-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CyceNWvCl8DkfA2JlfDev+SuDZznVZKeph6PbXikcqfDEpo31I2JWHeVeQoAJZEQ Cf+8SmsQ5in53e9vCkcqxA== 0000950110-96-000319.txt : 19960401 0000950110-96-000319.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950110-96-000319 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARWICK VALLEY TELEPHONE CO CENTRAL INDEX KEY: 0000104777 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 141160510 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11174 FILM NUMBER: 96541477 BUSINESS ADDRESS: STREET 1: 47 49 MAIN ST CITY: WARWICK STATE: NY ZIP: 10990 BUSINESS PHONE: 9149861101 MAIL ADDRESS: STREET 1: 47 49 MAIN ST STREET 2: PO BOX 592 CITY: WARWICK STATE: NY ZIP: 10990 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____to____ Commission File No. 0-11174 WARWICK VALLEY TELEPHONE COMPANY (Exact name of registrant as specified in its charter) New York 14-1160510 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47-49 Main Street, Warwick, New York 10990 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 986-1101 Securities registered pursuant to Section 12(b) of the Act: None Common Stock (Without Par Value) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ____ NO _____ Aggregate market value of voting stock held by non-affiliates as of March 20, 1996 - (no organized market exists) Common shares outstanding, March 20, 1996 - 618,957 DOCUMENTS INCORPORATED BY REFERENCE Name Incorporated Into Annual Report to Shareholders for the year ended December 31, 1995 Parts II and IV Proxy statement for the 1996 Annual Meeting of Shareholders Part III The Exhibit Index for this report is located on page 11. The total number of pages contained in this report is 110. Part 1. Item 1. BUSINESS. Warwick Valley Telephone Company (the "Company") was incorporated in New York on January 16, 1902 and is qualified to do business as a foreign corporation in New Jersey. The Company's executive offices are located at 47-49 Main Street, Warwick, New York 10990 (Tel. No. 914-986-8080). The Company is an independent telephone company with 13,506 access lines in New York State and 8,286 in New Jersey at December 31, 1995. It provides telephone service to customers in the contiguous towns of Warwick and Goshen, New York, and the townships of West Milford and Vernon, New Jersey. The Company operates exchanges in Warwick (9,207 access lines), Florida (2,960 access lines) and Pine Island (1,341 access lines), New York and Vernon (5,846 access lines) and Upper Greenwood Lake (2,446 access lines), New Jersey. The Company's service area is primarily rural and has an estimated population of 50,000. In 1995, 19,817,962 toll calls were made on the Company's system, representing an increase of 7.2% from 18,482,545 in 1994. Business customers represent 21.1% of total access lines, and no single customer's annual billings represent a significant portion of the Company's gross revenues. The Company has installed advanced digital switching equipment in all of its exchanges and fiber optic routes between central offices and to most neighboring telephone companies, and is currently constructing fiber optic routes in certain other locations. The Company sells, as well as leases, telephone equipment both within its territory and with the territories of other telephone companies. Residential telephone equipment sales are made through the Company's retail stores, which are located in the Company's main office in Warwick, New York and at Route 515 and Guthrie Drive in Vernon, New Jersey. The Company also sells and leases business telephone systems both in its own territory and elsewhere. At present, the sale of telephone and other equipment does not constitute a material part of the Company's business. The Company holds a 7.5% limited partnership interest in a cellular mobile telephone partnership which is licensed to operate as the wire-line licensee in both Orange and Dutchess Counties, New York. The general partner is New York Cellular Geographic Service Area, Inc. (An affiliate of Bell Atlantic NYNEX Mobile), and the other limited partners are Highland Telephone Company, Sylvan Lake Telephone Company and Taconic Telephone Corporation. Since the inception of the partnership, the Company has made capital contributions of $249,750; no further capital contributions are expected to be required in 1995. The partnership began offering cellular service in both counties in February 1988. The partnership's pre-tax income for the year ended December 31, 1995 was $3,970,000, and the Company's share of that pre-tax income was $297,750. The Company has four wholly-owned subsidiaries. Warwick Valley Mobile Telephone Company, Inc. ("WVMT") resells cellular telephone service to the Company's subscribers as well as to others. WVMT also sells and installs cellular telephone sets. For the year ended December 31, 1995, WVMT had a pre-tax profit of $19,927. Warwick Valley Long Distance Company, Inc. ("WVLD") resells toll telephone service to the Company's subscribers. WVLD commenced operation in New Jersey in December, 1993 and in New York in May, 1994. WVLD had a pre-tax profit in 1995 of $315,216. Warwick Valley Networks, Inc. ("WVN") was established during 1994 and is a partner in the New York State Independent Network ("NYSINET"), which was created by the independent telephone companies of New York to build and operate a data connections network. NYSINET will make it unnecessary for its member companies to rely on outside companies for these services and may also offer services to companies who are not members, creating a potential source of additional revenue. The NYSINET network is expected to be in operation during 1996. Hometown Online, Inc.("Online") was established during 1995. It is the entity through which WVTC offers connectivity to the Internet as well as local and regional information services to personal computer users. Service is offered within WVTC's service area as well as in nearby areas in New York, New Jersey and Pennsylvania. Online, which began business in July, 1995, had a pre-tax loss of $200,003 in 1995. COMPETITION Residential customers can purchase telephone sets (including cellular sets) and equipment compatible and operational with the Company's telephone and cellular systems at other retail outlets inside and outside the Company's territory and not affiliated with the Company. Such outlets include other telephone company telephone stores, department stores, discount stores and mail-order services. Businesses in the Company's service area are also allowed to purchase equipment compatible and operational with the Company's system from other telephone and "interconnect" companies. The Company's territory is surrounded by the territories of NYNEX, Bell Atlantic, Citizens Utilities, Sprint-United Telephone and Frontier Telephone, all of which offer residential and business telephone equipment. There are also several interconnect companies located within a 30-mile radius of Warwick, New York. The Telecommunications Act of 1996 (the "Act"), which recently became law, creates a nationwide structure in which competition is allowed and encouraged between local exchange carriers, interexchange carriers, competitive access providers, cable TV companies and other entities. Because the states are responsible for implementing many of the Act's provisions, the impact on WVTC will be dependent primarily on proceedings currently underway in New York and New Jersey. The markets most likely to be affected first are the regional toll areas in both states. The competition in these areas is expected to have the effect of reducing Warwick's revenues. The extent of such reductions cannot yet be determined, but is expected to be small in New York, where carrier access is the main revenue source. In the ongoing New Jersey proceeding, the Company has urged that it be allowed to realign its local, toll and access rates to prevent a shortfall which could result from the loss of a significant portion of the regional toll market. Currently the Company's revenues from toll and access in the intrastate New Jersey market approximate $2,300,000. The effects of competition will be felt both in market share retained by the Company and the level of its toll rates required in order to remain competitive. Although any loss of toll revenue will be partially offset by increased access revenue, the current level of access rates will also be reduced. It is expected that regional toll competition in both states will be implemented before the end of 1996. The Company anticipates that local competition, as permitted by the Act, will occur first in major cities. It is impossible, at this time, to determine the extent, or the timing, of the advent of competition in the Company's service area, which is defined as rural under provisions of the Act. There are special provisions in the Act governing competition in rural areas but it is the responsibility of the States to implement them. To prepare for competition, which is expected to arise eventually, the Company is taking steps such as establishing subsidiaries as listed in this section, to compete in various markets, reengineering its processes, establishing a local business office in New Jersey and planning for cooperation with providers of personal communications services. The cellular partnership referred to above is in competition with two non-wire-line licensees, one of which is currently operating a cellular system in Dutchess County, New York, and the other in Orange County, New York. WVMT competes against Bell Atlantic-NYNEX Mobile Communication Retail Company, Orange County Cellular Telephone Corporation and others offering either cellular service or the sale and installation of cellular equipment. The Company currently provides access to the national and international calling markets as well as a significant portion of the intrastate calling markets through all interested inter-exchange carriers, including WVLD. Equal 2 access ("one-plus") service to all toll carriers has been available to the Company's customers since August 1, 1991. Access to the remainder of the intrastate calling markets is provided through NYNEX and Bell Atlantic. WVLD, as an inter-exchange carrier, competes against all such other carriers, providing full toll services to its customers at discounted rates. Online has numerous competitors whose services are available to customers throughout our marketing area. The Company competes both on the basis of service and price. Despite the presence of many competitors, it is experiencing a level of growth which exceeds Management's expectations. If customer growth continues and current levels of pricing can be maintained, profitability is anticipated during 1996. Whether growth and pricing levels can be maintained depends, in part, on the actions of existing competitors and on the possible entry into the market of new competitors, such as AT&T or cable TV companies. Should NYSINET offer services to non-members, WVN will indirectly be competing against NYNEX and others. STATE AND FEDERAL REGULATION The Company's New York telephone service operations are subject to the jurisdiction of the New York State Public Service Commission (the "NYSPSC"); its New Jersey telephone service operations, to the jurisdiction of the New Jersey Board of Public Utilities (the "NJBPU"). These two bodies have regulatory authority over the Company with respect to rates, facilities, services, reports, issuance of securities and other matters. Interstate toll and access services are subject to the jurisdiction of the FCC. The Company, like many other telephone companies of its size, depends heavily for its revenues on inter-and intrastate toll usage, receiving approximately 68.7% of its revenues from these sources. With regard to interstate toll calls, the Company receives reimbursement from toll carriers in the form of charges for providing toll carriers access to and from the Company's local network. Pursuant to FCC requirements, the Company is obligated to make contributions to a long-term support fund of the National Exchange Carrier Association. During 1995, the Company paid approximately $54,000 to that fund. The Company's contributions to the fund are expected to be approximately $75,000 in 1996. Such fund contributions are considered as part of the Company's cost of providing access services and are recoverable from inter-exchange carriers that use the Company's network. The Company also receives access charges from toll carriers for all intrastate/interLATA toll usage. In New York State, the Company also provides access to NYNEX; the Company is obligated to make contributions to the New York State Access Settlement Pool (the "NYSASP") but does not pool its toll or access revenues therein. The NYSASP began operations on October 1, 1992 and supports the operations of certain telephone companies other than the Company. The Company is obligated to contribute approximately $220,000 to the NYSASP during the period January 1 to September 30. A current proceeding before the NYSPSC will determine the future of the NYSASP and the Company's obligation after that date. In the Company's two New Jersey exchanges, intrastate/interLATA toll revenues are retained by toll carriers and the associated access charges are retained by the Company. New Jersey intrastate/intraLATA toll revenues are generally retained by the filing company; those of such revenues resulting from traffic between the Company and Bell Atlantic are, however, adjusted by charges payable to each company for terminating traffic. It is anticipated that in late 1996, the intrastate/intraLATA relationships just described will be replaced by competition. The impact of such a change on the Company was discussed in the previous section on Competition. 3 In addition to charging for access to and from the Company's local network, the Company bills and collects charges for most inter- and intrastate toll messages carried on its facilities. Interstate billing and collection services provided by the Company are not regulated. They are provided under contract by the Company. Intrastate billing and collection remain regulated, and are provided under tariff. Some carriers provide their own billing and collection services. The Tax Reform Act of 1986, while reducing the potential liability of the Company for income taxes, also affects the rates the Company is permitted to charge to customers. The NJBPU has ruled that any reduction of tax liability must be passed on to the Company's subscribers in the form of reduced rates. Rate reductions in the New Jersey exchanges commenced July 1, 1987 and approximate $180,000 on an annual basis. The NYSPSC has taken the position that all benefits realized from such reduction in tax liability should be deferred. The Company's deferred tax savings were applied during 1994, and will continue to be applied in subsequent years, as an offset against the amount the NYSPSC requires the Company to contribute to a fund for the payment of post-retirement health benefits for the Company's employees. For further information concerning compensation for toll usage see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders filed as an exhibit hereto. EMPLOYEES The Company has 95 full-time and part-time employees, including 73 non-management employees. Forty of the non-management employees (primarily the office staff and operators) are represented by the Warwick Valley Telephone Company Employees' Association ("WVTEA"). The current three-year agreement between the Company and WVTEA expires November 5, 1998. Twenty-eight (28) non-management employees (primarily plant employees) are represented by Local 503 of the International Brotherhood of Electrical Workers (IBEW). The current three-year contract between the Company and Local 503 expires on April 30, 1998. EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position and Period Served Fred M. Knipp 65 President since 1988 Philip S. Demarest 59 Vice President since 1989; Vice President- Finance and Administration 1977-1989; Secretary since 1972; Treasurer since 1989; Assistant Treasurer 1982-1989 Herbert Gareiss, Jr. 50 Vice President since 1989; Treasurer 1982- 1989; Assistant Treasurer since 1989; Assistant Secretary since 1980 John P. Nye, Vice President of the Company retired on October 1, 1995. There are no arrangements between any officer and any other person pursuant to which he was selected an officer. Item 2. PROPERTIES The Company owns an approximately 22,000 square-foot building in Warwick, New York, which houses its general offices, operators, data processing equipment and the central office switch for the Warwick exchange. In addition, the Company owns several smaller buildings which serve as workshops, storage space or garages or which house switching equipment at the Company's other exchanges. Of the Company's investment in telephone plant in service, central office equipment represents approximately 44.1%; connecting lines and related equipment, 36.7%; telephone instruments and related equipment, 3.5%; land and buildings, 6.7%; and other telephone plant, 9.0%. A substantial portion of the Company's properties is subject to the lien of the Company's Indenture or Mortgage. 4 Part II. Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (1) Item 6. SELECTED FINANCIAL DATA. (1) Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (1) Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (1) Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. Part III. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (2) Item 11. EXECUTIVE COMPENSATION. (2) Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (2) Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (2) 1 The material called for by Items 5, 6, 7, and 8 is included on the Company's Annual Report to its Shareholders for the year ended December 31, 1995, which pages have been incorporated. 2 With the exception of the identification of executive officers as listed on page 4, the material called for by Items 10-13 is included in the Company's definitive proxy statement, incorporated by reference herein, for its 1996 Annual Meeting of Shareholders, to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934. 5 Part IV. Item 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements: The following financial statements of the Company, included in the Annual Report of the Company to its Shareholders for the year ended December 31, 1995, are incorporated herein by reference: Reference Pages Annual Report On Form 10-K Consolidated Statement of Income - Years Ended December 31, 1995, 1994 and 1993 96 Consolidated Balance Sheet - December 31, 94-95 1995 and 1994 Consolidated Statement of Stockholders' 97 Equity - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statement of Cash Flows - Years 98 Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements 99-107 2. Financial Statement Schedules: Report of Independent Certified 9 Public Accountants on Financial Statement Schedules Schedules: VIII. Valuation and Qualifying Accounts 10 6 3. Exhibits: Exhibit No. Description of Exhibit Reference 3(a) Articles of Incorporation, Incorporated by reference as amended to Exhibit 3(a) to the Company's Annual Report of Form 10-K for 1990 3(b) By-Laws Incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for 1993 4(a) Form of Common Stock Incorporated by reference to Certificate Exhibit 4(a) to the Company's Annual Report on Form 10-K for 1990 4(b) Loan Agreement, dated Incorporated by reference to June 1,1976, with Stromberg- Exhibit 4(c) to the Company's Carlson Corporation Registration Statement on Form 10 (File No. 0-11174), dated April 29, 1983 4(c) Indenture of Mortgage, dated Incorporated by reference to November 1, 1952, and all Exhibit 4(d) to the Company's indentures supplemental Registration Statement on thereto, except the Eighth Form 10 (File No. 0-11174), Supplemental Indenture dated April 29, 1983 4(d) Eighth Supplemental Incorporated by reference to Indenture, dated as of Exhibit 4(d) to the Company's May 1, 1990, to the Annual Report on Form 10-K Indenture of Mortgage, for 1990 dated November 1, 1952, including form of 9.05% First Mortgage Bond, Series I, Due May 1, 2000 4(e) Ninth Supplemental Incorporated by reference Indenture, dated as of Exhibit 4(e) to the Company's October 1, 1993, to the Annual Report on Form 10-K Indenture of Mortgage, for 1993 dated November 1, 1952, including form of 7.05% First Mortgage Bond, Series J, Due October 1, 2003 13 Annual Report to Share- Filed herewith holders for the year ended December 31, 1995, together with separate manually executed Independent Auditor's Report. 23 Consent of Independent Filed herewith Auditor (b) No reports on Form 8-K were filed during the last quarter of the year ended December 31, 1995. 7 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WARWICK VALLEY TELEPHONE COMPANY Dated: March ____, 1996 By______________________________ Fred M. Knipp President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated and on the ____ day of March, 1996. Signature Title _______________________________________ President and Director Fred M. Knipp (Principal Executive Officer) _______________________________________ Vice President, Treasurer, Philip S. Demarest Secretary and Director (Principal Financial and Accounting Officer) _______________________________________ Director Earl V. Barry _______________________________________ Director Wisner H. Buckbee _______________________________________ Director Howard Conklin, Jr. _______________________________________ Director Joseph E. DeLuca _______________________________________ Director Corinna S. Lewis _______________________________________ Director Victor J. Marotta _______________________________________ Director Henry L. Nielsen, Jr. 8 BUSH & GERMAIN, PC CERTIFIED PUBLIC ACCOUNTANTS 901 LODI STREET SYRACUSE, NEW YORK 13203 PHONE: (315) 424-1145 CONSENT OF INDEPENDENT AUDITORS February 8, 1996 We consent to the incorporation by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995 of Warwick Valley Telephone Company of our report dated February 8, 1996, included in the 1995 Annual Report to Shareholders of Warwick Valley Telephone Company. