<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996 Commission file number 0-8621
THE WOODBURY TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0594990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
299 Main Street South, Woodbury, CT 06798
(address of principal Zip Code
executive offices)
Registrant's telephone number, including area code - (203) 263-2121
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 a share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K./ /
Cover Page 1 of 2
Page 1 of 26
<PAGE> 2
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 14, 1997.
Common Stock, $2.50 par value--$30,379,727*
(based on the market value on February 1, 1997)
*Southern New England Telecommunications Corporation ("SNET") owns 280,645
shares (or 36.5%) of the Company's Common Stock. Also, pursuant to an Amended
and Restated Agreement and Plan of Merger dated December 6, 1996 (the "Merger
Agreement"), among the Company, SNET and SNET Acquisition Subsidiary, Inc.
("SAS"), a wholly-owned subsidiary of SNET, upon satisfaction of the conditions
precedent to the transaction contemplated thereunder (the "Merger"), SAS will
merge into the Company and the Company will become a wholly-owned subsidiary of
SNET, and each share of the Company's Common Stock held by shareholders
(excluding shares of Common Stock held by SNET) will be converted into the right
to receive a number of publicly traded and listed shares of SNET common stock
having a value equal to $43.00, subject to adjustment as described in the Merger
Agreement (a copy of which is attached as Exhibit 2 hereto). The Merger is
intended to be generally free of federal income tax consequences to the Company
shareholders. It is the Company's position, with which SNET concurs, that SNET
is not an affiliate of the Company despite its stock ownership, because the
conditions to the Merger have not yet been satisfied, and for the past several
years, the Company's management has held sufficient proxies to elect the Board
of Directors' nominees without regard to SNET's vote of its shares. Excluding
SNET's stock, the aggregate market value of the Common Stock as of February 14,
1997 was $19,294,249.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of March 3, 1997.
Common Stock, $2.50 par value--769,107
DOCUMENTS INCORPORATED BY REFERENCE
None
Cover Page 2 of 2
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<PAGE> 3
PART I
Item 1. Business
(a) GENERAL DEVELOPMENT OF BUSINESS - The Woodbury Telephone Company (the
"Company") is a Connecticut corporation which commenced business in 1899. The
purposes for which the Company was formed, as set forth in its Certificate of
Organization, are to build, own, equip, buy, sell, operate and maintain systems
of telephone exchange in any or all of the cities, towns and villages of the
State of Connecticut; and systems and methods of communication from and between
any or all of said cities, towns and villages by means of telephones and
telephone apparatus; and, generally, to lease, rent, sell and buy telephones and
telephone apparatus, and rights of every and all description. The Certificate of
Organization of the Company, as amended, permits it to enter into businesses in
addition to the telecommunications business. However, the Company has no present
plans to enter into any other business.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - The sole business in
which the Company is engaged and its only industry segment is providing
telecommunications services (both regulated and unregulated) to its customers as
hereinafter described in Item 1(c).
(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL BUSINESS - The Company is engaged in the business of
furnishing local exchange telephone services, intrastate toll services, and
access to long distance telephone services (both intrastate and interstate). The
Company also sells telephone equipment and is an Internet services provider. The
Company currently is the primary provider of local exchange service in the major
portions of the Towns of Woodbury, Southbury, and Bethlehem, Connecticut, and
provides local exchange service to small portions of the Towns of Oxford and
Roxbury, Connecticut (the area to which the Company provides exchange service
being sometimes hereinafter referred to as its "Service Area"). The Service Area
was established by agreement with The Southern New England Telephone Company
("SNETCo"), a subsidiary of SNET and Connecticut's largest incumbent local
exchange carrier. The Service Area has been accepted by the Department of Public
Utility Control of the State of Connecticut ("DPUC") and is incorporated in
tariffs filed by the Company with the DPUC; however, as described in Item
1(c)(x) below regarding competition, recent Connecticut and Federal legislation
will enable competitive providers to offer local exchange service in the Service
Area.
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<PAGE> 4
The Company has no geographical limitation on its unregulated business.
The Company's business and number of customers has grown with the increase in
the population of the Service Area and the introduction of new
telecommunications applications (e.g., facsimiles, computer-based
communications). Future growth is expected to be impacted by population
increases; however, competition (as described in Item 1(c)(x) below) and
additional expansion of telecommunications applications, including a growing
proficiency in telecommunications-based technology, may have a greater influence
on the Company's business. The total number of exchange lines in service at the
end of each of the last five years was 16,640 for 1992, 17,240 for 1993, 17,977
for 1994, 18,710 for 1995 and 19,961 for 1996. Approximately 60% of the
Company's exchange lines are located in the Town of Southbury, 30% in the Town
of Woodbury, 8% in the Town of Bethlehem, and 2% in the Towns of Oxford and
Roxbury combined.
The Company provides local exchange service in the Service Area to its
customers through central office switching equipment and cables (underground and
attached to poles). Customers have the option of purchasing or leasing their
telephone instrument and other terminal equipment from the Company or other
sources. The Company's lines and cables are interconnected with those of other
telephone companies in the United States and many other countries through the
facilities of SNETCo and other carriers. The Company provides intrastate toll
service under terms, conditions and rates consistent with SNETCo tariffs, as
approved by the DPUC, and intrastate and interstate access under terms,
conditions and rates consistent with National Exchange Carrier Association
("NECA") Tariff No. 5. See Item 1(c)(iv) below regarding regulation. The Company
has upgraded its switching system to provide for equal access to interexchange
carriers (e.g., AT&T Corp. ("AT&T"), Sprint, MCI Communications Corp. ("MCI")).
(ii) NEW PRODUCTS - The Company has no present plans to introduce a new
product or enter into business in a second industry segment which would require
the investment of a material amount of the assets of the Company, or which is
otherwise material. However, the Company, SNET Springwich, Inc. (a subsidiary of
SNET) and certain other carriers are parties to a limited partnership agreement
pursuant to which the Company holds a 1% investment interest in Springwich
Cellular Limited Partnership ("Springwich"), a limited partnership that provides
cellular mobile telephone service. The Company's allocation of profits and
losses are determined in accordance with such agreement. The Company also has
recently become an Internet service provider, though the expenses and income
associated with that activity is currently immaterial.
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<PAGE> 5
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS - The Company is not
directly dependent on the availability of raw materials, but is dependent on its
suppliers to furnish it with finished goods and products. The Company has
alternative sources of supplies and is not dependent on any one supplier of
finished goods and products.
(iv) REGULATION - The Company is a public service company subject to
regulation by the DPUC as to intrastate rates and services, issuance of
securities, reporting requirements, and other matters. The Company is also
subject to regulation by the Federal Communications Commission ("FCC") as to
interstate access charges, reporting requirements, use of a uniform system of
accounting established by the FCC for telephone companies, and other matters.
See Item 1(c)(x) below for further description of the present regulatory
climate.
The Company provides intrastate toll service under terms, conditions and
rates consistent with SNETCo tariffs, as approved by the DPUC. The DPUC has
recently granted an application by SNETCo to reclassify its intrastate toll
service as competitive (as opposed to its previous designation as
noncompetitive), thereby allowing SNETCo greater flexibility with respect to its
intrastate toll service tariff. Given the recent change in such classification,
the Company cannot anticipate the precedential effect, if any, of that change
which to date has not had any material impact on the Company's operations or
rates for intrastate toll service.
Effective December 1, 1996, the Company installed and implemented a system
to provide intrastate equal access and presubscription in accordance with a DPUC
order. If a customer selects an intrastate carrier other than the Company, the
Company will be compensated for its services in connection with intrastate toll
calls based on access charges. The Company provides intrastate access under
terms, conditions and rates consistent with NECA Tariff No. 5. Given its recent
adoption of intrastate equal access and presubscription, the Company cannot
anticipate the effect thereof, though the Company expects that it will
experience a loss, either from reduced revenue or increased cost (or a
combination of both). The amount of such loss also may be influenced by the
billing and collection arrangement, if any, that the Company maintains from time
to time with each of the carriers selected by customers.
The method for compensating the Company for its services in connection
with interstate toll calls is based on access charges. The Company provides
interstate access through NECA Tariff No. 5. These access charges are paid by
the interstate toll carriers and end users. Under this system, the Company's
revenues from interstate toll calling are not affected by the caller's choice of
carrier. In 1992, the Company upgraded its switching system
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<PAGE> 6
to provide for equal access to interstate carriers. While some local exchange
carriers or their affiliates have entered into the competitive interstate toll
market as a result of legislative and regulatory initiatives, the Company
currently is not affiliated with any interstate offering.
(v) SEASONAL BUSINESS - No material portion of the Company's business
is seasonal.
(vi) WORKING CAPITAL ITEMS - The Company bills its customers on a
monthly basis for interstate and intrastate toll calls (to the extent it
maintains a billing and collection arrangement with the interexchange carrier)
made during the preceding month and in advance, at established rates, for local
exchange service. The Company also has various arrangements with interexchange
carriers for access to the Company's network. None of its current business
practices results in any unusual demands on working capital requirements.
(vii) CUSTOMERS - Substantially all of the Company's customers are
users of telecommunications services in the Service Area and interexchange
carriers that pay access charges to the Company. The Company does not have sales
in an amount equal to ten (10%) percent or more of its revenue to any single
customer or to any group of customers under common control or affiliated with
each other. No material part of the business of the Company is dependent on a
single customer or a few customers who use its telephone services, purchase
telephone equipment, or pay access charges. At this time, a significant portion
of the customers in the Service Area have selected one interexchange carrier as
their long-distance carrier. Therefore, a material portion of the Company's
access charges for interstate service are derived from that carrier.
Notwithstanding the foregoing, a change of carrier by such customers would not
materially affect the Company's revenue from access charges since the carriers
replacing the current carrier would be required to pay the same access rates
under the applicable tariff.
(viii) BACKLOG - The Company ordinarily completes orders for telephone
service within approximately five (5) working days of receipt (though that
period may be extended by a few days during the summer months). There has never
been any material number of uncompleted orders for service. The nature of the
Company's business does not permit a reporting of the dollar amount of
uncompleted orders for service.
(ix) GOVERNMENT CONTRACTS - No material portion of the Company's
business is with the Government.
(x) COMPETITION - As described below, it is likely that recent
Connecticut and Federal legislation and regulations
Page 6 of 26
<PAGE> 7
adopted in connection therewith will enable competitive providers to offer local
exchange service in the Service Area.
Historically, the Company and other local exchange carriers generally have
competed, on an unregulated basis, in the areas of billing and collection of
interstate services, and customer premises equipment. The Company offers
customer premises equipment on an unregulated basis under an FCC approved plan.
An increasing number of customers are providing their own equipment and other
facilities in lieu of equipment and facilities leased from the Company. The
Company has no geographical limitation on its unregulated business. The Company
presently does not derive a material amount of its revenue from its unregulated
business.
Federal Telecommunications Act
Since AT&T was required to divest itself of the 22 Bell operating
companies, regulatory and judicial rulings have generally increased competition
within the telephone industry, and have deregulated the provision of new
terminal equipment and enhanced services. In February 1996, the Federal
Telecommunications Act of 1996 (the "Federal Telecommunications Act") became
law. The Federal Telecommunications Act, among other things, removes all
barriers to competition in the provision of local telecommunications services
and imposes certain obligations on local exchange carriers, like the Company, to
facilitate the introduction of competition to the local markets. In August 1996,
the FCC issued rules for interconnection between incumbent local exchange
carriers and competitive service providers. These rules have been the subject of
certain appeals currently pending in Federal court, and some rules have been
stayed pending judicial review.
Generally, the Federal Telecommunications Act requires all
telecommunications carriers to interconnect with each other and not to install
equipment that would preclude interconnectivity. Each local exchange carrier has
the duty to not impose unreasonable or discriminatory conditions on the resale
of its telecommunications services; provide, to the extent technically feasible,
number portability; provide dialing parity and nondiscriminatory access to
telephone numbers, operator services, directory assistance and directory
listing; allow access to rights of way; and establish reciprocal compensation
for the transport and termination of telecommunications.
The Federal Telecommunications Act also imposes additional obligations on
all incumbent local exchange carriers to negotiate in good faith; provide
interconnection with the facilities and equipment of any requesting carrier;
provide nondiscriminatory access to unbundled network elements; offer any
telecommunication service for resale at wholesale rates (based on retail rates
less avoided costs); provide public notice of changes that would
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<PAGE> 8
affect interoperability; and provide for physical collocation of another
carrier's equipment necessary for interconnection or access to unbundled network
elements.
As an incumbent local exchange carrier, the Company is not only subject to
the duties generally applicable to all local exchange carriers, but also, unless
exempt, the additional obligations imposed on incumbents. The Federal
Telecommunications Act exempts "rural telephone companies" from such additional
obligations. The Company qualifies as such a rural telephone company because it
provides telephone exchange services to fewer than 50,000 access lines.
Accordingly, the Company is exempt from such additional obligations until it has
received a bona fide request for interconnection, services, or network elements,
and the DPUC terminates the Company's exemption because the request is not
unduly economically burdensome, is technically feasible, and is consistent with
universal service principles being developed under the Federal
Telecommunications Act.
To date one competitive carrier, TCI Telephony Services of Connecticut,
Inc. ("TCI"), has requested that the Company initiate negotiations concerning
interconnection, services and network elements under the Federal
Telecommunications Act. The Company has advised TCI of its exemption as a rural
telephone company. On November 5, 1996, on TCI's application, the DPUC opened
Docket No. 96-11-06 (the "TCI Docket") to conduct the inquiries necessary to
determine whether to terminate the Company's exemption. The Company recently
reached an agreement in principle with TCI pursuant to which, among other
things, the Company would offer for resale by TCI its local, retail
telecommunication services at a wholesale price reflecting a discount to be
established by the DPUC in a SNETCo docket. In connection with such agreement in
principle, TCI withdrew its request to inquire into the Company's exemption,
without prejudice if the Company and TCI fail to reach a definitive agreement on
resale. Accordingly, the DPUC has closed the TCI Docket. The Company anticipates
that other competitive carriers may seek to resell the Company's local, retail
telecommunication services in a manner similar to TCI.
It is likely that irrespective of the Company's obligations under the
Federal Telecommunications Act, in 1997 the DPUC will process the Company's
dockets opened under the Connecticut Telecommunications Act described below,
subject to the regulatory treatment of the proposed Merger (see Item 12 below
for a description of the Merger). If the DPUC terminates the Company's exemption
or takes other action having a similar effect, the Company anticipates that
increased competition in the Service Area will result in market penetration by
other carriers, a reduction in the Company's traditional sources of revenues,
and increased expenses being incurred by the Company to satisfy its
Page 8 of 26
<PAGE> 9
regulatory obligations. In the absence of regulatory relief, local exchange
competition and the additional obligations imposed on incumbent local exchange
carriers under the Federal Telecommunications Act could seriously threaten the
viability of the Company in the long term. In any event, the Company believes
that based on the DPUC's actions in implementing the Connecticut
Telecommunications Act described below and general industry trends, it is likely
that the Company will face local exchange competition and could be materially
and adversely affected thereby in the long term.
Connecticut Telecommunications Act
Prior to the enactment of the Federal Telecommunications Act, Connecticut
has taken steps to increase competition in the provision of local exchange
telephone service. Effective July 1, 1994, Public Act 93-84, Sections 16-247a et
seq. of the Connecticut General Statutes (the "Connecticut Telecommunications
Act") promotes broader competition in the Connecticut telecommunications market,
with the stated goal of assuring high quality customer and technical services.
The Connecticut Telecommunications Act opens Connecticut telecommunications
services, including local exchange service, to full competition, and encourages
the DPUC to adopt alternative forms of regulation for telephone companies, like
the Company. The Federal Telecommunications Act is largely consistent with the
Connecticut Telecommunications Act, though the Federal pricing provisions could
require the Company to charge competitors for services below the Company's cost
of providing such services.
The DPUC has been charged with implementing the Connecticut
Telecommunications Act. More than 100 organizations have been certified to
operate as telecommunications companies in Connecticut, and approximately 20
(including AT&T, MCI and TCI) have been certified by the DPUC to provide local
service. The DPUC has held numerous hearings on, and is nearing the completion
of, implementation proceedings for SNETCo and certain other matters having
general application to the Connecticut telecommunications market. As a result of
proceedings in its dockets, SNETCo has already or shortly will unbundle its
local network, resell its local exchange services, and interconnect with
competitive carriers. SNETCo also has been granted an alternative form of
regulation and reclassified some of its services as competitive (as opposed to
emerging competitive or noncompetitive) under the Connecticut Telecommunications
Act.
The Company has been participating in the proceedings involving the
implementation of the Connecticut Telecommunications Act, and the DPUC has
opened three dockets to examine the cost of providing service, intrastate
depreciation rates, and unbundling the local telecommunications network,
respectively, for the Company. While the Company's dockets have
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<PAGE> 10
not been significantly advanced, the DPUC has indicated that the principles
developed in the SNETCo dockets are likely to apply equally to the Company. The
Company has consistently maintained that such a uniform application may not be
appropriate given certain significant differences between SNETCo and the
Company. For example, the Company has a different rate and access charge
structure, almost all of the Company's telecommunications services are currently
classified as noncompetitive, and there is no alternative regulation plan for
the Company pending before the DPUC. Unlike the Federal Telecommunications Act,
the Connecticut Telecommunications Act does not provide for any exemption for
the Company as a rural or small telephone company.
Like the potential adverse effect of the Federal Telecommunications Act,
the implementation of the Connecticut Telecommunications Act, including the
introduction of local exchange competition to the Service Area, could seriously
threaten the viability of the Company in the long term. The Company anticipates
that the DPUC will process the Company's dockets in 1997, subject to the
regulatory treatment of the proposed Merger (see Item 12 below for a description
of the Merger). Moreover, it is likely that in the near future the DPUC will
implement local exchange competition in the Service Area. While the Company
cannot reasonably predict the effect of such competition at this time, absent
favorable regulatory treatment, including modifying some of the principles
developed in the SNETCo dockets, it is likely that local exchange competition
could materially and adversely affect the Company in the long term.
(xi) RESEARCH ACTIVITIES - The Company continually reviews technological
advances in products and methods of providing services used or usable by it.
Expenses for these activities are classified as general operating expenses. No
material amount of money, or time of any employee or officer of the Company, is
spent on Company sponsored research and development activities or customer
sponsored research activities.
(xii) COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS - Compliance by the
Company with Federal, state, and local provisions relating to the discharge of
materials into the environment or otherwise relating to the protection of the
environment does not have a material effect upon the capital expenditures,
earnings, or competitive position of the Company.
(xiii) EMPLOYEES - As of December 31, 1996, the Company employed 72
full-time persons and 4 part-time employees. In January, 1996, the Company
negotiated a three year contract with its nonmanagement employees who are
represented by the Connecticut Union of Telephone Workers, Inc., which contract
will expire January 31, 1999.
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<PAGE> 11
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES - Substantially all operating revenues and sales of the Company were
derived from the Service Area.
Item 2. Properties.
The Company's executive office is located on Main Street, Woodbury,
Connecticut. The Company owns a building adjacent to the executive office, which
serves as the Company's commercial and accounting offices and its customer
service center. The Company's two central offices, which contain its primary
switching equipment, are located in the Towns of Woodbury and Southbury in
buildings owned by the Company and situated on land that it owns in fee.
Substantially all connecting lines that are not located on customers' premises
are located on public roads, streets, and highways. The remainder of the
connecting lines and remote switching locations are located on property pursuant
to easements or permits in favor of the Company. Most of the poles that hold the
Company's cables and lines are owned jointly by the Company and an electric
light and power company. Substantially all other telephone plant is owned by the
Company.
Capital expenditures for all telephone plant were approximately $1,812,000
for 1992, $2,041,000 for 1993, $3,536,000 for 1994, $2,076,000 for 1995 and
$3,813,000 for 1996. Included were the replacement of the Company's older poles
and cable and additions to its central office equipment. All of the Company's
customers are served by digital central office switching equipment, which the
Company upgraded in 1992.
Based on estimates of population growth and current business practices,
the Company's central office buildings are believed to be adequate to serve its
customers for at least the next fifteen years. The Company possesses sufficient
garage and storage facilities, primarily under a long term lease of certain
property located in Woodbury, Connecticut. Under the terms of such lease, in the
second half of 2004, the Company possesses the option to purchase such property
at its then fair market value. All telephone plant is adequate to serve the
Company's present customers. As required by increased demand for service,
additional plant will be added.
The Company is indebted pursuant to an Indenture of Mortgage and Deed of
Trust dated as of February 1, 1973, as amended by a First Supplemental Indenture
dated as of April 1, 1975, a Second Supplemental Indenture dated as of November
1, 1977, a Third Supplemental Indenture dated March 1, 1982, and a Fourth
Supplemental Indenture dated as of July 31, 1992, by and between the Company and
The First National Bank of Boston as Trustee, pursuant to which the Company
issued its Series A, B, C, D, E, F and G First Mortgage Bonds. Series A, B, C,
D, E and F have been
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paid and retired. The payment of Series G bonds, in the aggregate outstanding
principal amount of $9,000,000 as of December 31, 1996, is secured by a first
mortgage of substantially all of the Company's property.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the security holders since the last
annual meeting of the Company.
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<PAGE> 13
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The approximate number of record holders of the Company's Common Stock as
of February 14, 1997 was 688. There is no active trading market in the Company's
Common Stock. The prices at which stock of the Company is traded are, however,
presented through the NASDAQ OTC Bulletin Board trading system using the symbol
"WBTL". The prices quoted herein are based on information obtained from the
NASDAQ OTC Bulletin Board. Also listed herein is the frequency and amount of
dividends paid during the last two years.
