<PAGE>
As filed with the Securities and Exchange Commission on July 30, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
CTC COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 4812 04-3469590
(State or other (Primary standard industrial (I.R.S. Employer
jurisdiction classification code number) Identification Number)
of incorporation or
organization)
CTC Communications Group, Inc.
220 Bear Hill Road
Waltham, Massachusetts 02451
(781) 466-8080
(Address, including zip code and telephone number including area code of
registrant's principal executive offices)
Robert J. Fabbricatore
Chief Executive Officer
CTC Communications Group, Inc.
220 Bear Hill Road
Waltham, Massachusetts 02451
(781) 466-8080
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Please send copies of all communications to:
Leonard R. Glass, Esq. Mary E. Weber, Esq.
Law Offices of Leonard R. Glass, P.A. Ropes & Gray
45 Central Avenue, P.O. Box 579 One International Place
Tenafly, NJ 07670-0579 Boston, Massachusetts 02110-2624
201-894-9300 (617) 951-7000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered per share(1) offering price fee
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 13,907,704 shs. $16.03 $222,940,495 $61,977
- -----------------------------------------------------------------------------------
Series A Convertible
Preferred Stock, $1.00
par value............. 666,666 shs. $19.65 $ 13,100,000 $ 3,642
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices for CTC Communications
Corp. common stock as reported on Nasdaq on July 27, 1999 and upon the book
value of CTC Communications Corp. Series A convertible preferred stock on
July 28, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Prospectus Statement/Prospectus Dated August 2, 1999
CTC Communications Corp.
Dear Stockholder:
We are calling an annual meeting of stockholders of CTC Communications to be
held on September 16, 1999 at 9:30 a.m., local time, at 220 Bear Hill Road,
Waltham, Massachusetts 02451-1104.
At the annual meeting, holders of record of CTC Communications' common stock
and Series A convertible preferred stock will consider and vote upon the
following proposals:
1. To elect three persons to our Board of Directors to serve as Class II
Directors for three-year terms;
2. To approve an amendment to our 1998 Incentive Plan;
3. To approve the 1999 Equity Incentive Plan for Non-Employee Directors;
and
4. To approve a plan of merger and reorganization which would have the
following effects:
. CTC Communications will become a wholly-owned subsidiary of CTC
Communications Group, Inc., a Delaware corporation, and continue to
conduct the business it currently conducts.
. The assets, liabilities and operations of CTC Group on a
consolidated basis will be the same as the assets, liabilities and
operations of CTC Communications on a consolidated basis.
. Shares of capital stock of CTC Communications will automatically
convert into the same number of shares of similar shares of capital
stock of CTC Group.
While you are, of course, welcome to join us at this annual meeting, we
understand that this may not be possible. It is important that your shares be
represented and voted at the meeting whether or not you plan to attend. If
enough stockholders do not return their proxies, the company may have to incur
the expense of follow-up solicitations. Please take a moment to sign, date and
promptly mail your proxy in the enclosed prepaid envelope. This will not limit
your right to vote in person should you decide to attend the meeting.
This document also constitutes the prospectus of CTC Communications Group,
Inc. for the offering to you of the CTC Group common stock and Series A
convertible preferred stock to be issued in the reorganization.
On behalf of your board of directors, thank you for your continued support.
Sincerely,
Robert J. Fabbricatore
Chairman and Chief Executive Officer
----------------
The reorganization involves elements of risk. See "Risk Factors" on pages 6-
11.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this document is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
We expect CTC Group's common stock will be listed on the Nasdaq National
Market under the symbol "CPTL" following the consummation of the
reorganization.
----------------
This document is first being mailed to stockholders on or about August 6, 1999.
<PAGE>
CTC Communications Corp.
220 Bear Hill Road
Waltham, Massachusetts 02451
(781) 466-8080
Notice of Annual Meeting of Stockholders
To the Stockholders of CTC Communications Corp.
The annual meeting of stockholders of CTC Communications Corp. will be held
at its offices at 220 Bear Hill Road, Waltham, Massachusetts 02451 on September
16, 1999 at 9:30 a.m. to consider and act upon the following matters:
. To elect three persons to our Board of Directors to serve as Class II
Directors for three-year terms;
. To approve an amendment to our 1998 Incentive Plan;
. To approve the 1999 Equity Incentive Plan for Non-Employee Directors;
. A proposal to approve an agreement and plan of reorganization providing
for the conversion of shares of common stock and Series A convertible
preferred stock of CTC Communications into an equal number of shares of
common stock and Series A convertible preferred stock of CTC
Communications Group, Inc., a company organized under Delaware law by
CTC Communications to be a holding company of CTC Communications; and
. To transact any other business that may lawfully come before the meeting
or any adjournment.
The proposal to approve the agreement and plan of reorganization must be
approved by:
. the affirmative vote of two-thirds of the voting power of the shares of
CTC Communications common stock and Series A convertible preferred stock
entitled to vote, voting together as a single class; and
. the affirmative vote of two-thirds of the shares of CTC Communications
Series A convertible preferred stock entitled to vote, voting
separately.
We describe the reorganization and the other matters to be voted upon at the
meeting more fully in the attached document. Appendix A to the attached
document is a copy of the agreement and plan of reorganization.
August 2, 1999 is the record date for this meeting. Accordingly, only
stockholders of record on that date will be entitled to vote at the meeting.
Please sign the enclosed proxy and return it in the enclosed postage-paid
envelope as soon as possible. If you decide to attend the meeting in person,
you can withdraw your proxy and vote at that time.
By Order of the Board of Directors
Robert J. Fabbricatore,
Chairman
August 2, 1999
Mailed at Boston, Massachusetts
Please promptly date, sign and mail the enclosed proxy. A postage-paid
envelope is provided for mailing in the United States. If stockholders don't
return the proxies in sufficient numbers, we will have to incur the expense of
follow-up solicitations. If any other business is brought before the meeting,
your shares will be voted at the board's discretion.
<PAGE>
Where You Can Find More Information
This document is part of a registration statement on Form S-4 filed with the
Securities and Exchange Commission, or the SEC, covering the shares of capital
stock that CTC Group will issue in the reorganization. The document also is the
proxy statement of CTC Communications for the annual meeting.
This document does not contain all of the information, exhibits and
undertakings contained in the registration statement. We will provide you
without charge, upon your written or oral request, a copy of any documents
contained in such registrations statement, but not exhibits filed with these
documents unless those exhibits are specifically referred to in this document.
Please direct your requests for such documents to John D. Pittenger, CTC
Communications, Inc., 220 Bear Hill Road, Waltham, Massachusetts 02451-1104
(telephone 781-466-8080). We will deliver such documents by first class mail or
other equally prompt means. To ensure delivery of these documents before the
annual meeting, you should make requests for such documents no later than
September 9, 1999.
The SEC allows CTC Communications to "incorporate by reference" information
into this proxy statement/prospectus, which means that CTC Communications can
disclose important information to you by referring you to another document it
has filed with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement/prospectus, except for any information
superseded by information contained directly in the proxy statement/prospectus
or in later dated documents also incorporated by reference. This proxy
statement/prospectus incorporates by reference the documents set forth below
that CTC Communications has previously filed with the SEC. These documents
contain important information about CTC Communications and its financial
condition.
<TABLE>
<CAPTION>
SEC Filings (File No. 000-
13627) Period
-------------------------- ------
<S> <C>
Annual Report on Form 10-K and Year ended March 31, 1999
Form 10-K/A
Current Reports on Form 8-K Filed on July 20, 1999, July 19, 1999, July
7, 1999, May 14, 1999, May 5, 1999, April 28,
1999 and April 22, 1999
</TABLE>
CTC Communications incorporates by reference additional documents that it
may file with the SEC between the date the registration statement was initially
filed and the date of the annual meeting. These include periodic reports, such
as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
CTC Communications is subject to the information reporting requirements of
the Exchange Act of 1934. Following the reorganization CTC Group will be
subject to those requirements. Under the Exchange Act, reporting companies file
reports, proxy statements and other information with the SEC. You may inspect
and copy such reports, proxy statements and other information at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference facilities. You may also obtain copies of such material by
mail from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC on the Internet at http://www.sec.gov. CTC Communications common stock is
listed on the Nasdaq National Market, and therefore you can also inspect such
reports, proxy statements and other information at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
You should rely only on the information contained or referred to in this
document or any supplement. Neither CTC Group nor CTC Communications has
authorized anyone else to provide you with different or additional information.
This document does not constitute an offer of securities in any jurisdiction in
which or to any person to whom, it is not permitted. You should not assume that
the information in this document or any supplement is accurate as of any other
date than the date on the front of those documents.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 1
Risk Factors............................................................... 6
If our stockholders exercise appraisal rights or if we do not consummate
the reorganization, we could default under our credit facilities and be
unable to pay those debts............................................... 6
Because our revenues prior to January 1998 resulted from a business
strategy we are no longer pursuing, you may have difficulty evaluating
us...................................................................... 6
If we do not successfully execute our new business strategy, we may be
unable to compete effectively........................................... 6
If our network does not function properly, we will be unable to provide
the telecommunications services on which our future performance will in
large part depend....................................................... 6
Because of our limited experience, we may not be able to properly or
timely deploy, operate and maintain our network, which could materially
adversely affect our financial results.................................. 7
Our high leverage creates financial and operating risk that could limit
the growth of our business.............................................. 7
We will need to refinance our existing indebtedness when due, and we may
be unable to do so...................................................... 7
We may be unable to obtain the additional capital we will require to fund
our operations and finance our growth on acceptable terms or at all,
which could cause us to delay or abandon our development and expansion
plans................................................................... 8
Our market is highly competitive, and we may not be able to compete
effectively, especially against established competitors with greater
financial resources and more experience................................. 8
Our information systems may not produce accurate and prompt bills which
could cause a loss or delay in the collection of revenue and could
adversely affect our relations with our customers....................... 8
We may not receive timely and accurate call data records from our
suppliers which could cause a loss or delay in the collection of revenue
and could adversely affect our relations with our suppliers............. 8
We depend on the networks and services of third party providers to serve
our customers and our relationships with our customers could be
adversely affected by failures in those networks and services........... 8
Increases in customer attrition rates could adversely affect our
operating results....................................................... 9
We may be unable to effectively manage our growth, which could materially
adversely affect all aspects of our business............................ 9
We may be unable to retain or replace our senior management or hire and
retain other highly skilled personnel upon which our success will
depend.................................................................. 9
Changes to the regulations applicable to our business could increase our
costs and limit our operations.......................................... 9
Rapid technological changes in the telecommunications industry could
render our services or network obsolete faster than we expect or require
us to spend more than we currently anticipate........................... 9
Our systems and network, and the systems of our suppliers, may not
properly process date information after December 31, 1999, which could
increase our costs, disrupt our business and adversely affect our
relations with our customers............................................ 10
We may pursue acquisitions which could disrupt our business and may not
yield the benefits we expect............................................ 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Our existing principal stockholders, executive officers and directors
control a substantial amount of our voting shares and will be able to
significantly influence any matter requiring shareholder approval....... 10
Our stock price is likely to be volatile................................. 10
The market price of our common stock could be depressed by the
substantial number of our shares that are eligible for future sale...... 11
We have anti-takeover defenses that could delay or prevent an acquisition
and could adversely affect the price of our common stock................ 11
The forward looking statements we make in this document are inherently
uncertain............................................................... 11
Information about the Annual Meeting....................................... 12
Appraisal Rights of Dissenting CTC Communications Stockholders............. 13
Proposal Number One: Election of Directors................................. 14
Proposal Number Two: Approval of Amendments to the 1998 Incentive Plan..... 15
Proposal Number Three: Approval of 1999 Equity Incentive Plan for Non-
Employee Directors........................................................ 18
Proposal Number Four: The Reorganization................................... 20
Proposed Reorganization.................................................. 20
Reasons for the Reorganization........................................... 20
Reorganization Procedure................................................. 21
Capitalization of the Delaware Holding Company........................... 22
Registration Rights...................................................... 24
Interests of the Company's Directors and Officers........................ 24
Significant Changes Caused by the Reorganization......................... 25
Disadvantages of Reincorporation in Delaware............................. 36
Security Ownership of Certain Beneficial Owners............................ 37
Management................................................................. 37
Executive Compensation..................................................... 42
Board Compensation Committee Report on Executive Compensation.............. 43
Performance Graph.......................................................... 44
Certain Relationships And Related Transactions............................. 46
Section 16(a) Beneficial Ownership Reporting Compliance.................... 46
Federal Income Tax Consequences............................................ 47
Securities Act Consequences................................................ 48
Transfer Agent and Registrar............................................... 48
Independent Auditors....................................................... 48
Legal Matters.............................................................. 48
Expense of Solicitation.................................................... 48
Stockholders' Proposals.................................................... 49
Other Matters That May Come Before the Meeting............................. 49
</TABLE>
ii
<PAGE>
Summary
Questions and Answers
The following questions and answers are designed to help you understand the
proxy voting process and the reorganization proposal. These questions and
answers and the rest of the summary only highlights information in this
document. You should carefully read this entire document and the attached
appendices.
Information about the Annual Meeting and Voting
The annual meeting
Our annual meeting will be held at 9:30 a.m. on September 16, 1999 at 220
Bear Hill Road, Waltham, Massachusetts 02451-1104. At the meeting, stockholders
will be asked to elect three directors, approve an amendment to the 1998
Incentive Plan, approve an equity incentive plan for outside directors, approve
a plan of merger and reorganization, and act on any other business that may
properly come before the meeting. We do not know of any matters other than
those discussed in this proxy statement that may come before the meeting. Our
management will also report on our performance during the past year and respond
to appropriate questions from stockholders.
Who is entitled to attend and vote at the meeting?
Any holder of record of CTC Communications common stock or Series A
convertible preferred stock at the close of business on August 2, 1999, the
record date, is entitled to attend and vote at the meeting. On the record date
we had 13,907,704 shares of common stock and 666,666 shares of Series A
preferred stock outstanding. The holders of the common stock and Series A
preferred stock will vote together as a single class for the election of
directors, approval of the amendment to the 1998 Incentive Plan, approval of
the equity incentive plan for outside directors and the approval of the plan of
reorganization. The holders of Series A preferred stock will also vote
separately for the approval of the plan of reorganization.
What will constitute a quorum at the meeting
Holders of a majority interest of all of the common stock and Series A
preferred stock issued, outstanding and entitled to vote on the record date
must be present at the meeting, either in person or by proxy, to establish a
quorum. Proxies that we receive that are marked "withhold" or "abstain" will be
considered present at the meeting for purposes of establishing a quorum.
How do I vote? What do I need to do now?
After carefully reading and considering the information contained in this
document, please fill out and sign the enclosed proxy card. Then mail your
signed proxy card in the enclosed prepaid return envelope as soon as possible
so that your shares will be represented at the annual meeting. Your proxy card
will instruct the persons named on the card to vote your shares at the annual
meeting as you direct on the card. If you do not vote or if you abstain on a
proposal, the effect will be a vote against the proposal. The Board of
Directors recommends that you vote for the proposals, including approval of the
reorganization.
May I change my vote after I have mailed my signed proxy card?
You may change your vote at any time before your shares are voted at the
annual meeting by:
.notifying the Clerk of the company in writing;
.voting in person at the meeting; or
.returning a later-dated proxy card.
1
<PAGE>
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy card to the attention of the Clerk at CTC
Communications Corp., 220 Bear Hill Road, Waltham, Massachusetts 02451.
If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
Your broker will vote your shares only if you provide your broker with
instructions. If you fail to instruct your broker, your shares will not be
voted.
What vote is required to approve each proposal?
. For the election of directors, the nominees who receive the most votes
will be elected no matter how many votes are cast. Therefore, if you do
not vote for a particular nominee, or if you withhold authority for one
or all of the nominees, your vote will not count either for or against
the nominee. In any event, your shares will count to establish a quorum.
. For the approval of the amendment to our 1998 Incentive Plan and the
approval of the outside directors' equity incentive plan, the required
vote is a majority of the shares of common stock present, in person or by
proxy, and voting on the matter. Therefore, if you abstain or otherwise
do not vote on this proposal, it will not have any effect on the outcome
of the voting.
. For the proposal to approve the agreement and plan of reorganization, the
required vote is:
the affirmative vote of two-thirds of the voting power of the shares of
CTC Communications common stock and Series A preferred stock entitled to
vote, voting together as a single class; and
the affirmative vote of two-thirds of the shares of CTC Communications
Series A convertible preferred stock entitled to vote, voting separately.
Therefore, if you abstain or otherwise do not vote on this proposal, it
will have the effect of a vote against the proposal.
Information about the Proposed Reorganization
What are you proposing?
We are asking you to approve an agreement and plan of reorganization that
would result in our reorganization into a holding company structure. Under the
plan, CTC Communications, a Massachusetts corporation, will become a wholly-
owned subsidiary of CTC Communications Group, Inc., a Delaware corporation.
Why are you forming a Delaware holding company?
We are forming a holding company:
. to comply with the terms of our loan and security agreement with Goldman
Sachs Partners and Fleet National Bank;
. to take advantage of the benefits of Delaware corporate law; and
. to enable us to issue debt at different corporate levels.
2
<PAGE>
What will happen to my stock?
In the reorganization, your shares of common stock and Series A convertible
preferred stock of CTC Communications will automatically convert into the same
number of shares of common stock and Series A convertible preferred stock of
CTC Group. We expect the CTC Group common stock will be listed on the Nasdaq
National Market under the symbol "CPTL."
Will I have to turn in my stock certificates?
No. Do not turn in your stock certificates. We will not require you to
exchange your stock certificates as a result of the reorganization. After the
reorganization, your CTC Communications stock certificates will represent the
same number of shares of CTC Group capital stock.
Does formation of a holding company affect my federal income taxes?
The proposed reorganization will be a tax-free reorganization under federal
tax laws. You will not recognize any gain or loss for federal income tax
purposes upon your receipt of CTC Group stock in exchange for your shares of
CTC Communications stock. You should consult your own tax advisors concerning
the specific tax consequences of the reorganization to you, including any
foreign, state, or local tax consequences of the reorganization. For further
information, see "Federal Income Tax Consequences."
Will the management of the company change after the reorganization?
The management of CTC Communications will not change as a result of the
reorganization. The entire board of directors and several of the current
principal executive officers of CTC Communications will also serve as the board
of directors and as executive officers of CTC Group upon completion of the
reorganization.
If the stockholders approve the reorganization, when will it occur?
We would like to complete the reorganization as soon as possible after the
annual meeting. In order to complete the reorganization, CTC Communications
must first obtain the approval of state regulatory agencies in states in which
it operates. We plan to complete the reorganization immediately after obtaining
stockholder approval, unless these approvals have not been obtained at that
time.
The board of directors of CTC Communications recommends that the
stockholders vote for approval of the reorganization.
What percentage of the outstanding shares do directors and executive officers
hold?
As of August 2, 1999, directors, executive officers and their affiliates
own:
. 35.3% of the combined voting power of the outstanding common stock and
the Series A convertible preferred stock; and
. 98.6% of the outstanding Series A convertible preferred stock.
Robert J. Fabbricatore and Spectrum Equity Investors II, L.P. have indicated
their intention to vote in favor of the proposals.
How will the reorganization be treated for accounting purposes?
In accordance with generally accepted accounting principles, we will use the
historical cost basis of the assets and liabilities of CTC Communications and
CTC Group to account for the reorganization. Because CTC Group has only nominal
assets and liabilities, the combination will effectively represent the
historical basis of the assets and liabilities of CTC Communications and the
capital structure of CTC Group.
3
<PAGE>
What rights will I have under Massachusetts law if I vote against the plan of
reorganization?
If you vote against the agreement and plan of reorganization and comply with
the statutory requirements of Massachusetts law, you will be entitled to
receive payment of the fair value of your shares if the reorganization is
completed. A copy of the applicable Massachusetts law is attached to this
document as Appendix B. For more information see "Appraisal Rights of
Dissenting CTC Communications Stockholders."
Our credit facilities prohibit us from making payments to stockholders who
exercise their appraisal rights and demand payment for their stock. If any
stockholders remain entitled to make this demand after the annual meeting, we
may ask our lenders to waive their requirement that we consummate the
reorganization and abandon the reorganization or ask our lenders to permit us
to make any required payments to stockholders. We do not know whether they
would grant either of those requests.
Our Business
We are a rapidly growing single-source provider of voice and data
telecommunications services, or integrated communications provider. We target
predominantly medium and larger-sized business customers who seek greater
capacity for voice and data traffic, a single provider for their
telecommunications requirements and improved levels of service. We are
currently deploying our own state-of-the-art network facilities to carry
telecommunications traffic. In May 1999, we began testing of our network with
some of our customers. By late summer, we expect to begin providing, and
billing for, commercial service to a limited number of customers on our
network. We became an integrated communications provider in January 1998. Prior
to that, we were the largest independent sales agent for NYNEX Corp. (now Bell
Atlantic), based on agency revenues.
Financial Statements
We have not included complete pro forma and comparative financial
information concerning the company that gives effect to the reorganization
because, immediately following the effective time of the reorganization, the
consolidated financial statements of CTC Group will be substantially the same
as CTC Communications' financial statements immediately prior to the
reorganization. Prior to the closing of the reorganization, CTC Group will not
have commenced operations and will have no material assets or liabilities.
4
<PAGE>
Selected Financial Data
The following selected financial data for the five years ended March 31,
1999 are derived from our financial statements which have been audited by Ernst
& Young LLP, independent auditors. You should read the following financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the related notes
incorporated by reference in this document.
All earnings per share and weighted average share information included in
the accompanying financial statements have been restated to reflect the five-
for-four stock split effected in fiscal year ended March 31, 1995, and the
three-for-two stock split and the two-for-one stock split effected in fiscal
year ended March 31, 1996.
<TABLE>
<CAPTION>
Fiscal Year ended March 31,
----------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(dollars in thousands, except per share
information)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Agency revenues...................... $18,898 $25,492 $29,195 $24,775 $ --
Telecommunications revenues.......... 3,038 5,383 11,095 16,172 70,964
------- ------- ------- ------- -------
Total revenues...................... 21,936 30,875 40,290 40,947 70,964
Cost of telecommunications revenue
(excluding depreciation and
amortization)....................... 2,451 4,242 8,709 14,039 61,866
Selling, general and administrative
expenses............................ 16,663 19,349 23,077 29,488 52,521
Depreciation and amortization........ 656 660 743 1,418 3,778
------- ------- ------- ------- -------
Income (loss) from operations........ 2,166 6,624 7,761 (3,998) (47,201)
Net income (loss).................... 1,472 4,094 4,683 (2,498) (51,238)
Earnings (loss) per share
Basic............................... 0.18 0.43 0.49 (.25) (5.18)
Diluted............................. 0.17 0.38 0.43 (.25) (5.18)
Other Financial Data
EBITDA (loss)........................ $ 2,932 $ 7,295 $ 8,519 $(2,405) (43,346)
Capital expenditures................. 599 759 1,222 6,109 36,041
Net cash provided (used) by operating
activities.......................... 1,580 2,192 3,572 (7,951) (33,254)
Net cash used in investing
activities.......................... 599 759 1,222 4,765 6,282
Net cash provided by financing
activities.......................... 171 119 114 8,479 39,622
<CAPTION>
As of March 31,
----------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents............ $ 2,391 $ 3,942 $ 6,406 $ 2,168 $ 2,254
Total assets......................... 7,726 12,509 20,186 30,768 69,482
Total long-term debt, including
current portion..................... -- -- -- 9,673 64,858
Series A redeemable convertible
preferred stock..................... -- -- -- -- 12,672
Stockholders' equity (deficit)....... 5,526 9,495 14,292 11,966 (37,144)
</TABLE>
EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization. We have provided EBITDA because it is a measure of financial
performance commonly used in the telecommunications industry. Other companies
may calculate it differently from us. EBITDA is not a measurement of financial
performance under generally accepted accounting principles, or GAAP. We do not
believe you should consider EBITDA as an alternative to net income (loss) as a
measure of results of operations or to GAAP-based cash flow data as a measure
of liquidity. Capital expenditures consists of additions to property and
equipment acquired for cash or under notes payable and capital leases.
5
<PAGE>
Risk Factors
You should carefully consider all information in this document, especially
the risk factors below, in determining how to vote on the proposals. The risk
factors apply to the business and operations of CTC Communications and will
apply equally to CTC Group after the reorganization because CTC Group's primary
asset will be its ownership of the equity of CTC Communications.
Risk Relating to the Reorganization
If our stockholders exercise appraisal rights or if we do not consummate the
reorganization, we could default under our credit facilities and be unable to
pay those debts.
Stockholders of CTC Communications have appraisal rights under Massachusetts
law described in this document. If any of our stockholders exercise their
appraisal rights, CTC Group would be required by law to pay them the appraised
value of their shares. Our credit facilities require us to consummate the
reorganization but prohibit us from making payments to stockholders who
exercise their appraisal rights. If our lenders do not waive one of these
requirements, we could default under our credit facilities and our lenders
could require us to repay our debt. If this happens, we could need to refinance
that indebtedness, sell assets, delay capital expenditures or sell additional
capital stock or we would be unable to pay those debts.
Risks Relating to an Investment in our Stock
Because our revenues prior to January 1998 resulted from a business strategy
we are no longer pursuing, you may have difficulty evaluating us.
We terminated our agency relationship with Bell Atlantic in December 1998
and we no longer receive agency revenues. We only began offering local services
under our own brand name in January 1998 and have only begun testing our
network with some customers in May of 1999. As a result, we can only provide
limited historical operating and financial information about our current
business strategy for you to evaluate.
If we do not successfully execute our new business strategy, we may be unable
to compete effectively.
Our business strategy is complex and requires that we successfully complete
many tasks, a number of which we must complete simultaneously. If we are unable
to effectively implement or coordinate the implementation of these multiple
tasks, we may be unable to compete effectively in our markets and our financial
results may suffer.
Our incurrence of negative cash flows and operating losses during the next
several years may adversely affect the price of our common stock.
During recent periods we have experienced substantial net losses, operating
losses and negative cash flow. Our expenses have increased significantly, and
we expect our expenses to continue to increase as we deploy our network and
implement our business plan. Accordingly, we expect to incur significant
operating losses, net losses and negative cash flow during the next several
years, which may adversely affect the price of our common stock.
If our network does not function properly, we will be unable to provide the
telecommunications services on which our future performance will in large part
depend.
Because the design of our network has not been widely deployed, we cannot
assure you that our network will provide the functionality that we expect. We
also cannot be sure that we will be able to incorporate local dial tone
capabilities into our network because this technology has not been widely
implemented. Without this
6
<PAGE>
capability we will not be able to provide on our network all of our target
customers' fixed line telecommunications services.
If we do not obtain interconnection agreements with other carriers, we will be
unable to provide enhanced services on our network.
Negotiation of interconnection agreements with incumbent local exchange
carriers can take considerable time, effort and expense, and these agreements
are subject to federal, state and local regulation. We may not be able to
effectively negotiate the necessary interconnection agreements. Without these
interconnection agreements, we will be unable to provide enhanced connectivity
to our network and local dial tone services and to achieve the financial
results we expect.
Because of our limited experience, we may not be able to properly or timely
deploy, operate and maintain our network, which could materially adversely
affect our financial results.
We have engaged a network services integrator to design, engineer and manage
the build out of our network in our existing markets. If the network integrator
is not able to perform these functions, we may experience delays or additional
costs in providing services and building the network. The failure of our
network equipment to operate as anticipated or the inability of equipment
suppliers to timely supply such equipment could materially and adversely affect
our financial results.
We are still deploying the initial phase of our network and not currently
providing any commercial services over our network. Because we have limited
experience operating and maintaining telecommunications networks, we may not be
able to deploy our network properly or do so within the time frame we expect.
In addition, once the network is deployed, we may encounter unanticipated
difficulties in operating and maintaining it. If we do not implement our
network on time and in an effective manner, our financial results could be
adversely affected.
Our high leverage creates financial and operating risk that could limit the
growth of our business.
We have a significant amount of indebtedness. As of March 31, 1999, we had
approximately $64.9 million of total indebtedness outstanding. We expect to
seek substantial additional debt financing to fund our business plan. Our high
leverage could have important consequences to us, including,
. limiting our ability to obtain necessary financing for future working
capital, capital expenditures, debt service requirements or other
purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business;
. placing us at a competitive disadvantage to competitors with less
leverage;
. increasing our vulnerability in the event of a downturn in our business
or the economy generally;
. requiring that we use a substantial portion of our cash flow from
operations for the payment of principal and interest on our indebtedness
and not for other purposes.
We will need to refinance our existing indebtedness when due, and we may be
unable to do so.
We do not expect to generate sufficient cash flow from operations to repay
our existing credit and vendor facilities. We will need to refinance this
indebtedness when it comes due. We cannot assure you that we will be able to
refinance any of our indebtedness on reasonable terms, or at all. If we are
unable to refinance all or some of our indebtedness, we may need to sell
assets, delay capital expenditures or sell additional capital stock. We cannot
assure you that we will be able to do so.
7
<PAGE>
We may be unable to obtain the additional capital we will require to fund our
operations and finance our growth on acceptable terms or at all, which could
cause us to delay or abandon our development and expansion plans.
We will need significant additional capital to fund our business plan. We
cannot assure you that capital will be available to us when we need it or at
all. If we are unable to obtain capital when we need it, we may delay or
abandon our development and expansion plans. That could have a material adverse
effect on our business and financial condition.
Our market is highly competitive, and we may not be able to compete
effectively, especially against established competitors with greater financial
resources and more experience.
We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking,
telephony service and integrated telecommunications service providers. We also
expect that the incumbent local exchange carriers ultimately will be able to
provide the range of services we currently offer. Many of our competitors are
larger and better capitalized than we are, are incumbent providers with long-
standing customer relationships, and have greater name recognition. We may not
be able to compete effectively against our competitors.
Our information systems may not produce accurate and prompt bills which could
cause a loss or delay in the collection of revenue and could adversely affect
our relations with our customers.
We depend on our information systems to bill our customers accurately and
promptly. Because of the deployment of our network and our expansion plans, we
are continuing to upgrade our information systems. Our failure to identify all
of our information and processing needs or to adequately upgrade our
information systems could delay our collection efforts, cause us to lose
revenue and adversely affect our relations with our customers.
We may not receive timely and accurate call data records from our suppliers
which could cause a loss or delay in the collection of revenue and could
adversely affect our relations with our suppliers.