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-46836) pertaining to the Warwick Valley Telephone Company of our report dated February 8, 1996 with respect to the consolidated financial statements of Warwick Valley Telephone Company incorporated herein by reference and our report dated February 8, 1996 with respect to schedules of Warwick Valley Telephone Company included in this Annual Report (Form 10-K) for the year ended December 31, 1995. Bush & Germain, P.C. Syracuse, New York /26 9 WARWICK VALLEY TELEPHONE COMPANY SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1995, 1994 and 1993 Col. A Col. B Col. C Col. D Col. E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions of Period (Note a) (Note b) (Note c) Allowance for uncollectibles: Year 1995 $65,155 $59,956 $18,509 $78,466 $65,154 Year 1994 $65,155 $25,144 $10,262 $35,406 $65,155 Year 1993 $65,638 $28,718 $15,440 $44,641 $65,155 (a) Provision for uncollectibles as stated in statements of income. (b) Amounts previously written off which were credited directly to this account when recovered. (c) Amounts written off as uncollectible. 10 EXHIBIT INDEX Exhibit No. Description of Exhibit Page 3 (a) Articles of Incorporation, as amended 12 4 (a) Form of Common Stock Certificate 80 4 (d) Eighth Supplemental Indenture, dated as of May 1, 1990, to the Indenture of Mortgage, dated November 1, 1952, including form of 9.05% First Mortgage Bond, Series I, Due May 1, 2000 81 13 Annual Report to Shareholders for the year ended December 31, 1995 89 Exhibit 3(b) is incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. Exhibits 4(b) and 4(c) are incorporated by reference to Exhibits 4(b) and 4(c), respectively, to the Company's Registration Statement on Form 10 (File No. 0-11174), dated April 29, 1983. Exhibit 10 is incorporated by reference to Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 11 EX-3.(A) 2 AMENDED ARTICLES OF INCORPORATION EXHIBIT 3A Duplicate. Treasurer's Office - State of New York. $5.00. Albany, January 16, 1902. Received from Warwick Valley Telephone Company, Five Dollars in full of Tax of one-twenthieth of one per centum upon the Capital Stock of $10,000. of the above named company for the privilege of organization pursuant to Chapter 448 Laws of 1901. B. H. Davis, Deputy Treasurer. Thos. P. Gilman Deputy Comptroller Certificate of Incorporation of the Warwick Valley Telephone Company. State of New York, County of Orange, SS:- Village of Warwick We, Clinton W. Wisner, Michael N. Kane, George H. Strong, Sidney H. Sanford, Hiram Tate, George F. Ketchum, John W. Sanford, William A. Hynard, Frank M. Cummins, Fred C. Cary, William E. Bailey, Charles A. Crissey, William H. Chardavoyne, Wilbur C. Lazear, Benjamin B. Sayer, Francis B. Sanford, G. Fred Pitts, Ferdinand V. Sanford, Joshua C. Wilson, Milton L. Sanford, Charles G. Pierson, Wilson W. Van Duzer, Pierson E. Sanford, James H. Vealey, James B. Lawrence, Henry Pelton, Benjamin F. Vail, Patrick O'Hehir, Sherman Rightmeyer, Albert C. Gullman, Dwight Dutcher, John J. Beattie, Lewis J. Campbell, James W. Benedict, Albert Burk, and Fred C. Raynor, all of whom are of full age and citizens of the United States and residents of this State, do by these presents associate ourselves together to form a corporation for the purpose of constructing, owning, using and maintaining a line or lines of Electric Telephone pursuant to and in conformity with the provisions of Article VIII of the Transportation Corporations Law, and for that purpose we do hereby certify as follows: I. The name of the proposed Corporation is, the Warwick Valley Telephone Company. II. The general route and points to be connected by said line are, the residences, business and public places in the Village and Town of Warwick, New York, the County of Orange, New York, and the Counties of Sussex and Passaic, New Jersey. III. The amount of its capital stock shall be Ten Thousand Dollars. IV. The number of shares of which the capital stock shall consist are One Thousand. V. The term of its existence shall be fifty years. VI. The number of its directors shall be nine. VII. The names and residences of the directors for the first year are Michael N. Kane, George F. Ketchum, Frank M. Cummins, Fred C. Cary, William E. Bailey, Sidney H. Sanford, William A. Hynard, Wilbur C. Lazear, and George H. Strong, all of Warwick, Orange County, New York. VIII. The Post Office Address of each subscriber, the number of shares of stock which each agrees to take in said Corporation, are subscribed to this Certificate. IN WITNESS WHEREOF, We have hereunto subscribed our names to the Certificate in duplicate this 11th day of January, 1902. Names. Residences. No. of Shares. Michael N. Kane Warwick, N. Y. Ten George H. Strong " " Ten Sidney H. Sanford " " " George F. Ketchum " " " John W. Sanford " " " Hiram Tate " " " W. A. Hynard " " " Frank M. Cummins " " " Fred C. Cary " " " 12 William E. Bailey Warwick, N. Y. Ten Charles A. Crissey " " " Wm. H. Chardavoyne " " " Wilbur C. Lazear " " " B. B. Sayer " " " G. Fred Pitts " " " F. V. Sanford " " " Joshua C. Wilson " " " M. L. Sanford " " " Chas. G. Pierson " " " Wilson W. Van Duzer " " " Pierson E. Sanford " " " James H. Vealey " " " James B. Lawrence " " " Henry Pelton " " Five Benjamin F. Vail " " Five Patrick P. O'Hehir " " Ten Sherman Rightmyer " " Five A. C. Gullman " " " Dwight Dutcher " " Ten John J. Beattie " " " Lewis J. Campbell " " Five James W. Benedict " " Ten Albert Burk " " Five Fred C. Raynor " " " State of New York, County of Orange, SS:- On this 15th day of January, 1902, before me personally appeared, Michael N. Kane, George H. Strong, Sidney H. Sanford, Hiram Tate, George F. Ketchum, John W. Sanford, William A. Hynard, Frank M. Cummins, Fred C. Cary, William E. Bailey, Charles A. Crissey, William H. Chardavoyne, Wilbur C. Lazear, Benjamin B. Sayer, G. Fred Pitts, Ferdinand V. Sanford, Joshua G. Wilson, Milton L. Sanford, Charles G. Pierson, Wilson W. Van Duzer, Pierson E. Sanford, James H. Vealey, James B. Lawrence, Henry Pelton, Benjamin F. Vail, Sherman Rightmyer, Albert C. Gullman, Dwight Dutcher, John J. Beattie, Lewis J. Campbell, James W. Benedict, Albert Burk, and Fred C. Raynor, to me known to be the persons described in and who executed the foregoing Certificate and they severally acknowledged to me that they executed the same. Lewis J. Stage, Notary Public. 13 State of New York, SS;- Orange County Clerk's Office, I, James D. McGiffert, Clerk of the County of Orange and also Clerk of the Supreme and County Courts, in and for said County (Courts of Record) do hereby certify that I have compared the preceding copy with the original Certificate of Incorporation of the Warwick Valley Telephone Company filed Jan. 21, 1902 at 9 H. A. M. in my Office and that the same is a true and correct transcript therefrom and the whole of said original. Witness my hand and the seal of said Courts and County at Goshen, Seal this 11th day of Sept. 1912. J. D. McGiffert Clerk. 14 CERTIFICATE OF INCREASE OF CAPITAL STOCK AND OF NUMBER OF SHARES OF ONE THOUSAND PURSUANT TO SECTION THIRTY-SIX OF THE STOCK CORPORATION LAW. We, George H. Strong and George F. Ketchum, being respectively, president and the secretary thereof, certify 1. The name of the corporation is Warwick Valley Telephone Company. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on the 16th day of January 1902. 3. The total amount of the previously authorized capital stock is $10,000. 4. The total number of shares which the corporation is authorized to issue is 1000 common of the par value of $10. each. 5. The designations, preferences, privileges and voting powers, or restrictions or qualifications of the several classes of shares already authorized are as follows: 1000 shares common stock with full voting powers. 6. The number of shares of each class issued and outstanding is 1000 shares common. 7. The amount to which the capital stock is increased is $20,000. 8. The number of shares is increased from 1000 to 2000, all of which are to have a par value of Ten Dollars each, the same as heretofore. 9. The total number of shares which the corporation may henceforth have is 2000, all of which are to have a par value of Ten Dollars each. IN WITNESS WHEREOF, we have made and subscribed this certificate in triplicate, this fifteenth day of May, 1907. (signed) George H. Strong President. (signed) George F. Ketchum Secretary. 15 State of New York : : ss: County of Orange : On this 15th day of August, 1927, before me personally came George H. Strong and George F. Ketchum, to me known to be the persons described in and who executed the foregoing certificate, and they thereupon duly acknowledged to me that they executed the same. (signed) Lawrence Stage Notary Public, Orange County. State of New York : : ss: County of Orange : George H. Strong and George F. Ketchum, being duly sworn, depose and say and each for himself says that he George H. Strong, is the president of Warwick Valley Telephone Company, and he George F. Ketchum, was the secretary thereof at the time of the execution of the above certificate, that they have been duly authorized to execute and file the foregoing certificate of increase of capital stock and number of shares by the votes of the holders of record of a majority of the outstanding shares of said corporation entitle to vote thereon, cast in person or by proxy at a stockholder's meeting held in the rooms of the Excelsior Hose Company in the Village Building in the Village of Warwick, N. Y., on the 7th day March, 1907, at 8 o'clock P.M., upon notice pursuant to Section forty-five of the Stock Corporation Law. Subscribed and sworn to before me (signed) George H. Strong this 15th day of August, 1927. (signed) George F. Ketchum (signed) Lawrence Stage Notary Public, Orange County. 16 CERTIFICATE OF INCREASE OF CAPITAL STOCK AND OF NUMBER OF SHARES OF FOUR THOUSAND SIX HUNDRED SEVEN PURSUANT TO SECTION THIRTY-SIX OF THE STOCK CORPORATION LAW. We, George H. Strong and John E. Barry, being respectively, president and the secretary and treasurer thereof, certify 1. The name of the corporation is Warwick Valley Telephone Company. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on the 16th day of January, 1902. 3. The total amount of the previously authorized capital stock is $20,000. 4. The total number of shares which the corporation is authorized to issue is 2000 common of the par value of $10. each. 5. The designations, preferences, privileges and voting powers, or restrictions or qualifications of the several classes of shares already authorized are as follows: 2000 shares common stock with full voting powers. 6. The number of shares of each class issued and outstanding is 2000 shares common. 7. The amount to which the capital stock is increased is $66070. 8. The number of shares is increased from 2000 to 6607., all of which are to have a par value of Ten Dollars each, the same as heretofore. 9. The total number of shares which the corporation may henceforth have is 6607., all of which are to have a par value of Ten Dollars each. IN WITNESS WHEREOF, we have made and subscribed this certificate in triplicate, this fifteenth day of August 1927. (signed) George H. Strong (signed) John E. Barry President. Secretary and Treasurer. 17 State of New York : : ss: County of Orange : On this 15th day of August, 1927, before me personally came George H. Strong and John E. Barry, to me known to be the persons described in and who executed the foregoing certificate, and they thereupon duly acknowledged to me that they executed the same. (signed) Lawrence Stage Notary Public, Orange County. State of New York : : ss: County of Orange : George H. Strong and John E. Barry, being duly sworn, depose and say and each for himself deposes and says that he George H. Strong, is the president of Warwick Valley Telephone Company, and he, John E. Barry, is the secretary and treasurer thereof, that they have been duly authorized to execute and file the foregoing certificate of increase of capital stock and number of shares by the votes of the holders of record of a majority of the outstanding shares of said corporation entitled to vote thereon, cast in person or by proxy at a stockholders' meeting held in the directors room of the First National Bank, in the Village of Warwick, N. Y., on the 12th day of August, 1927, at 8:00 o'clock P.M., upon notice pursuant to Section forty-five of the Stock Corporation Law. Subscribed and sworn to before me (signed) George H. Strong this 15th day of August, 1927. (signed) John E. Barry (signed) Lawrence Stage Notary Public, Orange County. 18 CERTIFICATE OF INCREASE OF CAPITAL STOCK AND OF NUMBER OF SHARES OF WARWICK VALLEY TELEPHONE COMPANY PURSUANT TO SECTION THIRTY-SIX OF THE STOCK CORPORATION LAW. We, George H. Strong and John E. Barry, being respectively, president and the secretary and treasurer thereof, certify: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on the 16th day of January, 1902. 3. The total amount of the previously authorized capital stock is $66,070.00. 4. The total number of shares which the corporation is authorized to issue of 6607 common of the par value of $10.00 each. 5. The designations, preferences, privileges and voting powers, or restrictions or qualifications of the several classes of shares already authorized are as follows: 6607 shares common stock with full voting powers. 6. The number of shares of each class issued and outstanding is 2000 shares common. 7. The amount to which the capital stock is increased is $94,150.00. 8. The number of shares is increased from 6607 to 9415, all of which are to have a par value of Ten Dollars each, the same as heretofore. 9. The total number of shares which the corporation may henceforth have is 9415, all of which are to have a par value of Ten Dollars each. IN WITNESS WHEREOF, we have made and subscribed this certificate in triplicate, this sixteenth day of June, 1928. (signed) George H. Strong President. (signed) John E. Barry Secretary and Treasurer 19 State of New York : : ss: County of Orange : On this 16th day of June, 1928, before me personally came George H. Strong and John E. Barry, to me known to be the persons described in and who executed the foregoing certificate, and they thereupon duly acknowledged to me that they executed the same. (signed) Lawrence Stage Notary Public, Orange County. State of New York : : ss: County of Orange : George H. Strong and John E. Barry, being duly sworn, depose and say and each for himself deposes and says that he, George H. Strong, is the president of the Warwick Valley Telephone Company, and he, John E. Barry, is the secretary and treasurer thereof; that they have been duly authorized to execute and file the foregoing certificate of increase of capital stock and number of shares by the votes of the holders of record of a majority of the outstanding shares of said corporation entitled to vote thereon, cast in person or by proxy at a stockholders' meeting held in the trustees room of the Village Building, in the Village of Warwick, N. Y. on the 15th day of June, 1928, at 8:00 o'clock P.M., upon notice pursuant to Section forty-five of the Stock Corporation Law. Subscribed and sworn to before me (signed) George H. Strong this 16th day of June, 1928. (signed) John E. Barry (signed) Lawrence Stage Notary Public, Orange County. 20 Certificate of reduction of number of directors of Warwick Valley Telephone Company, pursuant to Section 35 of the Stock Corporation Law. We, the undersigned, being the President and Secretary of said corporation, hereby certify: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on the 16th day of January, 1902. 3. The number of directors previously authorized is nine. 4. The number of directors previously authorized is reduced so that the total number of directors hereafter shall be not less than five nor more than seven. IN WITNESS WHEREOF, we have made and subscribed the Certificate in triplicate this 15th day of April, 1943. (signed) George H. Strong (signed) John E. Barry STATE OF NEW YORK : : ss.: COUNTY OF ORANGE : On this 17th day of April, 1943, before me personally came George H. Strong and John Barry, to me known to be the persons described in and who executed the foregoing certificate, and they thereupon severally duly acknowledged to me that they executed the same. (signed) Bertha C. Hamel Notary Public, Orange County. 21 STATE OF NEW YORK : : ss.: COUNTY OF ORANGE : George H. Strong and John Barry, being duly sworn, depose and say, and each for himself deposes and says, that he, George H. Strong, is the president of the Warwick Valley Telephone Company, and he, John Barry, is the secretary thereof; that they have been authorized to execute and file such certificate by the votes cast, in person or by proxy, of the holders of record of a majority of such shares, cast at a stockholders meeting held on April 15th, 1943 upon notice pursuant to Section 35 of the Stock Corporation Law. (signed) George H. Strong (signed) John E. Barry Sworn to before me this 17th day of April, 1943. (signed) Bertha C. Hamel Notary Public. 22 CERTIFICATE OF INCREASE OF CAPITAL STOCK AND NUMBER OF SHARES OF WARWICK VALLEY TELEPHONE COMPANY PURSUANT TO SECTION THIRTY-SIX OF THE STOCK CORPORATION LAW. We, CHAUNCEY K. CONKLIN and JOHN E. BARRY, being respectively the President of WARWICK VALLEY TELEPHONE COMPANY, and the Secretary thereof, certify: 1. The name of the Corporation is WARWICK VALLEY TELEPHONE COMPANY. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on the 16th day of January, 1902. 3. The total amount previously authorized capital stock is Ninety-four Thousand One Hundred Fifty Dollars ($94,150.). 4. The total number of shares which the Corporation is authorized to issue is Nine Thousand Four Hundred Fifteen (9,415.), all of which have a par value of Ten Dollars ($10.) each share, and all of which are common shares. 5. The designations, preference, privileges and voting powers or other restrictions or qualifications of the several classes of shares already authorized are as follows: 9,415 shares Common Stock with full voting power. 6. The total number of shares issued and outstanding is Nine Thousand Four Hundred Fifteen (9,415). 7. The amount to which the Capital Stock is increased is One Hundred Ninety-four Thousand One Hundred Fifty Dollars ($194,150.). 8. The number of shares is increased from Nine Thousand Four Hundred Fifteen (9,415) to Ten Thousand Four Hundred Fifteen (10,415). 23 9. The total number of shares which the Corporation may henceforth have is 10,415 as follows: The shares are divided into two classes as follows, to wit: 1,000 shares CUMULATIVE PREFERRED Stock, all of which are to have a par value of One Hundred Dollars ($100.) each share. 9,415 shares COMMON Stock, all of which are to have a par value of Ten Dollars ($10.) each share. 10. The designations, preferences, privileges and voting powers or restrictions or qualifications of the several classes of shares of Capital Stock which the Corporation may henceforth have are: 9,415 shares of Ten Dollars ($10.) par value each share Common Stock with full voting power. 1,000 shares of $4. Cumulative Preferred Stock to have the following preferences, voting powers, or restrictions or qualifications. (a) It will be entitled up to Four Dollars ($4) per share and no more before Common participates in any dividends, said dividends to be paid on March 31, June 30, September 30 and December 31 in each year. (b) In case of dissolution or other distribution of assets, holders of Preferred Stock will be entitled to distribution of the assets up to par value of the Preferred Stock and accumulated dividends prior to holders of Common Stock. (c) It will have no voting powers except, if default is made in four quarterly dividend payments the Preferred Stockholders shall have the right to elect a majority of the Board of Directors, such voting rights to continue until all of the dividends in arrears shall have been paid. 24 (d) Any or all of the shares of Preferred Stock may be called for redemption on any dividend payment date at the option of the company on not less than 30 days prior published notice or in writing, at par and accumulated dividends to the date fixed for redemption, except that, if less than all of the said shares are to be so redeemed, the shares to be redeemed shall be drawn by lot. 11. That the total number of shares which the Corporation may henceforth have is 10,415, 1,000, of which is to have a par value of One Hundred Dollars ($100.) each and is to be CUMULATIVE PREFERRED Stock, and 9,415 of which is to be COMMON Stock with a par value of Ten Dollars ($10.) each. IN WITNESS WHEREOF, we have made and subscribed this certificate, this 28th day of June, 1947. (signed) Chauncey K. Conklin President. (signed) John E. Barry Secretary STATE OF NEW YORK : ss.: COUNTY OF ORANGE : On this 28th day of June, 1947, before me personally came CHAUNCEY K. CONKLIN and JOHN E. BARRY, being respectively the president and secretary of WARWICK VALLEY TELEPHONE COMPANY, to me known and known to me to be the persons described in and who executed the foregoing certificate, and they severally duly acknowledged to me that they executed the same. (signed) Bertha C. Hamel Notary Public. 25 STATE OF NEW YORK : ss.: COUNTY OF ORANGE : CHAUNCEY K. CONKLIN and JOHN E. BARRY, being severally duly sworn, depose and say, and each for himself, deposes and says that he, CHAUNCEY K. CONKLIN, is the President of WARWICK VALLEY TELEPHONE COMPANY, and he, JOHN E. BARRY, is the Secretary thereof; that they have been duly authorized to execute and file the foregoing certificate by the votes of the holders of record of two-thirds of the outstanding shares entitled to vote at a stockholders' meeting at which such votes were cast with relation to the preceeding provided for in the certificate; that such votes were cast in person or by proxy at a stockholders' meeting held at No. 80 Main Street, in the Village of Warwick, New York, on the 28th day of June, 1947, at eight o'clock P.M., upon notice pursuant to Section 45 of the Stock Corporation Law. (signed) Chauncey K. Conklin (signed) John E. Barry Severally subscribed and sworn to before me this 28th day of June, 1947. (signed) Bertha C. Hamel Notary Public. 