<TABLE>
<CAPTION>
DIVIDENDS
PAID
PRICE OF COMMON STOCK PER SHARE
High Low Close
<S> <C> <C> <C> <C>
1995:
First Quarter $26 1/4 $23 $23 $.38
Second Quarter $25 $22 1/2 $22 3/4 $.38
Third Quarter $24 1/2 $23 $24 1/2 $.38
Fourth Quarter $27 $23 3/4 $25 $.38
1996:
First Quarter $26 3/8 $24 $24 1/2 $.38
Second Quarter $26 3/8 $23 3/8 $26 3/8 $.38
Third Quarter $28 1/2 $24 1/4 $28 1/2 $.38
Fourth Quarter $39 1/2 $26 3/4 $38 1/2 $.38
</TABLE>
The Company, as a regulated public utility, is allowed to earn and pay a
return on the investment by its shareholders. Though there is no assurance as to
future dividends, the Company has paid dividends every quarter since 1951 and
expects to continue to pay dividends in the foreseeable future. The Company's
ability to pay dividends is limited by the terms of an Indenture of Mortgage and
Deed of Trust dated February 1, 1973, as amended, pursuant to which the Company
issued first mortgage bonds having an aggregate principal amount outstanding of
$9,000,000 as of December 31, 1996 such that dividends and restricted
investments after January 1, 1992 may not exceed $3,000,000 plus 100% of the
cumulative net income after January 1, 1992 (reduced for any net losses after
such date). As of December 31, 1996, approximately $6,080,579 of retained
earnings is available for dividends. The Company currently has no restricted
investments.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
===========================================================================================================
1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $14,342,596 $12,592,857 $12,038,143 $11,457,557 $11,422,319
- - -----------------------------------------------------------------------------------------------------------
Net income 2,641,253 1,831,810 1,624,177 1,302,518 1,526,030
- - -----------------------------------------------------------------------------------------------------------
Long-term debt 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000
- - -----------------------------------------------------------------------------------------------------------
Total assets 29,028,822 27,323,156 28,083,937 26,994,308 26,609,485
- - -----------------------------------------------------------------------------------------------------------
Per share of Common Stock
- - -----------------------------------------------------------------------------------------------------------
Net Income 3.43 2.38 2.11 1.69 1.98
- - -----------------------------------------------------------------------------------------------------------
Cash dividends 1.52 1.52 1.52 1.52 1.52
===========================================================================================================
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OPERATIONS:
Total operating revenues increased by $1,749,739 (13.9%) in 1996
compared to 1995, and by $554,714 (4.6%) in 1995 compared to 1994. Local service
revenues increased by $281,356 (9.1%) in 1996 compared to 1995, and by $191,968
(6.6%) in 1995 compared to 1994 due primarily to increases in the customer base
for the periods of 6.7% and 4.1% respectively. Network service revenues
increased by $1,467,070 (17.1%) in 1996 compared to 1995, and by $370,215 (4.5%)
in 1995 compared to 1994. Increased customer use of the network to make calls
beyond the local calling area contributed to the increase in each period.
Total operating expenses increased by $432,994 (4.7%) in 1996
compared to 1995, and by $347,171 (3.9%) in 1995 compared to 1994. Maintenance
expenses decreased by $33,633 (1.2%) in 1996 compared to 1995, and increased by
$136,866 (5.2%) in 1995 compared to 1994 as certain personnel were re-assigned
from corporate operations to plant operations. Depreciation and amortization
expense increased by $112,343 (4.0%) in 1996 compared to 1995, and by $190,362
(7.3%) in 1995 compared to 1994. The increase in both years reflects a greater
investment in telephone plant necessary to provide service to an increased
number of customers. General office expenses increased by $313,090 (22.1%) in
1996 compared to 1995. The increase is due mainly to legal and other costs,
totaling approximately $280,000, incurred in connection with the proposed
transaction with SNET. General office expenses in 1995 were comparable to 1994.
Other income decreased by $210,265 (43.1%) in 1996 compared to 1995.
Included in the 1996 amount is a loss of $121,968 on Internet services, which
the Company began offering
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<PAGE> 15
on July 1, 1996. Also in 1996, the Company experienced a decline in sales of key
system equipment of approximately $48,700 compared to 1995, as well as a decline
in revenues from rented telephone equipment of approximately $24,000. Other
income increased by $188,535 (63.0%) in 1995 compared to 1994. In 1994, there
was a charge to income (reduction) of approximately $80,000 for the removal from
inventory of obsolete rental equipment and repair parts.
As a result of the above, net income increased by $809,444 (44.2%) in
1996 compared to 1995, and by $207,633 (12.8%) in 1995 compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures to purchase telephone plant and equipment and other
property were approximately $3,813,000 in 1996, $2,076,000 in 1995, and
$3,536,000 in 1994. In all three years, cash provided by operating activities
was adequate to meet the financing of capital expenditures.
Current assets exceeded current liabilities by $3,830,905 at December
31, 1996 compared to $3,616,636 at December 31, 1995. Additional liquidity is
provided, if needed, by a short-term line of credit of $750,000, which expires
May 31, 1997. Management expects it will be able to finance this arrangement for
another year.
Item 8. Financial Statements and Supplementary Data.
The response to Item 8 is submitted as a separate section of this report.
Additional financial information, which is qualified in its entirety by the
Company's financial statements, is contained in the Financial Data Schedule
attached as Exhibit 27 hereto.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Page 15 of 26
<PAGE> 16
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors; Executive Officers.
CLASS I DIRECTORS
WHOSE TERM WILL EXPIRE IN 1999
<TABLE>
<CAPTION>
Business Experience,
Principal Occupation
and Employment During
Past Five years and Director
Name of Director Other Directorships Since
- - ---------------- ------------------- -----
<S> <C> <C>
Harmon L. Andrews Mr. Andrews is the Business 1973
Age 66 Administrator for the Board
of Education of Orange, CT,
a position he has held since
1986. Mr. Andrews served
as the Company's Chairman
of the Board of Directors from
1981 to 1992. Mr. Andrews
currently serves as the Secretary
of the Company.
John A. Michaels Mr. Michaels is the Chief 1977
Age 54 Executive Officer of Michaels
Enterprises, Inc. (a holding
company for retail jewelry stores)
and Irving Michaels & Co.
(distributor, importer and
consultant to retail jewelry
stores). He has served as a
director of the Jewelers Mutual
Insurance Company since July, 1996.
Walter F. Torrance, Jr. Mr. Torrance currently holds an 1969
Age 69 "of counsel" position with
the law firm of Carmody & Torrance, after
being a partner with that firm from 1992 to
1995. He retired in July, 1992 from
Northeast Utilities after serving as its
Senior Vice President, Secretary and General
Counsel.
</TABLE>
Page 16 of 26
<PAGE> 17
- - -------------------------------------------------------------------------------
CLASS II DIRECTORS
WHOSE TERM EXPIRE IN 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Business Experience,
Principal Occupation
and Employment During
Past Five Years and Director
Name of Director Other Directorships Since
- - ---------------- ------------------- -----
William C. Bassett Mr. Bassett is the President 1978
Age 52 of W. E. Bassett Co., a
manufacturer of Trim manicure
implements located in Derby,
Connecticut.
William T. Drakeley Mr. Drakeley worked for the 1991
Age 57 State of Connecticut in various
capacities beginning in 1963, and
held the position of Deputy
Executive Director of the Division
of Special Revenue of the State of
Connecticut from 1983 to 1991. He
is currently self-employed as an
antiques dealer.
Michael Phelan Mr. Phelan is currently Vice 1996
Age 50 President - Network Marketing
and Sales of The Southern New
England Telephone Company ("SNET"),
a position he has held since 1994.
Prior to that time and since 1977,
he has worked in various capacities
for SNET and its affiliates,
including holding the positions of
Assistant Vice President Regulatory
Planning and Vice President -
Network Finance, respectively,
prior to his current position and
acting as President and Chief
Executive Officer of SNET Credit,
Inc. from 1991 to 1993.
</TABLE>
Page 17 of 26
<PAGE> 18
----------------------------------------------------------------
CLASS III DIRECTORS
WHOSE TERM WILL EXPIRE IN 1998
<TABLE>
<CAPTION>
Business Experience,
Principal Occupation
and Employment During
Past Five Years and Director
Name of Director Other Directorships Since
- - ---------------- ------------------- -----
<S> <C> <C>
Joyce M. Davis Ms. Davis is an Executive 1978
Age 58 Assistant for the Goelet
Corp., a real estate company
located in New York, New York.
J. Garry Mitchell Mr. Mitchell retired from 1969
Age 68 the Company in 1993 after having
been principally employed by it
since 1948. He acted as its
President from 1976 to 1993, and
its Chief Executive Officer from
1992 to 1993. In 1992, he also
became the Company's Chairman of
the Board of Directors, a position
that he still holds.
Donald E. Porter Mr. Porter is the Chief 1993
Age 47 Executive Officer, President
and Treasurer of the Company. He
has been principally employed by
the Company since 1972, acting as
its Treasurer since 1976 and as its
Chief Executive Officer and
President since 1993. Mr. Porter
also served as a Vice President of
the Company from 1991 to 1993, and
as its Chief Operating Officer from
1992 to 1993.
</TABLE>
- - -----------------------------------------------------------------
SNET has a contractual right to be represented by one director on the
Company's Board of Directors. Michael Phelan has acted in that capacity since
January, 1996. No other director or executive officer serves pursuant to any
arrangement or understanding between such person and any other person(s).
Page 18 of 26
<PAGE> 19
(b) Compliance with Section 16(a) of the Exchange Act. To the best of the
Company's knowledge, based on its review of forms submitted during the year
ended December 31, 1996, no officer, director or beneficial owner of more than
ten percent (10%) of the Company's Common Stock failed to file or was delinquent
in filing any report required to be filed in accordance with Section 16(a) of
the Securities Exchange Act of 1934.
Item 11. Executive Compensation.
The following table sets forth all remuneration during the fiscal year
ending December 31, 1996, for the Company's chief executive officer (there being
no other executive officers or any employees receiving remuneration in excess of
$100,000):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Annual Compensation
---------------------------
(a) (b) (c) (d) (e)
Other
Name and Annual All Other
Principal Compensation(2) Compensation(3)
Position Year Salary($) ($) ($)
- - -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Chief Executive 1996 $97,846.18 $3,000.00 $11,093.09
Officer 1995 92,923.16 2,500.00 10,496.47
Donald E. Porter 1994 90,300.12 0 9,903.25
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
1. The Company did not award or pay to, nor did any executive officer
whose compensation is subject to disclosure earn any bonus or
long-term compensation, including restricted stock awards, stock
options, stock appreciation rights or long-term incentive plan.
2. Other annual compensation consists of a cash bonuses paid to Mr.
Porter in 1995 and 1996, respectively.
3. Other compensation consists of contributions by the Company on behalf
of the named executive under the WTC Management 401(k) Plan
maintained by the Company ("WTC Management 401(k) Plan"), which
includes a salary reduction plan under the provisions of Section
401(k) of the Internal Revenue Code. The WTC Management 401(k) Plan
covers eligible employees except those covered by collective
bargaining agreements. Under the salary reduction plan, income tax is
deferred on amounts which employees elect to have contributed to the
WTC
Page 19 of 26
<PAGE> 20
Management 401(k) Plan from their salaries. The WTC Management 401(k)
Plan permits an eligible employee to reduce up to 15% of his
compensation for contribution to the plan and the Company
contributes, on a matching basis, an amount determined according to
the following formula: the Company contributes an amount equal to
each percent contributed by each employee for salary reductions up to
3% and, thereafter, one-half (1/2) of each percent contributed by
each employee for salary reductions up to 7%, with no matching
occurring for salary reductions in excess of 7%. Also, under the
terms of the WTC Management 401(k) Plan, the Company must contribute
to the plan 6% of the compensation for each eligible employee without
reference to contributions made by such employees. In addition, the
Board of Directors may elect to contribute amounts to the WTC
Management 401(k) Plan which all eligible employees would share in
proportion to their annual compensation (exclusive of bonuses and
overtime) without reference to salary reduction contributions. No
such elective contribution was made in 1996.
Pursuant to the Change in Control Agreement dated June 24, 1996, between
the Company and Donald E. Porter, President and Chief Executive Officer of the
Company (the "Change in Control Agreement"), Mr. Porter is entitled to certain
payments if a "Fundamental Change" occurs in connection with a "Change in
Control" (as such terms are defined in the Change in Control Agreement, a copy
of which is attached as Exhibit 4 hereto).
Under the Change in Control Agreement, a Fundamental Change occurs if
there is a change in Mr. Porter's status, title, position or responsibilities; a
reduction in his compensation; a relocation of his principal office; termination
of his employment other than for cause or as a result of his death, disability
or retirement. (Mr. Porter, however, may be terminated for cause, as defined in
the Change in Control Agreement, in which event he is not entitled to any
benefits thereunder.)
Pursuant to the Change in Control Agreement, a Change in Control occurs
when a person obtains more than 10 percent of the voting power of the Company
(or, in the case of SNET, SNET acquires additional shares of the Company's
Common Stock (see Item 12 below regarding SNET's ownership of the Company's
Common Stock)); or the Company's shareholders approve a merger effecting
material changes in the composition of the Company's Board of Directors, a sale
of substantially all of the Company's assets, or a plan of liquidation of the
Company; or there are certain material changes in the composition of the
Company's Board of Directors; or the Company files a plan to merge or engage in
a similar transaction with the DPUC.
Page 20 of 26
<PAGE> 21
In order for Mr. Porter to receive benefits under the Change in Control
Agreement, a Fundamental Change must have occurred within 6 months prior to, or
24 months after, a Change in Control. If a Fundamental Change occurs within such
a period, Mr. Porter may terminate his employment with the Company within 12
months after the occurrence of the Fundamental Change, in which case Mr. Porter
has the right to be paid the lesser of 220 percent of his then current annual
compensation or 299 percent of the average of his annual compensation for the
preceding five years. Notwithstanding the foregoing, if the Fundamental Change
which occurs is the Company's termination of Mr. Porter's employment other than
for cause, Mr. Porter is entitled to the foregoing payment without having to
take any affirmative action. In either case, Mr. Porter may designate payment in
a lump sum or in equal monthly installments.
The Company's obligations under the Change in Control Agreement terminate
as of the end of the month after Mr. Porter's death, disability or retirement
following a Change in Control.
Under the Change in Control Agreement, Mr. Porter is entitled to the
payment described above if a Fundamental Change occurs within 24 months after
each of the filing by the Company and SNET with the DPUC seeking approval of the
Merger, the approval of the Merger by the Company's shareholders, SNET's
acquisition of the Company's Common Stock in connection with the Merger, or the
occurrence of any subsequent event that constitutes a Change in Control. See
Item 12 below for a description of the Merger.
The foregoing description of certain information regarding the Change in
Control Agreement is not intended to be a summary of all material information
relating thereto and is qualified in its entirety by reference to the Change in
Control Agreement, a copy of which is attached as Exhibit 4 hereto.
As a group (consisting of nine persons), executive officers and directors
earned $229,008.80 during the fiscal year ended December 31, 1996. Directors of
the Company who are not salaried officers receive an annual retainer of $4,500.
Directors also are compensated at the rate of $350 (increased from $300 after
April 1, 1996) for attendance at each meeting of the Board of Directors and each
committee meeting of the Board of Directors. The chairman of the Audit Committee
is paid $500 annually in addition to all other fees. In lieu of the annual
retainer and meeting fees for standing committees, Messrs. Mitchell and Andrews
received a salary for serving as Chairman of the Board and Secretary,
respectively, and each was paid $350 (increased from $300 after April 1, 1996)
for each committee meeting attended. During 1996, Mr. Mitchell was paid a salary
(including standing committee attendance fees) of $26,662.50 and received
$13,500 pursuant to an employment agreement with the Company
Page 21 of 26
<PAGE> 22
entered into in 1991. Mr. Mitchell also received a $180 payment for telephone
allowance provided to all retired employees of the Company. During 1996, Mr.
Andrews was paid a salary of $12,786.03 and received $2,700 for attending
committee meetings.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners. The following table
sets forth as of February 14, 1997, the only beneficial owner known to the
Company of more than 5% of the Common Stock of the Company.
<TABLE>
<CAPTION>
(3)
(1) (2) Amount & Nature (4)
Title Name & Address of Beneficial Percent
of of Beneficial Ownership of
Class Owner (Shares) Class
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, Southern New 280,645 36.5%
$2.50 par England (sole voting
value Telecommuni- and investment
cations power)
Corporation,
227 Church Street,
New Haven,
Connecticut
</TABLE>
(b) Security Ownership of Management. The following table
sets forth the beneficial ownership as of February 14, 1997 of
all directors, nominees and executive officers of the Company.
<TABLE>
<CAPTION>
(3)
(1) Amount & Nature (4)
Title (2) of Beneficial Percent
of Name of Ownership of
Class Beneficial Owner (Shares)* Class
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Harmon L. Andrews 973 0.13%
Stock, William C. Bassett 350 0.04%
$2.50 par Joyce M. Davis 200 0.03%
value William T. Drakeley 1820 0.24%
John A. Michaels 500 0.06%
J. Garry Mitchell 5884 0.77%
Michael Phelan 100 0.01%
Donald E. Porter 231 0.03%
Walter F. Torrance, Jr. 500 0.06%
-------- ------
All directors and executive 10,583 ** 1.37%
officers as a group (9 persons) ======== ======
</TABLE>
Page 22 of 26
<PAGE> 23
*Pursuant to the Certificate of Incorporation, all directors of the
Company must be shareholders of the Company.
**The individual directors have sole investment and voting power with
respect to the shares owned by them except for 5684, 450 and 300 shares owned by
Messrs. Mitchell, Andrews and Michaels, respectively, and all of the shares
owned by Mr. Drakeley, as to which each of them share voting and investment
power with their respective wives.
(c) Changes in Control. The Company, SNET and SAS are parties to the
Merger Agreement pursuant to which, among other things, SAS will merge with and
into the Company and each outstanding share of the Company's Common Stock
(excluding any shares with respect to which dissenters' rights have been
perfected and excluding shares of Common Stock held by SNET) will be converted
into the right to receive a number of shares of common stock of SNET, par value
$1.00 per share, together with accompanying rights, as more particularly
described in the Merger Agreement.
All of the conditions to the consummation of the Merger, including,
without limitation, the approval of the Company's shareholders and the DPUC,
have not yet been satisfied. Upon satisfaction of such conditions and the
consummation of the Merger, SNET will own 100% of the Common Stock.
The foregoing description of certain information regarding the Merger is
not intended to be a summary of all material information relating to the Merger
and is qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached as Exhibit 2 hereto.
Item 13. Certain Relationships and Related Transactions. Mr. Phelan, a director
of the Company since January 31, 1996, is employed by SNETCo, as its Vice
President - Network Marketing and Sales. SNET, the parent company of SNETCo,
owns 36.5% of the Common Stock of the Company, and under the Merger Agreement
described in Item 12 above, has agreed to acquire the remaining 63.5% of the
Common Stock. Mr. Phelan acts as SNET's representative on the Company's Board of
Directors.
In the normal course of business the Company has several operating
agreements with SNETCo. These agreements, which are common to small independent
telephone companies, relate to operator services, directories, directory
advertising, record maintenance and consulting services, and are necessary to
provide adequate and complete service to the Company's customers. They are
reviewed periodically as to fairness and cost to the Company and are negotiated
without regard by the Company or SNETCo to the ownership by SNET of the
Company's Common Stock. The Company believes that the cost of purchasing these
services is less than
Page 23 of 26
<PAGE> 24
the cost of providing them directly, to the extent it is able to do so. The
aggregate amount billed by SNETCo to the Company during 1996 in connection with
these arrangements was $170,082. The Company carries accounts receivable and
accounts payable with respect to the relationships described above.
In addition, the Company, SNET Springwich, Inc., a wholly-owned subsidiary
of SNET, and certain other carriers are parties to an agreement pursuant to
which the Company holds a 1% investment interest in Springwich, a limited
partnership providing cellular telephone service. The Company's profits and
losses regarding its investment in Springwich are determined without regard to
any other agreements between the Company and SNETCo or the ownership by SNET of
the Company's Common Stock.
Mr. Torrance, a director of the Company since 1969, became a partner in
the law firm of Carmody & Torrance in 1992 and currently holds an "of counsel"
position with that firm. The Company has retained Carmody & Torrance as its
legal counsel since 1971, and members of such firm generally advise the Company
in all legal matters. The fees paid by the Company to Carmody & Torrance in 1996
did not exceed 5% of such firm's gross revenues during that year.
Page 24 of 26
<PAGE> 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)(1) and (2) The response to this portion of Item 14
is submitted as a separate section of
this report.
(3) Listing of Exhibits*:
Amended and Restated Agreement and
Plan of Merger
The Company's Bylaws
Change in Control Agreement
Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K dated November 4, 1996 (pertaining
to the Merger with SNET)**
(c) Exhibits:
(2) Amended and Restated Agreement and
Plan of Merger
(3)(ii) The Company's Bylaws
(4) Change in Control Agreement
(27) Financial Data Schedule
(d) Financial Statement Schedules - The response to this portion of Item
14 is submitted as a separate section of this report.
An index to the Exhibits filed or incorporated by reference immediately
precedes such Exhibits.
- - -------------
* The Company's previously filed Certificate of Organization (amended to
September 15, 1988) is incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1993, attached as Exhibit 3(i) thereto. The
Company's Fourth Supplemental Indenture of Trust dated July 31, 1992 is
incorporated by reference to the Company's Form 10-K for the year ended December
31, 1992, attached as Exhibit 4 thereto.