Our billing and collection activities are dependent upon our suppliers
providing us with accurate call data records. If we do not receive accurate
call data records in a timely manner, our collection efforts could suffer and
we could lose revenue. In addition, we pay our suppliers according to our
calculation of the charges based upon invoices and computer tape records
provided by these suppliers. Disputes may arise between us and our suppliers
because these records may not always reflect current rates and volumes. If we
do not pay disputed amounts, a supplier may consider us to be in arrears in our
payments until the amount in dispute is resolved, which could adversely affect
our relations with our suppliers.
We depend on the networks and services of third party providers to serve our
customers and our relationships with our customers could be adversely affected
by failures in those networks and services.
We depend almost entirely on other carriers for the switching and
transmission of our customer traffic. After we complete deploying our network,
we will still rely to some extent on others for switching and transmission of
customer traffic. We cannot be sure that any third party switching or
transmission facilities will be available when needed or on acceptable terms.
Although we can exercise direct control of the customer care and support we
provide, most of the services we currently offer are provided by others. These
services are subject to physical damage, power loss, capacity limitations,
software defects, breaches of security and other factors which may cause
interruptions in service or reduced capacity for our customers. These problems,
although not within our control, could adversely affect customer confidence and
damage our relationships with our customers.
8
<PAGE>
Increases in customer attrition rates could adversely affect our operating
results.
Our customers may not continue to purchase local, long distance, data or
other services from us. Because we have been selling voice and data
telecommunications under our own brand name for a short time, our customer
attrition rate is difficult to evaluate. We could lose customers as a result of
national advertising campaigns, telemarketing programs and customer incentives
provided by major competitors as well as for other reasons not in our control
as well as a result of our own performance. Increases in customer attrition
rates could have a material adverse effect on our results of operations.
We may be unable to effectively manage our growth, which could materially
adversely affect all aspects of our business.
We are pursuing a business plan that will result in rapid growth and
expansion of our operations if we are successful. This rapid growth would place
significant additional demands upon our current management and other resources.
Our success will depend on our ability to manage our growth. To accomplish this
we will have to train, motivate and manage an increasing number of employees.
Our failure to manage growth effectively could have a material adverse effect
on our business, results of operations and financial condition.
We may be unable to retain or replace our senior management or hire and retain
other highly skilled personnel upon which our success will depend.
We believe that our continued success will depend upon the abilities and
continued efforts of our management, particularly members of our senior
management team. The loss of the services of any of these individuals could
have a material adverse effect on our business, results of operations and
financial condition. Our success will also depend upon our ability to identify,
hire and retain additional highly skilled sales, service and technical
personnel. Demand for qualified personnel with telecommunications experience is
high and competition for their services is intense. If we cannot attract and
retain the additional employees we need, we will be unable to successfully
implement our business strategy.
Changes to the regulations applicable to our business could increase our costs
and limit our operations.
We are subject to federal, state, and local regulation of our local, long
distance, and data services. The outcome of the various administrative
proceedings at the federal and state level and litigation in federal and state
courts relating to this regulation, as well as federal and state legislation
may increase our costs, increase competition and limit our operations.
Rapid technological changes in the telecommunications industry could render our
services or network obsolete faster than we expect or require us to spend more
than we currently anticipate.
The telecommunications industry is subject to rapid and significant changes
in technology. Any changes could render our services or network obsolete,
require us to spend than we anticipate or have a material adverse effect on our
operating results and financial condition. Advances in technology could also
lead to more entities becoming our direct competitors. Because of this rapid
change, our long-term success will increasingly depend on our ability to offer
advanced services and to anticipate or adapt to these changes, such as evolving
industry standards. We cannot be sure that:
. we will be able to offer the services our customers require;
. our services will not be economically or technically outmoded by current
or future competitive technologies;
. our network or our information systems will not become obsolete;
. we will have sufficient resources to develop or acquire new technologies
or introduce new services that we need to effectively compete; or
. our cost of providing service will decline as rapidly as the costs of our
competitors.
9
<PAGE>
Our systems and network, and the systems of our suppliers, may not properly
process date information after December 31, 1999, which could increase our
costs, disrupt our business and adversely affect our relations with our
customers.
Failure of our systems and network to adequately process year 2000
information could cause miscalculations or system failures that could affect
our operations. We cannot assure you that we have successfully identified all
year 2000 problems with our information systems and network. We also cannot
assure you that we will be able to implement any necessary corrective actions
in a timely manner. If we or the companies that provide us services or with
whom our systems interconnect fail to successfully identify and remediate year
2000 problems, our service and operations may be disrupted. These problems
could increase our costs and adversely affect our relations with our customers
and business.
We may pursue acquisitions which could disrupt our business and may not yield
the benefits we expect.
We may pursue strategic acquisitions as we expand. Acquisitions may disrupt
our business because we may:
. experience difficulties integrating acquired operations and personnel
into our operations;
. divert resources and management time;
. be unable to maintain uniform standards, controls, procedures and
policies
. enter markets or businesses in which we have little or no experience; and
. find that the acquired business does not perform as we expected.
Our existing principal stockholders, executive officers and directors control
a substantial amount of our voting shares and will be able to significantly
influence any matter requiring shareholder approval.
As of August 2, 1999, our officers and directors and parties related to
them control approximately 35% of the voting power of our outstanding capital
stock. Robert J. Fabbricatore, our Chairman and Chief Executive Officer,
controls approximately 18% of our voting power. Therefore, the officers and
directors are able to significantly influence any matter requiring shareholder
approval. In addition, Mr. Fabbricatore and some of his affiliates have agreed
to vote shares they control to elect to our board up to two persons designated
by the holders of a majority of our Series A preferred stock.
Fluctuations in our operating results could adversely affect the price of our
common stock.
Our annual and quarterly revenue and results could fluctuate as a result of
a number of factors, including:
. variations in the rate of timing of customer orders,
. variations in our provisioning of new customer services,
. the speed at which we expand our network and market presence,
. the rate at which customers cancel services, or churn,
. costs of third party services purchased by us, and
. competitive factors, including pricing and demand for competing services.
Also, our revenue and results may not meet the expectations of securities
analysts and our stockholders. As a result of fluctuations or a failure to
meet expectations, the price of our common stock could be materially adversely
affected.
Our stock price is likely to be volatile.
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and telecommunications
companies in particular, has experienced extreme volatility. This
10
<PAGE>
volatility has often been unrelated to the operating performance of particular
companies. Other factors that could cause the market price of our common stock
to fluctuate substantially include:
. announcements of developments related to our business, or that of our
competitors, our industry group or our customers;
. fluctuations in our results of operations;
. hiring or departure of key personnel;
. a shortfall in our results compared to analysts' expectations and changes
in analysts' recommendations or projections;
. sales of substantial amounts of our equity securities into the
marketplace;
. regulatory developments affecting the telecommunications industry or data
services; and
. general conditions in the telecommunications industry or the economy as a
whole.
The market price of our common stock could be depressed by the substantial
number of our shares that are eligible for future sale.
After the reorganization is completed, all of our outstanding common shares
will be freely tradeable in the public market, subject to compliance with Rules
144 and 145 under the Securities Act. The market price of our common stock
could drop due to sales of a large number of shares or the perception that such
sales might occur. These factors could also make it more difficult to raise
funds through future offerings of common stock.
We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock.
The telecommunications industry has experienced significant consolidation in
recent years. However, provisions of CTC Group's certificate of incorporation
and bylaws and the provisions of Delaware law could make it more difficult for
a third party to acquire control of CTC Group even if a change in control would
be beneficial to our stockholders. These provisions may negatively affect the
price of our common stock and may discourage third parties from bidding for CTC
Group. In addition, our board of directors may issue, without stockholder
approval, shares of preferred stock with terms set by the board. In addition to
delaying or preventing an acquisition, the issuance of a substantial number of
preferred shares could depress the price of the common stock.
The forward looking statements we make in this document are inherently
uncertain.
Certain statements about us and our industry under the captions "Summary,"
"Risk Factors," and elsewhere in this document and incorporated by reference
into this document are "forward-looking statements." These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions and other statements in
this document that are not historical facts. When we use the words "estimate,"
"project," "believe," "anticipate," "intend," "plan," "expect" and similar
expressions in this document, we generally intend to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, including those described in this "Risk Factors" section, actual
results could differ materially from those expressed or implied by these
forward-looking statements. We caution you not to place undue reliance on these
forward-looking statements. These forward-looking statements speak only as of
the date of this document or the document from which they are incorporated. We
do not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect new information, future events or
otherwise.
11
<PAGE>
Information About the Annual Meeting
Time and Place of Meeting
We have furnished this document to you to solicit your proxy for use at the
annual meeting of stockholders to be held on September 16, 1999 at 9:30 a.m.,
and at all adjournments thereof.
We will hold the meeting at the principal executive offices of CTC
Communications, located at 220 Bear Hill Road, Waltham, Massachusetts 02451
(781-466-8080).
At the meeting, the persons named in the enclosed proxy will vote all
proxies received in time and not revoked in accordance with the instructions
indicated on the proxies. If no instructions are indicated on a properly
executed proxy, the shares represented by that proxy will be voted to approve
the proposals. You may revoke your proxy at any time before your shares are
voted by filing a later dated proxy with CTC Communications, by attending the
meeting and voting in person, or by notifying CTC Communications of the
revocation in a later dated writing to its Clerk at 220 Bear Hill Road,
Waltham, MA 02451.
Voting Rights and Vote Required
The close of business on August 2, 1999 is the record date for the annual
meeting. As of the record date, August 2, 1999, CTC Communications had
13,907,704 shares of common stock and 666,666 shares of Series A convertible
preferred stock outstanding and entitled to vote. Each outstanding share of
common stock entitles the record holder to one vote. As of the record date,
each holder of Series A convertible preferred stock is entitled to 2.45 votes
per share.
Holders of a majority interest of all of the common stock and Series A
preferred stock issued, outstanding and entitled to vote on the record date
must be present at the meeting, either in person or by proxy, to establish a
quorum. Proxies that we receive that are marked "withhold" or "abstain" will be
considered present at the meeting for purposes of establishing a quorum. In the
absence of a quorum, the annual meeting may be adjourned from time to time
until the necessary stockholders are present.
The holders of the common stock and Series A preferred stock will vote
together as a single class for the election of directors, approval of the
amendment to the 1998 Incentive Plan, approval of the outside directors' equity
incentive plan and the approval of the plan of reorganization. The holders of
Series A preferred stock will also vote separately for the approval of the plan
of reorganization.
For the election of directors, the nominees who receive the most votes will
be elected no matter how many votes are cast. Therefore, if you do not vote for
a particular nominee, or if you withhold authority for one or all of the
nominees, your vote will not count either for or against the nominee.
For the approval of the amendment to the 1998 Incentive Plan and the
approval of the outside directors' equity incentive plan, the required vote is
a majority of the shares of common stock present, in person or by proxy, and
voting on the matter. Therefore, if you abstain or otherwise do not vote on
this proposal, it will not have any effect on the outcome of the voting.
For the approval of the reorganization the required vote is:
. the affirmative vote of two-thirds of the voting power of the shares of
CTC Communications common stock and Series A preferred stock entitled to
vote, voting together as a single class; and
. the affirmative vote of two-thirds of the shares of CTC Communications
Series A convertible preferred stock entitled to vote, voting separately.
Therefore, if you abstain or otherwise do not vote on this proposal, it will
have the effect of a vote against the proposal.
12
<PAGE>
Votes cast by proxy or in person at the annual meeting will be counted by
persons appointed by us who will act as election inspectors for the meeting.
The election inspectors will count the total number of votes cast "for" the
approval of the proposals for purposes of determining whether sufficient
affirmative votes have been cast. The election inspectors will count shares
that reflect abstentions and "broker non-votes" as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. "Broker non-votes" are shares represented at the meeting held by
brokers or nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does
not have the discretionary voting power on a particular matter. Abstentions and
broker non-votes have the effect of votes cast against the reorganization
proposal. Neither abstentions nor broker non-votes have any effect on the
outcome of voting on any of the other proposals.
Appraisal Rights of Dissenting CTC Communications Stockholders
Appendix B is a copy of these rights as set forth in Sections 86 through 98
of Chapter 156B of the General Laws of Massachusetts. Dissenter's rights
entitle shareholders to demand payment for their shares instead of
participating in the reorganization.
In accordance with Section 87 of Chapter 156B of the General Laws of
Massachusetts, we advise you: if the action proposed is approved by the
stockholders at the meeting and effected by the corporation, any stockholder
(1) who files with the corporation before the taking of the vote on the
approval of such action, written objection to the proposed action stating that
he intends to demand payment for his shares if the action is taken and (2)
whose shares are not voted in favor of such action has or may have the right to
demand in writing from CTC Communications, within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts.
If you have made your demand for appraisal rights in a timely manner, we
will be required to pay you the fair market value of your shares within 30 days
after the expiration of the 20-day period referenced above. If during the 30-
day period we do not come to agreement as to the fair value of the shares,
either you or we may, within four months after the end of the 30-day period,
have the fair value of stock of all dissenting stockholders determined by
judicial proceedings by filing a bill in equity in the Superior Court in
Middlesex County, Massachusetts. For the purposes of the Superior Court's
determination, the value of the shares of CTC Communications would be
determined as of the date preceding the date of the vote of the stockholders
approving the proposal and would be exclusive of any element of value arising
from the expectation or accomplishment of the reorganization. Upon making
written demand for payment, you will no longer be entitled to notices of
meetings of stockholders, to vote, or to dividends unless no suit is filed
within four months to determine the value of the stock, any suit is dismissed
as to you, or you, with our written approval withdraw your objection in
writing.
The enforcement of your appraisal rights as set forth in Sections 85 through
98 of Chapter 156B of the Massachusetts General Laws is an exclusive remedy
except for your right to bring a proceeding to obtain relief on the ground that
the merger will be or is illegal or fraudulent as to you.
The provisions of Sections 85 through 98 of Chapter 156B of the
Massachusetts General Laws are technical in nature and are complex. If you
would like to exercise your appraisal rights, you should consult legal counsel
for assistance since your failure to comply strictly with any of the provisions
may nullify your rights.
Our credit facilities would prohibit us from making payments to stockholders
who exercise their appraisal rights to demand payment for their stock. See the
section entitled "If our stockholders exercise appraisal rights or if we do not
consummate the reorganization, we could default under our credit facilities and
be unable to pay those debts" under "Risk Factors."
13
<PAGE>
Proposal Number One:
Election of Directors
Our bylaws provide that our board of directors must consist of not less than
three nor more than eleven members. Our bylaws also provide that the board of
directors is classified into three classes, as nearly as equal in number as
possible, so that each director serves for three years and until their
successors are duly elected and qualified, and one class of directors will be
elected each year. We currently have ten members on our board of directors:
three Class I Directors (Messrs. Hermann, Sillari and Redfield), three Class II
Directors (Messrs. Murphy and Santagati and Ms. Courage) and four Class III
Directors (Messrs. Fabbricatore, Maroni, Nicholson and Troupe). The terms of
the Class I, Class II and Class III Directors expire upon the election and
qualification of their successors at the annual meetings of stockholders held
following the end of fiscal years 2001, 2002 and 2000, respectively.
Messrs. Murphy and Santagati and Ms. Courage have been nominated to stand
for re-election as Class II Directors at this meeting to hold office until 2002
and until their respective successors are elected and qualified. The persons
named in the enclosed proxy intend to vote all shares represented by a proxy
which has been properly executed, returned and not revoked for the election of
each of J. Richard Murphy, Richard J. Santagati and Katherine D. Courage as
Class II Directors for a three-year term unless you specify otherwise in the
proxy. We expect that each nominee will be able to serve, but if any of the
nominees is unable to serve, all proxies may be voted for a substitute nominee
designated by the board of directors. These nominees experience and
qualifications and summarized below:
Katherine D. Courage is a managing director in the Global Telecommunications
and Media Group in the Investment Banking Department of Credit Suisse First
Boston, one of the underwriters of the offering. Prior to joining Credit Suisse
First Boston in September 1996, Ms. Courage worked at Salomon Brothers Inc for
ten years where she was a managing director in the Global Telecommunications
Group. Ms. Courage also worked at Merrill Lynch & Co. in the corporate finance
department. Ms. Courage currently serves as a director of NorthEast Optic
Network, Inc. and Lightpath Technologies, Inc.
J. Richard Murphy has been a managing director of Baldwin & Clarke Corporate
Finance, Inc., a Bedford, New Hampshire investment banking firm, since August
2, 1999. Mr. Murphy was the director of the Corporate Advisory Group of Moody,
Cavanaugh and Company, LLP, a North Andover, Massachusetts public accounting
firm, from April 1996 to August 1999. Mr. Murphy was an officer, director and
principal stockholder from 1990 to 1995 of Arlington Data Corporation, a
systems integration company located in Amesbury, Massachusetts; from 1992 to
1996 of Arlington Data Consultants, Inc., a company engaged in the installation
and maintenance of computer systems and hardware; and from 1994 to 1996 of
Computer Emporium, Inc., a company engaged in processing parking violations for
municipalities. In June 1996, Arlington Data Corporation filed for bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code.
Richard J. Santagati has been the President of Merrimack College in North
Andover, Massachusetts since 1994. Mr. Santagati also serves as a director of
Celerity Solutions, Inc., a software company.
Recommendation:
Our board of directors recommends that you vote "FOR" the election of each
nominee named above.
14
<PAGE>
Proposal Number Two:
Approval of Amendment to the 1998 Incentive Plan
Proposal
Our board of directors has adopted an amendment to our 1998 Incentive Plan
to increase the number of shares of common stock issuable under the plan from
1,500,000 shares to 2,250,000 shares. The proposed amendment is subject to
shareholder approval.
We believe that the Incentive Plan is serving its purpose in helping to
attract, retain and reward persons who can make significant contributions to
our success, and in strengthening the commonality of interest between these
persons and our shareholders. To continue to meet these objectives, we believe
that we need to have additional shares available for awards under the plan.
On July 29, 1999, the last sale price quoted on the Nasdaq National Market
of a share of the our common stock was $17.56 per share.
We have not yet made any determination as to (i) which individuals may in
the future receive options or rights under the amended Incentive Plan, (ii) the
number of shares to be covered by any options or rights granted to any single
individual, or (iii) the number of individuals to whom options or rights will
be granted. We will use the proceeds we receive from the sale of stock pursuant
to the plan for general purposes, or in the case of the receipt of payment in
shares of common stock, as the board of directors may determine, including
redelivery of the shares received upon exercise of options.
Summary of the Incentive Plan
The following is a summary of the key features of the Incentive Plan.
Administration. The administrator of the Incentive Plan will be the board of
directors or one or more committees, which in the case of awards granted to our
officers will be comprised solely of two or more outside directors (within the
meaning of Section 162(m) of the Internal Revenue Code). Subject to the terms
of the plan, the administrator has authority to interpret the plan and to set
or change the terms of any award.
Eligibility and Participation. In general, the administrator will select
participants in the plan from among our key employees who, in the opinion of
the administrator, are in a position to make a significant contribution to our
success. As of July 15, 1999, we employed approximately 396 people. The
administrator also has discretion to include as participants in the plan
members of our board of directors and other persons who provide services to us
or our affiliates. The maximum number of shares for which stock options may be
granted to any person in any calendar year, and the aggregate maximum number of
shares of common stock which may be delivered to any person pursuant to awards
that are not stock options or stock appreciation rights are each limited to
1,000,000. In addition, no more than $1 million may be paid to any individual
with respect to any single cash performance-based bonus, and no more than $1
million in cash performance-based bonuses may be paid to any individual with
respect to performance periods ending in the same fiscal year. No award of an
incentive stock option, as described below, may be granted under the plan after
November 16, 2008, but incentive stock options previously granted may extend
beyond that date.
Types of Awards. The plan provides for awards of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock,
unrestricted stock, deferred stock grants, performance awards, cash bonuses,
loans and combinations of the above.
Stock Options. The plan authorizes the administrator to grant incentive
stock options and non-qualified stock options. The difference between the two
types of options is that incentive stock options are intended to qualify for
special beneficial tax treatment, described below, and therefore must meet
requirements
15
<PAGE>
imposed by federal tax laws. Under the plan, the exercise price of incentive
stock options granted under the plan must be at least 100% of the fair market
value of our common stock at the time of the grant, and the exercise price of
incentive stock options granted to our 10% stockholders must be at least 110%
of the fair market value of our common stock at the time of grant. The
administrator may set any exercise price for non-qualified stock options
granted under the plan. The administrator may set the terms and vesting for
both types of options, so long as the term does not exceed ten years. Option
holders may make payment for the option price by cash or check or, subject to
the administrator's approval, by tendering shares of common stock, by using a
promissory note, by giving a broker's unconditional and irrevocable undertaking
to pay the exercise price, or by a combination of the above.
Stock Appreciation Rights. A stock appreciation right entitles the holder on
exercise to receive an amount of cash or stock based on the appreciation in the
fair market value of a share of stock measured from the date of the grant to
the date of exercise, or any other performance standard set by the
administrator. The administrator may grant stock appreciation rights alone or
together with stock options. Stock appreciation will be exercisable at such
time, and on such conditions, as the administrator may specify.
Stock Awards. The plan provides for awards of nontransferable shares of
restricted common stock that are subject to forfeiture as well as of
unrestricted shares of common stock. The administrator may specify a purchase
price for such stock awards. Restricted securities will become freely
transferable upon the completion of the restricted period set by the
administrator and satisfaction of any conditions to vesting. The administrator,
in its sole discretion, may waive all or part of the restrictions and
conditions at any time.
The plan also provides for deferred stock grants entitling the recipient to
receive future shares of common stock, at times and on conditions specified by
the administrator. It also provides for performance awards entitling the
recipient to receive cash or common stock following the attainment of
performance goals. Performance conditions and provisions for deferred stock may
also attach to other awards under the restated equity incentive plan.
Other Awards. The plan allows for loans in connection either with the
purchase of common stock under an award or with the payment of any federal,
state and local tax for income recognized as a result of an award. The
administrator will determine the terms of any loan, including the interest
rate, which may be zero. In connection with any award, the administrator may
also grant a cash award to offset federal, state and local income taxes.
General. Except as provided by the administrator, if a participant dies, the
participant's executor, administrator or transferee may exercise the
participant's exercisable options and stock appreciation rights for one year,
or for the remainder of their original term, if less. Options and stock
appreciation rights not exercisable at a participant's death terminate.
Except as otherwise determined by the administrator, when a participant
leaves CTC his or her options and stock appreciation rights will remain
exercisable for three months or the remainder of their original term, if less,
to the extent they were exercisable immediately prior to leaving. If not
exercisable immediately prior to leaving, the participant's options and stock
appreciation rights will terminate. The administrator may terminate all of a
participant's options and stock appreciation rights immediately if the
participant is terminated for cause, which, in the administrator's opinion,
casts such discredit upon the participant to justify immediate termination of
such awards.
Subject to the terms of the plan, CTC retains the right at any time, with
the award holder's consent, to extinguish rights under an award in exchange for
payment in cash, common stock or other property on such terms as the
administrator determines. Except as the administrator otherwise provides,
awards may not be transferred other than by will or by the laws of descent and
distribution.
In the event of a consolidation or merger in which CTC is not the survivor
or which results in the acquisition of substantially all CTC's outstanding
common stock by a single person or entity or by a group of
16
<PAGE>
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of CTC, all outstanding awards will vest and become exercisable
immediately prior to the covered transaction. Upon the consummation of such
covered transaction, all awards outstanding and requiring exercise will be
forfeited unless assumed by an acquiring or surviving entity.
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in our capital structure, the administrator
will make appropriate adjustments to the maximum number of shares that may be
delivered under the plan to the maximum share limits under the plan, to the
number and kind of securities subject to awards, to any exercise prices, and to
any other provision affected by such change. Subject to the plan, the
administrator also may make other adjustments to take into account other
distributions or events.
Certain Federal Income Tax Consequences
In general, an optionee realizes no taxable income and we receive no
deductions upon the grant of a stock option under the plan. The character of
the stock option determines the tax consequences associated with the exercise
of a stock option or the disposition of shares acquired upon exercise. In
general, no taxable income for regular income tax purposes or deductions to CTC
result from an incentive stock option exercise. If the optionee disposes the
shares after two years from the date of grant or one year after exercise, the
optionee realizes a long-term capital gain or loss upon a subsequent sale, and
we receive no deduction. If an optionee disposes of shares purchased under an
incentive stock option within these one- and two-year holding periods, the
optionee realizes ordinary income equal, in general, to the option spread at
time of exercise, and we receive a corresponding deduction.
In general, on the exercise of a non-qualified stock option an optionee
realizes ordinary income equal to the option spread, and we receive a
corresponding deduction. Upon a subsequent sale of the shares, an optionee
recognizes a capital gain or loss for which we receive no deduction. In
general, the plan treats an incentive stock option exercised more than three
months after termination of employment as a non-qualified stock option. The
plan also treats incentive stock options as non-qualified stock options to the
extent they first become exercisable by an individual in any calendar year for
shares having a fair market value in excess of $100,000, determined at the date
of grant.
For shares subject to a substantial risk of forfeiture, special tax rules
may defer the recognition or measurement of income associated with the exercise
of stock options under the restated equity incentive plan, or the disposition
of shares acquired upon exercise.
Under Section 162(m) of the Internal Revenue Code, CTC may not deduct more
than $1 million for payments made to any of its five highest paid executive
officers. However, no limits restrict other forms of employee compensation,
including performance-based compensation. We intend incentive stock options and
non-qualified stock options awarded under the plan, if granted with an exercise
price at least equal to the fair market value of the common stock on the date
of grant, to qualify for the performance-based exception from the $1 million
deduction limitation.
Under the so-called "golden parachute" provisions of the Internal Revenue
Code, we may have to value and take into account the vesting or accelerated
exercisability of stock options in connection with a change in control of CTC
in determining whether participants received compensatory payments, contingent
on the change in control that exceed limits set by the tax laws. If
compensatory payments exceed these limits, a substantial portion of amounts
payable to the participant, including payments taken into account by reason of
the grant, vesting or exercise of options under the plan, may be subject to
additional federal tax and may be nondeductible to CTC.
Recommendation:
Our board of directors recommends that you vote "FOR" the approval of the
proposed amendment to the 1998 Incentive Plan.
17
<PAGE>
Proposal Number Three:
Approval of 1999 Equity Incentive Plan for Non-Employee Directors
Proposal
Our board of directors has adopted the 1999 Equity Incentive Plan for Non-
Employee Directors. This plan is designed to advance our interest by enhancing
our ability to attract and retain non-employee directors who are in a position
to make significant contributions to our success and to align the interest of
those directors more closely with our stockholders. The board of directors
adopted the plan to align the equity compensation of the board with that of
comparable companies, to permit each eligible director to elect to receive his
or her directors fees in stock instead of cash and to take advantage of
additional flexibility provided by revised federal regulation. The proposed
plan is subject to shareholder approval.
Description of the 1999 Directors Plan
The following is only a summary of the 1999 Directors Plan, which appears as
Appendix C to this Proxy Statement. You should review the full text of the
plan. The administrator of the plan will be the compensation committee or other
committee of the board of directors designated by the board for that purpose.
At each annual meeting at which an eligible director is reelected or is
continuing as a director, including this annual meeting, he or she will be
granted an option to purchase 10,000 shares of common stock. The options
described in this paragraph are referred to as formula options. These formula
options will have an exercise price of 100% of the fair market value of the
common stock on the day before the date of the grant. The formula options are
exercisable five years after the date of grant. Eligible directors are those
directors who are not our employees and currently include all directors except
Robert J. Fabbricatore.
In addition to formula options, the administrator also has the authority to
award options to eligible directors in amounts and on terms as it determines.
These options are referred to as discretionary options. The exercise price of
discretionary options will be set by the administrator and will become
exercisable and expire as the administrator determines, but no options will
expire later than 10 years from the date of grant.
The exercise price of any option granted under the plan may be paid in cash
or check, bank draft or money order, by tendering shares of common stock having
a fair market value equal to the exercise price, by delivering an undertaking
by a broker to deliver promptly sufficient funds to pay the exercise price or
by any combination of the foregoing. At the request of an option holder, and if
the market price of the shares of common stock subject to an option exceeds the
exercise price of the option at the time of exercise, the administrator may, in
its sole discretion, cancel the option and cause CTC to pay to the person
exercising the option in cash or common stock an amount equal to the difference
between the fair market value of the stock which would have been purchased
pursuant to the option and the aggregate exercise price which would have been
paid. Each option will be non-transferable except by will or the laws of
descent and distribution.
If a director dies, or otherwise ceases to be a director, all options not
then exercisable will immediately terminate, unless the board of directors
otherwise determines. Any exercisable options will remain exercisable for a
period of one year following death or three months following other termination
of the individual's status as a director, but in no event beyond the fifth
anniversary of the date of grant in the case of formula options and beyond the
tenth anniversary of the date of the grant in the case of discretionary
options. Upon a merger or consolidation, which results in a 50% change in
ownership, a transfer of all or substantially all of our assets, or a
dissolution or liquidation of CTC, all options not then exercisable will become
exercisable and all unexercised options will terminate upon the consummation of
the transaction. However, in lieu of termination, the board of directors may
cause the acquiring or surviving corporation to assume all options outstanding
under the plan or provide replacement options for on substantially the same
terms, with any necessary adjustments.
In addition to the option grants, the plan allows each eligible director to
elect annually in advance to receive his or her fees in the form of deferred
grants of common stock, rather than cash, payable on the earlier
18
<PAGE>
of (i) the first business day of the third January following the date of grant,
(ii) a change of control of CTC or (iii) the date the eligible director ceases
to be a director. Each eligible director will receive a deferred stock award in
lieu of any annual retainer fee to which such eligible director may be entitled
and a deferred stock award in lieu of any fees to which such eligible director
may be entitled with respect to any meeting of the board of directors or any
committee thereof. The number of shares of common stock subject to a deferred
stock award will be that number of shares of common stock the fair market value
of which is equal, in the case of annual fees, to the amount of the annual fee
on the first business day of the calendar year for which the annual fee is
payable, and in the case of meeting fees, to the amount of the meeting fee on
the day before the date of meeting for which the meeting fee is payable.
A total of 200,000 shares of common stock has been reserved for issuance
under this plan, subject to adjustment for stock splits and similar events.
Certain Federal Income Tax Consequences
For federal income tax purposes, options under the this plan are treated as
non-qualified stock options. The tax consequences associated with the grant and
exercise of such options are similar to those described above for non-qualified
stock options under "Approval of Amendment to the 1998 Incentive Plan--Certain
Federal Income Tax Consequences."