26 STATE OF NEW YORK PUBLIC SERVICE COMMISSION Albany, N. Y., August 12, 1947 CASE 12867 - Petition of Warwick Valley Telephone Company for approval of an amendment of its certificate increasing its capital stock and for authority to issue preferred stock. The Public Service Commission hereby consents to and approves this Certificate of Increase of Capital Stock and Number of Shares of Warwick Valley Telephone Company Pursuant to Section Thirty-Six of the Stock Corporation Law, - as provided in the attached certificate executed June 28, 1947, - in accordance with the order of this Commission of August 7, 1947. By the Commission, (signed) Secretary. Seal 27 CERTIFICATE OF INCREASE OF CAPITAL STOCK AND NUMBER OF SHARES OF WARWICK VALLEY TELEPHONE COMPANY, PURSUANT TO SECTION THIRTY-SIX OF THE STOCK CORPORATION LAW We, CHAUNCEY K. CONKLIN and JOHN E. BARRY, being respectively the President of WARWICK VALLEY TELEPHONE COMPANY, and the Secretary thereof, certify: 1. The name of the Corporation is WARWICK VALLEY TELEPHONE COMPANY. 2. The certificate of incorporation was filed in the office of the Secretary of State on the 16th day of January 1902. 3. That certificate of increase of the capital stock was filed in the office of the Secretary of the State on the 15th day of August 1947. 4. The total amount previously authorized capital stock is One Hundred Ninety-four Thousand One Hundred Fifty ($194,150) Dollars. 5. The total number of shares of the capital stock which the corporation is authorized to issue is Nine Thousand Four Hundred Fifteen (9,415), which are to have a par value of Ten Dollars ($10) each, and One Thousand (1,000) shares $4.00 Cumulative Preferred Stock, all of which are to have a par value of One Hundred ($100) Dollars each. 6. The designations, preference, privileges and voting powers or other restrictions or qualifications of the several classes of shares already authorized are as follows: 9,415 shares common stock with full voting power. 1,000 shares of $4 Cumulative Preferred Stock, having the following preferences, voting powers or restrictions or qualifications: a. It will be entitled up to Four Dollars ($4) per share and no more before common participants in any dividends, said dividends to be paid on March 30, June 30, September 30, and December 31st. b. In case of dissolution or other distribution of assets, holders of Preferred Stock will be entitled to distribution of the assets up to par value of the Preferred Stock and accumulated dividends, prior to holders of Common Stock. 28 c. It will have no voting powers except, if preferred dividends are not paid for two years, the preferred stockholders may vote share for share with the common stockholders so long as two years' arrears exist. d. The right to call at any dividend date any or all of this Preferred Stock at option of the Company is reserved with payment of all accrued dividends and at 100 per cent of par value. 7. The total number of shares of the Common Stock issued and outstanding is Nine Thousand Four Hundred Fifteen (9,415), and the total number of shares of cumulative preferred stock issued and outstanding is One Thousand (1,000). 8. The amount to which the capital stock is increased is Three Hundred Forty-Four Thousand One Hundred Fifty ($344,150) Dollars. 9. The number of shares is increased from Ten Thousand Four Hundred Fifteen (10,415) to Eleven Thousand Nine Hundred Fifteen (11,915). 10. The total number of shares which the Corporation may henceforth have is 11,915, as follows: The shares are divided into two classes as follows, to wit: 2,500 shares $4.00 CUMULATIVE PREFERRED stock, all of which are to have a par value of One Hundred Dollars ($100) each share. 9,415 shares COMMON Stock, all of which are to have a par value of Ten Dollars ($10) each share. 29 11. The designations, preferences, privileges and voting powers or restrictions or qualifications of the several classes of shares of Capital Stock which the Corporation may henceforth have are not to be changed. 12. That the total number of shares which the Corporation may henceforth have is 11,915; 2,500 of which are to have a par value of One Hundred ($100) Dollars each and is to be $4.00 CUMULATIVE PREFERRED Stock, and 9,415 of which is to be COMMON Stock with a par value of Ten Dollars ($10) each. IN WITNESS WHEREOF, we have made and subscribed this certificate, this 19th day of November 1948. (signed) Chauncey K. Conklin President (signed) John E. Barry Secretary STATE OF NEW YORK : : ss.: COUNTY OF ORANGE : On this 19th day of November 1948, before me personally came CHAUNCEY K. CONKLIN and JOHN E. BARRY, being respectively the President and Secretary of WARWICK VALLEY TELEPHONE COMPANY, to be known and known to me to be the persons described in and who executed the foregoing certificate, and they severally duly acknowledged to me that they executed the same. (signed) Lawrence Stage LAWRENCE STAGE Notary Public in the State of New York Appointed in Orange County, No. 1238 Commission expires March 30, 1950 30 STATE OF NEW YORK : : ss.: COUNTY OF ORANGE : CHAUNCEY K. CONKLIN and JOHN E. BARRY, being severally duly sworn, deposes and say, and each for himself, deposes and says that he, CHAUNCEY K. CONKLIN, is the President of WARWICK VALLEY TELEPHONE COMPANY, and he, JOHN E. BARRY, is the Secretary thereof; that they have been duly authorized to execute and file the foregoing certificate by the votes of the holders of record of two-thirds of the outstanding shares entitled to vote at a stockholders' meeting at which such votes were cast with relation to the proceeding provided for in the certificate; that such votes were cast in person or by proxy at a stockholders' meeting held at No. 80 Main Street, in the Village of Warwick, New York, on the 17th day of November 1948, at eight o'clock P.M. upon notice pursuant to Section 45 of the Stock Corporation Law. (signed) Chauncey K. Conklin President (signed) John E. Barry Secretary Severally subscribed and sworn to before me this 19th day of November 1948. (signed) Lawrence Stage LAWRENCE STAGE Notary Public in the State of New York Appointed in Orange County, No. 1238 Commission expires March 30, 1950 31 "C O P Y" STATE OF NEW YORK PUBLIC SERVICE COMMISSION Albany, N. Y. June 17, 1949 CASE 14097 - Petition of Warwick Valley Telephone Company for approval of an increase of its capital stock and the number of authorized shares thereof and for authority to issue certain cumulative preferred stock. The Public Service Commission hereby consents to and approves this Amended Certificate of Increase of Capital Stock and number of Shares of Warwick Valley Telephone Company, pursuant to Section Thirty-Six of the Stock Corporation Law, as provided in the attached certificate executed November 19, 1948, in accordance with the order of this Commission dated May 18, 1949. By the Commission, Maurice J. Tanner Secretary. 32 CERTIFICATE OF REVIVAL OF EXISTENCE OF WARWICK VALLEY TELEPHONE COMPANY, PURSUANT TO SECTION 49 OF THE GENERAL CORPORATION LAW I, the undersigned subscriber, being the President of the Warwick Valley Telephone Company last elected to such office of said corporation do hereby certify: 1. The name of this corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed in the Office of the Secretary of State on the 16th day of January, 1902. 3. The term of existence specified in the original certificate of incorporation of this corporation expired 50 years from the said date thereof on the 11th day of January, 1952. 4. The existence of this corporation is to be hereby revived and its duration shall be perpetual. IN WITNESS WHEREOF, I have executed this certificate this 12th day of September, 1952. (signed) Chauncey K. Conklin 33 STATE OF NEW YORK : SS. COUNTY OF ORANGE : On this 12th day of September, 1952, before me personally appeared Chauncey K. Conklin, to me personally known, and known to me to be the person described in and who executed the above instrument and he duly acknowledged to me that he executed the same. (signed) Donald G. Janes Notary Public. DONALD G. JANES Notary Public in the State of New York My commission expires March 30, 1954 STATE OF NEW YORK : SS. COUNTY OF ORANGE : Chauncey K. Conklin, being duly sworn, deposes and says that he, Chauncey K. Conklin, is the President of Warwick Valley Telephone Company mentioned in the foregoing certificate; that he was and is the person who held such office in such corporation at the time of the expiration of its existence and now holds such office; that he was duly authorized to execute and file the foregoing certificate by the consent of the holders of record of a majority of the shares of each and every class of stock of the corporation issued and outstanding, that such consent was given by vote, cast in person or by proxy at a stockholders' meeting called for that purpose and held upon notice to all holders of record of shares of the corporation, given in the manner required for a special meeting of stockholders of the corporation, which meeting was held at 47-49 Main Street in the Village of Warwick, New York on the 12th day of September, 1952 at 8:00 o'clock P.M. 34 That the certificate of incorporation does not require the consent of more than a majority of the shares of any class of stock of the corporation to revive it and does not require the consent of more than a majority of the shares of any class of stock to extend the corporate existence. Subscribed and sworn to before (signed) Chauncey K. Conklin me this 12th day of September, 1952. (signed) Donald G. Janes Notary Public. DONALD G. JANES Notary Public in the State of New York My commission expires March 30, 1954 35 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY PURSUANT TO SECTION 36 OF THE STOCK CORPORATION LAW. We, Chauncey K. Conklin and John E. Barry, being respectively the President of Warwick Valley Telephone Company, and the Secretary thereof, certify: 1. The name of this corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed in the Office of the Secretary of State on the 16th day of January, 1902. 3. The certificate of incorporation is hereby amended as authorized in Sub-division 2 of Section 35 of the Stock Corporation Law by amending and changing that portion or said certificate of incorporation which reads as follows: "the number of its directors shall be nine" to hereafter read as follows: "the number of its directors shall be not less than three nor more than ten". IN WITNESS WHEREOF, we have made and subscribed this certificate this 16th day of April, 1953. (signed) Chauncey K. Conklin President (signed) John E. Barry Secretary 36 STATE OF NEW YORK: ss. COUNTY OF ORANGE : On this 16th day of April, 1953, before me, the subscriber personally appeared Chauncey K. Conklin and John E. Barry, being respectively the President and Secretary of Warwick Valley Telephone Company, to me known and known to me to be the same persons described in and who executed the within instrument, and they severally, duly acknowledged to me that they executed the same. (signed) Harold W. Schofield Notary Public Harold W. Schofield Notary Public in the State of New York My commission expires March 30, 1955 Orange County Clerk's No. 526 37 STATE OF NEW YORK: ss. COUNTY OF ORANGE : Chauncey K. Conklin and John E. Barry, being severally duly sworn, depose and say, each for himself deposes and says that he, Chauncey K. Conklin is the President of Warwick Valley Telephone Company and he, John E. Barry, is the Secretary thereof; that they have been duly authorized to execute and file the foregoing certificate by the votes of the holders of record of a majority of the outstanding shares entitled to vote at a stockholders meeting, at which such votes were cast with relation to the proceedings provided for in the certificate; that neither the certificate of incorporation nor any other certificate filed pursuant to law requires a larger proportion of votes; that such votes were cast in person or by proxy at a stockholders meeting held at the office of the company at 47-49 North Main Street, Warwick, New York, on the 15th day of April, 1953, upon notice pursuant to Section 45 of the Stock Corporation Law. (signed) Chauncey K. Conklin (signed) John E. Barry Severally subscribed and sworn to before me this 16th day of April 1953. (signed) Harold W. Schofield Notary Public Harold W. Schofield Notary Public in the State of New York My commission expires March 30, 1955 Orange County Clerk's No. 526 38 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY PURSUANT TO SECTION 36 OF THE STOCK CORPORATION LAW. We, Chauncey K. Conklin and John E. Barry, being respectively the president of Warwick Valley Telephone Company and the Secretary thereof, certify: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed in the office of the Secretary of State on the 16th day of January, 1902. 3. The certificate of incorporation is amended to change the presently authorized 9415 shares of the class of Common Stock, with a par value of $10 per share, into 9415 shares of common stock, with no par value, as authorized by sub-paragraph five of paragraph (c) of subdivision two of Section Thirty-five of the Stock Corporation Law, to adopt a statement respecting capital as authorized by sub-paragraph six of paragraph (c) of subdivision two of Section Thirty-five of the Stock Corporation Law and to authorize 15,585 new shares of common stock with no par value as authorized by sub-paragraph one of paragraph (c) of subdivision two of Section Thirty-five of the Stock Corporation Law. 4. Paragraphs III and IV of the certificate of incorporation as heretofore added or amended by certificates filed pursuant to law, relating to the amount of its capital stock and to the number and class of shares in which such capital stock is to be divided and the par value per share, are amended to read as set forth below: "The capital of the Corporation shall be at least equal to the sum of the aggregate par value of all issued shares having par value, plus the aggregate amount of consideration received by the Corporation for the issuance of shares without par value, plus such amounts as, from time to time, by resolution of the board of directors, may be transferred thereto." "The total number of shares which the Corporation shall have authority to issue is twenty-seven thousand five hundred (27,500) shares, of which two thousand five hundred (2,500) shares shall be $4.00 CUMULATIVE PREFERRED shares having a par value of $100 each and twenty-five thousand (25,000) shares shall be common shares without par value." 5. The terms upon which shares of the common stock with a par value of $10 per share are to be changed into the common stock with no par value are as follows: Each share of the common stock with a par value of $10 per share heretofore authorized shall be changed into one (1) share of the common stock with no par value. 39 6. 9415 shares of the common stock with a par value of $10 per share heretofore authorized which are to be changed are issued shares and are now outstanding. IN WITNESS WHEREOF, we have made and subscribed this certificate this 16th day of April, 1957. (signed) Chauncey K. Conklin President (signed) John E. Barry Secretary 40 STATE OF NEW YORK: ss COUNTY OF ORANGE : On this 16th day of April, 1957, before me, the subscriber, personally appeared Chauncey K. Conklin and John E. Barry, being respectively the President and Secretary of Warwick Valley Telephone Company, to me known and known to me to be the same persons described in and who executed the within instrument, and they severally, duly acknowledged to me that they executed the same. (signed) Harold W. Schofield Notary Public Harold W. Schofield Notary Public in the State of New York My commission expires March 30, 1959 Orange County Clerk's No. 526 STATE OF NEW YORK : ss. COUNTY OF ORANGE : Chauncey K. Conklin and John E. Barry, being severally, duly sworn, depose and say and each for himself deposes and says that he, Chauncey K. Conklin is the President of Warwick Valley Telephone Company and he, John E. Barry, is the Secretary thereof, that they have been duly authorized to execute and file the foregoing certificate of amendment by the votes cast in person or by proxy, of the holders of record of two-thirds of the outstanding shares entitled to vote and of the holders of record of two-thirds of the outstanding shares of each class which will be adversely affected and entitled to vote, at the stockholders' meeting at which such votes were cast with relation to the proceedings provided for in the certificate; that neither the certificate of incorporation nor any other certificate filed pursuant to law requires a larger proportion of votes; that such votes were cast in person or by proxy at a stockholders' meeting held on the 15th day of April, 1957, upon notice as required by section 45 of the Stock Corporation Law. (signed) John E. Barry Severally subscribed and sworn to before me this 16th day of April, 1957. (signed) Harold W. Schofield Notary Public 41 STATE OF NEW YORK : ss. COUNTY OF ORANGE : John E. Barry, being duly sworn, deposes and says: That he is the Treasurer of Warwick Valley Telephone Company, that (a) The number of additional shares not resulting from a change of shares which the Corporation is hereby authorized to issue is fifteen thousand five hundred eighty-five (15,585) and the number of such additional shares with par value is none; and (b) The number of shares changed is ninety-four hundred fifteen (9415) and the par value thereof is Ten Dollars ($10) per share, and the number of shares resulting from such change is ninety-four hundred fifteen (9415) none of which has a par value. (signed) John E. Barry Treasurer Subscribed and sworn to before me this 16th day of April, 1957. (signed) Harold W. Schofield Notary Public Harold W. Schofield Notary Public in the State of New York My commission expires March 30, 1959 Orange County Clerk's No. 526 42 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY PURSUANT TO SECTION 36 OF STOCK CORPORATION LAW We, Chauncey K. Conklin and John E. Barry being respectively the President of Warwick Valley Telephone Company, and the Secretary thereof certify: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed in the Office of the Secretary of State on the 16th day of January, 1902. 3. Pursuant to the authorization contained in Subdivisions 2 and 3 of Section 35 of the Stock Corporation Law, the certificate of incorporation is hereby changed and amended to increase the number of authorized shares, to provide that the preferred shares may be issued in series and to create a series of 5% preferred shares, fixing the designations, preferences, privileges, voting powers, restrictions and qualifications thereof. 4. To accomplish such amendment, that portion of Paragraphs III and IV of the certificate of incorporation as amended which fixed the total number of shares that may be issued at 27,500, of which 25,000 were common shares having no par value and 2500 were preferred shares having a par value of $100. each, is hereby changed and amended to read as follows: The total number of shares which the corporation shall have authority to issue is 32,500 shares, of which 7500 shares shall be preferred shares having a par value of $100 each and 25,000 shares shall be common shares without par value. The preferred shares may be issued in series to be known as "________ series preferred shares" the blank to be completed by a distinctive designation for each series which may be issued. The capital of the corporation shall be at least equal to the sum of the aggregate par value of all issued shares having par value, plus the aggregate amount the consideration received by the corporation for the issuance of shares without par value, plus such amounts as from time to time by resolution of the Board of Directors, may be transferred thereto. 