** The Company's previously filed Form 8-K dated November 4, 1996
disclosed the existence of a letter of intent entered into on October 21, 1996
between the Company and SNET. The Amended and Restated Agreement and Plan of
Merger attached as Exhibit 2 hereto effected and superseded that letter of
intent.
Page 25 of 26
<PAGE> 26
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 6, 1997
THE WOODBURY TELEPHONE COMPANY
By s/J. Garry Mitchell
-------------------------------
J. Garry Mitchell
Its Chairman of the Board
of Directors
By s/Donald E. Porter
-------------------------------
Donald E. Porter
Its Chief Executive Officer,
President and Treasurer
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 and
in the capacities and on the dates indicated.
By s/J. Garry Mitchell By s/Donald E. Porter
------------------------ --------------------------
Chairman of the Board A Director
of Directors Donald E. Porter
J. Garry Mitchell
Date: March 6, 1997 Date: March 6, 1997
------------------------ --------------------------
By s/Michael Phelan By s/Joyce M. Davis
------------------------ --------------------------
A Director A Director
Michael Phelan Joyce M. Davis
Date: March 6, 1997 Date: March 6, 1997
--------------------- -----------------------
By s/John A. Michaels
-------------------------
A Director
John A. Michaels
Date: March 6, 1997
-------------------------
Page 26 of 26
<PAGE> 27
Annual Report on Form 10-K
Item 8
Financial Statements and Accompanying Notes
Year Ended December 31, 1996
The Woodbury Telephone Company
Woodbury, Connecticut
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders
The Woodbury Telephone Company
We have audited the accompanying balance sheets of The Woodbury Telephone
Company as of December 31, 1996 and 1995, and the related statements of income
and retained earnings, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Woodbury Telephone Company
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Hartford, Connecticut
February 6, 1997
<PAGE> 29
THE WOODBURY TELEPHONE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,102,768 $ 2,238,782
Accounts receivable, less allowance for losses of
$80,000 in 1996 and $60,000 in 1995 1,875,990 1,589,030
Other receivables 1,515,580 1,254,484
Materials and supplies--at cost 664,629 421,306
Prepaid expenses 53,191 51,689
Recoverable income taxes 198,665
-------------------------------
TOTAL CURRENT ASSETS 6,410,823 5,555,291
TELEPHONE PLANT AND OTHER PROPERTY:
In service 43,432,833 41,145,132
Plant under construction 789,058 34,706
Accumulated depreciation (deduction) (22,992,930) (20,857,711)
-------------------------------
21,228,961 20,322,127
Other property 222,414 76,717
-------------------------------
21,451,375 20,398,844
OTHER ASSETS:
1% Investment in Springwich Cellular Limited
Partnership 535,068 535,068
Deferred charges, less accumulated amortization of
$847,127 in 1996 and $703,698 in 1995 336,780 480,209
Regulatory asset 294,776 353,744
-------------------------------
1,166,624 1,369,021
-------------------------------
$ 29,028,822 $ 27,323,156
===============================
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,944,593 $ 1,281,373
Advance billings and customers' deposits 297,825 286,640
Accrued interest 337,500 337,500
Income taxes payable 33,142
-------------------------------
TOTAL CURRENT LIABILITIES 2,579,918 1,938,655
LONG-TERM DEBT 9,000,000 9,000,000
DEFERRED CREDITS:
Income taxes 1,710,146 2,044,044
Investment tax credits 204,114 276,114
Regulatory liability 703,411 808,735
-------------------------------
2,617,671 3,128,893
OTHER LIABILITIES 557,286 453,872
SHAREHOLDERS' EQUITY:
Common stock, par value $2.50 per share, authorized
1,250,000 shares, issued and outstanding 769,107
shares 1,922,768 1,922,768
Additional paid-in capital 1,475,394 1,475,394
Retained earnings 10,875,785 9,403,574
-------------------------------
14,273,947 12,801,736
-------------------------------
$29,028,822 $27,323,156
===============================
</TABLE>
See accompanying notes.
<PAGE> 31
THE WOODBURY TELEPHONE COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Local service $ 3,372,114 $ 3,090,758 $ 2,898,790
Network service 10,058,206 8,591,136 8,220,921
Other 929,208 970,328 955,917
Provision for uncollectibles (deduction) (16,932) (59,365) (37,485)
------------------------------------------------
14,342,596 12,592,857 12,038,143
Operating expenses:
Maintenance 2,718,441 2,752,074 2,615,208
Depreciation and amortization 2,903,948 2,791,605 2,601,243
General office 1,731,669 1,418,579 1,410,010
Commercial 1,400,319 1,377,052 1,398,643
Other 924,849 906,922 873,957
------------------------------------------------
9,679,226 9,246,232 8,899,061
------------------------------------------------
4,663,370 3,346,625 3,139,082
Other income:
Rental of telephone equipment and other,
net 146,172 358,759 204,574
Interest 131,485 129,163 94,813
------------------------------------------------
277,657 487,922 299,387
------------------------------------------------
4,941,027 3,834,547 3,438,469
Interest expense 838,835 827,011 821,562
------------------------------------------------
Income before income taxes 4,102,192 3,007,536 2,616,907
Income taxes 1,460,939 1,175,726 992,730
------------------------------------------------
NET INCOME (per share: 1996--$3.43; 1995--
$2.38; 1994--$2.11) 2,641,253 1,831,810 1,624,177
Retained earnings at beginning of year 9,403,574 8,740,806 8,285,671
------------------------------------------------
12,044,827 10,572,616 9,909,848
Dividends ($1.52 per share) 1,169,042 1,169,042 1,169,042
------------------------------------------------
RETAINED EARNINGS AT END OF YEAR $ 10,875,785 $ 9,403,574 $ 8,740,806
================================================
Average number of shares of Common Stock
outstanding 769,107 769,107 769,107
================================================
</TABLE>
See accompanying notes.
<PAGE> 32
THE WOODBURY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,641,253 $ 1,831,810 $ 1,624,177
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,760,519 2,648,172 2,457,914
Amortization of deferred charges 143,429 143,433 143,329
Provision for losses on accounts
receivable 16,932 59,365 37,485
Deferred income taxes (benefit) (380,254) (410,293) (287,815)
Amortization of deferred investment tax
credits (72,000) (72,000) (72,000)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable and other
receivables (564,988) 122,613 (502,655)
(Increase) decrease in other
current assets (443,490) 99,746 39,282
Increase (decrease) in accounts
payable 663,220 (702,651) 634,840
Increase in advance billings and
customers' deposits 11,185 5,722 13,986
Increase in other liabilities 103,414 94,255 91,690
(Decrease) increase in income
taxes payable (33,142) (279,615) 312,757
--------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,846,078 3,540,557 4,492,990
INVESTING ACTIVITIES
Expenditures for telephone plant (3,813,050) (2,075,657) (3,535,521)
--------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (3,813,050) (2,075,657) (3,535,521)
</TABLE>
<PAGE> 33
THE WOODBURY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Dividends paid $(1,169,042) $(1,169,042) $(1,169,042)
---------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,169,042) (1,169,042) (1,169,042)
---------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (136,014) 295,858 (211,573)
Cash and cash equivalents at beginning of year 2,238,782 1,942,924 2,154,497
---------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,102,768 $ 2,238,782 $ 1,942,924
=============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income tax payments $ 1,580,000 $ 1,405,000 $ 1,137,003
=============================================
Interest paid $ 838,835 $ 827,011 $ 821,326
=============================================
</TABLE>
See accompanying notes.
<PAGE> 34
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS AND ACCOUNTING POLICIES
The Woodbury Telephone Company (the Company) derives substantially all of its
revenues from providing local exchange telephone services, intrastate toll
services, and access to interstate long-distance telephone services to customers
in Woodbury, Southbury and Bethlehem, Connecticut. The Company's business could
be significantly affected by recent regulatory and legislative developments
including the Federal Telecommunications Act, (the Act) which was enacted in
February 1996. Such effects could include increased competition and, as a
result, decreasing revenues and profitability.
The financial statements of the Company have been prepared in conformity with
generally accepted accounting principles applicable to rate-regulated utilities.
Such accounting principles are consistent in all material respects with
accounting principles prescribed by the Federal Communications Commission (the
FCC).
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 amounts reported in the financial statements and accompanying notes.
Management believes the estimates and related assumptions in these financial
statements are reasonable and adequate. However, actual results could differ
from those estimates.
REVENUE RECOGNITION
Operating revenues are recognized when services are provided to customers.
Certain network revenues are recognized based on estimates of pooled revenue
earnings from the National Exchange Carrier Association (NECA), of which the
Company is a member. NECA negotiates interstate access charge tariff agreements
with the FCC. NECA also accumulates and distributes pooled revenues derived from
such agreements to its members.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents approximate fair value. Cash equivalents consist of
highly liquid debt instruments with a maturity date of three months or less when
purchased.
TELEPHONE PLANT
Telephone plant is stated on the basis of cost. Depreciation is computed by the
straight-line method. Lives used for calculating depreciation are in accordance
with the rules of the FCC and are based on the estimated economic useful lives
of the assets.
<PAGE> 35
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND ACCOUNTING POLICIES (CONTINUED)
Normally, when telephone plant assets are retired or otherwise disposed of, the
cost of the asset is removed from assets and charged to accumulated
depreciation. Further, the cost of removal and salvage proceeds are charged and
credited, respectively, to accumulated depreciation. Consequently, for normal
retirements, no gain or loss is recognized upon disposition.
1% INVESTMENT IN SPRINGWICH CELLULAR LIMITED PARTNERSHIP
The 1% Investment in Springwich Cellular Limited Partnership is stated at cost;
related distributions, if applicable, are recorded as income when received.
DEFERRED CHARGES
Amounts included in deferred charges consisting of gross revenue taxes related
to legislation enacted January 1, 1990 and the unrecovered cost of certain
central office equipment retired and replaced with upgraded equipment are being
amortized by the straight-line method over ten and five year periods,
respectively, in accordance with applicable regulatory accounting regulations.
The deferred debt expense amount in deferred charges is being amortized by the
straight-line method over the term of the related debt.
BENEFIT PLANS
The Company has contributory defined contribution benefit plans covering
substantially all employees. Contributions under these plans are based on
specified percentages of employee compensation, as defined, plus additional
amounts determined at the discretion of the Company's Board of Directors.
The Company also sponsors a postretirement medical plan and a postretirement
life insurance plan. All employees who retire from the Company after age 59 1/2
with 15 years of service are eligible for benefits. The retiree must pay the
premium for benefits before age 65. After age 65, the Company pays the full cost
of the life insurance benefits, and shares the cost of the Medicare supplemental
benefits with the employee. The Company-paid portion of the premium varies by
years of service and is subject to a "cap." The employee pays the remaining
portion of the premium. Neither plan is funded. Effective January 1, 1993 the
Company adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106).
Under SFAS No. 106, the Company recognizes the cost of providing the
aforementioned postretirement benefits on an accrual basis during the period
such benefits are earned by the employees. Under applicable regulatory
requirements the Company is recognizing the transition obligation on a
prospective basis over 20 years.
<PAGE> 36
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective January 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." In connection with
adopting SFAS 109 under applicable regulatory guidelines, a regulatory asset and
a regulatory liability were recognized for the future increases (decreases) in
income taxes that will be received or settled through future rate revenues. The
regulatory asset and liability are being amortized over the prescribed term
which approximates 13 years.
Deferred income taxes are provided on the temporary differences between the tax
and financial reporting bases of assets and liabilities.
INVESTMENT TAX CREDITS
Investment tax credits which arose prior to 1986 were deferred and are being
amortized over the service lives of the assets which gave rise to such credits.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with 1996 presentation.
2. MERGER AGREEMENT
An Amended and Restated Agreement and Plan of Merger was entered into between
the Company and Southern New England Telecommunications Corporation, ("SNET
Corporation") on December 6, 1996. Upon shareholder approval of such Agreement
and Plan of Merger, each outstanding share of the Company's common stock,
excluding any shares with respect to which dissenter's rights have been
perfected and excluding shares of the Company's outstanding shares held by SNET
Corporation, will be converted into the right to receive a number of shares of
common stock, par value $1.00 per share, together with certain SNET
Corporation's rights, which will be equal to the product of one share of SNET
Corporation common stock times a fraction, (the numerator of which is to $43.00
and the denominator of which is to be equal to the average closing prices of one
share of SNET Corporation common stock as reported on the New York Stock
Exchange for the ten trading days ending on the fifth business day prior to the
effective time of the Merger). If the average closing price is less than $30.00
or more than $49.00, the merger consideration shall be determined using these
amounts, as applicable, subject to approval of the Company and SNET Corporation,
respectively.
<PAGE> 37
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. DEFERRED CHARGES
Deferred charges consist of:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
Deferred debt expense $130,751 $143,105
Gross revenue taxes 206,029 274,672
Retired central office equipment 62,432
-------------------------
$336,780 $480,209
=========================
</TABLE>
4. CREDIT ARRANGEMENTS
Long-term debt consists of First Mortgage Bonds, Series G payable in increasing
annual installments ranging from $500,000 commencing August 1, 1999 to
$3,250,000 on August 1, 2007 plus interest at 9%. Virtually all telephone plant
and miscellaneous physical property are pledged as collateral. In addition,
among other covenants, the Company is required to maintain certain financial
ratios. Further, new borrowings and the payment of dividends are restricted. At
December 31, 1996 $6,080,579 of retained earnings was available for the payment
of dividends.
Under a line of credit arrangement with a bank, the Company may borrow up to
$750,000 with interest, adjusted monthly, at the lower of the bank's base rate
or the one-month LIBOR plus 1.5%. There were no borrowings under this
arrangement in 1996 or 1995. A commitment fee of 1/8% per annum is payable on
the unadvanced portion of the bank's commitment. The arrangement expires May 31,
1997.
<PAGE> 38
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------
<S> <C> <C>
Self-insurance for catastrophic event (A) $200,000 $200,000
Accrued postretirement medical and life insurance benefits cost 357,286 253,872
-------------------
$557,286 $453,872
===================
</TABLE>
(A) At the direction of the Department of Public Utility Control of the State of
Connecticut (DPUC), the Company established a $200,000 noncurrent liability
in 1987 for a portion of the potential effects of a catastrophic event on
the Company's transmission and distribution facilities for which external
insurance coverage is unavailable.
6. OPERATING LEASE COMMITMENT
The Company has an operating lease for a maintenance center. Under the lease,
the Company is obligated to pay for insurance, taxes and maintenance costs
applicable to the property. The lease expires in December 2005. At December 31,
1996, future minimum monthly lease payments of $16,893 are required through
December 1997. Thereafter, such payments are adjusted annually to reflect
changes in the consumer price index. The lease may be renewed for two
consecutive five-year periods at fair rental value, as defined. Rent expense
under this lease was $215,693 in 1996, $210,363 in 1995 and $186,958 in 1994.
The Company has an option to purchase the leased property between June 2004 and
December 2004 at its then fair market value.
<PAGE> 39
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. BENEFIT PLANS
Amounts recognized in the accompanying balance sheets for postretirement medical
and life insurance benefits follow:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------------
<S> <C> <C>
Accumulated unfunded postretirement benefit
obligation:
Retirees $ 253,064 $ 259,874
Active employees 814,742 723,396
---------------------------
1,067,806 983,270
Less:
Unrecognized transition obligation (528,624) (561,662)
Unrecognized net loss (129,837) (131,735)
---------------------------
Accrued cost $ 409,345 $ 289,873
===========================
Accrued cost included in:
Current liabilities $ 38,213 $ 36,001
Noncurrent liabilities 357,286 253,872
---------------------------
$ 395,499 $ 289,873
===========================
</TABLE>
Net periodic postretirement benefit cost included these components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Service cost $ 38,045 $ 36,233 $ 34,497
Interest cost 70,646 66,339 66,502
Amortization of transition obligation 33,038 33,038 33,038
Amortization of unrecognized net loss 1,898 1,230 5,561
----------------------------------
Net postretirement benefit cost $143,627 $136,840 $139,598
==================================
</TABLE>
<PAGE> 40
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. BENEFIT PLANS (CONTINUED)
For measurement purposes, a 10.4% annual rate of increase in the per capita cost
of covered health care benefits was used for 1996 (10.9% in 1995); the rate was
assumed to decrease gradually to 5% (both 1996 and 1995) in 2013 and remain at
that level thereafter. The health care cost trend rate assumption affects the
medical benefit portion of the postretirement amounts reported; increasing the
assumed health care cost trend rate one percentage point would increase the
accumulated unfunded postretirement obligation as of December 31, 1996 and 1995
by approximately $50,000 and $46,000, respectively, and the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for 1996, 1995 and 1994 by approximately $6,000 in each year.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations was 7% in 1996 and 1995.
Expense recognized under the Company's defined contribution benefit plans was
$235,063 in 1996, $233,322 in 1995 and $221,915 in 1994.
8. INCOME TAXES
The components of the Company's deferred income tax and related regulatory asset
and liability accounts follow:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
Deferred tax liabilities:
Gross revenue taxes $ 84,327 $ 112,422
Depreciation 2,033,064 2,302,423
-------------------------
2,117,391 2,414,845
Regulatory liability 703,411 808,735
-------------------------
2,820,802 3,223,580
Deferred tax assets:
1% Investment in Springwich Cellular Limited
Partnership 154,503 133,226
Other liability--self-insurance for catastrophic event 81,860 81,860
Other 170,883 155,715
-------------------------
407,246 370,801
Regulatory asset 294,776 353,744
-------------------------
702,022 724,545
-------------------------
Net deferred income tax and regulatory liabilities $2,118,780 $2,499,035
=========================
</TABLE>
<PAGE> 41
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Income and other taxes consist of:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Income taxes:
Federal:
Current $1,435,434 $1,197,251 $ 979,126
Deferred (benefit) (360,420) (360,059) (275,705)
State:
Current 477,767 460,768 373,419
Deferred (benefit) (91,842) (122,234) (84,110)
-------------------------------------
INCOME TAXES $1,460,939 $1,175,726 $ 992,730
=====================================
</TABLE>
A reconciliation of the amount of income taxes based on the statutory federal
income tax rate to income taxes reflected in operations follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Amount based on statutory federal
income tax rate $1,394,745 $1,022,562 $889,748
State income taxes, less federal tax
effect 280,955 223,309 198,623
Investment tax credit amortization (72,000) (72,000) (72,000)
Other, including adjustments of prior
years' estimates (142,761) 1,855 (23,641)
-------------------------------------
INCOME TAXES $1,460,939 $1,175,726 $992,730
=====================================
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company has an agreement with The Southern New England Telephone Company
(SNET) under which the proportionate shares of intrastate toll revenues are
divided between the companies. SNET is a subsidiary of SNET Corporation, the
owner of approximately 37% of the outstanding common stock of the Company at
December 31, 1996. Revenues reflect $4,380,845 in 1996, $4,166,584 in 1995 and
$4,393,760 in 1994 under this agreement.
In 1983, the Company entered into a limited partnership agreement with
Springwich Cellular Limited Partnership ("Springwich"). As such, the Company
owns a 1% interest in Springwich. Springwich is 97% owned by SNET Corporation.
No distributions were received for this investment by the Company for the years
ended December 31, 1996, 1995 and 1994.
<PAGE> 42
THE WOODBURY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FAIR VALUE DISCLOSURES
The fair value of the Company's long-term debt at December 31, 1996 was
estimated to be approximately $9,442,000 using discounted cash flows, based on
the Company's incremental borrowing rates for similar types of borrowing
arrangements. It is not practicable to estimate the fair value of the Company's
1% investment in Springwich Cellular Limit Partnership because no current fair
value data is available.
<PAGE> 43
Annual Report on Form 10-K
Item 14(a)(1) and (2) and (d)
List of Financial Statements and Financial Statement Schedule
Certain Exhibits
Financial Statement Schedule
Year Ended December 31, 1996
The Woodbury Telephone Company
Woodbury, Connecticut
<PAGE> 44
Form 10-K--Item 14(a)(1) and (2)
The Woodbury Telephone Company
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated February 6, 1997,
in the preceding financial statements of the Company are included in Item 8.
Balance sheets--December 31, 1996 and 1995
Statements of income and retained earnings--Years ended
December 31, 1996, 1995 and 1994
Statements of cash flows--Years ended December 31, 1996,
1995 and 1994
Notes to financial statements
The following financial statement schedule of the Company is included in Item
14(d):
<TABLE>
<CAPTION>
Page No.
<S> <C>
Schedule II-Valuation and qualifying accounts F-3
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE> 45
The Woodbury Telephone Company
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
==============================================================================================================================
COL. A COL. B COL. C COL. D COL. E
- - ------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
- - ------------------------------------------------------------------------------------------------------------------------------
Description Balance at Charged to Charged to Deductions-- Balance at End
Beginning of Costs and Other Describe (1) of Period
Period Expenses Accounts--
Describe
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
- - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 $60,000 $16,932 $(3,068) $80,000
- - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 $60,000 $59,365 $59,365 $60,000
- - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994 $60,000 $37,485 $37,485 $60,000
==============================================================================================================================
</TABLE>
(1) Uncollectible amounts charged off, less (recoveries).
<PAGE> 46
EXHIBIT INDEX
FORM 10-K ANNUAL REPORT
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
EXHIBIT NO.
<TABLE>
<CAPTION>
<S> <C> <C>
2 Amended and Restated Agreement and Attached
Plan of Merger dated December 6, 1996.
3(i) Certificate of Organization, By Reference
amended to September 15, 1988.
Exhibit 3(i) to December 31, 1993
Form 10-K is incorporated
herein by reference.
3(ii) Bylaws, revised to January 29, 1997. Attached
4 Change in Control Agreement dated Attached
June 24, 1996.