Recommendation:
Our board of directors recommends that you vote "FOR" approval of the 1999
Equity Incentive Plan for Non-Employee Directors.
19
<PAGE>
Proposal Number Four:
The Reorganization
Your approval of the reorganization will constitute approval of the
agreement and plan of reorganization, the certificate of incorporation of CTC
Group and the bylaws of CTC Group.
Proposed Reorganization
The board of directors of CTC Communications has approved the agreement and
plan of reorganization to permit the reorganization of the corporate structure
of CTC Communications and recommends that the stockholders of CTC
Communications also approve it. The reorganization will result in CTC
Communications becoming a wholly-owned Massachusetts subsidiary of the Delaware
holding company, CTC Group.
Reasons for the Reorganization
Requirement under our Credit Facility
In September 1998, CTC Communications entered into a $75 million loan and
security agreement with Goldman Sachs Partners L.P. and Fleet National Bank. In
this agreement, CTC Communications agreed to restructure the company as a
Delaware holding company. The lenders under this facility have extended the
date by which we must obtain stockholder approval until September 30, 1999.
Following the reorganization, CTC Group is required to pledge the shares of its
subsidiary, CTC Communications, to the lenders as collateral for the loan. If
we do not obtain stockholder approval of the reorganization before September
30, 1999, we will be in default under this facility and the lenders could
require us to repay our loans.
Predictability, Flexibility and Responsiveness to Corporate Needs.
For many years, Delaware has followed a policy of encouraging incorporation
in that state and has adopted comprehensive, modern and flexible corporate laws
which are updated and revised to meet changing business needs. As a result of
this deliberate policy to provide a hospitable climate for corporate
development, many major corporations have chosen Delaware for their domicile.
In addition, the Delaware courts have developed considerable expertise in
dealing with corporate issues. A substantial body of case law has developed
construing Delaware corporations law and establishing specific legal principles
and policies regarding Delaware corporations. This provides greater legal
predictability with respect to the corporate legal affairs of Delaware
corporations than other jurisdictions such as Massachusetts, our current state
of incorporation. We believe that Delaware will continue its leadership
position in the development of corporate law in the United States, and that the
Delaware legislature will continue to ensure that Delaware corporate law is up
to date and flexible. We believe that as a result Delaware law will provide
greater efficiency, predictability and flexibility in our legal affairs than is
presently available under Massachusetts law.
Directors and Officers.
We believe that organizing a holding company under Delaware law will enhance
our ability to attract and retain qualified directors and officers. The
corporate law of Delaware offers directors and officers more certainty and
stability. Under Delaware law the parameters of director and officer liability
are more clearly defined and better understood than under Massachusetts law. To
date, we have not experienced difficulty in retaining directors or officers,
but directors of public companies are exposed to significant potential
liability and are paid relatively little. Thus, we believe that providing the
benefits afforded directors by Delaware law will enable us to compete more
effectively with other public companies in the recruitment of talented and
experienced directors and officers.
We believe Delaware law provides appropriate protection for stockholders
from possible abuses by directors and officers. Under Delaware law, directors'
personal liability cannot be eliminated for
20
<PAGE>
. any breach of the director's duty of loyalty to the corporation or its
stockholders,
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. unlawful payment of dividends or unlawful repurchases or redemptions of
stock, or
. any transactions from which the director derived an improper personal
benefit.
Takeover Response.
In general, Delaware case law provides a well developed body of law defining
the proper duties and decision making process expected of a board of directors
in evaluating potential and proposed corporate takeover offers and business
combinations. We believe that this will provide our directors with better
guidance if they are faced with a hostile takeover attempt.
Also, we may consider adopting measures designed to protect stockholder
interests in the event of a hostile takeover attempt. Such anti-takeover
measures have not been as fully tested in the Massachusetts courts as in the
Delaware courts. As a result, Delaware law affords greater certainty that any
such measures would be interpreted, sustained and applied in accordance with
the intentions of the board. We believe that such anti-takeover measures and
related Delaware law could help us to protect our corporate strategies, to
consider fully any proposed takeover and alternatives, and, if appropriate, to
negotiate terms that maximize the benefit to our stockholders.
Financing Flexibility.
In addition to the benefits that Delaware law affords, we believe that a
holding company structure will be beneficial to stockholders because it will
provide the Company with more flexibility in structuring financing
arrangements. For example, in a holding company structure, we could issue debt
at the operating company level that would be structurally senior to debt at the
holding company level. Many financial institutions prefer this structural
subordination over the subordination provided solely by contract.
Reorganization Procedure
The reorganization involves two steps. First, we incorporated two new
corporations in the state of Delaware. We organized CTC Communications Group,
Inc. as a holding company and CTC-Newco as its wholly-owned subsidiary. Neither
of these companies have any business. Pursuant to the plan of reorganization,
CTC-Newco will merge into CTC Communications. CTC Communications will survive
the merger as a wholly-owned Massachusetts subsidiary of CTC Communications
Group, Inc.
On the effective date of the reorganization, each outstanding share of
common stock and Series A convertible preferred stock of CTC Communications
will automatically convert into one share of common stock and one share of
Series A convertible preferred stock of CTC Group. Stockholders of CTC
Communications will automatically become stockholders of CTC Group. Assuming
that no stockholder exercises his or her appraisal rights, the same number of
shares of CTC Group will be outstanding immediately after the reorganization as
there were outstanding shares of CTC Communications immediately before. In
addition, on exercise of any outstanding option, warrant or right to acquire
shares of common stock of CTC Communications, the holders of those options,
warrants or rights will be entitled to receive an equal number of shares of
common stock of CTC Group, under the same terms as the original options,
warrants or rights. All of CTC Communications' employee benefit plans,
including the 1993 Employee Stock Option Plan, the 1996 Employee Stock Option
Plan, the Employee Stock Purchase Plan, the Employee Stock Benefit Plan, the
401(k) Savings Plan, and the 1998 Incentive Plan, will be adopted and continued
by CTC Group following the reorganization. If approved, the Directors Plan will
be adopted and confirmed by CTC Group following the reorganization. Your
approval of the proposed reorganization will constitute approval of the
adoption and assumption of those plans by CTC Group.
21
<PAGE>
You do not need to take any action to exchange your stock certificates. Do
not turn in your stock certificates. Certificates for shares of CTC
Communications' stock will automatically represent an equal number of shares of
CTC Group stock upon completion of the reorganization.
Capitalization of the Delaware Holding Company
CTC Communications is authorized to issue up to 25,000,000 shares of common
stock, and up to 1,000,000 shares of preferred stock. 13,907,704 shares of
common stock and 666,666 shares of Series A convertible preferred stock are
outstanding as of August 2, 1999. In addition, options to purchase 3,639,018
shares of our common stock and warrants to purchase 988,071 shares of common
stock were outstanding on August 2, 1999.
CTC Group is authorized to issue up to 100,000,000 shares of common stock
and 10,000,000 shares of preferred stock. CTC Group's authorized capital is
significantly greater than that of CTC Communications.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. After the payment of any
required preferential amounts to the holders of any outstanding preferred
stock, holders of common stock are entitled to receive dividends that may be
declared by the board of directors. In the event of the liquidation,
dissolution or winding up of CTC Communications, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the payment of any required preferential amounts to the holders of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock.
We have no plans to approve future issuances of additional shares of common
stock of CTC Group other than the shares reserved for issuance upon exercise of
stock options or warrants and other than pursuant to our 1998 Incentive Plan
and our outside directors' equity incentive plan. However, we have authorized a
larger number of shares of common stock of CTC Group so that we have shares
available to provide us with additional business and financing flexibility in
the future. The board may use the additional shares without further stockholder
approval to, among other things
. issue additional dividends in the form of stock splits,
. raise capital,
. provide equity incentives to employees, officers or directors,
. establish strategic relationships with other companies, and
. expand CTC Communications' business or product lines through the
acquisition of other businesses.
We could also use the additional shares of common stock to oppose a hostile
takeover attempt or delay or prevent changes in control of our management. For
example, without further stockholder approval, we could strategically sell
shares of common stock in a private transaction to purchasers who would oppose
a takeover or favor the current board. Although this proposal to increase the
authorized common stock has been prompted by business and financial
considerations and not by the threat of any hostile takeover attempt, you
should be aware that approval of this proposal could facilitate future efforts
by CTC Communications to deter or prevent changes in control, including
transactions in which you might otherwise receive a premium for your shares
over then current market prices.
Preferred Stock
Each share of our Series A convertible preferred stock accrues a dividend in
an amount equal to an annual rate of 9% of the $18.00 per share purchase price
per annum compounding every six months. This dividend is
22
<PAGE>
payable upon redemption, liquidation or conversion of the Series A convertible
preferred stock. The holders of a majority of the Series A preferred stock may
elect to cause us to redeem the Series A convertible preferred stock after
April 9, 2003. Upon any liquidation, dissolution or winding up of CTC
Communications, holders of the Series A convertible preferred stock will be
entitled to receive the payment of a preferential amount, before any
distribution or payment is made with respect to any junior class of our capital
stock. The preference amount payable for each share of our Series A convertible
preferred stock will be an amount in cash equal to the greater of:
. the purchase price plus all accrued dividends through the date of
payment, or
. the purchase price plus all accrued dividends plus an acceleration of the
dividend due through April 9, 2003. Prior to any liquidation, dissolution
or winding up of CTC Communications, the Series A convertible preferred
stock will automatically convert into common stock if the liquidation
amount is less than the amount the holder of Series A convertible
preferred stock would have received had the holder converted to common
stock.
The Series A convertible preferred stock can be converted by its holders
into common stock at any time. In addition, we have the right to convert the
Series A convertible preferred stock. We can convert the Series A convertible
preferred stock prior to April 10, 2002, if the trading price of our common
stock is at least $27.00 for thirty consecutive trading days. After April 10,
2002, we can convert the Series A convertible preferred stock if the trading
price of our common stock is at least $9.00 for thirty consecutive trading
days. On the date of issuance, the 666,666 shares of Series A convertible
preferred stock were convertible into 1,333,332 shares of our common stock. The
number of shares of common stock into which the Series A convertible preferred
stock can be converted increases by an amount equal to the accrued dividend
divided by $9.00. The number of shares of common stock also adjusts on some
issuances of common stock, or securities convertible into or exercisable for
common stock, that would dilute the economic interest of the holders of the
Series A convertible preferred stock. Holders of the Series A convertible
preferred stock are entitled to a number of votes equal to the lesser of
. the whole number of shares of common stock they would receive if they
converted their Series A convertible preferred stock plus the number of
warrants they hold that were issued with the convertible preferred stock;
and
. the number of shares of Series A convertible preferred stock they hold
multiplied by 2.476.
For example, on August 2, 1999, the aggregate accrued dividend on the Series
A convertible preferred stock was $1,472,652. Dividing this accrued dividend by
$9.00 equals 163,628, or the number of additional shares of common stock
issuable upon conversion of the Series A convertible preferred stock. In
connection with the issuance of the Series A convertible preferred stock CTC
Communications issued warrants to purchase an aggregate of 133,333 shares of
its common stock. The sum of the shares issuable on conversion of the Series A
convertible preferred stock, or 1,496,961, plus the 133,333 warrants issued
with the Series A convertible preferred stock is 1,630,294. Because this number
is less than 666,666 multiplied by 2.476 the number of votes the holders of the
Series A convertible preferred stock are entitled to on August 2, 1999 is
1,630,294. Except as required by law or the certificate of designation, the
holders of Series A preferred stock vote with the holders of the common stock
as a single class.
The certificate of incorporation of CTC Group, like the existing articles of
organization of CTC Communications, will give the board the authority to
designate one or more additional series of preferred stock. Such provisions are
often referred to as "blank check" provisions, since they give the board the
flexibility, without further stockholder approval, to create one or more series
of preferred stock and to determine the designations, preferences and
limitations of each such series. For each series of preferred stock it
authorizes, the board will have the authority to determine, among other things:
. the number of shares,
. dividend rights,
23
<PAGE>
.voting rights,
. conversion privileges,
. redemption provisions,
. sinking fund provisions,
. rights upon liquidation, dissolution or winding up of CTC Group and
. other relative rights, preferences and limitations of such series.
If the board authorizes a series of preferred stock that provides for
dividends, the dividends may be cumulative and the designations of the series
may require that no dividends may be paid on the common stock until the
cumulative dividends are paid on the preferred stock. In addition, the board
may designate a series of preferred stock that in the event of any dissolution,
liquidation or winding up of CTC Group, entitles its holders to receive a
liquidation preference together with all accumulated and unpaid dividends,
prior to the distribution of any assets or funds to the holders of common
stock. Depending upon the consideration paid for preferred stock, the
liquidation preference of preferred stock and other matters, the issuance of
preferred stock could therefore result in a reduction in the assets available
for distribution to the holders of common stock in the event of liquidation of
CTC Group. Holders of common stock do not have any preemptive rights to acquire
preferred stock or any other securities of CTC Group.
Giving the board the authority to issue blank check preferred stock will
provide us with the flexibility to create a series of preferred stock
customized to meet the needs of any particular transaction or market condition.
In addition, we could use blank check preferred stock to frustrate attempts at
hostile takeover of the company by creating voting impediments. The issuance of
additional preferred stock at below market rates would dilute the value of the
outstanding securities of CTC Group and similarly hamper a takeover attempt. We
could also privately place such shares with friendly purchasers who might
oppose a hostile takeover bid. We do not currently have any plans, agreements,
commitments or understandings with respect to the issuance of additional shares
of preferred stock.
We believe that CTC Group should have available additional shares of
preferred stock for issuance by the board of directors of CTC Group in the
future, to the extent deemed advisable by the board.
Registration Rights
Under the terms of a registration rights agreement with the purchasers of
the Series A convertible preferred stock, those purchasers can request that we
register their sale of the shares of common stock issuable upon exercise of the
warrants or upon conversion of the Series A convertible preferred stock under
the Securities Act. Toronto Dominion, Relational Funding Corporation, Goldman
Sachs and Fleet also have registration rights under the terms of warrants we
issued to them.
The certificate of incorporation of CTC Group is attached to the agreement
and plan of reorganization. That agreement is attached to this document as
Appendix D. You should review Appendix D carefully.
Interests of the Company's Directors and Officers
You should be aware that reincorporation in Delaware may benefit our
directors by:
. reducing the directors' potential personal liability and increasing the
scope of permitted indemnification,
. strengthening the directors' ability to resist a takeover bid, and
. limiting the ability of stockholders to remove directors.
24
<PAGE>
In considering the reorganization proposal, you should be aware that the
reorganization may make it more difficult for holders of a majority of the
outstanding shares of our common stock to replace directors or to remove
existing management. In particular, a proxy contest may become a less effective
means of removing or replacing existing directors and could make a change in
control that is opposed by the board more difficult. This could result in a
board which is less responsive to specific stockholder initiatives. For a more
complete discussion of the principal differences between Massachusetts and
Delaware law and the charters and bylaws of CTC Communications and CTC Group as
they affect stockholders, see "Significant Changes Caused by the
Reorganization."
Significant Changes Caused by the Reorganization
In general, the corporate law of Massachusetts, CTC Communications' state of
incorporation, and the articles of organization and by-laws of CTC
Communications govern CTC Communications' corporate affairs at present. You can
inspect the Massachusetts articles and bylaws during business hours at the
principal executive offices of CTC Communications. In addition, you may obtain
copies by writing to CTC Communications Corp., 220 Bear Hill Road, Waltham,
Massachusetts, 02451, attention: John D. Pittenger, Executive Vice President--
Chief Financial Officer.
If the stockholders approve the plan of reorganization, you will become a
stockholder of a Delaware corporation. Following the reorganization, Delaware
law rather than Massachusetts law will determine issues of corporate governance
and control. The Massachusetts articles of organization and bylaws of CTC
Communications, will, in effect, be superseded by the Delaware certificate of
incorporation and bylaws of CTC Group. Accordingly, it is important for you to
understand the differences among these documents and between Delaware and
Massachusetts law in deciding whether to approve the reorganization.
There are a number of differences between Massachusetts and Delaware law and
among the various charter documents of CTC Communications and CTC Group. The
following discussion summarizes the more important differences between the
Massachusetts General laws Annotated, or the MGLA, and the Delaware General
Corporation Law, or the DGCL, and between the articles of incorporation and
bylaws of CTC Communications, or the Massachusetts articles and bylaws, and the
proposed certificate of incorporation and bylaws of CTC Group, or the Delaware
certificate and bylaws. We do not intend this summary to be a complete
discussion of all of the differences. You should refer to the actual terms of
CTC Communications' Articles of Organization and Bylaws and to CTC Group's
Certificate of Incorporation and Bylaws.
Annual Meeting of Stockholders
The DGCL provides that only its directors or someone else specifically
authorized by the certificate of incorporation or bylaws may call annual
meetings of stockholders. The Delaware bylaws provide that the Chairman of the
board of directors, the Chief Executive Officer or the President, or the CTC
Group board of directors may call a annual meeting at anytime. If the
reorganization is approved stockholders will not be able to call a annual
meeting.
Under the MGLA, unless otherwise provided in the articles of organization or
bylaws, the Clerk of a public corporation must call annual meetings of
stockholders upon written application by stockholders who hold at least 40% of
the capital stock entitled to vote. The Massachusetts bylaws provide that the
President or the board of directors of CTC Communications may call annual
meetings of stockholders. In addition the Clerk or any other officer must call
a annual meeting of stockholders upon written application of stockholders who
hold at least 40% of the capital stock entitled to vote.
Voting Requirements and Quorums for Stockholder Meetings
Under the DGCL, a majority of stock entitled to vote at any meeting of
stockholders constitutes a quorum for the transaction of business at the
meeting, unless the certificate of incorporation or bylaws specify a
25
<PAGE>
different percentage. The certificate of incorporation and bylaws, however, may
not provide that a quorum consist of less than one-third of the shares entitled
to vote at the meeting. Unless the DGCL, the certificate of incorporation or
the bylaws specify a different voting requirement under the DGCL, the
stockholders can approve a proposal if a majority of shares present in person
or represented by proxy at meeting at which a quorum is present vote "for" the
proposal.
The Delaware bylaws provide that, except as otherwise provided by law or in
the Delaware certificate or bylaws, a quorum for the transaction of business is
reached when the holders of a majority of the stock of CTC Group is present or
represented by proxy. The Delaware bylaws provide that when a quorum is
present, stockholders will approve an action by vote of a majority of the total
vote cast, unless the Delaware certificate, Delaware bylaws or DGCL requires a
higher percentage of affirmative votes.
Under the MGLA, unless the articles of organization or bylaws provide
otherwise, a majority of the stock entitled to vote at any meeting constitutes
a quorum. Except for the election of directors and other fundamental matters,
the MGLA does not prescribe the percentage vote required for stockholder
action.
Under the Massachusetts bylaws, a majority of the shares of CTC
Communications entitled to vote constitutes a quorum at a meeting. The
Massachusetts bylaws provide that, except where a different vote is required by
law, the Massachusetts articles or the Massachusetts bylaws, a vote of a
majority of each class voting shall determine all questions. Generally, under
Massachusetts law, two-thirds of the shares of each class of stock outstanding
and entitled to vote or which would be adversely affected by the transaction
must approve a merger or a sale of all of the corporation's assets. The
reorganization proposal submitted for approval in this document constitutes
such a merger.
Business Conducted at Stockholder Meetings
The Delaware bylaws provide that at an annual meeting the only business that
may be conducted is that which has been:
. specified in the notice of meeting,
. proposed at the time of the meeting by the CTC Group board of directors,
or
. proposed at the time by a stockholder who had given timely prior written
notice to the Secretary of CTC Group of his intention to bring such
business before the meeting.
In all cases, a notice is timely if CTC Group receives it not less than
sixty days nor more than ninety days prior to the meeting. If CTC Group gives
fewer than seventy days' notice or prior public disclosure of the meeting date,
the notice is timely if CTC Group receives it no later than the tenth day
following the day on which the company mailed notice of the date of the meeting
or made such public disclosure, whichever occurs first. The notice must
contain:
. a brief description of the business the stockholder proposes to bring
before the meeting,
. the name and address of the stockholder,
. the reasons for conducting the business at the meeting,
. the class and number of shares of stock of CTC Group beneficially owned
by such stockholder, and
. any material interest of such stockholder in the business proposed.
If the chairman of a meeting of CTC Group stockholders determines that
business was not properly brought before the meeting in accordance with these
procedures, stockholders may not act on the business at the meeting.
The Massachusetts bylaws contain the same provisions as the Delaware bylaws
described above.
26
<PAGE>
Nomination and Election of Directors
The Delaware bylaws provide that, except as otherwise provided by law, the
holders of a plurality of the shares of stock present, in person or by proxy,
at the meeting and entitled to vote, elect the directors of the corporation.
Neither the Delaware certificate nor the Delaware bylaws allows cumulative
voting for the election of directors. The Delaware bylaws provide that
stockholders must notify the secretary of CTC Group of proposed stockholder
nominations of candidates for election as directors by not less than sixty days
nor more than ninety days prior to the meeting. If the company gives or makes
less than seventy days' notice or prior public disclosure of the date of the
meeting, the stockholder must mail or deliver notice to the secretary not later
than the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever occurs first.
The notice must contain the following information about the proposed nominee:
. age,
. business and residence addresses,
. principal occupation,
. the number of shares of stock of CTC Group he or she beneficially owns
and
. any other information that would be required in a proxy statement
soliciting proxies for the election of the proposed nominee.
In addition the notice must provide information about the stockholder proposing
to nominate that person. CTC Group may also require any proposed nominee to
furnish other information reasonably necessary to determine the proposed
nominee's eligibility to serve as a director. If the Chairman of a meeting of
CTC Group stockholders determines that the stockholders did not nominate the
stockholder's candidate in accordance with the foregoing procedures, the
candidate is not eligible for election as a director.
The Massachusetts bylaws contain provisions substantially similar to the
provisions of the Delaware bylaws described above.
Inspection Rights
Under the DGCL, every stockholder has a right to examine during usual
business hours, for any proper purpose, the corporation's stock ledger, a list
of its stockholders and its other books and records. Stockholders also have the
right to make copies or extracts of these documents. In order to exercise this
right, you must submit a written demand to the corporation, under oath, stating
the purpose of your inspection. If the corporation refuses to permit the
inspection or fails to reply to your demand within five business days after you
made the demand, you may apply to the Delaware Court of Chancery to compel the
inspection. When you seek to have the Chancery Court compel an inspection of
the corporation's books and records, other than its stock ledger or list of
stockholders, you must first establish that you have complied with the formal
requirements of making a demand for inspection and that the inspection is for a
proper purpose. For purposes of this provision of the DGCL, a "proper purpose"
is one that is reasonably related to your interest as a stockholder. The
Delaware bylaws also provide that CTC Group must prepare a complete list of
stockholders entitled to vote at a given meeting, at least ten days before such
meeting. The corporation must make the list available to stockholders for any
purpose germane to the relevant meeting, during ordinary business hours, for a
period of at least ten days prior to such meeting.
The MGLA requires that every domestic corporation maintain in Massachusetts,
and make available for inspection by its stockholders, the corporation's
articles of organization, bylaws, records of all meetings of incorporators and
stockholders, and the stock and transfer records listing the names of all
stockholders, their record addresses and the amount of stock each holds. You
also have the right to copy materials and to be represented by agent or counsel
in exercising these rights. The MGLA further provides that if any officer or
agent of a corporation refuses or neglects to exhibit the corporate records in
legible form or to produce for
27
<PAGE>
examination a stockholder list, such officer or agent will be liable to you for
actual damages sustained by you because of their refusal or neglect. If you
proceed against the company under the foregoing provision, however, the company
may raise the defense that the actual purpose and reason for your inspection is
to secure a list of stockholders or other information for the purpose of
selling the information or of using it for purposes other than in your interest
as a stockholder. In addition to your inspection rights set forth in the MGLA,
you have a common law right to inspect additional documents, which, if your
request is refused by the corporation, may be obtained by petitioning a court
for an order to produce the documents. In petitioning a court for such an
order, you must show that
. you are acting in good faith
. your purpose is to advance the interests of the corporation and protect
your own interests as a stockholder, and
. the requested documents are relevant to those purposes.
Action by Consent of Stockholders
Under the DGCL and the Delaware certificate, stockholders may take any
stockholder action without a meeting and without prior notice, if the
stockholders having the number of votes that would be necessary to take such
action at a meeting at which all stockholders were present and voted, consent
to the action in writing. The corporation must file the written consents with
the records of the meetings of stockholders. In order for the action to be
effective, stockholders must sign and deliver the consents to the corporation
within sixty days after the corporation receives the earliest dated consent.
Under the MGLA, stockholders may take any stockholder action without a
meeting if all stockholders entitled to vote on the matter consent to the
action in writing and the corporation files the written consents with the
records of the meetings of stockholders. The Massachusetts bylaws provide that
stockholders may take any action without a meeting if all stockholders entitled
to vote on the matter consent to the action by writing.
Dividends and Stock Repurchases
Under the DGCL, a corporation may declare and pay dividends if the capital
of the corporation is not less than the total amount of capital represented by
all classes of stock having a liquidation preference. In addition, under the
DGCL a corporation may generally redeem or repurchase shares of its stock if
its capital is not currently impaired and if the redemption or repurchase will
not impair its capital. Under the DGCL, the directors of a corporation are
jointly and severally liable if they negligently or willfully make improper
dividend payments, stock repurchases or redemptions. If a stockholder receives
dividends on, or assets for the sale or redemption of, their stock with
knowledge that such dividend, repurchase or redemption was unlawful, any
director held liable pursuant to this provision may recover from such
stockholder.
The Delaware certificate provides that CTC Group may declare and pay
dividends on the common stock from lawfully available funds as and when
determined by its board of directors after making payments to any outstanding
preferred stock which has preferential dividend rights.
Under the MGLA, the directors of a corporation will be jointly and severally
liable if a payment of dividends or a repurchase of a corporation's stock is
made when the corporation is insolvent, renders the corporation insolvent or
violates the corporation's articles of organization. If a stockholder receives
a distribution other than a distribution of stock when the corporation is
insolvent or which renders the corporation insolvent, he will be liable to the
corporation for the amount of the distribution, or for the amount of the
distribution which exceeds the amount of distribution which could have been
made without rendering the corporation insolvent. In either event the
stockholders are only liable for the amount paid or distributed to them. A
stockholder who pays more than his proportionate share of such distribution or
excess may recover from the other stockholders.
28
<PAGE>
Classification, Number and Qualification of the Board of Directors
The DGCL permits, but does not require, classification of a corporation's
board of directors into one, two or three classes. Under the DGCL, the bylaws
must set forth how the number of directors will be determined unless the
corporation's certificate of incorporation fixes the number of directors. If
the certificate of incorporation fixes the number of directors, in order to
change the number of directors, the corporation must amend its certificate of
incorporation. The Delaware certificate and bylaws provide for three classes of
directors. The terms of the classes are staggered so that the stockholders
elect the directors of one class each year. The stockholders elect each
director for a three-year term or until a successor to each director in each
such class is elected. The classification of CTC Group's board is substantially
similar to the classification provided in the Massachusetts bylaws.
The MGLA requires classification of a public corporation's board of
directors into three classes, each having a three-year term. The directors of a
public corporation may elect by majority vote to be exempt from such
requirement or the stockholders of such public corporation may elect to be
exempt from such requirement by a vote of two-thirds of each class of stock
outstanding. In accordance with the MGLA, the Massachusetts articles and bylaws
provide for the classification of CTC Communications' board of directors into
three classes, as nearly equal in number as possible. The terms of the classes
are staggered so that the stockholders elect the directors of only one class
each year. The stockholders elect each director for a three-year term or until
a successor to each director in each such class is elected.
The MGLA requires that the bylaws fix the number of directors, but whenever
there are more than two stockholders of record the corporation must not have
less than three directors. The Massachusetts bylaws provide that the number of
directors of CTC Communications consist of at least three but not more than
eleven members. They also provide that the number of directors may be increased
or decreased by vote of a majority of the directors then in office.
Neither the Massachusetts articles nor the Massachusetts bylaws set forth
specific qualification requirements for directors.
Removal of Directors
Under the DGCL and Delaware certificate, stockholders may generally remove
directors with or without cause by a majority vote. However, stockholders may
remove members of a classified board only for cause, unless the certificate of
incorporation provides otherwise.
The Massachusetts bylaws provide that stockholders may remove a director
from office at any time, but only for cause. The holders of not less than a
majority of the shares then entitled to vote or a majority of the directors
then in office may vote to remove a director for cause.
Vacancies on the Board of Directors
Under the DGCL, unless otherwise provided in the certificate of
incorporation or bylaws the vote of a majority of directors then in office,
even though less than a quorum, may fill vacancies on the board of directors
and newly created directorships. The DGCL also provides that where classes or
series of stock elect specific directors, the remaining directors elected by
the class or series in whose directorships the vacancy occurs must vote to fill
the vacancy. The Delaware certificate and bylaws provide that only a majority
of the directors then in office or the sole remaining director, although less
than a quorum, may vote to fill newly created directorships or any other
vacancies on the CTC Group board of directors. A director elected to fill a
vacancy holds office until the next election of his class of directors, unless
he or she dies, resigns or is removed before the end of the term.
The MGLA provides that in the case of a classified board like CTC
Communications', only the affirmative vote of a majority of the directors then
in office, even though less than a quorum, may fill any vacancy in the
29
<PAGE>
board of directors, including a vacancy resulting from the enlargement of the
board of directors. The Massachusetts bylaws also provide that CTC
Communications' board of directors or the stockholders at the next annual
meeting or at a annual meeting called for that purpose, shall fill newly
created directorships resulting from any increase in the number of directors.
Exculpation of Directors
The DGCL permits a corporation to provide in its certificate of
incorporation that a director is not personally liable for monetary damages
caused by his breach of his fiduciary duties. Under the DGCL, a charter
provision limiting liability cannot relieve a director of personal liability
for
. any breach of the director's duty of loyalty to the corporation or its
stockholders,
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. unlawful payment of dividends or unlawful repurchases or redemptions of
stock or
. any transactions from which the director derived an improper personal
benefit.
In Massachusetts, a corporation's articles of organization may limit the
personal liability of its directors for breaches of their fiduciary duties.
Under the MGLA, a corporation's articles of organization may not limit the
directors' liability for acts or omission by a director which
. were in violation of the director's duty of loyalty to the corporation or
its stockholders,
. were not in good faith or which involved intentional misconduct or a
knowing violation of law, or
. involved a financial profit or other advantage to which the director was
not legally entitled.