43 5. A series of preferred shares to known as "5% Series Preferred Shares" is hereby created. The designations, preferences, privileges, voting powers, restrictions and qualifications of the 5% series preferred shares are as follows: 5% Series Preferred Shares The holders of the 5% Series Preferred Shares shall be entitled to cumulative dividends thereon at the rate of five per cent (5%) per annum on the par value thereof, payable quarterly on March 31, June 30, September 30, and December 31 of each year, in priority to the payments of dividends on the common shares. Said dividends shall be cumulative so that if the corporation shall fail in any fiscal year to pay such dividends upon all the issued and outstanding 5% Series Preferred Shares, the deficiency shall be fully paid without interest, before any dividends shall be set apart or paid on the common shares. Subject to the foregoing provisions, the 5% Series Preferred Shares shall not be entitled to participate in any other or additional surplus or earnings of the corporation. The Board of Directors, in its discretion, may declare and pay dividends on the common shares concurrently with dividends on the 5% Series Preferred Shares for any dividend period for any fiscal year when such dividends are applicable to the common shares, provided, however, that all accumulated dividends on the 5% Series Preferred Shares for all previous fiscal years and all dividends for the previous dividend periods for that fiscal year shall have been paid in full. In case of the liquidation or dissolution or distribution of the assets of the corporation the holders of 5% Series Preferred Shares shall be paid the par value thereof and the amount of all unpaid accrued dividends thereon before any amount shall be payable to the holders of the common shares. The 5% Series Preferred Shares may be redeemed in whole or in part on any day on which a dividend shall be payable upon payment to the holders thereof the sum of One Hundred Dollars ($100.00) per share, and the amount of all unpaid accrued dividends thereon at the date of such redemption. The 5% Series Preferred Shares to be redeemed if less than the whole thereof, shall be determined by lot in such manner as the Board of Directors shall determine. Thirty days notice of such redemption shall be mailed to the holder of each such share to be redeemed at his last known post office address as the same appears in the books of the corporation and upon the expiration of such thirty days all the rights and privileges of such redeemed shares and the holders thereof, except the right to receive the redemption price and accrued unpaid dividends, shall cease and terminate. The 5% Series Preferred Shares shall have no voting power except as otherwise herein specifically provided and shall not vote in a proceeding for the mortgaging of the property and franchises of the corporation pursuant to section sixteen of the Stock Corporation Law, for guaranteeing the bonds of another corporation pursuant to section nineteen of the Stock Corporation Law, for the sale of franchises and property of the corporation pursuant to section twenty of the Stock Corporation Law for the making of any amendment to the certificate of incorporation pursuant to sections thirty-five and thirty-six of the Stock Corporation Law 44 except when otherwise required by the provisions of Section fifty-one of the Stock Corporation Law or any other applicable provisions of law for consolidation pursuant to section eighty-six of the Stock Corporation Law, for voluntary dissolution pursuant to section one hundred five of the Stock Corporation Law or for change of name pursuant to the General Corporation Law, provided, however that upon default in the payment of six quarterly dividends upon the 5% Series Preferred Shares, the holders of the 5% Series Preferred Shares shall thereafter, and until such default shall have been cured, be entitled to cast one vote for each such share upon all questions upon which the holders of common shares shall have the authority to vote, and, voting separately as a class together with the holders of any other series preferred shares to elect the majority of the Board of Directors, the remaining members of the Board of Directors to be elected by the holders of the common shares. The entire voting power shall be vested in the common shares, except in the event of default in the payment of dividends upon the series preferred shares in which event said series shall have voting power as herein provided, and, except as otherwise provided for the preference stock of the several classes and series, the common shares shall be vested with the whole interest in the earnings and assets of the corporation. IN WITNESS WHEREOF, we have made and subscribed this certificate this 23rd day of May, 1960. (signed) Chauncey K. Conklin President (signed) John E. Barry Secretary STATE OF NEW YORK: ss. COUNTY OF ORANGE : On this 23rd day of May, 1960, before me, the subscriber, personally appeared Chauncey K. Conklin and John E. Barry, being respectively the President and Secretary of Warwick Valley Telephone Company, to me known and known to me to be the same persons described in and who executed the within Instrument, and they severally, duly acknowledged to me that they executed the same. (signed) Donald G. Janes Notary Public DONALD G. JANES Notary Public in the State of New York My commission expires March 30, 1962 45 STATE OF NEW YORK: ss. COUNTY OF ORANGE : Chauncey K. Conklin and John E. Barry, being severally, duly sworn, depose and say, each for himself deposes and says that he, Chauncey K. Conklin is the President of Warwick Valley Telephone Company and he, John E. Barry is the Secretary thereof; that they have been duly authorized to execute and file the foregoing certificate by the votes cast in person or by proxy of the holders of record of two-thirds of the outstanding shares entitled to vote and of the holders of record of two-thirds of the outstanding shares of each class which will be adversely affected and entitled to vote at a stockholders meeting, at which such votes were cast with relation to the proceedings provided for in the certificate; that neither the certificate of incorporation nor any other certificate filed pursuant to law requires a larger proportion of votes; that such votes were cast in person or by proxy at a stockholders meeting held on the 20th day of May, 1960, upon notice pursuant to Section 45 of the Stock Corporation Law. (signed) Chauncey K. Conklin (signed) John E. Barry Severally subscribed and sworn to before me this 23rd day of May, 1960 (signed) Donald G. Janes Notary Public DONALD G. JANES Notary Public in the State of New York My commission expires March 30, 1962 46 STATE OF NEW YORK: ss. COUNTY OF ORANGE : John E. Barry, being duly sworn, deposes and says that he is the Treasurer of Warwick Valley Telephone Company, that the number of additional shares not resulting from a change of shares which the corporation is hereby authorized to issue is 5,000 shares and the number of such additional shares with par value is 5,000 shares and the par value thereof is $100. per share. (signed) John E. Barry Subscribed and sworn to before me this 23rd day of May 1960. (signed) Donald G. Janes Notary Public DONALD G. JANES Notary Public in the State of New York My commission expires March 30, 1962 47 632131 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the president and the secretary of Warwick Valley Telephone Company, do hereby certify and set forth: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed by the Department of State on the 16th day of January, 1902. 3. The certificate of incorporation is hereby amended, pursuant to section 801 (b) (7) of the Business Corporation Law, to effect an increase in the aggregate number of shares which the corporation shall have authority to issue from 32,500 shares to 43,500 shares of which 7,500 shall be preferred shares having a par value of $100.00 each and 36,000 shares shall be common shares without par value. 4. That portion of the certificate of incorporation as amended which sets forth the number of authorized shares is hereby further amended as follows: "The total number of shares of the corporation which may be issued is 43,500 to consist of 7,500 preferred shares having a par value of $100.00 each and 36,000 common shares without par value. 48 5. The manner in which this amendment to the certificate of incorporation was authorized was by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of the shareholders of said corporation duly called and held on the 28th day of July, 1967, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed and signed this certificate this 31st day of July, 1967. (signed) John W. Sanford John W. Sanford, President (signed) John E. Barry John E. Barry, Secretary 49 STATE OF NEW YORK: ss. COUNTY OF ORANGE : John W. Sanford, being first duly sworn, deposes and says that he is the president of Warwick Valley Telephone Company, that he has read the foregoing certificate and knows the contents thereof and that the statements therein contained are true. (signed) John W. Sanford John W. Sanford Sworn to before me this 31st day of July, 1967. (signed) Doris S. Minturn Notary Public DORIS S. MINTURN Notary Public, State of New York Appointed in Orange County Commission Expires March 30, 1969 50 917683 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW. The undersigned, being the executive vice president and the secretary of Warwick Valley Telephone Company, do hereby certify and set forth: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed by the Department of State on the 16th day of January, 1902. 3. The certificate of incorporation is hereby amended, pursuant to section 801(b) (7) of the Business Corporation Law, to effect an increase in the aggregate number of shares which the corporation shall have authority to issue from 43,500 to 50,000 shares of which 7,500 shall be preferred shares having a par value of $100.00 each and 42,500 shares shall be common shares without par value. 4. The portion of the certificate of incorporation as amended which sets forth the number of authorized shares is hereby further amended as follows: "The total number of shares of the corporation which may be issued is 50,000 to consist of 7,500 preferred shares having a par value of $100.00 each and 42,500 common shares without par value." 51 5. The manner in which this amendment to the certificate of incorporation was authorized was by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of the shareholders of said corporation duly called and held on the 30th day of April, 1971, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed and signed this certificate this 30th day of April, 1971. (signed) George C. Bensen George C. Bensen, Executive Vice President (signed) John E. Barry John E. Barry, Secretary STATE OF NEW YORK: SS. COUNTY OF ORANGE : George C. Bensen, being first duly sworn, deposes and says that he is the executive vice president of Warwick Valley Telephone Company, that he has read the foregoing certificate and knows the contents thereof and that the statements therein contained are true. (signed) George C. Bensen George C. Bensen Sworn to before me this 30th day of April, 1971. (signed) Herbert N. Roe Notary Public HERBERT N. ROE Notary Public State of New York Residing in Orange County My Commission Expires Mar. 30, 1972 52 A 89245 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW. The undersigned, being the president and the secretary of Warwick Valley Telephone Company, do hereby certify and set forth: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The Certificate of Incorporation was filed by the Department of State on the 16th day of January, 1902. 3. The Certificate of Incorporation is hereby amended, pursuant to Section 801(b) (12) of the Business Corporation Law, to eliminate the pre-emptive rights to acquire shares or other securities of the corporation. 4. To accomplish such amendment the following shall be added to the Certificate of Incorporation as amended: No holder of any share of stock of this Corporation either common or preferred shall be entitled as a matter of right, to subscribe for, purchase or receive any part of the unissued stock of the corporation or any stock of the corporation to be issued by reason of any increase of the authorized capital stock of the corporation or any stock of the corporation purchased by the corporation or by its nominee or nominees, or to subscribe for, purchase or receive any rights to or options to purchase any such stock or any bonds, certificates of indebtedness, debentures or other securities convertible into or carrying options or warrants to purchase stock or other securities of the corporation, or have any other pre-emptive rights as now or hereafter defined by the laws of the State of New York. 53 5. The manner in which this amendment to the Certificate of Incorporation of Warwick Valley Telephone Company was authorized, was by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote thereon and by the vote of the holders of a majority of all outstanding shares of each class or each series of a class adversely affected or subordinated at a meeting of the shareholders of said corporation duly called and held on the 27th day of April, 1973. IN WITNESS WHEREOF, the undersigned have executed and signed this certificate this 27th day of April, 1973. (signed) John W. Sanford President (signed) Philip S. Demarest Secretary 54 STATE OF NEW YORK: COUNTY OF ORANGE : JOHN W. SANFORD, being first duly sworn, deposes and says that he is the president of WARWICK VALLEY TELEPHONE COMPANY, that he has read the foregoing certificate and knows the contents thereof and that the statements therein contained are true. (signed) John W. Sanford JOHN W. SANFORD Subscribed and sworn to before me this 2 day of May, 1973. (signed) Mildred S. Littell NOTARY PUBLIC MILDRED S. LITTELL Notary Public, State of New York Appointed in Orange County Commission Expires March 30, 1974 No. 36-7570-750 55 STATE OF NEW YORK PUBLIC SERVICE COMMISSION Albany, N. Y., July 26, 1973 CASE 26435 - Petition of Warwick Valley Telephone Company for approval of an amendment of its certificate of incorporation to eliminate all pre-emptive rights to acquire shares or other securities of the corporation. The Public Service Commission hereby consents to and approves this CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW, executed April 27, 1973, in accordance with the order of the Public Service Commission dated June 29, 1973. By the Commission, (signed) Samuel R. Madison Secretary 56 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW. The undersigned, being the president and the secretary of Warwick Valley Telephone Company, do hereby certify and set forth: 1. The name of the corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed by the Department of State on the 16th day of January, 1902. 3. The certificate of incorporation is hereby amended, pursuant to section 801(b) (7) of the Business Corporation Law, to effect an increase in the aggregate number of shares which the corporation shall have authority to issue from 50,000 shares to 107,500 shares of which 7,500 shall be preferred shares having a par value of $100.00 each and 100,000 shares shall be common shares without par value. 4. That portion of the certificate of incorporation as amended which sets forth the number of authorized shares is hereby further amended as follows: "The total number of shares of the corporation which may be issued is 107,500 to consist of 7,500 preferred shares having a par value of $100.00 each and 100,000 common shares without par value." 57 5. The manner in which this amendment to the certificate of incorporation was authorized was by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of the shareholders of said corporation duly called and held on the 30th day of April, 1976, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed and signed this certificate this 30th day of April, 1976. (signed) John W. Sanford John W. Sanford, President (signed) Philip S. Demarest Philip S. Demarest, Secretary 58 STATE OF NEW YORK : SS.: COUNTY OF ORANGE : John W. Sanford, being first duly sworn, deposes and says that he is the president of Warwick Valley Telephone Company, that he has read the foregoing certificate and knows the contents thereof and that the statements therein contained are true. (signed) John W. Sanford John W. Sanford Sworn to before me this 30th day of May, 1976. (signed) Mildred S. Littell Notary Public MILDRED S. LITTELL Notary Public, State of New York Appointed in Orange County Commission Expires March 30, 1978 No. 36-7570-750 59 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and Secretary of Warwick Valley Telephone Company, do hereby certify and set forth: 1. The name of corporation is Warwick Valley Telephone Company. 2. The certificate of incorporation was filed by the Department of State on the 16th day of January, 1902. 3. The certificate of incorporation is hereby amended, pursuant to section 801 (b) (7) of the Business Corporation Law, to effect an increase in the aggregate number of shares which the corporation shall have authority to issue from 107,500 to 127,500 shares of which 7,500 shall be preferred shares having a par value of $100.00 each and 120,000 shares shall be common shares without par value. 4. The portion of the certificate of incorporation as amended which sets forth the number of authorized shares is hereby further amended as follows: "The total number of shares of the corporation which may be issued is 127,500 to consist of 7,500 preferred shares having a par value of $100.00 each and 120,000 common shares without par value." 60 5. The manner in which this amendment to the certificate of incorporation was authorized was by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of the shareholders of said corporation duly called and held on the 24th day of April, 1981, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed and signed this certificate this 24th day of April, 1981. (signed) J. Russell Langwig, Jr. J. Russell Langwig, Jr., President (signed) Philip S. Demarest Philip S. Demarest, Secretary 61 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and the Secretary of Warwick Valley Telephone Company (the "Corporation"), do hereby certify: 1. The name of the Corporation is Warwick Valley Telephone Company. 2. The Corporation's certificate of incorporation was filed by the Department of State on January 16, 1902. 3. The certificate of incorporation is amended as authorized by Section 801 (b) (11) to change the presently authorized 120,000 common shares without par value into 360,000 common shares without par value. 4. The first sentence of Paragraph IV of the certificate of incorporation, which refers to the number of authorized shares, is hereby amended to read in its entirety as follows: "The total number of shares of the corporation which may be issued is 367,500, to consist of 7,500 preferred shares having a par value of $100.00 each and 360,000 common shares without par value." The remainder of Paragraph IV is not amended and shall remain in full force and effect. 5. The number of common shares without par value currently issued and outstanding is 103,636, and the number of authorized, but unissued common shares without par value is 16,364. The terms of the change are as follows: Each authorized common share, whether issued or unissued, will be split 3-for-1. As a result, for each issued and outstanding common share without par value, the holder thereof will receive two additional common shares without par value, giving a total of 310,908 common shares without par value issued and outstanding. The stated capital of the Corporation will be neither reduced nor increased; pursuant to Section 806 (b) (1) of the Business Corporation Law this existing stated capital will be the stated capital with respect to the 310,908 common shares without par value outstanding after the split has been effectuated. Upon the effectuation of the 3-for-1 split, 49,092 authorized but unissued common shares without par value will remain. The stated capital with respect to such remaining, unissued 49,092 common shares without par value will be determined from time to time upon their issuance. 6. The amendment to the certificate of incorporation was authorized as follows: Upon the unanimous vote of the Corporation's Board of Directors, the amendment was submitted to the Annual Meeting of the Corporation's common shareholders on April 24, 1987, where the amendment was authorized by the affirmative vote of a majority of the issued and outstanding common shares entitled to vote thereon, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed this certificate of amendment this 15th day of May, 1987. (signed) J. Russell Langwig, Jr. J. Russell Langwig, Jr., President (signed) Philip S. Demarest Philip S. Demarest, Secretary 62 State of New York : : ss.: County of Orange : J. Russell Langwig, Jr., being duly sworn, deposes and says that he is one of the persons described in and who executed the foregoing certificate, that he has read the same and knows the content thereof, and that the statements contained therein are true. (signed) J. Russell Langwig, Jr. J. Russell Langwig, Jr. Sworn to before me this 15th day of May, 1987. (signed) Bonnie A. Jackowitz Notary Public BONNIE A. JACKOWITZ Notary Public, State of New York No. 4802628 Certified in Orange County Commission Expires May 31, 1988 63 STATE OF NEW YORK PUBLIC SERVICE COMMISSION Albany, NY, August 11, 1987 CASE 29610 - Petition of Warwick Valley Telephone Company for approval to amend its Certificate of Incorporation to permit the company to increase its authorized shares in order to effect a three-for-one stock split. The Public Service Commission hereby consents to and approves this Certificate of Amendment of The Certificate of Incorporation of Warwick Valley Telephone Company under Section 806 (b) (1) of the Business Corporation Law, executed May 15, 1987, in accordance with the order of the Public Service Commission dated August 5, 1987. By the Commission, (signed) John J. Kelliher Secretary 64 B549274 CERTIFICATE OF AMENDMENT UNI OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and the Secretary of Warwick Valley Telephone Company (the "Corporation"), do hereby certify: 1. The name of the Corporation is Warwick Valley Telephone Company. 2. The Corporation's certificate of incorporation was filed by the Department of State on January 16, 1902. 3. The certificate of incorporation is amended as authorized by Section 801 (b) (14) to effect the following changes: (a) To add a Paragraph VIII requiring the Board of Directors to consider certain factors when evaluating certain transactions involving the Corporation; (b) To add a Paragraph IX requiring that certain mergers and similar transactions of the Corporation must be approved by a vote of at least 70% of the shares of the Corporation's voting stock and two-thirds (2/3) of the shares of the Corporation's voting stock held by "disinterested" shareholders, unless certain "fair price" provisions are satisfied; and (c) To add a Paragraph X requiring that certain significant corporate transactions, such as mergers and sales of substantially all of the Corporation's assets, be approved by a vote of at least 70% of the shares of the Corporation's voting stock. 