therefore; (b) to advance or supply funds: (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain working capital or any other balance sheet or income statement condition, or o~he~-~ise to advance or make available funds for =he purchase or payment of such Indebtedness or obligation; (c) to lease Property or to purchase Securities or other Property or services primarily for ~he purpose of assuring-=he owner of such Indebtedness or obligation of =he ability of =he Primary Obligor to make payment of =he Indebtedness or obligation; or (d) otherwise to assure the owner of =he Indebtedness or obligat, ion of t_he 'Primary Obligor against loss in respect t_hereof. S 4.21. "Indebtedness" of any corporation includes (i) all indebtedness created, assumed, incurred or guaranteed in any manner by such corporation or for which such corporation is otherwise responsible or liable (whet_her by Guaranty of indebtedness of, or agreemen= to supply funds to or invest in, others) representing money borrowed (which term includes, without limitation, obligations on or~ with respect to letters of credit, bankers' acceptances and other e~idences of indebtedness representing extensions of credit whether or not representing obligations for money borrowed), (ii) all indebtedness secured by any Lien upon Property owned by such corporation, even though such corporation has not assumed or become liable for the payment of such indebtedness and (iii) Capitalized Lease Obligations; provided, however, that the term "Indebtedness" shall not include any par~icuiar indebtedness if, upon or prior to =he maturity 'thereof, there shall have been deposited with the proper depository in trust money (or evidences of such indebtedness if permitted by the inst_r'ument creating such indebtedness) in the necessary amount to pay, redeem or satisfy such i~.debtedness, and thereafter such money and evidences of indebtedness so deposited shall not be included Ln any computation of t~he assets of such corporation. 4.22. '"Indenture of Mcr=gage" means =he Indenture of Cente! =o Continental IlIinois National Bank and T~--us= Company of Chicago, M~J. Kruger and Donald W. Al_~vin, as Trustees, dated July I, 1~45, as heretofore 'and hereafter amended and supplemented. ~.23. WInterest Payment Date" or "Interest Payment Dates" means the last day of each Interest Period and, for Interest P~ri.ods longer than three months, shall also mean the date or'da~es occurring every three calendar months after t_he commencement of such Interest Period. . 4.14. 'Interes~ Periodw means with respect to the Euro=ol!ar~Loans the period used for the computation of interest and shall Commence on ~he date the relevant Eurodollar Loan is made, cont~ued or effected by conversion and conclude on t_he da~e eitherone, three or six months thereafter, at the Companies' op ion, pr0vided,.however, that (i) no Interest Period for any Eurodollar Revolving Credit Loan may extend beyond December 31, 1984 and (~.i) with respect to t_he Eurodollar Term Loan, ~he last day of any Interest Period selected by any of =he Companies for the period immediately preceding any scheduled principal payment date shall be a date which is concurrent with such principal payment date. For purposes of determining an Interest Period, a month mean~ a period star~ing on one day in a calendar month and ending on numerically corresponding day in the next calendar month, pr~ided, however, if there is no numerically corresponding day in the month in which an Inter,st Period is to end, then such Interest P~ riod shall end on the last Banking Day of such month. .25. 'LIBOR" means for each Interest Period the rate of interest per annum as determined by the Agent (rounded upward, if necessazy, =o the nearest whole multiple of one-eighth of one percent (1/8%)) at which deposits of United States Dollars in immediately available and fr~eIy transferable funds would be offered at 11:00 a.m. London time two (2)-London Banking Days prior to the commencement of. such Interest Period by the principal London office of the Agent to major banks in the London interbank market upon request by such major banks for a period equal to such Interest Period and in an amount equal to the principal amount of the Eurodollar Loan to be outstanding from the Agent during such Interest Period. Each determination of LIBOR made by =he Agent i binding on 4 an obliga~i owner of th common law, the securit n accordance with this Section shall be conclusive and t_he Companies except in the case of manifest error. .26. "Lien" means any interest in Property securing on owed to, or'a claim by,--a Person other than the Property, whether such interes~ is based on the statute or contract, including, but nco limited to, interest lien arising from a mortgage, encumbrance, (20) pledge, conditional sale, security agreement or t----ust receipt, or a lease, consignment or bailment for security ~urposes. The te=m "Lien' shall also include rese_--zations, exceptions, encroac.~ments, easements, rights of way, convenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For t_he put.poses of t_his definition, a Company shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capital Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention of title shall constitute a "Lien." 4.27. "Loan" or "Loans' means and includes both the Eurodollar Loans and t_he Domestic Dollar Loans unless t_he context in which such term is used shall othe=wise require. 4.28. "London Banking Day" means a day on which banks are open for business and quoting interest rates for United States Dollar deposits in the London interbank market. 4.29. "Net Earnings" means net income computed in accordance with generally accepted accounting principles before deducting (a) interest char~es or amortization of debt discount and dividends on preferred stock of any Subsidiary of the Company for which Net Earnings is being determined and . (b) income taxes: provided, however, that (a) profits or losses from the sale of Property or any amortization of intangibles shall not be taken into account, and (b} if any Funded Indebtedness is created in connection with the acquisition of any Proper~, then the net earnings of the property so acquired, computed on the same basis, may be included on a pro forma basis. 4.30. 'Net Income Available for Dividends" means net income computed-in accordance with generally accepted accounting principles; provided, however, profi_ts or losses from the sale or disposition of Property, other than for cash, or any amortization of intangibles shall be excluded. If any Subsidiary. of the Company for which Net Lncome Available for Dividends is being detsrmined enters into a subsequent loan agreement 'which restricts =he payment of dividends, then only the net income of Subsidiaries which may be applied to pay dividends under such restrictions may be included. 4.31. "Net Tangible Assets' means (i) =he net_book value (after deducting related reserves for depreciation, obsolesce: and amortization) at which the Tangible Assets of the Company for which' Net Tangible Asse.ts is befng determined .are shown on the most recently available balance sheet of such Company, but excludinc any amount applicable to write-ups of assets minus (ii) the amcunt at which its liabilities and minority interests are shown on such balance sheet. 4.32. 'Note' or 'Notes" means and includes t.he prcmissc~-! notes of the Companies evidencing the Domestic Dollar Loans and the Eurodollar Loans, unless the context in which such term is used shall otherwise r~quire. Period. 4.'33. 'Payment Date' means t_he last day of an Interest 4.34. 'Person" meanT an individual, partnership, corpora=ion, association, trus~, unincorporated organizatio~ or any other entity or organization, including a government or agency or political subdivision thereon. 4.35. "Prime Rate' means th~ rate of interest announced by Harris Trust and Savings Bank from ~ime to time as its prime commercial rate with any chang~ in sai~ prime commercial rate to be effective as of the day of. the.releVant change in said prime commercial rate. 4.36. 'Plan' is defined in Section 7.1(e) hereof. 4.37. "Pro Forma Total Annuail Interest Charges" is defined in Section 7.2(a) (ii) hereof as tO Centel and in 7.3(a) (ii) .as to Central Telephone. 4.38. "Property" means any interest in any kind of proper~y or asset, whether reall, personal or mixed, or tangible or intangible whether now' owne~ or hereafter acquired. 4.39. 'Required Banks" means as of the date of determinatio · thereof .t_hat number of the Banks holding at.least 75% of =he outstanding principal balance ~f the Loans, or in the event =hat no Loans are outstanding hereunder' those Banks holding at leas= 75% in aggregate principal amount of the commitments hereunder. 4.40. ,Revolving Credit Lc~n, or "Revolving Credit Loans" means and includes both the Domestic Dollar Revolving C~edit Loans and the E~rodollarI Revolving Credit Loans, unless t_~e contex~ in which such term ks used Shall otherwise require. 4.41. 'Security" sha~l have the same meaning as in Section 2(1). of the Securities Act of 1933, as amended. 4.42. 'Senior Indebtedness" means all Indebtedness. which is not by its terms sub°rdi~ated to any other Indebtedness. 4.43.' 'Subordinated Indebtedness" means Funded Indebtedness of the,Company for which Subordinated` Indebtedness is being determined (a) the final maturi~_y .of which shall be after December 31, 1988, (b) as to which such Company shall not be required to pay, prepay, or redeem any part of the principal amount =hereof prior to the earlier of (i) the fifth (5th) anniversary of such Company first being liable in respect =hereof, or (ii) ~le time that the Notes shall have matured and all amounts payable in respect of ~he principal of, premium, if-any, and interest on, =he Notes shall have been paid in full, (c) as to which, during any fiscal year of such Company ending after t~he earlier of such fifth (Sth) anniversary or' t/:e time ~hat t. he Notes shall have matured and all amounts payable in respect of =he principal of, premium, if any, and interest on,-the Notes shall have been paid in full, such Company shal! not be required to pay, prepay, or r~deem any par~ of =he principal amount of any issue of Subordinated Indebtedness which exceeds four percent (4%) of t_he largest principal amount of any such issue at any time outstanding, and (d) which is issued under an instrument or instruments which contain subst~antially the following provisions with respect to ~he subordination of such Indebtedness to the Indebtedness evidenced by =he Notes and to any other Indebtedness of such Company which by its t~rms is not expressly subordinated to any other Indebtedness of such Company (hereinafter referred to as 'Superior ~ndebtedness'): (i) Subordinated Indebtedness shall be subordinate and 3,~m~or in right of payment, to =he extent and in =he manner hereinafter set forth, to Superior Indebtedness: (A) In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganize=ion, or other similar proceedings in connection =herewith, relative to such