The MGLA also prohibits the elimination or limitation of director liability
for unauthorized loans to insiders or distributions that occur when a
corporation is, or which renders a corporation, insolvent.
The Delaware certificate and the Massachusetts articles provide for
limitations on directors' liability as permitted by the DGCL and the MGLA.
Indemnification of Directors, Officers and Others
Both the DGCL and the MGLA generally permit a corporation to indemnify its
directors, officers, employees and others for expenses incurred by them because
of their position with the corporation. For the corporation to provide
indemnity, the person must have acted in good faith and with the reasonable
belief that his or her conduct was not opposed to the best interest of the
corporation. However, unlike the MGLA, the DGCL does not permit a corporation
to provide indemnity against judgments in actions brought by or in the right of
the corporation and for expenses related to such actions. The DGCL only permits
such indemnification if approved by the Delaware Court of Chancery.
The Delaware certificate indemnifies directors for any monetary damages for
any breach of fiduciary duty as a director, to the maximum extent permitted
under Delaware law. The Delaware certificate also provides that CTC Group will
indemnify any director or officer of CTC Group against:
. all expenses, judgments, fines and settlement amounts incurred in
connection with any legal proceeding, other than an action by or in the
right of CTC Group, brought against him by virtue of his position as a
director or officer of CTC Group and
. all expenses and amounts paid in settlement incurred in connection with
any action by or in the right of CTC Group brought against him by virtue
of his position as a director or officer of CTC Group,
30
<PAGE>
in each case, only if
. he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of CTC Group, and
. with respect to any criminal action or proceeding, he had no reasonable
cause to believe his conduct was unlawful.
CTC Group will not indemnify any director officer in any matter in which he
is held liable to CTC Group, unless a court determines that he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, if a director
or officer is successful in a suit, CTC Group must indemnify him against all
expenses, incurred in connection with the suit, unless the company determines
that the director or officer has not met the required standard of conduct. If
CTC Group determines that the director or officer did not meet the applicable
standard of conduct required for indemnification, or if CTC Group fails to make
an indemnification payment to the director or officer within sixty days after
the director or officer claims payment, he may petition the court to determine
whether he is entitled to indemnification. In order to claim indemnification,
the director or officer must give CTC Group notice of the action for which
indemnity is sought and CTC Group may participate in and assume the defense of
such action. The Delaware certificate further provides that, if Delaware amends
its law to expand the scope of permitted indemnification of directors or
officers, CTC Group must indemnify those persons to the fullest extent
permitted by the amended law.
The Massachusetts bylaws provide that CTC Communications must, to the
fullest extent allowed by law, indemnify each of its directors and officers,
against all expenses and liabilities reasonably incurred by them in connection
with their actions on the corporation's behalf. If a settlement or compromise
of such action, suit or proceeding is reached, the company will provide
indemnification only if
. counsel for CTC Communications has provided to the board of directors an
opinion stating that the settlement or compromise is in the best interest
of CTC Communications and that the director or officer does not appear
not to have acted in good faith in the reasonable belief that his action
was in the best interests of CTC Communications, and
. the board of directors has adopted a resolution approving such settlement
or compromise.
If it is determined that such director or officer did not act in good faith
in the reasonable belief that his action was in the best interests of CTC
Communications, the company shall not provide indemnification for such matter.
Transactions with Interested Parties
The DGCL provides that a transaction
. between a corporation and any of its directors or officers, or an entity
in which any of its directors or officers have a financial or other
interest,
. where the interested director or officer is present at or votes at the
meeting of the board of directors or committee which authorizes the
transaction or where his or her votes are counted for such purpose,
will not be void or voidable only under the following circumstances:
. the board or committee of the board knows the material facts about the
relationship or interest and the transaction and a majority of the
disinterested directors approve the transaction, even though the
disinterested directors number less than a quorum,
. the stockholders entitled to vote on such transaction know the material
facts about the interested director's or officer's relationship or
interest and the transaction and the stockholders vote to approve the
transaction in good faith, or
. the transaction is fair to the corporation when it is authorized,
approved or ratified by the board of directors or committee or the
stockholders.
31
<PAGE>
The DGCL permits a corporation to count common or interested directors in
determining the presence of a quorum at a meeting of the board or of a
committee that authorizes transaction with an interested party. The Delaware
bylaws contain a provision regarding transactions with interested parties that
substantially tracks the provisions of the DGCL summarized above.
The MGLA contains no provision on interested party transactions comparable
to that of the DGCL. The MGLA only expressly provides that directors who vote
for and officers who knowingly participate in loans to officers or directors
are jointly and severally liable to the corporation for any part of the loan
that the borrower does not repay. Such directors will not be liable if a
majority of the directors who are not direct or indirect recipients of such
loans, or the holders of a majority of the shares entitled to vote for such
directors, approved or ratified the loan because they reasonably expected the
loan to benefit the corporation.
Fundamental Transactions
The DGCL generally requires a vote of both the directors and a majority of
the stockholders to approve mergers and consolidations, and sales, leases or
exchanges of all of a corporation's property and assets. A corporation's
certificate of incorporation may require a greater-than-majority vote to
approve these transactions. Under the DGCL, a corporation that survives a
merger need not have stockholder approval for the merger if:
. each share of the surviving corporation's stock outstanding prior to the
merger remains outstanding in identical form after the merger;
. there is no amendment to its certificate of incorporation; and
. the consideration going to stockholders of the non-surviving corporation
is not common stock or securities convertible into common stock of the
surviving corporation or, if it is such stock or convertible securities,
the aggregate number of shares of common stock issued, or initially
issuable upon conversion, is not more than twenty percent of the shares
of the surviving corporation's common stock outstanding immediately prior
to the merger.
The Delaware certificate does not provide anything different from the DGCL
requirements.
The MGLA generally requires a vote of two-thirds of the shares of each class
of stock entitled to vote, to approve mergers and consolidations and sales,
mortgages, leases or exchanges of all of a corporation's property. The MGLA
states that the articles of organization may provide for a vote of a lesser
proportion but not less than a majority of each class. The Massachusetts
articles do not permit a vote of lesser proportion. In addition, unless
required by the corporation's articles of incorporation, the stockholders of
the surviving corporation do not need to approve an agreement providing for a
merger and such agreement may be approved by vote of its directors if:
. the agreement of merger does not change the name, the amount of shares
authorized of any class of stock or other provisions of the articles of
organization of such corporation;
. the authorized unissued shares or shares held in the treasury of the
corporation of any class of stock of such corporation to be issued or
delivered pursuant to the agreement of merger do not exceed 15% of the
shares of such corporation of the same class outstanding immediately
prior to the merger; and
. the issue of any unissued stock pursuant to the agreement of merger has
been authorized in accordance with the provision of the MGLA governing
the issue of authorized but unissued capital stock.
The Massachusetts articles do not require a merger agreement to be submitted
to the stockholders if the corporation is to survive the merger as long as the
above statutory requirements are met.
Anti-Takeover Legislation
CTC Communications is subject to the provisions of the MGLA anti-takeover
law. In general, this statute prohibits a Massachusetts corporation with more
than 200 record stockholders from engaging in a "business
32
<PAGE>
combination" with "interested stockholders" for three years after the date on
which the person becomes an interested stockholder, unless
. the interested stockholder obtains the approval of the board of directors
prior to becoming an interested stockholder,
. the interested stockholder acquires ninety percent of the outstanding
voting stock of the corporation, excluding shares held by certain
affiliates of the corporation, at the time the stockholder becomes an
interested stockholder, or
. the board of directors and holders of two-thirds of the outstanding
voting stock of the corporation, excluding shares held by the interested
stockholder, approve the business combination.
An "interested stockholder" is a person who, together with affiliates and
associates, owns or at any time within the prior three years did own five
percent or more of the corporation's voting stock. A "business combination"
includes a merger, consolidation, certain stock or asset sales, and other
transactions resulting in a financial benefit to the interested stockholder.
The company may elect not to be governed by this anti-takeover law by amending
its Restated Articles of Organization or By-Laws. Any amendment would not be
effective for twelve months and would not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment.
The DGCL regulates tender offers by restricting permitted business
combinations with "interested stockholders." This provision is intended to
limit coercive takeovers of companies. Under that section, "business
combinations" with "interested stockholders" of Delaware corporations are
subject to a three year moratorium unless the corporation meets specified
conditions.
A section of the MGLA, entitled "Regulation of Control Shares Acquisitions,"
provides, in general, that any stockholder of a corporation subject to this
statute who acquires twenty percent or more of the corporation's outstanding
voting stock may not vote the stock unless the other stockholders authorize him
to do so. The company has elected to "opt out" of this section of the MGLA in
its Massachusetts bylaws.
Another section of the MGLA requires that publicly held Massachusetts
corporations that have not "opted out" of the section have a classified board
of directors consisting of three classes as nearly equal in size as possible.
It also provides that stockholders may only remove directors who are so
classified for cause. The Company's Amended and Restated By-Laws contain
provisions which meet the requirements of this section.
Anti-Takeover Measures
The Massachusetts articles and bylaws include provisions available under
Massachusetts law to deter hostile takeover attempts and to help provide
adequate opportunity for the board to consider and respond to a takeover offer.
These provisions include a classified board, elimination of cumulative voting,
and an advance notice requirement for stockholder proposals. The Delaware
certificate and bylaws following the reorganization will include similar
provisions.
CTC Group will also have the rights currently available to CTC
Communications to issue shares of its authorized but unissued capital stock.
CTC Group could issue shares of authorized but unissued common stock and
preferred stock, which have terms, provisions and rights, that would make a
takeover of CTC Group more difficult. Any issuance of additional stock could
dilute the earnings per share and book value per share of existing shares of
common stock and preferred stock. The corporation could also issue the
additional shares to dilute the stock ownership of persons seeking to obtain
control of CTC Group.
In addition to specific anti-takeover measures, a number of differences
between Massachusetts and Delaware law could have a bearing on unapproved
takeover attempts. One difference is the existence of a DGCL provision
regulating tender offers by restricting permitted business combinations with
"interested stockholders." This provision is intended to limit coercive
takeovers of companies. See "Anti-takeover
33
<PAGE>
Legislation" above. Any corporation may decide to opt out of the statute in its
original certificate of incorporation or, at anytime, by vote of its
stockholders. The company does not currently intend to opt out of the statute.
The MGLA's comparable provision prohibits a Massachusetts corporation from
engaging in a business combination with any person owning 5% or more of the
outstanding voting stock of the corporation for three years following the date
on which the person becomes an interested stockholder.
Delaware law may permit a corporation greater flexibility in implementing
various anti-takeover measures, than do the laws of Massachusetts. In addition
to the measures described above, certain types of "poison pill" defenses, such
as stockholder rights plans, have been upheld by Delaware courts. Massachusetts
courts have not yet dispositively addressed these defenses and thus their
effectiveness in Massachusetts is less certain.
We recognize that hostile takeover attempts do not always have unfavorable
consequences and may provide stockholders with considerable value for their
shares. The reorganization may have the effect of discouraging or defeating
future takeover attempts which CTC Group's stockholders might wish to accept
and which might provide a substantial premium over market prices. We believe,
however, that the potential disadvantages of unapproved takeover attempts are
sufficiently great that, on balance, prudent steps to reduce the likelihood of
such takeover attempts are in the best interests of CTC Communications and its
stockholders. Adopting these measures will ensure that we have adequate
opportunity to fully consider and respond to any takeover attempt and actively
negotiate its terms. We believe that such measures will prevent disruption of
CTC Communications' business and the possibility of terms of a takeover that
may be less favorable to all of the stockholders than would be available in a
board-approved transaction. We also believe that any additional defenses and
deterrence provided by the reorganization are minimal in light of CTC
Communications' existing takeover defenses.
Charter Amendments
Under the DGCL, charter amendments require the approval of the board of
directors and both a general vote of a majority of all outstanding shares
entitled to vote, and a class vote of a majority of outstanding shares of each
class entitled to vote as a class. In addition, the DGCL requires a class vote
when, among other things, an amendment will adversely affect the powers,
preferences or special rights of a particular class of stock. Under the DGCL, a
provision in a corporation's certificate of incorporation requiring a
supermajority vote of the board of directors or stockholders may be amended
only by such supermajority vote.
Under the MGLA, a majority vote of each class of stock outstanding and
entitled to vote is required to authorize an amendment of the articles of
organization effecting one or more of the following:
. an increase or reduction of the capital stock of any authorized class;
. a change in the par value of authorized shares with par value, or any
class of such shares;
. a change of authorized shares, or any class of shares, from shares with
par value to shares without par value, or from shares without par value
to shares with par value;
. changes in the number of authorized shares, or any class of shares; or
. a corporate name change.
Subject to conditions set forth in the statute, a two-thirds vote of each
class of stock outstanding and entitled to vote must authorize any other
amendment of the articles of organization. The articles of organization may
provide for a vote of a lesser proportion but not less than a majority of each
class of stock outstanding and entitled to vote. A two-thirds vote of the
affected class voting separately, or a two-thirds vote of the affected series,
voting together with any other series of the same class adversely affected in
the same manner must approve any amendment requiring a two-thirds vote that
would adversely affect the rights of any class or series of stock.
34
<PAGE>
Amendments to By-Laws
Under the DGCL, the stockholders entitled to vote may adopt, amend or repeal
bylaws. Any corporation may, in its certificate of incorporation, confer the
power to adopt, amend or repeal bylaws upon the directors.
The Delaware bylaws grant the CTC Group board of directors the authority to
amend or repeal the Delaware bylaws by the affirmative vote of a majority of
the directors present at any meeting of the board at which a quorum is present.
If the notice of meeting sent to stockholders contains notice of amendment or
repeal of the bylaws, the stockholders may amend or repeal the Delaware bylaws
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock entitled to vote at the meeting. The affirmative vote of the
holders of at least 75% of the outstanding shares of capital stock of CTC Group
entitled to vote is required to amend or repeal provisions, or adopt any
inconsistent provision, of the Delaware bylaws relating to:
. annual meetings of stockholders;
. nomination of directors;
. notice of business at annual meetings;
. stockholder action without meetings;
. organization of stockholder meetings;
. amendment of the Delaware bylaws; and
. any provisions relating to the election, powers, meetings and removal of
directors.
Under the MGLA, the power to make, amend or repeal bylaws also lies in the
stockholders entitled to vote. The directors may also make, amend or repeal any
provision of the bylaws except those provisions which by applicable law, the
articles of organization, or the bylaws requires action by the stockholders.
The Massachusetts articles provide that CTC Communications' board of
directors may amend or repeal the Massachusetts bylaws, except as provided by
law or the Massachusetts bylaws. The Massachusetts bylaws provide that either
the stockholders or a majority of the directors then in office may amend or
repeal the Massachusetts bylaws. The directors may not amend any bylaw
provision that changes the provisions of the Massachusetts bylaws relating to
meetings of stockholders, removal of directors, or the election of committees
by directors and the delegation of powers to such committees.
Appraisal Rights
Under the DGCL, dissenting stockholders have appraisal rights when the
corporation merges or consolidates in specified situations. Appraisal rights
are not available under the DGCL when a corporation will survive the merger or
consolidation and no vote of its stockholders is required to approve the
merger. In addition, unless otherwise provided in a corporation's charter,
stockholders do not have appraisal rights if their stock is either listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by the National Association of Securities
Dealers, Inc., or is held of record by more than 2,000 stockholders, unless the
merger requires stockholders to accept in exchange for their shares anything
other than:
. shares of stock of the surviving corporation;
. shares of stock of another corporation which are or will be listed on a
national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
stockholders;
. cash in lieu of fractional shares of such stock; or
. any combination thereof.
35
<PAGE>
Stockholders do not have appraisal rights under the DGCL in the event of the
sale, lease or exchange of all of a corporation's assets or the adoption of an
amendment to its certificate of incorporation, unless these rights are granted
in the certificate of incorporation. The Delaware certificate does not grant
these rights.
Under the MGLA, unless a vote of the stockholders was not required to
approve the action, a properly dissenting stockholder is entitled to receive
the appraised value of his shares when the corporation votes:
. to sell, lease or exchange all of its property and assets;
. to adopt an amendment to its articles of organization that adversely
affects the rights of the stockholder; or
. to merge or consolidate with another corporation.
See "Appraisal Rights of Dissenting CTC Communications Corp. Stockholders" for
a more detailed description of those rights.
Disadvantages of Reincorporation in Delaware
Although we believe reincorporation in Delaware will be beneficial to the
company, you may find the reorganization disadvantageous for several reasons.
As discussed above, Delaware law contains a statutory provision intended to
discourage takeover attempts of Delaware corporations that are not approved by
the board of directors. This anti-takeover provision could lessen the
possibility that you would receive a premium above market value for your shares
in the event of a takeover. This provision could also have an adverse effect on
the market value of the shares of CTC Group stock. This provision may also
restrict or discourage takeover attempts and therefore may make removal of the
board of directors or management less likely.
As discussed above, the Delaware certificate and bylaws will contain
provisions that limit director and officer liability. These provisions could
operate to the potential disadvantage of the stockholders of CTC Group. For
example, these provisions may reduce the likelihood that CTC Group will recover
monetary damages from directors as a result of derivative litigation against
them for breach of their duty of care. The limitation on liability provision,
which is part of the certificate of incorporation of CTC Group, may also
require the stockholders of CTC Group to forego potential causes of action for
breach of duty of care involving grossly negligent business decisions,
including those relating to attempts to change control of CTC Group.
The proposed certificate of incorporation authorizes CTC Group to issue up
to 10,000,000 shares of preferred stock in one or more series, without any
further vote or action by the stockholders. In addition, it authorizes the
board to determine the designations, powers, preferences and relative,
participating, optional or other rights of the preferred stock, including
without limitation, the dividend rate the cumulative or non-cumulative nature
of dividends, conversion rights, voting rights, rights and terms of redemption,
redemption price and liquidation preference. We have no current plans to issue
any additional shares of preferred stock. However, the rights of the holders of
shares of common stock would be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that we issue in the future.
Issuance of preferred stock could have the effect of delaying, deterring or
preventing a change in control of CTC Communications. In connection with an
issuance, the board could impose procedural requirements that could make it
more difficult for holders of common stock to effect corporate actions such as
replacing incumbent directors or accomplishing transactions opposed by the
incumbent board of directors.
We may in the future seek your approval of any amendments to, or make
changes in, CTC Communications' charter documents that have "anti-takeover"
implications.
36
<PAGE>
Security Ownership of Certain Beneficial Owners
Common Stock
The following table sets forth information as of July 28, 1999 with respect
to the beneficial ownership of CTC Communications common stock by:
. each person known by us to beneficially own more than 5% of the
outstanding shares of our common stock;
. our directors and our Chief Executive Officer and each of our four other
most highly paid executive officers; and
. all executive officers and directors as a group.
Based on the information furnished by the beneficial owners of the common
stock listed below, we believe that each such stockholder exercises sole voting
and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Beneficial
Ownership
-----------------
Name Number Percent
- ---- --------- -------
<S> <C> <C>
Robert J. Fabbricatore(1)................................... 2,830,870 20.2%
Spectrum Equity Investors II, L.P.(2)....................... 1,662,152 10.7%
Kevin J. Maroni(2)(3)....................................... 1,667,152 10.7%
Robert A. Nicholson(2)(4)................................... 1,668,171 10.7%
Henry Hermann(5)............................................ 225,755 1.6%
Richard J. Santagati(6)..................................... 96,000 *
Carl Redfield(7)............................................ 24,000 *
J. Richard Murphy(8)........................................ 30,167 *
Ralph C. Sillari(9)......................................... 6,334 *
Katherine D. Courage(10).................................... 10,000 *
Steven P. Milton(11)........................................ 489,432 3.5%
David E. Mahan(12).......................................... 187,100 1.3%
John D. Pittenger(13)....................................... 263,588 1.9%
Steven C. Jones(14)......................................... 237,500 1.7%
Ralph S. Troupe(15)......................................... 6,250 *
All directors and executive officers as a group (13
persons)(16)............................................... 6,398,713 39.1%
</TABLE>
- --------
*Less than 1%.
(1) Includes 62,498 shares owned by Mr. Fabbricatore as trustee of a trust for
his children and 1,133,239 shares as a general partner of a family
partnership; also includes 108,556 shares issuable upon exercise of
options exercisable within 60 days of July 28, 1999. Mr. Fabbricatore's
address is c/o CTC Communications Corp., 220 Bear Hill Road, Waltham,
Massachusetts 02451.
(2) Includes 187,066 shares issuable upon the exercise of warrants exercisable
within 60 days of July 28, 1999 and 1,468,221 shares issuable upon
conversion of Series A convertible preferred stock as of July 28, 1999. As
partners of Spectrum Equity Investors II, L.P., Mr. Maroni, Mr. Nicholson,
Mr. Collatos and Brion B. Applegate may be deemed to be beneficial owners
of the shares owned by Spectrum. The address of Spectrum and its partners
is One International Place, 29th Floor, Boston, Massachusetts 02110.
(3) Includes 5,000 shares issuable to Mr. Maroni upon the exercise of options
exercisable within 60 days of July 28, 1999. The address of Spectrum and
its partners is One International Place, 29th Floor, Boston, Massachusetts
02110.
(4) Includes 83 shares issuable to Mr. Nicholson upon the exercise of warrants
and 5,000 shares issuable upon the exercise of options exercisable within
60 days of July 28, 1999, and 931 shares issuable upon conversion of
Series A Preferred Stock as of July 28, 1999. The address of Spectrum and
its partners is One International Place, 29th Floor, Boston, Massachusetts
02110.
37
<PAGE>
(5) Includes 9,750 shares held by Mr. Hermann's spouse and 20,167 shares
issuable upon the exercise of options exercisable within 60 days of July
28, 1999.
(6) Includes 21,000 shares issuable to Mr. Santagati upon the exercise of
options exercisable within 60 days of July 28, 1999.
(7) Includes 10,000 shares issuable to Mr. Redfield upon the exercise of
options exercisable within 60 days of July 28, 1999.
(8) Includes 29,167 shares issuable to Mr. Murphy upon the exercise of options
exercisable within 60 days of July 28, 1999.
(9) Includes 5,834 shares issuable to Mr. Sillari upon the exercise of options
exercisable within 60 days of July 28, 1999.
(10) Includes 10,000 shares issuable to Ms. Courage upon the exercise of
options exercisable within 60 days of July 28, 1999.
(11) Includes 4,500 shares owned by Mr. Milton as trustee of a trust for his
children and 98,500 shares issuable upon the exercise of options
exercisable within 60 days of July 28, 1999.
(12) Includes 120,000 shares issuable to Mr. Mahan upon the exercise of options
exercisable within 60 days of July 28, 1999.
(13) Includes 65,000 shares issuable to Mr. Pittenger upon the exercise of
options exercisable within 60 days of July 28, 1999.
(14) Includes 187,500 shares issuable to Mr. Jones upon the exercise of options
exercisable within 60 days of July 28, 1999.
(15) Includes 6,250 shares issuable to Mr. Troupe upon the exercise of options
exercisable within 60 days of July 28, 1999.
(16) Includes the shares described in footnotes (1) through (13) and (15)
above.
Preferred Stock
As of July 28, 1999, Spectrum owned 657,555, or 98.6%, of the outstanding
Series A convertible preferred stock of CTC Communications.
Management
Executive Officers, Directors and Significant Employees
Our executive officers and directors, and their ages as of August 2, 1999,
are as follows:
<TABLE>
<CAPTION>
Name Age Current Office Held
---- --- -------------------
<C> <C> <S>
Robert J. Fabbricatore.. 56 Chairman and Chief Executive Officer
Steven P. Milton........ 45 President and Chief Operating Officer
Executive Vice President, Chief Financial Officer
John D. Pittenger....... 46 and Treasurer
David E. Mahan.......... 57 Vice President--Marketing and Strategic Planning
Michael H. Donnellan.... 45 Vice President--Operations
Thomas Fabbricatore..... 40 Vice President--Marketing
Anthony D. Vermette..... 38 Vice President--Sales
Frederick Kunzi......... 47 Vice President and Chief Technology Officer
Jeffrey C. Lavin........ 43 Vice President--Corporate Development
Katherine D. Courage.... 41 Director
Henry Hermann........... 57 Director
Kevin J. Maroni......... 36 Director
J. Richard Murphy....... 55 Director
Robert A. Nicholson..... 31 Director
Carl Redfield........... 51 Director
Richard J. Santagati.... 55 Director
Ralph C. Sillari........ 45 Director
Ralph S. Troupe......... 38 Director
</TABLE>
38
<PAGE>
Robert J. Fabbricatore, a founder of CTC Communications and a director since
its inception in 1980, became Chairman of the Board of Directors in March 1983
and served as President from October 1993 to August 1995. Robert J.
Fabbricatore is the brother of Thomas Fabbricatore, Vice President--Marketing.
Steven P. Milton has been employed by CTC Communications since 1984 and has
served as President and Chief Operating Officer since August 1995. Prior to
that, he held various positions within CTC Communications including Branch
Manager, District Manager, Regional Manager and Vice President--Sales and
Marketing.
John D. Pittenger has served as Chief Financial Officer since April 14,
1999, as Executive Vice President--Finance and Administration since April 1998
and as Treasurer and Clerk of CTC Communications since August 1989. Mr.
Pittenger served as Vice President--Finance from 1991 until April 1998, and as
Chief Financial Officer from 1989 to April 1998.
David E. Mahan joined CTC Communications in October 1995 as Vice President--
Marketing and Strategic Planning. Prior to joining CTC Communications, Mr.
Mahan held a number of senior management level positions with NYNEX, including
Vice President--Sales Channel Management from 1993 to 1995.
Michael H. Donnellan has been employed by CTC Communications since 1988 in a
number of positions. He was named Vice President--Operations in 1995.
Thomas Fabbricatore joined CTC Communications in 1982. He was named Vice
President--Regulatory and Electronic Media in 1991, and was named Vice
President--Marketing in November 1998. Thomas Fabbricatore is the brother of
Robert J. Fabbricatore.
Anthony D. Vermette has been employed by CTC Communications in a variety of
positions since 1987. Mr. Vermette was named Vice President--Sales in 1996.
Frederick Kunzi joined CTC Communications as a Vice President and Chief
Technology Officer in September 1998. Mr. Kunzi has over 25 years experience in
information technology. From 1985 to September 1998, he was employed by Digital
Equipment Corporation, most recently as Senior Manager, Global Network Services
where he was responsible for Digital's worldwide enterprise network
infrastructure.
Jeffrey C. Lavin joined CTC Communications in June 1998 as Vice President--
Corporate Development. Mr. Lavin has 19 years of sales and operational
management experience in the telecommunications industry. From December 1996 to
May 1998, Mr. Lavin was Vice President of Sales, Americas/Asia Pacific for
NovaSoft Systems, Inc., a software development corporation. From 1979 to 1996,
Mr. Lavin was employed by Comlink Incorporated, a communication network
integrator, most recently as Senior Vice President. Following the acquisition
of Comlink in 1996 by Williams Communications, Mr. Lavin served as Vice
President and General Manager of Network Systems Integration.
Katherine D. Courage became a director of CTC Communications in April 1999.
Ms. Courage is a managing director in the Global Telecommunications and Media
Group in the Investment Banking Department of Credit Suisse First Boston, one
of the underwriters of our proposed offering of common stock. Prior to joining
Credit Suisse First Boston in September 1996, Ms. Courage worked at Salomon
Brothers Inc for ten years where she was a managing director in the Global
Telecommunications Group. Ms. Courage currently serves as a director of
NorthEast Optic Network, Inc. and Lightpath Technologies, Inc.
Henry Hermann became a director of CTC Communications in September 1996.
Since November 1997, he has operated Hermann Companies, a financial services
company. Mr. Hermann is registered as an Investment Advisor with the State of
Texas, a Chartered Financial Analyst and, as an independent contractor, offers
general securities through SWS Financial. In 1997, he was employed by Kuhns
Brothers & Company, Inc., as a principal and Executive Vice President. For the
previous nine years, he was employed by WR Lazard, Laidlaw and Luther, Inc., a
securities brokerage firm, as Vice President, Securities Analyst and Portfolio
Manager. Mr. Hermann has been an NASD Board of Arbitrators Member since 1991.
39
<PAGE>
Kevin J. Maroni became a director of CTC Communications in April 1998 as one
of the two designees of the Series A preferred stockholders. Mr. Maroni is a
general partner of Spectrum which he joined in 1994. Spectrum is a leading
private equity fund which manages $1 billion of capital for investment in the
communications and media industries. Prior to joining Spectrum, he worked at
Time Warner Telecommunications and Harvard Management Company. Mr. Maroni is a
director of PathNet, Inc., Formus Communications, Inc., WNP Communications,
Inc. and American Cellular Corp.
J. Richard Murphy became a director of CTC Communications in August 1995.
Mr. Murphy is a managing director of Baldwin & Clarke Corporate Finance, Inc.,
a Bedford, New Hampshire investment banking firm which he joined August 2,
1999. Mr. Murphy was the director of the Corporate Advisory Group of Moody,
Cavanaugh and Company, LLP, a North Andover, Massachusetts public accounting
firm, from April 1996 to August 1999. Mr. Murphy was an officer, director and
principal stockholder from 1990 to 1995 of Arlington Data Corporation, a
systems integration company located in Amesbury, Massachusetts; from 1992 to
1996 of Arlington Data Consultants, Inc., a company engaged in the installation
and maintenance of computer systems and hardware; and from 1994 to 1996 of
Computer Emporium, Inc., a company engaged in processing parking violations for
municipalities. In June 1996, Arlington Data Corporation filed for bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code.
Robert A. Nicholson is one of the two designees of the Series A preferred
stockholders and became a director of CTC Communications in November 1998. Mr.
Nicholson joined Spectrum in 1995 as a Vice President and became a partner in
July 1998. From 1990 to 1993, Mr. Nicholson was an Associate Consultant and
then Consultant at Bain & Company, a leading strategy consulting firm, where he
was responsible for strategy and operations projects in the communications
industry. Mr. Nicholson currently serves as a Director of Navitar
Communications Group, Inc., a Canadian competitive local exchange carrier.
Carl Redfield became a director of CTC Communications in January 1999. He
has been Senior Vice President, Manufacturing and Logistics of Cisco since
February 1997. From September 1993 to February 1997 he was Vice President of
Manufacturing. Mr. Redfield also is a director of VA Research Inc. and Paragon
Electronics Inc.