4. To effect the amendments described in paragraph 3 above the Corporation's certificate of incorporation shall be amended as follows: (a) A new Paragraph VIII shall be added to the Corporation's certificate of incorporation, which Paragraph VIII shall read in its entirety as follows: 65 "VIII. The Board of Directors of the corporation, when evaluating any offer of another party to (i) purchase, or exchange any securities or property for, any outstanding equity securities of the corporation or any subsidiary; (ii) merge or consolidate the corporation or any subsidiary with another company; or (iii) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation or any subsidiary, shall, in connection with the exercise of its judgment in determining what is in the best interest of the corporation and its shareholders, give due consideration not only to the price or other consideration being offered but also to all other relevant factors, including, without limitation, (i) the financial and managerial resources and future prospects of the offeror; (ii) the possible effects on the business of the corporation and its subsidiaries and on the ratepayers, and other customers, employees, suppliers and creditors of the corporation and its subsidiaries and (iii) the possible effects on the communities in which the facilities of the corporation and its subsidiaries are located. In so evaluating any such offer, the Board of Directors shall be deemed to be acting in accordance with its duly authorized duties and in good faith, in the best interests of the corporation." (b) A new Paragraph IX shall be added to the Corporation's certificate of incorporation, which Paragraph IX shall read in its entirety as follows: "IX. The vote of the shareholders of the corporation required to approve any Business Combination shall be as set forth in this Paragraph IX. The term "Business Combination" shall have the meaning ascribed to it in sub-paragraph 1.(B) of this Paragraph IX. Each other capitalized term shall have the meaning ascribed to it in sub-paragraph 3 of this Paragraph IX. 1.(A) In addition to any affirmative vote required by law or this certificate of incorporation and except as otherwise expressly provided in sub- paragraph 2 of this Paragraph IX: (1) any merger or consolidation of the corporation or any Subsidiary with (i) any Interested Shareholder or (ii) any other person (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Shareholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of assets of the corporation or any Subsidiary having an aggregate Fair Market Value of $1,000,000 or more; or 66 (3) the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the corporation or any Subsidiary which were not acquired by such Interested Shareholder (or such Affiliate) from the corporation or a Subsidiary; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (5) any transaction involving the corporation or any Subsidiary (whether or not with or into or otherwise involving an Interested Shareholder), and including without limitation, any reclassification of securities (including any reverse stock split), or recapitalization or reorganization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any self tender offer for or repurchase of securities of the corporation by the corporation or any Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder), which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Shareholder or any Affiliate of any Interested Shareholder; shall require the affirmative vote of the holders of at least 70 percent of the combined voting power of the then outstanding shares of the Voting Stock, in each case voting together as a single class (it being understood that for purposes of this Paragraph IX each share of the Voting Stock shall have the number of votes granted to it pursuant to this certificate of incorporation or the terms of any series of the corporation's preferred shares), which vote shall include the affirmative vote of at least two-thirds (2/3) of the combined voting power of the outstanding shares of Voting Stock held by shareholders other than the Interested Shareholder. Such affirmative vote shall be required notwithstanding any provision of law or any other provision of this certificate of incorporation or any agreement which might permit a lesser vote or no vote and in addition to any affirmative vote required of the holders of any class or series of Voting Stock pursuant to law, this certificate of incorporation or the terms of any series of the corporation's preferred shares. (B) The term "Business Combination" as used in this Paragraph IX shall mean any transaction that is referred to in any one or more clauses (1) through (5) of sub-paragraph 1.(A) of this Paragraph IX. 2. The provisions of sub-paragraph 1.(A) of this Paragraph IX shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as may be required by law, any other provision of this certificate of incorporation, or the terms of any series of the corporation's preferred shares, if, in the case of a Business Combination that does not involve any cash or other consideration being received by the shareholders of the corporation, solely in their 67 respective capacities as shareholders of the corporation, the condition specified in the following sub-paragraph (A) is met, or, in the case of any other Business Combination, the conditions specified in the following sub- paragraph (A) or the conditions specified in the following sub-paragraph (B) are met: (A) such Business Combination shall have been approved by a majority of the Disinterested Directors; or (B) each of the conditions specified in the following clauses (1) through (5) shall have been met: (1) the aggregate amount of the cash and Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by the holders of common shares in such Business Combination shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B)(1) shall be met with respect to all common shares outstanding whether or not the Interested Shareholder has acquired any common shares): (i) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any common shares beneficially owned by the Interested Shareholder which were acquired beneficially by such Interested Shareholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or (ii) The Fair Market Value per common share on the Announcement Date or on the Determination Date, whichever is higher; or (iii) the amount which bears the same percentage relationship to the Fair Market Value of the common shares on the Announcement Date as the highest per share price determined in (B)(1)(i) above bears to the Fair Market Value of the common shares on the date of the commencement of the acquisition of common shares by such Interested Shareholder; and (2) the aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of the shares of any class or series of outstanding Voting Stock other than common shares shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B)(2) shall be met with respect to every class and series of such Voting Stock, whether or not the Interested Shareholder has previously acquired any shares of a particular class or series of such Voting Stock): 68 (i) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class or series of Voting Stock beneficially owned by the Interested Shareholder which were acquired beneficially by such Interested Shareholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became the Interested Shareholder, whichever is higher; or (ii) if applicable, the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company; or (iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or the Determination Date, whichever is higher; or (iv) the amount which bears the same percentage to the Fair Market Value of such class or series of Voting Stock on the Announcement Date as the highest per share price in clause (B)(2)(i) above bears to the Fair Market Value of such Voting Stock on the date of the commencement of the acquisition of such Voting Stock by such Interested Shareholder; and (3) the consideration to be received by holders of a particular class or series of outstanding Voting Stock (including common shares) shall be in cash or in the same form as was previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Shareholder and, if the Interested Shareholder beneficially owns shares of any class or series of Voting Stock that were acquired with varying forms of consideration, the form of consideration to be received by each holder of shares of such class or series of Voting Stock shall be, at the option of such holder, either cash or the form used by the Interested Shareholder to acquire beneficially the largest number of shares of such class or series of Voting Stock beneficially acquired by it prior to the Announcement Date; and (4) after such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) such Interested Shareholder shall not have become the beneficial owner of any additional shares of Voting Stock of the corporation, except as part of the transaction in which it became an Interested Shareholder or upon conversion of convertible securities acquired by it prior to becoming an Interested Shareholder or as a result of a pro rata stock dividend or stock split; and 69 (ii) such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the corporation or any Subsidiary, whether in anticipation of or in connection with such Business Combination or otherwise; and (iii) such Interested Shareholder shall not have caused any material change in the corporation's business or capital structure including, without limitation, the issuance of shares of capital stock of the corporation to any third party; and (iv) there shall have been (x) no failure to declare and pay at the regular date therefore the full amount of dividends (whether or not cumulative) on any outstanding preferred shares of the Company except as approved by a majority of the Disinterested Directors, (y) no reduction in the annual rate of dividends paid on common shares (except as necessary to reflect any subdivision of the Common shares), except as approved by a majority of the Disinterested Directors, and (z) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the vent of any reclassification (including any reverse stock split), recapitalization, reorganization, self tender offer or any similar transaction which has the effect of reducing the number of outstanding common shares, unless the failure so to increase such annual rate was approved by a majority of the Disinterested Directors; and (5) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules and regulations), whether or not the corporation is then subject to such requirements, shall be mailed by and at the expense of the Interested Shareholder at least thirty days prior to the Consummation Date of such Business Combination to the public shareholders of the corporation (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions), and may contain at the front thereof in a prominent place (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which the Disinterested Directors, if any, may choose to state, and (ii) the opinion of a reputable national or regional investment banking firm with expertise in telecommunications as to the fairness (or not) of such Business Combination from the point of view of the remaining public shareholders of the corporation (such investment banking firm to be engaged solely on behalf of the remaining public shareholders, to be paid a reasonable fee for its services by the corporation upon receipt of such opinion, to be unaffilated with such Interested Shareholder, and, if there are at the time any Disinterested Directors, to be selected by a majority of the Disinterested Directors). 70 3. For purposes of this Paragraph IX: (A) A "person" shall include, without limitation, any individual, firm, corporation, group (as such term is used in Regulation 13D-G of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1987) or other entity. (B) "Interested Shareholder" shall mean any person (other than the corporation or any Subsidiary or any employee benefit plan of the corporation or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly, of more than 10 percent of the combined voting power of the then outstanding shares of Voting Stock; or (2) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the combined voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (C) A person shall be a "beneficial owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 71 (D) For the purposes of determining whether a person is an Interested Shareholder pursuant to sub-paragraph 3.(B) of this Paragraph IX, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such Interested Shareholder through application of sub-paragraph 3.(C) of this Paragraph IX but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangements or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1987. (F) "Subsidiary" shall mean any person more than 50 percent of whose outstanding equity securities having ordinary voting power in the election of directors is owned, directly or indirectly, by the corporation or by a Subsidiary or by the corporation and one or more Subsidiaries; provided, however, that for the purposes of the definition of Interested Shareholder set forth in sub-paragraph 3.(B) of this Paragraph IX, the term "Subsidiary" shall mean only a person of which a majority of each class of stock ordinarily entitled to vote for the election of directors is owned, directly or indirectly, by the corporation. (G) "Disinterested Director" shall mean any member of the Board of Directors of the corporation who is unaffiliated with, and not a nominee of, the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Disinterested Director who is unaffiliated with, and not a nominee of, the Interested Shareholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors. (H) "Fair Market Value" shall mean: (1) in the case of stock, the highest closing sale price during the 30-day period commencing on the 40th day preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the New York Stock Exchange Composite Tape, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing sale price or bid quotation with respect to a share of such stock during the 30-day period commencing on the 40th day preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (2) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. 72 (I) In the event of any Business Combination in which the corporation survives, the phrase "any consideration other than cash to be received" as used in sub-paragraphs 2.(B)(1) and 2.(B)(2) of this Paragraph IX shall include the common shares and/or the shares of any other class or series of outstanding Voting Stock retained by the holders of such shares. (J) "Announcement Date" shall mean the date of first public announcement of the proposed Business Combination. (K) "Determination Date" shall mean the date on which the Interested Shareholder became an Interested Shareholder. (L) "Consummation Date" shall mean the date of the consummation of the Business Combination. (M) The term "Voting Stock" shall mean, in any given time, all outstanding common shares of the corporation and all outstanding shares of any other classes or series of the corporation's capital stock, the holders of which are entitled at such time to vote upon all questions upon which the holders of common shares shall have the authority to vote, in each case voting together as a single class. 4. A majority of the Disinterested Directors shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Paragraph IX including, without limitation: (A) whether a person is an Interested Shareholder; (B) the number of shares of Voting Stock or any other stock beneficially owned by any person; (C) whether a person is an Affiliate or Associate of another person; (D) whether the requirements of sub-paragraph 2.(B) of this Paragraph IX have been met with respect to any Business Combination; (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more; and (F) all other matters with respect to which a determination is required under this Paragraph IX. 5. Nothing contained in this Paragraph IX shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. 73 6. Notwithstanding anything contained in this certificate of incorporation to the contrary, the affirmative vote of the holders of at least 70 percent of the combined voting power of the Voting Stock shall be required to alter, amend or repeal this Paragraph IX or to adopt any provision inconsistent therewith; provided, however, that if there is an Interested Shareholder on the record date for the meeting at which such action is submitted to the shareholders for their consideration, such 70 percent vote must include the affirmative vote of at least two-thirds (2/3) of the combined voting power of the outstanding shares of Voting Stock held by shareholders other than the Interested Shareholder. 7. Nothing contained in this Paragraph IX is intended, or shall be construed, to affect any of the relative rights, preferences or limitations, within the meaning of such terms under Section 801(b)(12) of the New York Business Corporation Law or any successor statute, of any shares of any authorized class or series of the corporation's stock, whether issued or unissued." and c) A new Paragraph X shall be added to the Corporation's certificate of incorporation, which Paragraph X shall read in its entirety as follows: "X. Except as otherwise specifically provided by law or in this certificate of incorporation, the affirmative vote in person or by proxy of the holders of seventy percent (70%) of the combined voting power of the issued and outstanding common shares of the corporation and the issued and outstanding shares of any other classes or series of the corporation's capital stock, the holders of which are entitled at the time to vote upon all questions upon which the holders of common shares shall have the authority to vote, shall be required to adopt any plan of merger or consolidation (other than any plan of merger involving the merger into the corporation of one or more subsidiaries of the corporation, provided the corporation owns 90% or more of each class of stock of such subsidiary or subsidiaries) or to approve the sale of all or substantially all of the corporation's assets. Any amendment to this certificate of incorporation which amends, deletes or otherwise modifies or changes this section of this certificate of incorporation or any part thereof, shall be authorized by a like vote of the shareholders. Nothing contained in this Paragraph X is intended, or shall be construed, to affect any of the relative rights, preferences or limitations, within the meaning of such terms under Section 801(b)(12) of the New York Business Corporation Law or any successor statute, of any shares of any authorized class or series of the corporation's stock, whether issued or unissued." The remainder of the Corporation's certificate of incorporation is not amended and shall remain in full force and effect. 5. The above amendments to the certificate of incorporation were authorized as follows: Upon the unanimous vote of the Corporation's Board of Directors, the amendments were submitted to the Annual Meeting of the Corporation's common shareholders on April 24, 1987, where the amendments were authorized by the affirmative vote of a majority of the issued and outstanding common shares entitled to vote thereon, a quorum being present. 6. The above amendments to the Corporation's certificate of incorporation do not require the approval of the New York State Public Service Commission pursuant to Section 108 of the Public Service Law. None of the amendments is of the type referred to in Section 801(b)(8), (9), (10), (11) or (12) of the Business Corporation Law and none of the amendments affects the relative rights, preferences or limitations, within the meaning of such terms under Section 801 (b) (12) of the Business Corporation Law, of any shares of any authorized class or series of the Corporation's stock. 74 IN WITNESS WHEREOF, the undersigned have executed this certificate of amendment this 2nd day of September, 1987 and certify, under penalty of perjury, that the statements herein are true. /S/ J. Russell Langwig, Jr. J. Russell Langwig, Jr. President /S/ Philip S. Demarest Philip S. Demarest, Secretary 75 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the First Vice President and the Secretary of Warwick Telephone Company (the "Corporation"), do hereby certify: 1. The name of the Corporation is Warwick Valley Telephone Company. 2. The Corporation's certificate of incorporation was filed by the Department of State on January 16, 1902. 3. The certificate of incorporation is amended as authorized by Section 801 (b) (14) to effect the following change: To add a Paragraph XII limiting the liability of Directors for monetary damages to the maximum extent now and hereafter permitted under the New York Business Corporation Law. 4. To effect the amendment described in paragraph 3 above the Corporation's certificate of incorporation shall be amended by adding a new Paragraph XII to the Corporation's certificate of incorporation, which Paragraph XII shall read in its entirety as follows: "XII. To the fullest extent now or hereafter provided for or permitted by law, no director of the Company shall be personally liable to the Company or its shareholders for damages for any breach of duty in such capacity. Neither the amendment or repeal of this Paragraph XII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Paragraph XII, shall eliminate or reduce the protection afforded by this Paragraph XII to a director of the Company in respect to any matter which occurred, or any cause of action, suit or claim which but for this Paragraph XII would have accrued or arisen, prior to such amendment, repeal or adoption." The remainder of the Corporation's certificate of incorporation is not amended and shall remain in full force and effect. 5. The above amendment to the certificate of incorporation was authorized as follows: Upon the unanimous vote of the Corporation's Board of Directors, the amendment was submitted to the Annual Meeting of the Corporation's common shareholders on April 29, 1988, where the amendment was authorized by the affirmative vote of a majority of the issued and outstanding common shares entitled to vote thereon, a quorum being present. 