Company or to its creditors, as such, or to its proper~y, and in =he event of any proceedings for voluntary liquidation, dissolution, or other winding up of such Company, whet_her or not involving insolvency or bankrupt=y, =hen =he holders of Superior Indebtedness shall be entitled to receive payment in full of =he principal of, premium, if any, and interest on, all Superior Indebtedness before =he holders of Subordinated Indebtedness shall be entitled to receive any payment on account of principal, premium, or interest on Subordinated Indebtedness, and to that end (but subject to =he power of a cou~ of competent jurisdiction to make other equitable provisions reflecting the rights conferred by these provisions upon Superior Indebtedness and the holders =hereof with respect to Subordinated Indebtedness and =he holders =hereof by a lawful plan of reorganization under applicable bankrup~y law), =he holders of Suuerior Indebtedness shall be irrevocably authorized and ~m~owered in =heir discretion to make and present for and on behalf of =he holders of Subordinated Indebtedness such proofs of claims against such Company in respec~ of such Subordinated Indebtedness as the holders of Superior Indebtedness may deem expedient or proper and to vote such proofs of claims ~n any such proceedings in respect of Subordinated Indebtedness and shall be enniUled =o receive, for application in payment of Superior Indebtedness, any payment or distribution, of any kind or character, which may be payable or deliverable in any such proceediffgs in respect of Subordinated Indebtedness, except securities which are subordinated and junior in right of. payment to t_he payment of Superior Indebtedness; and (B) In ~,he event that any Subordinated Indebt-=~lness is declared due and payable before its expressed maturity, because of t_he occurrence of a default thereunder. (under circumstances when =he provisions of the foregoing clause (A) shall not be applicable), =hen t_he holders of Superior Indebtedness outstanding at the time such Subordinated Indebtedness so becomes due and payable, because of such occurrence of a default thereunder, shall be entitled to receive payment in full of the principal of, premium, if any, and interest on, all Superior Indebtedness before the holders of Subordinated Indebtedness are entitled to receive any payment on account of the principal of, premium, or interest upon Su]:ordinated Indebtedness. (ii) No present or future holder of Superior Indebtedness shall be prejudiced in his right to enforce subordination of Subordinated 'Indebtedness by any act or failure to act on the part of such Company. The foregoing provisions as to subordination are solely for =he purpose of defining t_he relative rights of the holders of Superior Indebtedness on the one hand and the holders of Subordinated Indebtedness on the other hand, and none of such provisions shall impair, as between such Company and any holder of Subordinated Indebtedness, the obligations of such Company, which are unconditional and absolute, to pay to such holder of Subordinated Indebtedness the principal =hereof and premium, if any, and interest thereon Ln accordance with its terms, nor shall any such provision prevent any holder of Subordinated Indebtedness from exercising all r~medies otherwise pe=~itted by applicable law or under the terms of such Subordinated Indebtedness upon a default thereunder, subject to the rights, if any, under the foregoing provisions, of holders of Superior Indebtedness to receive cash, property, or securities otherwise payable or deliverable =o holders of Subordinated Indebt ednes s. (iii) No payment on account of the principal of,. premium, or interest on Subordinated Indebtedness shall be made (in cash or property, by setoff, or %r. herwis~), and no holder of Subordinated Indebtedness shall be entitled to demand or receive any such payment, if, at the time of such payment, a default shall exist, or if, immediately after giving effect to such payment, a default would exist, under any Superior Indebtedness. - (iv) These p~ovisions with respect ~o subordination cannot be amended, modified, or waived without the prior written consent of the Required Banks as defined in that certain Credit Agreement between such Company, Harris Trust and Savings Bank as Agent and others da=ed December 31, 1981 and such percentage of the holders of each class of Subordinated Indebtedness and Superior Indebtedness other than t_he No=es issued pursuant to said Credit Agreement a= the time outstandihg as may be required by the instruments evidencing such indebtednes~ These provisions with respect =o subordination, and the subordination effected hereby, shall not be affected by any amendment of, or addition or supplement to, any Superior Indebtedness or any instrument or agreement relating thereto. (v) Such Company agrees, for =he benefit of the holders of Superior Indebtedness, that in the event any Subordinated Indebtedness is declared due and payable before its expressed maturity, because of =he occurrence of a default thereunder, then such Company (i) will give prompt notice in writing of such happening =o =he holders of Superior Indebtedness, and (ii) at 1 Superior Indebtedness shall forthwith become ~mmediately due and payable, upon demand, regardless of =he expressed maturity thereof. 4.44. "Subsidiary" means as ~o a particular parent corporation, any corpora=ion of which more ~han fifty percent (50%) of =he outstanding stock having ordinary voting power for =he election of the Board of Directors of such corporation (irrespecti~ of whet_her or not, at the t/me, stock of any other class or Classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at =he t/me directly or indirectly owned .by such parent corporation, by one or more of its Subsidiaries, or by such parent corporation and one or more of its Subsidiaries. 4.45. 'Superseding Mortgage" means any Indenture which Centel may create or assume which r~places the Indenture of Mortgage as the first lien (except for "permitted encumbrances" and "prepaid liens" as defined in the Indenture of Mortgage, or similar encumbrances or liens permitted by such Superseding Mortgage) on the property of Centel constituting "bondable property" as defined in =he Indenture of Mortgage, (other than property subject to a mortgage, lien, or security interest, as described in Section 7.2(b} (i)(B) hereof) which is used and useful as a par= of its permanent and fixed investment and the conducn of utility business and which provides for. the issuance of bonds to be secured t_hereby and the release of property from the lien upon terms no= substantially less restrictive than the terms of the Indenture of Mortgage. - 4.46. "Tangible Assets" of any corporation means all assets except: (a) deferred expenses, other than prepaid insurance and prepaid taxes; (b) patents, copyrights, trademarks, trade names, franchises, goodwill, experimental expense, organizational expense and other similar intangibles; and (c) unamortized debt discount and expenses. 4.47. "Term Loan" or "Term Loans" means and includes both Domestic Dollar Term Loans and Eurodollar Term Loans, unless the context in which such term is used shall otherwise r~quire. 4.48. "Total Capitalization" means =he sum of the stated capital applicable to t_he outstanding capital stock of all classes, the retained earnings and the additional paid-in capital, whether or not available for t.he payment of dividends, and the aggregated principal amount of all outstanding Funded Indebtedness, net of any discount or premium; provided that, if a= the time of computation of Total Capitalization, any capital stock is beinq concurrently issued or retired or any Funded Indebtedness is being concurrently incurred or retired, then effect shall be given to such issue or retirement. 5. REPRESENTATION AND WARRANTIES. Each of.the Companies severally represents and warrants as follows: 5.1. Such Company is duly organized and existing in good standing under the laws of'the State of its incorporation; has all necessary corporate power to carry on its present business; and has full power, right and authority to enter into this Agreement, to make the borrowing~ herein provided for, to issue (subject to any necessary regulatory approval referred to in Section 5.6 hereof) its Notes and to perform each and all of the matters and things herein provided for; and this Agreement does not, nor will the performance or observance by such Company of any of the matters and things herein provided for, contravene any provision of law or any judgment or decree or any charter or bylaw provision of such Company, or any covenant, indenture or agreement of or affecting such Company or its properties. 5.2. All financial statements of such Company heretofore delivered to the ~anks have been prepared in accordance with generally accepted accounting principles on a basis consistent, (26) except as or_he=wise noted ~herein, witch that of the previous fiscal year, and fairly present on a consolidated basis the financial position of such Company and any Persons consolidated with such Company therein (such Company's 'Consolidated Persons"), or of such Company alone as to any unconsolidated financial statement, as of the dates thereof, and t_he results of operations for the periods covered thereby. The Company and its Consolidated Persons have no material contingent liabilities other than those disclosed in such financial statements referred to in this Section or in comments or foot_notes ~.hereto or in any supplemental report thereto heretofore furnished to t_he Banks. 5.3. Since the latest of the financial statements referred to in Section 5.2 hereof, there has not been any change in =he financial position of such Company and any Consolidated Person of such Company which would materially advers-cly affect the business and properties of t_he Company and its Consolidated Persons on a. consolidated basis. 5.4. There is no litigation or governmental proceeding pending, nor to the knowledge of such Company threatened, against such Company or any Consolidated Person of such Company which would materially adversely affect the business and properties of t_he Company and its Consolidated Persons on a consolidated basis. 5.5. The United States income tax returns of 'Centel and Centel's Consolidated Persons for the fiscal year ended. 1975, and for all fiscal years ended prior to said date have been examined by the Internal Revenue Service and have been approved as filed, or any additional assessments in connection with any of such years have been paid. No objections to or controversies in respect of =he United States income tax returns of Centet' and Centel's Consolidated Persons of a material nature to Centel and Centel's Consolidated Persons on a consolidated basis for any fiscal year ended after said date are pending nor to the knowledge of such Company is any such objection or controversy threatened other than those which are provided for by reserves 'which in the opinion of Centel are adequate therefor. 