Richard J. Santagati became a director of CTC Communications in September
1991. He has been the President of Merrimack College in North Andover,
Massachusetts since 1994. From March 1992 to February 1994, Mr. Santagati was
the Chairman of the Board, Chief Executive Officer and President of Artel
Communications Corp., a publicly held data communications firm located in
Hudson, Massachusetts. Mr. Santagati also serves as a director of Celerity
Solutions, Inc., a software company.
Ralph C. Sillari became a director of CTC Communications in October 1997.
Since 1991, Mr. Sillari has been employed by Fleet National Bank where he is
currently an Executive Vice President in the Business and Entrepreneurial
Services Division.
Ralph S. Troupe became a director of CTC Communications in May 1999. Since
January 1993, Mr. Troupe has been employed by International Network Services,
where he is currently Vice President of North American Field Operations, East.
Director Compensation
Non-employee directors receive an annual retainer of $10,000. On February
17, 1999, we granted Messrs. Sillari, Murphy and Hermann options to purchase
10,000 shares of our common stock. We also granted Messrs. Nicholson, Maroni
and Santagati options to purchase 20,000 shares of our common stock. All of the
above options were at a purchase price of $10.125 per share. At the same time
we granted Robert Fabbricatore options to purchase 50,000 shares of our common
stock at a purchase price of $11.1375, 50,000 shares at a purchase price of
$15.00 per share and 50,000 shares at a purchase price of $20.00 per share. On
January 19, 1999, we granted Mr. Redfield an option to purchase 40,000 shares
of our common stock at a purchase price of
40
<PAGE>
$11.25 per share. On April 5, 1999, we granted Ms. Courage an option to
purchase 40,000 shares of our common stock at a purchase price of $12.375 per
share. On May 5, 1999, we granted Mr. Troupe an option to purchase 25,000
shares of common stock at a purchase price of $18.875 per share.
Committees of the Board of Directors
CTC Communications' board of directors has established an audit committee, a
compensation committee and a nominating committee.
The audit committee consists of Messrs. Murphy and Hermann. The audit
committee is responsible for reviewing the internal accounting controls of CTC
Communications, meeting and conferring with our independent auditors and
reviewing the results of the accountants' auditing engagement. During the
fiscal year ending March 31, 1999, the audit committee held one meeting.
The compensation committee consists of Messrs. Maroni, Santagati and Murphy.
The compensation committee establishes compensation and benefits for our senior
executives. The committee also determines the number and terms of stock options
granted to employees, directors and consultants under our stock option plans.
During the fiscal year ended March 31, 1999, the compensation committee held
six meetings.
The nominating committee consists of Messrs. Santagati, Murphy and Sillari.
The nominating committee recommends candidates for nomination to the board of
directors. The committee also reviews and makes recommendations regarding
compensation for non-employee directors. The nominating committee does not
consider nominees recommended by security holders. During the fiscal year ended
March 31, 1999, the nomination committee held one meeting.
During the fiscal year ended March 31, 1999, all directors and committee
members attended more than 75% of their respective meetings.
Voting Agreement
Pursuant to a voting agreement between Robert J. Fabbricatore and some of
his affiliates and Spectrum, Mr. Fabbricatore and these affiliates agreed to
vote at each annual or annual meeting at which directors of CTC Communications
or CTC Group are to be elected all of the shares of common stock held by them
in favor of two persons designated by a majority of the outstanding shares of
Series A preferred stock as nominees for directors, subject to certain
limitations based on the number of shares of Series A preferred stock
outstanding at any time. As of August 2, 1999, Spectrum owned 657,555 of the
666,666 shares, or 98.6%, of the Series A preferred stock outstanding. Kevin J.
Maroni and Robert A. Nicholson, partners of Spectrum and designees of the
Series A preferred stockholders, are Class III directors of CTC Communications.
41
<PAGE>
Executive Compensation
The following table provides summary information concerning compensation of
CTC Communications' Chief Executive Officer and each of the four other most
highly paid executive officers (the "Named Executive Officers") during the
fiscal year ended March 31, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------
Fiscal Securities
Year Ended Annual Underlying All Other
March 31, Salary Bonus Options (#)(1) Compensation
---------- -------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Robert J.
Fabbricatore,.......... 1999 $240,000 $78,000 150,000 $20,900(2)
Chairman and 1998 240,000 60,000 150,000 19,550(2)
Chief Executive Officer 1997 240,000 60,000 -- 18,075(2)
Steven C. Jones(4),..... 1999 150,000 75,000 -- 3,375(3)
Executive Vice
President, 1998 12,500 -- 300,000 --
Chief Financial Officer
and Director of
Corporate Development 1997 -- -- -- --
Steven P. Milton, ...... 1999 150,000 54,500 100,000 5,625
President and 1998 100,000 40,000 150,000 4,200
Chief Operating Officer 1997 100,000 40,000 -- 4,075
David E. Mahan,......... 1999 110,000 52,000 20,000 4,440
Vice President--
Marketing 1998 100,000 40,000 260,000 4,075
and Strategic Planning 1997 100,000 40,000 -- 4,075
John D. Pittenger,...... 1999 100,000 62,000 36,000 4,860
Executive Vice
President--Finance 1998 90,000 36,000 80,000 3,900
and Administration,
Treasurer and Clerk 1997 86,100 34,000 -- 3,437
</TABLE>
- --------
(1) On March 20, 1998 we repriced all previously granted options that had an
exercise price in excess of $7.19 per share. The 1998 information includes
75,000, 75,000, 130,000 and 40,000 shares underlying options previously
granted to Messrs. Fabbricatore, Milton, Mahan and Pittenger that were
canceled as a result of the repricing.
(2) Includes 50% matching contributions in the amounts of $4,800, $4,750 and
$4,500 in 1999, 1998 and 1997 to the CTC Communications Corp. 401(k)
Savings Plan. Also included is the actuarial benefit on the "split-dollar"
life insurance policy for the benefit of Mr. Fabbricatore in the amounts of
$16,100, $14,800 and $13,575 in 1999, 1998 and 1997.
(3) Includes 50% matching contributions to the CTC Communications Corp. 401(k)
Savings Plan.
(4) Mr. Jones began working for CTC Communications on February 27, 1998 and
resigned on April 21, 1999. Does not include $135,879 of severance benefits
that we paid to Mr. Jones after March 31, 1999.
42
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth the aggregate number of stock options granted
to each of the Named Executive Officers during the fiscal year ended March 31,
1999. Options are exercisable for our common stock. No options were granted to
Mr. Jones in the last fiscal year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rate of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration ----------------------
Granted (#) Fiscal Year ($/Share) Date 5% 10%
----------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore.. 50,000 4.2% $ 20.00 2/17/2003 $ (353,882) $ (184,679)
50,000 4.2% 15.00 2/17/2003 (103,882) 65,321
50,000 4.2% 11.138 2/17/2003 89,243 258,446
Steven P. Milton........ 33,000 3% 20.00 2/17/2003 (233,562) (122,996)
33,000 3% 15.00 2/17/2003 (68,562) 43,112
34,000 3% 10.125 2/17/2003 95,110 210,168
David E. Mahan.......... 20,000 2% 10.125 2/17/2003 55,947 123,628
John D. Pittenger....... 36,000 3% 10.125 2/17/2003 100,705 222,531
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the exercise of
options by the Named Executive Officers during the fiscal year ended March 31,
1999 and the March 31, 1999 aggregate value of unexercised options held by each
of the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Options at Fiscal at Fiscal Year End ($)
Year-End (#)(1) (1)(2)
Shares ----------------------- -----------------------
acquired on Value Exercisable/ Exercisable/
exercise (#) Realized ($) Unexercisable Unexercisable
------------ ------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore.. -- -- 89,806 168,750 $445,384 $266,625
Steven C. Jones(3)...... -- -- 150,000 150,000 796,875 796,875
Steven P. Milton........ -- -- 79,750 131,250 501,482 312,019
David E. Mahan.......... -- -- 100,000 100,000 605,265 474,645
John D. Pittenger....... -- -- 58,000 57,000 420,096 216,360
</TABLE>
- --------
(1) All shares and amounts, as necessary, have been adjusted to reflect the 25%
common stock dividend effected in March 1995, the three-for-two stock split
effected in July 1995 and the two-for-one stock split effected in October
1995.
(2) Assumes a fair market value of the Common Stock at March 31, 1999 of
$12.375 per share.
(3) In connection with Mr. Jones resignation in April 1999, we vested an
additional 37,500 options and extended the exercise period of his vested
options until April 21, 2004.
43
<PAGE>
Board Compensation Committee Report on Executive Compensation
During the fiscal year ended March 31, 1999, the compensation committee,
comprised of three independent non-employee directors, made decisions regarding
executive compensation. The compensation committee is charged with establishing
and administering the policies and plans which govern compensation for
executive officers, including those individuals listed in the compensation
tables in this proxy statement. The compensation committee also determines the
number and terms of stock options granted to our employees, directors and
consultants under our stock option plans.
Compensation Policies. Our executive compensation philosophy is to provide
compensation opportunities for our officers which are competitive within our
industry and community so that we can attract and retain high quality
executives and to align the interests of our executives and stockholders by
providing for payment of a significant portion of executive compensation in the
form of bonuses based on the our sales performance. Thus, the value generated
for our stockholders is a key factor in determining the value ultimately
received by the executive officers.
Base Salary. We establish base salaries for executive officers at levels we
consider appropriate in light of the scope of the duties and responsibilities
for each officer's position. We provide annual increases in base salary to
further protect our vested interest due to their prior service and key
strategic roles.
Bonus. Each executive officer receives a bonus conditional upon the
achievement of certain quarterly performance goals set by management. During
the three fiscal years ended March 31, 1999, CTC has exceeded the performance
goals. We believe that the establishment of performance goals is the most
objective measurement of executive performance during the relevant period,
where CTC's overriding objective is to build its business by increasing sales.
Stock Options. Incentive stock options are granted to executive officers at
the discretion of the compensation committee. In general, stock options are
granted with an exercise price equal to the fair market value of our common
stock on the date of the grant. If an option recipient owns more than ten
percent of our common stock, the options are granted with an exercise price
equal to 110% of the fair market value of our stock on such date. Stock options
become exercisable in full in installments over periods of three or more years
and have terms of up to ten years from the date of the grant. Stock options
thus provide incentive for the creation of stockholder value over the long term
since the full benefit of the option cannot be realized unless an appreciation
in the price of our common stock occurs over a specified number of years and
the executive officer remains employed for the periods required for the stock
options to become exercisable.
CEO Compensation. During the fiscal years ended March 31, 1999, 1998 and
1997, the Company's most highly compensated officer was Robert J. Fabbricatore,
Chairman of the Board and Chief Executive Officer, who received a base salary
of $240,000 during each fiscal year and bonuses aggregating $78,000 during the
fiscal year ended March 31, 1999 and $60,000 during the fiscal years ended
March 31, 1998 and 1997.
Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code denies publicly held companies a deduction for compensation paid
to a named executive officer in a taxable year to the extent it exceeds $1
million per officer, unless the compensation qualifies as "performance based
compensation." The Committee has no present policy in respect of Section
162(m).
The Compensation Committee
Richard J. Santagati, Kevin J.
Maroni and J. Richard Murphy
44
<PAGE>
Performance Graph
The following table shows a comparison of cumulative total return to
stockholders for our common stock, the Nasdaq Composite Index and the Nasdaq
Telecommunications Index* for the period March 31, 1994 through March 31, 1999.
The table assumes $100 invested on March 31, 1994 in CTC Communications Corp.
Common Stock, the Nasdaq Composite Index and the Nasdaq Telecommunications
Index.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Date CTC Communications NASDAQ Telecommunications NASDAQ National Market
Corp. Index Composite Index
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
31-Mar-94 100.00 100.00 100.00
- ------------------------------------------------------------------------------
31-Mar-95 559.21 102.37 110.78
- ------------------------------------------------------------------------------
29-Mar-96 1756.59 137.65 149.54
- ------------------------------------------------------------------------------
31-Mar-97 1144.77 127.09 166.54
- ------------------------------------------------------------------------------
31-Mar-98 1371.78 244.51 252.92
- ------------------------------------------------------------------------------
31-Mar-99 1954.10 389.36 339.37
- ------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Certain Relationships and Related Transactions
We lease office space from a trust, of which Robert J. Fabbricatore, our
Chairman and Chief Executive Officer, is a beneficiary. Until March 1, 1999 we
also leased office space from another trust of which Robert J. Fabbricatore is
a beneficiary. Rental payments under the leases totaled approximately $391,000
for the last three fiscal years. We also sublease space part of our Waltham
facility at our cost to Comm-Tract Corp., a company in which Mr. Fabbricatore
is a principal stockholder. Sublease income totaled $306,125 for the last three
fiscal years. We also contract with Comm-Tract Corp. for the installation of
telephone lines and for the service and maintenance of equipment marketed by
CTC Communications. During the last three fiscal years, Comm-Tract Corp.
provided us with services, inventory and equipment totaling $829,222. We
believe that the payments to the trusts and Comm-Tract Corp. are comparable to
the costs for such services, inventory and equipment, and for rentals of
similar facilities, which we would be required to pay to unaffiliated
individuals in arms-length transactions.
In April 1998, we privately placed 666,666 shares of our Series A
convertible preferred stock and warrants to purchase 133,333 shares of our
common stock with Spectrum and other investors in exchange for $12.0 million in
cash. Each share of Series A preferred stock is initially convertible at any
time at the option of the holder into two shares of our common stock. The
warrants expire on April 10, 2003 and have an exercise price of $9.00 per
share. We granted Spectrum customary registration and other rights as part of
this transaction. As a condition to this investment, Robert J. Fabbricatore and
some his affiliates have agreed to vote shares they control to elect to our
board two persons designated by the holders of a majority of our Series A
preferred stock. These directors are currently Kevin Maroni and Robert
Nicholson. We also received a commitment on June 30, 1998 from Spectrum to
purchase, at our option, an additional $5.0 million of preferred stock on the
same terms and conditions as the Series A preferred stock. In exchange for this
commitment we issued 55,555 warrants to Spectrum on the same terms and
conditions as the original warrants. This option expired on June 30, 1999
without our issuing any shares of preferred stock.
Carl Redfield, one of our directors, is an executive officer of Cisco. We
have purchased, and expect to continue purchasing, most of our network
equipment from Cisco. Also, we have entered into a vendor facility with Cisco
Capital, an affiliate of Cisco.
Ralph Sillari, one of our directors, is an Executive Vice President of Fleet
National Bank. We have entered into a senior secured credit facility with Fleet
National Bank.
Katherine D. Courage, one of our directors, is a Managing Director of Credit
Suisse First Boston, one of the underwriters of our recent public offering of
common stock. Ms. Courage is also a director of NorthEast Optic Network. We
have commitments of approximately $5.5 million with NorthEast Optic Network for
the provision of leased transmission facilities.
Ralph S. Troupe, who became a director in May 1999, is Vice President of
North American Field Operations, East at International Network Services, or
INS. We have engaged INS to design, engineer and build out our network in our
existing markets. Since Mr. Troupe became a director we have paid INS
approximately $1.2 million pursuant to commitments we entered into with INS
prior to his joining our board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own more than ten percent
of a registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and our other equity securities. Officers, directors
and greater than ten percent shareholders are required by Commission
regulations to furnish us with copies of all Section 16(a) forms they file.
46
<PAGE>
Based solely on our review of copies of the filings under Section 16(a) of
the Securities Exchange Act of 1934 received by us, we believe that during the
fiscal year ended March 31, 1999 our directors, executive officers and
beneficial owners of greater than ten percent of our common stock filed all
required reports under Section 16 of the Exchange Act, except that each of
Thomas Fabbricatore and Anthony Vermette, each an executive officer,
inadvertently failed to report one transaction on a timely basis, and Katherine
D. Courage filed her Form 3 late.
Federal Income Tax Consequences
The following discussion summarizes the material United States federal
income tax consequences of the exchange of shares of CTC Communications common
stock for shares of CTC Group common stock and the exchange of shares of CTC
Communications Series A convertible preferred stock for shares of CTC Group
Series A convertible preferred stock pursuant to the plan of reorganization and
does not address the tax consequences of any related transactions. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended, or the "Code", currently applicable Treasury
Regulations, published administrative rulings, and court decisions, all of
which are subject to change. Any change, which may or may not be retroactive,
could alter these tax consequences.
You should be aware that this discussion does not address all United States
federal income tax considerations that may be relevant to you in light of your
particular circumstances, such as if you are a dealer in securities, bank,
insurance company, tax-exempt organization or a foreign person, subject to the
alternative minimum tax provisions of the Code or hold your shares as part of a
hedging, straddle, conversion or other risk reduction or constructive sale
transaction. This discussion does not deal with all United States federal
income tax considerations that may be relevant to you if you acquired shares in
connection with employee stock options or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the reorganization under foreign, state or
local tax laws or the tax consequences of any other transactions effected
concurrently with, prior to, or after the reorganization (whether or not such
transactions are in connection with the reorganization). We urge you to consult
with your own tax advisors as to the specific consequences of the
reorganization to you, including the applicable federal, state, local and
foreign tax consequences of the reorganization to you in your particular
circumstances. The following discussion is based on an opinion of the Law
Offices of Leonard R. Glass, P.A.
The proposed reorganization will constitute a reorganization within the
meaning of Section 368(a) of the Code. The following federal income tax
consequences result from the reorganization:
(a) You will not recognize gain or loss upon the receipt of CTC Group common
stock solely in exchange for CTC Communications common stock or the receipt of
CTC Group Series A convertible preferred stock solely in exchange for CTC
Communications Series A convertible preferred stock in the reorganization.
(b) Your aggregate tax basis in your CTC Group common stock or CTC Group
Series A convertible preferred stock after the reorganization will be the same
as the aggregate tax basis of your CTC Communications common stock or CTC
Communications Series A convertible preferred stock.
(c) If you hold your CTC Communications common stock or CTC Communications
Series A convertible preferred stock as a capital asset at the effective time
of the reorganization, your holding period for your CTC Group common stock or
CTC Group Series A convertible preferred stock received in the reorganization
will include your holding period for the CTC Communications common stock or CTC
Communications Series A convertible preferred stock surrendered in the
reorganization.
(d) If you perfect your appraisal rights under law and receive payment for
your stock in cash and do not own any shares of CTC Group stock, actually or
constructively, following the receipt of the cash, you will recognize capital
gain or loss, measured by the difference between the amount of your cash
received and your basis in the stock.
47
<PAGE>
Neither CTC Communications nor CTC Group has requested a ruling from the
Internal Revenue Service regarding any of the federal income tax consequences
of the reorganization.
Securities Act Consequences
All of the shares of common stock and preferred stock acquired in the
reorganization will be freely transferable except for any shares that may be
held by our "affiliates." The Securities Act of 1933, as amended, defines
"affiliates" to be stockholders of CTC Communications who control, are
controlled by or are under common control with CTC Communications or CTC Group.
Affiliates of CTC Communications may not sell their shares of CTC Group common
stock or preferred stock acquired in the reorganization except pursuant to
. an effective registration statement under the Securities Act covering
such shares,
. the resale provisions of Rule 145 under the Securities Act or
. another applicable exemption from the registration requirements of the
Securities Act.
Rules 144 and 145 restrict how affiliates may sell CTC Group common stock or
preferred stock and also restricts the number of shares of CTC Group common
stock or preferred stock that such affiliates may sell within any three-month
period.
Transfer Agent and Registrar
CTC Group's and CTC Communication's Transfer Agent and Registrar is Boston
EquiServe L.P.
Independent Auditors
The financial statements and schedule of CTC Communications Corp. appearing
in CTC Communications Corp. Annual Report (Form 10-K/A) for the year ended
March 31, 1999, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein
by reference. Such financial statements and schedule are incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
We expect that a representative of Ernst & Young LLP will be present at the
meeting. The representative will have the opportunity to make a statement if he
or she desires to do so and will be available to respond to questions.
Legal Matters
The validity of the shares offered hereby will be passed upon for CTC Group
and certain tax matters will be passed upon for CTC Communications by the Law
Offices of Leonard R. Glass, P.A., Tenafly, New Jersey. Mr. Glass may be deemed
the beneficial owner of approximately 2% of our outstanding shares of common
stock.
Expense of Solicitation
CTC Communications will bear all costs connected with the solicitation of
proxies. We will reimburse brokers and other persons holding stock for the
benefit of others for their expenses in forwarding proxies and accompanying
material to the beneficial owners of such stock and obtaining their proxies. We
will solicit proxies by mail, telephone, telegraph or otherwise, and some of
the directors, officers and regular employees of the company may assist in the
solicitation without additional compensation. We do not expect to incur more
than $10,000 of solicitation expenses. We have not incurred any solicitation
expenses to date.
48
<PAGE>
Stockholders' Proposals
If you wish to present a proposal to be voted on at the 2000 annual meeting
of stockholders, you must, at the time the proposal is submitted:
. be a record or beneficial owner of at least one (1%) percent or two
thousand ($2,000.00) dollars in market value of the class of securities
entitled to vote at the meeting;
. have held such securities for at least one (1) year; and
. continue to own such securities through the date on which the 2000 annual
meeting is held.
To be included in the management proxy statement, your proposal must be
received at our executive offices no later than May 19, 2000. Under our by-
laws, stockholders who wish to make a proposal at the 2000 annual meeting--
other than one that will be included in the management proxy statement--must
notify us no earlier than June 18, 2000 and no later than July 18, 2000. If you
fail to notify us of such a proposal by July 18, 2000, then the proxies that
management solicits for the 2000 annual meeting will include discretionary
authority to vote on any such proposal in the event it is properly brought
before the meeting. We suggest that you submit any proposal by certified mail,
return receipt requested, to remove any question as to the date on which a
proposal is received by the board of directors.
Other Matters That May Come Before the Meeting
The board of directors knows of no other matters which may be presented at
the annual meeting, but if other matters do properly come before the annual
meeting, the board intends that the persons named in the Proxy will vote
according to their best judgment.
We request you to date, sign and return the proxy in the enclosed postage-
paid envelope. If you attend the annual meeting, you may revoke your proxy at
that time and vote in person if you so desire, otherwise your proxy will be
voted for you.
49
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CTC COMMUNICATIONS GROUP, INC.
A DELAWARE CORPORATION,
CTC-NEWCO, INC.
A DELAWARE CORPORATION
AND
CTC COMMUNICATIONS CORP.,
A MASSACHUSETTS CORPORATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is dated as of March 1, 1999 among CTC COMMUNICATIONS CORP., a
Massachusetts corporation, CTC COMMUNICATIONS GROUP, INC., a Delaware
corporation, and CTC-NEWCO, INC., a Delaware corporation and a wholly-owned
subsidiary of CTC COMMUNICATIONS GROUP, INC.
BACKGROUND
A. CTC COMMUNICATIONS CORP ("CTC Massachusetts") is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and, on the date of this Agreement, has authority
to issue 26,000,000 shares consisting of 25,000,000 shares of Common Stock,
$.01 par value, and 1,000,000 shares of Preferred Stock, $1.00 par value, of
which 10,291,126 shares of Common Stock and 666,666 shares of Series A
Convertible Preferred Stock are issued and outstanding.
B. CTC COMMUNICATIONS GROUP, INC. ("Delaware Parent") is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and, on the date of this Agreement, has authority to issue 110,000,000
shares consisting of 100,000,000 shares of Common Stock, $.01 par value, and
10,000,000 shares of Preferred Stock, $1.00 par value, none of which are issued
and outstanding.
C. CTC-NEWCO, INC. ("Delaware Subsidiary") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and, on the date of this Agreement, has authority to issue 200 shares of Common
Stock, $.01 par value, all of which are issued and outstanding and owned by
Delaware Parent.
D. The Board of Directors of each of CTC Massachusetts, Delaware Parent and
Delaware Subsidiary have determined that it is advisable and in the best
interests of each of such corporations that Delaware Subsidiary merge into CTC
Massachusetts upon the terms and subject to the conditions set forth in this
Agreement, for the purpose of effecting the reincorporation of CTC
Massachusetts in the State of Delaware by becoming a wholly-owned subsidiary of
Delaware Parent and have, by resolutions duly adopted, approved this Agreement
and directed that it be submitted to a vote of their respective stockholders
and executed by the undersigned officers.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
Definitions
When used in this Agreement (and in any Exhibit in which such terms are not
otherwise defined) the following terms shall have the following meanings:
A-1
<PAGE>
"Certificate of Merger" shall mean the Certificate of Merger of Delaware
Subsidiary into CTC Massachusetts to be filed with the Secretary of State of
the Commonwealth of Massachusetts.
"CTC Massachusetts Common Stock" shall mean shares of Common Stock, $.01
par value, of CTC Massachusetts.
"CTC Massachusetts Preferred Stock" shall mean shares of Preferred Stock,
$1.00 par value, of CTC Massachusetts.
"Delaware Parent Common Stock" shall mean shares of Common Stock, $0.01 par
value, of Delaware Parent.
"Delaware Parent Preferred Stock" shall mean shares of Preferred Stock,
$1.00 par value, of Delaware Parent.
"Delaware Subsidiary Common Stock" shall mean shares of Common Stock, $0.01
par value, of Delaware Subsidiary.
"Effective Time" shall mean the time when the Certificate of Merger is
filed with the Secretary of the Commonwealth of Massachusetts and the Merger
becomes effective.
"Merger" shall mean the merger of Delaware Subsidiary into CTC
Massachusetts.
"Shareholders' Meeting" shall mean the meeting of shareholders of CTC
Massachusetts to be held in 1999 approve and adopt this Agreement, among other
things.
"Surviving Parent" shall mean Delaware Parent from and after the Effective
Time.
"Surviving Subsidiary" shall mean CTC Massachusetts from and after the
Effective Time.
ARTICLE II
Merger
2.1 Merger. At the Effective Time, the Merger shall become effective under
Section 252 of the Delaware General Corporation Law and Section 79 of Chapter
156B of the Massachusetts General Corporation Law, and Delaware Subsidiary
shall merge into CTC Massachusetts, the separate existence of Delaware
Subsidiary shall cease and CTC Massachusetts shall continue in existence as
the surviving wholly-owned subsidiary of Delaware Parent under the
Massachusetts General Corporation Law.
2.2 Filings. On or prior to the Effective Time, CTC Massachusetts and
Delaware Subsidiary shall cause:
(a) the Certificate of Merger to be filed with the Secretary of the
Commonwealth of Massachusetts; and
(b) the Certificate of Merger to be filed with the Secretary of State of
Delaware.
2.3 Effects of the Merger. At the Effective Time:
(a) the separate existence of Delaware Subsidiary shall cease and
Delaware Subsidiary shall be merged into CTC Massachusetts;
(b) the Articles of Incorporation of CTC Massachusetts shall continue as
the Articles of Incorporation of the Surviving Subsidiary;
(c) the Bylaws of CTC Massachusetts continue as the Bylaws of the
Surviving Subsidiary;
A-2
<PAGE>
(d) each share of CTC Massachusetts Common Stock and CTC Massachusetts
Preferred Stock outstanding immediately prior to the Effective Time shall
be converted into one share of Surviving Parent Common Stock and one share
of Surviving Parent Preferred Stock, respectively, pursuant to Article III
herein;
(e) without further transfer, act, or deed, the separate existence of
Delaware Subsidiary shall cease and CTC Massachusetts shall possess all the
rights, privileges, powers and franchises, and shall be subject to all the
restrictions, disabilities and duties, of Delaware Subsidiary; and all
property, real, personal and mixed, and all debts due to Delaware
Subsidiary on whatever account, as well as stock subscriptions and all
other things belonging to Delaware Subsidiary shall be vested in CTC
Massachusetts; and all property, rights, privileges, powers and franchises,
and all and every other interest of Delaware Subsidiary shall be thereafter
as effectually the property of the CTC Massachusetts as they were of
Delaware Subsidiary, and the title to any real estate vested by deed or
otherwise in Delaware Subsidiary shall not revert or be in any way impaired
by reason of the Merger; and all rights of creditors of Delaware Subsidiary
and all liens upon any property of Delaware Subsidiary shall be preserved
unimpaired and all debts, liabilities and duties of Delaware Subsidiary
shall attach to CTC Massachusetts and may be enforced against it to the
same extent as if such debts, liabilities and duties had been incurred or
contracted by it.
2.4 Further Assurances. Delaware Subsidiary agrees that if, at any time
after the Effective Time, CTC Massachusetts shall consider or be advised that
any further deeds, assignments or assurances are necessary or desirable to
vest, perfect or confirm in the CTC Massachusetts title to any property or
rights of Delaware Subsidiary, the CTC Massachusetts and its officers and
directors may execute and deliver all such deeds, assignments and assurances
and do all other things necessary or desirable to vest, perfect or confirm
title to such property or rights in the CTC Massachusetts and otherwise to
carry out the purposes of this Agreement, in the name of Delaware Subsidiary or
otherwise.
ARTICLE III
Conversion of Stock
3.1 Conversion of Stock. At the Effective Time, the stock of CTC
Massachusetts shall be converted into stock of Surviving Parent, as follows:
(a) each share of CTC Massachusetts Common Stock and each share of
Preferred Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into one share of Surviving Parent Common
Stock and one share of Preferred Stock, respectively; and
(b) each share of Delaware Subsidiary Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into
one share of common stock of the Surviving Subsidiary.
3.2 Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of CTC Massachusetts Common Stock and shares of Preferred
Stock shall be deemed for all purposes to evidence ownership of, and to
represent, shares of Surviving Parent Common Stock and Preferred Stock into
which the shares of CTC Massachusetts Common Stock and Preferred Stock formerly
represented by such certificates have been converted as provided in this
Agreement. The registered owner on the books and records of Surviving Parent or
its transfer agent of any outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to Surviving Parent or its transfer agents, have and be entitled to exercise
any voting and other rights with respect to, and to receive any dividends and
other distributions upon, the shares of CTC Massachusetts Common Stock and
Preferred Stock evidenced by such outstanding certificates as provided above.
3.3 Stock Options. Each right or option to purchase shares of CTC
Massachusetts Common Stock granted under the 1993 Employee Stock Option Plan,
the 1996 Employee Stock Option Plan, the Employee
A-3
<PAGE>
Stock Purchase Plan, the Employee Stock Benefit Plan and the 401(k) Savings
Plan, and, upon approval of the stockholders of CTC Massachusetts, the 1998
Incentive Plan, (collectively, the "Plans"), and all other rights, options and
warrants to purchase CTC Massachusetts Common Stock which is outstanding
immediately prior to the Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become an option, right and warrant to purchase the same number of shares of
Surviving Parent Common Stock at the same price per share, and upon the same
terms and subject to the same conditions as in effect at the Effective Time.