76 6. The above amendment to the Corporation's certificate of incorporation does not require the approval of the New York State Public Service Commission pursuant to Section 108 of the Public Service Law. The amendment is not of the type referred to in Section 801 (b) (8), (9), (10), (11) or (12) of the Business Corporation Law and the amendment does not affect the relative rights, preferences or limitations, within the meaning of such terms under Section 801 (b) (12) of the Business Corporation Law, of any shares of any authorized class or series of the Corporation's stock. IN WITNESS WHEREOF, the undersigned have executed this certificate of amendment this 25th day of May, 1988 and certify, under penalty of perjury, that the statements herein are true. (signed) Howard Conklin, Jr. Howard Conklin, Jr., First Vice President (signed) Philip S. Demarest Philip S. Demarest, Secretary State of New York ) ) ss.: County of Orange ) Howard Conklin, Jr. being duly sworn, deposes and says that he is one of the persons described in and who executed the foregoing certificate, that he has read the same and knows the content thereof, and that the statements contained therein are true. (signed) Howard Conklin, Jr. Howard Conklin, Jr., First Vice President Sworn to before me this 25th day of May, 1988 (signed) Bonnie A. Jackowitz Notary Public BONNIE A. JACKOWITZ Notary Public, State of New York No. 4802628 Certified in Orange County Commission Expires May 31, 1988 77 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF WARWICK VALLEY TELEPHONE COMPANY UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and the Secretary of Warwick Valley Telephone Company (the "Corporation"), do hereby certify: 1. The name of the Corporation is Warwick Valley Telephone Company. 2. The Corporation's certificate of incorporation was filed by the Department of State on January 16, 1902. 3. The certificate of incorporation is amended as authorized by Section 801 (b) (11) to change the presently authorized 360,000 common shares without par value into 720,000 common shares without par value. 4. The first sentence of Paragraph IV of the certificate of incorporation, which refers to the number of authorized shares, is hereby amended to read in its entirety as follows: "The total number of shares of the corporation which may be issued is 727,500, to consist of 7,500 preferred shares having a par value of $100.00 each and 720,000 common shares without par value." The remainder of Paragraph IV is not amended and shall remain in full force and effect. 5. The number of common shares without par value currently issued and outstanding is 301,008, and the number of authorized, but unissued common shares without par value is 58,992. The terms of the change are as follows: Each authorized common share, whether issued or unissued, will be split 2-for-1. As a result, for each issued and outstanding common share without par value, the holder thereof will receive one additional common share without par value, giving a total of 602,016 common shares without par value issued and outstanding. The stated capital of the Corporation will be neither reduced nor increased; pursuant to Section 806 (b) (1) of the Business Corporation Law this existing stated capital will be the stated capital with respect to the 602,016 common shares without par value outstanding after the split has been effectuated. Upon the effectuation of the 2-for-1 split, 117,984 authorized but unissued common shares without par value will remain. The stated capital with respect to such remaining, unissued 117,984 common shares without par value will be determined from time to time upon their issuance. 78 6. The amendment to the certificate of incorporation was authorized as follows: Upon the unanimous vote of the Corporation's Board of Directors, the amendment was submitted to the Annual Meeting of the Corporation's common shareholders on April 27, 1990, where the amendment was authorized by the affirmative vote of a majority of the issued and outstanding common shares entitled to vote thereon, a quorum being present. IN WITNESS WHEREOF, the undersigned have executed this certificate of amendment this 30th day of May, 1990. (signed) Fred M. Knipp Fred M. Knipp, President (signed) Philip S. Demarest Philip S. Demarest, Secretary State of New York ) ) ss.: County of Orange ) Fred M. Knipp, being duly sworn, deposes and says that he is one of the persons described in and who executed the foregoing certificate, that he has read the same and knows the content thereof, and that the statements contained therein are true. (signed) Fred M. Knipp Fred M. Knipp Sworn to before me this 30th day of May, 1990 (signed) Bonnie A. Jackowitz Notary Public BONNIE A. JACKOWITZ Notary Public, State of New York No. 4802628 Certified in Orange County Commission Expires May 31, 1990 79 EX-4.(A) 3 FORM OF STOCK CERTIFICATE NUMBER EXIBIT 4A SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK WARWICK VALLEY TELEPHONE COMPANY TOTAL AUTHORIZED ISSUE 727,500 SHARES 7,500 SHARES PREFERRED STOCK 720,000 SHARES COMMON STOCK PAR VALUE $100. EACH WITHOUT PAR VALUE THIS CERTIFIES THAT___________________________________________ is the owner of ______________________ Shares of the Common Stock, without par value, of WARWICK VALLEY TELEPHONE COMPANY, fully paid and nonassessable, transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. The designations, preferences, privileges and voting powers or other restrictions or qualifications of the several classes of shares are as follows: Common Stock with full voting power. $5 Cumulative Preferred Stock, having the following preferences, voting powers or restrictions or qualifications: a. It will be entitled up to Five Dollars ($5) per share and no more before Common Participants in any dividends, said dividends to be paid on March 31, June 30, September 30, and December 31. b. In case of dissolution of other distributions of assets, holders of Preferred Stock will be entitled to distribution of the assets up to par value of the Preferred Stock and accumulated dividends, prior to holders of Common Stock. c. It will have no voting powers except if Preferred dividends are not paid for two years, the Preferred stockholders may vote share for share with the Common stockholders so long as two years' arrears exist. d. The right to call at any dividend date any or all of the Preferred Stock at option of the Company is reserved with payment of all accrued dividends and at 100 per cent of par value. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this_______ day of___________________ A.D. 19 . SECRETARY-TREASURER (CORPORATE SEAL) PRESIDENT 80 EX-4.(D) 4 EIGHTH SUPPLEMENTAL INDENTURE EXHIBIT 4D WARWICK VALLEY TELEPHONE COMPANY TO THE BANK OF NEW YORK, AS TRUSTEE EIGHTH SUPPLEMENTAL INDENTURE Dated as of May 1, 1990 Supplementing the Indenture of Mortgage Dated as of November 1, 1952 and creating 9.05% First Mortgage Bonds, Series I, Due May 1, 2000 81 EIGHTH SUPPLEMENTAL INDENTURE, dated as of May 1, 1990, by and between WARWICK VALLEY TELEPHONE COMPANY, a corporation organized and existing under the laws of the State of New York (hereinafter called the "Company"), and THE BANK OF NEW YORK, a corporation organized and existing under the laws of the State of New York, as Trustee (hereinafter called the "Trustee"). R E C I T A L S: The background of this Eighth Supplemental Indenture is: A. The Company heretofore executed and delivered to The First National Bank of Warwick, as Trustee, its Indenture of Mortgage (hereinafter referred to as the "Original Indenture" and the Original Indenture and all supplemental indentures being hereinafter collectively referred to as the "Indenture"), dated as of November 1, 1952 (to which this instrument is supplemental), whereby the Company granted, bargained, sold and conveyed unto the Trustee and to its successors in said trust, all property real, personal and mixed then owned or thereafter acquired by the Company (other than property excepted from the lien thereof) to be held by the Trustee in trust in accordance with the provisions of the Indenture for the equal pro rata benefit and security of all Bonds issued under the Indenture. The Company thereafter executed and delivered seven supplemental indentures to the Original Indenture for the purpose of creating additional series of Bonds issuable under the Indenture, subjecting additional property to the lien of the Indenture and amending specific provisions of the Original Indenture. The Original Indenture and all supplemental indentures thereto have been duly recorded in the County Clerk's Office of the County of Orange in the State of New York and in the County Clerk's Offices of the Counties of Sussex and Passaic in the State of New Jersey (the only counties in which the Company owns property). B. The Bank of New York has become the successor trustee under the Indenture in accordance with the provisions thereof. C. The Company proposes (i) to create, issue and establish the terms and provisions applicable to an additional series of Bonds to be designated 9.05% First Mortgage Bonds, Series I, due May 1, 2000 (hereinafter referred to as the "Series I Bonds"), limited in aggregate principal amount to $3,000,000, and (ii) to mortgage and convey additional properties acquired or constructed by the Company since the date of the Seventh Supplemental Indenture. D. All acts and things necessary to make the Series I Bonds, when executed by the Company and authenticated and delivered by the Trustee as in the Indenture provided, the valid, binding and legal obligations of the Company, and by these presents to constitute a valid indenture and agreement according to its terms, have been done and performed, and the execution of 82 this Eighth Supplemental Indenture and the issue of the Series I Bonds have in all respects been duly authorized, and the Company, in the exercise of the legal right and power vested in it, executes this Eighth Supplemental Indenture. NOW, THEREFORE, in consideration of the premises and of the sum of One Dollar to the Company duly paid by the Trustee at or before the ensealing and delivery hereof and for other good and valuable considerations, the receipt whereof is hereby acknowledged, the Company hereby covenants and agrees to and with the Trustee and its successors in the trusts under the Indenture, for the equal and pro rata benefit of all present and future holders of all Bonds issued and to be issued under the Indenture, without any preference, priority or distinction whatsoever, as follows: ARTICLE ONE MORTGAGE OF PROPERTY S1.01. The Company in order to better secure the principal of and interest (and premium, if any) on all Bonds of the Company at any time outstanding under the Indenture according to their tenor and effect and the performance of and compliance with the covenants and conditions in the Original Indenture and all supplemental indentures thereto contained, does hereby grant a security interest in and does hereby grant, bargain, sell, convey and mortgage unto the Trustee, and to its successors in said trust, forever, all of the property, rights and franchises acquired or constructed by the Company since March 1, 1983, the date of the Seventh Supplemental Indenture, except property of the character specifically excepted from the lien of the Indenture, in trust, nevertheless, for the same purposes and upon the same conditions as are set forth in the Indenture. ARTICLE TWO SERIES I BONDS S2.01. Designation, Amount, Rate and Form. There is hereby created a series of Bonds to issued under the Indenture, limited to the aggregate principal amount of $3,000,000, which shall be designated "9.05% First Mortgage Bonds, Series I, due May 1, 2000." The Series I Bonds shall be issued only as registered bonds without coupons. The Series I Bonds initially issued shall be dated as of and bear interest from the date of issuance thereof; shall mature May 1, 2000; shall bear interest at the rate of 9.05% per annum, payable semiannually on May 1 and November 1 in each year until the principal thereof shall have become due and payable; and shall bear interest on any overdue principal and on any overdue interest at the rate of 10.05% per annum, so far as the same may be legally enforeable, from the due date thereof until fully paid. Interest shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Series I Bonds shall be substantially in the form set forth in Exhibit A hereto. Series I Bonds issued upon transfer or exchange for different denominations or in substitution for lost, stolen, destroyed or mutilated Series I Bonds shall be dated so that no gain or loss of interest shall occur. 83 There shall be no sinking fund for the Series I Bonds and the Series I Bonds may not be redeemed prior to their maturity date. S2.02. Authentication of Series I Bonds. After the execution and delivery of this Eighth Supplemental Indenture and upon compliance with the provisions of the authenticate and deliver to or upon the written order of the Company, Series I Bonds in an aggregate principal amount not to exeed $3,000,000. ARTICLE THREE MISCELLANEOUS S3.01. Counterparts. This Eighth Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, WARWICK VALLEY TELEPHONE COMPANY, party of the first part, has caused these presents to be signed in its corporate name by its President or a Vice President and its corporate seal to be hereunto affixed and attested by it Secretary or an Assistant Secretary, and THE BANK OF NEW YORK, party of the second part, has caused these presents to be signed in its corporate name by one of its ___________ or _______________ and its corporate seal to be hereunto affixed and attested by one of its _________________, all as of the day and year above written. WARWICK VALLEY TELEPHONE COMPANY By (signed) Fred M. Knipp Its President (Corporate Seal) Attest: By (signed) Philip S. Demarest Its Secretary THE BANK OF NEW YORK By (signed) Walter N. Gitlin Its Assistant Vice President (Corporate Seal) Attest: By (signed) Its Assistant Vice President 84 STATE OF NEW YORK ) ) SS COUNTY OF ORANGE ) On this 25th day of June, 1990, before me, personally came Fred M. Knipp, to me known, who, being by me duly sworn, did depose and say that he resides at the Village of Warwick, New York; that he is the President of WARWICK VALLEY TELEPHONE COMPANY, the corporation described in and which executed the above instrument; that he knew the seal of said corporation; that the seal affixed to said instrument was such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. (signed) Bonnie A. Jackowitz Notary Public BONNIE A. JACKOWITZ Notary Public, State of New York No. 4802628 Certified in Orange County Commission Expires May 31, 1992 STATE OF NEW YORK ) ) SS COUNTY OF ORANGE ) On this 26th day of June, 1990, before me, personally came Walter N. Gitlin, to me known, who, being by me duly sworn, did depose and say that he resides at 101 Daniel Low Terrace, Staten Island, NY 10301 New York; that he is the Assistant Vice President of THE BANK OF NEW YORK, the corporation described in and which executed the above instrument; that he knew the seal of said corporation; that the seal affixed to said instrument was such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. (signed) Virginia Barazotti Notary Public VIRGINIA BARAZOTTI Notary Public, State of New York No. 41-4734647 Qualified in Queens County Certificate filed in New York County Commission Expires November 30, 1991 85 (Form of Registered Bond of Series I) No. $ WARWICK VALLEY TELEPHONE COMPANY 9.05% First Mortgage Bond, Series I Due May 1, 2000 WARWICK VALLEY TELEPHONE COMPANY, a New York corporation (hereinafter called the "Company"), for value received, hereby promises to pay to or registered assigns on May 1, 2000 the principal amount of DOLLARS ($ ) and to pay to the registered owner hereof interest hereon from the date hereof at the rate of nine and five-hundredths percent (9.05%) per annum, semiannually on the first day of May and on the first day of November in each year until the principal hereof shall become due and to pay interest on any overdue principal and overdue interest at the rate of ten and five-hundredths percent (10.05%) per annum so far as legally enforceable. Both principal of and interest on this bond will be paid in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, at the office of the Trustee in New York, New York, under the Indenture mentioned below. This bond is one of the bonds, of the above designated series, of an authorized issue of bonds of the Company known as First Mortgage Bonds, all issued or issuable in one more series under the equally secured (except insofar as any sinking fund, replacement fund or other fund established in accordance with the provisions of the Indenture hereinafter mentioned may afford additional security for the bonds of any specific series) by an Indenture of Mortgage dated as of November 1, 1952, executed and delivered by the Company to the First National Bank of Warwick, which has been succeeded by The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture of Mortgage and all indentures supplemental thereto (hereinafter collectively referred to as the "Indenture") reference is hereby made for a description of the property mortgaged and pledged as security for said bonds, the nature and extent of the security, and the rights, duties and immunities hereunder of the Trustee, the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the terms upon which said bonds may be issued thereunder. This bond may not be redeemed prior to its maturity. Exhibit A (to the Eighth Supplemental Indenture) The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 75% in principal amount of the bonds (exclusive of bonds disqualified by reason of the Company's interest therein) at the time outstanding, including, if more than one series of bonds shall be at the time outstanding, not less than 60% in principal amount of each series affected, to effect, by an indenture supplemental to the Indenture, modifications or alterations of the Indenture and the rights and obligations of the Company and of the holders of the bonds and coupons; provided, however, that no such modification or alteration shall be made without the consent of the registered owner hereof which will (a) extend the maturity of this bond or reduce the rate or extend the time of payment of 86 interest hereon or reduce the amount of the principal hereof or reduce any premium payable on the redemption hereof, or (b) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce the percentage of the principal of the bonds upon the consent of the holders of which modifications or alterations may be made as aforesaid. This bond is transferable by the registered owner hereof in person or by his duly authorized attorney, at the office of the Trustee in New York, New York upon surrender of this bond for cancellation and upon payment, if the Company shall so require, of the charges provided for in the Indenture, and thereupon a new registered bond of the same series of like principal amount will be issued to the transferee in exchange therefor. The registered owner of this bond at his option may surrender the same for cancellation at said office and receive in exchange therefor the same aggregate principal amount of registered bonds of the same series of other authorized denominations, upon payment, if the Company shall so require, of the charges provided for in the Indenture and subject to the terms and conditions therein set forth. By its acceptance hereof, the registered owner of this bond agrees that, in the absence of the registration of this bond under the Securities Act of 1933, as amended, it will only transfer this bond in accordance with any available exemption from the requirements of Section 5 of the Securities Act of 1933, as amended, and in any event, in accordance with any applicable state securities laws. If a default as defined in the Indenture shall occur, the principal of this bond may become or be declared due and payable before maturity in the manner and with the effect provided in the Indenture. The holders, however, of certain specified percentages of the bonds at the time outstanding, including in certain cases specified percentages of bonds of particular series, may in the cases, to the extent and under the conditions provided in the Indenture, waive past defaults thereunder and the consequences of such defaults. 