4A Fourth Supplemental Indenture of By Reference
Trust dated July 31, 1992.
Exhibit 4 to December 31, 1992
Form 10-K is incorporated herein
by reference.
27 Financial Data Schedule Attached
</TABLE>
<PAGE> 1
Exhibit 2
AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER
DATED DECEMBER 6, 1996,
BETWEEN THE COMPANY, SNET AND SAS
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger: Surviving Corporation . . . . . . . . . . . . . . 1
1.2 Effective Time: Filing Date . . . . . . . . . . . . . . . . . 2
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . 2
1.5 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Conversion of WB Common Stock . . . . . . . . . . . . . . . . 2
2.2 Treasury Shares; Shares owned by WB or SNET . . . . . . . . . 3
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Rights of WB Shareholders . . . . . . . . . . . . . . . . . . 3
2.5 Closing of WB Transfer Books. . . . . . . . . . . . . . . . . 3
2.6 Exchange of Certificates; Dividends . . . . . . . . . . . . . 4
2.7 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
CERTIFICATES; BYLAWS; OFFICERS AND DIRECTORS. . . . . . . . . . . . . 5
3.1 Certificates of Incorporation . . . . . . . . . . . . . . . . 5
3.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Officers and Directors . . . . . . . . . . . . . . . . . .. . 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WB. . . . . . . . . . . . . . . . . 5
4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Financial Statements: Material Liabilities. . . . . . . . . . 6
4.5 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Employee Relations . . . . . . . . . . . . . . . . . . . . . 7
4.8 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.9 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . 9
4.11 Litigation; Disputes. . . . . . . . . . . . . . . . . . . . . 9
4.12 Real and Personal Property. . . . . . . . . . . . . . . . . . 9
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.15 Patents, Trademarks, Copyrights and Other Intellectual Property 10
4.16 Absence of Certain Changes or Events. . . . . . . . . . . . . 11
4.17 Compliance with Law . . . . . . . . . . . . . . . . . . . . . 11
4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . 12
4.19 Transfer Act. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.20 No Violation; Consents. . . . . . . . . . . . . . . . . . . . 15
4.21 Pension and Welfare Plans . . . . . . . . . . . . . . . . . . 15
4.22 Related Party Transactions. . . . . . . . . . . . . . . . . . 17
4.23 Compensation of Directors, Officers and Employees . . . . . . 17
4.24 Bank Accounts, Etc. . . . . . . . . . . . . . . . . . . . . . 18
4.25 Books of Account; Minute Books. . . . . . . . . . . . . . . . 18
4.26 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 18
4.27 Registration Statement. . . . . . . . . . . . . . . . . . . . 18
4.28 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.29 Conflicting Interests . . . . . . . . . . . . . . . . . . . . 19
4.30 Certain Payments. . . . . . . . . . . . . . . . . . . . . . . 19
4.31 Accuracy of Representations . . . . . . . . . . . . . . . . . 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SNET AND SAS. . . . . . . . . . . . 19
5.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Absence of Certain Changes or Events. . . . . . . . . . . . . 20
5.5 No Violation; Government Consent. . . . . . . . . . . . . . . 20
5.6 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Registration Statement. . . . . . . . . . . . . . . . . . . . 21
5.8 Validity of Securities. . . . . . . . . . . . . . . . . . . . 22
5.9 Accuracy of Representations . . . . . . . . . . . . . . . . . 22
ARTICLE VI
COVENANTS OF WB . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Consents; Approvals . . . . . . . . . . . . . . . . . . . . . 22
6.2 Shareholder Approval; Registration Statement. . . . . . . . . 22
6.3 Conduct of the Business of WB . . . . . . . . . . . . . . . . 23
6.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . 25
<PAGE> 3
6.5 Letter of WB's Accountants. . . . . . . . . . . . . . . . . . 25
6.6 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII
COVENANTS OF SNET AND SAS . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Consents; Approvals . . . . . . . . . . . . . . . . . . . . . 26
7.2 Registration Statement. . . . . . . . . . . . . . . . . . . . 26
7.3 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VIII
COVENANTS APPLICABLE TO ALL PARTIES . . . . . . . . . . . . . . . . . 27
8.1 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . 27
8.2 Public Announcements. . . . . . . . . . . . . . . . . . . . . 27
8.3 Notification of Certain Matters . . . . . . . . . . . . . . . 27
8.4 Hart-Scott-Rodino Act Filing. . . . . . . . . . . . . . . . . 28
ARTICLE IX
ACCESS AND CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . 28
9.1 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE X
CONDITIONS TO OBLIGATIONS OF SNET AND SAS . . . . . . . . . . . . . . 29
10.1 Performance. . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Consents Obtained. . . . . . . . . . . . . . . . . . . . . . 29
10.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . 29
10.4 Documents to be Delivered . . . . . . . . . . . . . . . . . 29
ARTICLE XI
CONDITIONS TO THE OBLIGATION OF WB. . . . . . . . . . . . . . . . . . 30
11.1 Performance. . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Consents Obtained . . . . . . . . . . . . . . . . . . . . . 30
11.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . 30
11.4 Documents to be Delivered . . . . . . . . . . . . . . . . . 30
ARTICLE XII
CONDITIONS APPLICABLE TO ALL PARTIES. . . . . . . . . . . . . . . . . 31
12.1 Shareholder Approval . . . . . . . . . . . . . . . . . . . . 31
12.2 Suspension of Trading. . . . . . . . . . . . . . . . . . . . 31
12.3 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 31
12.4 Effectiveness of the Registration Statement. . . . . . . . . 31
12.5 No Orders . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.6 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.7 New York Stock Exchange. . . . . . . . . . . . . . . . . . . 32
12.8 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIII
TERMINATION; AMENDMENT; WAIVER. . . . . . . . . . . . . . . . . . . . 32
13.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 32
13.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XIV
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.2 Woodbury Management Employees. . . . . . . . . . . . . . . . 33
14.3 Community Activities . . . . . . . . . . . . . . . . . . . . 33
14.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.5 Brokers; Finder Fees . . . . . . . . . . . . . . . . . . . . 33
14.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 34
14.8 Non-Assignability. . . . . . . . . . . . . . . . . . . . . . 34
14.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 34
14.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 34
14.11 Indemnification and Insurance. . . . . . . . . . . . . . . . 34
14.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE> 4
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
dated as of December 6, 1996 among Southern New England Telecommunications
Corporation, a Connecticut corporation ("SNET"), SNET Acquisition Subsidiary,
Inc., a Connecticut corporation and a wholly-owned subsidiary of SNET ("SAS"),
and The Woodbury Telephone Company, a Connecticut corporation ("WB").
RECITALS
WHEREAS, the authorized capital stock of WB consists of 1,250,000 shares of
Common Stock par value $2.50 ("WB Common Stock"). As of December 6, 1996,
769,107 shares of WBCommon Stock were issued and outstanding, and no shares of
WB Common Stock were issued and held by WB as treasury shares. Each share of
WB Common Stock is entitled to one vote per share;
WHEREAS, the authorized capital stock of SAS consists of 1,000 shares of
Common Stock, par value $.01 ("Sub Common Stock"), all of which are issued and
outstanding and are owned by SNET;
WHEREAS, the authorized capital stock of SNET consists of 300,000,000
shares of Common Stock, $1.00 par value ("SNET Common Stock"), 2,000,000 shares
of Preferred Stock, $50.00 par value, and 50,000,000 shares of Preference Stock,
$1.00 par value. As of December 6, 1996, 65,122,647 shares of SNET Common
Stock were issued and outstanding, 2,758,512 shares were issued and held by
SNET as treasury shares, and no shares of SNET Preferred or Preference Stock
were issued and outstanding;
WHEREAS, it is intended that the merger of SAS into WB (the "Merger") be
pursuant to the laws of the State of Connecticut and shall qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, the respective Boards of Directors of WB, SAS and SNET deem the
Merger desirable and in the best interests of their respective shareholders and
have duly approved this Agreement and directed that, in the case of WB, this
Agreement be submitted to its shareholders for approval.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger: Surviving Corporation. In accordance with the provisions
of this Agreement and the Connecticut Business Corporation Act (the "CBCA"), SAS
shall be merged with and into WB, and the separate corporate existence of SAS
shall cease. WB, as the surviving corporation, shall continue to be governed by
the CBCA. SAS and WB are hereinafter referred to as the "Constituent
Corporations," and WB is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time: Filing Date. Subject to the provisions of this
Agreement, the certificates of merger required under applicable law (the "Merger
Certificates") shall be filed with the Secretary of the State of Connecticut on
the day of the Closing (as defined in Section 1.3 hereof) or on such other date
as the parties agree. The Merger shall become effective at the time of such
filing with the Secretary of the State of Connecticut (the "Effective Time").
1.3 Closing. The closing (the "Closing") under this Agreement
shall be held at the offices of Day, Berry & Howard, 185 Asylum Street,
CityPlaceI, Hartford, Connecticut, or at such other place as the parties
agree, at 10:00 A.M. on a date no later than ten days following the receipt of
all regulatory approvals.
1.4 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided under Connecticut law. As of the Effective
Time, the separate existence of SAS shall cease and the corporate existence and
identity of WB shall be a direct wholly-owned subsidiary of SNET.
1.5 Further Assurances. If at any time after the Effective
Time, the Surviving Corporation shall consider that any deeds, assignments or
assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm of record or otherwise, in the Surviving Corporation, its
right, interest or title to any property or right of the Constituent
Corporations acquired or to be acquired by reason of, or as a result of, the
Merger, or (b) otherwise to carry out the purposes of this Agreement,
the Constituent Corporations agree that the Surviving Corporation and its
officers and directors may, shall and will execute and deliver in the name and
on behalf of the Constituent Corporations all such property, deeds, assignments
and assurances in law and do all acts necessary or desirable to vest,
<PAGE> 5
perfect or confirm all rights, interest or title to such property or right in
the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II
CONVERSION OF SHARES
The manner and basis of exchanging the shares of WB shall be as follows:
2.1 Conversion of WB Common Stock.
(a) At the Effective Time, SAS will merge with and into WB, by
the filing with the Secretary of the State of Connecticut of the Merger
Certificates; and each share of WB Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of WBCommon Stock
owned by SNET), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive, and shall
be exchangeable for that number of shares of SNET Common Stock (including
related rights to purchase shares of SNET Common Stock pursuant to the Rights
Agreement, dated as of December11, 1996, between SNET and State Street Bank
and Trust Company) equal to the product of one share of SNET Common Stock
times a fraction, the numerator of which is $43.00 and the denominator of which
is equal to the average of the closing prices (the "Average Closing Price") of
one share of SNET Common Stock as reported on the New York Stock Exchange for
the ten trading days ending on the fifth business day prior to the Effective
Time (the "Merger Consideration"); provided that in the event the Average
Closing Price is less than $30.00, then the Merger Consideration shall be
determined in accordance with the foregoing formula based on a deemed Average
Closing Price of $30.00 and WB shall have the option to consummate the Merger
based on such deemed Average Closing Price and, if WB does not opt to do so,
then SNET shall have the option to terminate the Merger pursuant to
ArticleXIII, and in the event the Average Closing Price is more than $49.00,
then the Merger Consideration shall be determined in accordance with the
foregoing formula based on a deemed Average Closing Price of $49.00 and SNET
shall have the option to consummate the Merger based on such deemed Average
Closing Price and, if SNET does not opt to do so, then WB shall have the option
to terminate the Merger pursuant to Article XIII.
(b) At the Effective Time, each share of Sub Common Stock
outstanding prior to the Merger shall be converted into 1,000 shares of the
Surviving Corporation, so that SNET will be the sole and exclusive owner of
equity securities of the Surviving Corporation.
2.2 Treasury Shares; Shares owned by WB or SNET. Each share of
WB Common Stock issued and held in the treasury of WB or owned by SNET
immediately prior to the Effective Time shall be canceled, retired and shall
cease to exist, and no right to receive SNET Common Stock shall arise with
respect thereto.
2.3 Fractional Shares. No fractional shares of SNET Common
Stock shall be issued in the Merger. In lieu thereof, SNET shall issue to any
holder of certificates of WB Common Stock otherwise entitled to a fractional
share, upon surrender of such certificates in accordance with the instructions
furnished by SNET, a check for an amount of cash equal to the fraction of a
share of SNET Common Stock multiplied by $43.00.
2.4 Rights of WB Shareholders. The holders of certificates
representing shares of WBCommon Stock, other than SNET, shall, by virtue of
the Merger, cease to have rights as shareholders of WB and their sole right
shall be the right to receive the Merger Consideration for each share of WB
Common Stock.
2.5 Closing of WB Transfer Books. At the Effective Time, the
stock transfer books of WB shall be closed, and no transfer of shares of
capital stock of WB shall thereafter be made. If, after the Effective Time,
certificates representing shares of WB Common Stock (the "WB Certificates") are
presented to the Surviving Corporation or the Exchange Agent (as defined in
Section 2.6) by shareholders of record of WB Common Stock other than SNET, they
shall be canceled or exchanged for SNET Common Stock and, if required, cash in
lieu of fractional shares as provided in this ArticleII.
2.6 Exchange of Certificates; Dividends.
(a) At the Effective Time, SNET or SAS shall deposit with State Street
Bank and Trust Transfer Services (the "Exchange Agent"), for the benefit of the
holders of shares of WBCommon Stock, certificates representing shares of SNET
Common Stock. The Exchange Agent shall, pursuant to irrevocable instructions,
make the deliveries provided for in Section 2.1 using such SNET Common Stock.
Promptly after the Effective Time, the Exchange Agent shall mail to each WB
shareholder of record (other than SNET) as of immediately prior to the Effective
Time, a form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the WB Certificates shall pass, only
<PAGE> 6
upon proper delivery of the WB Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the WB Certificates for
conversion and exchange thereof. Upon surrender to the Exchange Agent of a WB
Certificate, in accordance with the instructions thereto, the holder of such WB
Certificate shall be entitled to receive in exchange therefor SNET Common Stock
allocable to such WB Certificate (and cash in lieu of any fractional share), and
such WB Certificate shall forthwith be canceled. If SNET Common Stock is to be
issued to a person other than the person in whose name the WB Certificate is
registered, it shall be a condition of exchange that the WB Certificate so
surrendered shall be properly endorsed with signatures guaranteed, or otherwise
in proper form for transfer and that the person requesting such payment shall
pay any transfer or other taxes required by reason of the issuance or delivery
to such person or establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. Until surrendered in
accordance with this Section 2.6, each WB Certificate shall represent solely the
right to receive the Merger Consideration in the form and manner provided
herein.
(b) No dividends or other distributions that are otherwise payable on such
SNET Common Stock shall be paid to persons entitled to receive such Stock until
such persons surrender their WB Certificates. Upon such surrender, there shall
be paid to such person any dividends which shall have become payable with
respect to such WB Certificates (less the amount of taxes, if any, which may
have been imposed thereon) between the Effective Time and the time of such
surrender. Notwithstanding the above, neither the Exchange Agent nor any party
hereto shall be liable for any SNET Common Stock or dividend or distribution
thereon delivered to any government agency pursuant to any abandoned property,
escheat or similar law.
2.7 Adjustments. If, between the date of this Agreement and the Effective
Time, the outstanding shares of SNET Common Stock or WB Common Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment or similar event, or a stock dividend thereon shall be
declared with a record date within such period, then the number of shares of
SNET Common Stock into which shares of WB Common Stock are to be converted shall
be correspondingly adjusted.
2.8 Dissenters' Rights. Any shareholder of WB demanding dissenters'
rights as provided in CBCA Sections 33-855 to 33-872, inclusive, and who does
not satisfy all requirements for the exercise of dissenters' rights under said
sections of the CBCA, shall be bound by this Agreement in accordance with its
terms. If any such dissenting shareholder of WB shall not satisfy such
requirements, the shares held by such dissenting shareholder of WB shall
thereupon be treated as though such shares had been converted into the
right to receive the Merger Consideration pursuant to Section 2.1 of this
Agreement, and each WB Certificate shall represent solely the right to receive
the Merger Consideration in the form and manner provided in this Agreement.
ARTICLE III
CERTIFICATES; BYLAWS; OFFICERS AND DIRECTORS
3.1 Certificates of Incorporation. At and after the Effective Time, the
Certificate of Incorporation of WB, as in effect on the date hereof, shall be
the Certificate of Incorporation of the Surviving Corporation, until altered or
amended.
3.2 Bylaws. The Bylaws of WB, as in effect at the Effective Time, shall
be the Bylaws of the Surviving Corporation from and after the Effective Time
until altered, amended or repealed.
3.3 Officers and Directors. The persons who are officers and
directors of SAS immediately prior to the Effective Time shall, after the
Effective Time, be officers and directors of the Surviving Corporation until
their successors have been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WB
WB represents and warrants to SNET and SAS as follows:
4.1 Organization. WB is a corporation duly organized, validly existing
and in good standing under the laws of the State of Connecticut, and has the
corporate power to own or lease its properties and to carry on its business as
now being conducted. WB has provided to SNET a true and complete copy of each
of its Certificate of Incorporation and Bylaws as in full force and effect on
the date hereof.
4.2 No Subsidiaries. WB has no subsidiaries and does not directly or
<PAGE> 7
indirectly own, control or have an interest in any corporation, partnership,
joint venture or other entity, except for a one percent (1%) limited partnership
interest in Springwich Cellular Limited Partnership.
4.3 Capital Stock. The authorized, issued and outstanding capital stock
of WB is as set forth in the preamble to this Agreement and all of such capital
stock which is issued and outstanding is validly issued, fully paid and
nonassessable and free of preemptive rights. There is no option, warrant, call
or commitment in effect to which WB is a party, including any employee stock
options, relating to unissued or treasury shares of WB Common Stock, and WB is
not a party to any other agreement or instrument with respect to the purchase,
sale or voting of WB Common Stock.
4.4 Financial Statements: Material Liabilities.
(a) WB has delivered to SNET balance sheets of WB as of
December 31, 1995 and 1994, and the related statements of operations and cash
flows for the two years ended December 31, 1995 accompanied by the related
opinions of Ernst & Young, L.L.P. In addition, WB has delivered to SNET
unaudited balance sheets of WB as of September 30, 1996 and the related
unaudited statement of operations and cash flows for the nine-month period
ended on such date. WB agrees to deliver to SNET promptly until the Effective
Time, such quarterly unaudited balance sheets and related statements of
operations and cash flows. All such financial statements, together with any
notes thereto (i) present fairly, in all material respects, the financial
position, results of operations and cash flows as of the dates and for the
respective periods referred to, and (ii) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, subject
to fiscal year-end audit adjustments in the case of unaudited interim financial
statements.
(b) At September 30, 1996, WB had no material indebtedness or
liabilities, whether accrued, absolute or contingent, including, but not
limited to, any material liabilities with respect to any Plan as defined in
Section 4.21, except to the extent shown or provided for on its balance sheets.
Other than in the ordinary course of business and except for the transactions
contemplated by this Agreement and as provided in Schedule 4.4, WB has incurred
no material indebtedness, liability or obligation (whether accrued, absolute or
contingent) including, but not limited to, any material liabilities with
respect to any Plan as defined in Section 4.21, since September 30, 1996.
(c) WB maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general and specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
rendered accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.5 SEC Filings. WB has filed with the SEC all forms, reports
and documents required to be filed with the SEC since January 1, 1993 and has
delivered to SNET true and complete copies of its (i) Annual Report on Form 10-
K for the years ended December 31, 1995, December 31, 1994 and December 31,
1993, as filed with the SEC, (ii) proxy statements relating to all of WB's
meetings of stockholders (whether annual or special) since September 30, 1993,
and (iii) all other reports, statements and registration statements (including
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed by WB
with the SEC since September 30, 1993 (collectively, the "SEC Filings"). As of
their respective dates, the SEC Filings (including all exhibits and schedules
thereto and documents incorporated by reference therein), did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The financial
statements of WB included in the SEC Filings (including the related notes and
schedules) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the assets,
liabilities and financial position of WB as of the dates thereof and the
results of operations and changes in financial position for the periods then
ended (subject, in the case of any unaudited interim financial statements, to
normal year-end adjustments).
4.6 Title. WB has good and marketable title to, or, in the case of leases
and licenses, valid and subsisting leasehold interests or licenses in, all of
its properties and assets of whatever kind (whether real or personal, tangible
or intangible) necessary for the operation of its business and has good and
marketable title to all other assets and properties shown as owned by it on the
balance sheet of WB as of December 31, 1995 (the "Audited Balance Sheet"), in
each case free of all mortgages, liens, security interests, charges and
<PAGE> 8
encumbrances of any nature whatsoever, except as stated in Schedule 4.6 or, in
the case of any mortgage, lien, security interest, charge or other encumbrance
which does not relate to financing or indebtedness, except those which, alone or
in the aggregate, do not materially detract from the value, or interfere with
the present use, of any material asset or property of WB or otherwise materially
impair the business of WB.
4.7 Employee Relations. Set forth on Schedule 4.7 are all labor and col-
lective bargaining agreements to which WB is a party or by which it is bound.
Since January 1, 1993, no unfair labor practice charges or complaints have been
filed (or have been pending) against WB with the National Labor Relations Board,
WB has no knowledge of any event or circumstance which is reasonably likely to
give rise to the filing of any unfair labor practice charge or complaint, and WB
has not received any notice or communication reflecting an intention or a threat
to file any such charges or complaint. Except as disclosed on Schedule 4.7,
during the last five years, WB has complied in all material respects with all
applicable laws, rules, or regulations relating to the employment of labor,
including those relating to wages, hours, collective bargaining, the withholding
and payment of taxes and contributions, safety and civil rights. During the
last five years, there have been no general work stoppages or other such
controversies.