The same number of shares of Delaware Common Stock shall be reserved for
purposes of said Plans and upon exercise of such rights, options and warrants
as is equal to the number of shares of CTC Massachusetts Common Stock so
reserved as of the Effective Time. As of the Effective Time, Surviving Parent
hereby assumes the Plans and all obligations of CTC Massachusetts under the
Plans including the outstanding options or awards or portions thereof granted
pursuant to the Plans and assumes all obligations of CTC Massachusetts under
all other options, rights and warrants.
3.4 Validity of Surviving Parent Common Stock and Preferred Stock. All
shares of Surviving Parent Common Stock and Preferred Stock into which CTC
Massachusetts Common Stock and Preferred are to be converted pursuant to the
Merger shall not be subject to any statutory or contractual preemptive rights,
shall be validly issued, fully paid and nonassessable and shall be issued in
full satisfaction of all rights pertaining to such CTC Massachusetts Common
Stock and Preferred Stock.
3.5 Rights of Former Holders. From and after the Effective Time, no holder
of certificates which evidenced CTC Massachusetts Common Stock and Preferred
Stock immediately prior to the Effective Time shall have any rights with
respect to the shares formerly evidenced by those certificates, other than to
receive the shares of Surviving Parent Common Stock and Preferred Stock into
which such CTC Massachusetts Common Stock and Preferred Stock shall have been
converted pursuant to the Merger.
ARTICLE IV
General
4.1 Consents. Each of the parties hereto shall use its best efforts to
obtain the consent and approval of each person whose consent or approval shall
be required in order to permit consummation of the Merger.
4.2 Governmental Authorizations. Each of the parties shall cooperate in
filing any necessary reports or other documents with any federal, state, local
or foreign authorities having jurisdiction with respect to the Merger.
4.3 Waiver and Amendment. This Agreement may be amended by action of the
Board of Directors of each party hereto without any action by the stockholders
of the parties, except that (a) any amendment to Section 3.1, (b) any amendment
changing the terms, rights, powers or preferences of the Surviving Parent
Common Stock or Preferred Stock, or (c) any amendment altering any terms of
this Agreement if such alteration would adversely affect the holders of CTC
Massachusetts Common Stock or Preferred Stock, or Surviving Parent Common Stock
or Preferred Stock, must be approved by a majority of the voting power of the
outstanding CTC Massachusetts Common Stock and Preferred Stock.
4.4 Termination. This Agreement may be terminated and the Merger and other
transactions provided for by this Agreement abandoned at any time prior to the
Effective Time, whether before or after adoption and approval of this Agreement
at the Shareholders' Meeting, by action of the Board of Directors of CTC
Massachusetts if the Board determines that the consummation of the transactions
contemplated by this Agreement would not, for any reason, be in the best
interests of Delaware Subsidiary and its shareholders.
4.5 Entire Agreement. This Agreement (including any exhibits), contains the
entire agreement among the parties with respect to the Merger and supersedes
all prior and concurrent arrangements, letters of intent or understandings
relating to the Merger.
A-4
<PAGE>
4.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one and the same agreement. This Agreement shall
become effective when one or more counterparts has been signed by each of the
parties and delivered to each of the other parties.
4.7 Headings. The article, section and paragraph headings in this Agreement
have been inserted for identification and reference and shall not by themselves
determine the meaning or interpretation of any provision of this Agreement.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware and, so far as applicable,
the merger provisions of the Massachusetts General Corporation Law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
CTC Communications Corp.,
a Massachusetts corporation
_____________________________________
By:
Title:
CTC Communications Group, Inc.
a Delaware corporation
_____________________________________
By:
Title:
CTC-Newco, Inc.
a Delaware corporation
_____________________________________
By:
Title:
A-5
<PAGE>
APPENDIX B
PROVISIONS OF THE GENERAL LAWS OF MASSACHUSETTS
RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
(SECTIONS 86 TO 98 OF CHAPTER 156B OF THE
GENERAL LAWS OF MASSACHUSETTS)
86. Right of Appraisal. If a corporation proposes to take a corporate action
as to which any section of this chapter provides that a stockholder who objects
to such action shall have the right to demand payment for his shares and an
appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall
apply except as otherwise specifically provided in any section of this chapter.
Except as provided in sections eighty-two and eighty-three, no stockholder
shall have such right unless (1) he files with the corporation before the
taking of the vote of the shareholders on such corporate action, written
objection to the proposed action stating that he intends to demand payment for
his shares if the action is taken and (2) his shares are not voted in favor of
the proposed action.
87. Notice of stockholders meeting to contain statement as to appraisal
rights. The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in section 88 to 98, inclusive, of Chapter 156B of
the General Laws of Massachusetts."
88. Notice to objecting stockholder that corporate action has become
effective. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
89. Demand for payment by objecting stockholder. If within twenty days after
the date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight any stockholder
to whom the corporation was required to give such notice shall demand in
writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
B-1
<PAGE>
90. Determination of value of stock by superior court. If during the period
of thirty days provided for in section eighty-nine the corporation upon which
such demand is made and any such objecting stockholder fail to agree as to the
value of such stock, such corporation or any such stockholder may within four
months after the expiration of such thirty-day period demand a determination of
the value of the stock of all such objecting stockholders by a bill in equity
filed in the superior court in the county where the corporation in which such
objecting stockholder held stock had or has its principal office in the
commonwealth.
91. Bill in equity to determine value of stock of objecting stockholders on
failure to agree on value thereof etc.; parties to bill etc.; service of bill
in corporation; notice to stockholder parties etc. If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not reached
agreement as to the value thereof. If the bill is filed by a stockholder, he
shall bring the bill in his own behalf and in behalf of all other stockholders
who have demanded payment for their shares and with whom the corporation has
not reached agreement as to the value thereof, and service of the bill shall be
made upon the corporation by subpoena with a copy of the bill annexed. The
corporation shall file with its answer a duly verified list of all such other
stockholders, and such stockholders shall thereupon be deemed to have been
added as parties to the bill. The corporation shall give notice in such form
and returnable on such date as the court shall order to each stockholder party
to the bill by registered or certified mail, addressed to the last known
address of such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-nine
shall be deemed to have consented to the provisions of this section relating to
notice, and the giving of notice by the corporation to any such stockholder in
compliance with the order of the court shall be a sufficient service of process
on him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.
92. Bill in equity to determine value of stock of objecting stockholders on
failure to agree on value thereof, etc.; entry of decree determining value of
stock; date on which value is to be determined. After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders
who have become entitled to the valuation of and payment for their shares, and
shall order the corporation to make payment of such value, together with
interest, if any, as hereinafter provided, to the stockholders entitled thereto
upon the transfer by them to the corporation of the certificates representing
such stock if certificated or if uncertificated, upon receipt of an instruction
transferring such stock to the corporation. For this purpose, the value of the
shares shall be determined as of the day preceding the date of the vote
approving the proposed corporate action and shall be exclusive of any element
of value arising from the expectation, or accomplishments of the proposed
corporate action.
93. Bill in equity to determine value of stock of objecting stockholders on
failure to agree on value thereof, etc.; court may refer bill, etc., to special
master to hear parties, etc. The court in its discretion may refer the bill or
any question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.
94. Bill in equity to determine value of stock of objecting stockholders on
failure to agree on value thereof, etc.; stockholder parties may be required to
submit their stock certificates for notation thereon of pendency of bill,
etc. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95. Bill in equity to determine value of stock of objecting stockholders on
failure to agree on value thereof, etc.; taxation of costs, etc.; interest on
award, etc. The costs of the bill including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts
B-2
<PAGE>
retained by any party, shall be determined by the court and taxed upon the
parties to the bill, or any of them, in such manner as appears to be equitable,
except that all costs of giving notice to stockholders as provided in this
chapter shall be paid by the corporation. Interest shall be paid upon any award
from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
96. Stockholder demanding payment for stock not entitled to notice of
stockholders' meetings or to vote stock or to receive dividends, etc.;
exceptions. Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends
or other distributions payable to stockholders of record at a date which is
prior to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to
and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3) inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. Certain shares paid for by corporation to have status of treasury stock,
etc. The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
98. Enforcement by stockholder of right to receive payment for his shares to
be exclusive remedy; exception. The enforcement by a stockholder of his right
to receive payment for his shares in the manner provided in this chapter shall
be an exclusive remedy except that this chapter shall not exclude the right of
such stockholder to bring or maintain an appropriate proceeding to obtain
relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
B-3
<PAGE>
APPENDIX C
CTC COMMUNICATIONS CORP.
1999 EQUITY INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of this Equity Incentive Plan for Non-Employee Directors (the
"Plan") is to advance the interests of (the "Company") by enhancing the ability
of the Company to attract and retain non-employee directors who are in a
position to make significant contributions to the success of the Company and to
align the interests of those directors more closely with those of the
stockholders.
2. Administration
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan shall be administered by the Compensation Committee of the
Board or such other committee of the Board designated by the Board for that
purpose (the "Committee"). If the Board shall determine that the Plan shall be
administered by the entire Board, the references in the Plan to the "Committee"
shall be deemed references to the Board. The Committee shall have authority,
not inconsistent with the express provisions of the Plan, (a) to grant options
in accordance with the Plan, (b) to prescribe the form or forms of instruments
evidencing options and any other instruments required under the Plan and to
change such forms from time to time; (c) to adopt, amend and rescind rules and
regulations for the administration of the Plan; and (d) to interpret the Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such determinations of the Committee shall
be conclusive and shall bind all parties.
3. Effective Date and Term of the Plan
The Plan shall become effective on July 27, 1999, the date on which the Plan
was approved by the Board of Directors of the Company, subject to approval by
the stockholders of the Company. After July 27, 2009, no option shall be
granted under the Plan, but options previously granted may extend beyond that
date. No elections may be made, and no Deferred Stock Awards shall be granted,
pursuant to Section 7 with respect to Fees for services rendered after March
31, 2009.
4. Shares Subject to the Plan
a. Number of Shares. Subject to adjustment as provided in Section 4(c), the
aggregate number of shares of Common Stock of the Company ("Stock") that may be
delivered upon the exercise of options or pursuant to Deferred Stock Awards
granted under the Plan shall be 200,000. If any option granted under the Plan
terminates without having been exercised in full, the number of shares of Stock
as to which such option was not exercised shall be available for future grants
within the limits set forth in this Section 4(a).
b. Shares to be Delivered. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock shall be delivered under the Plan.
c. Changes in Stock. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's
capital stock occurring after the effective date of the Plan, the number and
kind of shares of stock or securities of the Company subject to options then
outstanding or subsequently granted under the Plan, the maximum number of
shares or securities that may be delivered under the Plan, the exercise price,
and other relevant provisions shall be appropriately adjusted by the Committee,
whose determination shall be binding on all persons.
The Committee may also adjust the number of shares subject to outstanding
awards and the exercise price and the terms of outstanding awards to take into
consideration material changes in accounting practices or
C-1
<PAGE>
principles, extraordinary dividends, consolidations or mergers (except those
described in Section 6(j)), acquisitions or dispositions of stock or property
or any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan.
5. Eligibility for the Plan
Directors who are not employees of the Company or any subsidiary of the
Company ("Eligible Directors") shall be eligible to receive options and
Deferred Stock Awards under the Plan.
6. Terms and Conditions of Options
a. Formula Options. At each annual meeting at which an Eligible Director is
reelected or is continuing as a director, such Eligible Director shall be
granted an option to purchase 10,000 shares of Stock. The options awarded under
this paragraph (a) are referred to as "Formula Options." The grant of Formula
Options shall not require any action by the Committee.
b. Discretionary Options. The Committee shall also have the authority under
this Plan to award options to purchase Stock to Eligible Directors in such
amounts and on such terms not inconsistent with this Plan as it shall determine
at the time of the award. The Options awarded under this paragraph (b) are
referred to herein as "Discretionary Options."
c. Exercise Price. The exercise price of each Formula Option shall be 100%
of the Fair Market Value (as defined below) per share of the Stock on the day
before the date the option is granted. The exercise price of each Discretionary
Options shall be set by the Committee. In no event, however, shall the option
price of any option be less, in the case of an original issue of authorized
stock, than par value per share. For purposes of this paragraph, (A) the "Fair
Market Value" of a share of Stock on any date shall be the Closing Price or, if
there was no Closing Price on such day, the latest day prior thereto on which
there was a Closing Price; and (B) the "Closing Price" of the Stock on any
business day will be the last sale price as reported on the principal market on
which the Stock is traded or, if no last sale is reported, then the mean
between the highest bid and lowest asked prices on that day.
d. Duration of Options. The latest date on which an option may be exercised
(the "Final Exercise Date") shall be (i) in the case of Formula Options, the
date which is five years from the date the Option was granted and (ii) in the
case of Discretionary Options, such date as the Committee may determine, but in
no event later than ten years from the date the Option was granted.
e. Exercise of Options.
i. Each Formula Option shall be exercisable on the date of grant. Each
Discretionary Option shall become exercisable at such time or times as the
Committee shall determine.
ii. Any exercise of an option shall be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (i) any
documentation required by the Committee and (ii) payment in full for the
number of shares for which the option is exercised.
iii. If an option is exercised by the executor or administrator of a
deceased director, or by the person or persons to whom the option has been
transferred by the director's will, the applicable laws of descent and
distribution or pursuant to Section 6(g) below, the Company shall be under
no obligation to deliver Stock pursuant to such exercise until the Company
is satisfied as to the authority of the person or persons exercising the
option.
f. Payment for and Delivery of Stock. Stock purchased upon exercise of
options under the Plan shall be paid for as follows: (i) in cash or by check
(acceptable to the Company in accordance with guidelines established for this
purpose), bank draft or money order payable to the order of the Company; (ii)
through the delivery of shares of Stock (which, in the case of shares of Stock
acquired from the Company, have been
C-2
<PAGE>
outstanding for at least six months) having a fair market value on the last
business day preceding the date of exercise equal to the exercise price; (iii)
by delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the purchase price; or
(iv) by any combination of the foregoing permissible forms of payment;
provided, that if the Stock delivered upon exercise of the option is an
original issue of authorized Stock, at least so much of the exercise price as
represents the par value of such Stock shall be paid other than with a personal
check of the option holder.
g. Discretionary Payments. If (i) the market price of shares of Stock
subject to an option exceeds the exercise price of the option at the time of
its exercise, and (ii) the person exercising the option so requests the
Committee in writing, the Committee may in its sole discretion cancel the
option and cause the Company to pay in cash or in shares of Stock (at a price
per share equal to the fair market value per share) to the person exercising
the option an amount equal to the difference between the fair market value of
the Stock which would have been purchased pursuant to the exercise (determined
on the date the option is canceled) and the aggregate exercise price which
would have been paid.
h. Death. Except as otherwise determined by the Board, upon the death of any
Eligible Director, all options not then exercisable shall terminate. All
options held by the director that are exercisable immediately prior to death
may be exercised by his or her executor or administrator, or by the person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution or pursuant to Section 6(g), at any time within one
year after the director's death (subject, however, to the limitations of
Section 6(c) regarding the maximum exercise period for such option). After
completion of that one-year period, such options shall terminate to the extent
not previously exercised.
i. Other Termination of Status of Director. If a director's service with the
Company terminates for any reason other than death, all options held by the
director that are not then exercisable shall terminate. Options that are
exercisable on the date of termination shall continue to be exercisable for a
period of three months (subject to Section 6(c)). After completion of that
three-month period, such options shall terminate to the extent not previously
exercised, expired or terminated.
j. Mergers, etc. In the event of a merger or consolidation of the Company,
or series of transactions of which such a merger or consolidation is a part,
which results in the stockholders of the Company immediately prior to such
transaction or series of transactions beneficially owning less than a majority
of the outstanding voting securities of the surviving entity immediately
following such transaction or series of transactions or which results in a
single person or entity or group of persons or entities acting in concert
owning at least a majority of the outstanding voting securities of the
surviving entity immediately following such transaction or series of
transactions, a sale, transfer, lease or other conveyance of all or
substantially all of the Company's assets in a transaction or series of
transactions, or a dissolution or liquidation of the Company, all options
hereunder will terminate; provided, that immediately prior to the consummation
of any such transaction described above, all options outstanding hereunder that
are not otherwise exercisable shall become immediately exercisable, and
provided, further, that in lieu of termination, the Board may cause the
acquiring or surviving corporation to assume all Options outstanding under this
Plan, or provide replacement options for such options on substantially the same
terms as are provided by this Plan, with such adjustments to the number of
shares covered by such Options and the exercise price thereof as may be
necessary to reflect the exchange ratio provided for in the merger or
consolidation and with such other changes as are necessary to permit the
options to remain exercisable and outstanding after the effective date of such
merger or consolidation despite the termination of the Eligible Director's
service as a director of the Company.
7. Deferred Stock Grant in Lieu of Fees
a. Deferred Stock Grants. Each Eligible Director who shall have so elected
(pursuant to the procedures below) shall be granted irrevocable rights to
receive shares of Stock to be delivered in the future ("Deferred Stock Awards")
in lieu of the cash fees that would otherwise be payable to such Eligible
Director. Each Eligible Director shall receive a Deferred Stock Award in lieu
of any annual retainer fee to which such Eligible
C-3
<PAGE>
Director may be entitled ("Annual Fee") and a Deferred Stock Award in lieu of
any fees to which such Eligible Director may be entitled with respect to any
meeting of the Board or any committee thereof ("Meeting Fees"). The number of
shares of Stock subject to a Deferred Stock Award shall be that number of
shares of Stock the Fair Market Value of which is equal, in the case of the
Annual Fee, to the amount of such Annual Fee on the first business day of the
calendar year for which such Annual Fee is payable, and in the case of a
Meeting Fee, to the amount of such Meeting Fee on the day before the date of
meeting for which such Meeting Fee is payable. The grant of Deferred Stock
Awards shall not require any action by the Committee.
b. Issuance of Deferred Stock. Stock issuable pursuant to a Deferred Stock
Award granted under this Plan shall be issued by the Company to the Eligible
Director on the earliest of (i) the first business day of the third January
following such Deferred Stock Award, (ii) the date of an event described in
Section 6(j) of this Plan or (iii) the date on which such Eligible Director
shall cease to be a Director of the Company, and certificates therefore shall
be delivered by the Company promptly after such date.
c. Notice Procedures. Prior to the beginning of any fiscal year of the
Company, an Eligible Director may notify the Company in writing of his or her
election to be granted Deferred Stock Awards in lieu of fees for the calendar
year succeeding the year in which the election is made and unless and until any
subsequent notice is given, as provided below, each calendar year thereafter (a
"Deferred Stock Election"). By making a Deferred Stock Election, such Eligible
Director agrees to forego any cash payment of the Annual Fees and Meeting Fees
paid in the form of Deferred Stock Awards. Any Deferred Stock Election shall be
irrevocable as to each calendar year once that year begins. Any Deferred Stock
Election shall continue in effect from year to year, until revoked, which
revocation shall be effective as to all years subsequent to the year in which
the notice of revocation is given, unless and until such Eligible Director
makes a subsequent Deferred Stock Election.
8. General Provisions
a. Effect of Lack of Shares. In the event that on any date on which options
or Deferred Stock Awards are to be granted hereunder, there is not a sufficient
number of shares of Stock available to implement fully the shares issuable
thereunder, then each such director entitled to an option grant or a Deferred
Stock Award at such time shall receive a pro rata portion of the option and/or
Deferred Stock Award contemplated by this Plan to the maximum extent. In
addition, if an Deferred Stock Award cannot be implemented due to a lack of
shares, then the director's agreement to forgo Fees shall be deemed
automatically revoked to the same extent unless with the Director's consent the
Board is seeking authorization for additional shares.
b. Non-Plan Issuances. Neither adoption of the Plan nor the grant of options
or Deferred Stock Grants to an Eligible Director shall affect the Company's
right to grant to such director options that are not subject to the Plan, to
issue to such director Stock as a bonus or otherwise, or to adopt other plans
or arrangements under which Stock may be issued to directors.
c. No Rights as Stockholder. A holder of an option or Deferred Stock Award
shall not have the rights of a stockholder with respect to shares issuable with
respect to such option or award.
d. Fulfillment of Legal Obligations. The Company shall not be obligated to
deliver any shares of Stock (a) until, in the opinion of the Company's counsel,
all applicable federal and state laws and regulations have been complied with,
and (b) if the outstanding Stock is at the time listed on any stock exchange or
market, until the shares to be delivered have been listed or authorized to be
listed on such exchange or market upon official notice of issuance, and (c)
until all other legal matters in connection with the issuance and delivery of
such shares have been approved by the Company's counsel. If the sale of Stock
has not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the option, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
C-4
<PAGE>
e. Nontransferability of Options and Awards. No option or Deferred Stock
Award may be transferred other than by will or by the laws of descent and
distribution. During a director's lifetime, an option may be exercised only by
him or her. During a director's lifetime, a Deferred Stock Award may be paid
only by him or her.
f. Termination & Amendment. The Board may at any time terminate the Plan as
to any further grants of options or Deferred Stock Awards. The Committee may at
any time or times, amend the Plan for any purpose which may at the time be
permitted by law, but (without the person's consent) no such amendment shall
adversely affect the rights of any person with respect to a previously granted
option or Deferred Stock Award.
C-5
<PAGE>
APPENDIX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CTC COMMUNICATIONS GROUP, INC.
The undersigned, being of legal age, in order to form a corporation under
and pursuant to the laws of the State of Delaware, do hereby set forth as
follows:
FIRST: The name of the corporation is CTC COMMUNICATIONS GROUP, INC.
SECOND: The address of the initial registered and principal office of this
corporation in this state is c/o United Corporate Services, Inc., 15 East North
Street, in the City of Dover, County of Kent, State of Delaware 19901 and the
name of the registered agent at said address is United Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the corporation laws of
the State of Delaware.
FOURTH: (a) The corporation shall be authorized to issue two classes of
stock to be designated respectively Common Stock and Preferred Stock. The total
number of shares of all classes of stock which the Corporation has authority to
issue is One-Hundred Ten Million (110,000,000), consisting of One-Hundred
Million (100,000,000) shares of Common Stock, $0.01 par value (the "Common
Stock"), and Ten Million (10,000,000) shares of Preferred Stock, $1.00 par
value (the "Preferred Stock"). Of the authorized shares of Preferred Stock, Six
Thousand Six Hundred Sixty-Six (666,666) shares shall be designated "Series A
Convertible Preferred Stock."
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, subject to limitations prescribed
by law or set forth in this Certificate of Incorporation, to fix by resolution
or resolutions the designations, powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each such series of
Preferred Stock, including without limitation authority to fix by resolution or
resolutions, the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation preferences of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such
series and the designation thereof, or any of the foregoing.
Subject to the limitations set forth in this Certificate of Incorporation,
the Board of Directors is further authorized to increase (but not above the
total number of authorized shares of the class) or decrease (but not below the
number of shares of any such series then outstanding) the number of shares of
any series, the number of which was fixed by it, subsequent to the issue of
shares of such series then outstanding, subject to the powers, preferences and
rights, and the qualifications, limitations and restrictions thereof stated in
the resolution of the Board of Directors originally fixing the number of shares
of such series. If the number of shares of any series is so decreased, then the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of
such series.
(b) The relative and other rights, preferences, privileges, and restrictions
of the Series A Convertible Preferred Stock and the holders thereof
(collectively, the "Stockholders") are as follows:
1. Designation. The number of shares of the series designated "Series A
Convertible Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock"), which number may be decreased (but not increased) by the
Board of Directors without a vote of stockholders; provided, however, that such
number may not be decreased below the number of then currently outstanding
shares of Series A Preferred Stock. All capitalized terms used in this
Certificate of Incorporation and not otherwise defined shall have the meaning
given to such terms in Paragraph 14 of this Section (b) of Article FOURTH.
D-1
<PAGE>
2. Dividends. The holders of Series A Preferred Stock shall be entitled to
participate in all dividends that are declared and paid on Common Stock on the
same basis as if all of the Series A Preferred Stock had been converted to
Common Stock in accordance with Paragraph 7 of this Section (b) of Article
FOURTH.
3. Liquidation Preference. (a) In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, either voluntarily or
involuntarily, each holder of Series A Preferred Stock shall be entitled, after
provision for the payment of the Corporation's debts and other liabilities, to
be paid in cash in full, before any distribution is made on any Junior
Securities, an amount in cash (the "Liquidation Amount") equal to the greater
of (i) the Series A Preference Amount, or (ii) the Minimum Preference Amount,
provided, however, if the amount each such holder of Series A Preferred Stock
would have received had such holder converted all Series A Preferred Stock held
by such holder into Common Stock immediately prior to such liquidation,
dissolution or winding up of the Corporation would be equal to or greater than
the Liquidation Amount, the Series A Preferred Stock shall be automatically
converted into Common Stock in accordance with the terms herein, effective
immediately prior to such liquidation, dissolution or winding up of the
Corporation. If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the net assets of the Corporation distributable
among the holders of all outstanding Senior Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount to which they are entitled with respect to their Senior Preferred Stock,
then the entire net assets of the Corporation remaining after the provision for
the payment of the Corporation's debts and other liabilities shall be
distributed among the holders of the Senior Preferred Stock ratably in
proportion to the full preferential amounts to which they would otherwise be
respectively entitled on account of their Senior Preferred Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Senior Preferred Stock shall have been paid in full the preferential amounts to
which they shall be entitled to receive on account of their Senior Preferred
Stock, the remaining net assets of the Corporation shall be distributed to the
other stockholders of the Corporation as their respective interests may appear.
(b) Consolidation, Merger, etc. A consolidation or merger of the Corporation
with or into any other corporation or corporations (a "merger") other than a
merger in which the holders of the Corporation's Common Stock own a majority of
the voting power of the surviving corporation, or a Sale of the Corporation, or
the effectuation by the Corporation or its stockholders of a transaction or a
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is disposed of (a "reorganization") shall be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation within the meaning of this Paragraph 3, provided, however, the
transfer of all or substantially all of the Corporation's assets to one or more
wholly owned subsidiaries of the Corporation shall not be deemed a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Paragraph 3. Any reorganization of the Corporation required by any court or
administrative body in order to comply with any provision of law shall be
deemed to be an involuntary liquidation, dissolution or winding up of the
Corporation unless the preferences, qualifications, limitations, restrictions
and special or relative rights granted to or imposed upon the holders of Series
A Preferred Stock are not adversely affected by such reorganization.
Notwithstanding the foregoing, a consolidation, merger, Sale of the Corporation
or reorganization shall not be deemed a liquidation, dissolution or winding up
of the Corporation for the purposes of this Paragraph 3 if (i) the holders of
the Requisite Percentage of the Series A Preferred Stock waive in writing the
provisions of the preceding two sentences, as applicable and (ii) the Board of
Directors of the Corporation consents to such waiver.
(c) Holders of Series A Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or winding
up of the affairs of the Corporation in excess of the amounts set forth in this
Paragraph 3.
4. Voting.
(a) Rights of Series A Preferred Stock. Except as otherwise required by law
or as provided herein and subject to the rights of any class or series of
capital stock of the Corporation that hereafter may be issued in compliance
with the terms of these Articles of Incorporation, the shares of the Series A
Preferred Stock shall
D-2
<PAGE>
vote together with the shares of the Corporation's Common Stock and any other
shares of the Corporation's stock which, by its terms, is entitled to vote
together with the Series A Preferred Stock and the Common Stock as a single
class at any annual or special meeting of stockholders of the Corporation, or
may act by written consent in the same manner as the Corporation's Common
Stock, upon the following basis: each holder of shares of Series A Preferred
Stock shall be entitled to such number of votes for the Series A Preferred
Stock held by such holder on the record date fixed for such meeting, or on the
effective date of such written consent, as shall be equal to the lesser of (i)
the whole number of shares of the Corporation's Common Stock issuable upon
conversion and exercise of all shares of Series A Preferred Stock and Warrants
held by such holder immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent and (ii)
the number of shares of Series A Preferred Stock held by such holder multiplied
by 2.476.
5. Special Approval Rights.
(a) Restricted Actions. So long as any shares of Series A Preferred Stock
are outstanding, the affirmative vote of the holders of the Requisite
Percentage of Series A Preferred Stock, acting by written consent or voting
separately as a single class in person or by proxy, at a special or annual
meeting of holders of Series A Preferred Stock called for the purpose, shall be
necessary to authorize the Corporation to take any of the following actions
(herein, each a "Restricted Action"):
(A) authorize, or increase or permit any Subsidiary to authorize or
increase, the authorized number of shares of, or issue additional shares of
Series A Preferred Stock or any class or series of the Corporation's or any
Subsidiary's capital stock or options, warrants or other rights to acquire
any such capital stock ranking with respect to liquidation preference,
dividends or voting rights, senior in right to, or on a parity with, the
Series A Preferred Stock or entitling the holders thereof to receive any
dividends or distributions (other than stock dividends) at any time when
any shares of Series A Preferred Stock are outstanding; provided however,
that nothing contained in this Paragraph 5 shall restrict the Company from
authorizing or issuing (i) Common Stock or warrants or options to acquire
Common Stock or (ii) Straight Preferred Stock;
(B) amend, repeal or change, directly or indirectly, any of the
provisions of the Certificate of Incorporation of the Corporation or the
By-laws of the Corporation in any manner that would alter or change the
powers, preferences or special rights of the shares of Series A Preferred
Stock so as to affect them adversely;
(C) at any time when the outstanding shares of Series A Preferred Stock
and Preferred Stock Derivatives represent at least four and 55/100 percent
(4.55%) of the Corporation's Common Stock Deemed Outstanding, authorize or
effect the declaration or payment of dividends or other distributions
(other than stock dividends) upon, or the redemption or repurchase of, any
equity securities of the Corporation other than repurchase of Common Stock
from departing employees that has been approved by the Compensation
Committee and the Board of Directors; or
(D) at any time when the outstanding shares of Series A Preferred Stock
and Preferred Stock Derivatives represent at least four and 55/100 percent
(4.55%) of the Corporation's Common Stock Deemed Outstanding, permit the
Board of Directors of the Corporation to consist of more than eleven
(11) members.