5.6. Issuance of any Note by Centel pursuant to the Agreement is subject to approval (a) by the Federal Energy Regulatory. Commission if the Note by its terms matures not more than one (1) year from the date of its issue, or (b) by the Colorado Public Utilities Commission and =he Kansas State Corpora=ion Commission if the Note by its terms matures more than one (1) year from =he (27) '-'-~..?date of its issue. Issuance of any Note pursuant to t_he Agreement by Central Telephone is subject to approval by t_he North Carolina - Utilities Commission if the Note by its terms mat'ares more than two (2) years from t,he date of its issue. No governmental authorization, consent or filing, whet_her federal, state or local, other than as described in this Section 5.6, is required on t_he part of any or all of the Companies with respect, to the lawful execution, delivery and performance of t_he Agreement, t_he Notes and the making of t_he loans evidenced thereby. 5.7. This Agreement is a legal, valid and binding agreement of such Company, enforceable against such Company in accordance with its terms, and, subject to any necessary regulatory approval referred to in Sect. ion 5.6 hereof, the Notes when executed and delivered, will be similarly legal, v~lid, binding and enforceable. 5.8. Such Company and each member of its Controlled Group .("Controlled Group" to have t_he same meaning herein as in Section 414(b) of t.he 1954 Internal Revenue Code, as amended) are in compliance in all material respects with t~he Employee Retirement Income Security Act of 1974 ("ERISA") to the extent applicable to them and have received no notice to the contrary from the Pension Benefit Guaranty Corporation or any other governmental entity or agency and no reportable event (as defined in ERISA) which could result in a material accumulated deficiency under ERISA or a material liability to the Pension Benefit Guaranty Corporation has occurred and is continuing. 5.9. Such Company is not a~ Investment Company as defined under t_he Investment Company ~ot of 1940. 5.10. None of'the Companies nor any of their Subsidiaries are engaged principally, or as one of their primary activities, in the business of extending credit for the purpose of purchasing or carrying margin stock ("margin stock" to have the same meaning herein as in Regulation U of ~he Board of Governors of the Federal Reserve System) and no part of the proceeds of any of t_he Loans will be used, directly or indirectly to purchase or carry any such margin stock or to extend credit to o~hers for the purpose of purchasing or carrying any such margin stock except in compliance with said Regulation U. 6. CONDITIONS PRECEDENT. The obligation of the Banks to make-any Loan hereunder shall be subject to the following conditions precedent: 6.1. Prior to the making of the initial Loan hereunder: (a) The. Agent shall have received for each Bank =~e favorable written opinipn of Messrs. Ross, Hardies, O'Keefe, Babcock & Parsons special counsel for =he Companies, in substantially the form as attached hereto as .Exhibit D and of Mr. Karl Berolzheimer, Vice President and General Counsel for the Companies, in substantially the form as attached hereto as ~.~xhibit E, and otherwise in form and substance satisfactory to the Banks and their special counsel, Messrs. Chapman and Cutler. (b) The Agent shall have received for each Bank t.he favorable written opinion of Messrs. Chapman and Cutler, special counsel for the Banks, in substantially the form as attached hereto as Exhibit F. (c) The Agent shall have received for each Bank copies (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Agreement or t_he Notes to t_he t. he Banks or said special counsel may reasonably request. (d) The Agent shall have received for the account of t_he Banks copies of: (i) Centel's Certificate of Incorporation and all amendments thereto certified by the Secretary of State of Kansas; (ii) Central Telephone's Certificate of Incorporation and all amendments thereto certified by the Secretary of State of Delaware; (iii) Communications' Certificate of Incorporation and all amendments thereto certified by the Secretary of State of Delaware; and (iv) each Companys' bylaws, and all amendments thereto, certified by such Companys' Secretary o~ Assistant Secretary. (e) Such other showings as the Agent may reasonably request 6.2. As of t_he time of the making continuation or conversion of each Loan hereunder (including the initial Loan), as t. he case may be: (a) the Agent shall have received for the account of t_he Banks the notice and the Notes hereinabove provided for, as appropriate, together with appropriate Federal Reserve Board Forms U-l, together with any other document required 'by Regulation U of the Board of Governors of the Federal Reserve System, duly completed and' executed by the borrowing Company, and said Loan shall otherwise be in compliance witch said Regulation U; each of the representations and warranties of all- _ (b) ~he Companies set forth in Section 5 hereof (except for the representation and warranty appearing in Section 5.3 hereof) shall be and remain true and correct as of said time, except to the extent that any such representation or warranty relates solely to an earlier date; and (c) all of the Companies shall be in full compliance with all of the terms and conditions hereof, and no event of default as defined in Section 8.1 hereof, and no event (29) ....... which, with'the lapse of time =he giving of notice, or both, would constitute such an event of default thereunder shall have occurred and be continuing or will have occurred as'a result of making such Loan; (d) the Agent shall have received for the accoun~ of the Banks a certificate-of the Chief Financial Officer of the borrowing Company as to the matters specified in Sec- tions 6.2(b) and (c). 6.3. (a) As of the time of the making of the first Revolving Credit Loan hereunder, the Agent shall have received for the account of the Banks certified copies (or other showings satisfactory in form and substance to the Agent and the Bank's special counsel, Messrs..Chapman and Cutler) of all approvals, consents, exemptions or other actions by, or notices to or filings witch, any governmental authority, whether federal, state or local necessary in connection, with the execution, delivery, performance or enforcement by all of the Companies of this Agreement and the Notes which are provided for hereby to evidence Domestic Dollar Revolving Credit Loans and Eurodollar Revolving Credit Loans, all of which shall be in full force and effect as of the date of the making of such first Revolving Credit Loan, and each of said Notes shall be to the extent of the consid- eration received therefor, the legal, valid, binding and en- forceable oblige=ion of ~he Company obligated thereon (and a request by a borrowing Company t_hat such first Revolving Credit Loan be made shall be and constitute a representation and war- ranty to the foregoing effect by the borrowing Company), together with an opinion of outside counsel satisfactory to the Agent and the Bank's special counsel, Messrs. Chapman and Cutler, to the effect that: (i) such approvals, consents, exemptions, actions, notices and filings constitute all approvals, consents, exemp- tiOnsi or other actions by, or notices to or filing with, any .governmental authority, whe%-her federal, state or_local, required on the par~ of t_he Companies with respect to the lawful execu- tion, delivery and performance of this Agreement, said Notes and the making of the Revolving Credit LOans evidenced thereby; (ii) the same are as of ~he date of borrowing in full force and effect; and (iii) said Notes have been duly executed and de- livered by the Companies and are to the extent of the consid- eration rmceived therefor, the legal, valid, binding and en- forceable obligations of the Companies. (b). As of the time of the'making of t_he initial Term Loan hereunder to each of the Companies, the ~gent shall have received for the account of the Bank~ certified co~ies (or other showings satisfactory in form and substance to the Agent and the Bank's special counsel, Messrs Chapman and Cutler) of all (3t) EXHIB IT A DOMESTIC DOLLAR REVOLVING CREDIT NOTE U.S. $ , 19 FOR VALUE RECMIVED, t_he undersigned, . , a corporation (the "Company"), promises to pay to the order of (the "Bank") on December 31, 1984 at the principal office of Harris Trust and Savings Bank in Chicago, Illinois, in immediately available funds, the principal sum of Dollars ($ ) or, if less, the aggregate unpaid principal amount of all Domestic Dollar Revolving Credit Loans made by the Bank to the Company or effected by conversion pursuant to the Credit Agreement (as hereinafter defined) and remaining unpaid on December 31, 1984, together with interest computed and payable as provided in the Credit Agreement hereinafter referred to. The Bank shall record on its books or records or on the scheduIe at~ached to ~his Note which is a part hereof each Domestic Dollar Revolving Credit Loan made or effected by conversion pursuant to said Credit Agreement, together with all payments of principal and interest and the principal 'balances from time to time outstanding, provided that prior to the transfer of =his Note all such amounts shall be recorded on the schedule attached to this Note. The record thereof, whether shown on such books or records or on the schedu.le to ~his Note, shall be rebuttably presumptive evidence of t.he same, provided, however, that the failure of the Bank to record any of the foregoing shall not limit or otherwise affect t_he obligation of t_he Company to repay ali Domestic Dollar Revolving Credit Loans m_ade or effected by conversion pursuant to the Credit Agreement toget~her with accrued interest thereon. This Domestic Dollar Revolving Credit Note is one of the Notes referred to in and evidencing Domestic Dollar Revolving Credit Loans made by the Bank to the Company or effected by conversion pursuant to the Credit Agreement dated as of December 31, 1981, between the Company, Harris Trust and Savings. Bank as Agent and others (the 'Credit Agreement"), and this Note and the holder hereof are entitled, equally and ratably with the holders of all other Notes outstanding under said Credit Agreement, to all t_he benefits provided for ~h. er. eby of referred to t_herein, to which Credit Agreement reference ls hereby made for a statement thereof. Ail defined terms used in this Note, except terms othe~-~ise defined herein, shall have =he same meaning as in t~he Credit Agreement. (32) Prepayments may be made hereon and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in said Credit Agreement. Its (33) EXHIB IT B EURODOLLAR REVOLVING CREDIT NOTE U.S. $ , '19 FOR VALUE RECEIVED, t_he undersigned, , a corporation (t_he "Company"), promises to pay to the order of (the ~Bank") on December 31, i984, a= t_he principal office of =he Harris Trust and Savings Bank in Chicago, Illinois, in immediately available 'funds, the principal sum of Dollars ($ ) or, if less, aggregate unpaid principal amount of all Eurodollar Revolving Credit Loans made, continued