4.8 Contracts. (a) Except as set forth in Schedule 4.8, WB is not a party
to or is bound by any written, and to the knowledge of WB, is not a party to or
is bound by any oral (i) contract for the employment of any officer, employee or
consultant which is not terminable without liability on 30 days' (or less)
notice and does not provide for any further payments following such termination,
or contract with a former officer or employee, or (ii) profit-sharing,
severance, change-in-control, bonus, employee stock ownership, pension,
retirement, deferred compensation, stock option, or similar plan or agreement.
(b) Except as disclosed in Schedule 4.8 and as provided herein, WB is
neither a party to, nor is otherwise bound by, any (i) mortgage, indenture,
debenture, note or installment obligation, the unpaid balance of which exceeds
$25,000, or other instruments for, or relating to, any borrowing of money by WB,
the unpaid balance of which exceeds $25,000; (ii) guaranty of any obligation for
borrowing and other guaranties, which in the aggregate exceed $25,000; (iii)
agreement for the sale or lease of any material amount of its assets (other than
sales in the ordinary course of business) or part of its business or for the
grant of preferential rights to purchase or lease any material amount of its
assets or part of its business; (iv) material purchase agreement or material
long-term (i.e., more than one year) purchase, sale or supply agreement; (v)
contract or commitment to perform services by or for Woodbury, involving in any
one case $25,000 or more; (vi) contract or commitment limiting or restricting it
from engaging in competing lines of business with any person, firm, corporation
or other entity; (vii) confidentiality agreement other than such an agreement
entered into in the ordinary course of business; (viii) material lease; or (ix)
material contract not made in the ordinary course of business. WB has complied
in all material respects with all contracts, agreements, leases and instruments
identified in Schedule 4.8, each of which is valid and enforceable in accordance
with its terms subject to any applicable bankruptcy, insolvency, or other laws
affecting creditors' rights generally. All such contracts, agreements, leases
and instruments are in full force and effect and to WB's knowledge there exists
no event or condition which with or without notice or lapse of time would be a
default thereunder, give rise to a right to accelerate or terminate any
provision thereof, or give rise to any lien, claim, encumbrance, or restriction
on any of the assets or properties of WB. True and correct copies of all
contracts, agreements, leases and documents listed in Schedule 4.8 have
been delivered or made available to SNET.
4.9 Customers.
(a) Schedule 4.9 hereto identifies any customers or accounts over $2,500
beyond 60 days old which have received from WB any notification of a delinquent
account in the twelve months preceding the date hereof, have been denied service
due to credit issues, have been placed on credit watch or have otherwise been
identified by WB as involving unusual risk.
(b) WB is not engaged in any material disputes with any customers or
suppliers. To the best of WB's knowledge, no customer or supplier is
considering termination, non-renewal or any adverse modification to its
arrangements nor will consummation of the Merger have a material adverse effect
on WB's relationships with any customer or supplier.
4.10 Accounts Payable. Schedule 4.10 sets forth a list of all
accounts payable and accrued expenses of WB in each case in excess of $25,000
as of a date not more than 15 days prior to the date of this Agreement,
specifying in each case the payee, the face amount of each payable and the age
of each payable regardless of classification on the balance sheet account.
4.11 Litigation; Disputes. Except as disclosed in Schedule 4.11, there
are no actions, suits, proceedings or investigations pending or to WB's
<PAGE> 9
knowledge threatened against or affecting WB, or any of its officers or
directors, at law or in equity, or before any governmental or administrative
body or agency which, alone or in the aggregate, are likely to materially and
adversely affect the business, properties and rights of WB or the ability of WB
to carry out the transactions contemplated in this Agreement. There are no
unresolved disputes under any contract to which WB is a party or by which it is
bound involving in the aggregate an amount which is material to the assets,
properties, business or financial condition of WB. WB is not subject to or in
default with respect to any order, writ, award, judgment, injunction or decree
of any court or governmental or administrative body or agency which could
reasonably be foreseen to have a materially adverse effect on the assets,
properties, business or financial condition of WB as a whole, except for
defaults which would have a material adverse effect on telecommunications
companies generally under applicable law.
4.12 Real and Personal Property. WB has delivered to SNET a
complete and correct list of all real property (including buildings and
structures) owned or leased by WB and all interests therein (including a brief
description of the property, the record title holder and with respect to leased
property, the identity of the lessor, rental rate and the unexpired terms of
the lease. WB has delivered to SNET copies of policies of title insurance (to
the extent the same exist) on all such real property. All such real property,
buildings, and structures, and the equipment therein, and the operations and
maintenance thereof, comply substantially with any applicable agreements and
restrictive covenants and conform substantially to all applicable legal
requirements including those relating to the environment, health and safety,
land use and zoning, and all work required to be done by WB as landlord or
tenant has been duly performed. No condemnation or other proceeding is pending
or to WB's knowledge threatened which would materially affect the use of any
such property. Schedule4.12 contains a complete and correct list and brief
description of all equipment, machinery, computers, furniture, leasehold
improvements and vehicles owned by WB having, as to each such item, an original
cost in excess of $10,000. The buildings and other structures, equipment and
other assets (whether leased or owned) of WB are in good operating condition
and repair, subject to ordinary wear and tear, and have been maintained in all
material respects in accordance with standard industry practices.
4.13 Insurance. Schedule 4.13 is a correct and complete list of
insurance policies covering the operations and property of WB, including,
without limitation, policies of life, disability, fire, theft, casualty,
product liability, workers' compensation, business interruptions, employee
fidelity, and other casualty and liability insurance indicating the type of
coverage, name of insured, the issuer, the premium, the expiration date of each
policy and the amount of coverage. The operations, assets and properties of WB
are insured with sufficient coverage with responsible insurers against the
usual and normal hazards and liabilities of the character usually insured
against by companies in the same or similar business. All such policies are in
full force and effect, and WB has not received any notice of cancellation in
respect of insurance coverage.
4.14 Taxes. WB has duly filed, or caused to be duly filed, in a
timely manner all returns and reports required with respect to all federal
taxes and all state, county, and local income, excise, property, franchise,
business, payroll, sales, use and other taxes in the State of Connecticut (all
of the foregoing, including interest and penalties thereon being referred to as
"Taxes"). WB has timely paid, or, where extensions have been obtained, will
pay (an adequate reserve having been established therefor on the September 30,
1996 balance sheet), whether or not requiring the filing of a return, all
Taxes due for the periods covered thereby. All such returns or reports are
true and correct in all material respects.
The income tax returns of WB have been examined by the Internal Revenue
Service and satisfied or closed by applicable statutes as set forth on Schedule
4.14. Except as set forth in Schedule4.14, any deficiencies asserted as a result
of such examination have been paid or finally settled and WB has not been
notified in writing by any taxing authority in any such examination of any
material issue, or issues which the aggregate are material which, by the
application of similar principles, reasonably can be expected to result in a
deficiency for any other year not so examined. Tax returns for the years set
forth in Schedule 4.14 remain subject to examination but additional Taxes, if
any, resulting from such examinations will not, except as may be disclosed in
Schedule 4.14, have a material adverse effect upon the financial position of
WB. Any additional income found by the Internal Revenue Service upon which Tax
has been paid by WB has been reported to the appropriate state taxing
authorities on amended state income tax returns and any additional taxes due
the state authorities thereon have been paid. Except as disclosed in Schedule
4.14, WB has not executed any outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax return or report for any
period with respect to WB. Except as set forth in Schedule 4.14, WB is not a
party to any pending action or proceeding, nor to WB's knowledge is any
action or proceeding threatened, by any governmental authority for assessment
or collection of any Tax. No claim for assessment or collection of Taxes has
<PAGE> 10
been asserted against WB.
4.15 Patents, Trademarks, Copyrights and Other Intellectual Property. A
list and brief description of all trademarks, service marks, trade
names, brands, software, copyrights, and patents, which are currently being
used or have since January 1, 1991, been used in WB's business, all
applications for registration and registrations for such trademarks, service
marks, trade names, brands, software, copyrights, and patents, and all
licenses, contracts, rights, and arrangements with respect to the foregoing,
are set forth in Schedule 4.15. WB has furnished or made available to SNET
true and complete copies of each of the foregoing. Except as set forth in
Schedule 4.15, no rights or licenses to others have been granted with respect
to any of such properties. Except as set forth in Schedule 4.15, to the
knowledge of WB, WB owns or possesses the right to use all the trademarks,
service marks, trade names, brands, software, copyrights, patents, franchises,
permits, and licenses, and rights with respect to the foregoing, necessary for
the conduct of business as now conducted, without any conflict with or
infringement of the rights of others. Except as set forth in Schedule 4.15,
WB has not received notice of any infringement with respect to any of the
foregoing. WB has no knowledge of any default or alleged default or state of
facts which with notice or lapse of time or both would constitute a default on
the part of any party in the performance of any obligation to be performed or
paid by any party under any licenses, contracts, agreements or arrangements
referred to in or submitted as a part of Schedule 4.15.
4.16 Absence of Certain Changes or Events.
(a) Except as described in the balance sheet as of September
30, 1996 and related statement of operations and cash flows for the nine-month
period then ended, or Schedule 4.16, there has not been (i) since September 1,
1996 any material adverse change in the assets, properties, business or
financial condition of WB other than regulatory changes affecting the
telecommunications industry generally, whether or not pending on September 1,
1996; (ii) any damage, destruction or loss, whether covered by insurance or
not, materially affecting the assets, properties, business or financial
condition of WB; (iii) any declaration, payment or setting aside for payment of
any dividend (whether in cash, stock and property) with respect to the capital
stock of WB; (iv) any material increase in the compensation payable or to
become payable by WB to its officers, directors or key employees; (v) any labor
dispute, other than routine matters, none of which is, or so far as can
reasonably be foreseen could be, materially adverse to the assets, properties,
business or financial condition of WB; or (vi) any entry into any material
commitment or transaction other then as provided herein (including, without
limitation, any borrowing or capital expenditure).
(b) WB has, from December 31, 1995 to the date hereof, continued to
operate its business in an ordinary and prudent manner, consistent with past
practice, and, except as contemplated by this Agreement, WB has not engaged in
any activities or transactions or made any capital expenditures which are
outside the ordinary course of its business as conducted from December 31, 1995
and which are material, individually or in the aggregate, to the business or
financial condition of WB.
4.17 Compliance with Law.
(a) All material permits, licenses, orders or approvals of any
federal, state or local regulatory agencies presently held by WB are valid and
described in Schedule 4.17 and constitute all material permits, licenses,
orders or approvals which are required in order to allow WB to continue
to carry on its business and use its properties as now conducted. Except as
disclosed in Schedule4.17, WB has at all times been operated in all material
respects in compliance with all federal, state and local laws, ordinances,
regulations, and all orders, decrees and consents of all governmental and
administrative entities to which WB is a party which are material to the
business of WB. Except as set forth in Schedule 4.17, no notice of any
material claim, suit, action or inquiry has been issued and served upon or
delivered to WB, and no investigation or review is pending or to the best
knowledge of WB threatened by any governmental entity, with respect to any
alleged material violation by WB of any law, ordinance, regulation, decree or
consent order, of any governmental or administrative entity in connection with
the business or operations of WB. Except as set forth on Schedule 4.17, there
no proceedings or investigations pending involving (i) reduction of rates
charged to customers, (ii) reduction of earnings, (iii) refund of amounts
previously charged to customers, (iv) failure to satisfy any service or
infrastructure or other standards previously agreed to or imposed by any court,
regulatory or other administrative body. Except as set forth in Schedule4.17,
(i) the operations and facilities of WB have been in substantial compliance
since January 1, 1991 with the Occupational Safety and Health Act of 1970, as
amended, and all similar state laws, and the rules and regulations promulgated
thereunder and the orders issued thereunder, and (ii) WB has been in compliance
with the Fair Labor Standards Act and any other state or federal law
governing the payment of wages, and WB has no knowledge of any class of any
violation thereof or investigation by any government entity or other person in
<PAGE> 11
connection therewith.
(b) WB is in compliance with all federal, state and local statutes,
regulations and other laws with regard to equal employment opportunity and has
not engaged in any practices or acted pursuant to any policies which have
resulted in either a disparate treatment or disparate impact on former or
current employees in violation of law on the basis of race, sex, age, religion,
national origin, marital status, sexual orientation, veterans status, disability
or any other category protected by federal, state or local law and for which a
claim would not be barred. Except as set forth foreclosure Schedule4.11, WB has
no knowledge of any charge, claim, or threatened claim regarding discrimination
on the basis of any category protected by federal, state or local law.
(c) All facilities of WB subject to the federal Americans With
Disabilities Act have been and are in compliance with the provisions of such
act in all material respects.
4.18 Environmental Matters.
(a) Except as set forth on Schedule 4.18(a), WB is in compliance in all
material respects with all applicable federal, state and local laws and
regulations, court and administrative orders, permits and approvals relating to
environmental protection and pollution control and all Environmental Laws (as
defined in Section 4.18(e) hereof).
(b) WB has not received since January 1, 1993, any claim, notice,
complaint, court order, administrative order, or request for information from
any governmental authority or private party, alleging violation of, or asserting
any noncompliance with or accedence under any Environmental Laws by it, except
as set forth on Schedule 4.18(b).
(c) WB possesses all material governmental permits, licenses, orders,
consents, and approvals required under the Environmental Laws and necessary to
the ownership of its properties, and to the conduct of the business, of WB,
except as set forth on Schedule 4.18(c).
(d) WB has not received from any governmental authority any (i) formal
complaint or notice asserting potential liability under the Environmental Laws,
(ii) written request for information under the Environmental Laws, (iii) written
request to investigate or clean up any site under the Environmental Laws, or
(iv) formal written demand or suit by a private party responsible for cleanup of
such a site alleging that WB should share such responsibility, except as set
forth on Schedule4.18(d).
(e) Schedule 4.18(e) identifies the Hazardous Materials used, generated,
stored, or disposed of by WB in the operation of the business of WB. For the
purposes of this Section 4.18, "Hazardous Materials' means and includes, without
limitation, any toxic, hazardous, or radioactive substances or materials, and
any biomedical waste as defined in Section 22a-207 of the Connecticut General
Statutes, and any oil or petroleum, chemical liquid, solid, liquid or gaseous
products, or hazardous waste, as defined by Section 22a-448 of the Connecticut
General Statutes, or other pollutants and substances, whether or not naturally
occurring, including, without limitation, asbestos, radon and methane gas,
generated, used, treated, stored or disposed of, or otherwise deposited in,
handled at, or located on or under, any facility or real property owned,
operated or leased by WB (collectively, the "Premises"), including, without
limitation, the surface and subsurface waters of the Premises. "Hazardous
Materials' shall also include: (i) any materials, the generation, use,
treatment, storage or disposal of which would cause a person producing such
material to become a hazardous waste generator, or the Premises at which such
materials are located to become a hazardous waste treatment, storage or disposal
facility within the meaning of, or to make such person or Premises subject to
the provisions of, the Resource Conservation and Recovery Act of 1976 ("RCRA"),
42 U.S.C. Section 6901 et seq. or regulations promulgated thereunder, as the
same may be amended from time to time, or any similar state law or regulation
or local ordinance; (ii) any materials, the generation, use, treatment, storage
or disposal of which could cause a release or threatened release of hazardous
substances from the Premises within the meaning of, or otherwise make the
Premises subject to the provisions of, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601 et
seq. or regulations promulgated thereunder, as the same may be amended from time
to time, or any similar state law or regulation, including, but not limited to,
activities constituting "a spill" as defined in Connecticut General Statutes
Section 22a-452c, or any similar local ordinance; (iii) any materials, the
generation, use, treatment, storage or disposal of which would cause the
discharge of pollutants or effluents into any water source or system, or the
discharge into the air of any emissions which would require a permit under the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq. or the Clean
Air Act, 42 U.S.C. Section 7401 et seq. or regulations promulgated thereunder,
as all such Acts or regulations may be amended from time to time, or any similar
state laws, regulations or local ordinances; (iv) any material defined as
"asbestos" pursuant to Parts 1910 or 1926 of Title 29 of the Code of Federal
<PAGE> 12
Regulations; (v) any materials regulated pursuant to the Toxic Substances
Control Act of 1976, 42 U.S.C. Section 2601 et seq. or regulations promulgated
thereunder; as the same may be amended from time to time, or any similar state
law or regulation or local ordinance; or (vi) any substances in, on or under the
Premises which may support a claim or cause of action under RCRA, CERCLA or any
other federal, state or local environmental statutes, regulations, ordinances or
other environmental regulatory requirements. The federal, state and local laws,
regulations, and ordinances referred to above in this Section 4.18(e), and the
state laws set forth under Connecticut General Statutes Title 22a are defined
and collectively referred to in Agreement as "Environmental Laws."
(f) WB has not transported, or arranged for the transportation of, any
Hazardous Materials to any site which is the subject of federal, state, or local
enforcement actions, or other governmental or private investigations, or which
would lead to claims against WB for cleanup costs, remedial work, or for
damages, except as set forth on Schedule 4.18(f).
(g) To WB's knowledge, there has not been any release as defined in CERCLA
of Hazardous Materials at or from any facility or real property owned, operated,
or leased by WB, except as set forth on Schedule 4.18(g).
(h) WB has not treated, stored for more than ninety days, disposed of, or
recycled any Hazardous Materials on any real property owned or leased by WB nor,
to WB's knowledge, has any other party treated, stored for more than ninety
days, disposed of, or recycled any Hazardous Materials on such property except
as set forth on Schedule 4.18(h).
(i) To WB's knowledge, there are no Underground Storage Tanks, as defined
in RCRA and under applicable state law, and none have ever been located on any
real property owned or leased by WB, except as set forth foreclosure Schedule
4.18(i).
(j) To WB's knowledge, there are no asbestos-containing materials, or
capacitors, transformers, or other equipment or fixtures containing PCBs, and,
to WB's knowledge, none have ever been located at, any facility or on any real
property owned, operated or leased by WB, except as set forth on Schedule
4.18(j).
(k) WB (i) has no application to treat, incinerate or dispose of PCBs
pending or on file and does not hold any permit, license, or approval to
incinerate PCBs; and (ii) does not engage, and has never engaged, in road
oiling activities or the application of used oil or Hazardous Materials for
dust control or paving.
(l) Schedule 4.18(l) identifies (i) all environmental audits,
assessments or studies within the possession of WB with respect to the
facilities or real property owned or leased by WB; and (ii) the results of
sampling or any analysis of any asbestos, air, soil, or water, including ground
and surface water, undertaken with respect to such facilities or real property.
4.19 Transfer Act. WB shall promptly take any actions required in
connection with the Merger to comply with the Transfer Act; WB agrees to
file the appropriate form under the Transfer Act with respect to any real
property owned by WB in Connecticut or otherwise subject to the Transfer Act
and to make such certifications as are required under the Transfer Act; and WB
will provide copies to SNET of all filings and correspondence relating to
compliance with the Transfer Act and shall consult with SNET prior to filing
any plan for remediation measures or entering into any agreement with any
regulatory authority with respect to the Transfer Act.
4.20 No Violation; Consents.
(a) Subject to the receipt of all consents and approvals contemplated by
this Agreement, including without limitation, approval of this Agreement by the
shareholders of WB, the execution and delivery of this Agreement by WB, the
consummation by WB of the transactions contemplated hereby and the fulfillment
of and compliance with the terms and provisions hereof by WB do not and will not
(i) violate any law or any judicial or administrative order, writ, judgment,
injunction or decree binding upon WB; (ii) conflict with any material
restriction to which property of WB is bound; (iii) conflict with the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of WB;
(iv) conflict with, result in a breach of, constitute a default under or
accelerate or permit the acceleration of the performance required by, any
agreement required to be disclosed on Schedule 4.8 hereto; (v) result in the
creation of any material lien, charge or encumbrance upon any of the assets of
WB under any such agreement; or (vi) result in the termination or give any party
thereto the right to terminate any such agreement.
(b) No consent, waiver, approval, license or authorization of or any
declaration or filing on the part of WB with any person or with any federal,
state, local or foreign governmental or regulatory authority is required (other
than filings required with the Department of Public Utility Control ("DPUC") or
<PAGE> 13
the Federal Communications Commission or under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in connection with the
valid execution and delivery of this Agreement or the performance by WB of any
of the transactions contemplated hereby.
4.21 Pension and Welfare Plans.
(a) WB has not engaged in any transaction with respect to any Plan, as
defined below, which could subject WB to a tax or penalty imposed by either
Section 4975 of the Code, as defined below, or Section 502(i) of ERISA in an
amount which could be material to the financial condition of WB. The
consummation of the transactions contemplated by this Agreement does not and
shall not result in a transaction under Section 4975 of the Code or Section 406
of ERISA with respect to any Plan for which an exemption is not available or
has not been obtained.
(b) No Plan has an accumulated funding deficiency, whether or not waived,
and all contributions required to be made by applicable law or regulation or
under the terms of each Plan or other contractual undertaking for any period
through the date hereof have been made in a timely manner, or to the extent not
required to be made or paid on or before the date hereof, have been fully
reflected on the books and records of WB.
(c) No liability to the Pension Benefit Guaranty Corporation has been, or
is expected by WB to be, incurred by WB with respect to any Plan in any amount
which would be material to the financial condition of WB. WB has not incurred
and does not expect to incur any withdrawal liability with respect to any Plan
which is a multiemployer plan in an amount which would be material to the
financial condition of WB.
(d) Except as otherwise disclosed to SNET, no liability to the United
States Department of Labor has been, or is expected by WB to be, incurred by WB
with respect to any Plan in any amount which would be material to the financial
condition of WB.