(b) Approval. The approval rights of the holders of shares of Series A
Preferred Stock to authorize the Corporation to take any of the Restricted
Actions as provided in this Paragraph 5 may be exercised at any annual meeting
of stockholders, at a special meeting of the holders of Series A Preferred
Stock held for such purpose or by written consent. At each meeting of
stockholders at which the holders of shares of Series A Preferred Stock shall
have the right, voting separately as a single class, to authorize the
Corporation to take any Restricted Action as provided in this Paragraph 5, the
presence in person or by proxy of the holders of the Requisite Percentage of
Series A Preferred Stock entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any adjournment
thereof, in the absence of a quorum of the
D-3
<PAGE>
holders of shares of Series A Preferred Stock, a majority of the holders of
such shares present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of shares of Series A
Preferred Stock from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
6. Compensation Committee. Unless otherwise consented to by the holders of
the Requisite Percentage of outstanding Series A Preferred Stock, so long as
any shares of Series A Preferred Stock are outstanding and so long as the
outstanding shares of Series A Preferred Stock and Preferred Stock Derivatives
represent at least four and 55/100 percent (4.55%) of the Corporation's Common
Stock Deemed Outstanding, the Board of Directors shall elect a Compensation
Committee of the Board of Directors consisting of three (3) individuals, one of
whom shall be a director designated in writing by the holders of a majority of
the Series A Preferred Stock, and the other two of which shall consist of
independent directors who are not employed by the Corporation and are not
Affiliates of those stockholders who are Affiliates of the Corporation
("Independent Directors"), which Compensation Committee shall be increased by
one (1) member, which member shall be the member added pursuant to Section 7.6
of the Purchase Agreement or another member satisfactory to the holders of the
Requisite Percentage of outstanding Series A Preferred Stock and the
Corporation's chief executive officer. So long as any shares of Series A
Preferred Stock are outstanding and so long as the outstanding shares of Series
A Preferred Stock and Preferred Stock Derivatives represent at least four and
55/100 percent (4.55%) of the Corporation's Common Stock Deemed Outstanding,
decisions of the Compensation Committee must be made by the affirmative vote of
at least three (3) members. The Compensation Committee shall approve all
recommendations to the Board of Directors as to the following, and the Board of
Directors shall not have the power to approve any of the following without such
recommendation, so long as any shares of Series A Preferred Stock are
outstanding and so long as the outstanding shares of Series A Preferred Stock
and Preferred Stock Derivatives represent at least four and 55/100 percent
(4.55%) of the Corporation's Common Stock Deemed Outstanding, provided however,
that nothing contained herein shall restrict the Corporation from honoring its
contractual obligations existing on April 10, 1998 and disclosed in the
Purchase Agreement:
(i) the terms of employment, including compensation, of all new senior
management employees;
(ii) any increases in the compensation or benefits of any senior
management employee;
(iii) the terms of, and allocations of awards to senior management
employees under, any bonus, profit-sharing, or similar incentive plan
arrangements;
(iv) the award of any other incentive or bonus compensation to senior
management employees;
(v) the issuance of capital stock or Convertible Securities to any
employees or directors of the Corporation or its Subsidiaries other than
upon exercise of options or conversion of Convertible Securities not issued
in violation of this Paragraph 6; and
(vi) the issuance of capital stock or Convertible Securities to
consultants to the Corporation or its Subsidiaries other than Common Stock,
warrants and options to purchase Common Stock representing more than 40,000
shares of Common Stock in the aggregate on a fully diluted basis with
respect to all such issuances during any fiscal year Subsidiaries other
than upon exercise of options or conversion of Convertible Securities not
issued in violation of this Paragraph 6.
7. Conversion Rights.
(a) Conversion Procedure.
(i) At any time and from time to time, any holder of Series A Preferred
Stock shall have the right, at its option, to convert all or any portion of
each share of Series A Preferred Stock (including any fraction of a share)
held by such holder into a number of shares of fully paid and nonassessable
Common Stock computed by dividing the Series A Preference Amount by the
Conversion Price in effect on the Conversion Date; provided, however, that
in the event of the conversion of Series A Preference Stock pursuant to
Paragraph 3(a) or Paragraph 7(g) of this Section (b) of Article FOURTH, the
number of shares
D-4
<PAGE>
of fully paid and nonassessable Common Stock into which each Share of
Series A Preferred Stock shall convert shall be computed by dividing the
greater of the Series A Preference Amount or $21.39 by the Conversion Price
in effect on the Conversion Date.
Notwithstanding any other provision hereof, if a conversion of Series A
Preferred Stock is to be made in connection with a Sale of the Corporation,
such conversion may, at the election of any holder tendering Series A
Preferred Stock for conversion, be conditioned upon the consummation of the
Sale of the Corporation, in which case such conversion shall not be deemed
to be effective until immediately prior to the consummation of such Sale of
the Corporation.
(ii) Subject to the provisions of Paragraph 7(a)(i), each conversion of
Series A Preferred Stock shall be deemed to have been effected as of the
close of business on the effective date of such conversion specified in a
written notice (the "Conversion Date"); provided, however, that the
Conversion Date shall not be a date earlier than the date such notice is so
given, and if such notice does not specify a conversion date, the
Conversion Date shall be deemed to be the date such notice is given to the
Corporation. On the Conversion Date, the rights of the holder of such
Series A Preferred Stock as such holder (including the right to receive
dividends) shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued
upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Common Stock represented thereby.
(iii) As soon as practicable after the Conversion Date, but in any event
within ten (10) business days after the holder has delivered the
certificates (or affidavits of loss in form and substance reasonably
satisfactory to the Company) evidencing the shares of Series A Preferred
Stock converted into shares of Common Stock in accordance herewith, the
Corporation shall deliver to the converting holder:
(x) a certificate or certificates representing, in the aggregate,
the number of shares of Common Stock issued upon such conversion, in
the same name or names as the certificates representing the converted
shares and in such denomination or denominations as the converting
holder shall specify and a check for cash with respect to any
fractional interest in a share of Common Stock as provided in clause
(vii) of this Paragraph 7(a); and
(y) a certificate representing any shares that were represented by
the certificate or certificates delivered to the Corporation in
connection with such conversion but that were not converted.
(iv) The issuance of certificates for shares of Common Stock upon
conversion of Series A Preferred Stock shall be made without charge to the
holders of such Series A Preferred Stock for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock. Upon
conversion of any shares of Series A Preferred Stock, the Corporation shall
take all such actions as are necessary in order to insure that the Common
Stock so issued upon such conversion shall be validly issued, fully paid
and nonassessable.
(v) The Corporation shall not close its books against the transfer of
Series A Preferred Stock or of Common Stock issued or issuable upon
conversion of Series A Preferred Stock in any manner that interferes with
the timely conversion of Series A Preferred Stock. The Corporation shall
assist and cooperate with any holder of shares of Series A Preferred Stock
required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of shares of Series
A Preferred Stock hereunder (including, without limitation, making any
filings required to be made by the Corporation).
(vi) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of the Series A Preferred Stock,
such number of shares of Common Stock as are issuable upon the conversion
of all outstanding Series A Preferred Stock. All shares of Common Stock
that are so issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable. The Corporation shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation
applicable to the Corporation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance).
D-5
<PAGE>
(vii) No fractional shares of Common Stock or script shall be issued
upon conversion of shares of the Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest as
determined by the Corporation's Board of Directors.
(b) Conversion Price. The initial conversion price shall be nine dollars
($9.00), which may be adjusted from time to time hereafter (as so adjusted, the
"Conversion Price") . If and whenever on or after the original date of issuance
of the Series A Preferred Stock the Corporation issues or sells, or in
accordance with Paragraph 7(c) is deemed to have issued or sold, any shares of
its Common Stock or Convertible Securities for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then upon such issue or sale, the Conversion Price shall be reduced to
an amount determined by dividing (a) the sum of (1) the product derived by
multiplying (i) the Conversion Price in effect immediately prior to such issue
or sale times (ii) the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received (or deemed received pursuant to Paragraph 7(c)(ii) below) by the
Corporation upon such issue or sale, by (b) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
(c) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Paragraph 7, the following
shall be applicable:
(i) Issuance of Convertible Securities. If the Corporation in any manner
issues or sells any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (a) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the cumulative minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the exercise, conversion or exchange thereof and, if applicable, the
exercise, conversion and exchange of any other Convertible Securities that
such Convertible Securities may be converted into or exchanged for, by (b)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common Stock and, if
applicable, any other Convertible Securities, are actually issued upon the
exercise, conversion or exchange of such Convertible Securities.
(ii) Change in Exercise Price or Conversion Rate. If the additional
consideration payable to the Corporation upon the exercise, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock should change at any time, the Conversion Price in effect at the time
of such change shall be readjusted to the Conversion Price that would have
been in effect at such time had such Convertible Securities that are still
outstanding provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time such Convertible
Securities were initially granted, issued or sold; and on the termination
date of any right to exercise, convert or exchange such Convertible
Securities without such right having been duly exercised, the Conversion
Price then in effect hereunder shall be increased to the Conversion Price
that would have been in effect at the time of such termination had such
Convertible Securities, to the extent outstanding immediately prior to such
termination, never been issued.
D-6
<PAGE>
(iii) Exceptions for Excluded Securities. Notwithstanding the foregoing,
no adjustments shall be made under this Paragraph 7(c) with respect to the
issuance of any Excluded Securities.
(iv) Valuation of Non-Cash Consideration. In the event that Convertible
Securities are issued for consideration other than cash, the value of such
consideration shall be made by a good faith determination by the Board.
(d) Subdivision or Combination of Common Stock. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately reduced, and conversely, in the event the outstanding
shares of Common Stock shall be combined (by reverse stock split or otherwise)
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased. In any such event
all numbers, percentages, computations and the like in this Section (b) of
Article FOURTH shall be deemed modified as necessary to give appropriate effect
to such subdivision or combination.
(e) Certain Events. If an event not specified in this Paragraph 7 occurs
that has substantially the same economic effect on the Series A Preferred Stock
as those specifically enumerated, then this Paragraph 7 shall be construed
liberally, mutatis mutandis, in order to give the Series A Preferred Stock the
intended benefit of the protections provided under this Paragraph 7. In such
event, the Corporation's Board of Directors shall make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders
of Series A Preferred Stock; provided that no such adjustment shall increase
the Conversion Price as otherwise determined pursuant to this Paragraph 7 or
decrease the number of shares of Common Stock issuable upon conversion of each
share of Series A Preferred Stock.
(f) Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A
Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Series
A Preferred Stock at least twenty (20) days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock or (c) for determining
rights to vote with respect to any dissolution or liquidation.
(g) Mandatory Conversion. Each share of Series A Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock of the Corporation on the basis set forth in Paragraph 7(a) upon not less
than 10 days prior written notice of conversion (the "Conversion Notice") from
the Corporation, which Conversion Notice and mandatory conversion shall not be
effective unless (i) the average closing bid price (or closing sales price, as
applicable) per share for the Corporation's Common Stock on the Nasdaq Stock
Market (or such national stock exchange upon which the Corporation's Common
Stock is then listed), for the period of thirty (30) consecutive trading days
ending on the last trading day prior to the giving of the Conversion Notice, is
(aa) in the case of a Conversion Notice given prior to April 10, 2002, at least
three hundred percent (300%) of the highest Conversion Price in effect during
any portion of such thirty (30) trading day period or (bb) in the case of a
Conversion Notice given on or after April 10, 2002, at least one hundred
percent (100%) of the highest Conversion Price in effect during any portion of
such thirty (30) trading day period, and (ii) a "Shelf Registration" pursuant
to the Registration Rights Agreement with respect to the "Registrable
Securities" (including those issuable upon such conversion) shall be effective
as of the time the Series A Preferred Stock converts into Common Stock. Holders
of shares of Series A Preferred Stock so converted may deliver to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or certificates for
the shares so converted. At such time as at least 500,000 shares of
D-7
<PAGE>
Series A Preferred Stock shall have been converted into Common Stock pursuant
to this Paragraph 7, all other then outstanding shares of Series A Preferred
Stock shall thereupon automatically be converted into fully paid and
nonassessable shares of Common Stock of the Corporation in the basis set forth
in Paragraph 7(a). As promptly as practicable after such conversion, the
Corporation shall issue and deliver to such holder a certificate or
certificates for the number of whole shares of Common Stock to which such
holder is entitled, together with any cash dividends and payment in lieu of
fractional shares to which such holder may be entitled pursuant to this
Paragraph 7. Until such time as a holder of shares of Series A Preferred Stock
shall surrender its certificate or certificates therefor as provided above,
such certificates shall be deemed to represent the shares of Common Stock to
which such holder shall be entitled upon the surrender thereof.
8. Redemption.
(a) The Series A Preferred Stock may be redeemed (in whole or in part) at
the option of the holders of the Requisite Percentage of Series A Preferred
Stock on or after the Maturity Date (an "Optional Redemption"). In any such
case, the holders of the Requisite Percentage of Series A Preferred Stock shall
notify the Corporation in writing of its or their intent to exercise the rights
afforded by this Paragraph 8(a) and specify a date not less than 90 nor more
than 180 days from the date of such notice on which the Series A Preferred
Stock shall be redeemed (the "Optional Redemption Date"). Upon receipt of such
notice, the Corporation shall promptly notify the remaining holders of the
Series A Preferred Stock of the Optional Redemption Date. The remaining holders
have the right to participate in such redemption if they so elect by giving the
Corporation written notice to such effect within 20 days of having received
such notice. The Corporation shall redeem on the Optional Redemption Date all
shares of Series A Preferred Stock being redeemed in cash by wire transfer of
immediately available funds in an amount equal to the greater of the Series A
Preference Amount of such shares or the Minimum Preference Amount of such
shares to the extent funds are legally available for such redemption.
(b) If the funds of the Corporation legally available for redemption of
shares of Series A Preferred Stock on an Optional Redemption Date are
insufficient to redeem the total number of outstanding shares of Series A
Preferred Stock entitled to redemption, the holders of shares of Series A
Preferred Stock entitled to redemption shall share ratably in any funds legally
available for redemption of such shares according to the respective amounts
that would be payable with respect to the full number of shares owned by them
if all such outstanding shares were redeemed in full. At any time thereafter
when additional funds of the Corporation are legally available for the
redemption of such shares of Series A Preferred Stock, such funds will be used
at the earliest permissible time, to redeem the balance of such shares, or such
portion thereof for which funds are then legally available. From and after the
Corporation's receipt of an Optional Redemption notice pursuant to Paragraph
8(a), the Corporation shall be obligated to use its best efforts to take such
actions as may be necessary (including, without limitation, the issuance of
additional equity securities, the revaluation or recapitalization of the
Corporation or the consummation of a merger or sale of assets) in order to
permit the full and timely redemption of the shares of Series A Preferred Stock
entitled to redemption.
(c) If, for any reason, the Corporation fails to redeem all shares of Series
A Preferred Stock entitled to redemption on an Optional Redemption Date (i) the
unredeemed shares shall remain outstanding and shall continue to have all
rights and preferences (including, without limitation, dividend and voting
rights) provided for herein, and (ii) the holders of such unredeemed shares
shall have the ongoing right to be redeemed in accordance with this Paragraph
8, together with such rights and remedies as may be available under applicable
law.
(d) The notices provided for in this Paragraph 8 shall be sent, if by or on
behalf of the Corporation, to the holders of the Series A Preferred Stock at
their respective addresses as shall then appear on the records of the
Corporation, or if by any holder of Series A Preferred Stock to the Corporation
at its principal executive office as set forth in the Purchase Agreement, by
first class mail, postage prepaid, (i) notifying such recipient of the
redemption, the date of such redemption, the number of shares of Series A
Preferred Stock to be redeemed, and
D-8
<PAGE>
the redemption price therefor and (ii) in the case of any notice by or on
behalf of the Corporation, stating the place or places at which the shares
called for redemption shall, upon presentation and surrender of such
certificates representing such shares, be redeemed.
9. Status of Reacquired Shares. Any shares of Series A Preferred Stock
redeemed pursuant to Paragraph 8 or otherwise acquired by the Corporation in
any manner whatsoever shall be canceled and shall not under any circumstances
be reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Series A Preferred Stock.
10. Rank. The Series A Preferred Stock shall rank senior in right as to
dividends and upon liquidation, dissolution or winding up to all Junior
Securities, whenever issued.
11. Identical Rights. Each share of the Series A Preferred Stock shall have
the same relative rights and preferences as, and shall be identical in all
respects with, all other shares of the Series A Preferred Stock.
12. Certificates. So long as any shares of the Series A Preferred Stock are
outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement as required by Section
151(f) of the General Corporation Law of the State of Delaware.
13. Amendments. Any provision of these terms of the Series A Preferred
Stock may be amended, modified or waived if and only if the holder of the
Requisite Percentage of Series A Preferred Stock has consented in writing or
by an affirmative vote to such amendment, modification or waiver of any such
provision of this Section (b) of Article FOURTH.
14. Definitions.
"Affiliate or Affiliates" shall mean with respect to any Person, any other
Person that would be considered to be an affiliate of such Person under Rule
144(a) under the Securities Act of 1933, as amended, as in effect on April 10,
1998, if such Person were issuing securities.
"Certificate of Incorporation" shall mean this Certificate of
Incorporation, as amended from time to time.
"Common Stock" shall mean the Corporation's Common Stock, $.01 par value.
"Common Stock Deemed Outstanding" shall mean, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number
of shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, plus the number of shares of Common Stock issuable upon the exercise in
full of all Convertible Securities whether or not the Convertible Securities
are convertible into, exercisable or exchangeable for Common Stock at such
time.
"Conversion Price" shall have the meaning set forth in Paragraph 7(b)
hereof.
"Convertible Securities" shall mean securities or obligations that are
exercisable for, convertible into or exchangeable for shares of Common Stock.
The term includes options, warrants or other rights to subscribe for or
purchase Common Stock or to subscribe for or purchase other securities that
are convertible into or exchanged for Common Stock.
"Excluded Securities" shall mean any (a) Common Stock or Convertible
Securities issued in respect of Excluded Securities (for this purpose, only as
such term is defined in the Articles of Organization of CTC Communications
Corp., a Massachusetts corporation, as in effect immediately before the
Reorganization in connection with the Reorganization, (b) Common Stock
issuable upon the exercise, conversion or exchange of Convertible Securities
described in clause (a), or (c) Common Stock or warrants or options to acquire
Common Stock issued after the consummation of the Reorganization to (i)
employees, directors or consultants to the
D-9
<PAGE>
Corporation or its subsidiaries with the approval of the Compensation Committee
to the extent such approval is required under Paragraph 5(c) hereof, (ii)
lenders who are not Affiliates of the Corporation as partial consideration for
senior debt financing to the Corporation, (iii) equipment lessors who are not
Affiliates of the Corporation as partial consideration for equipment lease
financing to the Corporation, (iv) licensors who are not Affiliates of the
Corporation as partial consideration for license agreements with the
Corporation, (v) bond and Straight Preferred Stock purchasers as partial
consideration for issuances of debt securities or Straight Preferred Stock
pursuant to underwritten public offerings of such debt securities or Straight
Preferred Stock under the Securities Act of 1933, as amended, (vi) bond and
Straight Preferred Stock purchasers as partial consideration for issuance of
such debt securities or Straight Preferred Stock pursuant to offerings under
Rule 144A yielding the Corporation, with respect to each such offering,
proceeds of at least $75,000,000 (net of any interest or dividend escrows or
similar arrangements), (vii) bond and Straight Preferred Stock purchasers as
partial consideration for issuances of such debt securities or Straight
Preferred Stock pursuant to offerings under Rule 144A yielding the Corporation
with respect to each such offering, proceeds of at least $40,000,000 (net of
any interest or dividend escrows or similar arrangements) sold to at least five
purchasers, who are not Affiliates of one another, (viii) any Persons
(including the stockholders or owners of Persons) as all or part of the
consideration paid for the acquisition of ownership interests in, or assets of,
such Person unless (aa) such Person is an Affiliate of the Corporation (other
than a Subsidiary) or (bb) Affiliates of the Corporation collectively own more
than ten percent (10%) of the ownership interests in such Person or (ix) to
Comm-Tract Corp. and Comm-Tract Corp. of New York or their owners in
consideration for the acquisition of said companies by the Corporation
involving the issuance of Common Stock at a price which is not less than $9.00
per share. For purposes of clause (viii) above, the value of consideration
other than cash received by the Corporation in return for the issuance of
Common Stock shall be determined in good faith by the Board.
"Independent Directors" shall have the meaning set forth in Paragraph 6
hereof.
"Junior Securities" shall mean any of the Corporation's Common Stock and all
other equity securities of the Corporation other than (i) the Series A
Preferred Stock and (ii) any other shares of the Corporation's preferred stock
(a) which by their terms, state that they are not Junior Securities or provide
the holders thereof with rights pari passu with or senior to those of the
holders of Series A Preferred Stock and (b) are issued in compliance with this
Section (b) of Article FOURTH.
"Maturity Date" shall mean April 9, 2003.
"Minimum Preference Amount" shall mean $25.41 per share of Series A
Preferred Stock.
"Person" shall mean an individual, partnership, corporation, association,
trust, joint venture, unincorporated organization and any government,
governmental department or agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock.
"Preferred Stock Derivatives" shall mean any Common Stock or Convertible
Securities issued to holders of Series A Preferred Stock in exchange therefor,
as a stock dividend thereon, in respect thereof in connection with a stock
split or recapitalization or in connection with the exercise of preemptive
rights pertaining thereto pursuant to the Purchase Agreement.
"Purchase Agreement" shall mean that certain Securities Purchase Agreement
dated as of April 10, 1998 among the Purchasers named therein and CTC
Communications Corp., as it may be amended from time to time.
"Purchase Price" of any share of Series A Preferred Stock shall be $18.00.
"Registration Rights Agreement" shall mean that certain Registration Rights
Agreement between CTC Communications Corp. and the holder(s) of the Series A
Preferred Stock, as it may be amended from time to time.
D-10
<PAGE>
"Reorganization" shall mean the consummation of the transactions by which
CTC Communications Corp. becomes a subsidiary of this Corporation pursuant to
the Amended and Restated Agreement and Plan of Reorganization between CTC
Communications Group, Inc., a Delaware Corporation, CTC-Newco, Inc., a Delaware
corporation and CTC Communications Corp., a Massachusetts corporation dated as
of March 1, 1999.
"Required Consent" shall have the meaning set forth in Paragraph 5.
"Requisite Percentage" shall mean a majority.
"Restricted Action" shall have the meaning set forth in Paragraph 5.
"Sale of the Corporation" shall mean a single transaction or a series of
transactions pursuant to which a Person or Persons acquire (i) capital stock of
the Corporation possessing the voting power to elect a majority of the
Corporation's board of directors (whether by merger, consolidation or sale or
transfer of the Corporation's capital stock); or (ii) all or substantially all
of the Corporation's assets determined on a consolidated basis.
"Senior Preferred Stock" shall mean the Series A Preferred Stock and any
other preferred stock of the Corporation designated by the Corporation in
accordance with this Section (b) of Article FOURTH, the terms of which
preferred stock provide for it to be treated as Senior Preferred Stock for
purposes of the particular sections herein in which the term "Senior Preferred
Stock" is used.
"Series A Preference Amount" shall mean, as of any date, an amount per share
of Series A Preferred Stock equal to the Purchase Price increasing from April
10, 1998 through the date in question at a rate of nine percent (9%) per annum,
compounding semi-annually in arrears from April 10, 1998 and prorated on a
daily basis for partial periods.
"Series A Preferred Stock" shall mean the Corporation's Series A Preferred
Stock, $1.00 par value.
"Straight Preferred Stock" shall mean preferred stock of the Corporation
which (i) is neither a Convertible Security nor convertible into or
exchangeable for any other security other than preferred stock meeting the
requirements of this definition or debt securities, (ii) is issued solely for
cash payable upon issuance, (iii) accrues dividends only at a rate or rates
fixed in the certificate of designation or amendment to the Certificate of
Incorporation designating such preferred stock, (iv) has no voting rights other
than as required by law, (v) entitles the holders thereof to receive, in the
aggregate, not more than the purchase price therefor plus the amount of any
accrued unpaid dividends in respect thereof, and (vi) does not otherwise
directly or indirectly alter or change the powers, preferences or special
rights of the shares of Series A Preferred Stock so as to affect them
adversely.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed
to have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control the managing general partner of such partnership, association or
other business entity.
"Warrants" shall mean the Warrants issued pursuant to the Purchase Agreement
to purchase 133,333 shares of Common Stock, as adjusted from time to time.
D-11
<PAGE>
15. Severability of Provisions. If any right, preference or limitation of
the Series A Preferred Stock set forth in this Resolution (as such Resolution
may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule, law or public policy, all other rights,
preferences and limitations set forth in this Resolution (as so amended) which
can be given effect without implicating the invalid, unlawful or unenforceable
right preference or limitation shall, nevertheless, remain in full force and
effect, and no right, preference or limitation herein set forth shall be deemed
dependent upon any other right, preference or limitation unless so expressed
herein.
16. Preemptive Rights. The Purchasers who are parties to the Purchase
Agreement have certain preemptive rights set forth in the Purchase Agreement
entitling them, in certain circumstances, to acquire securities to be issued by
the Corporation.
FIFTH: The name and address of the incorporator are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Michael Barr.................................. 10 Bank Street
White Plains, New York 10606
</TABLE>
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders:
(1) Subject to the provisions of this Certificate of Incorporation, the
number of directors of the corporation shall be such as from time to time
shall be fixed by, or in the manner provided in the by-laws. Election of
directors need not be by ballot unless the by-laws so provide.
(2) Subject to the provisions of this Certificate of Incorporation, the
Board of Directors shall have power without the assent or vote of the
stockholders:
(a) To make, alter, amend, change, add to or repeal the By-Laws of
the corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the corporation; to
determine the use and disposition of any surplus or net profits; and to
fix the times for the declaration and payment of dividends.
(b) To determine from time to time whether, and to what times and
places, and under what conditions the accounts and books of the
corporation (other than the stock ledger) or any of them, shall be open
to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at
any meeting of the stockholders called for the purpose of considering any
such act or contract, and any contract or act that shall be approved or be
ratified by the vote of the holders of a majority of the stock of the
corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding
upon the corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether or
not the contract or act would otherwise be open to legal attack because of
director's interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the corporation; subject, nevertheless, to the
provisions of the statutes of Delaware, of this certificate, and to any by-
laws from time to time made by the stockholders, provided, however, that no
by-laws so made shall invalidate any prior act of the directors which would
have been valid if such by-law had not been made.
D-12
<PAGE>
SEVENTH: No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of
the corporation's directors to the corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time. The corporation shall indemnify
to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them (Excluding Series A
Convertible Preferred Stock), any court or equitable jurisdiction within the
State of Delaware, may, on the application in a summary way of this corporation
or of any creditor or stockholder thereof or on the application of any receiver
or receivers appointed for this corporation under the provisions of Section 291
of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation
under the provisions of Section 279 Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths ( 3/4) in value of the stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of this corporation as consequence of any such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if sanctioned
by the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
NINTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law and this Certificate of Incorporation, and all
rights and powers conferred herein on stockholders, directors and officers are
subject to this reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this day of , 1999.
____________________________
Michael Barr, Incorporator
D-13
<PAGE>
APPENDIX E
BY-LAWS
OF
CTC COMMUNICATIONS GROUP, INC.
ARTICLE I
Stockholders
Section 1. Annual Meeting. The Annual Meeting of Stockholders shall be held
each year on a date and at a time designated by the Board of Directors. At the
Annual Meeting of Stockholders, only such business shall be conducted as shall
have been properly brought before the Meeting.
Section 2. Special Meetings. Special Meetings may be called at any time by
the Chairman of the Board of Directors, the Chief Executive Officer (or, if
there is not a Chief Executive Officer, the President) or the Corporation's
Board of Directors.
Section 3. Place of Meeting. All meetings of stockholders shall be held at
the principal office of the Corporation unless a different place (within the
United States) is fixed by the Directors or the President and stated in the
notice of the meeting.
Section 4. Notice of Meetings. Except as hereinafter provided, a written
notice of every meeting of stockholders, stating the place, date and hour
thereof, and the purposes for which the meeting is to be held, shall be given
by the Secretary or by the person calling the meeting at least ten (10) but not
more than (60) days before the meeting to each stockholder entitled to vote
thereat and to each stockholder, who, by law, by the Certificate of
Incorporation or by these By-Laws is entitled to such notice, by leaving such
notice with him or at his residence or usual place of business, or by mailing
it postage prepaid and addressed to such stockholder at his address as it
appears upon the books of the Corporation. No notice need be given to any
stockholder if a written waiver of notice, executed before or after the meeting
by the stockholder or his attorney thereunto authorized, is filed with the
records of the meeting.
Section 5. Quorum. Except as otherwise provided by law or in the Certificate
of Incorporation or these By-Laws, the holders of a majority of the issued and
outstanding stock of the Corporation entitled to vote shall constitute a quorum
for the transaction of business.
Section 6. Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held by him of record according to the records
of the Corporation, unless otherwise provided by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy dated
not more than three years before the meeting named therein, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting, or of any adjournment thereof, before being voted. Except as otherwise
limited therein, proxies shall entitle the persons named therein to vote at any
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by one of them unless at or
prior to exercise of the proxy the Corporation receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless challenged at or
prior to its exercise.
Section 7. Action at Meeting. When a quorum is present, the holders of a
majority of the stock present or represented and voting on a matter, (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or represented and voting on a matter) except where a larger
vote is required by law, the Certificate of Incorporation or these By-Laws,
shall decide any matter to be voted on by the stockholders. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the
E-1
<PAGE>
election. No ballot shall be required for such election unless requested by a
stockholder present or represented at the meeting and entitled to vote in the
election. The Corporation shall not directly or indirectly vote any share of
its stock.
Section 8. Action without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders at any annual or special meeting may be taken without a meeting
and without prior notice, if the stockholders having the number of votes that
would be necessary to take such action at a meeting at which all stockholders
were present and voted, consent to the action in writing and the written
consents are filed with the records of the meetings of stockholders. All such
consents must, in order to be effective, be signed and delivered to the
Corporation within sixty days after the earliest dated consent is delivered to
the Corporation. Such consent shall be treated for all purposes as a vote at a
meeting.
Section 9. Notice of Stockholder Business and Nomination of Directors.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (x) pursuant
to the Corporation's notice of meeting, (y) by or at the direction of the
Board of Directors or (z) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in this
Section 9, is entitled to vote at the meeting and has complied with the
notice procedures set forth in this Section 9.