or effected by conversion pursuant to the Credit Agreement (as hereinafter defined) and remaining unpaid on December 31, 1984, roger, her with interest computed and payable as provided in t_he Credit Agreement hereinafter referred The Bank shall record on its books or records or on t_he schedule to t_his Note which is a par~ hereof =he principal amount .of each Eurodollar Revolving Credit Loan made, continued or effected by conversion pursuant to said Credit Agreement and the Interest Period and interest rate applicable thereto, together with all payments of principal and interest and t_he principal balances from time to time outstanding provided =hat. prior to the transfer of this Note all such amounts shall he recorded on the schedule attached to this Note. The record t.hereof, whether shown on such books or records or on the schedule to this Note, shall be rebuttably presumptive evidence of t_he same, provided, however, that the failure of the Bank to record any of the foregoing shall not limit or otherwise affect the obligation of the Company to repay all Eurodollar Revolving Credit Loans made, continued or effected by conversion pursuant to the Credit Agreement together with accrued interest thereon. This Eurodolla~ Revolving Credit Note is one of the Notes referred to in and evidencing Eurodollar Revolving Credit Loans made, continued or effected by conversion pursuant to the Credit Agreement dated as of December 31, 1981, between the Company, Harris Trust and Savings Bank as Agent and others (the "Credit Agreement"), and this Note 'and the holder hereof are entitled, equally and ratably with the holders of all or, her Notes outstanding under said Credit Agreement, to all the benefits provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a stateme'nt thereof. Ail ~ defined terms used in this Note, except terms ot_he~-~ise ~efined herein, shall have the same meaning as in the Credit Agreement. (34) Prepayments may be made hereon and this Note may be .?~-~declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in said Credit Agreement. By , Its (35) ENHIB IT C TERM NOTE U.S. $ , 19__ FOR VALUE RECEIVED, t_he undersigned, a corporation (the "Company"), pro~ises to pay in lawful money of t_he United States to the order of (the ~ank" ) at the principal office of Harris Trust and Savings Bank in Chicago, Illinois, in immediately available funds, the principal sum of Dollars ($ ) in four consecutive annual installments payable as follows: $ on , 19 , $ , on 19 , $ on 19 , and a fin-~l installment in t_he amount of $ o---n 19__, t_he date of the final maturity hereof. The Company promises to pay to the holder hereof interest at said office computed and payable as provided in the Cr_-dit Agreement hereinafter referred to. This Term Note is one of t_he Notes of the Company referred to in and evidencing the Term Loan made by the Bank to the Company pursuant to the Credit Agreemen= dated as of December 31, 1981, between the Company, Harris Trust and Savings Bank as Agent and others (the "Credit Agreement"), and this Note and the holder hereof are entitled, equally and ratably with t_he ho~lders of all other Notes outstanding under said Credit Agreement to all of the benefits provided for by the Credit Agreement or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms othez-~ise defined herein, have the same meaning as in the Credit Agreement: -' Prepayments may be made hereon and this Note may ' be declared due prior to the expressed maturity hereof, all in th~ events, on the terms, and in the manner and amounts as provided in said Credit Agreement. By. Its Harris Trust and Savings Bank 111 West .'4onroe Street Chicago, Illinois 60690 As Agent for =he Banks named in the Credit Agreement Dated as of December 31, 1981 with Central ..Telephone & Utilities Corporation, Central Telephone Company and Centel Communica=ions Company Gentlemen-. We' have acted as counsel for Central Telephone & Utilities Corporation, a Kansas corporation ("Centel ") Central Telephone Company, a Delaware corpora=ion ( 'Central Telephone" ) and Cantel Communications Company, a Delaware corporation ("Communications", and collectively wi~h Centel and Central Telephone, =he "Companies" ) wi~h r~gard to the execution and delivery of =he Credit Agreement dated as of December 31, 1981 between the Companies and you and =he banks n~ed therein (the "Agreement"). Ail terms used and not defined herein shall have the meanings assigned to them in =he Agreement. We are familiar with the actions taken with respect =o the authorization of and the execution and delivery of the Agreement. We have made such other investiga=ions of fact and have considered such questions of law as we have deemed necessary for the purposes of ~his opinion, which is delivered to you pursuant to Section 6.1(a) of the Agreement. Based on the foregoing, it is our opinion that: (i) Centel is duly organized and existing in good s~anding under the laws of the State of Kansas; has all necessary corporate power to carry on its present business; and has full power, right and authority to enter into the Agreement, to make the borrowings therein provided for, to issue its Notes (subject to any necessary regulatory approval referred to in paragraph (iv} herein) and to perform each and all qf =he matters and things therein provided for. (ii) Central Telephone is duly organized and emisting in good standing under the laws of the State o.f De!awa~e; has all necessary corporate .Dower to carry on its prgsent business; and has full power, right and authority to et=er into the Agreement, to make =he borrowings therein provided for, =o issue its Notes (subject to any necessary regulato~I approval referred to in paragraph (iv) herein) and =o perform each and all of t_he manners and things ~erein provided for. (37) (iii) The Agreement is a legal, valid and binding Agreement of ~he Companies, enforceable against them in accordance with its terms and, subject to the regulatory approval referred to in paragraph (iv) herein, the Notes when executed and delivered, and upon receipt of consideration therefore, will be similarly legal, valid, binding and enforceable · (iv) Issuance of any Note by Centel pursuant to t. he Agreement is subject to approval (a) by the Federal Energy Regulatory Commission if =he Note by its terms matures more t~an one (!) year from ~he date of its issue, or (b) by the Colorado Public Utilities Commission and t_he Kansas Sta~e Corporation Commission if the Note by its terms matures more than one (1) year from the date of its issue. Issuance of any Note pursuant to the Agreement by Central Telephone is subject to approval by the North Carolina Utilities Commission if ~he Note by its terms matures more than two (2) years from the date of its issue. No governmen~a! authorization, consent or filing, whet, her federal, state or local, other than as described in this paragraph. (iv), is required on =he part of any or all of the Companies with respect to ~he lawful execution, delivery and performance of t_he Agreement, =he Notes and the making of t_he loans evidenced ~her~by. Respectfully submitted, (38) EXHIBIT E Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 As Agent for the Banks named in the Credit Agreement Dated as of December 31, 1981, with Central Telephone & Utilities Corporation, Central Telephone Company and Cente! Communications Company Ge~t i emen: I am Vice President and General Counsel of Central Telephone a Utilities Corporation, a Kansas corporation ("Centel"), Central Telephone Company, a Delaware corporation ("Central Telephone") and Cen=el Communications Company, a Delaware corporation ("Communications", and collectively with Cen=el and Central Telephone, the "Companies") and am familiar with the actions taken with respect tm the authorization of the execution and detivery of the Credit Agreement dated as of December 31, 1981 between the Companies and you and the banks named therein (t_he "Agreement"). All ~ermS used and not defined herein shall have the meanings assigned to them in the Agreement. I have made such investigations of fact and have considered such questions of law as I have deemed necessary for the purposes of =his opinion, which is delivered to you pursuant to Section 6.1(a} of the Agreement. Based on t_he foregoing, it is my opinion that: (i) Communications is duEy organized, and existing in good standing under the laws of the State of Delaware; has all necessary corporate power to carry on its present business; and has full power, right and authority to enter into the Agreement, =o make the borrowings therein provided for, to issue its Notes and to perform each and all of the matters and things therein provided for. (ii) The Agreement does not, nor will the performance or observance by any of the Companies of any of the-matters and things therein provided for, contravene any provision of law (subject to any necessary req_u!atory approval referred to in Section 5.6 8f t~e Agreement) or any judgment or decree or any charter' or bylaw provision of tine Companies, or any covenant, indenture or agreement of or affecting tine Companies or their properties of which I have knowledge. (iii) There is no litigation or governmental proceeding pending, or to my knowledge threatened, agains= any Company or any Consol ida=ed Person of such Company which would materially adversely affect t_he business and proper=les of such Company and its Consolidated Persons on a consolida=ed basis. Respectful!y submitted, .... [40 ) EXH!B IT F · 1982 Harris Trust and Savings Bank 111 West Monroe Street Chicago], I1 linois 60690 As! Agent for the Banks named in the Credit Agreement Dated as of December 31, 1981 with Central Telephone & Utilities corporation, Central Telephone Company and Centel Communications Company. Gentlemen: We have acted as special counsel for you in connection with the preparation of, and supervision of legal matters connected with, the above referenced Agreement (the "Agreement"). Ail terms used herein shall have the same meaning as in the Agreement. As special counsel we~ have _examined: (a) Counterparts of the Agreement executed by t_he Companies and the Banks. (b) Resolutions of the Finance Committees or the Boards of Directors of the Companies authorizing and confirming the execution and delivery of ~he Agreement and the transactions contemplated =hereunder certified by =he respective Secretaries of the Companies in a manner satisfactory to us. (c} Opinions dated January 15, 1982, of Messrs. Ross, Hardies, O'Keefe, Babcock & Parsons and of Mr. Karl Berolzheimer, counsel for =he Companies, delivered' to =he Banks in response to .requirements of Section 6.1(a.). of =he Agreement. We are pleased to advise yo.u that t_~e Agreement is in acceptable legal form and that the certified resolutions and opinions delivered to you as required under the terms of the Agreement are-substantially responsive ~o the requirements of said Term Credit Agreement. Respectfully submit-ted, approvals, consents, exemptions or other actions' by, or notices to or filings with, any