(e) The Plans which are single employer plans and subject to the funding
rules of ERISA are not in the aggregate materially underfunded based on the
actuarial assumptions used by the enrolled actuary for funding such Plans.
(f) All premiums under insurance contracts providing benefits under one or
more Plans have been paid when due, and all such premiums collected from
employees have been remitted to the insurance carrier in a timely manner.
(g) There are no actions, suits or claims pending, other than routine
claims for benefits with respect to any of the Plans.
(h) Each Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service that
such Plan is a "qualified plan" under Section 401(a) of the Code, and that the
related Trusts are exempt from Tax under Section 501(a) of the Code, and WB is
not aware of any facts or circumstances that would jeopardize the qualification
of such Plan(s) or related Trust(s). Each Plan complies, both as to form and
operation in all material respects with the requirements of the Code and ERISA.
(i) WB has delivered to SNET a true, complete and correct copy of (i) each
writing constituting a part of each Plan, including, without limitation all plan
documents, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (iii) the current summary plan description,
if any; (iv) the most recent annual financial report, if any; and (v) the most
recent determination letter from the Internal Revenue Service, if any. Except
as specifically provided in the foregoing documents furnished to SNET, there are
no amendments to any Plan that have been adopted or approved, nor has WB
undertaken to make any such amendments.
(j) Schedule 4.21(j) sets forth a list of all (i) nonqualified defined
compensation or retirement plans, (ii) qualified defined contribution retirement
plans, (iii) qualified defined benefit pension plans, (iv) welfare benefit
plans, and (v) other employee benefit plans, programs, policies, practices, and
other arrangements providing benefits to any employee or former employee or
beneficiary or dependent thereof, whether or not written, and whether covering
one person or more than one person, sponsored or maintained by WB, or to which
WB is obligated to contribute, on behalf of its employees.
(k) Except as set forth in Schedule 4.21(k), WB has no liability for life,
health, medical or other welfare benefits to former employees or beneficiaries
or dependents thereof, except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to WB.
(l) Neither WB nor any of its directors, officers, employees, nor, to WB's
knowledge, any other "fiduciary," as such term is defined in Section 3 of ERISA,
has committed any breach of fiduciary responsibility imposed by ERISA or any
<PAGE> 14
other applicable law with respect to the Plans which would subject WB or SNET,
or any of their respective directors, officers or employees, to any material
liability under ERISA or any applicable law.
(m) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Plan, any fiduciaries thereof with
respect to their duties to the Plans or the assets or any of the trusts under
any of the Plans which could reasonably be expected to results in any material
liability of WB.
(n) As used in this Agreement, (i) "accumulated funding deficiency" shall
have the meaning assigned to such term in Section 412 of the Code and Section
302 of ERISA; (ii) the "Code" means the Internal Revenue Code of 1986, as
amended; (iii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended; (iv) "employee benefit plan," and "multiemployer plan" and
"plan year" shall have the respective meanings assigned to such terms in Section
3 of ERISA; (v) "single employer plan" shall have the meaning assigned to such
term in Section 4001 of ERISA, (vi) "taxable period" shall have the meaning
assigned to such term in Section 4975 of the Code; and (vii) "withdrawal
liability" shall have the meaning assigned to such term in Part I of Subtitle E
of Title IV of ERISA.
4.22 Related Party Transactions. Except for any direct or indirect
material interest of SNET or any of its affiliates, Schedule 4.22 describes any
transaction or dealings to which WB is currently a party, or was a party at any
time since January 1, 1993, in which the amount involved exceeds $25,000 and in
which any of the following persons has a direct or indirect material interest:
any director or officer or affiliate or member of the immediate family (as
defined in Item 404(a) of Regulation S-K of the SEC) of any such person or any
beneficial owner of more than 5% of WB Common Stock, any affiliate of any such
beneficial owner, or any member of the immediate family of any such person.
4.23 Compensation of Directors, Officers and Employees. WB has delivered
to SNET a written list of the names and total annual remuneration (including
current salaries, date of previous salary adjustment and amount stated in
percentage terms) of all the directors, officers and full-time salaried
employees of WB, together with a statement of the full amount of any bonuses,
profit sharing, or other remuneration (exceeding 5% of salary) paid to each such
person during the past twelve months or payable to such person in the future and
the basis therefor.
4.24 Bank Accounts, Etc. Schedule 4.24 hereto sets forth (a) the name of
each bank in which WB has an interest in any account or safe deposit box and the
names of all persons authorized to draw thereon or to have access thereto, and
(b) the name of each person, corporation, firm association or business
organization, entity or enterprise holding a general or special power of
attorney from WB and a summary of the terms thereof. True and complete copies
of all such documents have heretofore been delivered to SNET.
4.25 Books of Account; Minute Books. WB has filed all reports and returns
required by any federal law or regulation to be filed by it and by any law or
regulations of the State of Connecticut and has duly paid or accrued on its
books of account all applicable duties and charges due (or assessed against it)
pursuant to such reports. True and correct copies of the minute books and stock
ledger of WB covering the last ten years have been previously made available to
SNET and contain accurate records of all meetings of the Board of Directors and
accurately reflect all other corporate action of the shareholders and Board of
Directors.
4.26 Authorization. The Board of Directors of WB has approvedthis
Agreement and has directed that this Agreement be submitted to the shareholders
of WB for approval. WB has full power and authority to enter into this
Agreement, to undertake the obligations set forth herein and, upon appropriate
vote of WB's shareholders in accordance with law, and subject to obtaining all
required regulatory approvals, to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered bY WB and
constitutes the legal, valid and binding agreement of WB enforceable
against WB in accordance with its terms, subject to bankruptcy, moratorium,
insolvency, reorganization, fraudulent conveyance and other federal or state
laws of general applicability relating to or affecting the enforcement of the
rights and remedies of creditors or secured parties and to general equitable
principles.
4.27 Registration Statement. When the Registration Statement foreclosure
Form S-4 of SNET (the "Registration Statement") or any post-effective amendment
thereto shall become effective, and when the Prospectus constituting a part
thereof or supplement thereto shall be mailed to WB's shareholders, and at all
times subsequent to such effectiveness or mailing, up to and including the time
of approval of the Merger by the WB shareholders, the Registration Statement
and Prospectus and all amendments or supplements thereto, with respect to all
information set forth therein provided by WB and relating to WB:
<PAGE> 15
(i) will comply in all material respects with the provisions of the
Securities Act of 1933, as amended (the "Securities Act") and the rules and
regulations of the Securities and Exchange Commission ("Commission" or "SEC")
thereunder, and
(ii) will not, at the respective times such Registration Statement becomes
effective and such Prospectus is mailed, contain an untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements therein in the light of the circumstances under which they were made
not misleading.
4.28 Affiliates. To WB's knowledge, all of the persons who may be deemed
to be "Affiliates' of WB (the "WB Affiliates") for the purpose of Rule 145 under
the Securities Act, shall be listed in a letter, to be delivered by WB to SNET
prior to the date the Registration Statement becomes effective under the
Securities Act.
4.29 Conflicting Interests. Except as specifically set forth in Schedule
4.29, no director or officer of WB owns, directly or indirectly, any interest
in, or is a director, officer or employee of any corporation or other business
organization other than SNET which is a significant supplier, competitor or
customer of WB, provided that ownership of not more than one percent of the
capital stock of any company required to file reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") shall not be deemed to be
ownership of an interest in such a corporation for purposes of this Section .
4.30 Certain Payments. Neither WB nor, to the best of the knowledge of WB,
any of WB's officers, employees or agents or any consultant has unlawfully
offered, paid or agreed to pay, directly or indirectly, any money or anything of
value to, or for the benefit of, any individual who is or was a candidate for
public office, or an official or employee of any government of any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any officer or employee of any customer or supplier of WB. WB has
not engaged in any such transaction, maintained any bank account or used any
corporate funds except for transactions or bank accounts reflected in WB's
normally maintained books and records.
4.31 Accuracy of Representations. No representations or warranty made by
WB in this Agreement or any Schedule, when all such representations and
warranties are taken as a whole, contains any untrue statement of material fact
or omits to state any material fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not false
or misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SNET AND SAS
SNET and SAS jointly and severally represent and warrant to WB as follows:
5.1 Organization. SNET and SAS each is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut, and has the corporate power to own or lease its properties and to
carry on its business as now being conducted. SNET has provided WB with true
and complete copies of the Certificate of Incorporation and Bylaws of each of
SNET and SAS as in full force and effect on the date hereof.
5.2 Capital Stock. The authorized, issued and outstanding capital stock
of SNET and of SAS is as set forth in the preamble to this Agreement and all of
such capital stock which is issued and outstanding is validly issued, fully paid
and nonassessable.
5.3 SEC Filings. SNET has filed with the SEC all forms, reports and
documents required to be filed with the SEC since January 1, 1993 and has
delivered to WB true and complete copies of its (i) Annual Report foreclosure
Form 10-K for the years ended December 31, 1995, December 31, 1994 and
December 31, 1993, as filed with the SEC; (ii) proxy statements relating to all
of SNET's meetings of stockholders (whether annual or special) since September
30, 1993; and (iii) all other reports, statements and registration statements
(including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K)
filed by SNET with the SEC since September 30, 1993 (collectively, the "SEC
Filings"). As of their respective dates, the SEC Filings (including all
exhibits and schedules thereto and documents incorporated by reference
therein), did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of SNET and its subsidiaries
included or incorporated by reference in the SEC Filings (including the related
notes and schedules) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
<PAGE> 16
consolidated assets, liabilities and financial position of SNET and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and changes in financial position for the periods then
ended (subject, in the case of any unaudited interim financial statements, to
normal year-end adjustments).
5.4 Absence of Certain Changes or Events. Except as described in the
financial statements contained in the SEC Filings, since December 31, 1995 there
has not been (i) any material adverse change in the assets, properties, business
or financial condition of SNET and its subsidiaries (separately, a "SNET
Subsidiary" and collectively, the "SNET Subsidiaries") as a whole; (ii) any
damage, destruction or loss, whether covered by insurance or not, materially
affecting, the assets, properties, business or financial condition of SNET and
the SNET Subsidiaries as a whole; (iii) any declaration, payment or setting
aside for payment of any dividend (whether in cash, stock or property) with
respect to the capital stock of SNET, other than regular quarterly dividends; or
(iv) the entry into any material commitment or transaction (including without
limitation any borrowing or capital expenditure), other than in the ordinary
course of business.
5.5 No Violation; Government Consent. Subject to the receipt of all
consent and approvals contemplated by this Agreement, the execution and delivery
of this Agreement, the consummation by SNET and SAS of the transactions
contemplated hereby and the fulfillment of and compliance with the terms and
provisions hereof by SNET and SAS and thereof do not and will not (i) violate
any provision of law or any judicial or administrative order, writ, award,
judgment, injunction or decree binding upon SNET or any of the SNET
Subsidiaries; (ii) conflict with any material restriction to which property of
SNET or any of the SNET Subsidiaries is bound; (iii) conflict with the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of SNET
or SAS; (iv) conflict with, result in a breach of, constitute a default under,
or accelerate or permit the acceleration of the performance required by, any
material indenture, instrument or agreement relating to any indebtedness of SNET
or of any other material agreement of SNET or any SNET Subsidiary; (v) result in
the creation of any material lien, charge or encumbrance upon any of the asset
of SNET or any SNET Subsidiary under any such material indenture, instrument or
agreement; or (vi) result in the termination or give any party thereto the right
to terminate any such material indenture, instrument or agreement.
5.6 Authorization.
(a) SNET has full power and authority to enter into this Agreement, and
subject to obtaining all required regulatory approvals, to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by SNET and constitutes the legal, valid and binding agreement of SNET
enforceable against SNET in accordance with its terms, subject to bankruptcy,
moratorium, insolvency, reorganization, fraudulent conveyance and other federal
and state laws of general applicability relating to or affecting the enforcement
of the rights and remedies of creditors or secured parties and to general
equitable principles.
(b) The Board of Directors and the sole stockholder of SAS has approved
this Agreement. SAS has full power and authority to enter into this Agreement
and subject to obtaining all required regulatory approvals, to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by SAS and constitutes the legal, valid and binding agreement of SAS
enforceable against SAS in accordance with its terms, subject to bankruptcy,
moratorium, insolvency, reorganization, fraudulent conveyance and other federal
and state laws of general applicability relating to or affecting the enforcement
of the rights and remedies of creditors or secured parties and to general
equitable principles.
5.7 Registration Statement. When the Registration Statement or any
post-effective amendment thereto shall become effective, and when the Prospectus
constituting a part thereof or any amendment or supplement thereto shall be
mailed to WB shareholders, and at all times subsequent to such effectiveness or
mailing up to and including the time of approval of the Merger by the WB
shareholders, the Registration Statement and Prospectus and all amendments or
supplements thereto, with respect to all information set forth therein other
than information provided therein by WB and related to WB:
(i) will comply in all material respects with the
provision of the Securities Act and the rules and regulations of the
Commission thereunder, and
(ii) will not, at the respective times such Registration
Statement becomes effective and such Prospectus is mailed, contain an
untrue statement of a material fact, or omit to state any material fact
necessary in order to make the statements therein in the light of the
circumstances under which they were made not misleading.
5.8 Validity of Securities. At the Effective Time, the shares of SNET
<PAGE> 17
Common Stock, when exchanged for WB Common Stock, will be duly authorized,
validly issued, fully paid and nonassessable.
5.9 Accuracy of Representations. No representation or warranty made by
SNET in this Agreement or any Schedule, when all such representations and
warranties are taken as a whole, contains any untrue statement of material fact
or omits to state any material fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
false or misleading.
ARTICLE VI
COVENANTS OF WB
6.1 Consents; Approvals. WB shall use its best efforts consistent with
law to obtain all consents, waivers, approvals, authorizations or orders
(including without limitation all governmental and regulatory rulings and
approvals), and WB shall make all filings (including without limitation
all filings with governmental or regulatory agencies, including any
environmental agency) required for the authorization, execution and delivery of
this Agreement by WB and the consummation by it of the Merger.
6.2 Shareholder Approval; Registration Statement.
(a) WB shall cooperate with SNET in the preparation and filing with the
Commission of the Registration Statement, and shall use its best efforts
consistent with law to assist SNET in obtaining clearance thereof by the
Commission and causing the Registration Statement to be declared effective and
continue such effectiveness. WB agrees to recommend approval of this Agreement
to the shareholders of WB and to use its best efforts to obtain the necessary
adoption of this Agreement by the shareholders of WB pursuant to a duly called
meeting of shareholders.
(b) WB shall furnish all the information concerning WB required for
inclusion in the Registration Statement, or for any other filing to be made
pursuant to the rules and regulations of any governmental body in connection
with the transactions contemplated by this Agreement, and shall otherwise
cooperate with SNET in connection therewith. None of the information furnished
by or on behalf of WB for use in the Registration Statement shall contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.
(c) WB shall prepare and file with the Commission as soon as
practicable a proxy statement that will be the same proxy statement-prospectus
contained in the Registration Statement and a form of proxy, in connection with
the vote of WB's shareholders with respect to the Merger (such proxy statement-
prospectus, together with any amendments thereof or supplements thereto, in
each case in the form or forms mailed to WB's shareholders, is herein called
the "Proxy Statement"). SNET shall furnish WB all information concerning SNET
and SAS required for use in the Proxy Statement and SNET shall take such other
action as WB may reasonably request in connection with the preparation of the
Proxy Statement.
6.3 Conduct of the Business of WB. Between the date hereof and the
Effective Time:
(a) WB shall not, without the prior written consent of SNET, agree to
incur or agree to become subject to any material liability or obligation
(absolute or contingent), except liabilities incurred or obligations under
contracts entered into in the ordinary course of business.
(b) Except as contemplated by this Agreement, WB shall not, without the
prior written consent of SNET, engage in any activities or transactions or make
any capital expenditures which are outside the ordinary course of its business
as conducted at the date hereof and which are material, individually or in the
aggregate, to the business or financial condition of WB.
(c) WB shall give prompt notice to SNET of (i) the receipt of any
notice of, or other communication relating to, a default or an event of default
or any event which with lapse of time could become a default or any event of
default under any material indenture, instrument or agreement to which WB is a
party, by which it or any of its properties is bound or to which it or any of
its properties is subject; (ii) the receipt of any notice or other
communication from any third party alleging that the consent of such required
to consummate the Merger; and (iii) any matter which, if it had occurred prior
to the date hereof, would have constituted a material breach of the
representations and warranties of WB contained in this Agreement.
(d) Without the prior written consent of SNET, WB shall not (i) make
any change in its authorized capital stock; (ii) issue any stock options,
warrants or other rights or agreements calling for the issue, transfer, sale or
<PAGE> 18
delivery of any of its capital stock or other securities; (iii) declare, pay,
or set aside for payment any stock dividend or effect any split, division or
combination or make any reclassification in respect of its outstanding shares
of capital stock; (iv) issue, sell, exchange or deliver any shares of its
capital stock (or securities convertible into or exchangeable, with or without
additional consideration, for such capital stock); (v) purchase, or otherwise
acquire any outstanding shares of its capital stock; (vi) declare, pay or set
aside for payment any dividend or distribution (whether in cash or property)
with respect to its capital stock other than its regular quarterly cash
dividend of no more than $0.38 per share; (vii) enter into any agreement to
take any action under clauses (iv) or (v); (viii) amend its Certificate of
Incorporation or Bylaws; or (ix) waive, release, grant or transfer any rights
of material value or modify or change in any material respect any material
existing license, lease, contract, Plan or other document.
(e) WB shall conduct its business only in the ordinary course and
consistent with past practice, and WB shall consistent with good business
practices take such action as may be necessary to preserve its material
properties and assets, wherever located.
(f) WB shall use its best efforts to preserve intact the business
organization of WB, to keep available the services of its operating personnel
and to preserve the good will of those having business relationships with it.
(g) WB shall not (i) increase the compensation payable or to become
payable by it to any of its executive officers, except in the ordinary course
of business consistent with past practice; (ii) make any payment or provision
with respect to any bonus, profit sharing, employee stock ownership,
pension, retirement, deferred compensation, employment or other payment plan,
agreement or arrangement for the benefit of employees of WB, other than in the
ordinary course of business consistent with past practice; (iii) grant any
stock options or stock appreciation rights; (iv) enter into any employment
agreement or other contract or arrangement with an executive officer with
respect to the performance of personal services which is not terminable without
liability by it on thirty days notice (or less); or (v) make any loan or
advance to, or enter into any written contract, lease or commitment with, any
officer, director or shareholder of WB.
(h) WB shall not permit any of its current insurance policies to be
canceled or terminated or any of the coverage thereunder to lapse, unless,
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums are
in full force and effect.
(i) WB shall not assume, guarantee, endorse or otherwise become
responsible for the obligations of any other individual, firm or corporation
other than WB to the extent provided herein or make any loans or advances to
any individual, firm or corporation, except in the ordinary course of its
business.
(j) WB shall not (i) acquire all or any part of the assets, properties,
capital stock or business of any other person; (ii) dispose of all or any part
of its assets, properties, capital stock or business other than in the ordinary
course of business; or (iii) consolidate or merge with or into any other
person.
(k) WB shall not make any investment of a capital nature either by
purchase of stock or securities, contributions to capital, property transfers
or otherwise, or by the purchase or lease of any property or assets of any
other individual, firm or corporation.
(l) WB shall not write off as uncollectible any notes or accounts
receivable or write down the value of any inventory other than in immaterial
amounts or in the ordinary and usual course of business consistent with past
practice.
(m) WB shall not dispose of or permit to lapse any rights in, to or for
the use of any patent, trademark, trade name or copyright or other intellectual
property, or disclose to any person not an employee, or otherwise dispose of
any trade secret, process or know-how not theretofore a matter of public
knowledge, except pursuant to judicial or administrative process or pursuant to
Section 6.4 in connection with a bona fide offer thereunder.
(n) make any change in any method of accounting or keeping its books of
account or accounting practices other than as disclosed in the SEC Filings.
(o) WB shall not enter into an agreement to do any of the things
described in clauses (a) through (n).
6.4 Acquisition Proposals. Prior to the Effective Time, neither WB nor
any of its subsidiaries, affiliates, officers, directors, employees,
<PAGE> 19
shareholders, representatives or agents shall, directly or indirectly, solicit,
initiate, encourage or accept inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, any other party's (other than SNET) acquisition or
purchase of all or a substantial portion of the assets of, or of a substantial
equity interest in, WB or any business combination or similar transaction with
WB other than as contemplated by this Agreement; provided, however, that upon
receipt by the Board of Directors of WB of (i) a bona fide offer of a third
party to engage in a transaction with WB which would result in shareholders of
WB receiving value for their shares of WB stock in excess of the consideration
furnished by SNET pursuant to this Agreement, and (ii) the written opinion of
its counsel that the discharge of the WB directors' fiduciary duties under
applicable law requires its Board to negotiate with and provide non-public
information to such third party, WB may provide such information and enter into
such negotiations after giving prior notice to SNET. If WB enters into
negotiations pursuant to the proviso contained in the preceding sentence and
does not consummate a transaction with such third party, SNET may terminate
this Agreement, and, if it does so, then at SNET's request, WB shall compensate
SNET for entering into the Agreement, taking action to consummate the
transaction, incurring costs and expenses thereto, and foregoing other
opportunities, and for any other damages incurred by SNET, by immediately
paying to SNET a cancellation fee of $500,000 as liquidated damages regarding
any claim for damages which SNET would otherwise be entitled to assert against
WB regarding the transaction. If WB enters into negotiations with a third
party pursuant to the proviso in the first sentence of this Section 6.4 and
consummates a transaction, or if WB enters into negotiations with a third party
in violation of this section, SNET may similarly terminate this Agreement, and
if it does so, at SNET's request, WB shall immediately pay SNET a cancellation
fee of $1,500,000 as liquidated damages. SNET shall have no obligation under
Section 14.4 of Article XIV hereof as a result of its invocation of this
section.