(ii) For nomination or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (z) of paragraph (a)(i)
of this Section 9, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation at the principal executive
office of the Corporation not less than 60 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced
by more than 30 days or delayed by more than 60 days from such anniversary
date, notice by the stockholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of (x) the 60th day prior to such annual
meeting and (y) the 10th day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall
set forth: (1) as to each person whom the stockholder proposes to nominate
for election or reelection as a Director all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected);
(2) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; (3) as to
the stockholder giving notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (A) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (B) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 9 to the contrary, in the event that any person
nominated by the Board of Directors of the Corporation for election as a
Director (other than a person nominated to fill a vacancy created by the
death of a Director) was not a Director or nominee named (x) in the
Corporation's proxy statement for the preceding annual meeting or (y) in a
public announcement made by this Corporation at least 60 days prior to the
first anniversary of the preceding year's annual meeting (a "New Nominee"),
a stockholder's notice required by this Section 9 shall also be considered
timely if it shall be delivered to the Secretary of the Corporation at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the date
E-2
<PAGE>
on which public announcement is first made by the Corporation of the
election or nomination of such New Nominee to the Board of Directors.
(iv) The Corporation shall set forth in its proxy statement for each
annual meeting of stockholders the date by which notice of nominations by
stockholders of persons for election as a Director or for other business
proposed to be brought by stockholders at the next annual meeting of
stockholders must be received by the Corporation to be considered timely
pursuant to this Section 9. With respect to the first annual meeting of
stockholders after the adoption of this Section 9, the Corporation shall
issue a public announcement setting forth such information not less than 30
days prior to the applicable date.
(b) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
special meeting of stockholders at which Directors are to be elected pursuant
to the Corporation's notice of meeting (x) by or at the direction of the Board
of Directors or (y) by any stockholder of the Corporation who (1) is a
stockholder of record at the time of giving of notice provided for in this
Section 9, (2) is entitled to vote at the meeting and (3) complies with the
notice procedures set forth in this Section 9. Stockholders desiring to
nominate persons for election to the Board of Directors at such a special
meeting of stockholders shall deliver the stockholder's notice required by
paragraph (a)(ii) of this Section 9 to the Secretary of the Corporation at the
principal executive offices of the Corporation not earlier than the 90th day
prior to such special meeting and not later than the close of business on the
later of (A) the 60th day prior to such special meeting and (B) the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
(i) Only persons who are nominated in accordance with the procedures set
forth in this Section 9 shall be eligible to serve as Directors. Only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in
Section 9. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in
this Section 9 and, if any proposed nomination or business is not in
compliance with this Section 9, to declare that such defective proposal
shall be disregarded.
(ii) For purposes of this Section 9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 9. Nothing in this Section 9 shall be
deemed to limit the Corporation's obligation to include stockholder
proposals in its proxy statement if such inclusion is required by Rule 14a-
8 under the Exchange Act or any successor Rule.
ARTICLE II
Directors
Section 1. Powers. The business of the Corporation shall be managed by a
Board of Directors who may exercise all the powers of the Corporation
including, but not limited to, the issuance of stock, except as otherwise
provided by law, by the Articles of Organization or by these By-Laws. In the
event of a vacancy in the Board of Directors, the remaining Directors, except
as otherwise provided by law, may exercise the powers of the full Board until
the vacancy is filled.
E-3
<PAGE>
Section 2. Number. The Board of Directors shall fix the number of Directors
at not less than three nor more than eleven Directors; provided, however, that
the number of Directors shall be fixed at not less than two whenever there
shall be only two stockholders and not less than one whenever there shall be
only one stockholder. The number of Directors may be increased or decreased at
any time or from time to time by the vote of a majority of the Directors then
in office. No Director need be a stockholder.
Section 3. Classification, Election and Tenure. The Directors, other than
those who may be elected by the holders of any class or series of Preferred
Stock voting separately by class or series, shall be classified, with respect
to the duration of the term for which they severally hold office, into three
classes, designated Class I, Class II, and Class III, which shall be as nearly
equal in number as possible and as provided by resolution of the Board of
Directors in connection with such election.
Each initial Director in Class I shall hold office for a term expiring at
the 1998 annual meeting of stockholders; each initial Director of Class II
shall hold office for a term expiring at the 1999 annual meeting of
stockholders; and each initial Director of Class III shall hold office for a
term expiring at the 2000 annual meeting of stockholders. Each Director shall
serve until his successor is duly elected and qualified or until his earlier
death, resignation, removal or disqualification. At each annual meeting of
stockholders following the 1998 annual meeting, the stockholders shall elect
the successors of the class of Directors whose term expires at that meeting to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election and until their successors
have been duly elected and qualified or until their earlier death, resignation,
removal or disqualification.
The Board of Directors shall increase or decrease the number of Directors in
one or more classes as may be appropriate whenever it increases or decreases
the number of Directors pursuant to Section 2 of this Article II, in order to
ensure that the three classes shall be as nearly equal in number as possible.
Section 4. Vacancies. Subject to the rights of the holders of shares of any
class or series of Preferred Stock, any vacancies on the Board of Directors
resulting from death, resignation or removal shall only be filled by the
affirmative vote of a majority of the remaining Directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
Director, and newly created Directorships resulting from any increase in the
number of Directors shall be filled by the Board of Directors, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with these By-laws. Any Director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of Directors in which the new
Directorship was created or the vacancy occurred and until such Director's
successor shall have been elected and qualified or until his earlier death,
resignation or removal. The Directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirement of law or of the number of Directors as required for
a quorum or for any vote or other actions.
Section 5. Resignation. Any Director may resign by delivering his written
resignation to the Corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
Section 6. Removal. Except as otherwise provided in the Articles of
Organization or these By-laws relating to the rights of the holders of any
class or series of Preferred Stock voting separately by class or series, to
elect Directors under specified circumstances any Director or Directors may be
removed from office but only for cause and only by either the affirmative vote,
at any regular meeting or special meeting of the stockholders, of not less than
a majority of the total number of votes of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, but only if notice of such
proposal was contained in the notice of such meeting, or by the affirmative
vote of a majority of the Directors then in office. A Director may be removed
for cause only after reasonable notice and opportunity to be heard before the
body opposing him.
E-4
<PAGE>
Section 7. Meetings. Regular meetings of the Directors may be held without
call or notice at such places and at such times as the Directors may from time
to time determine, provided that any Director who is absent when such
determination is made shall be given notice of the determination. A regular
meeting of the Directors may be held without a call or notice at the same place
as the annual meeting of stockholders or the special meeting held in lieu
thereof, following such meetings of stockholders.
Special meetings of the Directors may be held at any time and place
designated in a call by the President, Treasurer or two or more Directors.
Section 8. Notice of Meetings. Notice of all special meetings of the
Directors shall be given to each Director by the Secretary, or in case of the
death, absence, incapacity or refusal of the Secretary, by the officer or one
of the Directors calling the meeting. Notice shall be given to each Director in
person, by telephone, facsimile or email at least twenty-four hours in advance
of the meeting, or by written notice mailed to his business or home address at
least forty-eight hours in advance of the meeting. Notice need not be given to
any Director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice of a Directors' meeting
need not specify the purposes of the meeting.
Section 9. Quorum. At any meeting of the Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time without further notice.
Section 10. Action at Meeting. At any meeting of the Directors at which a
quorum is present, the vote of a majority of those present, unless a different
vote is specified by law, by the Articles of Organization, or by these By-Laws,
shall be sufficient to decide such matter.
Section 11. Action by Consent. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' Meetings. Such consent shall be
treated as a vote of the Directors for all purposes.
Section 12. Committee. The Directors may, by vote of a majority of the
Directors then in office, elect from their number an executive or other
committees and may by like vote delegate thereto some or all of their powers
except those which by law, the Articles of Organization or these By-Laws, they
are prohibited from delegating. Except as the Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Directors, or in such rules, its business
shall be conducted as nearly as may be in the same manner as is provided by
these By-Laws for the Directors.
Section 13. Meeting by Telecommunications. Members of the Board of Directors
or any committee elected thereby may participate in a meeting of such board or
committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
ARTICLE III
Officers
Section 1. Enumeration. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary, and such other officers, including a
Chairman of the Board of Directors, one or more Vice Presidents, Assistant
Treasurer, Assistant Secretary as the Directors may determine.
Section 2. Election. The President, Treasurer and Secretary shall be elected
annually by the Directors at their first meeting following the annual meeting
of stockholders. Other officers may be chosen by the Directors at such meeting
or at any other meeting.
E-5
<PAGE>
Section 3. Qualification. The President may, but need not be, a Director. No
officer need be a stockholder. Any two or more officers may be held by the same
person provided that the President and Secretary shall not be the same person.
Any officer may be required by the Directors to give bond for the faithful
performance of his duties to the Corporation in such amount and with such
sureties as the Directors may determine.
Section 4. Tenure. Except as otherwise provided by law, the Certificate of
Incorporation or by these By-Laws, the President, Treasurer and Secretary shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders and thereafter until his successor is chosen and
qualified; and all other officers shall hold office until the first meeting of
the Directors following the annual meeting of the stockholders, unless a
shorter term is specified in the vote choosing or appointing them. An officer
may resign by delivering his written resignation to the Corporation at its
principal office or to the President or Secretary, and such resignation shall
be effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
Section 5. Removal. The Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office,
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors prior to action thereon.
Section 6. Chairman, President and Vice President. The Chairman of the Board
of Directors, if there be one, shall be the chief executive officer of the
Corporation and shall, when present, preside at all meetings of the
stockholders and at all meetings of the Board of Directors. The President shall
have such duties and powers as are prescribed by the Board of Directors. Any
Vice President shall have such powers as the Directors may from time to time
designate.
Section 7. Treasurer and Assistant Treasurer. The Treasurer shall, subject
to the direction of the Directors, have general charge of the financial affairs
of the Corporation and shall cause to be kept accurate books of account. He
shall have custody of all funds, securities, and valuable documents of the
Corporation, except as the Directors may otherwise provide.
Any Assistant Treasurer shall have such powers as the Directors may from
time to time designate.
Section 8. Secretary. The Secretary shall keep a record of the meetings of
stockholders and of the meetings of the Directors. Unless a Transfer Agent is
appointed, the Secretary shall keep or cause to be kept at the principal office
of the Corporation or at his office, the stock and transfer records of the
Corporation, in which are contained the names of all stockholders and the
record address, and the amount of stock held by each.
Any Assistant Secretary shall have such powers as the Directors may from
time to time designate.
Section 9. Assistant Secretary. Any Assistant Secretary shall have such
powers as the Directors may from time to time designate. In the absence of the
Secretary from any meeting of stockholders, an Assistant Secretary, if one be
elected, otherwise a Temporary Secretary designated by the person presiding at
the meeting, shall perform the duties of the Secretary.
Section 10. Other Powers and Duties. Each officer shall, subject to these
By-Laws, have in addition to the duties and powers specifically set forth in
these By-Laws, such duties and powers as are customarily incident to his
office, and such duties and powers as the Directors may from time to time
designate.
E-6
<PAGE>
ARTICLE IV
Indemnification of Directors and Officers
The Corporation shall to the extent legally permissible indemnify each of
its directors and officers and each person who shall serve or shall have served
at its request as a director or officer of another Corporation (and the heirs,
executors and administrators of such director, officer and other person)
against all expenses and liabilities which he has reasonably incurred in
connection with or arising out of any actual or threatened action, suit or
proceeding in which he may be involved by reason of his being or having been a
director or officer of the Corporation or by reason of his serving or having
served at its request as a director or officer of another Corporation (whether
or not he continues to be a director, or officer, at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements, provided no such indemnification shall be made in
relation to matters as to which such director or officer shall be finally
adjudged in any such action, suit or proceeding not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Corporation. In the event that a settlement or compromise of such action, suit
or proceeding is effected, indemnification may be had but only if the Board of
Directors shall have been furnished with an opinion of counsel for the
Corporation to the effect that such settlement or compromise is in the best
interest of the Corporation and that such director or officer does not appear
not to have acted in good faith in the reasonable belief that his action was in
the best interests of the Corporation, and if the Board of Directors shall have
adopted a resolution approving such settlement or compromise.
The foregoing right of indemnification shall not be exclusive of other
rights to which any director, officer or other corporate personnel may be
entitled as a matter of law.
ARTICLE V
Capital Stock
Section 1. Certificate of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be signed
by the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, but when a certificate is countersigned by a transfer agent or a
registrar, other than a Director, officer or employee of the Corporation, such
signatures may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the time of its
issue.
Every certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Articles of Organization, the By-Laws, or any
agreement to which the Corporation is a party, shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement of the existence of such
restriction and a statement that the Corporation will furnish a copy to the
holder of such certificate upon written request and without charge.
Every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall set forth on its face or back either
the full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued
or a statement of the existence of such preferences, powers, qualifications and
right, and a statement that the Corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
Section 2. Transfers. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the Corporation by the surrender to the Corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of
E-7
<PAGE>
attorney properly executed, with necessary transfer stamps affixed, and with
such proof of the authenticity of signature as the Corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, the
Articles of Organization or these By-Laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to
vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of the By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
Section 3. Record Date. The Directors may fix in advance a time of not more
than sixty days preceding the date of any meeting of stockholders, or the date
for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for
determining the stockholders having the right to notice of and to vote at such
meeting, and any adjournment thereof, or the right to receive such dividend or
distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Corporation after the
record date. Without fixing such record date, the Directors may for any of such
purposes close the transfer books for all or any part of such period.
Section 4. Replacement of Certificates. In case of the alleged loss or
destruction or the mutilation of a certificate of stock, a duplicate may be
issued in place thereof, upon such terms as the Directors may prescribe.
ARTICLE VI
Miscellaneous
Section 1. Fiscal Year. Except as from time to time otherwise determined by
the Directors, the fiscal year of the Corporation shall be the twelve months
ending March 31.
Section 2. Seal. The seal of the Corporation shall, subject to alterations
by the Directors, bear its name, the word "Delaware" and the year of its
incorporation.
Section 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations authorized to be executed by an
officer of the Corporation in its behalf shall be signed by the President or
the Treasurer except as the Directors may generally or in particular cases
otherwise determine.
Section 4. Voting of Securities. Except as the Directors may otherwise
designate, the President or Treasurer may waive notice of, and appoint any
person or persons to act as proxy or attorney in fact for this Corporation
(with or without power of substitution) at any meeting of stockholders or
shareholders of any other Corporation or organization, the securities of which
may be held by this Corporation. The President shall have the power to vote any
such securities held by this Corporation unless the Directors shall, by vote,
otherwise stipulate.
Section 5. Corporate Records. The original, or attested copies, of the
Certificate of Incorporation, By-Laws and records of all meetings of the
incorporates and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept at the principal office of the Corporation,
or at an office of its transfer agent or of the Secretary. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to the inspection of any stockholder for any proper purpose
but not to secure a list of stockholders for the purpose of selling said list
or copies thereof or of using the same for a purpose other than in the interest
of the applicant, as a stockholder, relative to the affairs of the Corporation.
E-8
<PAGE>
Section 6. Corporation May Act as Partner. The Corporation, in accordance
with the Certificate of Incorporation and the General Corporation Law of the
State of Delaware, is hereby empowered to be a partner in any business
enterprise which the Corporation would have power to conduct itself.
Section 7. Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
Section 8. Amendments. Except as otherwise required by law, these By-Laws
may at any time be amended by vote of the stockholders, provided that notice of
the substance of the proposed amendment is stated in the notice of the meeting,
or may be amended by vote of a majority of the Directors then in office, except
that no amendment may be made by the Directors which alters the provisions of
these By-Laws with respect to removal of Directors or the election of
committees by Directors and delegation of powers thereto, or amendment of these
By-Laws. Not later than the time of giving notice of the meeting of
stockholders next following the making, amending or repealing by the Directors
of any By-Law, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the By-Laws.
ARTICLE VII
Repayment of Disallowed Expenses
Any payments made to an officer of the Corporation such as a salary,
commission, bonus, interest, or rent, or entertainment expense incurred by him,
which shall be disallowed in whole or in part as a deductible expense by the
Internal Revenue Service, shall be reimbursed by such officer to the
Corporation to the full extent of such disallowance. It shall be the duty of
the Directors, as a Board, to enforce payment of each amount disallowed. In
lieu of payment by the officer, subject to determination of the Directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the Corporation has been recovered.
E-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article Seventh of the Certificate of Incorporation of CTC Communications
Group, Inc. (the "Registrant") provides with respect to the indemnification of
directors and officers that the Registrant shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such Sections
grant the Registrant the power to indemnify. Article Seventh of the Certificate
of Incorporation of the Registrant also provides that no director shall be
liable to the corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, except with respect to (1) a breach of
the director's duty of loyalty to the corporation or its stockholders, (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Section 174 of the Delaware
General Corporation Law or (4) a transaction from which the director derived an
improper personal benefit, it being the intention of the foregoing provision to
eliminate the liability of the corporation's directors to the corporation or
its stockholders to the fullest extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as amended from time to time.
Item 21. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits are filed as part
hereof, or incorporated by reference into, this Registration Statement. (See
Exhibit Index below).
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low and high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. To respond to requests for information that is incorporated by
reference in the Proxy Statement/Prospectus pursuant to Item 4, 10(b), 11
or 13 of Form S-4, within one business day of receipt
II-1
<PAGE>
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request;
5. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective;
6. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form;
7. That every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment is
effective and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
CTC Communications Group, Inc. has duly caused this registration statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waltham, Commonwealth of Massachusetts, on the 30
day of July, 1999.
CTC Communications Group, Inc.
(Registrant)
/s/ Robert J. Fabbricatore
By: _________________________________
(Robert J. Fabbricatore,
Chairman of the Board and Chief
Executive Officer)
II-3
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Robert J. Fabbricatore and John D. Pittenger,
jointly and severally, his or her attorneys-in-fact, each with full power of
substitution, and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement on Form S-4, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof. This Power of Attorney may be signed
in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title July 30, 1999
--------- ----- -------------
<S> <C> <C>
/s/ Robert J. Fabbricatore Chairman of the Board and July 30, 1999
______________________________________ Chief Executive Officer,
Robert J. Fabbricatore Director
/s/ John D. Pittenger Chief Financial Officer July 30, 1999
______________________________________
John D. Pittenger
/s/ Katherine D. Courage Director July 30, 1999
______________________________________
Katherine D. Courage
/s/ Henry Hermann Director July 30, 1999
______________________________________
Henry Hermann
/s/ Kevin J. Maroni Director July 30, 1999
______________________________________
Kevin J. Maroni
/s/ J. Richard Murphy Director July 30, 1999
______________________________________
J. Richard Murphy
/s/ Robert A. Nicholson Director July 30, 1999
______________________________________
Robert A. Nicholson
/s/ Carl Redfield Director July 30, 1999
______________________________________
Carl Redfield
/s/ Richard J. Santagati Director July 30, 1999
______________________________________
Richard J. Santagati
/s/ Ralph C. Sillari Director July 30, 1999
______________________________________
Ralph C. Sillari
/s/ Ralph S. Troupe Director July 30, 1999
______________________________________
Ralph S. Troupe
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Reorganization dated
as of March 1, 1999 among the Registrant, CTC Communications
Corp. and CTC-Newco, Inc. (9).
3.1 Certificate of Incorporation (filed herewith as Appendix D).
3.2 By-Laws (filed herewith as Appendix E)
4.1 Form of Common Stock Certificate (10)
5.1 Opinion of Law Offices of Leonard R. Glass, P.A. (10)
9.1 Voting Agreement dated April 10, 1998 among Robert Fabbricatore
and certain of his affiliates and Spectrum (5)
10.1 1996 Stock Option Plan, as amended (1)
10.2 1993 Stock Option Plan (3)
10.3 Employee Stock Purchase Plan (2)
10.4 Lease for premises at 360 Second Ave., Waltham, MA (3)
10.5 Sublease for premises at 360 Second Ave., Waltham, MA (3)
10.6 Lease for premises at 110 Hartwell Ave., Lexington, MA (3)
10.7 Lease for premises at 120 Broadway, New York, NY (3)
10.8 Agreement dated February 1, 1996 between NYNEX and CTC
Communications Corp. (3)
10.9 Agreement dated May 1, 1997 between Pacific Bell and CTC
Communications Corp. (3)
10.10 Agreement dated January 1, 1996 between SNET America, Inc. and
CTC Communications Corp. (3)
10.11 Agreement dated June 23, 1995 between IXC Long Distance Inc. and
CTC Communications Corp., as amended (3)
10.12 Agreement dated August 19, 1996 between Innovative Telecom Corp.
and CTC Communications Corp. (3)
10.13 Agreement dated October 20, 1994 between Frontier Communications
International, Inc. and CTC Communications Corp., as amended (3)
10.14 Agreement dated January 21, 1997 between Intermedia
Communications Inc. and CTC Communications Corp. (3)
10.15 Employment Agreement between CTC Communications Corp. and Steven
Jones dated February 27, 1998 (5)
10.16 Securities Purchase Agreement dated April 10, 1998 among CTC
Communications Corp. and the Purchasers named therein (4)
10.17 Registration Rights Agreement dated April 10, 1998 among CTC
Communications Corp. and the Holders named therein (4)
10.18 Form of Warrant dated April 10, 1998 (4)
10.19 Loan and Security Agreement dated as of September 1, 1998 by and
between CTC Communications Corp., Goldman Sachs Credit Partners
L.P. and Fleet National Bank (6)
10.20 Agreement with Cisco Systems Capital Corp. dated as of October
14, 1998 (7)
10.21 Warrant dated July 15, 1998 issued to Spectrum (8)
10.22 Lease for premises at 220 Bear Hill Rd., Waltham, MA (8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.23 Warrant dated September 1, 1998 issued to Goldman Sachs & Co. (8)
10.24 Warrant dated September 1, 1998 issued to Fleet National Bank (8)
10.25 1998 Incentive Plan (1)
10.26 Loan Agreement dated as of March 15, 1999 by and between CTC
Communications Corp, TD Dominion (Texas), Inc. and TD Securities
(USA), Inc. (9)
10.27 Warrant dated March 24, 1999 issued to Toronto Dominion (Texas),
Inc. (9)
10.28 Amendment to Resale Agreements dated July 1, 1999 between Bell
Atlantic and the CTC Communications Corp. (9)
21.1 CTC Communications Corp., a Massachusetts corporation.
23.1 Consent of Ernst & Young LLP (10)
23.2 Consent of Law Offices of Leonard R. Glass, P.A. (included in
Exhibit 5.1)
24.1 Power of Attorney (contained on page II-4 hereof)
</TABLE>
- --------
(1) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Registration Statement on Form S-8 (File No. 333-
68767).
(2) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Registration Statement on Form S-8 (File No. 33-
44337).
(3) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Annual Report on Form 10-K for the Fiscal Year Ended
March 31, 1997.
(4) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Current Report on Form 8-K dated May 15, 1998.
(5) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Annual Report on Form 10-K for the Fiscal Year Ended
March 31, 1998.
(6) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Current Report on Form 8-K dated October 2, 1998.
(7) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Current Report on Form 8-K dated November 6, 1998.
(8) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(9) Incorporated by reference to an Exhibit filed as part of CTC
Communications Corp. Registration Statement on Form S-1 (File No. 333-
77709).
(10) Filed herewith.
<PAGE>
EXHIBIT 4.1
COMMON STOCK [LOGO] COMMON STOCK
CTC COMMUNICATIONS GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN BOSTON, MA AND NEW YORK, NY CERTAIN DEFINITIONS
CUSIP 126419 10 0
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE OF $.O1 EACH, OF
CTC COMMUNICATIONS GROUP, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificat and the shares represented hereby are issued and
shall be held subject to the laws of the State of Delaware and the Certificate
of Incorporation and the By-Laws of the Corporation, as the same may be from
time to time amended, to all of which the holder by acceptance hereof assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and its facsimile
corporate seal to be hereunto affixed.
Dated:
[CTC COMMUNICATIONS GROUP, INC. 1998 DELAWARE SEAL]
/s/ [SIGNATURE OF TREASURER] /s/ [SIGNATURE OF PRESIDENT]
COUNTERSIGNED AND REGISTERED:
State Street Bank & Trust Company (Boston)
TRANSFER AGENT AND REGISTRAR
By [Signature of Authorized Officer]
AUTHORIZED SIGNER
<PAGE>
The powers, designations, preferences, and relative participating,
optional, or other special rights, and the qualifications, limitations, or
restrictions of such performances and/or rights of each class of stock or
series of any class are set forth in the Certificate of Incorporation. The
corporation will furnish a copy of the Certificate of Incorporation to the
holder of the certificate without charge upon request.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIT GIFT MIN ACT -- ___________ Custodian______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT ENT -- as joint tenants with rights under Uniform Gifts to Minors
of survivorship and not as
tenants in common Act_________________
UNIF TRF MIN ACT -- ____________ Custodian (until age ____)
(Cust)
____________ under Uniform Transfers
(Minor)
to Minors Act _____________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated_____________________
X__________________________________________________
X__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
Law Offices of Leonard R. Glass, P.A.
45 Central Ave.
Tenafly NJ 07670
July 30, 1999
CTC Communications Group, Inc.
220 Bear Hill Rd.
Waltham MA 02451
CTC Communications Corp.
220 Bear Hill Rd.
Waltham MA 02451
Ladies and Gentlemen: We have acted as counsel to CTC Communications Group,
Inc., a Delaware corporation ("CTC Group"), in connection with the proposed
formation of a holding company structure for CTC Communications Corp., a
Massachusetts corporation ("CTC Communications"), through the merger (the
"Merger") of CTC-Newco, Inc., a Delaware corporation ("CTC-Newco") and a
wholly-owned subsidiary of CTC Group, and CTC Communications, pursuant to an
Amended and Restated Agreement and Plan of Reorganization among CTC Group CTC-
Newco and CTC Communications dated as of March 1, 1999 (the "Merger
Agreement").
This opinion is being rendered in connection with a Registration Statement
on Form S-4 (the "Registration Statement") filed by CTC Group relating to the
registration under the Securities Act of 1933, as amended (the "Act"), of
13,907,704 shares of Common Stock, $0.01 par value (the "CTC Group Common
Stock"), and 666,666 shares of Series A Convertible Preferred Stock, $1.00 par
value (the "CTC Group Preferred Stock"), to be issued in the Merger.
For purposes of this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Merger
Agreement; (ii) the Registration Statement; (iii) the Certificate of
Incorporation of CTC Group, as in effect on the date hereof; (iv) the By-Laws
of CTC Group, as in effect on the date hereof; (v) resolutions adopted by the
Board of Directors of CTC Group relating to the Merger and the issuance and
delivery of the CTC Group Common Stock and Preferred Stock in connection
therewith; and (vi) such other documents, certificates and other records as we
have deemed necessary or appropriate. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents submitted to us as certified, conformed or photostatic
copies and the authenticity of the originals of such copies.
In rendering the opinions set forth below, we have relied upon the
representations and warranties of each of the parties as set forth in the
Merger Agreement and representations made by the management of CTC Group and
the management of CTC Communications.
Our opinion assumes that the transactions described in the Merger Agreement
will be consummated in accordance with the terms of such Merger Agreement and
without waiver or breach of any material provision thereof and that all of the
representations, warranties, statements and assumptions upon which we relied
are true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
Based upon the foregoing, and subject to the qualifications hereinbefore
expressed, we are of the opinion that:
(1) The CTC Group Common Stock and CTC Group Preferred Stock will be validly
issued, fully paid and non-assessable assuming (i) the issuance in accordance
with the terms of the Merger Agreement; (ii) the
<PAGE>
CTC Group Board of Directors have taken appropriate action to authorize the
issuance of the CTC Group Common Stock and CTC Group Preferred Stock; (iii) CTC
Communications shareholders shall have approved the Merger by the requisite
vote; and (iv) the Merger shall have been consummated in accordance with the
terms of the Merger Agreement and the laws of the States of Delaware and
Massachusetts.
(2) The Merger will, under current law, constitute a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
(3) The aggregate tax basis to a CTC Communications stockholder of the CTC
Group Common Stock and CTC Group Preferred Stock received in exchange for CTC
Communications Common Stock and CTC Communications Preferred Stock pursuant to
the Merger will equal such CTC Communications stockholder's tax basis in the
CTC Communications Common Stock and CTC Communications Preferred Stock
surrendered in exchange therefor.
(4) The holding period of a stockholder for the CTC Group Common Stock and
CTC Group Preferred Stock Group will include the holding period of such CTC
Communications Common Stock and CTC Communications Preferred Stock surrendered
in exchange therefore provided that such CTC Communications Common Stock and
CTC Communications Preferred Stock was held as a capital asset at the effective
date of the Merger.
We are further of the opinion that the statements contained in the Proxy
Statement and Prospectus constituting part of the Registration Statement under
the caption "FEDERAL INCOME TAX CONSEQUENCES" describing certain Federal income
tax consequences to holders of CTC Communications Common Stock and Preferred
Stock, as qualified therein, constitute an accurate description, in general
terms, of the indicated Federal income tax consequences of the Merger.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Neither CTC Group nor CTC
Communications has requested a tax ruling from the Internal Revenue Service
regarding any of the federal income tax consequences of the Merger.
Furthermore, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the conclusions stated herein. Nevertheless,
we undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws occurring
subsequent to the date of this opinion.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the captions
"FEDERAL INCOME TAX CONSEQUENCES" and "LEGAL MATTERS" in said Registration
Statement and the Proxy Statement and Prospectus constituting a part thereof,
and any amendments thereof.
This firm also acts as counsel for CTC Communications and Leonard R. Glass,
Esq., a member of this firm, is a stockholder of CTC Communications.
Very truly yours,
/s/ Law Offices of Leonard R.
Glass, P.A.
_____________________________________
Law Offices of Leonard R. Glass,
P.A.
<PAGE>
Consent
Exhibit No. 23.1
We consent to the reference to our firm under the caption "Independent Auditors"
and "Selected Financial Data" in the Registration Statement Form S-4 and related
proxy statement/prospectus of CTC Communications Corp. for the registration of
13,907,704 shares of its common stock and 666,666 shares of Series A Convertible
Preferred Stock and to the incorporation by reference therein of our report
dated May 19, 1999, except for Notes 7 and 10, as to which the date is June 30,
1999, with respect to the financial statements and schedule of CTC
Communications Corp. included in its Annual Report (Form 10-K/A) for the year
ended March 31, 1999, filed with the Securities and Exchange Commission.
Boston, Massachusetts
July 30, 1999