governmental authority, whet, her federal, state or local necessary in connection with the execution, delivery, performance or enforcement by the borrowing Company of this Agreement and the Notes which are provided for hereby to evidence Domestic Dollar Term Loans and Eurodollar Term Loans of the borrowing Company, all of which shall be in full force and effect as of the date of the making of such initial Term Loan to the borrowing Company, and said Notes shall be to =he extent of the considera=ion received therefor, the legal, valid, binding and enforceable obligations of the borrowing Company (and a r~quest by the borrowing Company that such initial Term Loan be made shall be and constitute a represen=ation to the foregoing effect by the borrowing Company) ~ogether with an opinion of outside counsel satisfactory to the Agent and the Bank-'s special counsel, Messrs. Chapman and Cutler, to the effect that: (i) such approvals, consen=s, exemptions, actions, notices and filings constitute all approvals, consents, exemptions or other actions by or notices to or filings with, any governmental authority, whether federal, state or local, r~quired on the part of the borrowing Company with respect to the lawful execution, delivery and performance of this Agreement, said Notes and the making of the Term Loans evidenced thereby; (ii) the same are of bor=owing ia full force and effect; and (iii) a~ Notes ~ave been duly Comply and are to the %%vered by the r=ow=g ~= u= nme consl=eration received oftheref°rthe borrowing' the legalcompany., valid ' binding and enforceable obligations 6 ~ --= ,=, - ~o_~ ~=&=unuer in circumstances when - - .. --- ~-~ =~wa~uau~e, all approvals, con- s~n=s, exemp=~ons or other actions by, or notices · .. w~=h, any governmental authority, w~.~- .=_..= .... to. or fll~_ngs u= enzorcement o~ eh.~,,= a,,. ...... ~ .... tl_.., ~=~v=&y, perIormance ~_u~u~=ny, snal I ~ave been obta~n~ - ~ ~ ...... :o_rce an= efzect as of the t= ~w ~- --,-- ..... effectin= o~ ----= .... .d~._T ?.. ,..~.= ,,,a~.=ng, con:~nulng or . . _- ~ ~ .~uua ~o~n, cer~-~r~em cop~es (or other showings the Note evidencin- ~=~ ~-~-=~-~-tufr~.e a.ccOunt of- the Banks and ~.=_~=.~v~u :nerezor, the. I ' · : __ . ~ =u~ ODl~,~ ....... ?gal, valid, binding and enforcea~ borrowing Corn an that s-'~ '""~=-~*-~' an= each r~ques= by the P Y uch Loan b~ made, continued or effected -by conversion shall be and constitute a representation and war- ranty'to the foregoing effect by the borrowing Company. 6.4. Legal matters incident to the execution and delivery of this Agreement and the Notes shall be satisfactory to the Banks and =~eir special counsel, Messrs. Chapman and Cut!er. the proceeds of other capital stock any shares of capital stock of Communications, if the aggregate amount of such declarations or payments made after December 31, 1980 would' exceed the sum of (i) $5,000,000 plus (ii) fifty percent of Communications' Consolidated Net Income after December 31, 1980 to the date of =he determination thereof. (d) Current Ratio. Communications will not permit at any time the ratio of its current assets =o its curren~ liabilities ~o be less than 1.5:1. Current assets and current liabilities shall k~ determined in accordance witch generally accepted accounting principles consistently applied. (e) Limitation on Liens create or permi= to exist any including Securities issued b owned or hereafter acquired b for ~axes not ye= due or whic faith by appropriate proceedi to the conduct of Communica=i of its Property which were nc (i) Communications will not Lien upon any of its Property, any of its Subsidiaries, now y Communications, except Liens h are being contested in good ngs and other Liens incidental OhS' business or the ownership t incurred in connection with the' borrowing of money or obtaining of advances or credit, and which do not in ~e aggregate materially detract from =he value of Communications' Property or materially impair the use thereof in the opera.t~]on, of i~s business or materially affect Communications' ab~llty to perform its ob liga~ions hereunder. (ii) Wi~hout limiting any right or remedy otherwise available to t_he Banks, if Communications shall create or permit to exist any Lien in violation of this Section 7.4(e), t~hen it shall ~e effective provision whereby =he Notes shall be equal !y and ratably secured with the obligations secured (f) Limitation on Mer~r and Sale of Assets. Communications will no= sell, lease, transl,:r, or or_~erwise dispose of all or subst~%ntially.all of its ]~roper=y and assets, or consolidate wit/{ or merge in~o any other corporation, or permit any other corporation to merge ~to 'Communications, nor will Communications become a Subsidiary of another corporation, unless: (i) Al! of the !i~ Communications under it: be expressly assumed in (other than Communicati~ any such consolidation, which shall have receiv, o~2~erwise) all or subst. assets of Communica:ion~ ,hilities and obligations of Notes and this Agreemen= shall writing by 'the corporation :ns) formed by or resut, tinq fro~ ~r surviving any such merper or .~d (by sale, lease, or merger or ~ntially all of ~.~e Property and or as =o which Communications (c) Payment of Notes and Maintenance of Office. Such Company shall punctually pay or cause ~o be paid ~_~e prin- cipal and interest (and premium, if any) due and to become due in respecn of its Notes according to the terms hereof and thereof and will maintain an office in the State of Illinois where notices, presentations, and demands in respect of this Agreemen~ or the Notes may be made upon it. Such office shall be maintained a= O'Hare Plaza, 5725 N. East River Road, Chicago, Illinois 60631, until such time as such Company shall notify the holders of the Notes of any change of location of such office within such Sta=e. (d) Financial ReDorting. Each such Company shall and shall cause its SUbsidiaries to permit each of =he Banks and their respective employees and agents to inspect its and its Subsidiaries books and records during reasonable business hours, and shall furnish ~o each Bank': (i) As soon as generally available and in any event within forty-five (45) days (except in the case of Communications in which case within ninety (90) days) after the end of the first, second and third quarterly account_%ng periods of each fiscal year, a copy of the consolidated balance sheet as of t_he end of such accounting period, and the related consolidated statements of income, common shareholders' investment and changes in financial position for such quarterly period, and for that portion of such year ending a= the close of such quarter,, accompanied by an opinion of an authorized financial or accounting officer of the Companies; provided, however, tha. t the Companies shal 1 be deemed to have complied with this r~quirement if they shall furnish a copy of the Form 10-Q Report of the Companies, as filed with the SEC for the applicable quarter if said Report is prepared and includes such_ financial s~atements; (ii) As soon as generally available and in any event within ninety (90) days (except in the case of Communications, in which case within one hundred eighty (180) days) after the end of each fiscal year, a copy of the consolidated balance sheet as of the end of such fiscal year, and the related consolidated statements of income, common shareholders' investment and changes in financial position, for the fiscal year then ended, and reported on by independent public accountants of_recognized national standing,' selected by the Companies, whose report shall be prepared .in accordance with generally accepted auditing standards relating to reporting (provided, however, ~hat the Companies shall be deemed to have complied with this requirement if t.Ney shall pre-tax income bears to net income for such period). Centel's Pro Forms Total Annual Interest Charges shall be interpreted to include =he annual interest charges on Funded Indebtedness being incurred, but to exclude =he annual interest charges on any Indebtedness being simultaneously retired, and preferred stock dividend requirements of'Cen=el's Subsidiaries (multiplied by the ratio t,hat pre-tax income bears to net income for such period) shall exclude such requirements on pre- ferred stock of Cente!'s Subsidiaries being simui- =anecusly retired. (b) Limits=ion on Liens. (i) Can=el will not create or permit ~o exist any Lien, upon any of its Property, including Securities issued by any of its Subsidiaries now owned or hereafter acquired by Can=el, except: (A) The lien of its Indenture of Mcr=gage or any Superseding MoL=gage; (B) Liens, existing on or in Proper~y acquired by Can=el after July 1, 1980 and which were in existence prior to and at t_he date of acquisition t_hereof; pro- vided =hat any such Lien shall not ex=end to any of Cen=e!'s other Property other than =he Property subject t. hereto at ~he date such Property was acquired by it and additions, betterments, extensions, renewals, or replacements to or of such Property; (C) "Permitted encumbrances" or "prepaid liens," as defined as of the date hereof in the Indenture of Mortgage; and (D) Replacements of any of t_he foregoing. wise permit to exist any Lien, in violation of =his $ 7.1(b), =hen i= shall make effective provision w. =he Notes shall be equally and ratably secured w obligations secured t_hereby .- (ii) Without. limiting any right or remedy other- available to =he Banks, if Centel shall create or =_orion ~ereby .ah =he (c) Limitation on Dividends. Can=at will no= ( declare or pay any dividend (cuber than dividends pay 'stock) or make any other distribution on its capital stock, or (ii) purchase or otherwise retire directly or indirectly in any manner (other than in exchange for or from =Se proceeds of other capital stock) any shares of capital stock of Can=el, if the aggregate amount of such declarations or payments made after December 31, 1978, would exceed Con- solidated Nan Income Available for Dividends of Cannel and (B) Liens, existing on or in Property acquired by Central Telephone after December 31, 1981 and which were in existence prio~ to and at the date of acquisition thereof; 9rovided =_ha=any such Lien, shall not extend to any of Cant. tel Tele?h0ne's or_her Property other t~han t_he ProperTy subject thereto at t_he date such Property was acquired by it and additions, betterments, extensions, renewals, or replacements to or of such Property; (C) "permitted ~encumbrances" or 'prepaid liens" as defined as of the date hereof in the Central Telephone Indenture of ~Mor~gage. (D) Replacements of any of the foregoing. (ii) Without limiting any right or remedy ot. hez-~ise available to the Banks, if ~entrai Telephone shall create or permit ~o axis= any Lien, ~.violation of this Section 7.3(b), then it shall make effective provision whereby =he No~es shall be equally and ratably secured with t_he o~ligations secured thereby. (c) Limitation on Dividends. Central Telephone will no= (i) declare or pay any dividend (other than dividends payable in s~ock) or make any other distribution on its capital stock, or (ii) purchase or otherwise retire directly or indirectly in any manner (other t/Lan in exchange for or from the proceeds of other capital stock) any shares of capital stock of Cantra! Telephone, if the aggregate amount of such declarations or payments made after December 31, 1978, would exceed Consolidated Net Income Available for Dividends of Central Telephone and its Subsidiaries accumulated after December 31, 1978, plus =he sum of $25,000,000. Notwithstanding the foregoing, Central Telephone or any Subsidiary may declare or pay dividends on its capital stock ranking senior to its common stock upon dissolution or liquidation or as to dividends and may purchase shares Of suchsenior stock necessary to meet any sinking or purchase fund requirements, but amounts expended for such purposes shallbe included in all subsequent computations made pursuant to this Section 7.3(c). (d) Limitation on Mer~er and Sale of Assets. Central Telephone will no= sell, lease, ~r~nsfer, or o~her'~ise dispose of all or substantially all of its ~roper~y and assets, or consolidate with or merge into any or, her corporation, or permit any other corporation to mer~e into Central ~elephone, nor will Central Telephone become a Subsidiary of another corp0ra~ion, unless: (i) Ail of the liabilities and .obligations of Central Telephone underi=$ Noues and this Agre~men~ shall be expressly assUmed in wrifing by ~he corporation would exceed sixty perce= Capitalization of Cant_rat or (B) =he Consolidated Subsidiaries for a pe'ri= calendar months within immediately preceding Indebtedness is to be crt guaranteed shall have sum of (Z) Central Telep! Interest Charges (long including interest on imputed interest of capit (i) Central Telephone will not directly or ihdirectly create, issue, assume, o~ guaran=ee any unsecured Funded Indebtedness ranking, senior to the Notes; and (ii) Central Telephone will not directly or indirectly create, issue~ assume, or guarantee any unsecured Funded !ndebt~ness ranking equally witch or 3unior ~o =he Notes (excppt Subordinated Indebtedness) if (A) =hereby the aggrec, ate principal amount of all Consolidated ~unded Indet tsdness of Central Telephone and its Subsidiaries (ot~ er than Central Telephone's Subordinated !ndebtednes:~) whet_her secured or unsecured ~t (60%) of Consolidated Total · Telephone and its Subsidiaries; let Ear~ings of it and its [ of twelve (12) consecutive ~e fifteen (15) calendar months : month in which such Funded tared, issued, assumed, or .~n less than ~wo (2) =imes the ~one's Pro Forma Total Annual .~rm and short term interest, )Ordinated Indebtedness and =he :al leases, if any), and (Y.) preferred stock dividend rmquirements of Central Telephone's Subsidiaries (multiplied by =he 'ratio that pre-tax income bears to net income for such period).. Central Telephone's Pro Forma Total Annual Interest Charges shall be interpreted to .~clude =he annual interest charges on Funded Indebt~ness being incurred, but to .exclude =he annual inter,st charges on any Indebtedness being simultaneously retired, and preferred stock dividend requirements of Central Telephone's Subsidiaries (multiplied by =he ratio that pre-tax income bears net income for such period) shall exclude such requirements _on preferred stock of Cent_~al Telephone's Subsidiaries being simultaneously ret_ired. (b) Limitation on Liens. not create or permi: to exis= ProperTy, including securitie: now owned or hereafter acquir~ (A) The lien of Car. Mortgage-to The First Nat Grimes, as Trustees, date and ,hereafter amended and Telephone Indenture of Mc (i) Central Telephone will ~y Lien, upon any of its ~ssued by any of its Subsidiaries d by Central Telephone except: .tral Telephone's Indenture of .ional Bank of Chicago and J.R. June !, 1944 as heretofore Supplemented ~the "Central r=gage"). business against such casualties and contingencies, of such Types (including public liabiliTy, larceny, embezz!emen.n, or other criminal m~sappropriation insurance), and in such amounts as is ~ustomary in t~_e case of corporations of est~ablished reputations engaged in the same or a similar business and similarly situated, provided that such Company and its Subsidiaries shall be en=it!ed to maintain a-system of self-insurance witch respect to the first $500,000 of loss arising from each such casualty -. ' 4 further, that, with and contingency, and ~rovlde , respect to each such casualty and contingency as to which all losses in excess of $1,000,000 are fully insured, without co-insdrance, such self-insurance shall be permitted with respect to the first $1,000,000 of loss; (iii) Keep its books and records in accordance with generally accepted accounting principles consistently applied; (iv) Do or cause ~o be done all t.~ings necessary (A) to preserve and keep in full force and effect its corpora=e existence and its rights (statutory and charter), and (B) to maintain each of its Subsidiaries as a Subsidiary, provided that any Subsidiary may be liquidated, disposed of, or merged into any other Subsidiary or into its parent (provided that nothing contained herein shall be deemed to waive Section 8.1(h) hereof) if in the opinion of the Board of Directors of its parent such liquidation, disposition, or merger is in the best .interests of such parent and if such liquidation, disposition, or merger would not materially adversely affect the business, prospects, profits, properties, or condition ( financial or otherwise ) of such Company and its Subsidiaries considered as a whole; and (v) Comply with all laws, ordinances, and governmental rules and regulations to which it is subject and obtain and ma'kntain in full force and effect all licenses, permits, f=anchises, or other governmental aut~horizations necessary to the ownership of its properties or to the conduct of its business, the violation of which or failure to so obtain and maintain might materially adversel'y affect the business, prospects, profits, properties, or condition (financial or otherwise) of such Company and its Subsidiaries considered as a whole, provided that ~ompliance w~h such laws, ordinances, and governmental rules and r-~gulations shall not be required so long as the validity or applicability thereof is contested in good faith by appropriate proceedings. 7. COVENANTS 7.1. Without limiting any covenant contained Ln Section 7.2, 7.3 or 7.4 hereof, each Company covenants and agrees that, so long as any Note of such Company is outstanding here- under or any credit is available to or in use by such Company hereunder, except to the extent compliance in any case is waived in writing by ~he Required Banks; (a) Pa .!men= of Taxes and Claims. It will pay and will cause each Subsidiary to pay, before t_hey become delinquent: (i) all lawful taxes, assessments, and govern- mental charges or levies imposed upon it or its prop- erty; and (ii) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords, and other like persons which, if unpaid, might result in the creation of any Lien, upon its property, provided, that items of the foregoing description need not be paid so long as they are being contested in good faith by appropriate proceedings and, if, in the opinion of t_he independent public accountants of the contesting Person, book reserves are required, then a~equate book reserves have been established with respect thereto and the contesting Person's title to, and its rig:h= to use, its property is not materially adversely affected thereby. In the case of any i~m of t_he foregoing description involving in excess of $1,000,000, the appropriateness of t. he proceedings shall be supported by an opinion of the independen= counsel res- ponsible for such proceedings and the adequacy of such reserves shall be supported by t. he opinion of the inde- pendent public accountants of the contesting Company. (b) Maintenance of Pro.De,ties and Corporate Existence. will and will cause each S~sidiary to: · (i) Maintain its property in good condition and make all necessary r~newal~, replacements, additions, betterments, and improvements thereto, provided =hat such Company and its Subsidiaries may abandon any of ~eir properties if the BOard of Directors of such Company or such Subsidiary shall determine =hat such abandonment is in the bes% interests of such Company or such Subsidiary and if such abandonment shall no= be detrimental to =he holders of =he Notes; (ii) Maintain~ with financially sound and reputable insurers, insurance with respect to i~s properties and seek ~rminaticn of any such Plan or appointment of a t_~ustee '~herefor. Such Company will, and will cause each member of its Controlled Group to, notify the Agent of its intention to terminate or withdraw from any Plan and will not and will not permit any member cf its Controlled Group to, terminate any such Plan or withdraw therefrom unless it shall be in compliance with all the terms and conditions of tJ~is Agreement after giving effect to any liability to t_he Pension Benefit Guaranty Corporation resulting from termination or wit~hdrawal. (f) Regulation U. It shall not use any part of t_he proceeds of any of t/~e Loans directly or indirectly to purchase or carry any margin stock (as defined in Section 5.10 hereof) or ~o extend credit to others for =he purpose of purchasing or carrying of such margin stock except in compliance wit2~ Regula=ion U of the Board of Governors of t_he Federal Reserve System. 7.2. Cente! covenants and agrees that, so long as any of its No~s is outstanding hermunder or any credit is available or in use by i= hereunder, except to the extent compliance is waived in writing by the Required Banks: (a) Limitation on Incurrinq Indebtedness. (i) Centel will not directly or indirectly create, issue, assume, or guarantee any unsecured Funded Indebtedness ranking senior to ~he Notes; and (ii) Centei will not directly or indirectly create, issue, assume, or guarantee any unsecured Funded Indebtedness ranking equally with or junior to t_he Notes (except Subordinated Indebtedness) if (A) thereby the aggregate principal amount~ of all Consolidated Funded Indebtedness of Centel and its Subsidiaries (other ~han Centel' s Su3uordinated Indebtedness) whether secured or unsecured would exceed sixty percent (60%) of Consolidated Total Capi~a!ization of Centel and its Subsidiaries; or (B) the Consolidated Net Earnings of Cants! an~ its Subsidiaries for a period of T~elve (12) consecutive calendar months within the fifteen (15) calendar months immediately precedLn'g the month in which such Funded -Indebtedness is to be created, issued, assumed, or guaranteed shall have been less than two (2). times t~he sum of (7.) Cenuel's Pro Pores Total Annual InUerest Charges (long term and short ~erm interest, including interest on Subordihated Indebt- edness and the impuUed interest of capital leases, if any), and (Y) preferred stock dividend requiremen=s of Cen=el's Subsidiaries (multiplied by .~he ratio =has its Subsidiaries accumulated after December 31, 1978, 'plus the sum of $25,000,000. NoTwithstanding t_he foregoing, Can=e! or any Subsidiary may declare or pay dividends on its capital stock ranking senior tQ its common stock upon dissolution or liquidation or as to dividends and may purchase shares of such senior stock necessa!