87 No recourse shall be had for the payment of the principal of or the interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, against any incorporator, stockholder, director or officer, past, present or future, as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders and officers, as such, being waived and released by the holder and owner hereof by the acceptance of this bond as provided in the Indenture. This bond shall not become or be valid or obligatory for any purpose until the authentication certificate hereon shall have been signed by the Trustee. IN WITNESS WHEREOF, WARWICK VALLEY TELEPHONE COMPANY, has caused these presents to be executed in its corporate name by its President, or one of its Vice Presidents under corporate seal or a facsimile thereof, and attested by its Secretary or one of its Assistant Secretaries, and this bond to be dated June __, 1990. WARWICK VALLEY TELEPHONE COMPANY By Its Attest: By Its Secretary (Form of Trustee's Authentication Certificate) This is one of the bonds, of the series designated therein, described in the within mentioned Indenture. THE BANK OF NEW YORK, as Trustee By Its 88 EX-13 5 ANNUAL REPORT HIGHLIGHTS 1995 1994 Total Revenues $14,969,872 $13,570,409 Net Income $2,153,372 $1,749,450 Earnings per Share $3.45 $2.82 Book Value $23.06 $21.23 Cash Dividend per Common Share $1.74 $1.68 Access Lines in Service 22,132 21,126 Cellular Subscribers 809 575 Online Subscribers 964 --- REVENUES Where the Dollar Comes from... Where the Dollar goes... xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Long Distance Wages & Benefits Access xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Other Operating Expenses Local Service xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Taxes WV Long Distance xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Depreciation Cellular xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Dividends xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Other Revenue Retained Earnings xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Cost of Goods Sold xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 89 PRESIDENT'S SUMMARY 1995 was an exciting year at Warwick Valley Telephone Company. In July we introduced online services for computer users, including access to the Internet. To emphasize our local community orientation we are now marketing the [President's service as Warwick Online, Vernon Online and Middletown Photo Online. Development of the service, planning the deployment, here] designing the hardware and software configurations, marketing, and development of the ordering, billing, and support functions involved almost everyone in the Company. We had to learn new skills, new concepts, and for some of us, we had to develop a new vocabulary. The service has, in my opinion, been extremely successful. We now have over 1,600 customers. With this activity we have also changed the horizons of the Warwick Valley Telephone Company, in terms of both geography and products. Over half of our Online customers are outside our telephone service area, and we have now established that we are not only a telephone or even telecommunications company; we are an Information Services Company. Financially this has been a great year. Revenues reached another new high and earnings jumped up dramatically. The new services introduced in the past two years are now past their start-up costs and are making a significant contribution to our earnings. Warwick Valley Long Distance led the way producing almost 10% of our 1995 earnings. Caller ID, Return Call, Repeat Call, Call Trace, Toll Control and Voicemail also continued to grow and contribute to our profits. Our Cellular services are recovering from the extensive fraud losses of last year and their earnings are also recovering. ACCESS LINES INCOME PER SHARE (Bar Graph here) (Bar Graph here) 90 Quality Service to our local customers has been and must continue to be the hallmark of Warwick Valley Telephone Company. We think our size is an advantage; we're big enough to provide good service and not too big to be impersonal. We continually try to measure our service quality and improve it. This is also a continual challenge as our services become more varied and more complex. The people of this Company are dedicated and skilled; they continue to improve with both internal and external training programs. Our labor relations continue to be quite good and we completed new 3 year labor agreements in 1995 with both our labor union groups, the Warwick Valley Telephone Company Employees' Association and IBEW Local 503. Looking forward, we expect good growth in all lines of our business and we expect the most growth in new Information Services. We are of course concerned about the government action to "deregulate" the telephone industry which inserts considerable uncertainty into our business prospects. A new federal Telecommunications Act was enacted in February and we expect all new competitive rules from the New York Public Service Commission, and perhaps new competitive rules from the New Jersey Board of Public Utilities this year. The impact of these changes on this Company cannot be assessed until the details and implementing orders are known. The thrust, however, is clear. Telephone service in this country has been regulated as monopoly service embodied in the Communications Act of 1934. Telephone service in the future will be competitive and regulated by the marketplace. The transition will be managed by government agencies and will encourage new competitors by handicapping the existing local exchange companies like the Warwick Valley Telephone Company. Adjusting to this new competitive market is clearly our biggest challenge, but I am confident that we can meet that challenge and continue to be a successful information services company. Fred M. Knipp (signature) President and Chief Executive Officer March 1, 1996 DIVIDENDS PER SHARE BOOK VALUE (Bar Graph here) (Bar Graph here) 91 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS RESULTS OF OPERATIONS - 1995 vs. 1994 The Company's net income from all sources increased $403,923 (or 23.1%) for the twelve-month period ended December 31, 1995 as compared to the same period in 1994. Telephone operating revenues increased $1,037,992 (or 8.5%) to $13,315,940 for the year ended December 31, 1995 as compared to $12,277,948 for 1994, primarily as a result of increases in interstate access revenues of $401,200, miscellaneous revenues of $295,451 (including directory, pole space rental, operator services and non-regulated revenues), and local revenues of $249,808 (primarily from newly-marketed services). Telephone operating expenses increased $367,511 (or 4.2%) to $9,217,733 at December 31, 1995 as compared to $8,850,222 at year-end 1994. Wage and benefit increases of $327,984 (or 6.0%) accounted for most of the overall increase. Non-operating income decreased to $305,200 in 1995 from $326,392 in 1994. Decreases in interest charged during construction, interest income and other non-operating income (expense) were offset by increased net income from subsidiaries and decreased non-operating federal income taxes. RESULTS OF OPERATIONS - 1994 vs. 1993 The Company's net income from all sources increased $106,811 (or 6.5%) to $1,749,450 for the twelve-month period ended December 31, 1994, as compared to the same period in 1993. Telephone operating revenues increased $1,115,709 (or 10.0%) to $12,277,948 for the year ended December 31, 1994, as compared to $11,162,239 for 1993, primarily as a result of the $952,900 (or 15.0%) increase in toll and access revenue. This increase resulted primarily from increased interstate access revenues of $591,440, increased New Jersey State Toll Revenue of $152,176, and a decrease of $112,103 in contributions to the New York Access Settlement Pool. Local revenues increased $92,495 (or 3.9%), primarily as a result of an increase in the number of customers and increased use of newly marketed services. Miscellaneous revenues increased $70,314 (or 2.5%), primarily as a result of increased operator services revenues due to the start-up of the Company's long distance subsidiary in late 1993. Telephone operating expenses increased $919,197 (or 11.6%) to $8,850,222 at December 31, 1994, as compared to $7,931,025 at year-end 1993. An increase in wages and benefits of $552,867 (or 11.0%) and an increase in depreciation expense of $352,869 (or 24.4%) accounted for most of the increase. Approximately $136,000 of the increase in wages and benefits was the result of increased medical insurance costs. Approximately $184,000 of the increase in depreciation expense was the result of increased depreciation rates approved and effective January 1, 1994. Nonoperating income increased to $326,392 in 1994 from $259,658 in 1993. This increase resulted largely from an increase in net income received from the Company's 7.5% interest in the Orange-Poughkeepsie Cellular Partnership, which increased by $49,551. 92 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES The Company ended 1995 with working capital of $1,255,242 as compared to $888,381 at December 31, 1994. This difference was largely due to an increase in accounts receivable, largely offset by increases in accounts payable, current maturities - long term debt and notes payable. The Company issued 5,553 shares of its common stock on April 1, 1995 to employees participating in retirement savings plans at $34.94 per share (a 15% discount from the appraised price of $41.10). Additional sales to employees are anticipated during 1996 and subsequent years. Purchases of shares for the treasury are possible although none are planned at this time. Pursuant to a NYSPSC order, the tax savings due to the general reduction in income tax liability of the Company made possible by the Tax Reform Act of 1986 attributable to New York State operations have been deferred. These tax savings were applied during 1995, and will continue to be applied in subsequent years, as an offset against the costs of funding retiree health benefits. Reduced rates to reflect the tax savings were ordered in New Jersey beginning July 1, 1987. The Company holds a 7.5% limited partnership interest in the cellular mobile telephone partnership which is licensed to operate as the wire-line licensee in both Orange and Dutchess Counties, New York. Since the inception of the partnership, the Company has made capital contributions of $249,750. No further capital contributions are currently scheduled. A wholly-owned subsidiary of the Company, Warwick Valley Mobile Telephone Company (WVMT), resells cellular telephone service to the Company's subscribers as well as to others. WVMT also sells and installs cellular telephone sets. The Company has invested approximately $337,000 in WVMT since its operations began on April 1, 1989. A second wholly-owned subsidiary, Warwick Valley Long Distance Company, Inc. (WVLD), began business in December 1993 in New Jersey and in May 1994 in New York. WVLD resells toll service to customers of Warwick Valley Telephone. WVLD achieved positive retained earnings prior to the end of 1994. Another wholly-owned subsidiary, Warwick Valley Networks, Inc. (WVN), was established during 1994. WVN is a partner in the New York State Independent Network (NYSINET), which was created by the independent telephone companies of New York to build and operate its own data connections network. NYSINET will make it unnecessary for its member companies to rely on outside companies for these services and may also offer services to companies who are not members, creating a potential source of additional revenue. The NYSINET network is expected to be in operation during 1996. An additional wholly-owned subsidiary, Hometown Online, Inc. (Online) was established during 1995. It is the entity through which WVTC offers connectivity to the Internet as well as local and regional information services to personal computer users. Service is offered within WVTC's service area as well as nearby areas in New York, New Jersey and Pennsylvania. The Company has invested approximately $478,000 in Online since its operations began in July 1995. 93
CONSOLIDATED BALANCE SHEET ASSETS December 31, 1995 1994 CURRENT ASSETS: Cash $ 482,049 $ 422,037 Accounts receivable - net of reserve for uncollectibles (Note 4) 3,659,990 2,647,053 Refundable income taxes 0 42,034 Materials and supplies (Note 1) 1,516,358 1,293,091 Prepaid expenses 317,085 285,819 5,975,482 4,690,034 NONCURRENT ASSETS: Unamortized debt issuance expense 75,170 41,686 Other deferred charges 140,327 162,616 Investments (Note 1) 1,286,646 779,806 1,502,143 984,108 TELEPHONE PLANT - AT COST: (Notes 1, 2 and 5) Telephone plant in service 32,131,186 30,666,549 Telephone plant under construction 1,032,206 839,392 33,163,392 31,505,941 Less: Depreciation reserve (Notes 1 and 3) 11,222,994 9,522,504 21,940,398 21,983,437 TOTAL ASSETS $29,418,023 $27,657,579
The accompanying notes are an integral part of the financial statements. 94
CONSOLIDATED BALANCE SHEET (continued) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1995 1994 CURRENT LIABILITIES: Current maturities-long-term debt $ 370,000 $ 120,000 Notes payable (Note 6) 950,000 900,000 Accounts payable 2,359,341 1,766,777 Advance billing and payments 206,986 202,358 Customer deposits 173,717 257,226 Accrued taxes 108,409 31,426 Accrued interest 84,573 84,285 Other accrued expenses 467,215 439,581 4,720,241 3,801,653 LONG-TERM DEBT: (Note 5) 7,000,000 7,370,000 DEFERRED CREDITS: (Notes 1 and 7) Accumulated deferred federal income taxes 2,250,073 1,973,117 Unamortized investment tax credits 312,517 372,606 Other deferred credits 390,980 640,961 2,953,570 2,986,684 STOCKHOLDERS' EQUITY: (Notes 5, 12, 13 and 14) Preferred stock - 5% cumulative; $100 par value; Authorized 7,500 shares; Issued and outstanding 5,000 shares 500,000 500,000 Common stock - no par value; Authorized shares: 720,000 Issued 644,757 (1995) and 639,263 (1994) 2,281,238 2,089,642 Retained earnings 12,738,174 11,684,800 15,519,412 14,274,442 Less: Treasury stock at cost, 25,800 shares 775,200 775,200 14,744,212 13,499,242 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,418,023 $27,657,579
The accompanying notes are an integral part of the financial statements. 95
CONSOLIDATED STATEMENT OF INCOME Years ended December 31, 1995 1994 1993 OPERATING REVENUES: Local network service $ 2,698,483 $ 2,448,677 $ 2,356,182 Network access and long distance network service 7,448,838 6,956,102 6,003,202 Miscellaneous (Note 1) 3,168,620 2,873,169 2,802,855 13,315,941 12,277,948 11,162,239 Less: Provision for uncollectibles (59,956) (25,144) (28,718) Total operating revenues 13,255,985 12,252,804 11,133,521 OPERATING EXPENSES: Plant specific 2,128,966 1,926,005 1,758,650 Plant non-specific: Depreciation 2,031,864 1,801,722 1,448,853 Other 580,838 742,732 589,940 Customer operations 2,780,319 2,651,856 2,385,226 Corporate operations 1,695,746 1,727,907 1,748,356 Total operating expenses 9,217,733 8,850,222 7,931,025 OPERATING TAXES: Federal income taxes (Note 7) 584,466 312,507 376,224 Property, revenue and payroll 960,718 1,023,023 964,882 Total operating taxes 1,545,184 1,335,530 1,341,106 Operating income 2,493,068 2,067,052 1,861,390 NONOPERATING INCOME (EXPENSES) - NET: (Note 11) 305,200 326,392 259,658 Income available for fixed charges 2,798,268 2,393,444 2,121,048 FIXED CHARGES: Interest on funded debt 593,756 619,064 333,223 Other interest charges 31,790 16,367 136,623 Amortization 19,350 8,563 8,563 Total fixed charges 644,896 643,994 478,409 NET INCOME 2,153,372 1,749,450 1,642,639 PREFERRED DIVIDENDS 25,000 25,000 25,000 INCOME APPLICABLE TO COMMON STOCK $ 2,128,372 $ 1,724,450 $ 1,617,639 NET INCOME PER AVERAGE SHARE OF OUTSTANDING COMMON STOCK (Note 12) $ 3.45 $ 2.82 $ 2.66 AVERAGE SHARES OF COMMON STOCK OUTSTANDING (Note 12) 617,584 612,248 607,301
The accompanying notes are an integral part of the financial statements. 96
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 1995, 1994 and 1993 Treasury Preferred Common Retained Stock Stock Stock Earnings Total Balance, December 31, 1992 ($775,200) $500,000 $1,767,230 $10,367,817 $11,859,847 Net income for the year ----- ----- ----- 1,642,639 1,642,639 Dividends: Common ($1.64 per share) ----- ----- ----- (996,286) (996,286) Preferred ($5.00 per share) ----- ----- ----- (25,000) (25,000) Sale of Common Stock ----- ----- 155,117 ----- 55,117 Purchase of Treasury Stock 0 ----- ----- ----- 0 Balance, December 31, 1993 (775,200) 500,000 1,922,347 10,989,170 12,636,317 Net income for the year ----- ----- ----- 1,749,450 1,749,450 Dividends: Common ($1.68 per share) ----- ----- ----- (1,028,820) (1,028,820) Preferred ($5.00 per share) ----- ----- ----- (25,000) (25,000) Sale of Common Stock ----- ----- 167,295 ----- 167,295 Balance, December 31, 1994 (775,200) 500,000 2,089,642 11,684,800 13,499,242 Net income for the year ----- ----- ----- 2,153,372 2,153,372 Dividends: Common ($1.74 per share) ----- ----- ----- (1,074,998) (1,074,998) Preferred ($5.00 per share) ----- ----- ----- (25,000) (25,000) Sale of Common Stock ----- ----- 191,596 ----- 191,596 Balance, December 31, 1995 ($775,200) $ 500,000 $2,281,238 $12,738,174 $14,744,212
The accompanying notes are an integral part of the financial statements. 97
CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31, 1995 1994 1993 CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 2,153,372 $ 1,749,450 $ 1,642,639 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,051,214 1,811,191 1,458,323 Deferred income tax and investment tax credit (33,114) (16,238) (164,619) Interest charged to construction (32,372) (123,482) (103,569) Income from partnership (290,250) (293,500) (243,949) Change in assets and liabilities: (Increase) Decrease in accounts receivable (970,903) (243,517) (134,406) (Increase) Decrease in materials and supplies (223,267) (252,651) (107,466) (Increase) Decrease in prepaid expenses (31,266) 23,312 24,174 (Increase) Decrease in deferred charges 22,289 (74,011) (34,430) Increase (Decrease) in accounts payable 592,564 93,104 149,032 Increase (Decrease) in customers' deposits (83,509) 57,665 (18,577) Increase (Decrease) in advance billing and payment 4,628 15,497 ---- Increase (Decrease) in accrued expenses 77,271 (211,188) 261,596 Increase (Decrease) in other liabilities 27,632 283,133 (2,050) Net cash provided by operating activities 3,264,289 2,818,765 2,726,698 CASH FLOW FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,988,826) (4,143,323) (3,221,750) Interest charged to construction 32,372 123,482 103,569 Distribution from partnership 0 202,500 258,750 Changes in other investments (216,589) (2,345) (5,000) Net cash used in investing activities (2,173,043) (3,819,686) (2,864,431) CASH FLOW FROM FINANCING ACTIVITIES: Increase (Decrease) in Notes Payable 50,000 900,000 (2,100,000) Repayment of long-term debt (120,000) (120,000) (120,000) Proceeds from issuance of long-term debt ---- ---- 4,000,000 Dividends (1,099,998) (1,053,820) (1,021,286) Sale of Common Stock 191,596 167,295 155,117 Increase in unamortized debt issue expense (52,832) ---- ---- Net cash provided by (used in) financing activities (1,031,234) (106,525) 913,831 Increase (Decrease) in cash and cash equivalents 60,012 (1,107,446) 776,098 Cash and cash equivalents at beginning of year 422,037 1,529,483 753,385 Cash and cash equivalents at end of year $ 482,049 $ 422,037 $ 1,529,483
The accompanying notes are an integral part of the financial statements. 98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company is an independent telephone company providing telephone service to customers in the Towns of Warwick and Goshen, New York and the Townships of Vernon and West Milford, New Jersey. Its services include providing local telephone service to residential and business customers, access and billing and collection services to interexchange carriers and the sale and leasing of telecommunications equipment. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in the consolidated financial statements. DEPRECIATION Depreciation is based on the cost of depreciable plant in service and is calculated on the straight-line method using estimated service lives of the various classes of telephone plant. Depreciation as a percent of average depreciable telephone plant was 6.47%, 6.25%, and 5.56%, for the years 1995, 1994 and 1993, respectively. CAPITALIZATION OF CERTAIN COSTS AND EXPENSES The Company has consistently followed the practice of capitalizing certain costs related to construction, including payroll and payroll related costs and significant costs of capital incurred during construction. The income which results from capitalizing interest during construction is not currently realized but, under the regulatory rate-making process, is recovered by revenues generated from higher depreciation expense over the life of the related plant. FEDERAL INCOME TAXES The Company has adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), as of January 1, 1993. Under SFAS 109 deferred income taxes arise from temporary differences resulting from differences between the financial statement and tax basis of assets and liabilities. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. The Company's deferred taxes result principally from differences in depreciation methods for financial reporting and tax reporting. Investment tax credits have been normalized and are being amortized to income over the average life of the related telephone plant and other equipment. 99
INVESTMENTS Investments consisted of the following at December 31: 1995 1994 Investment in cellular partnership $ 1,054,485 $ 764,235 Other investments 232,161 15,571 $ 1,286,646 $ 779,806
The partnership investment represents the Company's 7.5% interest as a limited partner in a cellular telephone operation and has been recorded on the equity method. The other investments are recorded at cost. CASH FLOW STATEMENT Cash and cash equivalents consists principally of demand deposits and are in accounts which are insured by the Federal Deposit Insurance Corporation (F.D.I.C.) up to $100,000 at each financial institution. As of December 31, 1995 the amount of cash in excess of these F.D.I.C. insured limits was approximately $489,500. The following is a list of interest and federal income tax payments for each of the three years in the period ending December 31, 1995:
1995 1994 1993 Interest $ 625,259 $ 613,969 $ 448,733 Federal Income Taxes $ 615,000 $ 717,037 $ 462,635
MATERIAL AND SUPPLIES New and reusable materials are carried at average original cost, except that specific costs are used in the case of large individual items. As of December 31, 1995 and 1994 the Material and Supplies inventory consisted of the following:
1995 1994 Inventory for outside plant construction $ 301,022 $ 329,998 Inventory for central office equipment 544,109 234,778 Inventory of deregulated equipment held for sale or lease (principally PBX and station equipment) 671,227 728,315 $ 1,516,358 $ 1,293,091
RETIREMENT AND/OR DISPOSITION OF PROPERTY When depreciable property is retired, the amount at which it is carried plus the cost of removal is charged to the depreciation reserve and any salvage is credited thereto. Expenditures for maintenance and repairs are charged against income; renewals and betterments are capitalized. MISCELLANEOUS REVENUES Miscellaneous revenues consisted of the following for each of the three years in the period ended December 31:
1995 1994 1993 Directory advertising revenue $ 784,365 $ 738,231 $ 723,899 Rent revenue 193,310 178,585 148,804 Billing and collection revenue 1,105,198 1,109,344 1,123,500 Deregulated revenues 441,352 428,693 427,904 Other operating revenues 644,395 418,316 378,748 $ 3,168,620 $ 2,873,169 $ 2,802,855
100
2. TELEPHONE PLANT IN SERVICE Telephone plant in service, at cost, consisted of the following at December 31: 1995 1994 Land $ 164,981 $ 164,981 Buildings and improvements 1,979,310 1,924,228 Equipment 29,199,788 27,817,135 Vehicles 787,107 760,205 $ 32,131,186 $ 30,666,549 3. DEPRECIATION RESERVE Depreciation reserve consisted of the following at December 31: 1995 1994 Buildings and improvements $ 385,685 $ 331,099 Equipment 10,401,991 8,815,326 Vehicles 435,318 376,079 $ 11,222,994 $ 9,522,504
4. ACCOUNTS RECEIVABLE The Company uses the reserve method to record uncollectible accounts. The reserve for uncollectibles was $65,155 as of December 31, 1995 and 1994.