6.5 Letter of WB's Accountants. WB shall use its best efforts to cause
to be delivered to SNET a letter of Ernst & Young, L.L.P., WB's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to SNET, in form
and substance reasonably satisfactory to SNET and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
6.6 Best Efforts. WB shall use its best efforts consistent with law to
cause all of the conditions precedent to the consummation of the Merger
applicable to WB to be met.
ARTICLE VII
COVENANTS OF SNET AND SAS
7.1 Consents; Approvals. SNET will use its best efforts consistent
with law to obtain all consents, waivers, approvals, authorizations or orders
(including without limitation all governmental and regulatory rulings and
approvals), and SNET shall make all filings (including without limitation
all filings with governmental agencies, including any environmental agency)
required for the authorization, execution and delivery of this Agreement by
SNET and SAS and the consummation by them of the Merger.
7.2 Registration Statement.
(a) SNET shall prepare and file the Registration Statement with the
Commission as soon as is reasonably practicable and shall use its best efforts
consistent with law to have the Registration Statement declared effective by
the Commission.
(b) SNET shall furnish all the information concerning SNET and SNET
Subsidiaries required for inclusion in the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any governmental body in connection with the Merger and shall otherwise
cooperate with WB in connection therewith. None of the information furnished
by or on behalf of SNET for use in the Registration Statement shall contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.
7.3 Blue Sky. SNET shall use its best efforts consistent with law to
comply with all applicable "Blue Sky" or similar securities laws of each
jurisdiction as and when such compliance is required.
7.4 Listing. SNET shall use its best efforts to cause the shares of
SNET Common Stock to be issued in the Merger to be listed on the New York Stock
Exchange.
7.5 Certain Actions. Between the date hereof and the Effective Time,
<PAGE> 20
SNET shall give prompt notice to WB of the receipt by it or any SNET Subsidiary
of (i) any notice of, or other communication relating to, a material default or
a material event of default or any event which with lapse of time could become
a material default or a material event of default under any material
instrument or agreement to which SNET or any SNET Subsidiary is a party, by
which it or any of its properties it bound or to which it or any of its
properties is subject; (ii) any notice or other communication from any third
party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement; and (iii)
any matter which, if it had occurred prior to the date hereof, would have
constituted a material breach of the representations of SNET contained in this
Agreement.
7.6 Best Efforts. SNET and SAS shall use their best efforts consistent
with law to cause all of the conditions precedent to the consummation of the
Merger applicable to SNET and SAS to be met.
ARTICLE VIII
COVENANTS APPLICABLE TO ALL PARTIES
8.1 Reasonable Efforts. Subject to Section 6.4, upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including (a) the
obtaining of all necessary actions or non-actions, waivers, consents
and approvals from governmental authorities and the making of all necessary
registrations and filings (including filings with governmental entities) and
the taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any governmental entity,
(b)the obtaining of all necessary consents, approvals or waivers from third
parties, (c)the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby including seeking to have any stay or
temporary restraining order entered by any court or other governmental entity
vacated or reversed, (d)the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement, and (e)not to take, commit, or agree in writing or otherwise to
take, any action which would make any representation or warranty of such party
contained in this Agreement untrue or incorrect in any material respect as
of the date when made or as of a future date.
8.2 Public Announcements. SNET and SAS, on the one hand, and WB, on
the other hand, will consult with each other before issuing any press release
with respect to the transactions contemplated by this Agreement, and shall not
issue any such press release prior to such consultation.
8.3 Notification of Certain Matters. Each party shall give the other
prompt notice of: (i)any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior
to the Effective Time under any note, license, agreement or other instrument or
obligation other than in respect of defaults which, individually or in the
aggregate, could not reasonably be expected to result in a material adverse
effect on such party; and (ii)any material adverse effect or the occurrence
of any event which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to result in a material adverse effect on such
party. Each party shall give the other prompt notice of any written notice or
other written communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement.
8.4 Hart-Scott-Rodino Act Filing. The parties will cooperate in
preparing and filing any Notification and Report Forms and related material
that it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
HSR Act, and will use their respective best efforts to obtain an early
termination of the applicable waiting period, and will make any further filings
pursuant thereto that may be necessary, proper, or advisable.
ARTICLE IX
ACCESS AND CONFIDENTIALITY
9.1 Access. Upon reasonable notice, WB shall afford the officers,
employees, counsel, accountants and other authorized representatives of SNET
and SAS (collectively, "Representatives"), access, during normal business hours
throughout the period prior to the Effective Time, to its properties, books,
contracts and records, and, during such period, WB shall furnish promptly to
<PAGE> 21
SNET all information concerning its business, properties and personnel as SNET
may reasonably request, provided that no investigation pursuant to this Section
9.1 shall affect or be deemed to modify any representation or warranty made by
WB.
9.2 Confidentiality.
(a) SNET and SAS each agree that the Confidentiality Agreement dated
November 2, 1995 shall remain in effect and it shall, and shall use its best
efforts to cause its respective Representatives to, hold in strict confidence
all data and information obtained by them from WB (or from any of its
respective officer, employees, agents or authorized representatives) (unless
such information is previously known to SNET or SAS or is or becomes readily
ascertainable from public or published information or trade sources) and shall
not, and shall use its best efforts to ensure that such Representatives do not,
disclose such confidential information to others without the prior written
consent of WB.
(b) WB agrees that the Confidentiality Agreement dated November 2, 1995
shall remain in effect and it shall, and shall use its efforts to, cause its
officers, employees, agents and authorized representatives to, hold in strict
confidence all data and information obtained by them from SNET or SAS (unless
such information is previously known to them or is or becomes readily
ascertainable from public or published information or is provided pursuant to
Section 6.4 in connection with a bona fide offer thereunder) and shall not, and
shall use their best efforts to ensure that such officers, employees, agents
and authorized representatives do not, disclose such confidential information
to others without the prior written consent of SNET.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF SNET AND SAS
The obligations of SNET and SAS under this Agreement to consummate the
Merger are subject to the conditions that:
10.1 Performance.
(a) The representations and warranties of WB herein contained shall
have been true and accurate when made and in addition shall be true and
accurate in all material respects at and as of the Effective Time with the same
force and effect as though made at and as of the Effective Time, except
as affected by transactions contemplated by this Agreement.
(b) WB shall have performed in all material respects all other
obligations and agreements and complied with all covenants and conditions
contained in this Agreement at or prior to the Effective Time.
10.2 Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by WB and its Board and shareholders for the authorization, execution
and delivery of this Agreement and the consummation by it of the transactions
contemplated hereby shall have been obtained and made by WB.
10.3 No Litigation. No suit, action, proceeding, investigation or
inquiry, whether or not existing on the date hereof, involving WB or WB
securities or its directors or officers with respect to the business of WB or
this Agreement or related to the transaction contemplated hereby, shall be
pending, threatened, or in prospect before any court or governmental agency,
which, in the reasonable opinion of SNET, renders completion of the Merger
inadvisable or impractical.
10.4 Documents to be Delivered. WB shall have delivered or cause to be
delivered, to SNET and SAS at the Closing:
(a) A certificate of WB, signed by its President and Chief Executive
Officer which shall confirm the compliance by WB in all material respects with
its covenants and agreements contained in this Agreement, and the accuracy in
all material respects of the representations and warranties made by WB in this
Agreement at and as of the Effective Time as if made at such time, except as
affected by transactions contemplated by this Agreement.
(b) An agreement from each WB Affiliate (as defined under the rules of
the SEC under the Securities Act), in form and substance satisfactory to SNET
and its counsel, relating to the disposition of the securities of SNET
receivable by such WB Affiliate in the Merger together with such documents as
SNET may reasonably request related to SNET's compliance with the Securities
Act.
(c) The opinion of Carmody & Torrance, counsel to WB, dated the Closing
Date and in form and substance satisfactory to SNET.
<PAGE> 22
(d) Such other documents and instruments as SNET shall reasonably
request.
ARTICLE XI
CONDITIONS TO THE OBLIGATION OF WB
The obligations of WB under this Agreement to consummate the Merger are
subject to the conditions that:
11.1 Performance.
(a) The representations and warranties of SNET and SAS herein contained
shall have been true and accurate when made and, in addition, shall be true and
accurate in all material respects at and as of the Effective Time with the same
force and effect as though made at and as of the Effective Time, except as
affected by transactions contemplated by this Agreement.
(b) SNET and SAS shall have performed in all material respects all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement at or prior to the Effective Time.
11.2 Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by SNET and SAS for the authorization, execution and delivery of this
Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by SNET and SAS.
11.3 No Litigation. No suit, action or proceeding or investigation
involving SNET or its directors or officers with respect to the business of
SNET or this Agreement or the transaction contemplated hereby, shall be
pending, threatened, or reasonably believed by SNET and its directors
or officers or their counsel to be in prospect before any court or governmental
agency, which, in the reasonable opinion of WB, renders completion of the
Merger hereby inadvisable or impractical.
11.4 Documents to be Delivered. SNET shall have delivered, or caused to
be delivered, to WB at the Closing:
(a) A certificate of each of SNET and SAS, signed by its President and
Chief Executive Officer, which shall confirm the compliance by them in all
material respects with their covenants and agreements contained in this
Agreement, and the truth and accuracy in all material respects of the
representations and warranties made by them in this Agreement at and as of the
Effective Time as if made at such time, except as affected by transactions
contemplated by this Agreement.
(b) The opinion of Madelyn M. DeMatteo, General Counsel of SNET, dated
the Closing Date and in form and substance satisfactory to WB.
(c) The opinion of Carmody & Torrance, counsel to WB, dated the Closing
Date, that the Merger qualifies as a reorganization under Section 368 of the
Code.
(d) Such other documents and instruments as WB shall reasonably
request.
ARTICLE XII
CONDITIONS APPLICABLE TO ALL PARTIES
The obligations of each of the parties to consummate the Merger are
subject to the following additional terms and conditions:
12.1 Shareholder Approval. This Agreement shall have been approved by
the requisite vote of the holders of the outstanding shares of WB Common Stock.
12.2 Suspension of Trading. There shall not have occurred (i)any
general suspension of, or limitation on prices for, trading in securities on
the New York Stock Exchange or in the over-the-counter market; (ii)a
commencement of war, armed hostilities, or other international or national
calamity directly or indirectly involving the United States; or (iii)in the
case of any of the foregoing existing at the date hereof a material
acceleration or worsening thereof.
12.3 Regulatory Approvals. The satisfaction of any applicable federal
or state regulatory requirements, including without limitation, the approval of
the Connecticut Department of Public Utility Control and, if required, the
Federal Communications Commission.
12.4 Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective. No stop order suspending the
<PAGE> 23
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall, on or prior to the Effective Time,
have been initiated or, to the knowledge of SNET or WB, threatened by the SEC.
All necessary state securities or blue sky authorizations shall have been
obtained.
12.5 No Orders. The consummation of the Merger or the transactions
contemplated hereby shall not have been restrained, enjoined or prohibited by
any court or governmental authority of competent jurisdiction.
12.6 HSR Act. Any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated.
12.7 New York Stock Exchange. The shares of SNET Common Stock
exchangeable for WB shares shall have been admitted to listing on the New York
Stock Exchange, subject to official notice of issuance.
12.8 Fairness Opinion. The receipt from McDonald & Company Securities,
Inc. of a final written opinion that the Merger is fair to WB's shareholders
from a financial point of view, which opinion shall be dated within two (2)
days of the date of the Proxy Statement.
ARTICLE XIII
TERMINATION; AMENDMENT; WAIVER
13.1 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the filing of the Merger
Certificates, whether before or after action by the shareholders of WB, (i) by
mutual consent of the Board of Directors of WB, SAS, and SNET; (ii) by action
of the Board of Directors of SNET in the event of a failure of a condition set
forth in ArticleX of this Agreement or in the event such a condition becomes
incapable of fulfillment; (iii) by action of the Board of Directors of WB in
the event of failure of a condition set forth in ArticleXI of this Agreement
or in the event such a condition becomes incapable of fulfillment; (iv) by
action of the Board of Directors of either WB, SAS or SNET in the event of a
failure of a condition set forth in Article XII of this Agreement or in the
event such a condition becomes incapable of fulfillment; (v) by action of the
Board of Directors of either WB or SNET pursuant to the provisions of
Section 2.1 hereof; (vi) by SAS of SNET pursuant to the provisions of Section
6.4 hereof; or (vii) by action of the Board of Directors of WB, SAS or SNET if
the Merger has not occurred by December 31, 1997 (the "Determination Date"),
but if the Merger has not occurred by the Determination Date because the DPUC
has approved the Merger but all rights to appeal such approval have not expired
or been waived or the approval is being appealed and a final favorable
determination of the appeal by a court of competent jurisdiction has not been
made, then the Determination Date shall be extended and deemed to be the date
ten days after the earliest to occur of (a) the expiration or waiver of all
rights to appeal the DPUC's approval of the Merger, (b) the final favorable
determination of the DPUC's approval of the Merger by a court of competent
jurisdiction or (c) March 31, 1998.
13.2 Amendment. SNET, SAS and WB may agree in writing to amend this
Agreement at any time prior to the Effective Time, provided that, after the
shareholders of WB approve the Merger, no amendment shall be made which is
adverse to the shareholders of WB (including, without limitation, any adverse
change in the terms of the consideration to be received by the WB shareholders)
unless such amendment is approved by such shareholders.
13.3 Waiver. Any condition to the performance of WB, SNET or SAS which
may legally be waived at or prior to the Effective Time may be waived at any
time by the third party entitled to the benefit thereof by action taken or
authorized by the Board of Directors of the waiving party.
ARTICLE XIV
MISCELLANEOUS
14.1 Survival. Except for the agreements contained in Article III and
Sections 6.4, 14.4 and14.11, which shall survive the Merger, all
representations, warranties, agreements and covenants under this Agreement
shall not survive the Merger.
14.2 Woodbury Management Employees. Each management employee of WB who
is not employed by SNET as of the Effective Time shall receive severance pay of
a type generally available to SNET management employees with similar lengths of
service and job descriptions, and the Surviving Corporation shall continue in
full force and effect the Agreement dated May 31, 1991 between J. Garry
Mitchell and WB, and the Change-in-Control Agreement dated July 24, 1996
between Donald E. Porter and WB.
14.3 Community Activities. Subsequent to the Effective Time, SNET shall
<PAGE> 24
continue WB's support of local community activities to the extent consistent
with SNET's corporate strategy.
14.4 Expenses. Whether or not the Merger shall be consummated, each
party shall pay its own expenses in connection with this Agreement and the
consummation of the Merger, provided that if this Agreement is executed but the
Merger is not consummated (i) due to the failure of either party to receive the
necessary regulatory approvals, despite their best efforts, or (ii) due solely
to the fault of SNET, then SNET will pay to WB an amount equal to all
reasonable costs and expenses including fees and costs of attorneys, investment
bankers, accountants and financial advisors, incurred by WB after September
26, 1996 in connection with the Merger but in no event shall such costs and
expenses exceed $125,000 if pursuant to clause (i) or $300,000 if pursuant to
clause (ii) herein.
14.5 Brokers; Finder Fees. Each party to this Agreement represents to
the other that all negotiations relative to this Agreement and the Merger have
been carried on by SNET directly with WB and without the intervention of any
other person and no person is entitled to a finder's fee, brokerage commission
or other similar fee.
14.6 Notices. Any notice, request, instruction or other document to be
given hereunder shall be in writing and delivered personally, telecopied (if
receipt is confirmed) or sent by registered or certified mail, postage prepaid,
if to SNET or SAS, addressed to SNET or SAS, as the case may be, at 227 Church
Street, New Haven, Connecticut 06510, Attention: Paula M. Anderson, Esq.; and
if to WB, addressed to WB at P.O. Box N, Woodbury, Connecticut 06798-0478,
Attention: DonaldE. Porter, with copies to Thomas Candrick, Esq., Carmody &
Torrance, 195 Church Street, New Haven, Connecticut 06510, or to such other
persons as may be designated by notice in writing by any party.
14.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Connecticut (without reference to
the choice of law principles thereof).
14.8 Non-Assignability. This Agreement shall not be assignable by any
of the parties hereto.
14.9 Entire Agreement. This Agreement contains all of the
representations, warranties, understandings and agreements of the parties
relating to the transactions contemplated herein; (ii) supersedes all prior
written agreements and negotiations and oral understandings, if any, between
the parties; and (iii) may not be amended, supplemented or discharged except by
performance or by an instrument in writing executed by the parties hereto.
14.10 Counterparts. For the convenience of the parties, this Agreement
may be executed in any number of counterparts, and each such counterpart shall
be deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
14.11 Indemnification and Insurance.
(a) After the Effective Time, the Surviving Corporation will (and SNET
will as long as it controls Surviving Corporation) indemnify and hold harmless
each of the current directors of WB (the "Indemnified Parties") in their
capacities as directors or officers to the full extent provided in WB's
Certificate of Incorporation and Bylaws (except for violations of the federal
securities laws), with respect to any matter existing or occurring prior to the
Effective Time.
(b) The Surviving Corporation will not amend, and SNET will not (as
long as it controls the Surviving Corporation) authorize or permit the
amendment of, provisions of WB's Certificate of Incorporation or Bylaws
providing for indemnification (as in effect as of the date of this Agreement)
in any manner adverse to the Indemnified Parties for a period of three (3)
years from and after the date of this Agreement; provided, however, that such
indemnification is subject to any limitation imposed from time to time under
applicable law.
(c) For six (6) years after the Closing, the Surviving Corporation will
(and for so long as it controls the Surviving Corporation, SNET will cause the
Surviving Corporation to) maintain policies of officers' and directors'
liability insurance maintained by WB as of the date of this Agreement (provided
that the Surviving Corporation may substitute therefor policies of at least the
same coverage containing terms and conditions substantially equivalent) with
respect to the acts or omissions occurring before the Effective Time, including
but not limited to the transactions contemplated by this Agreement, covering
each of the Indemnified Parties currently covered by WB's officers' and
directors' liability insurance policy, or who become covered by such policy
before the Effective Time. The provisions of this Section 14.11 shall survive
the Effective Time and shall be enforceable by the Indemnified Parties, their
heirs, executors and personal representatives and are binding on successors and
<PAGE> 25
assigns of WB, SNET and SAS.
(d) Any determination to be made as to whether any Indemnified party
has met any standard of conduct imposed by law or by WB's Certificate of
Incorporation or Bylaws will be made by legal counsel reasonably acceptable to
such Indemnified Party and SNET.
(e) In the event any Indemnified Party is or becomes involved in any
capacity in any action, proceeding, or investigation for which he has a claim
for indemnification against the Surviving Corporation (including, without
limitation, the transactions contemplated by this Agreement), the Surviving
Corporation will, and SNET will (as long as it controls the Surviving
Corporation) cause the Surviving Corporation to, pay as incurred such
Indemnified Party's legal and other expenses actually and reasonably incurred
in connection therewith upon receipt of an understanding by or on behalf of
such Indemnified Party to repay such amount if it is ultimately determined that
he is not entitled to be indemnified by WB. Neither WB, SNET or the Surviving
Corporation shall be liable for any settlement of any claim without its written
consent, which shall not be unreasonably withheld.
(f) Any Indemnified Party wishing to claim indemnification under this
Section 14.11, upon hearing of any claim, action, suit or proceeding or
investigation, shall notify WB, SNET or the Surviving Corporation (but the
failure to so notify an Indemnifying Party shall not relieve it from any
liability it may have under this Section , except to the extent such failure
prejudices such party). The Indemnified Parties as a group may retain only one
law firm to represent them with respect to such matter unless there is, under
applicable standards of conduct, a conflict on any significant issue
between the parties of any two or more Indemnified Parties.
(g) The obligations pursuant to this Section 14.11 will survive the
Merger and will continue in full force and effect for a period of three (3)
years from the Effective Time (except that the obligations of the Surviving
Corporation pursuant to subsection(c) of this Section to maintain policies of
officers' and directors' liability insurance shall continue for six(6) years
and the obligations of the Surviving Corporation and SNET pursuant to
subsection(a) of this Section shall continue for such six-year period solely
with respect to matters covered by such policies), provided that as to any
claim for indemnification asserted pursuant to this Section 14.11 during such
three-year or six-year period, as applicable, such obligations will remain in
full force and effect until the final disposition of such claim.
14.12 Interpretation. The section headings in this Agreement are
inserted for convenience only and are not part of this Agreement.
<PAGE> 26
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above written.
SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
By:
Name: John J. Miller
Its: Vice President & Treasurer
SNET ACQUISITION SUBSIDIARY, INC.
By:
Name: John J. Miller
Its: President
THE WOODBURY TELEPHONE COMPANY
By:
Name: Donald E. Porter
Its: President
<PAGE> 1
Exhibit 3 (ii)
BYLAWS OF THE COMPANY
REVISED TO JANUARY 29, 1997
<PAGE> 2
THE
WOODBURY TELEPHONE
COMPANY
WOODBURY, CONN.
BYLAWS
REVISED TO JANUARY 29, 1997
<PAGE> 3
THE WOODBURY TELEPHONE COMPANY
BYLAWS
ARTICLE I
Meeting of Shareholders
Section 1. All meetings of the shareholders shall be held at such
place within the Towns of Woodbury, Southbury or Bethlehem, Connecticut, as
may from time to time be designated by the Board of Directors and stated in
the notice of the meeting.