-t to meet. any sinking or purchase fund raquimements, but amounts expended for such purposes shall be inc~-uded in all subsequent computations made pursuant ~o ~his Section 7.2(c). (d) Limitation on Mer~er and Sale of Assets. Can=et will no= s~!i', lease, %ransfer, or ot_~ea"~ise dispose of all or substantially all of its Property and assets, or con- solidate wit2~ or merge into any other corpora=ion, or permit any other corporation ~o merge into Can=e!, nor will Can=el become a Subsidiary of another corpora=ion, unless: (i) Ail of' =he liabilities and obligations of Cente! under its Notes and thls Agreement shall be expressly assumed in writing by ~he corporation (other 'than Can=al) formed by or resulting from any such consolidation or surviving any such merger or which- shall have received (by sale, lease, or otherwise) all or substantially all of We Property and assets of Cantei or as to which Cent. el has become a Subsidiary (hereinafter referred to in =his Section 7.2(d) as "such successor corpora=ion"); (ii) Such successor corporation shall ~ a cor- poration incorpora=md under =he laws of a state of, or by, t_he United States of ~erica; (iii) Immediately ~ter such ~ransaction, and after giving effect =hereto, Cents! or such successor corporation, as t_he case ~y be, could then have created, issued, assumed, or guaranteed at least $1 of a~diticnal ~unded Indebtedness under Section 7.2(a) hereof, and (iv) Immediately afper such transaction, and after giving effect =hereto, no event of default under Section 8.1 hereof shall 9xis= and no event shall exist which with =he giving of ~0~ice or lapse of time would constitute such an event o~ default. ~ 17.3. Central Telephone c?W..enan=s and agrees =hat, so _ cng as any of its Notes is outstand.~ng hereunder or any credit { is available or in use by i= hereunder, except to the extent · compliance is waived in writing by =he Required Banks: (a) Limitation on Incurr~n~ Indebtedness. (or_her than Cent_tel Telephone) formed by or resulting from any such consolidation or surviving any such merger or 'which shall have r~ceived (by sale, lease, or ot-hez"~!se) all or substantially all of the Property and assets of Central Telephone or as to which Central Telephone has become a Subsidiary (hereinafter referred to in ~his Sect_ion 7.3(d) as "such successor corporation"); (ii) Such successor corporation shall be a corporation incorporated under the laws of a s~ate of, or by, the United States of America; (iii) Immediately after such transaction, and after giving effect thereto, Central Telephone or such successor corporation, as the case may be, could then have created, issued, assumed, or guaranteed at leas= $1 of a~ditional Funded IndeJotedness under Sec=ion 7.3(a) hereof; and (iv) Im~ediate!y after such transaction, and after giving effect thereto, no event of default under Sec=ion 8.1 hereof shall exist and no event shall exist which with the giving of notice or lapse of time would constitute such. an even= of default. 7.4. Communications covenants and agrees that so long as any of its Notes is outstanding hereunder or any credit is available or in use by it hereunder, except to the ex=mn= compliance is waived in writing by the Required Banks: (a) Senior Indebtedness. Communications shall not permit its' Senior Indebtedness to exceed 90% of its Net Tangible Assets; (b) Communications' Consolidated Net Incom~. Com- munications shall no= permit Communications' Consolidated Net Income for any of its fiscal years to be less than one and one-half times the sum of (i) ~_he principal amount of all its Indebtedness for borrowed money due within twelve months of the end of such fiscal year, (ii) interest due within twelve months of the end of such fiscal year on its Indebtedness for- borrowed money, (iii) lease obligations due within twelve months of the end of such fiscal year, and (iv) imputed interest due within twelve months of the end of such fiscal year on leases. (c) Limitation on Dividends~ Communications will non (i) declare or pay any dividend (other than dividends payable in stock) or make any other distribution on ius capital stock, or (ii) purchase or othez-~ise re=ire (directly or indirectly in any manner) ct/let ~.~an in exchange for or from has become a Subsidiary (hereinafter referred ~o in this Section 7.4(f) as 'SuCh successor corporation"); (ii) Such successor corporation shall be a corporation incorporated under the laws of a state of, or by, United eta=es of America; (iii) Immediately after such transaction, and after giving effect thereto, Communications or such successor corporation, as the case may be, could t_hen have created, issued, assumed, or guaranteed at least $1 of additional Senior Indebtedness under Sec=ion 7.4(a) hereof; and (iv) Immediately after such transaction, and after giving effect t_hereto, no event of default under Section 8.1 hereof shall exist and no event shall exist which with the giving of notice or lapse of time .would constitute such an even= of default. 8. EVENTS OF DEFAULT AND REMEDIES. 8.1. Any one or more of %he following shall an event of default: (a) default in the payment when due of principal of or interest on any Note, or any other amount payable by any of the Companies hereunder, whet. her at the stated maturity thereof or at any other t_tme provided in this Agreement; (b) default by any Company to which any Loan is available or ou=standing hereunder in =he observance or performance of any covenant set forth in Sec=ions 7.1(a), 7.1(b)(ii), (iii) or (iv), 7.1(c), 7.2, 7.3 or 7.4 hereof~ (c) default by any Company to which any Loan is available or outstanding hereunder in the observance or performance of any other provision hereof which is not remedied within 30 days after not. ice thereof =o such Company by %he Required Banks; (d) default shall occur in the payment when due of any Indebtedness or any other Security of any of the Companies or default shall occur undem any indenture,-agreement or o~her instrument under which the same may be issued and 'such default shall continue for a period of time sufficient to permit any holder of such' Indebtedness or other Security or trustee ~herefor to cause t_he acceleration of the maturity of any such Indebtedness; (e) any representation or warranty made herein by any Company to which any Loan is available or outstanding hereunder, or in any statement or certificate furnished pursuaDt hereto by such Company, or in connection with any Loan made hereunder to such Company proves untrue in any material respecn as of t_be date of =he issuance or making thereof, and =be breach of such representation or warranty is not cured within 30 days after notice t_hereof to 'such Company by t_he Required Banks, provided t. hat such grace period shall not apply if such breach is no= capable of being cured; (f) any of the Companies shall (i) have entered involuntarily against it an order for relief under the Bankruptcy Act of 1978, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as =hey become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appoint_men= of a receiver, custodian, ~-usnee, examiner, liquidator or similar official for it or any substantial par= of its property, (v) institute any proceeding seeking to have. entered against it an order for relief under t. be Bankruptcy Ac~ of 1978, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating ~o bankruptcy, insolvency or reorgani- zation or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, or (vi) fail to contest in good fait2~ any appointment or proceeding described in Sec=ion 8.1(g) hereof; (g) a custodian, receiver, ~rustee, examiner, liquidator or similar official shall be appointed for any of t_he Companies or any substantial par= of any of their Proper=y, or a proceeding described in Section 8.1(f)(v) shall be instituted against any of the C~mpanies and such appoint_men= continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 days; (h) Central Telephone or Communications shall fail at any time to be wholly owned Subsidiaries of Centel (except for directors' qualifying shares); (i) any Company shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $!,000,000, which is not s=ayed on appeal or otherwise being appropriately contested in good faith. 8.2. When any event of default described in Sections 8.1(a) , (b) , (c), (d), (e) or (i) has occurred and is continuing, the Required Banks may, by notice to all of t.Ne Companies to which any Loan is t_hen available or outs=ending hereunder, take either or both.of the following actions: (i) terminate t_he remaining co_m_~itments of the Banks hereunder on =he date (which may be the date thereof) slated in such notice, and (ii) declare ~f~he principal of and the accrued interest on all outstanding ~otes of all of the Companies to be forthwith due and payable and thereupon all of said Notes, inc!udi~g both principal and interest, shall be and become immediately due and payable together with all or,her arno=nfs payable under this Agreement without further demand, presentment, protest or no=ice of any kind. The Required Banks giving not-ice ~o the Companies pursuant to Section 8.1 or this Section 8.2 shall also promptly send a copy of such notice to the other Banks and the Agent, but the failure to do so shall not impair or annul the effect of such notice. S.3. When any event of default described in subsections (f), (g) or (h) of Section S.1 hereof has occurred and is continuing, then all outstanding Notes shall immediately become due and payable together with all other amounts payable under this Agreement without presentment, demand, protest or notice of any kind, and the obliger_ton of =he Banks ~o extend further credit pursuant'to any of =he ~rms hereof shall immediately terminate. 8.4. The Companies jointly and severally agree to pay to the Agent and each Bank or any other holder of any Note outstanding hereunder, all expenses incurred or paid by the Agent and such Bank or any such holder, including reasonable attorneys' fees and court costs, in connection with any default by any of t_he Companies hereunder or in connection with the enforcement of any of the ~.terms hereof or of the Notes. 9. THE AGENT. 9.1. Each Bank hereby irrevocably appoints Harris Trust and Savings Bank its agent under this Agreement and hereby authorizes the Agent to take such action as Agent on its behalf and tu exer=ise sUch powers under this Agreement as are specifically delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. T/:e Agent may execute any of its duties hereunder, as Agent by or through agents or employees and shall be entitled to re~ain counsel and =o act in reliance upon the advice of such counsel concerning all matters pertaining to the agencies hereby created and its duties as Agent hereunder. · 9.2. Neither the Agen= nor any of its directors, officers, · employees, attorneys, agents or representatives shall be liable for any action ~aken or omi=ted no be taken by it or them under this Agreement or i/r connection herewith, except for its or =heir own gross negligence or willful misconduct; nor shall the Agenn or any Bank be responsible for the validi~y, effectiveness or sufficiency of this Aqreemenu or any ~Noue furnished pursuant hereto or in connection herewith. 