5. LONG-TERM DEBT Long-term debt consisted of the following at December 31: 1995 1994 Redemption Price Redemption Price Amount Plus Premium Amount Plus Premium First Mortgage Bonds 9.50% Series "F" $ 260,000 100.00% $ 270,000 100.39% (due 09/01/1996) 8.75% Series "G" 110,000 100.00% 220,000 100.87% (due 12/15/1996) 9.05% Series "I" 3,000,000 N/A 3,000,000 N/A (due 05/01/2000) 7.05% Series "J" 4,000,000 N/A 4,000,000 N/A (due 12/01/2003) 7,370,000 7,490,000 Less: Current maturities of Long-Term Debt 370,000 120,000 Total Long-Term Debt $7,000,000 $7,370,000
101 5. LONG-TERM DEBT (continued) Telephone properties have been pledged as collateral on the first mortgage bonds. Under provisions of the bond indentures, as amended, the payment of dividends or a distribution of assets to stockholders to the extent of 75% of the Company's net income earned during the calendar year will be allowed, providing "net operating income" equals interest expense 1.5 times. Maturities and sinking fund requirements for the five years subsequent to 1995 for long-term debt outstanding as of December 31, 1995 are as follows: 1996................................................. $ 370,000 1997 ................................................ ----- 1998................................................. ----- 1999................................................. ----- 2000................................................. $3,000,000 At the option of the Company, the first mortgage bonds, except for the Series "I" and "J" bonds, which may not be redeemed prior to their maturity date, may be redeemed in whole or in part before maturity at par plus various declining premium rates as stated above. 6. NOTES PAYABLE The Company has an unsecured line of credit with the Warwick Savings Bank, which expires in April, 1996. Any borrowings under this line of credit are on a demand basis and are without restrictions, at a variable lending rate. The total credit available at December 31, 1995 was $1,550,000. The balances outstanding as of December 31, 1995 and 1994 were $950,000 and $900,000 respectively, bearing interest rates of 8% and 5.50%. 7. FEDERAL INCOME TAXES The following tabulation is a reconciliation of the federal income tax expense as reported in these financial statements with the tax expense computed by applying the statutory federal income tax rates to pre-tax income. The statutory tax rate of 34% applies to all three years.
1995 1994 1993 Operating federal income taxes: Current portion $ 601,448 $ 345,433 $ 576,101 Deferrals, net of reversals: Depreciation 100,984 153,538 (6,252) Cost of removal 2,928 (11,768) (11,594) Tax savings due to TRA of 1986 (89,760) (89,760) (126,745) Other 19,866 (33,936) (4,286) Investment tax credit, net of amortization (51,000) (51,000) (51,000) (16,982) (32,926) (199,877) Operating F.I.T. expense 584,466 312,507 376,224 Nonoperating federal income taxes: Current portion 89,917 102,417 88,735 Deferrals, net of reversals: (9,089) (3,875) (3,875) Nonoperating F.I.T. expense 80,828 98,542 84,860 F.I.T. included in income (loss) of subsidiary 45,947 115 (10,322) Total F.I.T. expense, as reported 711,241 411,164 450,762
102
7. FEDERAL INCOME TAXES (continued) 1995 1994 1993 Reversals of deferred taxes 177,968 202,255 162,793 Tax savings of TRA of 1986, net 89,760 89,760 126,745 Other (5,001) 31,430 (28,544) FEDERAL INCOME TAX AT STATUTORY RATE $ 973,968 $ 734,609 $ 711,756
The following components comprise the net deferred tax liability reported as of December 31: 1995 1994 Deferred tax liabilities $2,406,384 $2,155,700 Deferred tax assets 156,311 182,583 Net deferred tax liability $2,250,073 $1,973,117 The deferred tax liability consists principally of temporary differences due to differences in depreciation methods for financial reporting and tax reporting. The deferred tax asset is due to the unamortized investment tax credit being deemed a temporary difference in the basis of the related assets. The adoption of SFAS 109, Accounting for Income Taxes, has required certain reclassifications of deferred tax balances and the establishment of regulatory assets and liabilities. This is due to the ratemaking treatment of deferred taxes and unamortized investment tax credits, whereby future reversals can be expected to be recovered or returned to customers through future rates. Any existing excess deferrals, generated from a change in tax rates, which will be passed on to customers of the Company's regulated operations in the future, have been reclassified as regulatory liabilities. The balance of unamortized investment tax credits is a temporary difference and a deferred tax asset has been established for this. The offsetting regulatory liability associated with this reflects the future amounts due to customers as reversals of these balances occur. These regulatory liabilities are included in other deferred credits and amounted to $202,170 and $355,348 as of December 31, 1995 and 1994, respectively. As reversals of the deferred tax balances occur in the future, these regulatory liabilities will also decrease. 8. PENSION PLANS DEFINED BENEFIT PENSION PLAN - The Company has two defined benefit pension plans covering all management and non-management employees who are at least 21 years of age and have completed one year of service. Benefits are based on years of service and the average of the employee's three highest consecutive years' base compensation. The Company's policy is to fund the minimum required contribution disregarding any credit balance arising from excess amounts contributed in the past. Contributions to the plan for 1995, 1994 and 1993 were $329,807, $80,309, and $323,861 respectively. 103 8. PENSION PLANS (continued) DEFINED BENEFIT PENSION PLAN (continued) The following table sets forth the combined plans' funded status and amounts recognized in the Company's statement of financial position as of December 31, 1995 and 1994:
1995 1994 Actuarial present value of benefit obligations: Accumulated benefit obligation: vested benefit $ 6,019,582 $ 4,806,189 non-vested benefit 4,528 6,061 $ 6,024,110 $ 4,812,250 Projected benefit obligation for service rendered to date $(7,602,508) $(6,271,045) Plan assets at fair value (bonds, real estate, mortgages and stocks) 6,429,016 5,153,449 Projected benefit obligation in excess of plan assets (1,173,492) (1,117,596) Unrecognized net loss (gain) from past experience different from that assumed and effects of changes in assumptions 265,103 101,692 Prior service cost not yet recognized in net periodic pension cost 348,167 398,778 Unrecognized net transition obligation 319,582 372,845 Prepaid (accrued) pension cost $ (240,640) $ (244,281)
Net periodic pension cost for the years 1995, 1994 and 1993 includes the following components:
1995 1994 1993 Service cost-benefits earned during the period $ 168,557 $ 161,479 $ 168,540 Interest cost on projected benefit obligation 506,037 474,519 430,840 Actual return on plan assets (1,100,756) (30,662) (482,013) Net amortization and deferral 752,328 (226,140) 207,964 Net periodic pension cost $ 326,166 $ 379,196 $ 325,331
A discount rate of 8.5% and 7.5% and a rate of increase in future compensation levels of 6.5% and 5.5% were used in determining the actuarial present value of the projected benefit obligations for 1995 and 1994, respectively. The expected long-term rate of return on assets was 9.0% and 8.0% for 1995 and 1994, respectively. There may be differences in the amount of pension expense as stated above and that recorded in these financial statements due to regulatory requirements. This difference would be recorded as a regulatory asset or liability and will be disposed of by the regulators at a future date. DEFINED CONTRIBUTION PLAN - The Company also has a Defined Contribution 401(K) Profit Sharing Plan covering substantially all employees. Under the plan, employees may contribute up to 15% of compensation, subject to certain legal limitations. The Company contributes a matching contribution up to 3.0% of an eligible participant's compensation for management, clerical traffic, and plant employees. The Company contributed and expensed $82,551, $70,606 and $62,912 for the years ended December 31, 1995, 1994 and 1993, respectively. 104 9. POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS The Company has adopted SFAS 106, "Employers' Accounting for Postretirement Benefits other than Pensions," which requires the cost of these benefits to be recognized over the service life of employees. The Company sponsors a non-contributory, defined benefit postretirement medical benefit plan that covers all employees that retire directly from active service on or after age 55 with at least 10 years of service or after age 65 with at least 5 years of service. The projected unit credit actuarial method was used in determining the cost of future benefits. The Company's funding policy is to contribute the maximum allowed under current Internal Revenue Service regulations. Due to regulatory requirements the Company is allowed to expense the amount actually funded, with any difference between the funding amount and the SFAS 106 expense amount being deferred as a regulatory asset or liability. Assets of the plan are held in various tax exempt funding vehicles and are invested principally in a bond mutual fund. The following table sets forth the plan's funded status reconciled with the amounts shown in the Company's balance sheet at December 31, 1995 and 1994.
Accumulated postretirement benefit obligation: 1995 1994 Retirees $ (364,378) $ (402,196) Fully eligible active plan participants (278,966) (199,790) Other active plan participants (833,257) (779,694) $(1,476,601) $(1,381,680) Plan assets at fair value 456,361 275,702 Accumulated postretirement benefit obligation in excess of plan assets (1,020,240) (1,105,978) Unrecognized net loss (gain) 103,494 152,222 Unrecognized transition obligation 875,428 926,924 Prepaid (Accrued) postretirement benefit cost $ (41,318) $ (26,832)
Net periodic postretirement benefit costs for 1995, 1994 and 1993 includes the following components:
1995 1994 1993 Service cost $ 44,963 $ 42,975 $ 33,691 Interest cost on accumulated postretirement benefit obligation 102,387 95,370 77,244 Actual return on plan assets (52,234) (11,513) -- Amortization of transition obligation over 20 years 51,496 51,496 51,496 Net amortization and deferral 32,211 2,078 -- Net periodic postretirement benefit cost $ 178,823 $ 180,406 $ 162,431
For measurement purposes, a 11% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1996; the rate was assumed to decrease gradually (1% per annum until 1997 and .5% from 1998-2006) to 5% at 2007 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $260,000 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by approximately $32,000. The weighted-average discount rate and the rate of compensation increase used in determining the accumulated postretirement benefit obligation was 7.5% and 5.0% for both 1995 and 1994, and the expected long-term rate of return on plan assets was 7.5% for both years. 105 10. RELATED PARTY TRANSACTIONS The Company expended approximately $204,565, $187,036 and $164,586 during 1995, 1994 and 1993, respectively, in insurance premiums for required insurance coverage. These expenditures were made to an insurance agency in which a member of the Board of Directors has a financial interest. Two Board of Director members are also trustees of the Warwick Savings Bank, at which the Company has its principal bank accounts and temporary investments. 11. NONOPERATING INCOME AND EXPENSES Nonoperating income (expense) for the years ended December 31, are as follows:
1995 1994 1993 Interest charged to construction $ 32,372 $ 123,482 $ 103,569 Interest income 513 17,082 3,570 Income from cellular partnership 290,250 293,500 243,949 Net income (loss) from subsidiaries 89,193 225 (20,037) Other nonoperating income (expense) (26,300) (9,355) 13,467 Nonoperating federal income taxes (80,828) (98,542) (84,860) $ 305,200 $ 326,392 $ 259,658
12. EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding of 617,584, 612,248 and 607,301 for the years ended December 31, 1995, 1994 and 1993, respectively. 13. TREASURY STOCK The Company accounts for treasury stock using the cost method of accounting. 14. PREFERRED STOCK The preferred stock may be redeemed by the Company on any dividend payment date at par plus accumulated dividends. Preferred stock ranks prior to the common stock both as to dividends and on liquidation, but has no general voting rights. However, if preferred stock dividends are in default in an amount equal to six quarterly dividends, the holder of preferred stock shall have the right to elect a majority of the Board of Directors and such voting rights would continue until all dividends in arrears have been paid. 15. COMMITMENTS The Company is required to make certain contributions to national and state associations as part of the industry practice of pooling revenues and redistributing to members based on cost to provide services or some other method. Due to recent changes in the structure of these pools, the Company's responsibility is to contribute certain fixed amounts during a transition period, after which time the amounts may change. Payments to the National Exchange Carrier Association during 1995 were $54,000 and the contribution for 1996 is expected to be $75,000. Effective October 1, 1992, the New York State Settlement Pool was restructured, resulting in the Company being obligated to contribute $220,000 in 1996 through September 30th. Contributions after that date are not known at this time. The amounts paid to these pools are considered part of the cost of providing access service to inter-exchange carriers and are included in the rates charged to them. 106 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of the instruments. The fair value of the Company's long-term debt, after deducting current maturities, is estimated to be $7,460,000 at December 31, 1995, compared to a carrying value of $7,000,000. The fair value estimates were based on rates currently available from debt instruments with similar terms and maturities. The fair value of all other financial instruments is estimated by management to approximate the carrying value. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors February 8, 1996 Warwick Valley Telephone Company P.O. Box 592 Warwick, New York 10990 INDEPENDENT AUDITOR'S REPORT We have audited the accompanying consolidated balance sheets of Warwick Valley Telephone Company as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Warwick Valley Telephone Company as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Bush & Germain, P.C. (signature) Bush & Germain, P.C. Syracuse, New York February 8, 1996 107
BOARD OF DIRECTORS AND OFFICERS (page of photos) Philip S. Demarest Howard Conklin, Jr. Earl V. Barry Board Director, Chairman of the Board of Board Director, Vice President, the Company, Chairman of Retired, Former Vice Secretary & Treasurer of the Board, Conklin & President of the the Company Strong, Inc., Warwick, N.Y. Company Henry L. Nielsen, Jr. Fred M. Knipp Victor J. Marotta Vice Chairman of the Board Director, Board Director, Board of the Company, President & C.E.O. of Director of Tri-States Tankers President, Nielsen the Company of New York, Inc. Construction Co., Inc., Slate Hill, N.Y. Warwick, N.Y. Wisner H. Buckbee Joseph E. DeLuca, M.D. Corinna S. Lewis Board Director, Board Director, Board Director, President, Wisner Farms, Inc., Physician, Vernon Urgent Care Retired Public Relations Warwick, N.Y. Center, Vernon, N.J. Consultant Herbert Gareiss, Jr. Vice President of the Company
108
PERFORMANCE HIGHLIGHTS For years ended or at December 31, 1995 1994 1993 1992 1991 SELECTED FINANCIAL DATA Total revenues * $14,969,872 $13,570,409 $11,817,981 $10,949,082 $11,047,247 Telephone operating revenues 13,315,940 12,277,948 11,162,239 10,377,034 10,680,840 Total expenses * 11,022,037 10,165,019 8,351,512 7,692,276 7,464,253 Telephone operating expenses 9,217,733 8,850,222 7,931,025 7,290,612 7,129,700 Net income 2,153,372 1,749,450 1,642,639 1,401,753 1,608,155 Total assets 29,418,023 27,657,579 25,792,681 23,010,828 21,546,013 Current assets 5,975,482 4,690,034 5,324,625 4,330,829 3,496,242 Current liabilities 4,720,240 3,801,653 2,663,442 4,373,441 2,919,135 Long-term obligations 7,000,000 7,370,000 7,490,000 3,610,000 3,961,000 Percentage of debt to total capital 36.07 38.3 37.6 31.2 30.8 Shareholders' equity 14,744,212 13,499,242 12,636,317 11,859,847 11,446,525 COMMON STOCK DATA Income applicable to common stock 2,128,372 1,724,450 1,617,639 1,376,753 1,583,155 Income per share 3.45 2.82 2.66 2.27 2.63 Book value 23.06 21.23 19.96 18.70 18.18 Cash dividends per common share 1.74 1.68 1.64 1.60 1.50 Shareholders of record 607 591 590 584 574 Shares outstanding 617,584 612,248 607,301 607,491 602,016 GENERAL Access lines in service 22,132 21,126 20,312 19,514 18,900 Carrier access minutes 134,534,480 125,081,670 115,645,770 88,039,170 78,528,858
* Including cellular shown as part of nonoperating income (expenses) on statement of income. 109 CONCERNING THE COMPANY'S COMMON STOCK Although private sales are made by holders of the Company's common stock from time to time, there is no established public trading market for the Company's common stock, and the Company is unable to say whether one will develop. At March 1, 1996, there were 607 holders of the Company's common stock. The Company has paid consecutive cash dividends on its common stock quarterly since April 1, 1931 and semi-annually from July 1, 1907 until December 31, 1930. The practice of the Company has been to reinvest a substantial portion of its earnings in its capital plant. While the present intention of the Board of Directors is to continue declaring cash dividends, future dividends will necessarily depend on the Company's earnings, capital requirements, developments in the telephone industry and general economic conditions, among other factors. In 1994, the Company paid a dividend on its common stock of $1.68 per share. In 1995, the common stock dividend was $1.74 per share. 110 EX-27 6 FINANCIAL DATA SCHEDULE
UT YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 21,940,397 1,286,646 5,975,482 140,327 75,170 29,418,023 2,281,238 0 12,738,174 15,019,412 0 500,000 6,630,000 950,000 0 0 370,000 0 0 0 5,578,610 29,418,023 13,255,984 1,545,184 0 9,217,773 2,493,067 305,200 2,798,267 644,896 2,153,372 25,000 2,128,372 1,074,998 0 3,264,289 3.45 0
-----END PRIVACY-ENHANCED MESSAGE-----