Section 2. The annual meeting of the shareholders for the election of
directors and the transaction of such other business as shall properly come
before such meeting, shall be held in each year on a day and at the hour
designated by the Board of Directors, or at such subsequent time or day to
which such meeting may be adjourned.
Section 3. Special meetings of the shareholders may be called at any
time by the President or the Board of Directors, and the President shall
call a special meeting whenever he is requested in writing to do so by
shareholders representing not less than one tenth of the outstanding stock
having voting power.
Section 4. A notice stating the place, day and hour of each annual
meeting and the place, day, hour and purpose of each special meeting shall
be given to each shareholder of record entitled to vote at such meeting by
the Secretary delivering or mailing such notice to each shareholder at such
address as may appear on the books of the Company at least ten days but not
more than sixty days prior to the meeting.
Section 5. At all meetings of the shareholders the holders of a
majority of the shares entitled to vote, present in person or represented
by proxy, shall, except as otherwise provided by law, constitute a quorum,
but a lesser number may adjourn the meeting to a day and time specified.
The shareholders present at a validly called and convened meeting at which
a quorum was present may continue to transact business notwithstanding the
withdrawal of enough shares to leave less than a quorum.
Section 6. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws when a quorum is present at any shareholders'
meeting, the affirmative vote of a majority of the voting power of the
shares represented at such meeting shall be the act of the shareholders.
Section 7. At all meetings of shareholders, each shareholder may vote
in person or by proxy and shall have one vote for each share standing in
his name on the books of the Company. If requested by any shareholder,
voting at any such meeting shall be by ballot, and the name of each
shareholder,
<PAGE> 4
together with the number of shares held by him, shall be
written upon such ballot. The Chairman presiding at each such meeting
shall have power to appoint one or more persons to act as inspectors or
tellers, to receive, canvass and report the votes cast by the shareholders
at such meeting; but no candidate for the office of director shall be
appointed as inspector or teller at any meeting for the election of
directors.
Section 8. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend or for any other
proper purpose, the Board of Directors may set a record date which shall be
a date not earlier than the date on which such action is taken nor more
than seventy (70) nor less than ten (10) days before the particular event
requiring such determination of shareholders is to occur.
ARTICLE II
Powers and Duties of Directors
Section 1. The business of the Company shall be managed by Board of
Directors. Directors shall qualify and shall be elected and the number and
classes of directors shall be fixed, in accordance with the provisions of
the Certificate of Incorporation.{1}
{1}Article VIII of the Certificate of Incorporation provides the
number of classes of directors as follows:
"Article VIII. The business of the corporation shall be managed by a Board
of Directors of not less than five (5) nor more than nine (9) directors,
all of whom shall be shareholders of the corporation. The directors of the
corporation shall be divided into three classes, namely, Classes I, II and
III, as nearly equal in number as possible. Within such limits, the number
of directors and each class thereof shall be fixed from time to time by the
Board of Directors by a resolution adopted by a majority of the entire
Board of Directors. At the 1989 annual meeting of shareholders, each
initial director of Class I shall be elected for a one-year term, each
initial director of Class II shall be elected for a two-year and each
initial director of Class III shall be elected for a three-year term. At
each succeeding annual meeting of shareholders, successors to the class of
directors whose terms expire at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify,
provided,
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<PAGE> 5
Section 2. Directors may be removed at any time only for cause by
action of the shareholders holding at least 80 percent of the voting power
of all shares of the Company then entitled to vote generally in the
election of directors, at a meeting the notice of which shall include
notice of such proposed action. For purposes of this section 2 "cause"
shall exist only if a Director has been convicted of a felony in a final
adjudication or has willfully engaged in gross misconduct materially and
demonstrably injurious to the Company; and "final adjudication" shall mean
a judgment by a court of competent jurisdiction which becomes final after
completion of all proceedings for direct review or after expiration of the
time to obtain initial or further direct review without action having been
taken.
Section 3. A majority of the number of directorships at the time
shall constitute a quorum competent to transact business. A lesser number
than a quorum may adjourn from time to time until a quorum is present.
Section 4. Except for vacancies arising by an increase in the number
of directorships or by the retirement of a director at the annual meeting
next following his 70th birthday, the Board of Directors, acting by the
majority vote of its remaining members, shall have power to fill vacancies
that may occur in the Board, or in any other office, by death, resignation,
or removal, and the person so chosen shall hold the office during the
unexpired term and until his successor shall be elected and qualified.
Shareholders shall elect directors to fill vacancies arising by an increase
in the number of directorships, and, at the annual meeting shall elect
directors to fill the unexpired term, if any, of directors who have
attained the age of 70 before the date of said meeting.
Section 5. All questions shall be decided by vote of a majority of
the directors present. The yeas and nays on any question shall be taken
and recorded on the minutes at the request of any director.
Section 6. The Board of Directors shall cause to be furnished to
shareholders, within 150 days after the close of each of the Company's
fiscal years, a balance sheet showing its financial condition at the end of
the immediately preceding fiscal year and a profit and loss statement
respecting its operations for such fiscal year.
however, that if any director shall attain the age of 70 during
his term, his term shall end on the date of the annual meeting next
following his 70th birthday, and at said annual meeting a director shall be
elected to fill the unexpired term if any."
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<PAGE> 6
Section 7. Any director may resign at any time by giving written notice
of his resignation to the President or to the Secretary of the Company. Such
resignation shall take effect on the date of receipt of such notice or at any
later time specified therein and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
Section 8. The Board of Directors may from time to time, by resolution
passed by a majority of the whole Board, appoint standing or temporary
committees, including an executive committee, from its own number, such
committees to consist of not less than two directors and to have such powers as
the Board may legally delegate to it. All committees so appointed shall keep
regular minutes of their meetings, shall cause them to be recorded in books kept
for that purpose in the office of the Company and shall report the same to the
Board of Directors at its next meeting.
Section 9. The directors shall receive such compensation for their
services as directors and as members of any committee appointed by the Board as
may be prescribed by the Board of Directors and shall be reimbursed by the
Company for ordinary and reasonable expenses incurred in the performance of
their duties.
Section 10. If all the directors or all members of a Committee of the
Board severally or collectively consent in writing to any action taken or to be
taken by the Company, such action shall be as valid corporate action as though
it had been authorized at a meeting of the Board of Directors or such Committee,
as the case may be. The Secretary shall file such consent or consents with the
minutes of the meetings of the directors.
Section 11. The Board of Directors is authorized to consider in
exercising its judgment on any matter that may come before it, the effect of its
decision on such matter on (i) the ratepayers of the Company, (ii) the employees
of the Company, (iii) the economy and residents of the communities served by the
Company, and (iv) the ability of the Company to carry out its duties as a public
service company. The foregoing shall not limit the right of the Board to
consider all other factors that it may deem relevant in connection with any such
decision.
ARTICLE III
Meetings of Directors
Section 1. The annual meeting of the Board of Directors shall, if a
quorum is present, be held without notice immediately after the adjournment of
the annual shareholders' meeting or as soon thereafter as convenient at the
place at which the annual
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<PAGE> 7
meeting of shareholders has been held or at the principal office of the Company.
Section 2. Regular meetings of the Board of Directors shall be held at
such times and at such places, within or without the State of Connecticut, as
may be fixed, from time to time, by resolution of the Board of Directors.
Section 3. Special meetings of the Board of Directors may be called by
the President, or, in the event of his absence or inability to act, by any other
officer. In addition, any two directors may call such meetings. Such meetings
shall be held at the principal office of the Company or at such other place or
places, within or without the State of Connecticut, as the Board of Directors
may from time to time designate.
Section 4. Written or oral notice of all special meetings of the Board
of Directors shall be given to each director personally or by mail or telegraph
at least two days previous to the time of the meeting, unless such director
shall in writing or by telegraph waive such notice or be in attendance at such
meeting.
Section 5. Subject to the provisions of the Stock Corporation Act of
Connecticut any and all business may be transacted at any meeting of the Board
of Directors unless otherwise indicated in the notice of any special meeting.
ARTICLE IV
Officers
Section 1. The officers of this Company shall be elected by the Board
of Directors at its annual meeting or from time to time thereafter, as the Board
may determine, and shall consist of a Chairman of the Board, if the Board of
Directors so determines; a President; a Treasurer; a Secretary; and such other
officers as the Board may from time to time determine. Any two offices, except
the offices of President and Secretary may be filled by the same person. Subject
to their removal by the Board of Directors with or without cause, the officers
shall hold office until the next annual meeting of the Board of Directors and
until their successors are elected and qualified.
Section 1.a. If a Chairman of the Board has been elected, he shall
preside at all meetings of the Board of Directors and of the shareholders, and
he shall have such other powers and perform such other duties as may be
delegated to him by the Board of Directors.
Section 2. Subject to the delegation of powers and duties to other
officers by the Board of Directors, the President shall
-5-
<PAGE> 8
be the chief executive and administrative officer of the Company and shall have
general and active control of its property and affairs and general supervision
of its officers, agents and employees. In the absence of a Chairman of the
Board, he shall preside at all meetings of the Board of Directors and of the
shareholders.
Section 3. Such Vice Presidents as may be elected shall have such
powers and perform such duties as may be delegated to them by the Board of
Directors. In the absence or disability of the President they, in the order in
which they are elected at the preceding annual meeting of the Board of Directors
or in such order as may be designated by the Board of Directors, shall exercise
the powers and perform the duties of the President.
Section 4. The Treasurer shall receive and keep the cash funds, notes,
and all other cash items belonging to the Company, and shall enter or cause to
be entered regularly in books kept for that purpose, an account of all monies
received and disbursed on the Company's account and an account of all other
financial transactions of the Company. He shall also perform all other acts and
duties specially required of him by all applicable statutes, by these Bylaws and
by the Board of Directors.
Section 5. The Secretary shall make and keep records of the acts,
doings and proceedings of all meetings of the shareholders and directors; he
shall transmit to the shareholders and directors the notices required by statute
and by these Bylaws, and as directed by the President; and he shall perform all
other acts and duties specially required of him by all applicable statutes, by
these Bylaws and by the Board of Directors.
Section 6. Unless otherwise ordered by the Board of Directors, the
President or an officer thereunto duly authorized by the President shall have
full power and authority on behalf of the Company to attend and to vote at any
meeting of shareholders of any corporation in which this Company may hold stock,
and may exercise on behalf of this Company any and all of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of
this Company in connection with the exercise by this Company of the rights and
powers incident to the ownership of such stock. The Board of Directors, from
time to time, may confer like powers upon any other person or persons.
ARTICLE V
Checks, Notes, Etc.
All checks, notes, drafts and bills of exchange, issued by the Company
for its purposes shall be signed by the Treasurer or
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<PAGE> 9
by such other officers or employees of the Company as may from time to time be
designated by the Board of Directors.
ARTICLE VI
Stock Transfers
Stock transfer books shall be kept and no transfers of stock shall be
permitted except upon said books, either by the shareholder in person or by
power of attorney executed by him for that purpose. The Board of Directors may
from time to time designate one or more transfer agents and one or more
registrars to transfer and register shares of the stock of the Company.
ARTICLE VII
Corporate Seal
The Board of Directors may adopt a seal for the Company which shall be
kept in the custody of the Secretary of the Company.
ARTICLE VIII
Amendment of Bylaws
These Bylaws may be altered or amended by the Board at any meeting by a
majority vote of the directors then in office, or at any meeting of the
shareholders, whether annual or special, by the holders of a majority of the
voting power of all of the shares of the Company entitled to vote generally in
the election of directors; provided, however, that Section 2 of Article II,
Section 11 of Article II and this Article VIII may only be amended or repealed
and a provision inconsistent therewith may only be adopted by the affirmative
vote of holders of at least 80 percent of the voting power of all shares of the
Company then entitled to vote generally in the election of directors.
Any changes in these Bylaws by the Board between meetings of the
shareholders shall be reported to the shareholders at the next annual meeting.
Any notice of a meeting of the shareholders or the Board at which these Bylaws
are to be altered or amended shall include notice of such proposed action.
ARTICLE IX
Indemnification
To the extent and in the amounts allowed, authorized or provided for
under the laws of the State of Connecticut, the Company shall indemnify any
shareholder, director, officer, employee or agent of the Company, or any
person serving at the
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<PAGE> 10
request of the Company in such capacity for another corporation, partnership,
joint venture, trust or other enterprise, who by reason of holding such position
or so serving at the request of the Company is made, or threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding of any
kind. The Board of Directors may procure insurance against such indemnification
in such amounts as may be permitted under said laws and as the Board of
Directors may deem reasonable, and the Company may share the premium cost of
such insurance with any such person on such basis as may be agreed upon between
such person and the Board of Directors.
-8-
<PAGE> 1
Exhibit 4
CHANGE IN CONTROL AGREEMENT
DATED JUNE 24, 1996,
BETWEEN THE COMPANY AND
DONALD E. PORTER
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This Agreement is made and entered into as of this 24th day of July,
1996 ("Effective Date") by and between WOODBURY TELEPHONE COMPANY (the
"Company"), 299 Main Street South, Woodbury, Connecticut 06798 and DONALD E.
PORTER (the "Employee"), 163 Munn Road, Southbury, Connecticut 06488.
W I T N E S S E T H:
WHEREAS, the Employee is currently employed as President and Chief
Executive Officer of the Company reporting directly to the Board of Directors of
the Company and with the duties and responsibilities commensurate with such
position; and
WHEREAS, the Employee desires to assure himself of continued employment
in the event of a Change in Control, as defined herein, and the Company wishes
to induce the Employee to continue his employment by the Company in the event of
a Change in Control; and
WHEREAS, this Agreement is not intended to alter the compensation and
benefits that the Executive would receive in the absence of such a Change in
Control.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties agree as follows:
1. AGREEMENT. This Agreement, although taking effect on the Effective
Date, will be operative only upon the occurrence of a Change in Control. Upon
such occurrence this Agreement shall become operative immediately. This
Agreement is not to be considered a contract of employment and shall in no way
change the nature of the Employee's present employment by the Company and the
Employee shall at all times prior to a Change in Control be considered an
employee at will.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to occur:
(a) when the Company acquires actual knowledge that any "person"
(as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other
than an affiliate of the Company or an employee benefit plan
established or maintained by the Company is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange
Act), directly or indirectly, of
<PAGE> 3
securities of the Company representing more than ten percent (10%) of
the combined voting power of the Company's then outstanding securities
(a "Control Person", and for purposes of this Agreement, Southern New
England Telecommunications Corporation shall be deemed a "Control
Person") or, in the case of a person who at the Effective Date is a
"Control Person", when such Control Person increases its ownership of
the Company's then outstanding stock, or
(b) upon the first purchase of the Company's common stock pursuant to a
tender or exchange offer (other than a tender or exchange offer made by
the Company, or an employee benefit plan established or maintained by
the Company, or their respective affiliates), or upon the approval by
the Company's stockholders of: (A) a merger or consolidation of the
Company with or into another corporation (other than a merger or
consolidation the definitive agreement for which provides that at least
two-thirds of the directors of the surviving or resulting corporation
immediately after the transaction are Continuing Directors (as
hereinafter defined) (a "Non-Control Transaction")), (B) a sale or
disposition of all or substantially all of the Company's assets, or (C)
a plan of liquidation or dissolution of the Company, or
(c) if during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constitute the Board of
Directors of the Company (the "Company Board") (the "Continuing
Directors") cease for any reason to constitute at least two-thirds
thereof or, following a Non- Control Transaction, two-thirds of the
board of directors of the surviving or resulting corporation; provided
that any individual whose election or nomination for election as a
member of the Company Board (or, following a Non-Control Transaction,
the board of directors of the surviving or resulting corporation) was
approved by a vote of at least two-thirds of the Continuing Directors
then in office shall be considered a Continuing Director, or
-2-
<PAGE> 4
(d) upon any filing by the Company or any other person with the
Connecticut Department of Public Utility Control or other
state regulatory agency pursuant to Conn. Gen. Stat. 16-43(1)
or other statute in connection with a plan to merge,
consolidate or exchange common stock with any other company or
sell, lease, assign, or otherwise dispose of all or
substantially all or any essential part of its franchise,
plant equipment or other property necessary and useful in the
performance of the Company's duty to the public.
3. FUNDAMENTAL CHANGE. "Fundamental Change" means the occurrence
within six (6) months prior to or twenty-four (24) months after a Change in
Control of any of the following events or conditions:
(a) A change in the Employee's status, title, position or
responsibilities (including reporting responsibilities);
(b) A reduction in the Employee's compensation and/or benefits;
(c) Relocation of the Employee's principal office to a location
outside a thirty (30) mile radius from the Company's offices
described in this Agreement; or
(d) Termination of the Employee's employment other than "for
cause" as defined in Paragraph 4 or as a result of the
Employee's death, disability or retirement.
4. TERMINATION FOR CAUSE. For the purposes of Paragraph 3 above,
termination of the Employee for any of the following reasons shall be considered
to be termination for cause:
(a) gross negligence or wilful misconduct, including material
dishonesty by the Employee in the performance of the
Employee's duties;
(b) material breach by the Employee of any terms of Employee's
employment by the Company and failure to correct such breach
within twenty (20) days after written notice by the Board of
Directors; or
(c) upon the Employee's failure or refusal to comply with lawful
directions or instructions by the Board of Directors.
-3-
<PAGE> 5
If the Employee is terminated for any of the foregoing reasons he shall
not be entitled to the benefits provided for in Paragraph 5.
5. BENEFITS UPON TERMINATION FOR A FUNDAMENTAL CHANGE
(a) The Employee may, if a Fundamental Change occurs, choose to
terminate his employment by the Company. Upon such termination
by the Employee for a Fundamental Change, the Employee shall
receive the lesser of (i) two hundred and twenty percent
(220%) of the annual compensation then being paid to the
Employee or (ii) two hundred ninety nine percent (299%) of the
average of the Employee's annual compensation for the
preceding five (5) years, provided that such termination
occurs within twelve (12) months following the Fundamental
Change.
(b) If the Fundamental Change which occurs is the Company's
termination of the Employee's employment other than "for
cause" as defined in Paragraph 4, then the Employee shall be
entitled to receive the lesser of (i) two hundred twenty
percent (220%) of the annual compensation then being paid to
the Employee or (ii) two hundred ninety nine percent (299%) of
the average of the Employee's annual compensation for the
preceding five (5) years. If such termination occurs within
six (6) months prior to a Change in Control, then such payment
shall be due and owing upon the occurrence of the Change in
Control. If such termination occurs within twenty- four (24)
months following a Change in Control, then such payment shall
be due and owing upon termination.
(c) The Employee shall have the option to receive any payment to
which he is entitled under subparagraphs (a) or (b) above as a
lump sum within five (5) days after such termination, or in
substantially equal monthly installments until full payment
has been made.
6. DEATH, DISABILITY AND RETIREMENT BENEFITS. If the Employee should
die or become eligible to receive benefits under a long term disability plan of
the Company or retire following a Change in Control at a time when this
Agreement is in effect, Employee's employment and the Company's obligations
under this Agreement shall terminate as of the end of the month in which his
death or eligibility to receive such disability payments or retirement occurs.
-4-
<PAGE> 6
7. MISCELLANEOUS.
(a) GOVERNING LAW. The validity, construction, interpretation and
enforceability of this Agreement, and the capacity of the
parties shall be determined and governed by the laws of the
State of Connecticut.
(b) SEVERABILITY. In the event any one or more the provisions
contained in this Agreement is held invalid in any respect,
such invalidity shall not effect the validity of the other
provisions of this Agreement, and such provision(s) is
modified to the extent necessary to make it (them)
enforceable.
(c) BINDING EFFECT. Provisions of this Agreement shall be binding
on and inure to the benefit of the Company and the Employee
and their respective heirs, administrators, executors,
successors and assigns.
(d) WAIVER. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof.
This Agreement may be amended or modified only by a writing
signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought. No
delay or failure on the part of either party in exercising any
power or right shall operate as a waiver thereof nor shall any
single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other
power or right.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of this 24th day of July, 1996.
WOODBURY TELEPHONE COMPANY
By: /s/ J. Garry Mitchell
------------------------
J. Garry Mitchell
Its Chairman of the Board
EMPLOYEE
/s/ Donald E. Porter
----------------------------
Donald E. Porter
-5-
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
from The Woodbury Telephone Company's Financial Statements for the fiscal year
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 21,228,961
<OTHER-PROPERTY-AND-INVEST> 757,482
<TOTAL-CURRENT-ASSETS> 6,410,283
<TOTAL-DEFERRED-CHARGES> 336,780
<OTHER-ASSETS> 294,776
<TOTAL-ASSETS> 29,028,822
<COMMON> 1,922,768
<CAPITAL-SURPLUS-PAID-IN> 1,475,394
<RETAINED-EARNINGS> 10,875,785
<TOTAL-COMMON-STOCKHOLDERS-EQ> 14,273,947
0
0
<LONG-TERM-DEBT-NET> 9,000,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,754,875
<TOT-CAPITALIZATION-AND-LIAB> 29,028,822
<GROSS-OPERATING-REVENUE> 14,342,596
<INCOME-TAX-EXPENSE> 1,460,939
<OTHER-OPERATING-EXPENSES> 9,679,226
<TOTAL-OPERATING-EXPENSES> 11,140,165
<OPERATING-INCOME-LOSS> 3,202,431
<OTHER-INCOME-NET> 277,657
<INCOME-BEFORE-INTEREST-EXPEN> 3,480,088
<TOTAL-INTEREST-EXPENSE> 838,835
<NET-INCOME> 2,641,253
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,641,253
<COMMON-STOCK-DIVIDENDS> 1,169,042
<TOTAL-INTEREST-ON-BONDS> 810,000
<CASH-FLOW-OPERATIONS> 4,846,078
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.43
</TABLE>