9.3° The ~gen: shall be entitled to rely on any paper or document believed by it to be genuine and correct and to have been signed or senn by t_he proper person or persons. The Agen= may also deem and treat ~he payees of any Notes as t_he owners thereof for all purposes hereof unless and until a written notice of =he assignment or transfer ~hereof shall have been filed the Agent. With respect ~o =he Note or Notes issued to it, t_he Agent shall have =he same rights and powers hereunder as any other Bank and may exercise =he same as =hough it were no= Agent. The Agent may accept deposits from, lend money to, and generally engage zn any kind of banking or trust business with the Companies as if it were not =he Agent. 9.4. Each Bank agrees =o reimburse the Agent on demand for all out-of-pocket expenses incurred by the Agent and not reimbursed by t_he Companies, pro rata according ~o =he outstanding principal balance of =he No~es a= =he t_tme of the incurrence of such expenses, and in =he event no principal balance is outstanding hereunder at such time, according to the aggregate principal amount of =he Revolving Credit Loans each of the Banks was commit=ed to lend hereunder as of =he date hereof. 9.5. The Agent may resign as such at any t_tme upon at least ten days' prior notice to =he Banks. in the event of any such resignat_~on, .t_he Required Banks as promptly as practicable shall appoint a successor agent, who shall be entitled ~o act as agent in accordance with the terms of t_his Section 9. 10 . MISCELLANEOUS . i0.i. No delay or failure on =he part of any Bank or on the part of the holder or holders of any Note in =he exercise of any power or right shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial - exercise thereof preclude any other or further exercise of any of_her power or right, and t/le rights and remedies hereunder of =he Banks and of the holder or holders of any Notes are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. 10.2. (a) If any payment of principal or interest on any Domestic Dollar Loan shall fall due on a day which is not a Business Day, interest at the rate such Domestic Dollar Loan bears for %he period prior to maturity shall continue to accrue on such principal from the stated due date thereof to and including the next succeeding Business Day on which =he same is payable. (b) If any payment of principal or interest on any Eurodollar Loan shall fall due cna day which is not a Banking Day, the Interest Payment Date or Payment Date thereof (as the case may be) shall be extended to the next date which is a Banking Day unless as a result thereof any Paymen~ Date 'would fall in furnish a copy of the Form I0-K Report of thhe Companies, as filed wi~h =ha SEC for such year, if said Report is prepared and includes such financial statements) and a statement that such accountants are familiar with ~e terms of t. his Agree. men= and t. hat, in making the audit necessary for such report or certificate, such accountants have obtained no knowledge of an event of default under Section 8.1 hereof or any event 'which with the giving of notice or lapse of ~tme or both would constitute such an event of default, or,' if in the opinion of such accountants any such event of default or other event shall exist, shall include a statement as to t_he nature and status thereof (it being understood t_hat such accountants shall not be liable, directly or indirectly, for any non-negligent failure in the application of generally accepted auditing st~andards to obta~_n knowledge of any event of default or other event); (iii) together with each of t_he financial state- ments required hereunder, a certificate signed by its Chief Financial Officer or Controller or Secretary- Treasurer stating that no even= of default under Section 8.1 hereof and no event which with the giving of no~ice or lapse of time or both would constitute such an event of default exists; (iv) as soon as the same shall come to the notice of any responsible officer of any of the Companies, a certificate stating that an event of default under Section 8 .I hereof exists, stat_%ng therein the na=ure and sis=us thereof; and (v) such other information (including non-fin- ancial information) as any of =he Banks may from time =o =_%me reasonably request. (e) E~RiSA. Each Company will, and will cause each member of its Controlled Group to promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a lien against any of its or their properties or assets and will promptly notify the Agent of the oc- currence of any reportable event (as defined in ERISA) which might result in =he termination by the Pension Benefit Guaranty Corporation cf any employee benefit plan covering any officers or employees of the Company or any member of Its controlled group, any benefits Of which are, or are required to be, guaranteed by the Pension Benefit Guaranty Corporation ("Plan") or of receipt of any notice from the Pension Benefit Guaranty Corporation of its intention to the next calendar month, in which case such Payment Dane shall be the next preceding Banking Day and the relevan= In=ares= Period shall be correspondingly abbreviated. In either case the' next Interest period shall be measured from the Payment Date so adjusted. 10.3. The Companies jointly and severally agree t.ha= they will pay such taxes, including interest and penalties, in the even: any such taxes are assessed irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. 10.4. Ail representations and warranties made herein or in certificates given pursuant hereto shall survive t.he execs=ion and delivery of this Agreement and of the Notes, and shall continue in full force and effect with respect to the date as o£ which they were made as long as any credit is in use or available hereunder. 10.5. Ail indemnities and all other provisions relative to reim~ursement to the Banks of amounts sufficient to protect the yield of the Banks with respect to the Loans, including, but no= limited to, Sections 1.6 through 1.9 hereof, both inclusive, shall survive the tarmination of this Agreement and the payment of the Loans or the Notes. 10.6. Ail communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove~ and shall be deemed to have been given or made when served personally or when deposited in the United States mail (registered or certified' if to the Companies) addressed ~o the Companies at O'Hare Plaza, 5725 N. Eas~ River Road, Chicago, Illinois, 60631 Att-n: Treasurer and t.~e Banks to their respective addresses set forth opposite their respective signs=utes hereto, or at such other address as shall be designated by any party hereto in a written notice to each other party pursuant ~o this Section 10.6. 10.7. The Companies jointly and severally agree to pay the reasonable fees and all disbursements of Messrs. Chapman and Cu=Ier, special counsel for the Banks, in connection with the preparation of, and supervision of legal matters in connection with, t_his Agreement~ whet_her or not the transactions contemplated herein are consummated. 10.8. This Agreement may be execu=ed in any number of counterparts, and by the different parties on different counterparts, each of which when executed shall be deemed an original but all - such counterparts taken together shall constitute one and the same instrument. 10.9.. This Agreement shall be binding upon the Companies -and their respective successors and assigns, and shall Lnure to the benefit of each of the Banks and the' benefit of their respec successors and assigns, including any subsequent holder of any Note. This Agreement and =he rights and duties of t2~e parties hereto, shall be construed and determined in accordance wit.~ t~ke laws of the State of Illinois. This Agreement constiTates t. Se et:ire understanding of t_he par=ies with respect =o-the subject matter hereof and any prior aqreements, whether written or oral, with respect =heret~ are superseded hereby. The Companies may al ln°t ofassign~he Bankstheir. rights hereunder without the written consen~ of · 10.i0. Any provision of this Agreement or the. Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) those Companies to which Loans are then available or outstanding hereunder, (b) t_he Required Banks, (c) if ~he rights or duties of the Agent_ are affected thereby, the Agent; provided that: (i) no amendment or waiver pursuant to this Section shall (A) increase any Commitment of any Bank without the consent of such Bank or (B) reduce the amount of or Postpone the date for payment of any principal of or interest on any Loan or any fee hereunder without the. consent of the Bank to which such payment is owing or which has committed to make such Loan hereunder; (ii) no amendment or waiver pursuant to this Section shall, unless signed by each Bank, change the provisions of this Section or the definition or Required Banks6 hereof.Or any condition precedent set forth in Section i0.11. The Agent shall use its best efforts to send to the Companies and t_he Banks sta=ements detailing the amount of ~- interes= owed by each Company to each Bank prior to the due date < of each interest payment and shall a.lso use its best efforts to ~ · forward to the Companies and the Banks within 30 days after each borrowing hereunder a s~atemen: of the principal amoun= of the. Loans owed by each Company to each of the Banks. It is specifically understood the= the failure of the Agent to send such statements shall not limit or otherwise affect the obligation of the borrowing Company to repay all of the principal and interes~ of its Loans. The .amount shown on such statements are purely for the administrative convenience of the Companies and the Banks and-are not binding upon either the Companies or the Banks. 10.i2. Article and section aeading~ used in this "Agreementor this Agreement. are for reference only and shall not affect =he construction Upon your acceptance hereof in the manner hereinafter ~'~set fort. h, tl~is Agreement shall be a contract between us for t.he '"purposes hereinabove set forth. ~ DaUed as of December 31, 1981. C~NTRAL TELEPHONE & 'UTILITIES CORPORATION (Corporate Seal) ATTEST: By Thomas A. Owens, Jr. /s/ Its Vice President Dale Parker /s/ Assistant Secretary (Corporat~ Seal) ATTEST: Dale Parker /s/ Assistant Secret~%ry (Corporate Seal) ATTEST: Dale Parker /s/ Assistant Secreta~ CENTRAL TELEPHONE COMPANY Thomas A. Owens, Jr. /s/ Its Vice President C~AV~EL COMMUNICATIONS COMPANY By Thomas A. Owens, Jr. /s/ Its Vice President Accepted and Agreed to as of the day and year last above writ=an. Eich Bank represents ~hat it has made and agrees that ia shall continue =o make its own independent investigation of the financial condition and affairs of the Companies and its own appraisal of the credi~wort, hiness of the Companies in connection